REPORT and ACCOUNTS 2008

Transcription

1 C o s t r u z i o n i El e t t r o m e c c a n i c h e Br e s c i a n e 40 years of electrical connections REPORT and ACCOUNTS 2008

2 Cembre S.p.A. Head Office: Via Serenissima, 9, Brescia, Italy Share Capital: EUR 8,840,000 (fully paid-up) Registration no: (Commercial Register of Brescia) This document contains translations of the official financial statements and managements reports prepared in the Italian language for the purpose of the Italian law.

3 R E P O R T A N D AC C O U N T S 2008 CONTENTS Group Structure 12 Report on Operations for the Financial Year Attachment 1: Consolidated Income Statement Attachment 2: Investments held by Directors and Statutory Auditors 34 - Attachment 3: Corporate Boards 35 Consolidated Financial Statements at December 31, Consolidated Balance Sheet Consolidated Income Statement 39 - Consolidated Statement of Cash Flows 40 - Statement of Changes in the Consolidated Shareholders' Equity 42 - Notes to the Consolidated Financial Statements 43 Auditing Report on Consolidated Financial Statements 75 Report of the Board of Statutory Auditors on Consolidated Financial Statements 76 Certification pursuant to article 81-ter of the regulation issued by the Italian market regulatory body (CONSOB) no of May 14, 1999 and subsequent integrations and updatings. 77 Financial Statements at December 31, 2008 of Cembre SpA - Balance Sheet Income Statement 81 - Statement of Cash Flows 82 - Statement of Changes in the Shareholders' Equity 84 - Notes to the Financial Statements 85 - Attachments 113 Auditing Report on Cembre S.p.A. Financial Statements 116 Report of the Board of Statutory Auditors on Cembre S.p.A. Financial Statements 117 Certification pursuant to article 81-ter of the regulation issued by the Italian market regulatory body (CONSOB) no of May 14, 1999 and subsequent integrations and updatings. 125 Abstract of Shareholders General Meeting resolution 127 1

4 headquarters ers Cembre S.p.A. Group headquarters located in Brescia, Italy 2

5 Cembre is today the leading Italian manufacturer and one of the largest European manufacturers of electric compression connectors and related installation tools*. The company s extensive e know-how in the field of electrical connectors, strong R&D activity and the continuous innovation in manufacturing technologies and product specifications, allow Cembre to respond quickly to the needs of an increasingly demanding market offering high-quality products that are reliable, durable and safe. The wide product range, the capillary and efficient domestic and international sales network and the strong focus on customer needs represent the strengths of the Cembre Group and ensure a strong competitive advantage in a continuously evolving world market. * Source Cembre S.p.A. 3

6 Products PRODUCT RANGE Cembre designs and tures a wide range of elec- manufactrical connectors and tools for their installation. Cembre, in particular, has adopted and developed a compression connection system that enables it to exploit the hardening properties rties of selected metals (copper and aluminium), whereby these metals acquire greater strength and resistance when bent by force, thereby guaranteeing the achievement of better performances by these types of connectors than would have otherwise been obtained by more conventional welding and mechanical clamping (screws and bolts) connection methods. 4

7 Compression connectors are characterised by lower electrical resistance and by excellent quality electrical contact. Installation tools used for compressing the connectors and cutting the cables enable quick installation and the achievement of easy and safe optimal connections. The range of tools includes, according to the application, ion, mechanical, pneumatic, hydraulic and electrical tools. 5

8 Strategy STRATEGIES The Cembre Group is growing rapidly and investing strongly in the development of its product range and the consolidation of its sales and distribution network, seeking to increase its presence in the international markets. DEVELOPMENT OF THE PRODUCT RANGE The new range of batterypowered hydraulic stick tools R&D activities focus primarily on the development of new products aimed at markets with the highest growth potential such as rail transport, civil and industrial equipment. Implementation of new European Union safety regulations require the adoption of modern connection systems as those manufactured by Cembre Group. Constant attention devoted to trends in demand and the monitoring of customer satisfaction allowed Cembre to develop solutions in line with an increasingly demanding market, stretching the use of own technologies to a growing number of applications. Infrared thermal camera monitoring the progress of thermal cycle tests 6

9 Cembre Group s expansion of product offer was achieved by launching leading-edge technology products, including new battery powered hydraulic tools, a new range of professional mechanical tools, electrically insulated hydraulic tools, linked cable terminals insulated with halogen free material, drills for wooden rail-sleepers etc. Whole families of already existing products were moreover updated and improved to enhance user friendliness and qualitative and performance standards. The wide knowledge of the sector and the strong presence on the territory allowed Cembre to identify and understand the needs of the different local markets, adapting products to the specific requirements in terms of quality imposed by safety regulations in the different countries in which it operates. WEB SITE The Web site allows the company to interact with customers, providing a number of services such as technical assistance, promotions, the presentation of new products and the possibility to liaise with wholesalers operating in the territory. The sections "Investor Relations" and "Catalogue" in the internet site 1 Internet ne et 7 I7

10 made signifi cant investments in the optimization of its manunbre ring ncembnivities acti and enlarging its production capacity at the Brescia, and Bergamo facilities. rescia, iingham Cembre have modern numerical control work centres as well as equip guaranteeing high fl exibility and quality of the producnher othnompany Co has an automated warehouse and its own tinplating tment w allows to reduce production time and costs, ensuring tight ty npment nthe nrntion. nwhich control. se ening of production capacity and effi ciency involved also the ingham estrengthe ethe plant, dedicated to the production of particular specifi c product lines some markets. ral Mar Srl during the 2003 moved its operating headquarters he hfor hehrking tby Bergamo, in a new bigger building suitable to cope with the develop- n for the next years. tment Strengthening th ni infacturin ibirmii nearbth hgenehbirmihe qualiten ndeparn INCREASE IN PRODUCTION CAPACITY In Brni t foreseen Battery-powered hydraulic crimping tools Battery-powered hydraulic cutting tools 8

11 Certification of the Cembre Group Quality and Environmental Management System ENVIRONMENT Cembre SpA has recently recognised the need to align its Environmental Management System with the spirit and content of UNI EN ISO 14001: 2004 as fundamental to future development. To this end the company undertook a wide-ranging review of all functions including development and design stages, material selection, usage and manufacturing processes. The resulting definition of operational procedures in line with these aims and provisions has enabled Cembre SpA to achieve Environmental Certification, further highlighting the companies sensitive and careful approach to environmental protection. QUALITY Cembre Quality System was first certified by LRQA in Initially referring only to Manufacturing according to ISO 9002:1987, certification was extended in 1992 to cover the Design provisions of ISO 9001:1987 norm. This assures our customers of the homogenous high quality of Cembre products and services. Nowadays the activities of the main premises in Brescia, the regional offices in Italy and subsidiary companies in Great Britain, France, Spain, Germany and USA are governed by a single multisite Quality System conforming to ISO 9001:2000 for the "Design, manufacture and sales of electrical connectors and associated tools, cable accessories, marking systems, toolings and products for railway applications. In enu- house repair, refurbishment and calibration of toolings". Environment & Quality Certified Environmental Management System Certified Quality Management System 9

12 Manufacturi anufacturing MANUFACTURING Cembre quickly developed after its creation in 1969, until it became the leading company* in Italy, specialising in the manufacturing of electrical compression connectors and related installation tools, while gaining important market shares elsewhere in Europe, where it is now recognised as the leading crimping tools manufacturer. Cembre Group s growth has traditionally been driven by its ability to continually anticipate the evolution of the electrical connectors market, enabling it to develop new products with the highest standards in quality, reliability and safety, as well as to improve the performance of existing products. CNC Machine Department * Source Cembre S.p.A. 10

13 View of insulated connectors department Cembre is currently a group employing 545 persons, with a turnover in 2008 amounting to 94,3 million. Warehouse interiors The parent company, Cembre S.p.A., is based in Brescia where, on an area of aproximately 115,000 square meters, are the Head Office, sales offices, technical offices, Research & Development, the automated warehouse, production facilities and test laboratories. Details of tool assembly department 11

14 Group Structure tur GROUP STRUCTURE Cembre SpA Brescia (Italy) Cembre Ltd Birmingham (UK) Cembre S.a.r.l. Paris (France) Cembre España S.L. Madrid d (Spain) Birmingham Paris Cembre AS Stokke (Norway) Cembre GmbH Munich (Germany) Cembre Inc. Edison (USA) General Marking Srl Brescia (Italy) Stokke Munich Brescia Bergamo Madrid Barcelona Valencia Group Companies Regional Offices Main distributors 12

15 Marketing Companies Production Units Cembre S.p.A. Italy 100% 95% 95% 100% 95% 71% 100% Cembre Ltd Cembre Sarl Cembre España SL Cembre AS Cembre GmbH Cembre Inc General Marking Srl UK France Spain Norway Germany USA Italy 5% 5% 5% 29% Holdings situation at March 12, 2009 The Cembre Group consists of eight companies. The parent company is based in Brescia and is the largest manufacturer of the Group. Other manufacturing companies are the UK subsidiary, based in Birmingham, and Italian subsidiary General Marking, based in Brescia and with manufacturing facilities in Bergamo. The other five subsidiaries are all commercial companies and are based in Paris, Madrid, Stokke (Norway), Munich, and Edison (New Jersey, USA). Direct presence in important Western European countries allows the Group to effectively reach individual markets, establishing close contact with its customers and ensuring timely and qualified technical and sales assistance. Cembre operates in Italy through a capillary distribution network, with offices and own warehouses in Milan, Padua, Bologna and Rome. Other regions in Italy are served by agents trained to provide both technical and commercial assistance and by warehouses providing fast deliveries. The sales network assists customers in the choice of the product and the maintenance of tools, optimizing efficiency and speed of delivery. It also informs management of market trends, national standards and competitors. Cembre Group is present in the USA market through Cembre Inc. located in Edison (New Jersey). Edison Group Companies Main distributors 13

16 Cembre Ltd Cembre Ltd Birmingham Cembre Ltd is Cembre Group s second largest manufacturing unit. Since its establishment in 1986, it has enjoyed constant growth and presently benefits from a good positioning in the market. Cembre Ltd is located in a manufacturing centre on the north-eastern outskirts of Birmingham, England s second largest city, in the heart of the Midlands region, recognised for its high concentration of manufacturing industries, particularly in the areas of steel and motor vehicles. It therefore provides Cembre with an excellent source of highly trained labour skilled in the advanced mechanical technologies fundamental to Cembre s manufacturing needs. Its operations cover an area of 8,000 m 2, of which 5,100 m 2 are occupied by manufacturing facilities and office buildings. Cembre Ltd is primarily focused on serving the specific needs of the United Kingdom market. In addition, its flexibility enables it to support other Group operations. 14

17 Oelma Srl was acquired by Cembre in February 1999 and subsequently merged into the parent company from January 1, Oelma s product line consists of over 1,500 articles for industrial and civil applications. Cable glands with increased safety line Oelma linea line Polyamide, nickel plated brass and stainless steel cable glands and accessories Brass terminal block and cable clamps 15

18 General eral Marking Warning and safety signs Industrial Marking Systems General Marking srl was recently incorporated and is a wholly-owned subsidiary of Cembre SpA. The company is active in the sector of industrial marking, manufacturing cable marking equipment and products for the marking of cables and electrical components. The company has its registered office in Brescia, has operating facilities in Calcinate (Bergamo) and a catalogue of over 12,000 articles. Thermal transfer system for reel media printing SIGN stick-onsys Thermal transfer printer for identification and labelling designed and manufactured by Cembre SpA. Pc-driven ink plotter marker printing system RING cablesys Manual cable marking systems 16

19 Development C e m b r e S. p. A. Cembre has progressed and developed steadily with the dedication and responsible attitude of all the staff. We can look forward to the future with confidence and commitment. Cembre Group Cembre SpA ,4 95,8 93,2 90,6 88,0 85,4 82,8 80,2 77,6 75,0 72,4 69,8 67,2 64,6 62,0 59,4 56,8 54,2 51,6 49,1 46,5 43,9 41,3 38,7 36,2 33,6 31,0 28,4 25,8 23,2 20,7 18,1 15,5 12,9 10,3 7,7 5,2 0 TURN OVER (millions) ,5 14,5 13,4 12,4 11,4 10,3 9,3 8,3 7,2 6,2 5,2 4,1 3,1 2,1 1, CASH FLOW (millions) C e m b r e S. p. A Group STAFF (n ) TURN OVER (millions) EXPORT (millions) % of turn over CASH FLOW (millions) STAFF (N ) QUOTED ON THE ITALIAN STOCK EXCHANGE 17

20 Report on Operations for the financial year ended December 31, 2008

21 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Report on Operations of the Cembre Group for the financial year ended December 31, 2008 Operating Review The 2008 financial year was affected by one of the deepest economic and financial crisis since the end of the Second World War. The effect of the crisis, originating in America but spreading quickly to all industrialized countries, hit Europe particularly hard in the 4th Quarter of 2008, leading to a generalized contraction in consumption and demand. The turnover of the Cembre Group, which up until September had registered a good growth on the first nine months of 2007, in the last part of the year experienced a slowdown, reducing considerably results achieved in the previous months. Despite this, Cembre closed 2008 reporting positive results, with consolidated sales growing by 0.9% to 94.3 million, up from 93.4 million in The market registered an uneven performance, with areas experiencing a growth in volume and others contracting. Domestic sales amounted to 41.1 million and grew in fact by 4.6%, while exports amounted to 53.2 million, declining by 1.7% on the previous year. A total of 43.6% of Group sales in 2008 were represented by Italy (as compared with 42% in 2007), 44.8% by the rest of Europe (46.4% in 2007), and the remaining 11.6% by the rest of the World (unchanged on 2007). Sales by geographical area: ( 000) Italy 41,100 39,286 Rest of Europe 42,249 43,316 Rest of the World 10,939 10,815 Total 94,288 93,417 Revenues by Group company (net of intragroup sales): ( 000) Parent company 51,868 51,817 Cembre Ltd. (UK) 12,374 12,317 Cembre S.a.r.l. (F) 6,477 6,303 Cembre España S.L. (E) 11,518 11,499 Cembre GmbH (D) 5,358 4,839 Cembre AS (NOR) Cembre Inc. (USA) 5,377 5,336 General Marking S.r.l. (ITA) Total 94,288 93,417 20

22 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Figures for General Marking S.r.l. include only sales to third parties managed directly by the subsidiary. General Marking s sales to other Group companies that distribute products in their respective markets are not attributed to General Marking in the table above. Such sales grew by 33.7% from 1,838 thousand to 2,457 thousand. In 2008, Group companies reported the following results, before the consolidation: Sales Net profit ( 000) Cembre S.p.A. 75,044 73,623 8,790 8,987 Cembre Ltd. (UK) 13,727 13, Cembre S.a.r.l. (F) 6,511 6, Cembre España S.L. (E) 11,518 11, ,142 Cembre GmbH (D) 5,369 4, Cembre AS (NOR) Cembre Inc. (USA) 5,383 5, General Marking S.r.l. (ITA) 3,011 2, For a more direct evaluation of the effect of foreign exchange translation, we include below sales figures of companies operating outside the euro area in the respective currency. Currency Sales Net profit ( 000) Cembre Ltd. (UK) 10,931 9, Cembre AS (NOR) NKR 6,311 6, Cembre Inc (Usa) US$ 7,917 7, To provide a better understanding of the Company s financial performance for 2008, a Reclassified Consolidated Income Statement for the year ended December 31, 2008 and 2007 is enclosed as Attachment 1. Consolidated gross operating profit amounted to 19,273 thousand, representing a 20.4% margin on sales, down 11.2% on 2007 when it amounted to 21,710 thousand, representing a 23.2% margin on sales. In the previous year, operating profit had been positively affected by the 1 million gain on the restatement of Employee Termination Indemnities resulting from the reform of the sector, and from a 380 thousand capital gain on the sale of a building. In 2008, instead, the company revised the depreciation period of plant and equipment to bring it into line with the assessed useful life of the same. The adjustment resulted in a 478 thousand reduction in the amortization expense for 2008 as compared with 2007, while at the same time generating a reduction in the hourly cost used in the valuation of finished and semi-finished goods inventories and a consequent 734 thousand reduction in the value of the same at March 31, The 2008 financial year was also affected by an increase in personnel costs due both to the higher average number of employees, up from 525 to 545, and higher recourse to overtime, particularly in the transition phase to the new operating system, in addition to salary increases resulting from the renewal of the labour contract for the category. 21

23 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Consolidated operating profit for 2008 amounted to 16,221 thousand, representing a 17.2% margin on sales, down 11.9% on 18,420 thousand in 2007, when it represented a 19.7% margin on sales. Consolidated profit before taxes for 2008 amounted to 16,031 thousand, representing a 17% margin on sales, down 11.5% on 18,118 thousand in 2007, when it represented a 19.4% margin on sales. The balance between interest income and charges is negative by 205 thousand, due to interest accrued on loans taken out and repaid in the year, and interest on current account overdrafts. Consolidated net profit for the year amounted to 10,857 thousand, representing an 11.5% margin on sales, down 8.7% on 2007, when it amounted to 11,896 thousand and represented a 12.7% margin on sales. The net financial position improved from an indebtedness of 1.7 million at December 31, 2007 to a surplus of 1.2 million at the end of December 2008, benefiting from the reduction of investments, decreasing from 6.9 millions of 2007, to 4.6 millions of Non-recurring effect of changes in the accounting of employee termination indemnities Consolidated results for 2007 were affected to a relevant degree by a non recurrent operation generated by new norms regulating employee termination indemnities that came into effect January 1, The restatement of termination indemnities accrued at December 31, 2006 using different actuarial assumptions resulted in a reduction of 1,026 thousand in the value of the same (gross of the related tax effect of 339 thousand). The above reduction was recorded in full in the income statement for Results of the parent company Results of the parent company for 2008 are shown in the table below: 2008 % 2007 % Change ( 000) of sales of sales Sales 75, , % Gross operating profit 14, , % Operating profit 12, , % Pre-tax profit 12, , % Net profit 8, , % Sales revenues grew by 1.9% from 73,623 thousand in 2007 to 75,044 thousand in Domestic sales grew by 4.6%, while sales in other European countries posted instead a 2.3% decline, and sales in the rest of the World grew by 2.4%. Sales by geographical area ( 000) Italy 41,107 39,296 Rest of Europe 25,248 25,843 Rest of the World 8,689 8,484 Total 75,044 73,623 22

24 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S In 2008 Cembre S.p.A. received a total of 622 thousand in dividends from UK subsidiary Cembre Ltd. and French subsidiary Cembre Sarl. Definition of alternative performance indicators In compliance with CONSOB Communication DEM/ dated July 28, 2007, below we define alternative performance indicators used in the present document to illustrate the financial and operating performance of the Group. Gross operating profit (EBITDA): defined as the difference between sales revenues and costs for materials, of services received, and the net balance of operating income and charges. It represents the profit before depreciation, amortization and write-downs, financial flows and taxes. Operating profit (EBIT): defined as the difference between Gross operating profit and the value of depreciation, amortization and write-downs. It represents the profit achieved before financial flows and taxes. Net financial position: represents the algebraic sum of cash and cash equivalents, financial receivables and current and non-current financial debt. Reclassified Consolidated Balance Sheet ( 000) Dec. 31, 2008 Dec. 31, 2007 Trade receivables, net 24,650 26,355 Inventories 32,378 31,725 Other non-financial assets Trade payables (10,819) (11,013) Other non-financial liabilities (5,877) (6,436) A) Net current assets (Net Operating Working Capital) 41,240 40,949 Property, plant and equipment 32,590 32,349 Intangible assets Prepaid taxes 1,847 1,886 Other non-current assets B) Net non-current assets 35,210 34,783 C) Non-current assets available for sale - - D) Employee termination indemnity 3,194 3,352 E) Provisions for risks and charges F) Deferred taxes 2,671 3,653 G) NET CAPITAL EMPLOYED (A+B+C-D-E-F) 70,293 68,432 23

25 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Sources of funds: H) Shareholders Equity 71,463 66,712 Long-term financial debt Cash and short-term financial receivables (4,545) (4,549) Short-term financial debt 3,315 6,183 I) Net debt (surplus) (1,170) 1,720 J) TOTAL SOURCES OF FUNDS (H+I) 70,293 68,432 Shareholders Equity Consolidation adjustments determined the following differences between the Financial Statements of the parent company at December 31, 2008 and the consolidated accounts at the same date: Shareholders Equity Net Profit ( 000) at Dec. 31, 2008 Parent company s financial statements 61,190 8,790 German subsidiary product warranty provision reversal (*) 19 2 Elimination of the write-down in the value of the equity investment in subsidiary General Marking S.r.l Use of reserve to cover losses of General Marking S.r.l Book value of consolidated companies 12,646 2,964 Elimination of intra-group profits included in the value of inventories (*) (2,881) (305) Currency translation differences on elimination of intra-group payables and receivables - 2 Netting of intragroup dividends - (596) Consolidated Financial Statements 71,463 10,857 (*) Net of the related tax effect Capital expenditure In 2008, capital expenditure on property, plant and equipment, gross of depreciation and disposals, amounted to 4.9 million, down from 6.9 million in 2007 in which expenditure was strongly affected by the purchase of the new main office of the German subsidiary for 2.6 million. In 2008 the construction of the new entrance and parking at the Brescia main complex was started, with an expense thus far of 0.9 million. The parent company and the UK subsidiary have also acquired new plant and equipment for 1.7 million, while the parent has also acquired for 0.5 million software licenses for the new information system that became operational in May

26 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Revaluation of property, plant and equipment In compliance with article 10 of Law 72/1983, a list of property, plant and equipment recorded in the Balance Sheet at December 31, 2008 and revaluated in the year is provided below: ( ) Law Law Law 576/75 72/83 413/91 Total Land and buildings - 248, , ,661 Plant and machinery 2, , ,770 Other assets 300 7,664-7,964 2, , ,441 1,067,395 Main risks and uncertainties Risks connected to the economic situation The economic and financial situation of the Group is clearly influenced by macroeconomic factors such as changes in the Gross Domestic Product, consumer and business confidence, changes in interest rates and the cost of raw materials. The first months of 2008 were characterized by a strong increase in raw materials, copper and oil in particular, while in the 4th Quarter the collapse of financial markets has had strong repercussions both on individual companies and the economy as a whole. This determined a strong contraction in the market that was made deeper by the restriction on credit that severely limited liquidity available to businesses and households. Action taken by governments and international institutions have not thus far produced particular benefits and it is therefore extremely difficult to predict the timing of a return to normal market conditions. Though being able to count on a solid financial position, should the uncertain situation persist for a long period of time, strategies, outlook and results of the Group could be negatively affected. Risks connected with the market In view of the overall liquidity crisis, the Group could suffer from competition from manufacturers that benefit from lower labour costs. Protectionist policies followed by some governments to protect local producers could also have an adverse effect on the Group, which is countering these factors with ongoing innovation, the widening of the product range, the launch of lower cost products and the upgrade of its production process, implementing focused marketing policies also with the help of its foreign subsidiaries. 25

27 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Credit risk The scarce liquidity of the system and difficulties in accessing credit from banks could lead some of the Group s customers to become insolvent, making the retrieval of amounts receivable difficult. In this framework, Cembre and its subsidiaries have focused over time on a careful selection of their customers, managing prudently sales to customers that do not possess an adequate credit standing. The Group has accrued a provision for doubtful accounts and the management of litigation, while the monitoring of customers has become more careful, with an ongoing monitoring of overdues and immediate contact with slow-paying customers. Exposure to credit risk relates exclusively to trade receivables. Liquidity risk Thanks to its solid financial position, the Group is not currently subject to particular liquidity risk, even in case cash flow from operating activities should decline drastically. Interest rate risk The Group does not currently make systematic recourse to bank loans and is not therefore subject to consistent risks connected with fluctuations in interest rates. Currency risk Despite a strong international presence, the Group does not have a significant exposure to currency risk, as it operates almost entirely in the euro area, the currency in which its trade transactions are mainly denominated. Exposure to currency risk is basically limited to sales in US dollars and British pounds, but the size of these transactions is not significant in influencing the overall performance of the Group or its financial position. Integrity and reputation risk Illicit behaviour of employees, aimed at obtaining benefits for themselves and for the Group can imply the risk of a loss of reputation and of sanctions against the Group. To prevent the risk of these occurrences and in line with Legislative Decree 231/2001, the parent company adopted an organizational, management and control model that identifies processes that are subject to risk and establishes the conduct that the various persons involved are to keep in carrying out their tasks. To ensure that the model adopted becomes the basis of conduct in the operation of the company, employees were instructed through specific training sessions. The parent company constantly integrates and upgrades the model. For more detailed information please refer to the notes. Financial ratios To provide a better understanding of results of the Group, we provide below the value of some ratios commonly used in financial statement analysis. 26

28 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Financial ratios Dec. 31, 2008 Dec. 31, 2007 ROE Return on equity NOR Contribution of non-operating activities ROI Return on investment ROE (Return on Equity): is the ratio between net profit and Shareholders Equity. It is an index of the profitability of capital invested, used to compare the investment in the company with investments of a different nature on a yield basis. NOR: is calculated as the ratio between net profit and operating profit, and is an index of the contribution of non-operating activities in forming net profit. A value lower than one signals a negative contribution of non-operating activities (tax effect). ROI (Return on Investment): is the ratio between capital employed (total assets net of investments in non-operating assets, which for the Group do not exist). It indicates the ability of the company to generate profits through operating activities. Liquidity ratios Dec. 31, 2008 Dec. 31, 2007 CR Current ratio LR Liquidity ratio CR: it is computed by dividing current assets by current liabilities. It indicates the ability of the company to face current liabilities with current assets. A value above 2 signals an optimal situation. LR: it is computed by dividing the sum of current and deferred liquidity by current liabilities, and is used to assess the firm s ability to pay off current liabilities. A value between 1 and 2 signals an ideal liquidity position. Debt management ratios Dec. 31, 2008 Dec. 31, 2007 CI Equity to fixed assets ratio LEV Leverage (Gearing) IN Debt Ratio 26.8% 31.7% CI: it is computed by dividing Shareholders Equity by Fixed Assets and it indicates the ability of the company s equity to cover its investment needs. A value above 1 signals an optimal situation. LEV (Leverage): it is computed by dividing capital employed by the Shareholders Equity and it represents the degree of debt of the company. The higher the ratio, the higher the riskiness of the company. A value between 1 and 2 represents an equilibrium in the sources of funds. IN: it is computed by dividing the sum of current and non-current liabilities by capital employed and it indicates the percentage share of funds provided by third parties in financing the company. A value below 50% indicates an adequate financial structure. 27

29 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Research & Development In 2008 Research and Development activities focused in the field of cable terminals, railroad equipment, cable glands, hydraulic tools and cable marking, in which innovations were made. Research costs were not capitalized, while, in compliance with IAS 38, development costs were instead capitalized. Results of research activities and projects launched or underway in the year consisted in: the widening of the product range, with the introduction of new products previously not available on the market; the improvement of technologies and of the efficiency of the production process; and the enhancement of the company s presence in foreign markets. Activity focused on: - the continuation and completion of projects started in the previous year; - the launch of new projects for the development of innovative products in line with new market trends; - the development of innovative processes In 2008, research costs included 430 thousand of personnel costs, expensed in the income statement. Development costs for the year included 45 thousand of personnel costs, capitalized among intangible assets. Costs relating to technical advice and the acquisition of know-how amounted to 6 thousand. A description of Research and Development activities by sector is included in the section that follows. Research projects in the field of cable terminals Work continued on the study and development of new cable terminals and joints, quick connection chain terminals, in addition to the development and optimization of cable terminals from pipe. Railroad Equipment Research projects A number of projects in the field were launched or developed further. These included: - an electrically powered version of a wooden sleepers maintenance tool; - a range of products for the mechanical and electrical connection to rail tracks; - a control station for rail track maintenance; - a head for vices unlocking. Research projects in the field of cable glands A study for the review and update of the gas threading cable glands line was undertaken, also for the inox steel version. Hydraulic Tools research projects The following studies were undertaken in 2008: - a new battery-operated tools for the compression of connectors that may be used for different types of dies specific for the US market; - a cable cutting head for the battery-operated tool specific for the US market; - a 60-ton head for the US market; 28

30 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S - a push-button panel for pumps; - a universal pressure measuring gauge; - a new C-sized head; - a new small-size battery-operated hydraulic tool and a version of the same tool mounting a head specific for the US market; - a small-size battery-operated hydraulic tool with a 3.5 ton head; - a small-size battery-operated hydraulic tool with a 5 ton head; - a hydraulic head with quick system for plunger fixing. Cable marking research projects The development of the following products continued: - a system for the labelling of pole terminal blocks consisting of labels and related supports; - a new series of flat labels; - a new printer for labels. Related parties Transactions concluded between the parent company and its subsidiaries in 2008 were exclusively of a commercial nature and are summarized in the table below: ( ) Receivables Payables Revenues Purchases Cembre Ltd. 2,216,151 14,212 6,915, ,740 Cembre S.a.r.l. 650,341 10,687 2,786,828 29,825 Cembre España S.L. 2,196,277-6,505, Cembre AS ,527 5,630 Cembre GmbH 785, ,978,847 6,307 Cembre Inc. 1,941, ,538, General Marking srl , ,705 2,456,604 TOTAL 7,789, ,642 23,209,895 2,700,958 Commitments of Cembre S.p.A. at the end of the year include a letter of patronage issued in favour of subsidiary General Marking against obligations of the same, amounting to 2.5 million, and a similar letter in favour of German subsidiary Cembre GmbH for 0.8 million. Cembre S.p.A. leased an industrial building to subsidiary General Marking S.r.l.. In 2008 rent for the building amounted to 98 thousand. Cembre S.p.A. also currently leases property for a cumulative annual rent of 500 thousand from Tha Immobiliare S.p.A., with registered office in Brescia, owned by Anna Maria Onofri, Giovanni Rosani and Sara Rosani, Directors of Cembre S.p.A. Further detail of these transactions is provided in the notes. With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities. 29

31 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Absence of control and coordination Despite the fact that article 2497-sexies of the Italian Civil Code states that it is presumed that, unless otherwise proved, the direction and coordination activities of companies is exercised by the company or entity that is required to consolidate the same in its accounts or that, in any case, controls the former company pursuant to article 2359 (of the Italian Civil Code), Cembre S.p.A. believes to be operating in full autonomy from its parent Lysne S.p.A.. In particular, as a nonexhaustive example, the Company manages autonomously its own treasury and relationships with its customers and suppliers, and does not make use of any service provided by its parent company. Cembre S.p.A. s relationships with its parent company Lysne S.p.A. is limited to the normal exercise of shareholders rights on the part of the parent. Companies incorporated under the laws of States that are not part of the European Union Cembre S.p.A. controls two companies incorporated under the laws of States that are not part of the European Union. These are: - Cembre Inc. incorporated in the US, and - Cembre AS incorporated in Norway. The company deems the administrative, accounting and reporting systems currently in use to be adequate in supplying regularly management and the company s independent auditors with the operating and financial information necessary for the preparation of the consolidated financial statements. The accounts prepared by said foreign subsidiaries and used in the preparation of the consolidated financial statements, are audited and are made available to the public, as provided by current regulations. Cembre S.p.A. is active in ensuring an adequate flow of information from said subsidiaries to its independent auditors and believes the current communication process in place with the independent auditors to be effective. Cembre S.p.A. already holds the by-laws, the composition and of powers of company boards and its individual members, and directives ensuring the timely transmission of any information regarding the update of such information have been issued. Own shares and shares of parent companies In 2008, the Cembre Group did not acquire or shell any of its own shares, nor did it own, either directly or through any of its subsidiaries, trust companies or intermediaries, any of its own shares or any of its parent company s shares. Ownership Structure and Corporate Governance In compliance with norms contained in article 123-bis of Legislative Decree 58, dated February 24, 1998 (Testo Unico Finance Act), we refer to the Report on Corporate Governance which, in addition to providing a general description of corporate governance, contains information regarding the ownership structure of the Company, the adoption of the Code of Conduct and the observance of the resulting commitments. Said Report is available in the Investor Relations section of the Group s Internet site ( 30

32 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Handling of personal information Cembre S.p.A. (responsible for the handling of personal information) drafted a Privacy Plan through its Director for the Handling of Private Information. Environmental management Cembre S.p.A. deemed it fundamental for its development to adopt an Environmental Management system that covers in an integrated manner every aspect of its activities. Thanks to the setting of behavioural guidelines and of rigorous procedures, the Company obtained an Environmental Certification under standard UNI EN ISO 14001:2004 that singles out companies that are more sensitive to environmental protection issues. Subsequent events No event having significant effects on Cembre s financial or operating performance occurred after the closing of the financial year. Outlook Due to the continuing difficult situation in the domestic and international markets, Cembre expects a contraction in sales and profits for The deterioration of market conditions and the strong credit crisis, involving both households and businesses, has determined a lack of liquidity that will reflect on the growth of the economy. Such deterioration makes it currently difficult to formulate reliable and accurate estimates for the future. Proposal for the Allocation of the Company s Net Profit In order to complete the Company s planned investments and benefit from self-financed growth, it is advisable that at least a portion of net profit generated be retained. In seeking the approval for our actions by submitting to you the present Financial Statements and Report on Operations, we also invite you, in view of the fact that the legal reserve has already reached 20% of the share capital, to approve our proposed allocation of net profit for 2008, amounting to 8,790, (rounded off to 8,790,112) as follows: 0.16 to be distributed to each of the Company s 17,000,000 shares entitled to dividends, for a total of 2,720,000, payable from May 21, 2009, and an ex-dividend date of May 18, 2009; 54, to be accrued to the reserve for currency translation gains; the remainder, amounting to 6,015,863.64, to the extraordinary reserve. We also ask you to allocate retained earnings already recorded in 2007, amounting to 83,525.97, to the extraordinary reserve. Attachments The present Report on Operations includes the following attachments: 31

33 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Attachment 1 Attachment 2 Attachment 3 Reclassified Income Statement of Cembre S.p.A. for the year ended December 31, 2008; Company shares held by Board Members and Statutory Auditors; Company Boards. Brescia, March 12, 2009 THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A. CARLO ROSANI 32

34 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Attachment 1 to the Report on Operations CONSOLIDATED INCOME STATEMENT ( 000) 2008 % 2007 % Change Revenues from sales and services provided 94, , % Other revenues TOTAL REVENUES 94,635 94,209 Cost of goods and marchandise (36,597) (38,8) (39,955) (42,8) -8.4% Cost of services received (13,096) (13,9) (13,615) (14,6) -3.8% Lease and rental costs (1,052) (1,1) (1,084) (1,2) -3.0% Personnel costs (25,979) (27,6) (24,976) (26,7) 4.0% Non recurring operations - 0,0 1,026 1,1 Other operating costs (539) (0,6) (471) (0,5) 14.4% Change in inventories 1,441 1,5 6,176 6,6-76.7% Increase in assets due to internal construction 709 0, ,6 27.7% Write-down of current assets (239) (0,3) (145) (0,2) 64.8% Accruals to provisions for risks and charges (10) (0,0) (10) (0,0) GROSS OPERATING PROFIT 19,273 20,4 21,710 23,2-11.2% Tangible assets depreciation (2,734) (2,9) (3,113) (3,3) -12.2% Intangible assets amortization (318) (0,3) (177) (0,2) 79.7% OPERATING PROFIT 16,221 17,2 18,420 19,7-11.9% Financial income 113 0, ,1 4.6% Financial expenses (318) (0,3) (209) (0,2) 52.2% Foreign exchange gains (losses) 15 0,0 (201) (0,2) % PROFIT BEFORE TAXES 16,031 17,0 18,118 19,4-11.5% Income taxes (5,174) (5,5) (5,883) (6,3) -12.1% Deferred taxes from non recurring operations - 0,0 (339) (0,4) NET PROFIT FROM ORDINARY ACTIVITIES 10,857 11,5 11,896 12,7-8.7% NET PROFIT FROM ASSETS HELD FOR DISPOSAL - - NET PROFIT 10,857 11,5 11,896 12,7-8.7% 33

35 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Attachment 2 Report on Operations COMPANY SHARES HELD BY CORPORATE BOARDS MEMBERS COMPANY SHARES HELD SHARES SHARES SHARES HELD OWNERSHIP OWNERSHIP AT DEC. 31, 2007 PURCHASED SOLD AT DEC. 31, 2008 RIGHTS Lysne S.p.A. (1) Cembre SpA 9,059, ,059,892 full direct Carlo Rosani Cembre SpA 1,040, ,040,000 full direct Anna Maria Onofri Cembre S.p.A. 900, ,096 full direct Sara Rosani Cembre S.p.A. 560, ,000 full direct Giovanni Rosani Cembre S.p.A. 540, ,000 full direct Aldo Bottini Bongrani Cembre S.p.A. 360, ,000 full direct Giovanni De Vecchi Cembre S.p.A. 280, ,000 full direct Mario Comana Cembre S.p.A. 10, ,000 full direct Andrea Boreatti Cembre S.p.A. 1, ,500 full direct Statutory Auditors and Directors not listed above did not hold Cembre SpA shares at December 31, 2007 and did not acquire Cembre SpA shares in 2008 (1) The share capital of Lysne S.p.A., Cembre S.p.A. s parent company, is held by Anna Maria Onofri, Giovanni Rosani and Sara Rosani. 34

36 R E P O R T A N D AC C O U N T S RE P O R T O N OP E R A T I O N S Attachment 3 Report on Operations CORPORATE BOARDS Board of Directors Chairman and Managing Director Vice Chairman and Managing Director Managing Director Director Director Director Independent Director Independent Director Carlo Rosani Anna Maria Onofri Giovanni Rosani Sara Rosani Giovanni De Vecchi Aldo Bottini Bongrani Mario Comana Paolo Lechi di Bagnolo Secretary Board of Statutory Auditors Chairman Permanent Auditor Permanent Auditor Substitute Auditor Substitute Auditor Giorgio Rota Guido Astori Leone Scutti Andrea Boreatti Maria Grazia Lizzini Giorgio Astori Independent Auditors Reconta Ernst & Young The above list is updated at March 12, The Board of Directors and Board of Statutory Auditor s term expires with the approval of the Financial Statements at December 31, The Chairman and Managing Director Carlo Rosani holds by statute (article 18) powers of legal representation of the Company. The Board of Directors conferred to the Chairman all the ordinary management powers not specifically reserved to it by law. The Board of Directors conferred to Managing Director Giovanni Rosani all the ordinary management powers not specifically reserved to it by law and exclusive powers over the organization, management and monitoring of the internal control system. In case of absence or impediment of the Chairman and of Managing Director Carlo Rosani, Vice Chairman and Managing Director Anna Maria Onofri holds all ordinary management powers not reserved to the Board by law, with the exception of the appointment of professionals. All Managing Directors must keep the Board of Directors informed of all relevant transactions concluded in the context of their mandate. The Board of Directors has approved rules that define which particularly relevant transactions may be concluded exclusively by the same. 35

37 Consolidated Financial Statements at December 31, 2008

38 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Consolidated Balance Sheet (euro '000) Notes Dec. 31, 2008 Dec. 31, 2007 ASSETS A) NON-CURRENT ASSETS of which: related parties Tangible assets 1 32,590 32,349 Intangible assets Financial assets available for sale 5 5 Other non-current assets Deferred tax assets 12 1,847 1,886 TOTAL NON-CURRENT ASSETS 35,210 34,783 B) CURRENT ASSETS Inventories 4 32,378 31,725 Trade receivables 5 24,650 26,355 Tax receivables Other receivables Cash and cash equivalents 29 4,545 4,549 TOTAL CURRENT ASSETS 62,481 62,947 C) NON-CURRENT ASSETS AVAILABLE FOR SALE - - TOTAL ASSETS (A+B+C) 97,691 97,730 of which: related parties LIABILITIES AND SHAREHOLDERS EQUITY A) SHAREHOLDERS EQUITY Capital stock 8 8,840 8,840 Reserves 8 51,766 45,976 Net profi t 8 10,857 11,896 TOTAL SHAREHOLDERS EQUITY 71,463 66,712 B) NON-CURRENT LIABILITIES Non-current fi nancial liabilities Non-current tax payables 93 - Employee Severance Indemnity and other personnel benefi ts 10 3, , Provisions for risks and charges Deferred tax liabilities 12 2,671 3,653 TOTAL NON-CURRENT LIABILITIES 6,310 7,386 C) CURRENT LIABILITIES Current fi nancial liabilities ,315 6,183 Trade payables 13 10,819 11,013 Tax payables 247 1,033 Other payables 14 5,537 5,403 TOTAL CURRENT LIABILITIES 19,918 23,632 D) LIABILITIES ON ASSETS HELD FOR DISPOSAL - - TOTAL LIABILITIES (B+C+D) 26,228 31,018 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (A+B+C+D) 97,691 97,730 38

39 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Consolidated Income Statement (euro '000) Notes of which: related parties Revenues from sales and services provided 15 94,288 93,417 Other revenues TOTAL REVENUES 94,635 94,209 Cost of goods and merchandise (36,597) (39,955) of which: related parties Cost of services received 17 (13,096) (739) (13,615) (723) Lease and rental costs 18 (1,052) (500) (1,084) (494) Personnel costs 19 (25,979) (192) (24,976) (185) Non recurring operations 20-1,026 Other operating costs 21 (539) (471) Change in inventories 1,441 6,176 Increase in assets due to internal construction Write-down of receivables (239) (145) Accruals to provisions for risks and charges (10) (10) GROSS OPERATING PROFIT 19,273 21,710 Property, plant and equipment depreciation (2,734) (3,113) Intangible asset amortization (318) (177) OPERATING PROFIT 16,221 18,420 Financial income Financial expenses 22 (318) (209) Foreign exchange gains (losses) 15 (201) PROFIT BEFORE TAXES 16,031 18,118 Income taxes 23 (5,174) (5,883) Deferred taxes from non recurring operations - (339) NET PROFIT FROM ORDINARY ACTIVITIES 10,857 11,896 NET PROFIT FROM ASSETS HELD FOR DISPOSAL - - NET PROFIT 10,857 11,896 BASIC EARNINGS PER SHARE 24 0,64 0,70 39

40 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Consolidated Statement of Cash Flows (euro '000) A) CASH FLOW FROM OPERATING ACTIVITIES Net profi t for the period 10,857 11,896 Depreciation, amortization and write-downs 3,052 3,290 (Gains)/Losses on disposal of assets (2) (399) Net change in Employee Severance Indemnity (158) (1,306) Net change in provisions for risks and charges (3) 7 Operating profit (loss) before change in working capital 13,746 13,488 (Increase) Decrease in trade receivables 1, (Increase) Decrease in inventories (653) (5,678) (Increase) Decrease in other receivables and deferred tax assets (551) 69 Increase (Decrease) of trade payables (239) (579) Increase (Decrease) of other payables, deferred tax liabilities and tax payables (1,541) (729) Change in working capital (1,279) (6,768) NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES 12,467 6,720 B) CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure on fi xed assets: - intangible (544) (500) - tangible (4,064) (6,404) Proceeds from disposal of tangible, intangible, available-for-sale fi nancial assets - tangible 1,091 1,869 Increase (Decrease) of trade payables for assets NET CASH FLOW (USED IN)/FROM INVESTING ACTIVITIES (3,472) (4,907) C) CASH FLOW FROM FINANCING ACTIVITIES (Increase) Decrease in other non current assets 1 15 Increase (Decrease) in bank loans and borrowings (2,864) 3,356 Increase (Decrease) in other loans and borrowings (30) 20 Change in reserves (1,686) (879) Dividends distributed (4,420) (3,740) NET CASH FLOW (USED IN)/FROM FINANCING ACTIVITIES (8,999) (1,228) D) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) (4) 585 E) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,549 3,964 F) CASH AND CASH EQUIVALENTS AT END OF PERIOD (D+E) 4,545 4,549 40

41 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S CASH AND CASH EQUIVALENTS AT END OF PERIOD 4,545 4,549 Current fi nancial liabilities (3,315) (6,183) Non current fi nancial liabilities (60) (86) NET CONSOLIDATED FINANCIAL POSITION 1,170 (1,720) INTERESTS PAID IN THE YEAR (318) (209) BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD Cash Banks 4,529 4,530 4,545 4,549 41

42 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Statement of Changes in the Consolidated Shareholders' Equity ( '000) Capital stock Share premium reserve Legal reserve Suspendedtax reserves Consolidation reserve Conversion differences Extraordinary reserve Unrealized gains reserve Retained earnings Net profit Total Shareholders' Equity Balance at December 31, ,840 12,245 1, ,213 (12) 18,187 3,799-9,327 59,435 Conversion differences 87 (966) (879) Allocation of previous year net profi t (1) 2,661 2,926 (9,327) (3,740) Other changes (84) 84 - Net profi t for ,896 11,896 Balance at December 31, ,840 12,245 1, ,961 (978) 21,113 3, ,896 66,712 Conversion differences 134 (1,822) 2 (1,686) Allocation of previous year net profi t (1) 2,911 4,565 (11,896) (4,420) Net profi t for ,857 10,857 Balance at December 31, ,840 12,245 1, ,006 (2,800) 25,680 3, ,857 71,463 (1) Dividends resolved by the Shareholders' Meeting are included in the Total Shareholders' Equity column under Allocation of previous year net profi t. 42

43 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Notes to the Consolidated Financial Statements I. CORPORATE INFORMATION Cembre S.p.A. is a joint-stock company with registered offi ce in Brescia, Via Serenissima 9. Cembre S.p.A. and its subsidiaries (hereinafter referred to jointly as the Cembre Group or the Group ) are active primarily in the manufacturing and sale of electrical connectors and related tools. The publication of the Consolidated Financial Statements of Cembre S.p.A. for the year ended December 31, 2008 was authorized by a resolution of the Board of Directors dated March 12, Cembre S.p.A. is controlled by Lysne S.p.A., a holding company based in Brescia, that does not direct or coordinate its subsidiary. II. FORM AND CONTENT OF THE CONSOLIDATED FINANCIAL STATEMENTS The present Consolidated Financial Statements at December 31, 2008 were prepared under the International Financial Reporting Standards (IFRS) adopted by the European Union and the related implementation regulations issued in application of article 9 of Legislative Decree no. 38/2005. Principles adopted in the preparation of the Consolidated Financial Statements are those formally approved by the European Union as at December 31, The consolidated financial statements were prepared in the expectation of the continuation of the Group s activities. The table that follows contains a list of international accounting principles and interpretations approved by the IASB that became effective starting in 2008, which were taken into account, where applicable, in the preparation of the present Consolidated Financial Statements. Effective Changes to IAS 39 and IFRS 7 Reclassification of financial assets July 1, 2008 IFRIC 11 - Group and Treasury Share Transactions March 1, 2007 Changes in the table above did not fi nd an application in the Consolidated Financial Statements at December 31, Items in the Consolidated Balance Sheet were recorded at the historical cost. Unless otherwise indicated, fi gures reported in the fi nancial statements and the related notes are expressed in thousands of euro. Future changes in accounting principles Starting with the 2009 fi nancial year, the following accounting principles will become effective: IFRS 8 Operating Segments IFRS 8 Operating Segments On November 30, 2008, the IASB issued accounting principle IFRS 8 Operating Segments, applicable from January 1, 2009 replacing IAS 14 Segment Reporting. The new accounting principle requires the company to base information included in segment reporting on elements used by management to make operating decisions, thus requiring the identification of operating segments based on internal reporting, which is regularly used by management to allocate resources to the different segments and for performance assessment purposes. The adoption of this principle will have no effect on the amounts at which consolidated income statement items are carried, but only on the reporting of the same. 43

44 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Changes to IFRS 1 First-time Adoption of International Financial Reporting Standards, and IAS 27 Consolidated and Separate Financial Statements Changes to IFRS 1 allow the entity to determine, in the first financial statements in which IFRS are adopted, the carrying cost of investments in affiliates, subsidiaries and joint-ventures based on IAS 27 or using the deemed cost. Changes to IAS 27 require that all dividends from subsidiaries, affiliates and joint-ventures be recorded in the income statement in the separate financial statements. Both changes are effective for annual periods beginning on or after January 1, Changes to IAS 27 must be applied using estimates. These changes will have no impact on the Consolidated Financial Statements of the Cembre Group. IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements Amended principles were issued in January 2008 and are effective for annual periods beginning on or after July 1, IFRS 3R introduces various changes in the accounting of business combinations occurring after such date, which will generate an impact on the amount of goodwill generated, on results for the period in which the acquisition takes place, and on future results. IAS 27R regulates changes in the share held in a subsidiary (without translating into a loss of control). As a result of these transactions, any difference between the minority interest (sold or acquired) and the price received or paid will be recorded directly under Shareholders' Equity. The principle modifies moreover the accounting of losses recorded by the subsidiary, and the loss of control of a subsidiary. Other changes connected with the above affected also IAS 7 Cash Flow Statements; IAS 12 Accounting for Taxes on Income; IAS 21 The effects of changes in foreign exchange rates, IAS 28 Investments in Associates and IAS 31 Financial Reporting of Interests in Joint Ventures. Amendments to IFRS 3R and IAS 27R will generate effects on future business combinations, on operations that determine the control of a subsidiary and on transactions involving minority interests. Early application is permitted, but the Group does not intend to take advantage of this option. IAS 1 Presentation of modified financial statements The amended principle was issued in September 2007 and is effective for annual periods beginning on or after January 1, The principle states how changes in controlling shares and changes in minority interest holdings must be reported. The Statement of Changes in the Shareholders' Equity must include only details relating to the Group s Shareholders' Equity, while transactions involving minority interest holdings must be reported under a single caption. The principle introduces moreover a comprehensive income statement, in which the reporting entity is to report all components of the income statement alternatively in a single comprehensive income statement or in two connected statements of which one shows the components of the income statement and the other the components of other items of the comprehensive income statement. The Group is evaluating which of the two solutions to adopt. IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements: Financial Instruments Puttable at Fair Value and Obligations arising on Liquidation Changes to IAS 32 and IAS 1 were approved in February 2008 and are effective for annual periods beginning on or after January 1, The revision of the accounting principle provide for an exception, with a very limited scope of application, allowing the classification of put options and similar instruments as equity instruments, in case certain conditions apply. Changes to the principle will not have an effect on the Balance Sheet or the profit of the Group, as no instrument of this type were issued by Cembre. 44

45 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S IAS 39 Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting The amendments to IAS 39 were issued in August 2008 and are effective for annual periods beginning on or after 1 July The amendment regulates the designation of unilateral risks on hedged instruments and the designation of inflation as a hedged risk or portion of hedged risk in certain situations. The amendment moreover states that the entity may choose to designate a portion of the change in the fair value or changes in the cash flow of a financial instrument as a hedged instrument. The Group concluded that the amendment will have no impact on its financial position or profit generation as it is not currently engaged in any of these operations. Improvement of IFRS The Group has not taken advantage, where permitted, of early application of amendments made to accounting principles as part of the 2007 IFRS improvement project and believes that these will not have a significant impact on its financial statements. - IFRS 7 Financial Instruments: Disclosures: The reference to total interest income as a component of financial costs was removed. - IAS 8 Accounting Policies, Changes in. Accounting Estimates and Errors: It clarifies that in the choice of an accounting policy, the application of guidelines for the implementation of the same is mandatory only when it constitutes an integral part of the related IFRS. - IAS 10 Events after the Balance Sheet Date: It clarifies that dividends declared after the balance sheet date shall not be recorded as a liability, as at the balance sheet date there does not exist any obligation. - IAS 16 Property, Plant and Equipment: Components of property, plant and equipment held up for lease and which, at the expiration of the lease contract are systematically sold, must be classified as inventory at the expiration of the lease contract, at the time at which they become available for sale. - IAS 18 Revenue: Replacement of the term direct costs with transaction costs, as defined in IAS IAS 19 Retirement Benefits: It modifies the definition of pension costs relating to past employment periods, yield of retirement plan assets, short-term benefits and other long-term benefits. Reference to the recording of potential liabilities was eliminated to ensure consistency with IAS IAS 20 Accounting for Government Grants: Loans extended in the future that are either non-interest bearing or at a rate lower than market rates will not be exempt from the requirement of the recording of interest. The difference between the amount received and the amount recorded is accounted for as a Government grant. Terms have also been revised to ensure consistency with other IFRS. - IAS 27 Consolidated and Separate Financial Statements: When a parent company carries its subsidiaries at fair value, in compliance with IAS 39, in its separate financial statements, the same will apply also when the subsidiary is reclassified as held for disposal. - IAS 29 Financial Reporting in Hyperinflationary Economies: Reference to the exception that allows to carry assets and liabilities at the historical cost has been modified by specifying that property, plant and equipment constitute an example and not an exhaustive list. Terms have also been revised to ensure consistency with other IFRS. 45

46 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S - IAS 34 Interim Financial Reporting: Earnings per share in interim financial statements fall within the scope of application of IAS IAS 39 Financial Instruments: Recognition and Measurement: Changes in the circumstances affecting derivatives do not constitute a reason for reclassification and therefore derivatives cannot be transferred to or included in the category valued at fair value with changes taken to the income statement. Reference to segment in IAS 39 in the context of determining weather an instrument qualifies as a hedge, was eliminated. The use of the effective rate is required in the reassessment of a debt instrument at the time the fair value hedge accounting ceases to apply. - IAS 40 Investment Property: The scope of application was redefined establishing that property under construction or development that will be subsequently held as investment property, must be classified as investment property. Where the fair value cannot be determined in a reliable manner, the investment under construction will be recorded at cost until its fair value can be determined or until completion of the construction. It was moreover clarified that the fair value of the investment property held under a lease reflects the expected financial flows (including the potential lease payment that is expected to become receivable). Consequently, if a valuation of a piece of property is net of all expected future payments, it will become necessary to add back any liability arising from the lease contract to obtain the fair value of the investment property to be used for accounting purposes. Finally, conditions for a voluntary revision of accounting policies to achieve consistency with IAS 8 were revised. - IAS 41 Agriculture: Reference to the discounting rate before taxes in the determination of fair value was removed. The prohibition to keep into account in determining the fair value of any cash flow deriving from any subsequent transformation was also removed. Finally, the term costs at point of sale was replaced with sales costs. IFRIC 15 Agreements for the Construction of Real Estate IFRIC 15 was issued in July 2008 and is effective for annual periods beginning on or after January 1, The interpretation must be applied retrospectively. It clarifies when and how correlated revenues and connected costs deriving from the sale of Real Estate should be recorded when an agreement between the builder and the acquiring party has been reached before the construction has been completed. Moreover, the interpretation supplies indications on how to determine if an agreement falls within the scope of application of IAS 11 or IAS 18. IFRIC 15 will not have an impact on the Consolidated Financial Statements of the Group, as it is not engaged in such activity. IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 was issued in July 2008 and is effective for annual periods beginning on or after January 1, The interpretation must be applied prospectively. IFRIC 16 provides indications on the accounting of a hedge of a net investment in a foreign operation. In particular it supplies guidelines on the identification of currency risks which qualify for the application of hedge accounting in the hedge of a net investment and on how the entity must determine the amount of currency translation gains and losses, correlated both to the net investment and the hedge instrument, which will have to be reclassified in the income statement at the time of the sale of the investment. The Group does not make use of hedges and the above interpretation may therefore not be applied. 46

47 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Principles of consolidation The Consolidated Financial Statements of the Cembre Group include the statutory accounts at December 31, 2008 of Cembre S.p.A. and of its subsidiaries. Accounting principles adopted in the preparation of the fi nancial statements of subsidiaries are consistent with those of the parent company. In the consolidated fi nancial statements, assets, liabilities, costs and revenues of consolidated companies are consolidated line-by-line. The book value of investments in subsidiaries is netted against the respective share in the Shareholders Equity held, inclusive of adjustments to the fair value of the related assets and liabilities at the date of their acquisition. The residual difference is attributed to goodwill. The following companies were consolidated at December 31, 2008: % held 1. Cembre Ltd (UK) 100% 2. Cembre Sarl *(France) 100% 3. Cembre España SL *(Spain) 100% 4. Cembre AS (Norway) 100% 5. Cembre Gmbh*(Germany) 100% 6. Cembre Inc**(US) 100% 7. General Marking Srl (Italy) 100% * 5% share held through Cembre Ltd **29% share held through Cembre Ltd The consolidation area is unchanged with respect December 31, III. CONSOLIDATION PRINCIPLES AND VALUATION CRITERIA Form of the financial statements The fi nancial statements are prepared as follows: - current and non-current assets and liabilities are reported separately in the balance sheet; - the analysis of costs in the income statement is carried out based on the nature of the same; - the statement of cash fl ows is prepared by applying the indirect method. Finally, with reference to Consob Regulation no dated July 27, 2006, the Financial Statements include a separate reporting of amounts pertaining to related parties, where significant. Consolidation principles The Consolidated Financial Statements of the Cembre Group include the statutory accounts of Cembre S.p.A. and those of its subsidiaries. The fi nancial statements of consolidated subsidiaries are consolidated under the line-by-line method, thus including all items, irrespective of the share held by the Group, of the elimination of intragroup transactions and of unrealized gains on transactions with third parties. The book value of investments is netted against the related share in the shareholders equity of consolidated companies, attributing to assets and liabilities the respective current value at the time control was acquired and recording contingent liabilities, where appropriate. Where positive, the 47

48 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S residual amount is recorded among non-current assets as goodwill. Negative residual differences are recorded in the income statement. All subsidiaries are wholly-owned and in no case therefore have minority interests been recorded. Translation of fi nancial statements expressed in currencies other than the euro The functional and reporting currency of the Group is the euro. Financial statements denominated in functional currencies other than the euro are translated according to the following criteria: - assets and liabilities are translated at the exchange rate applicable at the date of the financial statements; - income statement items are translated at the average exchange rate for the year; - foreign-exchange translation differences are recorded in a specific Shareholders Equity reserve. At the time at which a foreign subsidiary is disposed of, accumulated foreign-exchange differences recorded under Shareholders Equity relating to the same are taken to the Income Statement. Exchange rates applied in the translation of financial statements of subsidiaries are shown in the table below. Currency Exchange rate at Dec. 31, 2008 Average exchange rate for 2008 British pound ( / ) US dollar ( /$) Norway kroner ( /NOK) Property, plant and equipment Property, plant and equipment is recorded at the historical cost and reported net of accumulated depreciation and losses in value. Ordinary maintenance and repair costs are not capitalized, and are charged to the income statement in the year in which they are incurred. Depreciation commences when the asset is available for use and is calculated on a straight line basis over the estimated residual useful life of the asset, taking into account its residual value. Depreciation rates applied refl ect the useful life generally attributed to the various classes of assets and are unchanged from the previous year. These are: - Buildings and light installations: 2% 10% - Plant and machinery: 5% 25% - Industrial and commercial equipment: 6% 25% - Other assets: 6% 33%. In 2008, the depreciation schedules of property, plant and equipment were adjusted to bring them into line with the reviewed useful lives of the same. For further detail and an evaluation of the effect of these changes we refer to the paragraph on the Review of estimation methods. Land has an undetermined useful life and is therefore not subject to depreciation. The book value of property, plant and equipment is subjected to an impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the depreciation schedule originally set. Whenever there exists such an indication, the assets or cash generating units are written down to refl ect their expected realizable value. 48

49 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S The residual value of assets, their useful life and methods applied are reviewed annually and adjusted, where necessary, at the end of each year. Tangible assets are eliminated from the Balance Sheet at the time of their sale or when there no longer exists the expectation of future economic benefi ts from its use or disposal. Losses and gains (calculated as the difference between net revenues from the disposal and the book value of the asset) are recorded in the Income Statement in the year in which they are disposed of. Leased assets Assets held under a financial lease, through which all risks and benefits relating to ownership are transferred to the Group, are recorded under assets at the lower of their current value and the present value of minimum lease payments due according to the contract, including the bullet payment due at the end of the lease to exercise the repurchase option. The liability corresponding to the lease contract is recorded under financial liabilities. Leased asset are classified under the respective category among property, plant and equipment, and depreciated over the shorter period between the term of the lease and the expected residual useful life of the asset. Lease contracts in which the lessor holds all risks and enjoys all benefits deriving from the leased asset are classified as operating leases and recorded as costs in the Income Statement over the term of the contract. Intangible assets Intangible assets are recorded under assets, as provided by IAS 38 (Intangible assets), whenever it is probable that future economic benefi ts are generated through use and when the cost of the intangible asset can be determined in a reliable manner. Intangible assets acquired separately are initially capitalized at cost, while those acquired through mergers are capitalized at their fair value at the time of acquisition. With the exception of development costs, assets generated internally cannot be recorded as intangible assets. After the initial recording, intangible assets are carried in the balance sheet at cost, net of accumulated amortization calculated on a straight-line basis over their expected useful economic life, and of write-downs carried out as a result of durable losses in value. Intangible assets having an indefi nite useful life are not amortized and subjected periodically to an impairment test to assess possible loss in value. The useful life generally attributed to the various classes of assets is the following: - concessions and licenses: 5 to 10 years - software licenses 3 to 5 years - development costs: 5 years - trademarks: 10 to 20 years Amortization commences when the asset is available for use, that is, when it is in a position and in the necessary condition to operate in the manner intended by management. The book value of intangible assets is subjected to an impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the amortization schedule originally set. Whenever there exists such an indication and the book value of the asset exceeds its realizable value, the value of the asset is written-down to its expected realizable value. 49

50 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Financial assets Financial assets are initially recorded at cost, inclusive of accessory purchase costs, representing the fair value of the price paid. After the initial recording, fi nancial assets are valued in accordance with their fi nal purpose as described below. Financial assets valued at fair value, whose change is recorded in the Income Statement These are fi nancial assets held for trading purposes, acquired for the purpose of obtaining a profi t from short-term fl uctuations in price. Unless specifi cally designated as effective hedge, derivatives are classifi ed as fi nancial assets held for trading purposes. Gains and losses on fi nancial assets held for trading purposes are recorded in the income statement. Financial assets held to maturity Financial assets other than derivatives that generate fi xed fi nancial fl ows or fl ows that may be determined and have a set maturity, are classifi ed as Financial assets held to maturity when the Group intends to and is capable of holding them to maturity. Financial assets that the Group decides to hold for an indefi nite period of time do not fall under this category. After their initial recording, long-term fi nancial investments held to maturity, such as bonds, are accounted for at the amortized cost, using the effective rate of interest method, are discounted to their present value. The amortized cost is calculated keeping into account discounts and premiums, amortized over the term of the fi nancial asset. Loans extended and receivables Loans and receivables are non-derivative financial assets providing for fixed payments or payments that may be determined, not listed on an active market. Such assets are recorded at the amortized cost using the actual discount rate method. Gains and losses are recorded in the Income Statement whenever loans extended and receivables are eliminated from the accounts or they experience losses in value, together with the related amortization. Financial assets available for sale Financial assets available for sale include fi nancial assets that do not fall under the above categories. After the initial recording, these are accounted for at fair value, while gains and losses are recorded under a specifi c Shareholders Equity reserve until the assets are sold or a loss in value is ascertained. In such case, gains and losses accrued are charged to the income statement. In the case of securities widely traded on a regulated market, the fair value is determined with reference to the listed price at the closing of trading on the date of the fi nancial statements. In the case of fi nancial assets for which there does not exist an active market, the fair value is determined through valuation techniques based on the price recorded in recent transactions between unrelated parties or on the basis of the current market value of a similar instrument, or on discounted cash fl ows or option pricing models. Investments in other companies fall in this category. Loss in value of fi nancial assets The Group verifi es at least yearly the possible loss in value of individual fi nancial assets. These are recorded only at the time when there exists objective evidence, at the occurrence of one or more events, that the asset has experienced a loss of value with respect to its initial recorded value. 50

51 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Treasury shares Treasury shares are recorded as a reduction of Shareholders Equity in a specific reserve. The purchase, sale, issue or cancellation of treasury shares held does not determine the recording of any gain or loss in the Income Statement. Inventories Inventories are valued at the lower of cost and their expected realizable value, represented by their normal sale price, net of completion and selling costs. The cost of inventories includes the acquisition cost, the transformation cost and other costs incurred to take inventories to their current location and state. The cost of inventories is determined under the weighted-average method, inclusive of the cost of beginning inventories. Provisions for slow-moving stock are accrued for fi nished products, materials and other supplies, keeping into account their expected useful life and retrievable value. Receivables and payables Receivables are recorded initially at fair value and subsequently carried at the amortized cost, writtendown in case of loss in value. Payables are normally valued at the amortized cost, adjusted under exceptional conditions for changes in value. Cash and cash equivalents Cash and cash equivalents are recorded at face value. Loans Loans are initially recorded at cost, corresponding to the fair value of the amount received, net of accessory costs. After the initial recording, loans are valued at the amortized cost, using the effective interest method. Foreign currency translation Transactions denominated in currencies other than the euro are initially accounted for in euro at the exchange rate at the date of the transaction. Currency translation differences arising at the time at which foreign currency receivables are collected and payables are paid out, are recorded in the income statement. At the date of the fi nancial statements, monetary assets and liabilities denominated in currencies other than the euro consisting of cash on hand or assets and liabilities to be received or paid out, whose amount is set and may be determined are translated into euro at the exchange rate at the date of the fi nancial statements, recording in the income statement the currency translation difference. Non-monetary items denominated in currencies other than the euro are translated into euro at the exchange rate at the time of the transaction, representing the historical exchange rate. Functional currencies adopted by Group companies correspond to the currencies of the respective county in which subsidiaries are based Provisions for risks and charges Provisions for risks and charges are accrued against known liabilities whose amount and expiration cannot however be determined at the date of the financial statements. Accruals are made when the existence of a current obligation, legal or implicit, deriving from a past event, the fulfilment of which 51

52 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S is expected to require the use of resources whose amount can be reliably estimated, is probable. Provisions are valued at the fair value of liabilities. When the financial effect and the timing of the cash outflow can be estimated in a reliable manner, provisions include the interest component, recorded in the Income Statement among financial income (expense). Provisions accrued are reviewed at each accounting date and adjusted to bring them into line with the best estimate available to date. Employee benefits Under IAS 19, and before the reform introduced by the 2007 Budget Law, the Employee Severance Indemnity was classifi ed among defi ned benefi t plans and was therefore subject to actuarial adjustments. After the reform, the provisions of which were adopted by the Group from the 2007 Half-year Report, employee termination indemnities accrued up to December 31, 2006, continue to be accounted for as defi ned benefi t plans, while those accrued from January 1, 2007 are accounted for in two different ways: - where the individual employee has opted for complementary pension funds, employee termination indemnities accrued after January 1, 2007 and until the time at which the choice is made by the employee, are accounted for as a defi ned benefi t plan. Subsequently they are accounted for as a defi ned contribution plan; - where the individual employee has opted for accumulation with the treasury fund of the national social security agency (INPS), indemnities accrued after January 1, 2007 are accounted for as a defi ned contribution plan. Elimination of financial assets and liabilities Financial assets are eliminated when the Group ceases to hold rights to receive fi nancial fl ows deriving from the same or when such rights are transferred to another entity, that is when risks and benefi ts of the fi nancial instrument cease to have an effect on the fi nancial position and operating performance of the Group. A fi nancial liability is written-off exclusively when the related obligation is cancelled, fulfi lled or expired. Any material change in the contractual terms relating to the liability result in its cancellation and in the recording of a new liability. Any difference between the book value and the amount paid to extinguish the liability is recorded in the Income Statement. Revenues Revenues are valued at the current value of the amount received or receivable. Disposal of assets The revenue is recognized when the Company has transferred the risks and benefits connected with the ownership of the good, and ceases to exercise the activity associated with ownership and the actual control over the asset sold. Services rendered Revenues are recorded based on the stage of completion of the operation at the date of the financial statements. When the result of the service rendered cannot be reliably estimated, revenues are recorded only to the extent of retrievable costs. The stage of completion is determined by valuing work carried out or by determining the proportion between costs incurred and total estimated costs to completion. 52

53 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Interest Interest is recorded in the period in which it accrues, using the effective interest method. Dividends Dividends are recorded when the right of shareholders to receive them arises. Grants Grants are recorded when there exists a reasonable certainty that the same will actually be received and the company meets the conditions for the entitlement to the grant. Grants linked to cost components (operating grants) are recorded under other revenues and amortized over several years so that revenues match the costs they are intended to compensate. The fair value of grants linked to assets (e.g. grants on the purchase of plant and equipment or grants for capitalized R&D costs), is suspended under long-term liabilities and released to the income statement under other revenues over the useful life of the asset to which it relates, thus in the period over which the depreciation expense relating to the asset is charged to the income statement. Financial charges Financial charges are recorded as a cost in the period in which they accrue. Cost of goods purchased and services received The cost of goods purchased and services received is recorded in the income statement based on the accrual method. Income taxes (current, prepaid and deferred) Current taxes are determined based on a realistic estimate of the tax expense for the period in accordance with applicable tax regulations in the respective countries. The Group records deferred and prepaid taxes arising from temporary differences between the book value of assets and liabilities and the related values reported for tax purposes, in addition to differences in the value of assets and liabilities generated by consolidation adjustments. Prepaid taxes are recorded only where there exists reasonable certainty of their retrieval through future profits within the term in which tax benefits are enjoyed. Deferred tax assets are recorded also where there exist deductible losses or tax credits, whenever it is deemed probable that sufficient future profits will be generated in the medium-term (3 to 5 years). Financial derivatives Derivative fi nancial instruments are valued at market value (fair value). A derivative fi nancial instrument can be acquired for trading or hedging purposes. Gains and losses on fi nancial instruments acquired for trading purposes are charged to the income statement. Derivatives acquired for hedging purposes may be accounted for under the hedge accounting method offsetting the recording of the derivative in the income statement with adjustments to the value of assets and liabilities hedged only when derivatives meet specifi c criteria. Hedge derivatives are classifi ed as fair value hedges when they are acquired to hedge against the risk of fl uctuations in the market value of the underlying asset or liability or fl uctuations in the fi nancial fl ows deriving from the same, both in the case of existing assets and liabilities or those deriving from a future transaction. In the case of fair value hedges, gains and losses on the restatement of the market value of a derivative 53

54 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S instrument are taken to the income statement. With regard to the hedging of fi nancial fl ows, gains and losses on the hedge instrument are recorded under Shareholders Equity when they relate to the portion of the hedge considered effective, while the portion not hedged is recorded in the income statement. Earnings per share Earnings per share are calculated by dividing consolidated net profi t by the weighted average number of shares in circulation for the period. Fully diluted earnings per share (calculated by subtracting from consolidated net profi t the cost of converting all stock options into ordinary shares) are obtained by adjusting the number of shares in circulation assuming the exercise of stock options having a diluting effect. Use of estimates In accordance with IAS/IFRS, the Group made use of estimates and assumptions based on prior experience and other factors deemed determinant, but not certain. Actual data could therefore differ from estimates and projections made. Estimated data is reviewed periodically and adjustments made to the same are taken to the Income Statement for the period in which the review takes place in case the review affect only one period, or, subsequent accounting periods in case it affects also the same. Below we describe review processes and key assumptions used by management in applying accounting principles. Provision for doubtful accounts The provision for doubtful accounts refl ects management estimates regarding losses on trade receivables. Losses on trade receivables expected by the Group are based on past experience on similar portfolios of receivables, current overdues vs. historical overdues, losses and collections, the close monitoring of credit risk and credit worthiness of customers, in addition to projections on economic and market conditions. Retrievable value of non-current assets Non-current assets include property, plant and equipment, intangible assets, investments and other fi nancial assets. Whenever circumstances so require, the management reviews periodically the book value of noncurrent assets held and used by the Group, in addition to assets to be disposed of. Such activity is carried out using estimates of expected cash fl ows from the sale of the asset and of adequate discount rates used in calculating the present value of the same. Whenever the book value of a non-current asset experiences a loss in value, the Company records a write-down equal to the difference between the book value of the asset and its retrievable value either through use or disposal of the same. Post-retirement benefi ts Post-retirement benefi ts In the estimation of post-retirement benefi ts the Group makes use of traditional actuarial techniques based on stochastic simulations of the Montecarlo type. Assumptions made relate to the discount rate and the annual infl ation rate. Actuarial advisors of the Company make also use of demographic projections based on current mortality rates, employee disablement and resignation rates. In 2008, based on past turnover experience, the probability of an employee terminating his or her 54

55 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S employment for causes other than death is the following: Male 6.18% Female 4.46% Assumptions regarding the discounting and infl ation rates were: Discounting rate 4.75% Yearly infl ation rate 2.50% Expected advances to be paid out are 5% per year and each advance corresponds to 70% of accrued indemnity. Retrievability of deferred tax assets The Group evaluates the possibility to retrieve deferred tax assets on the basis of profi ts and expected future market conditions in view of current sale contracts and ability of expected future profi ts to offset tax credits, in addition to the expected variance of the same. Potential liabilities In carrying out its activity, management consults with its legal and tax advisors and experts. The Group ascertains a liability arising from litigation whenever it deems probable that a fi nancial outlay will be made in the future and when the amount of resulting losses can be reasonably estimated. In case a fi nancial outlay becomes possible but its amount cannot be determined, such occurrence is reported in the notes. Revision of estimation methods Following a review carried out in the 1st Quarter of 2008, the depreciation schedules of plant, machinery and equipment were adjusted to bring them into line with the revised useful lives of the same, resulting in a 478 thousand reduction in the amortization expense for 2008 (which amounts to 1,630 thousand) with respect to the amortization schedule used up to The upward revision of the useful life of plant, machinery and equipment resulted in a reduction of the hourly cost of the same used in the determination of the value of semi-fi nished and fi nished goods inventories. Had the same depreciation schedule applied in 2007 been applied to determine the value of inventories at March 31, 2008, in the 1st Quarter of 2008 these would have been higher by about 734 thousand. As it would be excessively onerous repeat the same simulation for subsequent periods, due to the strong complexity of the process and in part to the adoption of a new information system in May, it is estimated that the effect on the value of inventories at December 31, 2008 is in line with that calculated at the end of the 1st Quarter of

56 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S IV. SEGMENT INFORMATION Cembre adopted as its primary reporting focus information by geographical area based on the location in which the operations of the company are based or the production process takes place. Information by segment of activity is not provided as the Cembre Group operates in a single segment denominated Electric connectors and related tools. As required under IAS 14, segment information by geographical area: 2008 Italy Rest of Europe Rest of World Elimination of intragroup transactions Total Revenues Sales to customers 52,422 36,489 5,377 94,288 Sales to other Group companies 25,632 1,404 6 (27,042) - Revenues by sector 78,054 37,893 5,383 (27,042) 94,288 Operating profit by sector 12,461 3, ,221 Overhead costs not assigned Operating profit 16,221 Financial income (expense) (190) Income taxes (5,174) Net profit 10, Italy Rest of Europe Rest of World Elimination of intragroup transactions Total Revenues Sales to customers 52,348 35,733 5,336 93,417 Sales to other Group companies 23,713 1, (25,365) - Revenues by sector 76,061 37,368 5,353 (25,365) 93,417 Operating profi t by sector 13,426 4, ,420 Overhead costs not assigned Operating profit 18,420 Financial income (expense) (302) Income taxes (6,222) Net profit 11,896 As the breakdown of sales by geographical area is different from that of the related Group activities, a breakdown of sales by geographical area of customers is shown below Italy 41,100 39,286 Europe 42,249 43,316 Rest of World 10,939 10,815 94,288 93,

57 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S The breakdown of assets and liabilities is shown below: Dec. 31, 2008 Italy Rest of Europe Rest of World Total Assets and Liabilities Assets of the sector 67,273 28,701 4, ,122 Unassigned assets (2,431) Total assets 97,691 Liabilities of the sector 21,883 4, ,248 Unassigned liabilities (20) Total liabilities 26,228 Other information by sector Capital expenditure: - Property, plant and equipment 3, ,063 - Intangible assets ,608 Depreciation and amortization: - Property, plant and equipment (2,102) (558) (74) (2,734) - Intangible assets (315) (3) - (318) Write-downs Accruals to provision for employee benefits Average no. of employees Dec. 31, 2007 Italy Rest of Europe Rest of World Total Assets and Liabilities Assets of the sector 66,956 30,319 3, ,306 Unassigned assets (2,576) Total assets 97,730 Liabilities of the sector 24,903 6, ,035 Unassigned liabilities (17) Total liabilities 31,018 Other information by sector Capital expenditure: - Property, plant and equipment 2,943 3, ,404 - Intangible assets ,904 Depreciation and amortization: - Property, plant and equipment (2,440) (624) (49) (3,113) - Intangible assets (174) (3) - (177) Write-downs Accruals to provision for employee benefits Average no. of employees

58 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant and machinery Other assets Leased assets Work in progress Total Historical cost 27,967 30,110 6,934 6, ,654 Accumulated depreciation (5,251) (23,607) (5,768) (4,520) (159) - (39,305) Bal. at Dec. 31, ,716 6,503 1,166 1, ,349 Increases 272 1, ,133 4,064 Currency translation differences (789) (180) (1) (42) - - (1,012) Depreciation (502) (1,308) (322) (537) (65) - (2,734) Net divestments - (29) - (33) - (15) (77) Reclassifications (210) - Bal. at Dec. 31, ,697 6,894 1,356 1, ,221 32,590 Land and buildings Plant and machinery Equipment Equipment Other assets Leased assets Work in progress Total Historical cost 26,227 28,682 6,741 5, ,940 Accumulated depreciation (4,948) (22,433) (5,429) (4,488) (114) - (37,412) Bal. at Dec. 31, ,279 6,249 1,312 1, ,528 Increases 3,216 1, ,404 Currency translation differences (320) (57) (3) (20) - - (400) Depreciation (454) (1,597) (443) (553) (66) - (3,113) Net divestments (1,005) (10) - (13) - (42) (1,070) Reclassifications (203) - Bal. at Dec. 31, ,716 6,503 1,166 1, ,349 Capital expenditure in 2008 consists primarily of purchases made by the parent company. Among these is the acquisition for 0.5 million of two work stations, the purchase of automatic equipment worth 0.5 million and the improvement and upgrade of fixed equipment for 2 million. The UK subsidiary acquired equipment worth 0.3 million. The increase in work in progress is due mainly to advances paid on the widening and renovation of the entrance and parking of the main complex in Brescia. 58

59 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 2. INTANGIBLE ASSETS Development costs Software Work in progress Total Historical cost Accumulated amortization (124) (2.205) - (2.329) Balance at Dec. 31, Increases Amortization (57) (262) - (319) Reclassifications (250) - Balance at Dec. 31, Increases relates to costs incurred in the purchase of the new information system by the parent company. 3. OTHER NON-CURRENT ASSETS The item includes security deposits and receivables from employees. 4. INVENTORIES Dec. 31, 2008 Dec. 31, 2007 Change Raw materials 6,842 7,752 (910) Work in progress and semi-finished goods 8,480 7, Finished goods 17,056 16, Total 32,378 31, The value of finished goods inventories is adjusted to its expected realizable value through a provision for slow-moving stock amounting approximately to 1,484 thousand. Changes in the provision in 2008 are shown in the table that follows: Balance at January Accruals Uses (175) (150) Currency translation differences (52) (36) Balance at December 31 1,484 1,593 59

60 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 5. TRADE RECEIVABLES Dec. 31, 2008 Dec. 31, 2007 Change Gross trade receivables 25,160 27,003 (1,843) Provision for doubtful accounts (510) (648) 138 Total 24,650 26,355 (1,705) Trade receivables by geographical area Dec. 31, 2008 Dec. 31, 2007 Change Italy 14,223 14,509 (286) Europe 9,454 10,821 (1,367) North America Oceania (238) Middle East (117) Far East Africa (83) Total 25,160 27,003 (1,843) Average collection time declined considerably from 103 days in 2007 to 98 days in Changes in the provision for doubtful accounts, accrued in part for overall bad debt and in part for individual accounts, is shown in the table that follows: Balance at January Accruals Uses (399) (72) Currency translation differences - (1) Balance at December Breakdown of receivables by maturity at December 31, 2008 Not Over one Under matured days days days year litigation Total ,502 2, , ,329 4, ,003 60

61 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 6. TAX RECEIVABLES Dec. 31, 2008 Dec. 31, 2007 Change Tax credits Total The amount relates to tax receivables of the parent company, amounting to 391 thousand, and the US subsidiary, amounting to 111 thousand. 7. OTHER ASSETS Dec. 31, 2008 Dec. 31, 2007 Change Receivables from employees (10) VAT and other indirect taxes receivable (104) Advances to suppliers Other Total Item Other includes prevalently receivables of the parent company relating to social security. 8. SHAREHOLDERS EQUITY At December 31, 2008, the capital stock of the parent company amounted to 8,840 thousand, and was made up of 17 million ordinary shares of par value 0.52 each, fully underwritten and paid-up. At December 31, 2008 the Company did not hold treasury shares. A reconciliation between the Shareholders Equity and net profit of the parent company and the Consolidated Shareholders Equity and net profit is provided in the Report on Operations. Changes in individual components of the Consolidated Shareholders Equity are shown in the Statement of Changes in the Consolidated Shareholders Equity included in the Consolidated Financial Statements. The consolidation reserve is made up as follows: Dec. 31, 2008 Dec. 31, 2007 Elimination of investments in subsidiaries 13,012 9,429 Elimination of unrealized intra-group profit in stock (2,576) (1,925) German subsidiary product warranty provision reversal Dividends from subsidiaries Currency translation differences on intra-group payables and receivables (2) 12 11,006 7,961 61

62 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 9. FINANCIAL LIABILITIES Effective interest rate (%) Maturity Dec. 31, 2008 Dec. 31, 2007 Bank overdrafts Parent company on demand Unicredit Credito Bergamasco Monte dei Paschi di Siena Popolare di Verona Popolare di Bergamo 41 1,281 Popolare di Sondrio Banco Nazionale del Lavoro - 39 Intesa - San Paolo ,215 3,915 Cembre Ltd Lloyds TSB 6 (rate+1.5 spread) on demand Cembre GmbH Popolare di Bergamo / Total bank overdrafts 1,304 3,972 Loans General Marking Popolare di Sondrio a 30 gg 1,304 - Cembre GmbH Popolare di Bergamo Euribor / ,150 Total loans 1,954 2,150 Leasing (short-term portion) Cembre España SL Total leasing (short-term portion) CURRENT FINANCIAL LIABILITIES 3,315 6,183 Leasing (long-term portion) Cembre España SL Total leasing (long-term portion) NON-CURRENT FINANCIAL LIABILITIES The loan extended to General Marking has a term of 30 days. The average interest rate on the loan in 2008 was equal to %. The rate is currently 3.8%. The present value of minimum future lease payments, discounted at the average rate paid on current 62

63 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S lease contracts, is shown in the table that follows: Year Cash flow No. of days Current value , ,460 3 Total Long-term portion of financial leases by maturity: Difference 17 Avg. discounting rate 5.92% Total Minimum amounts Discounted amounts The parent company granted guarantees against loans extended to subsidiaries Cembre GmbH and General Marking S.r.l EMPLOYEE TERMINATION INDEMNITY AND OTHER RETIREMENT BENEFITS The item includes the Employee Severance Indemnity accrued for employees of Italian companies. Special retirement benefi ts, due in accordance with French regulations to persons employed in France at the time of retirement, are also included in the provision. With the reform of employee termination indemnities, starting with January 1, 2007 Cembre S.p.A. is no longer be required to accrue retirement benefi ts in favour of its employees in a provision, but pays out benefi ts accrued after such date to the INPS treasury account, unless such benefi ts have been destined to other pension funds by individual employees. Employee termination indemnities accrued at December 31, 2008 was therefore discounted on the basis of an evaluation made by a registered actuary, in accordance with current regulations. Dec. 31, 2008 Dec. 31, 2007 Beginning balance 3,352 4,658 Accruals Uses (441) (424) Curtailment - (1.026) INPS treasury account (525) (524) Discounting effect 152 (21) Closing balance 3,194 3,352 The restatement of employee termination indemnities, carried out in 2007 in compliance with normative change, resulted in a 1,026 thousand reduction (curtailment) in the value of the provision. 63

64 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 11. PROVISIONS FOR RISKS AND CHARGES Changes in the year are shown in the table below. Social Security (INAIL) litigation Customer indemnities Total At December 31, Accruals Uses - (13) (13) At December 31, The provision for social security (INAIL) litigation was accrued in past years to cover potential liabilities that could emerge from alledged different classifi cations made in the past and contested by INAIL, against which claims the parent company made a motivated appeal. The competent Court of fi rst degree ruled in favour of Cembre, but the provision was left prudentially unchanged while appeals are pending. 12. DEFERRED TAX ASSETS AND LIABILITIES Dec. 31, 2008 Dec. 31, 2007 Deferred tax liabilities Average cost valuation of inventories by the parent (345) (462) Accelerated depreciation (231) (1,048) Elimination of Cembre GmbH product warranty provision (13) (12) Reversal of land depreciation (27) (27) Revaluation of land (1,859) (1,859) Discounting of employee termination indemnity (109) (149) Capital gain on sale of industrial building (72) (96) Foreign exchange translation differences (15) - Gross deferred tax liabilities (2,671) (3,653) Deferred tax assets Elimination of unrealized intra-group profits in stock 1,319 1,179 Write-down of inventories Goodwill amortization Accumulated losses of General Marking Depreciation and write-down of inventories of General Marking Risk provision 5 5 Other Gross deferred tax assets 1,847 1,886 Net deferred tax liabilities (824) (1,767) 64

65 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S The decline in deferred tax liabilities on accelerated depreciation is due to the freeing-up of main asset classes carried out by the parent, as described in detail in the note on income taxes. 13. TRADE PAYABLES Dec. 31, 2008 Dec. 31, 2007 Change Payable to suppliers 10,792 10,864 (72) Advances (122) Total 10,819 11,013 (194) Trade payables by geographical area. Dec. 31, 2008 Dec. 31, 2007 Change Italy 8,144 8,145 (1) Europe 2,604 2,659 (55) North America Oceania (11) Other 4 12 (8) Total 10,792 10,864 (72) 14. OTHER PAYABLES Dec. 31, 2008 Dec. 31, 2007 Change Payables to employees 1,234 1, Employee withholding taxes payable (137) Bonuses owed to customers VAT and similar foreign taxes payable Commissions payable (5) Payable to Statutory Auditors and similar foreign boards Payable to Directors Social security payables 1,726 1, Payable on sundry taxes Other 6 15 (9) Total 5,537 5,

66 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 15. REVENUES FROM SALES AND SERVICES PROVIDED In 2008, revenues grew by 0.9% on the previous year. Domestic sales represented 43.6% of total sales, up 4.6% on 2007, while sales in the rest of Europe represented 44.8% of the total, down 2.5% on the previous year. Sales in the rest of the world grew by 1.2% and represented 11.6% of total sales as in the previous year. 16. OTHER REVENUES Change Capital gains (372) Insurance damages 4 41 (37) Reimbursements Other (73) Total (445) Reimbursements relate primarily to transport costs charged to customers. In 2007, the sale of the industrial building in San Giuliano Milanese had resulted in the recording in a 380 thousand net capital gain. 17. COST OF SERVICES Change Subcontracted work 2,838 3,687 (849) Electricity, heating and water 1,185 1, Transport of goods sold 2,035 2,242 (207) Fuel Travelling expenses (18) Maintenance and repair 1,420 1, Consulting Advertising and promotion Insurance Boards compensation (57) Postage and telephone (21) Commissions Security and cleaning Bank charges (12) Other Total 13,096 13,615 (519) The marked decline in subcontracted work is due to the transfer in-house of some of the production phases and lower recourse to outside suppliers to fulfi l orders. 66

67 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 18. LEASES AND RENTALS Change Rent and related costs (62) Vehicle leasing Total 1,052 1,084 (32) 19. PERSONNEL COSTS Change Wages and salaries 19,425 18, Social security contributions 5,088 4, Employee termination indemnity 1, Retirement benefits Other costs (35) Total 25,979 24,976 1,003 Wages and salaries include 760 thousand relating to outsourced personnel, mainly of the parent company. The average number of employees by category is the following: Change Managers Administrative and commercial staff Workers Outsourced personnel (1) Total Average number of employees by Group company: Managers White Blue Outsourced Total collars collars Personnel Cembre S.p.A General Marking S.r.l Cembre Ltd Cembre Sarl Cembre España SL Cembre AS Cembre Inc Cembre GmbH Total

68 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 20. NON-RECURRENT OPERATIONS Following the reform of employee termination indemnities that became effective in 2007, employee termination indemnities accrued at December 31, 2006 were restated in the past year to reflect new actuaries. This non-recurrent event resulted in a 1,026 thousand reduction (curtailment) in the provision, recorded in full as a positive component in the 2007 income statement. 21. OTHER OPERATING COSTS Change Sundry taxes (3) Losses on receivables (3) Capital losses Donations (10) Other Total Item Other includes prevalently sundry costs incurred by the parent company. 22. FINANCIAL INCOME (EXPENSE) Change Loans and bank overdrafts (302) (200) (102) Other financial charges (16) (9) (7) (318) (209) (109) Interest earned on bank account balances Other financial income Financial income (expense) (205) (101) (104) 23. INCOME TAXES Income taxes are made up as follows: Change Current taxes (6,120) (6,866) 746 Deferred taxes Total (5,174) (6,222) 1,048 68

69 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S The table that follows shows a reconciliation between the theoretical tax expense, calculated at the normal tax rate of the parent company (Corporate (IRES) + Regional Tax on Productive Activities (IRAP) = 31.4%), and the actual tax expense recorded in the consolidated accounts amount % tax rate amount % tax rate Profit before taxes 15,963 18,118 Theoretical tax expense 5, % 6, % Effect of non-deductible costs % 1, % Effect of tax-exempt income and deductions (1,621) % (1,790) -9.88% Effect of tax-deductible losses of subsidiaries - - (2) -0.01% Effect of different IRAP taxable income % % Substitute taxes % - - Effect of decline in domestic tax rates - - (345) -1.90% Effect of new tax rate on prepaid taxes % Effect of different foreign tax rates % (137) -0.76% Actual tax expense recorded 5, % 6, % The parent company benefited from facilitations provided in article 1, paragraphs 33, 34, 48 and 51 of the 2008 Budget Law, relating to the elimination of the set deductions system and freeing-up of past deductions and of suspended-tax reserves. The Company chose to free-up differences arising from buildings and plant depreciation. This resulted in a 795 thousand reduction in the deferred tax provision and the recording of 310 thousand in substitute tax liabilities. The breakdown by maturity of the latter is as follows: - 93 thousand paid out on June 16, 2008; thousand payable on June 16, 2009, recorded under current tax payables; - 93 thousand to be paid out on June 16, 2010 recorded under non-current tax payables. At December 31, 2008, there do not exist temporary differences and loss carry-forwards on which no deferred tax assets or liability had been recorded. Deferred tax assets and liabilities are made up as follows: Deferred tax liabilities Average cost valuation of inventories Accelerated depreciation Reversal of German subsidiary s product warranty (1) (2) Reversal of land depreciation - 5 Land revaluation Discounting of employee termination indemnity 40 (315) Capital gain on sale of building 24 (96) Foreign exchange translation differences (15)

70 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Deferred tax assets Elimination of unrealized intra-group profits in stock Write-down of inventories (44) (99) Amortization of goodwill (5) (15) Write-down of investment - (7) Loss carry-forwards of subsidiary General Marking (175) 175 Depreciation and write-down of inventories of General Marking (6) 124 Risk provision - (1) Other (39) 245 Foreign-exchange differences 3 (12) Deferred taxes for the period EARNINGS PER SHARE Earnings per share are calculated by dividing net profi t by the weighted average number of shares in circulation for the period, excluding treasury shares held at the end of the year (the Group does not hold treasury shares) Consolidated net profit ( 000) 10,860 11,896 No. of ordinary shares ( 000) 17,000 17,000 Earnings per share ( ) DIVIDENDS On May 31, 2008 the company distributed (with ex-dividend date May 19) a dividend on net profit for the year ended December 31, 2007, amounting to 4,420 thousand, equivalent to 0.26 for each share entitled to dividends Resolved and paid in the year Balance due for 2007 dividend: 0.26 euro (2006: 0.22) 4,420 3,740 Proposal submitted to the Shareholders Meeting (not recorded as liability at December 31) Balance due for 2008 dividend: 0.16 (2007: 0.26) 2,720 4,420 Proposed dividends submitted for approval to the Shareholders Meeting (not recorded as a liability at December 31) amount to 2,720 thousand. 70

71 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 26. COMMITMENTS AND RISKS Dec. 31, 2008 Dec. 31, 2007 Change Guarantees granted Commitments at December 31, 2008 included guarantees granted to the Brescia Municipality amounting to 452 thousand against the construction of development infrastructure in connection with the construction of new parking spaces and entrance at the Brescia main complex. The residual amount relates to guarantees granted against supplies granted to electrical and railway companies. 27. NET FINANCIAL POSITION The net financial position of the Group amounted at the end of 2008 to a surplus of 1,170 thousand, improving on December 31, 2007 due primarily to lower capital expenditure in the year and the shorter average collection period, determining a lower recourse to short-term bank loans. At December 31, 2008, the Group had no outstanding debt involving covenants or negative pledges. Below we include the Net Financial Position of the Group, as provided by Consob in Regulation DEM/ dated July 28, Dec. 31, 2008 Dec. 31, 2007 A Cash B Bank deposits 4,529 4,530 C Cash and cash equivalents (A+B) 4,545 4,549 D Financial receivables - - E Current bank debt (3,258) (6,122) G Other current financial payables (57) (61) H Current financial debt (E+G) (3,315) (6,183) I Net current financial position (C+D+H) 1,230 (1,634) K Other non-current financial debt (60) (86) L Non-current financial debt (K) (60) (86) M Net financial position (I+L) 1,170 (1,720) 28. RELATED PARTIES The table that follows shows transactions between the parent company and its subsidiaries at December 31, Receivables Payables Revenues Expenses Cembre Ltd. 2, , Cembre S.a.r.l , Cembre Espana S.L. 2,196-6,505 1 Cembre AS Cembre GmbH 785-2,979 6 Cembre Inc. 1,941-3,539 - General Marking S.r.l ,456 Total 7, ,210 2,701 71

72 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Cembre S.p.A. leases an industrial building to subsidiary General Marking. Rent for the building for 2008 amounts to 98 thousand. With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities. Commitments of the parent company include a guarantee of 2.5 million granted in favour of obligations assumed by subsidiary General Marking and a similar 0.8 million guarantee in favour of German subsidiary Cembre GmbH. Among property leased to Cembre by third parties are an industrial building adjacent to the Company s registered office measuring a total of 5,960 square meters on three floors, in addition to the Milan, Padua and Bologna sales offices, all of which are owned by company Tha Immobiliare S.p.A., with registered office in Brescia, controlled by Anna Maria Onofri, Giovanni Rosani and Sara Rosani, directors of the parent company. Lease payments for 2008 amount to 500 thousand. Rent is in line with market conditions. It is in the Company s interest to benefit from the continuity of office space reducing the risk of early termination of leases. At December 31, 2008, all amounts due to Tha Immobiliare had been settled. Cembre S.p.A. does not have direct relationships with its parent company Lysne S.p.A. of any other nature than that of the exercise of shareholders rights on the part of the parent. Lysne S.p.A. does not carry out any management or coordination activity with respect to Cembre S.p.A. Boards compensation In 2008, compensation for the Board of Directors and the Board of Statutory Auditors amounted to: Statutory Auditors Directors Emoluments as directors and auditors of the parent company Emoluments as directors of subsidiaries - 23 Retribution as employees Non-monetary benefits - 18 Non-monetary benefi ts relate to the use of a company car and insurance policies underwritten on their behalf. 29. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS The Group does not make significant use of derivative instruments to hedge against interest risk and currency exposure. The short term maturity of a large part of the financial instruments held is such that their carrying value is in line with their fair value of the same. At December 31, 2008 and 2007 the Group had not entered into financial derivative instruments. Risks connected with the market In view of the overall liquidity crisis, the Group could suffer the aggression of manufacturers that benefit from lower labour costs. Protectionist policies followed by some governments to protect local producers could also have an adverse effect on the Group, which is countering these factors with ongoing innovation, the widening of the product range, the launch of lower cost product lines, the upgrade of its production process, implementing focused marketing policies also with the help of its foreign subsidiaries. 72

73 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Interest rate risk The Group generally stipulates short-term floating-rate loans. At December 31, 2008, the following short-term loans were extended to Group companies: - a loan extended to subsidiary Cembre GmbH. Pursuant to the loan contract, the subsidiary is extended a further line of credit of 0.8 million, expiring on March 19, 2009, to be used for transactions of fixed amount at set rates. Interest payable is set at the time the line of credit is used, and is equal to the Euribor rate plus a spread of 0.375%. At December 31, 2008, uses of said credit line amounted to 0.6 million. Interest is payable at maturity. - a 1.3 million 30-day floating-rate loan extended to subsidiary General Marking at a fixed 5% rate, expired in December and renewed. Average interest paid in 2008 was equal to 4.5-5%, while current interest applicable is 3.8%. The Group also makes use of bank overdrafts to face ordinary liquidity needs. Currency risk Despite a strong international presence, the Group does not have a significant exposure to currency risk (on an operating or equity basis), as it operates mainly in the euro area, the currency in which its trade transactions are mainly denominated. Exposure to currency risk is determined mainly by sales in US dollars, British pounds and Norwegian kroners. The size of these transactions is not significant in influencing the overall performance of the Group. As described in the consolidation principles section, financial statements of consolidated companies prepared in currencies other than the euro are translated into euro at the exchange rate published on the Internet site of the Ufficio Italiano Cambi. In the table that follows we report the economic effect of possible fluctuations in exchange rates for main financial figures of consolidated companies operating outside the euro area: Currency Exchange rate fluctuation Effect on Shareholders Equity Effect on sales Effect on pre-tax profit Cembre Ltd +5% / -5% 313 / (313) 686 / (686) 46 / (46) Cembre AS NOK +5% / -5% 20 / (20) 38 / (38) 8 / (8) Cembre Inc US$ +5% / -5% 118 / (118) 269 / (269) 28 / (28) In 2008, the effect of foreign-exchange transactions was positive by 15 thousand. Liquidity risk The exposure of the Group to liquidity risk is not material. Credit risk Exposure to credit risk relates exclusively to trade receivables. As shown in note 5, none of the areas in which the Group operates poses relevant credit risks. Operating procedures limit the sale of products or services to customers who do not possess an adequate credit profile or provide secured guarantees. Receivables matured over 12 months and those under litigation are widely covered by the provision for bad debt accrued. 73

74 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 30. SUBSEQUENT EVENTS No event having signifi cant effects on the Group s fi nancial position or operating performance occurred after the closing of the fi nancial year, with the exception of the strong contraction in sales resulting from the global economic recession. In 2009, Cembre expects a reduction in turnover and of consolidated profi ts. 31. CONSOLIDATED COMPANIES The consolidation area is unchanged from December 31, In 2008, the capital stock of German subsidiary Cembre GmbH was increased by 1.3 million, while the percentage held by the parent company and the UK subsidiary in the same are unchanged. Companies consolidated line-by-line are: Company Registered office Share capital Cembre Ltd Sutton Coldfield (Birmingham) Share held at Dec. 31, 2008 Share held at Dec. 31, ,700, % 100% Cembre Sarl Morangis (Paris) 1,071, % (*) 100% (*) Cembre España SL Coslada (Madrid) 1,902, % (*) 100% (*) Cembre AS Stokke (Norway) NOK 2,400, % 100% Cembre GmbH Munich (Germany) 1,812, % (*) 100% (*) Cembre Inc Edison (New Jersey - Usa) US$ 840, %(**) 100%(**) General Marking S.r.l. Brescia (Italy) 99, % 100% (*) of which 5% held through Cembre Ltd. (**) of which 29% held through Cembre Ltd. Brescia, March 12, 2009 THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A. CARLO ROSANI 74

75 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S 75

76 R E P O R T A N D AC C O U N T S CO N S O L I D A T E D FI N A N C I A L ST AT E M E N T S Report of the Board of Statutory Auditors on Consolidated Financial Statements of the Cembre Group at December 31, 2008 To our Shareholders: the Consolidated Financial Statements for the 2008 financial year delivered to the Board of Statutory Auditors within the term provided, consisting of Consolidated Balance Sheet, Consolidated Income Statement, Notes to the accounts, Statement of Consolidated Cash Flows and Statement of Changes in the Consolidated Shareholders Equity, close reporting a consolidated net profit of 10,857 thousand, as compared with 11,896 thousand in the previous year. The above Consolidated Financial Statements were prepared under International Financial Reporting Standard (IFRS) adopted by the European Union and in compliance with regulations issued to implement article 9 of Legislative Decree 38/2005. Checks carried out by Independent Auditors Reconta Ernst & Young, appointed for the auditing of the accounts, ascertained, as stated in paragraph 4 of the Auditing Report, the Consolidated Financial Statements of the Cembre Group at December 31, 2008 are consistent with IFRS adopted by the European Union and are in compliance with regulations issued to implement article 9 of Legislative Decree 38/2005. They are therefore clear and represent in a truthful and correct manner the operating and financial situation, the net profit, changes in the Consolidated Shareholders Equity and the cash flows of the Cembre Group for the financial year closed December 31, The Auditing Report does not contain comments or exceptions to the information reported in the financial statements. In compliance with article 41, par. 3 of Legislative Decree no. 127, dated April 9, 1991, with the exception of the issues specified below, the Consolidated Financial Statements, were therefore not audited by the Board of Statutory Auditors. The Notes to the consolidated accounts provide a detail of Balance Sheet and Income Statement items and illustrate accounting principles, consolidation principles and valuation criteria applied in the preparation of the same. The consolidation area, unchanged from the previous year, the choice of consolidation principles of subsidiaries, in application of the line-by-line method, and of procedures for the consolidation, are consistent with IFRS. The structure of the Consolidated Financial Statements and information contained in the same can therefore be deemed as technically correct and overall in compliance with current norms and regulations. Information provided in the Report on Operations illustrates adequately the operating and financial situation of the Group, its operating performance in 2008 and the outlook for 2009 of the parent company and the Group as a whole, and the review performed shows its consistency with the Consolidated Financial Statements. Brescia, March 16, 2009 The Board of Statutory Auditors Dott. Guido Astori Dott. Andrea Boreatti Rag. Leone Scutti Chairman Permanent Auditor Permanent Auditor 76

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78 Financial Statements at December 31, 2008

79 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Balance Sheet (euro '000) Notes Dec. 31, 2008 Dec. 31, 2007 ASSETS A) NON CURRENT ASSETS of which: related parties Tangible assets 1 22,886,464 21,819,941 Intangible assets 2 689, ,296 Investments in subsidiaries 3 9,292,893 8,057,883 Financial assets available for sale 4 5,224 5,224 Other non-current assets 5 5,600 9,762 Deferred tax assets , ,017 TOTAL NON-CURRENT ASSETS 33,240,034 30,724,123 B) CURRENT ASSETS Inventories 6 23,441,442 23,927,378 Trade receivables 7 15,529,974 16,508,934 of which: related parties Trade receivables from subsidiaries 8 7,789,363 7,789,363 7,538,172 7,538,172 Financial receivables from subsidiaries - 2,055,562 2,055,562 Tax receivables 391,066 - Other assets 9 268, ,953 Cash and cash equivalents 894, ,275 TOTAL CURRENT ASSETS 48,314,441 50,998,274 C) NON-CURRENT ASSETS AVAILABLE FOR SALE - - TOTAL ASSETS(A+B+C) 81,554,475 81,722,397 LIABILITIES AND SHAREHOLDERS EQUITY A) SHAREHOLDERS EQUITY Capital stock 10 8,840,000 8,840,000 Reserves 10 43,560,280 38,993,166 Net profi t 10 8,790,112 8,987,113 TOTAL SHAREHOLDERS EQUITY 61,190,392 56,820,279 B) NON-CURRENT LIABILITIES Non-current fi nancial liabilities - - Non-current tax payables 92,885 - Employee Severance Indemnity and other personnel benefits 11 3,041, ,100 3,208, ,762 Provisions for risks and charges , ,024 Deferred tax liabilities 13 2,543,487 3,542,600 TOTAL NON-CURRENT LIABILITIES 5,969,123 7,045,888 C) CURRENT LIABILITIES Current fi nancial liabilities ,216,146 3,914,810 Trade payables 15 9,317,506 9,724,517 Trade payables to subsidiaries , , , ,267 Tax payables - 402,831 Other Payables 17 3,564,666 3,364,805 TOTAL CURRENT LIABILITIES 14,394,960 17,856,230 D) LIABILITIES ON ASSETS HELD FOR DISPOSAL - - TOTAL LIABILITIES (B+C+D) 20,364,083 24,902,118 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (A+B+C+D) 81,554,475 81,722,397 80

80 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Income Statement (euro '000) Notes of which: related parties of which: related parties Revenues from sales and services provided 18 75,043,776 23,175,657 73,622,957 21,805,769 Other revenues , , , ,730 TOTAL REVENUES 75,296,351 74,276,677 Cost of goods and merchandise 20 (32,827,726) (2,682,091) (36,260,151) (2,091,091) Cost of services received 21 (9,135,004) (724,699) (9,788,346) (726,039) Lease and rental costs 22 (767,109) (500,324) (765,364) (493,503) Personnel costs 23 (18,108,833) (192,256) (17,319,823) (185,044) Non recurring opeartions 24-1,026,143 Other operating costs 25 (245,343) (214,013) Change in inventories (485,936) 4,779,871 Increase in assets due to internal construction 709, ,832 Write-down of receivables (118,007) (123,256) Accruals to provisions for risks and charges 26 (9,971) (9,514) GROSS OPERATING PROFIT 14,307,462 16,042,056 Tangible asset depreciation (1,854,343) (2,202,256) Intangible asset amortization (315,197) (173,785) OPERATING PROFIT 12,137,922 13,666,015 Financial income , , , ,132 Financial expenses 27 (171,241) (172,610) Foreign exchange gains (losses) 28 3,457 (165,791) PROFIT BEFORE TAXES 12,646,055 13,900,259 Income taxes 29 (3,855,943) (4,574,519) Deferred taxes from non recurring operations 29 - (338,627) NET PROFIT FROM ORDINARY ACTIVITIES 8,790,112 8,987,113 NET PROFIT FROM ASSETS HELD FOR DISPOSAL - - NET PROFIT 8,790,112 8,987,113 81

81 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Statement of Cash Flows (euro '000) A) CASH FLOW FROM OPERATING ACTIVITIES Net profi t for the period 8,790,112 8,987,113 Depreciation, amortization and write-downs 2,169,540 2,376,041 (Gains)/Losses on disposal of assets (25,466) (388,246) Net change in Employee Severance Indemnity (167,220) (1,303,308) Net change in provisions for risks and charges (3,316) 6,870 Operating profit (loss) before change in working capital 10,763,650 9,678,470 (Increase) Decrease in trade receivables 727,769 (1,146,770) (Increase) Decrease in inventories 485,936 (4,779,872) (Increase) Decrease in other receivables and deferred tax assets (408,316) 422,767 Increase (Decrease) of trade payables (605,309) (47,026) Increase (Decrease) of other payables and deferred tax liabilities (1,109,198) (599,727) Change in working capital (909,118) (6,150,628) NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES 9,854,532 3,527,842 B) CASH FLOW FROM INVESTING ACTIVITIES Capital expenditure on fi xed assets: - intangible (544,050) (498,854) - tangible (2,936,268) (2,723,815) - fi nancial (1,235,010) - Proceeds from disposal of tangible, intangible, fi nancial assets - tangible 40,868 1,437,628 - fi nancial - 57,523 Increase (Decrease) of trade payables for assets 45, ,173 NET CASH FLOW (USED IN)/FROM INVESTING ACTIVITIES (4,628,787) (1,599,345) C) CASH FLOW FROM FINANCING ACTIVITIES (Increase) Decrease in other non current assets 4, (Increase) Decrease of fi nancial receivables 2,055,562 (9,124) Increase (Decrease) in bank loans and borrowings (2,698,664) 1,347,708 Dividends distributed (4,420,000) (3,740,000) NET CASH FLOW (USED IN)/FROM FINANCING ACTIVITIES (5,058,940) (2,401,018) D) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) 166,805 (472,521) E) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 727,275 1,199,796 F) CASH AND CASH EQUIVALENTS AT END OF PERIOD (D+E) 894, ,275 82

82 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S CASH AND CASH EQUIVALENTS AT END OF PERIOD 894, ,275 Financial receivables from subsidiaries - 2,055,562 Current fi nancial liabilities (1,216,146) (3,914,810) NET FINANCIAL POSITION (322,066) (1,131,973) INTEREST PAID IN THE PERIOD (171,241) (172,189) BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD Cash 4,109 9,817 Banks 889, , , ,275 83

83 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Statement of Changes in the Shareholders' Equity at December 31, 2008 (euro '000) Capital stock Share premium reserve Legal reserve Suspendedtax reserves Extraordinary reserve Unrealized gains reserve Retained earnings Net profit Total Shareholders' Equity Balance at December 31, ,840,000 12,244,869 1,768,000 68,412 18,084,407 3,902,133-6,665,345 51,573,166 Allocation of previous year net profi t (1) 2,925,345 (6,665,345) (3,740,000) Other changes (232,596) 149,071 83,525 - Net profi t for ,987,113 8,987,113 Balance at December 31, ,840,000 12,244,869 1,768,000 68,412 20,777,156 4,051,204 83,525 8,987,113 56,820,279 Allocation of previous year net profi t (1) 4,567,114 (8,987,113) (4,419,999) Other changes - Net profi t for ,790,112 8,790,112 Balance at December 31, ,840,000 12,244,869 1,768,000 68,412 25,344,270 4,051,204 83,525 8,790,112 61,190,392 (1) Dividends resolved by the Shareholders' Meeting are included in the Total Shareholders' Equity column under Allocation of previous year net profi t. 84

84 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Notes to the Financial Statements of Cembre S.p.A. at December 31, 2008 I. CORPORATE INFORMATION Cembre S.p.A. is a joint-stock company with registered offi ce in Brescia, Via Serenissima 9. Cembre S.p.A. (hereinafter referred to as the Company ) is active primarily in the manufacturing and sale of electrical connectors and related tools. The publication of the Financial Statements of Cembre S.p.A. for the year ended December 31, 2008 was authorized by a resolution of the Board of Directors dated March 12, Cembre S.p.A. is controlled by Lysne S.p.A., a holding company based in Brescia, that does not direct or coordinate its subsidiary. II. FORM AND CONTENT OF THE FINANCIAL STATEMENTS The present Financial Statements at December 31, 2008 were prepared under the International Financial Reporting Standards (IFRS) adopted by the European Union and the related implementation regulations issued in application of article 9 of Legislative Decree no. 38/2005. Principles adopted in the preparation of the Financial Statements are those formally approved by the European Union as at December 31, The Financial Statements at December 31, 2008 were prepared in the expectation of the continuation of the Company s activities. The table that follows contains a list of international accounting principles and interpretations approved by the IASB that became effective starting in 2008, which were taken into account, where applicable, in the preparation of the present Financial Statements: Effective Changes to IAS 39 and IFRS 7 Reclassification of financial assets July 1, 2008 IFRIC 11 - Group and Treasury Share Transactions March 1, 2007 Changes in the table above did not fi nd an application in the Financial Statements of Cembre S.p.A. at December 31, Items in the Balance Sheet were recorded at the historical cost. Unless otherwise indicated, fi gures reported in the fi nancial statements and the related notes are expressed in euro. Future changes in accounting principles Starting with the 2009 fi nancial year, the following accounting principles will become effective: IFRS 8 Operating Segments IFRS 8 Operating Segments On November 30, 2008, the IASB issued accounting principle IFRS 8 Operating Segments, applicable from January 1, 2009 replacing IAS 14 Segment Reporting. The new accounting principle requires the company to base information included in segment reporting on elements used by management to make operating decisions, thus requiring the identifi cation of operating segments based on internal reporting, which is regularly used by management to allocate resources to the different segments and for performance assessment purposes. The adoption of this principle will have no effect on the amounts at which consolidated income statement items are carried, but only on the reporting of the same. 85

85 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Changes to IFRS 1 First-time Adoption of International Financial Reporting Standards, and IAS 27 Consolidated and Separate Financial Statements Changes to IFRS 1 allow the entity to determine, in the fi rst fi nancial statements in which IFRS are adopted, the carrying cost of investments in affi liates, subsidiaries and joint-ventures based on IAS 27 or using the deemed cost. Changes to IAS 27 require that all dividends from subsidiaries, affi liates and joint-ventures be recorded in the income statement in the separate fi nancial statements. Both changes are effective for annual periods beginning on or after January 1, Changes to IAS 27 must be applied using estimates. These changes will have no impact on the Financial Statements of Cembre S.p.A. IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements Amended principles were issued in January 2008 and are effective for annual periods beginning on or after July 1, IFRS 3R introduces various changes in the accounting of business combinations occurring after such date, which will generate an impact on the amount of goodwill generated, on results for the period in which the acquisition takes place, and on future results. IAS 27R regulates changes in the share held in a subsidiary (without translating into a loss of control). As a result of these transactions, any difference between the minority interest (sold or acquired) and the price received or paid will be recorded directly under Shareholders' Equity. The principle modifi es moreover the accounting of losses recorded by the subsidiary, and the loss of control of a subsidiary. Other changes connected with the above affected also IAS 7 Cash Flow Statements; IAS 12 Accounting for Taxes on Income; IAS 21 The effects of changes in foreign exchange rates, IAS 28 Investments in Associates and IAS 31 Financial Reporting of Interests in Joint Ventures. Amendments to IFRS 3R and IAS 27R will generate effects on future business combinations, on operations that determine the control of a subsidiary and on transactions involving minority interests. Early application is permitted, but the Company does not intend to take advantage of this option. IAS 1 Presentation of Financial Statements (revised) The amended principle was issued in September 2007 and is effective for annual periods beginning on or after January 1, The principle states how changes in controlling shares and changes in minority interest holdings must be reported. The Statement of Changes in the Shareholders' Equity must include only details relating to the Group s Shareholders' Equity, while transactions involving minority interest holdings must be reported under a single caption. The principle introduces moreover a comprehensive income statement, in which the reporting entity is to report all components of the income statement alternatively in a single comprehensive income statement or in two connected statements of which one shows the components of the income statement and the other the components of other items of the comprehensive income statement. The Company is evaluating which of the two solutions to adopt. IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements: Financial Instruments Puttable at Fair Value and Obligations arising on Liquidation Changes to IAS 32 and IAS 1 were approved in February 2008 and are effective for annual periods beginning on or after January 1, The revision of the accounting principle provide for an exception, with a very limited scope of application, allowing the classifi cation of put options and similar instruments as equity instruments, in case certain conditions apply. Changes to the principle will not have an effect on the Balance Sheet or the profi t of the Company, as no instrument of this type were issued by Cembre. 86

86 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S IAS 39 Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting The amendments to IAS 39 were issued in August 2008 and are effective for annual periods beginning on or after 1 July The amendment regulates the designation of unilateral risks on hedged instruments and the designation of infl ation as a hedged risk or portion of hedged risk in certain situations. The amendment moreover states that the entity may choose to designate a portion of the change in the fair value or changes in the cash fl ow of a fi nancial instrument as a hedged instrument. The Company concluded that the amendment will have no impact on its fi nancial position or profi t generation as it is not currently engaged in any of these operations. Improvement of IFRS The Company has not taken advantage, where permitted, of early application of amendments made to accounting principles as part of the 2007 IFRS improvement project and believes that these will not have a signifi cant impact on its fi nancial statements. - IFRS 7 Financial Instruments: Disclosures: The reference to total interest income as a component of fi nancial costs was removed. - IAS 8 Accounting Policies, Changes in. Accounting Estimates and Errors: It clarifies that in the choice of an accounting policy, the application of guidelines for the implementation of the same is mandatory only when it constitutes an integral part of the related IFRS. - IAS 10 Events after the Balance Sheet Date: It clarifi es that dividends declared after the balance sheet date shall not be recorded as a liability, as at the balance sheet date there does not exist any obligation. - IAS 16 Property, Plant and Equipment: Components of property, plant and equipment held up for lease and which, at the expiration of the lease contract are systematically sold, must be classifi ed as inventory at the expiration of the lease contract, at the time at which they become available for sale. - IAS 18 Revenue: Replacement of the term direct costs with transaction costs, as defined in IAS IAS 19 Retirement Benefi ts: It modifi es the defi nition of pension costs relating to past employment periods, yield of retirement plan assets, short-term benefi ts and other long-term benefi ts. Reference to the recording of potential liabilities was eliminated to ensure consistency with IAS IAS 20 Accounting for Government Grants: Loans extended in the future that are either non-interest bearing or at a rate lower than market rates will not be exempt from the requirement of the recording of interest. The difference between the amount received and the amount recorded is accounted for as a Government grant. Terms have also been revised to ensure consistency with other IFRS. - IAS 27 Consolidated and Separate Financial Statements: When a parent company carries its subsidiaries at fair value, in compliance with IAS 39, in its separate fi nancial statements, the same will apply also when the subsidiary is reclassifi ed as held for disposal. - IAS 29 Financial Reporting in Hyperinfl ationary Economies: Reference to the exception that allows to carry assets and liabilities at the historical cost has been modifi ed by specifying that property, plant and equipment constitute an example and not an exhaustive list. Terms have also been revised to ensure consistency with other IFRS. 87

87 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S - IAS 34 Interim Financial Reporting: Earnings per share in interim fi nancial statements fall within the scope of application of IAS IAS 39 Financial Instruments: Recognition and Measurement: Changes in the circumstances affecting derivatives do not constitute a reason for reclassification and therefore derivatives cannot be transferred to or included in the category valued at fair value with changes taken to the income statement. Reference to segment in IAS 39 in the context of determining weather an instrument qualifies as a hedge, was eliminated. The use of the effective rate is required in the reassessment of a debt instrument at the time the fair value hedge accounting ceases to apply. - IAS 40 Investment Property: The scope of application was redefi ned establishing that property under construction or development that will be subsequently held as investment property, must be classifi ed as investment property. Where the fair value cannot be determined in a reliable manner, the investment under construction will be recorded at cost until its fair value can be determined or until completion of the construction. It was moreover clarifi ed that the fair value of the investment property held under a lease refl ects the expected fi nancial fl ows (including the potential lease payment that is expected to become receivable). Consequently, if a valuation of a piece of property is net of all expected future payments, it will become necessary to add back any liability arising from the lease contract to obtain the fair value of the investment property to be used for accounting purposes. Finally, conditions for a voluntary revision of accounting policies to achieve consistency with IAS 8 were revised. - IAS 41 Agriculture: Reference to the discounting rate before taxes in the determination of fair value was removed. The prohibition to keep into account in determining the fair value of any cash fl ow deriving from any subsequent transformation was also removed. Finally, the term costs at point of sale was replaced with sales costs. IFRIC 15 Agreements for the Construction of Real Estate IFRIC 15 was issued in July 2008 and is effective for annual periods beginning on or after January 1, The interpretation must be applied retrospectively. It clarifi es when and how correlated revenues and connected costs deriving from the sale of Real Estate should be recorded when an agreement between the builder and the acquiring party has been reached before the construction has been completed. Moreover, the interpretation supplies indications on how to determine if an agreement falls within the scope of application of IAS 11 or IAS 18. IFRIC 15 will not have an impact on the Financial Statements of Cembre S.p.A., as the Company is not engaged in such activity. IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 was issued in July 2008 and is effective for annual periods beginning on or after January 1, The interpretation must be applied prospectively. IFRIC 16 provides indications on the accounting of a hedge of a net investment in a foreign operation. In particular it supplies guidelines on the identifi cation of currency risks which qualify for the application of hedge accounting in the hedge of a net investment and on how the entity must determine the amount of currency translation gains and losses, correlated both to the net investment and the hedge instrument, which will have to be reclassifi ed in the income statement at the time of the sale of the investment. Cembre S.p.A. does not make use of hedges and the above interpretation may therefore not be applied. 88

88 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S III. ACCOUNTING PRINCIPLES AND VALUATION CRITERIA Form of the Financial Statements The fi nancial statements are prepared as follows: - current and non-current assets and liabilities are reported separately in the Balance Sheet; - the analysis of costs in the Income Statement is carried out based on the nature of the same; - the Statement of Cash Flows is prepared by applying the indirect method. Finally, with reference to Consob Regulation no dated July 27, 2006, the Financial Statements include a separate reporting of amounts pertaining to related parties, where significant. Property, plant and equipment Property, plant and equipment is recorded at the historical cost and reported net of accumulated depreciation and losses in value. Ordinary maintenance and repair costs are not capitalized, and are charged to the income statement in the year in which they are incurred. Depreciation commences when the asset is available for use and is calculated on a straight line basis over the estimated residual useful life of the asset, taking into account its residual value. Depreciation rates applied refl ect the useful life generally attributed to the various classes of assets and are unchanged from the previous year. These are: - Buildings and light installations: 3% 10% - Plant and machinery: 10% 15% - Industrial and commercial equipment: 15% 25% - Other assets: 12% 25% In 2008, the depreciation schedules of property, plant and equipment were adjusted to bring them into line with the reviewed useful lives of the same. For further detail and an evaluation of the effect of these changes we refer to the paragraph on the Review of estimation methods. Land has an undetermined useful life and is therefore not subject to depreciation. Land has an undetermined useful life and is therefore not subject to depreciation. The book value of property, plant and equipment is subjected to an impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the depreciation schedule originally set. Whenever there exists such an indication, the assets or cash generating units are written down to refl ect their expected realizable value. The residual value of assets, their useful life and methods applied are reviewed annually and adjusted, where necessary, at the end of each year. Tangible assets are eliminated from the Balance Sheet at the time of their sale or when there no longer exists the expectation of future economic benefi ts from its use or disposal. Losses and gains (calculated as the difference between net revenues from the disposal and the book value of the asset) are recorded in the Income Statement in the year in which they are disposed of. Leased assets Assets held under a financial lease, through which all risks and benefits relating to ownership are transferred to the Group, are recorded under assets at the lower of their current value and the present value of minimum lease payments due according to the contract, including the bullet payment due at the end of the lease to exercise the repurchase option. The liability corresponding to the lease contract is recorded under financial liabilities. Leased asset are classified under the respective category among property, plant and equipment, and depreciated over the shorter period between the term of the lease and the expected residual useful life of the asset. Lease contracts in which the lessor holds all risks and enjoys all benefits deriving from the leased asset are classified as operating leases and recorded as costs in the Income Statement over the term of the contract. 89

89 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Intangible assets Intangible assets are recorded under assets, as provided by IAS 38 (Intangible assets), whenever it is probable that future economic benefi ts are generated through use and when the cost of the intangible asset can be determined in a reliable manner. Intangible assets acquired separately are initially capitalized at cost, while those acquired through mergers are capitalized at their fair value at the time of acquisition. With the exception of development costs, assets generated internally cannot be recorded as intangible assets. After the initial recording, intangible assets are carried in the balance sheet at cost, net of accumulated amortization calculated on a straight-line basis over their expected useful economic life, and of write-downs carried out as a result of durable losses in value. Intangible assets having an indefi nite useful life are not amortized and subjected periodically to an impairment test to assess possible loss in value. The useful life generally attributed to the various classes of assets is the following: - concessions and licenses: 5 to 10 years - software licenses 3 to 5 years - development costs: 5 years - trademarks: 10 to 20 years Amortization commences when the asset is available for use, that is, when it is in a position and in the necessary condition to operate in the manner intended by management. The book value of intangible assets is subjected to an impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the amortization schedule originally set. Whenever there exists such an indication and the book value of the asset exceeds its realizable value, the value of the asset is written-down to its expected realizable value. Investments in subsidiaries Investments in subsidiaries are recorded at cost, adjusted where necessary for losses in value. Any positive difference that emerges upon acquisition between the acquisition cost and the portion of the Shareholders Equity acquired, is therefore included in the book value of the investment. Investments in subsidiaries are subjected to an impairment test whenever indicators of a loss in value are detected. Whenever it appears that an investment in a subsidiary has experienced a loss in value, the same is recorded in the Income Statement as a write-down. Whenever losses of a subsidiary exceed the book value of the investment, the value of the same is written-down to zero and losses exceeding such value are recorded in a specific liability provision. In case the loss is subsequently reversed or reduced, the related amount is written-up in the Income Statement to the original cost of the investment. Financial assets Financial assets are initially recorded at cost, inclusive of accessory purchase costs, representing the fair value of the price paid. After the initial recording, fi nancial assets are valued in accordance with their fi nal purpose as described below. Financial assets valued at fair value, whose change is recorded in the Income Statement These are fi nancial assets held for trading purposes, acquired for the purpose of obtaining a profi t 90

90 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S from short-term fl uctuations in price. Unless specifi cally designated as effective hedging instruments, derivatives are classifi ed as fi nancial assets held for trading purposes. Gains and losses on fi nancial assets held for trading purposes are recorded in the income statement. Financial assets held to maturity Financial assets other than derivatives that generate fi xed fi nancial fl ows or fl ows that may be determined and have a set maturity, are classifi ed as Financial assets held to maturity when the Company intends to and is capable of holding them to maturity. Financial assets that the Company decides to hold for an indefi nite period of time do not fall under this category. After their initial recording, long-term fi nancial investments held to maturity, such as bonds, are accounted for at the amortized cost, using the effective rate of interest method, representing the rate at which estimated future payments or collections over the expected useful life of the asset are discounted to their present value. The amortized cost is calculated keeping into account discounts and premiums, amortized over the term of the fi nancial asset. Loans extended and receivables Loans and receivables are non-derivative financial assets providing for fixed payments or payments that may be determined, not listed on an active market. Such assets are recorded at the amortized cost using the actual discount rate method. Gains and losses are recorded in the Income Statement whenever loans extended and receivables are eliminated from the accounts or they experience losses in value, in addition to the amortization process. Financial assets available for sale Financial assets available for sale include fi nancial assets that do not fall under the above categories. After the initial recording, these are accounted for at fair value, while gains and losses are recorded under a specifi c Shareholders Equity reserve until the assets are sold or a loss in value is ascertained. In such case, gains and losses accrued are charged to the income statement. In the case of securities widely traded on a regulated market, the fair value is determined with reference to the listed price at the closing of trading on the date of the fi nancial statements. In the case of fi nancial assets for which there does not exist an active market, the fair value is determined through valuation techniques based on the price recorded in recent transactions between unrelated parties or on the basis of the current market value of a similar instrument, or on discounted cash fl ows or option pricing models. Investments in other companies fall in this category. Loss in value of fi nancial assets The Company verifi es at least yearly the possible loss in value of individual fi nancial assets. These are recorded only at the time when there exists objective evidence, at the occurrence of one or more events, that the asset has experienced a loss of value with respect to its initial recorded value. Treasury shares Treasury shares are recorded as a reduction of Shareholders Equity in a specific reserve. The purchase, sale, issue or cancellation of own shares held does not determine the recording of any gain or loss in the Income Statement. Inventories Inventories are valued at the lower of cost and their expected realizable value, represented by their normal sale price, net of completion and selling costs. 91

91 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S The cost of inventories includes the acquisition cost, the transformation cost and other costs incurred to take inventories to their current location and state. The cost of inventories is determined under the weighted-average method, inclusive of the cost of beginning inventories. Provisions for slow-moving stock are accrued for finished products, materials and other supplies, keeping into account their expected useful life and retrievable value. Payables and receivables Receivables are recorded initially at fair value and subsequently carried at the amortized cost, writtendown in case of loss in value. Payables are normally valued at the amortized cost, adjusted under exceptional conditions for changes in value. Cash and cash equivalents Cash and cash equivalents are recorded at face value. Loans Loans are initially recorded at cost, corresponding to the fair value of the amount received, net of accessory costs. After the initial recording, loans are valued at the amortized cost, using the effective interest method. Foreign currency translation Transactions denominated in currencies other than the euro are initially accounted for in euro at the exchange rate at the date of the transaction. Currency translation differences arising at the time at which foreign currency receivables are collected and payables are paid out, are recorded in the income statement. At the date of the fi nancial statements, monetary assets and liabilities denominated in currencies other than the euro consisting of cash on hand or assets and liabilities to be received or paid out, whose amount is set and may be determined are translated into euro at the exchange rate at the date of the fi nancial statements, recording in the income statement the currency translation difference. Non-monetary items denominated in currencies other than the euro are translated into euro at the exchange rate at the time of the transaction, representing the historical exchange rate. Provisions for risks and charges Provisions for risks and charges are accrued against known liabilities whose amount and expiration cannot however be determined at the date of the financial statements. Accruals are made when the existence of a current obligation, legal or implicit, deriving from a past event, the fulfilment of which is expected to require the use of resources whose amount can be reliably estimated, is probable. Provisions are valued at the fair value of liabilities. When the financial effect and the timing of the cash outflow can be estimated in a reliable manner, provisions include the interest component, recorded in the Income Statement among financial income (expense). Provisions accrued are reviewed at each accounting date and adjusted to bring them into line with the best estimate available to date. Employee retirement benefits Under IAS 19, and before the reform introduced by the 2007 Budget Law, the Employee Severance Indemnity was classified among defined benefit plans and was therefore subject to actuarial adjustments. After the reform, employee termination indemnities accrued up to December 31, 2006, continue to be accounted for as defined benefit plans, while those accrued from January 1, 2007 are accounted for in 92

92 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S two different ways: - where the individual employee has opted for complementary pension funds, employee termination indemnities accrued after January 1, 2007 and until the time at which the choice is made by the employee, are accounted for as a defi ned benefi t plan. Subsequently they are accounted for as a defi ned contribution plan; - where the individual employee has opted for accumulation with the treasury fund of the national social security agency (INPS), indemnities accrued after January 1, 2007 are accounted for as a defi ned contribution plan. Elimination of financial assets and liabilities Financial assets are eliminated when the Company ceases to hold rights to receive financial flows deriving from the same or when such rights are transferred to another entity, that is when risks and benefits of the financial instrument cease to have an effect on the financial position and operating performance of the Company. A financial liability is written-off exclusively when the related obligation is cancelled, fulfilled or expired. Any material change in the contractual terms relating to the liability result in its cancellation and in the recording of a new liability. Any difference between the book value and the amount paid to extinguish the liability is recorded in the Income Statement. Revenues Revenues are valued at the current value of the amount received or receivable. Disposal of assets The revenue is recognized when the Company has transferred the risks and benefits connected with the ownership of the good, and ceases to exercise the activity associated with ownership and the actual control over the asset sold. Services rendered Revenues are recorded based on the stage of completion of the operation at the date of the financial statements. When the result of the service rendered cannot be reliably estimated, revenues are recorded only to the extent of retrievable costs. The stage of completion is determined by valuing work carried out or by determining the proportion between costs incurred and total estimated costs to completion. Interest Interest is recorded in the period in which it accrues, using the effective interest method. Dividends Dividends are recorded when the right of shareholders to receive them arises. Grants Grants are recorded when there exists a reasonable certainty that the same will actually be received and the company meets the conditions for the entitlement to the grant. Grants linked to cost components (operating grants) are recorded under other revenues and amortized over several years so that revenues match the costs they are intended to compensate. The fair value of grants linked to assets (e.g. grants on the purchase of plant and equipment or grants for capitalized R&D costs), is suspended under long-term liabilities and released to the income statement under other revenues over the useful life of the asset to which it relates, thus in the period over which the depreciation expense relating to the asset is charged to the income statement. 93

93 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Financial charges Financial charges are recorded as a cost in the period in which they accrue. Cost of goods purchased and services received The cost of goods purchased and services received is recorded in the income statement based on the accrual method. Income taxes (current, prepaid and deferred) Current taxes are determined based on a realistic estimate of the tax expense for the period in accordance with applicable tax regulations in the respective countries. The Company records deferred and prepaid taxes arising from temporary differences between the book value of assets and liabilities and the related values reported for tax purposes, in addition to differences in the value of assets and liabilities generated by consolidation adjustments. Prepaid taxes are recorded only where there exists reasonable certainty of their retrieval through future profits within the term in which tax benefits are enjoyed. Deferred tax assets are recorded also where there exist deductible losses or tax credits, whenever it is deemed probable that sufficient future profits will be generated in the medium-term (3 to 5 years). Financial derivatives Derivative fi nancial instruments are valued at market value (fair value). A derivative fi nancial instrument can be acquired for trading or hedging purposes. Gains and losses on fi nancial instruments acquired for trading purposes are charged to the income statement. Derivatives acquired for hedging purposes may be accounted for under the hedge accounting method offsetting the recording of the derivative in the income statement with adjustments to the value of assets and liabilities hedged only when derivatives meet specifi c criteria. Hedge derivatives are classifi ed as fair value hedges when they are acquired to hedge against the risk of fl uctuations in the market value of the underlying asset or liability or fl uctuations in the fi nancial fl ows deriving from the same, both in the case of existing assets and liabilities or those deriving from a future transaction. In the case of fair value hedges, gains and losses on the restatement of the market value of a derivative instrument are taken to the income statement. With regard to the hedging of fi nancial fl ows, gains and losses on the hedge instrument are recorded under Shareholders Equity when they relate to the portion of the hedge considered effective, while the portion not hedged is recorded in the income statement. Use of estimates In accordance with IAS/IFRS, the Company made use of estimates and assumptions based on prior experience and other factors deemed determinant, but not certain. Actual data could therefore differ from estimates and projections made. Estimated data is reviewed periodically and adjustments made to the same are taken to the Income Statement for the period in which the review takes place in case the review affect only one period, or, subsequent accounting periods in case it affects also the same. Below we describe review processes and key assumptions used by management in applying accounting principles. Provision for doubtful accounts The provision for doubtful accounts reflects management estimates regarding losses on trade receivables. 94

94 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Losses on trade receivables expected by the Company are based on past experience on similar portfolios of receivables, current overdues vs. historical overdues, losses and collections, the close monitoring of credit risk and credit worthiness of customers, in addition to projections on economic and market conditions. Retrievable value of non-current assets Non-current assets include property, plant and equipment, intangible assets, investments and other financial assets. Whenever circumstances so require, the management reviews periodically the book value of non-current assets held and used by the Company, in addition to assets to be disposed of. Such activity is carried out using estimates of expected cash flows from the sale of the asset and of adequate discount rates used in calculating the present value of the same. Whenever the book value of a non-current asset experiences a loss in value, the Company records a write-down equal to the difference between the book value of the asset and its retrievable value either through use or disposal of the same. Post-retirement benefits In the estimation of post-retirement benefits the Company makes use of traditional actuarial techniques based on stochastic simulations of the Montecarlo type. Assumptions made relate to the discount rate and the annual inflation rate. Actuarial advisors of the Company make also use of demographic projections based on current mortality rates, employee disablement and resignation rates. In 2008, based on past turnover experience, the probability of an employee terminating his or her employment for causes other than death is the following: Male 6.18% Female 4.46% Assumptions regarding the discounting and infl ation rates were: Discounting rate 4.75% Yearly infl ation rate 2.50% Expected advances to be paid out are 5% per year and each advance corresponds to 70% of accrued indemnity. Retrievability of deferred tax assets The Company evaluates the possibility to retrieve deferred tax assets on the basis of profits and expected future market conditions in view of current sale contracts and ability of expected future profits to offset tax credits, in addition to the expected variance of the same. Potential liabilities In carrying out its activity, management consults with its legal and tax advisors and experts. The Company ascertains a liability arising from litigation whenever it deems probable that a financial outlay will be made in the future and when the amount of resulting losses can be reasonably estimated. In case a financial outlay becomes possible but its amount cannot be determined, such occurrence is reported in the notes. 95

95 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Revision of estimation methods Following a review carried out in the 1st Quarter of 2008, the depreciation schedules of plant, machinery and equipment were adjusted to bring them into line with the revised useful lives of the same, resulting in a 478 thousand reduction in the amortization expense for 2008 (which amounts to 1,200 thousand) with respect to the amortization schedule used up to The upward revision of the useful life of plant, machinery and equipment resulted in a reduction of the hourly cost of the same used in the determination of the value of semi-finished and finished goods inventories. Had the same depreciation schedule applied in 2007 been applied to determine the value of inventories at March 31, 2008, in the 1st Quarter of 2008 these would have been higher by about 734 thousand. As it would be excessively onerous repeat the same simulation for subsequent periods, due to the strong complexity of the process and in part to the adoption of a new information system in May, it is estimated that the effect on the value of inventories at December 31, 2008 is in line with that calculated at the end of the 1st Quarter of IV. NOTES TO THE FINANCIAL STATEMENTS OF CEMBRE S.P.A. 1. PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant and machinery Equipment Other assets Work in progress Total Historical cost 20,126,692 26,770,473 5,113,919 3,678, ,555 55,982,172 Accumulated depreciation (4,550,278) (22,082,943) (4,645,388) (2,883,622) - (34,162,231) Bal. at Dec. 31, ,576,414 4,687, , , ,555 21,819,941 Increases 169,590 1,322, , ,624 1,133,138 2,936,269 Depreciation (367,489) (1,100,048) (99,531) (287,274) - (1,854,342) Net divestments - (694) - (326) (14,384) (15,404) Reclassifications - 166,455 9,104 14,500 (190,059) - Bal. at Dec. 31, ,378,515 5,075, , ,435 1,221,250 22,886,464 Land and buildings Plant and machinery Equipment Other assets Work in progress Total Historical cost 20,688,258 25,562,985 5,027,971 3,507, ,743 55,078,407 Accumulated depreciation (4,323,583) (21,031,959) (4,504,823) (2,870,278) - (32,730,643) Bal. at Dec. 31, ,364,675 4,531, , , ,743 22,347,764 Increases 564,370 1,356, , , ,307 2,723,815 Depreciation (347,379) (1,349,219) (234,865) (270,793) - (2,202,256) Net divestments (1,005,252) (2,709) - (2,782) (38,639) (1,049,382) Reclassifications - 151,510 51,346 - (202,856) - Bal. at Dec. 31, ,576,414 4,687, , , ,555 21,819,941 96

96 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Work for the construction of a new entrance in via Serenissima, at the Brescia main complex, and of new parking spaces for employees, started in In agreement with the Brescia Municipality, work involved also the refurbishing of green spaces and land adjacent to the complex. Advances paid to professionals, the contractor and the Brescia Municipality for utilities and permits amount to 848 thousand and are recorded under work in progress. Expenditure on equipment in the year includes two work stations ( 465 thousand), an automatic machine ( 298 thousand), a laser labeller ( 90 thousand), and 5 pre-insulation machines ( 86 thousand). Improvements and upgrades of plant and equipment involved an expense of 225 thousand. Depreciation schedules of plant, machinery and equipment were revised in the year, as detailed in paragraph on the Revision of estimates in the notes, to which we refer. 2. INTANGIBLE ASSETS Development costs Software Work in progress Total Historical cost 238,649 2,138, ,000 2,627,340 Accumulated amortization (124,055) (2,042,989) - (2,167,044) Balance at Dec. 31, ,594 95, , ,296 Increases 44, , ,050 Amortization (56,629) (258,568) - (315,197) Reclassifications - 250,000 (250,000) - Balance at Dec. 31, , , ,149 Development costs relate to the widening of the product range with the introduction of a number of new products. The increase in software relates to costs incurred in the purchase of the new information system. 3. INVESTMENTS IN SUBSIDIARIES Subsidiary Dec. 31, 2007 Changes Write-downs Dec. 31, 2008 Cembre Ltd 3,437, ,437,433 Cembre Sarl 1,048, ,048,197 Cembre España SL 1,810, ,810,004 Cembre AS 293, ,070 Cembre GmbH 481,508 1,235,010-1,716,518 Cembre Inc. 888, ,671 General Marking S.r.l. 99, ,000 Total 8,057,883 1,235,010-9,292,893 97

97 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S In 2008, German subsidiary Cembre GmbH carried out a 1,300 thousand capital increase, of which 1,235 thousand underwritten by the parent company, and 65 thousand by UK subsidiary Cembre Ltd. The book value of the investment was increased accordingly, while the ownership share remained unchanged. The table below shows financial highlights of subsidiaries, all of which are directly owned. Subsidiary Share capital Sh. Equity Net profit % ( ) ( ) ( ) held Cembre Ltd (Sutton Coldfield Birmingham, UK) 1,784,777 6,264, , Cembre Sarl (Morangis Paris, France) 1,071,000 3,320, ,209 95(a) Cembre España SL (Coslada Madrid, Spain) 1,902,000 5,983, ,569 95(a) Cembre AS (Stokke - Norway) 246, , , Cembre GmbH (Munich - Germany) 1,812,000 3,320, ,821 95(a) Cembre Inc. (Edison, New Jersey-USA) 1,034,706 2,354, ,007 71(b) General Marking Srl (Brescia - Italy) 99,000 1,252, , (a) the remaining 5% held through Cembre Ltd. (b) the remaining 29% held through Cembre Ltd. Share Capital, Shareholders' Equity and Net Profit figures above relate to the respective Financial Statements at December 31, 2008 approved or proposed to be approved by the boards of the above subsidiaries. Share Capital and Reserves, originally not expressed in euro, were translated at the year-end exchange rates, while Net Profit figures were translated into euro at the average exchange rate for the year. 4. OTHER INVESTMENTS Dec. 31, 2008 Dec. 31, 2007 Change Inn.tec. srl 5,165 5,165 - Conai Total 5,224 5,224 - Other investments consist in the equity investments in Consorzio Nazionale Imballaggi and that in Inn.tec. S.r.l., technology innovation consortium, both with registered office at the Brescia Province head office. 5. OTHER NON-CURRENT ASSETS The item consists exclusively of security deposits. 98

98 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 6. INVENTORIES Dec. 31, 2008 Dec. 31, 2007 Change Raw materials 6,062,124 6,828,863 (766,739) Work in progress and semi-finished goods 8,296,130 7,716, ,420 Finished goods 9,083,188 9,381,805 (298,617) Total 23,441,442 23,927,378 (485,936) The provision for slow-moving stock amounts to 612,265. Uses in the year amount to 137,970 due to the disposal of obsolete products in stock. The provision was charged directly to the value of finished products to bring their value into line with their expected realizable value. 7. TRADE RECEIVABLES FROM CUSTOMERS Dec. 31, 2008 Dec. 31, 2007 Change Gross trade receivables 15,866,012 17,078,041 (1,212,029) Provision for doubtful accounts (336,038) (569,107) 233,069 Total 15,529,974 16,508,934 (978,960) Trade receivables by geographical area: ( 000) Dec. 31, 2008 Dec. 31, 2007 Change Italy 14,201 14,492 (291) Europe 907 1,522 (615) North America (95) Oceania (242) Middle East (117) Far East Africa (84) Total 15,866 17,078 (1,212) The provision for doubtful accounts is reviewed periodically on the basis of the retrievability of individual exposures. Whenever bankruptcy procedures are opened, the amount receivable from the related customer is written-off. To provide further protection, a provision for overall bad debt is accrued. 99

99 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Changes in the provision for doubtful accounts in the year are shown below: Balance at January 1 569, ,765 Accruals 118, ,256 Uses (351,076) (58,914) Balance at December , ,107 Trade receivables by maturity at Dec. 31, 2008: ( 000) Not Over one Under matured days days days year litigation Total , , ,725 2, , TRADE RECEIVABLES FROM SUBSIDIARIES Dec. 31, 2008 Dec. 31, 2007 Change Cembre Ltd (UK) 2,216,151 2,226,282 (10,131) Cembre Sarl (France) 650, ,713 (100,372) Cembre España SL (Spain) 2,196,277 2,271,666 (75,389) Cembre AS (Norway) - 124,051 (124,051) Cembre GmbH (Germany) 785,119 1,125,302 (340,183) Cembre Inc. (US) 1,941,123 1,024, ,407 General Marking Srl (Italy) ,442 (15,090) Total 7,789,363 7,538, , OTHER ASSETS Dec. 31, 2008 Dec. 31, 2007 Change Advances to suppliers 149,653 70,647 79,006 Receivable from employees 19,376 19,754 (378) VAT receivable 24, ,710 (101,144) Other 74,921 24,842 50,079 Total 268, ,953 27,563 Item Other consists mainly of social security (INPS) receivables. 100

100 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 10. SHAREHOLDERS EQUITY At December 31, 2008, the capital stock amounted to 8,840,000, and was made up of 17 million ordinary shares of par value 0.52 each, fully underwritten and paid-up. The legal reserve amounts to 20% of the share capital. The table that follows shows the origin, possible uses and availability for distribution of equity reserves. Nature/description Amount Uses Portion available Share capital 8,840,000 Equity reserves: Share premium reserve 12,244,869 A B C 12,244,869 Revaluation reserve 585,159 A B --- Suspended-tax reserves 68,412 B --- Reserves accrued from earnings: Legal reserve 1,768,000 B --- Reserve for transition to IAS/IFRS 4,051,204 B --- Extraordinary reserve 24,759,110 A B C 24,759,110 Retained earnings 83,526 A B C 83,526 Total 52,400,280 37,087,505 Portion not available for distribution 410,315 Portion available for distribution 36,677,190 Legend: A= capital increases; B= coverage of losses; C= distribution to Shareholders. 11. EMPLOYEE TERMINATION INDEMNITY AND OTHER PERSONNEL PROVISIONS Changes in the provision are shown below. Dec. 31, 2008 Dec. 31, 2007 Beginning balance 3,208,264 4,511,572 Accruals 641, ,384 Uses (432,844) (408,373) Reduction (Curtailment) - (1,026,143) Discounting effect 149,070 (15,753) Social Security (INPS) pension fund (524,541) (524,423) Closing balance 3,041,043 3,208,264 With the reform of employee termination indemnities, starting with January 1, 2007 Cembre S.p.A. is no longer be required to accrue retirement benefi ts in favour of its employees in a provision, but pays out benefi ts accrued after such date to the INPS treasury account, unless such benefi ts have been destined to other pension funds by individual employees. Employee termination indemnities accrued at December 31, 2008 was therefore discounted on the basis of an evaluation made by a registered actuary, in accordance with current regulations. The restatement of the provision carried out in 2007 as a consequence of the reform, resulted in a 1,026 thousand reduction (curtailment) in the value of the same. 101

101 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 12. PROVISIONS FOR RISKS AND CHARGES Social Security (INAIL) litigation Customer indemnities Total At December 31, ,698 64, ,024 Accruals - 9,312 9,312 Uses - (12,628) (12,628) At December 31, ,698 61, ,708 The provision for risks on Social Security (INAIL) litigation was accrued to cover possible liabilities arising from retroactive changes in the classification of risks contested by the institution, against which Cembre S.p.A. filed an analytical and motivated appeal. The competent first-degree Court ruled in favour of the Company. While other degrees of appeal are pending it was deemed appropriate to leave the provision unchanged. 13. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets are recorded prevalently against the provision for slow moving stock described above, and against the discounting of employee termination indemnities, limited to the portion of the accrual that may not be deducted for tax purposes. Item Other consists prevalently of expected taxes on employee bonuses paid out in Deferred tax liabilities are instead recorded prevalently against the revaluation of land carried out upon the fi rst-time application of IFRS, against the valuation of inventories at the average cost (as for tax purposes these are valued at LIFO), in addition to the reversal of accelerated depreciation. Further detail is provided in the note on Income taxes. No receivable matures beyond fi ve years. Dec. 31, 2008 Dec. 31, 2007 Deferred tax liabilities Average cost valuation of inventories (344,800) (462,018) Accelerated depreciation (118,265) (950,056) Reversal of land depreciation (27,030) (27,030) Revaluation of land (1,859,165) (1,859,165) Discounting of employee termination indemnity (107,223) (148,217) Capital gain on sale of industrial building (72,086) (96,114) Foreign exchange translation differences (14,918) - Gross deferred tax liabilities (2,543,487) (3,542,600) Deferred tax assets Write-down of inventories 192, ,574 Goodwill amortization 42,919 47,903 Risk provision 5,308 5,308 Provision for doubtful accounts 27,500 27,500 Other 92,726 54,732 Gross deferred tax assets 360, ,017 Net deferred tax liabilities (2,182,783) (3,171,583) There do not exist other temporary differences or accruals that can generate deferred taxes not accounted for. 102

102 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 14. CURRENT FINANCIAL LIABILITIES The item includes exclusively bank overdrafts generated in the ordinary management of collections and payments. 15. TRADE PAYABLES TO SUPPLIERS Dec. 31, 2008 Dec. 31, 2007 Change Payable to suppliers 9,290,458 9,575,663 (285,205) Advances 27, ,854 (121,806) Total 9,317,506 9,724,517 (407,011) Trade payables to suppliers are recorded net of trade discounts. Cash discounts are instead recorded at the time of payment. The nominal value of trade payables is adjusted for returns and trade discounts (invoicing adjustments) agreed upon with the counterpart. Trade payables by geographical area: ( 000) Dec. 31, 2008 Dec. 31, 2007 Change Italy 7,915 7,927 (12) Europe 1,339 1,594 (255) North America 2 4 (2) Oceania (11) Other 5 11 (6) Total 9,290 9,576 (286) 16. TRADE PAYABLES TO SUBSIDIARIES Dec. 31, 2008 Dec. 31, 2007 Change Cembre Ltd (UK) 14,212 26,447 (12,235) General Marking (Italy) 271, ,141 (101,587) Cembre GmbH (Germany) 148 3,435 (3,287) Cembre España (Spain) - 39,885 (39,885) Cembre Sarl (France) 10, ,434 Cembre AS (Norway) - 6,106 (6,106) Cembre Inc. (US) Total 296, ,267 (152,625) 103

103 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 17. OTHER PAYABLES Dec. 31, 2008 Dec. 31, 2007 Change Payables to employees 1,014, , ,749 Employee withholding taxes payable 684, ,562 (101,163) Bonuses owed to customers 261, ,489 47,459 Commissions payable 208, ,293 (5,884) Payable to Statutory Auditors 11,624 11, Social security payables 1,365,064 1,302,588 62,476 Payable on other taxes and withholding taxes 8,135 13,889 (5,754) Other 10,937 20,313 (9,376) Total 3,564,666 3,364, , REVENUES FROM SALES AND SERVICES PROVIDED Revenues by geographical area: Area Change Italy 41,106,970 39,295,584 1,811,386 Rest of Europe 25,247,641 25,843,125 (595,484) Rest of the world 8,689,165 8,484, ,917 Total 75,043,776 73,622,957 1,420,819 Changes are commented upon in the Report on Operations. 19. OTHER REVENUES Change Capital gains on disposal of assets 26, ,463 (362,978) Rent 97,729 95,681 2,048 Insurance damages 3,309 35,809 (32,500) Other reimbursements 119, ,470 (6,534) Other 5,116 6,297 (1,181) Total 252, ,720 (401,145) In 2007, capital gains included a 380 thousand gain on the sale of an industrial building located in San Giuliano (Milan). 20. COST OF RAW MATERIALS AND GOODS Change Raw materials and goods 29,986,238 33,379,386 (3,393,148) Consumables and auxiliary materials 2,681,322 2,804,906 (123,584) Transport and customs 160,166 75,859 84,307 Total 32,827,726 36,260,151 (3,432,425) 104

104 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 21. COST OF SERVICES Change Subcontracted work 2,647,999 3,584,293 (936,294) Transport 1,133,856 1,333,688 (199,832) Maintenance and repair 1,198,744 1,000, ,312 Electricity, heating and water 997, ,999 3,182 Consulting 701, ,788 87,665 Directors compensation 683, ,535 (741) Statutory Auditors compensation 61,912 59,626 2,286 Commissions 323, ,896 5,106 Postage and telephone 145, ,664 (18,971) Fuel 167, ,807 31,344 Travelling expenses 190, ,368 (10,784) Insurance 203, ,911 (14,285) Bank expenses 70,770 82,186 (11,416) Personnel training 31,675 32,567 (892) Advertising and promotion 57,034 40,252 16,782 Security and cleaning 331, ,798 76,689 Other 189,043 70, ,507 Total 9,135,004 9,788,346 (653,342) 22. LEASES AND RENTALS Change Rent and related costs 543, ,646 (24,766) Vehicle leasing 223, ,718 26,511 Total 767, ,364 1,745 Lease and rental costs are made up by rent paid on buildings leased from others and related parties, as described in the Management Report, and by motor vehicles lease costs. 23. PERSONNEL COSTS The item includes the cost of employees, inclusive of paid holidays and accruals made pursuant to current regulations and collective labour contracts. Employee termination indemnities include the accrual for the year inclusive of the revaluation of the provision, the amount accrued by employees terminating employment in the year, and the share borne by employees of contributions to the COMETA integrative pension fund. 105

105 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Change Wages and salaries 12,944,253 12,440, ,519 Social security contributions 3,869,555 3,717, ,020 Employee termination indemnities 1,008, , ,929 Retirement benefits 21,183 15,100 6,083 Other costs 265, ,679 (42,541) Total 18,108,833 17,319, ,010 The decline in Other costs is due to tax credits received for 2007 on the cost of Research and Development personnel: Average number of employees by category Change Managers Administrative and commercial staff Workers Outsourced personnel (2) Total In 2008 Cembre S.p.A. employed an average of 21 persons outsourced from others for a total cost of 698 thousand. The amount was classified under wages and salaries. 24. NON-RECURRENT OPERATIONS As a result of the reform of employee termination indemnities, in 2007, employee termination indemnities accrued at December 31, 2006 were restated to reflect new actuaries. This non-recurrent event resulted in a 1,026 thousand reduction (curtailment) in the provision, recorded in full in the 2007 income statement. 25. OTHER OPERATING COSTS Change Sundry taxes 102, ,250 (19,422) Donations 26,000 36,000 (10,000) Other 116,515 55,763 60,752 Total 245, ,013 31, ACCRUALS TO PROVISIONS FOR RISKS AND CHARGES Change Customer indemnities 9,971 9, The customer indemnities provision amounts to 9,971 thousand and was accrued against possible charges in the case of the termination of agency mandates. 106

106 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 27. FINANCIAL INCOME (EXPENSE) Change Loans and bank overdrafts (171,241) (172,610) 1,369 (171,241) (172,610) 1,369 Dividends from subsidiaries 622, , ,829 Interest from subsidiaries 4,110 59,123 (55,013) Interest earned on bank account balances 47,040 50,712 (3,672) Other financial income 1,930 1, , ,637 (58,557) Financial income (expense) 504, , ,641 In 2008, Cembre S.p.A. received dividends amounting to 237 thousand from French subsidiary Cembre Sarl, and of 291 thousand ( 385 thousand) from UK subsidiary Cembre Ltd. Interest from subsidiaries consist of interest accrued on the 2 million loan extended to subsidiary General Marking S.r.l. in 2006 and repaid in January FOREIGN-EXCHANGE GAINS (LOSSES) The item is made up as follows: Change Realized foreign exchange gains 116,176 6, ,741 Realized foreign exchange losses (166,968) (144,914) (22,054) Gains on foreign exchange translation 118, ,353 Losses on foreign exchange translation (63,752) (27,960) (35,792) Total 3,457 (165,791) 169, INCOME TAXES Change Current (4,844,743) (5,172,641) 327,898 Deferred 988, , ,305 Total (3,855,943) (4,913,146) 1,057,203 The accrual to the tax provision is made in accordance with expected taxable income, taking into account adjustments made to income reported in the statutory accounts. The table that follows shows a reconciliation between the theoretical tax expense, calculated at the normal tax rate, and the actual tax expense. 107

107 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S IRES IRAP Other Total Profit before taxes 12,577,785 (*) 12,577,785 Theoretical tax expense 3,458,891 1,016,245 4,475,136 Tax effect on increases 468,657 7, ,774 Tax effect on decreases (1,285,039) (119,543) - (1,404,582) Effect of decline in tax rates , ,615 Actual tax expense recorded 2,642, , ,615 3,855,943 (*) Taxable income for the purposes of IRAP (regional tax on productive activities) amounts to 25,980,948. Cembre S.p.A. benefited from facilitations provided in article 1, paragraphs 33, 34, 48 and 51 of the 2008 Budget Law, relating to the elimination of the set deductions system and freeing-up of past deductions and of suspended-tax reserves. The Company chose to free-up differences arising from buildings and plant depreciation. This resulted in a 795 thousand reduction in the deferred tax provision and the recording of 310 thousand in substitute tax liabilities. The breakdown by maturity of the latter is as follows: - 93 thousand paid out on June 16, 2008; thousand payable on June 16, 2009, recorded under current tax payables; - 93 thousand to be paid out on June 16, 2010 recorded under non-current tax payables. Deferred tax assets and liabilities are made up as follows: Average cost valuation of inventories 117,218 99,773 Accelerated depreciation 831, ,297 Reversal of land depreciation - 5,036 Land revaluation - 395,956 Discounting of employee termination indemnity 40,994 (314,182) Capital gain on sale of building 24,028 (96,114) Foreign exchange translation differences (14,918) - Write-down of inventories (43,323) (99,676) Amortization of goodwill (4,984) (14,836) Write-down of investment - (6,534) Risk provision - (989) Provision for doubtful accounts - (5,500) Other 37,994 36,264 Total deferred tax assets and liabilities 988, ,495 In 2007, deferred tax assets and liabilities were affected signifi cantly by adjustments made to refl ect the reduction of tax rates introduced from Moreover, the restatement of employee termination indemnities accrued at December 31, 2006 as a result of the change in accounting, had resulted in the recording of 339 thousand in deferred tax liabilities, reported under a separate caption in the income statement and included in the table above among taxes on the discounting of employee termination indemnities. 108

108 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 30. DIVIDENDS On May 22, 2008 the Company distributed (with ex-dividend date May 19) a dividend on net profit for the year ended December 31, 2007, amounting to 4,420 thousand, equivalent to 0.26 for each share entitled to dividends Resolved and paid in the year Balance due for 2007 dividend: 0.26 euro (2006: 0.22) 4,420 3,740 Proposal submitted to the Shareholders Meeting (not recorded as liability at December 31) Balance due for 2008 dividend: 0.16 (2007: 0.26) 2,720 4,420 Proposed dividends submitted for approval to the Shareholders Meeting (not recorded as a liability at December 31) amount to 2,720 thousand. 31. COMMITMENTS AND RISKS At December 31, 2008, guarantees granted by Cembre S.p.A. to third parties amounted to 3,896,442, as compared with 3,263,162 at December 31, Guarantees granted include a letter of patronage for 2.5 million issued in favour of General Marking S.r.l. against obligations of the same, and a guarantee of 0.8 million against obligations of German subsidiary Cembre GmbH. Commitments with third parties at December 31, 2008 included guarantees granted to the Brescia Municipality amounting to 452 thousand against the construction of development infrastructure in connection with the construction of new parking spaces and entrance at the Brescia main complex. The residual amount ( 154 thousand) relates to guarantees granted against supplies granted to electrical and railway companies. 32. NET FINANCIAL POSITION At December 31, 2008, the net financial position of Cembre S.p.A. amounted to an indebtedness of 322,066, improving on the end of the previous year. At December 31, 2008, the Company did not have outstanding loans containing covenants or negative pledges. The table that follows provides a detail of the net financial position as provided by Consob Regulation DEM/ dated July 28, 2006: Dec. 31, 2008 Dec. 31, 2007 A Cash 4,109 9,817 B Bank deposits 889, ,458 C Cash and equivalents (A+B) 894, ,275 D Financial receivables from subsidiaries - 2,055,562 E Financial receivables - 2,055,562 D Current bank debt (1,216,146) (3,914,810) G Current financial debt (D+E) (1,216,146) (3,914,810) H Net current financial position (C+E+G) (322,066) (1,131,973) M Non-current financial debt - - N Net financial position (H+M) (322,066) (1,131,973) 109

109 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 33. RELATED PARTIES The table that follows shows transactions between Cembre S.p.A. and its subsidiaries occurred in 2008, limited to sales and purchases. Debit and credit balances are shown in the related paragraphs of the present notes. Subsidiary Sales Purchases Cembre Ltd. 6,915, ,740 Cembre S.a.r.l. 2,786,828 29,825 Cembre España S.L. 6,505, Cembre AS 346,527 5,630 Cembre GmbH 2,978,847 6,307 Cembre Inc. 3,538, General Marking S.r.l. 137,705 2,456,604 Total 23,209,895 2,700,959 As required by CONSOB, Cembre S.p.A. s shareholdings over 10% held in limited liability publicly traded companies and unlisted joint-stock companies at December 31, 2008, are shown in the table below. The Company holds full title to the investments listed below. Company Head office Share % held % of Capital voting directly indirectly through total rights Cembre Ltd Sutton Coldfield (Birmingham - UK) 1,700, % 100% 100% Cembre Sarl Morangis (Paris - France) 1,071,000 95% 5% Cembre Ltd 100% 100% Cembre España SL Coslada (Madrid-Spain) 1,902,000 95% 5% Cembre Ltd 100% 100% Cembre AS Stokke (Norway) Nok 2,400, % 100% 100% Cembre GmbH Munich (Germany) 1,812,000 95% 5% Cembre Ltd 100% 100% Cembre Inc. Edison (New Jersey - USA) US $ 1,440,000 71% 29% Cembre Ltd 100% 100% General Brescia 99, % 100% 100% Marking S.r.l. (Italy) Cembre S.p.A. leased an industrial building to subsidiary General Marking. Rent for the building for 2008 amounts to 98 thousand. Among assets leased to Cembre by third parties are an industrial building adjacent to the Company s registered office measuring a total of 5,960 square meters on three floors, in addition to the Milan, Padua and Bologna sales offices, all of which are owned by company Tha Immobiliare S.p.A., with registered office in Brescia, controlled by Anna Maria Onofri, Giovanni Rosani and Sara Rosani, directors of Cembre S.p.A. Lease payments for 2008 amounted to 500 thousand. Rent for 2008 is in line with market conditions. It is in the Company s interest to benefit from the continuity of office space reducing the risk of early termination of leases. At the end of 2008, all amounts due to Tha Immobiliare had been settled. With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities. 110

110 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Cembre S.p.A. does not have direct relationships with its parent company Lysne S.p.A. of any other nature than that of the exercise of shareholders rights on the part of the parent. Lysne S.p.A. does not carry out any management or coordination activity with respect to Cembre S.p.A RISK MANAGEMENT AND FINANCIAL INSTRUMENTS Due to its minimal exposure, Cembre S.p.A. does not make signifi cant use of derivative instruments to hedge against interest risk and currency exposure. At December 31, 2008 and 2007 the Company had not entered into fi nancial derivative instruments. Risks connected with the market In view of the overall liquidity crisis, the Company could suffer the aggression of manufacturers that benefi t from lower labour costs. Protectionist policies followed by some governments to protect local producers could also have an adverse effect on the Company, which is countering these factors with ongoing innovation, the widening of the product range, the launch of lower cost product lines, the upgrade of its production process, implementing focused marketing policies also with the help of its foreign subsidiaries. Interest rate risk The Company generally stipulates short-term fl oating-rate loans. At December 31, 2008, no loan remained outstanding. Bank debt consists exclusively of overdrafts. The short-term maturity of a large portion of fi nancial instruments held is such that their carrying value is in line with the fair value of the same. Currency risk Despite a strong international presence, Cembre S.p.A. does not have a signifi cant exposure to currency risk (on an operating or equity basis), as it operates mainly in the euro area, the currency in which its trade transactions are mainly denominated. At December 31, 2008, the following foreign exchange positions were held: in in Receivables in US$ 2,759,124 1,982,557 1,508,484 1,024,716 Receivables in AUS$ 17,321 8,544 31,067 18,540 Receivables in YEN - - 9, Payables in US$ 2,491 1,790 1,645 1,117 Payables in AUS$ 58,227 28,720 64,963 38,768 Payables in CHF 51,247 34, ,795 77,836 Payables in GBP 4,680 4, Current accounts in US$ , ,170 Amounts were translated into euro at the exchange rate applicable at December 31, The translation generated a negative difference with the book value of foreign currency amounts of 54 thousand, recorded in the income statement. In the table that follows we report the economic effect of possible fl uctuations in exchange rates of the said amounts: 111

111 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S ( 000) Exchange rate change Receivables Payables Current accounts % (95) % 105 (7) % (50) 6 (15) -5% 55 (12) 17 As illustrated above, the size of these transactions and the resulting balances are not signifi cant in infl uencing the overall performance of the Company. Liquidity risk The exposure of the Company to liquidity risk is not material. Credit risk Exposure to credit risk relates exclusively to trade receivables. As shown in note 7, none of the areas in which Cembre S.p.A. operates poses relevant credit risks. Average collection time of trade receivables is 112 days, improving signifi cantly on 2007 when it was equal to 120 days. Operating procedures limit the sale of products or services to customers who do not possess an adequate credit profi le or provide guarantees. Receivables matured over 12 months and those under litigation are widely covered by the provision for bad debt accrued. 35. SUBSEQUENT EVENTS No event having signifi cant effects on the Company s fi nancial position or operating performance occurred after the closing of the fi nancial year, with the exception of the strong contraction in sales resulting from the global economic recession. In 2009, Cembre expects a reduction in turnover and of consolidated profi ts. Attachments The present document contains the following attachments: Attachment 1: Directors and Auditors Compensation; Attachment 2: Summary of last approved financial statements of consolidated companies; Attachment 3: Independent Auditors compensation. Brescia, March 12, 2009 THE CHAIRMAN OF THE BOARD OF DIRECTORS CARLO ROSANI 112

112 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Attachment 1 Notes to the Financial Statements of Cembre S.p.A. DIRECTORS AND STATUTORY AUDITORS COMPENSATION POSITION COMPENSATION ( ) Position Term (1) Emoluments for position Non-monetary benefits (2) CARLO ROSANI Chairman & Chief Executive Officer ,500 3,642 Bonuses and other incentives Other compensation ANNA MARIA ONOFRI Vice Chairman & Managing Director ,500 2,758 GIOVANNI ROSANI Managing Director ,500 3,416 9,000 (3) SARA ROSANI Director ,400 2,900 17,572 (4) GIOVANNI DE VECCHI Director ,500 2,007 (5) 24,000 (3) ALDO BOTTINI BONGRANI Director ,500 3, ,684 (4) MARIO COMANA Director ,520 PAOLO LECHI Director ,500 GUIDO ASTORI Chairman of the Board of Statutory Auditors ,186 ANDREA BOREATTI Statutory Auditor ,362 LEONE SCUTTI Statutory Auditor ,364 (1) The expiration of the term coincides with the approval of the 2008 Financial Statements for both Board of Directors and Board of Statutory Auditors. (2) Made up by fringe benefits represented by the use of a company car and insurance coverage. (3) Remuneration for positions held in subsidiaries. (4) Gross remuneration for employment. (5) Paid by General Marking S.r.l. 113

113 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Attachment 2 Notes to the Financial Statements of Cembre S.p.A. SUMMARY FINANCIAL DATA OF CONSOLIDATED SUBSIDIARIES (EX ARTICLE 2429 OF THE ITALIAN CIVIL CODE) (in euro) Non-current Current Total assets Shareholders' Total liabilities Total liabilities and assets assets Equity Shareholders' Equity Cembre Ltd 4,175,764 5,463,753 9,639,517 6,264,033 3,375,484 9,639,517 Cembre Sarl 698,935 4,061,538 4,760,473 3,320,288 1,440,185 4,760,473 Cembre España SL 938,398 8,480,564 9,418,962 5,983,569 3,435,393 9,418,962 Cembre AS 1, , , ,395 78, ,392 Cembre GmbH 2,743,792 2,363,390 5,107,182 3,320,307 1,786,875 5,107,182 Cembre Inc 321,827 3,826,201 4,148,029 2,354,240 1,793,789 4,148,029 General Marking S.r.l. 1,536,405 1,536,391 3,072,796 1,257,185 1,815,611 3,072,796 Total Gross operating Operating Profit Income Net profit revenues profit profit before taxes taxes (loss) Cembre Ltd 13,801,364 1,348,215 1,017, ,047 (284,328) 631,719 Cembre Sarl 6,513, , , ,367 (161,158) 289,209 Cembre España SL 11,554,576 1,198,128 1,062,300 1,092,163 (322,594) 769,569 Cembre AS 767, , , ,193 (48,738) 114,454 Cembre GmbH 5,462, , , ,716 (145,895) 301,821 Cembre Inc 5,451, , , ,467 (227,460) 337,007 General Marking S.r.l. 3,010,637 1,114, , ,567 (267,009) 520,558 Figures above relate to the respective Financial Statements at December 31, The translation of amounts expressed in currencies other than the euro was carried out as described in the notes to the Financial Statements at December 31,

114 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Attachment 3 Notes to the Financial Statements of Cembre S.p.A. COMPENSATION FOR AUDITING SERVICES AND SERVICES OTHER THAN AUDITING (pursuant to article 149-duodecies of Listed Companies Code (CONSOB) Service Independent auditors Service received by Compensation ( 000) Auditing Reconta Ernst & Young Cembre S.p.A. 79 Auditing Reconta Ernst & Young Subsidiaries 81 Tax advisory Reconta Ernst & Young Subsidiaries 9 115

115 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 116

116 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Report of the Board of Statutory Auditors on the Financial Statements of Cembre S.p.A. at December 31, 2008 To our Shareholders: pursuant to article 2429, comma 2 of the Italian Civil Code and article 153 of legislative decree no. 58, dated February 24, 1998, and subsequent amendments, the Board of Statutory Auditors reports to the Shareholders Meeting called to approve the 2008 Financial Statements on the monitoring activity carried out and on omissions and censurable facts observed, in addition to expressing a recommendation on the Financial Statements, their approval and other pertinent issues. In compliance with responsibilities assigned by article 149 of legislative decree no. 58, dated February 24, 1998, and subsequent amendments, the Board of Statutory Auditors reports the following: In 2008 the Board: - attended one Shareholders Meetings; - attended five meetings of the Board of Directors in which Directors informed the Board of Statutory Auditors on main operations of economic and financial relevance carried out by the Company and its subsidiaries. In this regard, we can reasonably state that operations resolved and/or carried out, complied with the Law and the provisions of the By-laws, were not in potential conflict of interest or in contrast with Shareholders resolutions taken, were carried out in compliance with correct management principles, were not manifestly imprudent, did not involve an excessive amount of risk, constitute a potential conflict of interest or were such as to compromise the integrity of the company s assets; - in the person of its Chairman, attended four meetings of the Internal Audit Committee, and two meetings of the Monitoring Board, carried out pursuant to provisions of the By-laws, Laws and norms that regulate their functioning; - met twice with the Company s independent auditors and had a number of contacts by telephone. The Board of Statutory Auditors met six times, in addition to verifying through its Chairman the decommissioning of plant and equipment, and carrying out two other verifications through its Chairman to attest expenditure on R&D projects and verifying costs relating to IRAP (regional tax on productive activities) tax facilitations. We have acquired direct knowledge and monitored, to the extent required by our task, the adequacy of the organizational structure of the Company and of its administrative and managerial organization in relation to its size, gathering information from persons in charge of the organization of the Company and through meetings with the independent auditors involving exchange of data and relevant information, to verify the respect of diligent and correct administration principles. We have also monitored the adequacy of the internal auditing system, also at the consolidated level, to verify the 117

117 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S respect of internal procedures, both operating and administrative, and their ability to ensure a correct and efficient management, aiming to identify, prevent and manage, wherever possible, financial and operating risks, in addition to possible frauds that could damage the company. The Company adopted an organizational, managerial and control model pursuant to Legislative Decree 231/01 and subsequent amendments, on the Administrative Responsibilities of Entities, as resolved by the Board of Directors on March 25, 2008, creating a Monitoring Board that has issued periodical reports. The model aims at preventing and identifying possible infringements of the Law through the mapping of risks incurred by the company in its operating activities. Instructions imparted to subsidiaries pursuant to article 114, paragraph 2, of Legislative Decree no. 58/1998 appear adequate. Information pursuant to article 150, comma 2 of Legislative Decree no. 58/98 was supplied and sought independently by the Board of Statutory Auditors, from which no data or relevant information, omissions, censurable facts, irregularities or in any case significant events worth reporting to relevant Authorities or of mention in the present report have emerged. The Board of Statutory Auditors did not receive any report pursuant to article 2408 of the Italian Civil Code or has any knowledge of any other denunciation pursuant to the same received by others. The Board of Directors transmitted to us, within the term set by law, the Report on the first six months of 2008, publishing it pursuant to rules set by CONSOB, complying with publishing requirements of quarterly reports. Likewise, the Board of Directors transmitted to us the Balance Sheet, Income Statement, Statement of Cash Flows and Statement of Changes in the Shareholders Equity, together with the Notes to the accounts. The Report on Operations for the 2008 financial year illustrates events occurred after the date of the financial statements and the outlook for With regard to CONSOB communications, we can attest that: - - information provided by Directors in the Report on Operations can be deemed exhaustive and complete. The notes to the accounts provide detailed information on the form and content of the Financial Statements, accounting principles and valuation criteria adopted; - the Report on Operations includes performance indicators and indicates main risks and uncertainties connected with the overall economic situation, the market for the Company s products, credit markets, liquidity, interest rates, exchange rates, the integrity and reputation of the Company; - in the periodical verifications and checks we performed on the Company, we did not encounter any atypical or unusual transaction; - with regard to transactions between Group companies and those with related parties, the Report on Operations and the Notes to the accounts describe and explain exchanges of goods and services between the Company and its subsidiaries or other related parties, attesting that the same were carried out at market conditions, keeping into account the quality of goods and services exchanges; - in the field of risk management and financial instruments, the nature and amount of risks were reported; 118

118 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S - The Audit Report does not contain reference to lack of disclosure or related observations and proposals; - in the year we delivered the opinions requested to the Board of Statutory Auditors pursuant to the law; - in compliance with articles 124-ter of the Finance Act (Testo Unico), article 89-bis of CONSOB s Listed Companies Regulation, and article IA 2.6 of the Stock Market Regulation we acknowledge that, as it appears in the Report on Corporate Governance, the Cembre Group participates and complies with the Self-conduct code issued by the Committee for Corporate Governance of listed companies, as integrated and implemented, through its adoption and compliance with Regulations for STAR segment listed companies; - the adoption of the said Code was verified by the Board of Statutory Auditors and represented the subject, in its various aspects, of the Report on Corporate Governance that the Board of Directors made available and to which we refer. We enclose in the present report a full description of positions held as directors or statutory auditors in other joint-stock companies by permanent auditors and substitute auditors. In addition to the auditing of the statutory accounts and consolidated financial statements, Cembre S.p.A. appointed Reconta Ernst & Young to carry out a limited audit of its Consolidated Half-year Reports and Quarterly Reports, including the review, verification and auditing of tax returns and Forms 770, together with the tax audit of its subsidiaries (tax services), for a total compensation of about 9,000. We have verified the independence requisites of permanent and alternate Statutory Auditors, in addition to the correct application of criteria and procedures adopted by the Board of Directors in the year to evaluate the independence of Independent Directors. The statutory accounts for which we verified compliance with laws regulating its format and preparation through checks carried out by us within the limits of our task as provided by article 149 of Legislative Decree no. 58, February 24, 1998, and subsequent amendments, and information provided by the Independent Auditors, report a net income of 8,790,112, as compared with a net income of 8,987,113in the previous year. The Board of Statutory Auditors therefore deems the Financial Statements at December 31, 2008 and the proposed allocation of net profit for the year submitted by the Board of Directors to be suitable to receive your approval. Brescia, March 16, 2009 The Board of Statutory Auditors Guido Astori Andrea Boreatti Leone Scutti Chairman Permanent Auditor Permanent Auditor A list of other positions held by Permanent Auditors and related score is enclosed. 119

119 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S S T U D I O Dott. Rag. Guido Astori DOTTORE COMMERCIALISTA REVISORE CONTABILE BRESCIA, 16 MARZO 2009 P IAZ ZA CRE M O N A N. 11 /A Tel Fax segreteria@studioastori.it BOARD POSITIONS HELD (ART. 148 BIS C.I. LGS. DEC. 58/98) IN JOINT-STOCK COMPANIES TO BE DISCLOSED TO SHAREHOLDERS MEETINGS (EX ART COMMA 4, EX ART.2 LAW 28/12/2005 No.262) LISTED COMPANY: BOARD POSITIONS HELD IN JOINT-STOCK COMPANIES COMPANY REGISTERED OFFICE TAX ID POSITION Cembre Spa Brescia, via Serenissima, LARGE (CONSOLIDATED) Lysne Spa Brescia, Via Diaz, MEDIUM SIZE COMPANY WITH AUDITING RESPONSIBILITIES: Cantine Soldo Spa Chiari (BS), Via Roccafranca, MEDIUM SIZE COMPANY WITHOUT AUDITING RESPONSIBILITIES: Pè Pietro Legnami Spa Brescia, Via Veneto, SMALL COMPANY: Al-fin Spa Montichiari (BS), Via Brescia, Casa dei Colli Srl Monticelli Brusati (BS), Via Foina, Edimet Spa Montichiari (BS), Via Brescia, Gardagolf Srl Soiano del Lago (BS), Via Omodeo, Mineraria Baritina Spa Brescia, Via Tosio, Tha Immobiliare Spa Brescia, Via Diaz, Chairman of Board of Statutory Auditors without accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities EXPIRATION approval of financial statements POINTS , , , , , , , , , ,00 BOARD POSITIONS WITH OPERATING POSITIONS HELD IN JOINT-STOCK COMPANIES COMPANY REGISTERED OFFICE TAX ID POSITION EXPIRATION approval of financial statements POINTS Zinnia Srl (Società immobiliare statica) Brescia, Piazza Cremona, Director Until revoked Exempt 1 position held in joint stock company and 11 overall positions held (including exempt) Dott. Guido Astori 120

120 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Via Pontida n.1 P.za Martiri di Belfiore n B R E S C I A Tel r.a. Fax Cod.Fisc. SCTLNE36S16D086B Partita Iva E.mail: leonescutti@ .it LEONE SCUTTI Ragioniere Commercialista Revisore Contabile BOARD POSITIONS HELD (ART. 148 BIS C.I. LGS. DEC. 58/98) IN JOINT-STOCK COMPANIES TO BE DISCLOSED TO SHAREHOLDERS MEETINGS (EX ART COMMA 4, EX ART.2 LAW 28/12/2005 No.262) LISTED COMPANY Name Registered office Tax ID and Position Beginning Date EXPIRATION Reg. No. CEMBRE SpA Brescia, Via Serenissima n LARGE COMPANY WITH AUDITING RESPONSIBILITIES Permanent Auditor without accounting audit responsibilities Approval of financial statements 15/05/ Eural Gnutti SpA Rovato (BS), Via S. Andrea n Permanent Auditor 15/05/ ,6 Industrie Pasotti SpA Brescia, Via della Musia n Permanent Auditor 25/05/ ,6 Trafilerie Carlo Gnutti SpA Chiari (BS), Via S.Bernardino n.23a Permanent Auditor 14/11/ /06/2009 0,6 MEDIUM COMPANY WITH AUDITING RESPONSIBILITIES Atib Srl Dello (BS), Via Quinzanese n Permanent Auditor 14/05/ ,4 Cremaschini F.lli SpA Brescia, Via Pontida n Permanent Auditor 26/04/ ,4 Os.al.mec Srl Maclodio (BS), Via Roma n Permanent Auditor 18/05/ ,4 Sei SpA Ghedi (BS), Via Industriale n.8/d Permanent Auditor 14/05/ ,4 Socar SpA Brescia (BS), Via Cesare Deretti n Permanent Auditor 15/05/ ,4 MEDIUM COMPANY WITHOUT AUDITING RESPONSIBILITIES Alumec SpA Rudiano (BS), Via Lavoro e Industria Trav Chairman 19/04/ ,2 Eco-Zinder Srl Brescia, Via Pontida n Permanent Auditor 29/04/ ,2 Euromec Srl Isorella (BS), Via Visano n.78/ Permanent Auditor 29/05/ ,2 Gambari International Srl Lumezzane (BS), Via Mainone n Permanent Auditor 29/05/ ,2 G.C.E. Srl Brescia, Via Pontida n Permanent Auditor 27/05/ ,2 SMALL COMPANY Fimo SpA Brescia, Via Pontida n Permanent Auditor 27/04/ / Gruppo Beni Immobili SpA Brescia, Piazza Martiri di Belfiore n Chairman 06/02/ / Isomec Srl Isorella (BS), Via Visano n.72/a Permanent Auditor 14/04/ / La Tesa SpA San Zeno Naviglio (BS), Via Iv Novembre n Permanent Auditor 24/05/ / L.M.V. SpA Brescia, Via Psaro n Chairman 23/05/ / Omec Serrature SpA Lumezzane (BS), Via Caselli n Permanent Auditor 16/04/ / Orizio Paolo SpA in liquidazione Rodengo Saiano (BS), Via Stacca n Permanent Auditor 26/05/ / Projecta Engineering SpA Brescia, Via Rodi n Permanent Auditor 23/05/ / Sarda SpA Domusnovas (CA), Loc. Matt' e' Conti Permanent Auditor 19/05/ / 1 position held in joint stock company and 22 overall positions held (including exempt). Brescia, March 16, 2009 Rag. Leone Scutti 121

121 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Via Angelo Maj, 14/D BERGAMO Tel Fax andrea.boreatti@boreattipilenga.it BOREATTI DOTT. ANDREA Dottore commercialista Revisore contabile BOARD POSITIONS HELD (ART. 148 BIS C.I. LGS. DEC. 58/98) IN JOINT-STOCK COMPANIES TO BE DISCLOSED TO SHAREHOLDERS MEETINGS (EX ART COMMA 4, EX ART.2 LAW 28/12/2005 No.262) LISTED COMPANY BOARD POSITIONS HELD IN JOINT-STOCK COMPANIES COMPANY REGISTERED OFFICE TAX ID POSITION Cembre Spa Brescia - Via Serenissima LARGE (CONSOLIDATED) Lysne Spa Brescia - Via Diaz LARGE WITH AUDITING RESPONSIBILITIES: Arti Grafiche Johnson Spa Seriate (Bg) - Via Grinetta 9/A MEDIUM SIZE COMPANY WITH AUDITING RESPONSIBILITIES: Coge Srl Bergamo - Via Quinto Alpini Edilferri Spa Castel Rozzone (Bg) - Via Monte Rosa Filca Cooperative Soc. a rlpa Lecco - Piazza Manzoni Sile Srl Barzana (Bg) - Via San Pietro MEDIUM SIZE COMPANY WITHOUT AUDITING RESPONSIBILITIES: Crb Srl Costruzioni Residenziali Brianza Castelcovati (Bs) - Via Degli Artigiani Red Retail Equipments Distribution Spa Milano Via Aurelio Saffi Gamba Bruno Spa Bergamo - Via Baioni 31/C Permanent Auditor without accounting audit responsibilities Chairman of Board of Statutory Auditors without accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Permanent Auditor without accounting audit responsibilities EXPIRATION approval of financial statements POINTS , , , , ,00** , , , ,20 PICCOLA COMPANY REGISTERED OFFICE TAX ID POSITION Benatti Holding Spa Lecco - Via Cavour Helga Immobiliare Srl Bergamo Via dei Partigiani Iniziative Editoriali Srl Lecco Via Fiume M&P Capital SpA Bergamo Via Angelo Maj 14/D Modulo Zeta Srl Lecco Via Fabio Filzi Monitor TV Spa Lecco Piazza Manzoni Tha Immobiliare Spa Brescia Via Diaz Permanent Auditor without accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor without accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Permanent Auditor with accounting audit responsibilities Chairman of Board of Statutory Auditors with accounting audit responsibilities EXPIRATION approval of financial statements POINTS , , , , , , ,00 ** Not material as it is a cooperative company 1 position held in listed companies and 16 overall positions held (including exempt) Bergamo, March 16, 2009 Boreatti Dott. Andrea 122

122 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S S T U D I O RAG. MARIA GRAZIA LIZZINI BRESCIA, 16 marzo 2009 RAGIONIERA COMMERCIALISTA PIAZZA CREMONA, N.11/A - TEL REVISORE CONTABILE BOARD POSITIONS HELD (ART. 148 BIS C.I. LGS. DEC. 58/98) IN JOINT-STOCK COMPANIES TO BE DISCLOSED TO SHAREHOLDERS MEETINGS (EX ART COMMA 4, EX ART.2 LAW 28/12/2005 No.262) BOARD POSITIONS HELD IN JOINT-STOCK COMPANIES COMPANY REGISTERED OFFICE TAX ID POSITION EXPIRATION approval of financial statements POINTS MEDIUM SIZE COMPANY WITH AUDITING RESPONSIBILITIES: Cantine Soldo Spa Chiari (BS) Via Roccafranca, Permanent Auditor with accounting audit responsibilities ,40 SMALL COMPANY WITH AUDITING RESPONSIBILITIES: Holz Albertani Spa Berzo Demo (Bs) Forno d Allione Chairman of Board of Statutory Auditors with accounting audit responsibilities 2008 EXEMPT 0 position held in listed companies (1 as Alternate Auditor) and 2 overall positions held. Rag. Maria Grazia Lizzini 123

123 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S giorgio astori architetto ingegnere Brescia March 16, 2009 BOARD POSITIONS HELD (ART. 148 BIS C.I. LGS. DEC. 58/98) IN JOINT-STOCK COMPANIES TO BE DISCLOSED TO SHAREHOLDERS MEETINGS (EX ART COMMA 4, EX ART.2 LAW 28/12/2005 No.262) BOARD POSITIONS HELD IN JOINT-STOCK COMPANIES COMPANY REGISTERED OFFICE TAX ID POSITION EXPIRATION approval of financial statements POINTS Holz Albertani Spa Berzo Demo (BS) - Forno d Allione SMALL COMPANY WITH AUDITING RESPONSIBILITIES: Permanent Auditor without accounting audit responsibilities 2008 EXEMPT 0 position held in listed companies (1 as alternate auditor) and 1 overall position held. Ing.Giorgio Astori via piero calamandrei brescia italia tel fax STR GRG 52M19B157H

124 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S 125

125 Abstract of 28 April 2009 Shareholders General Meeting resolutions regarding the Financial Statements for the year ending 31 December 2008

126 R E P O R T A N D AC C O U N T S FI N A N C I A L ST AT E M E N T S Abstract of 28 April 2009 Shareholders General Meeting resolutions regarding the Financial Statements for the year ending 31 December 2008 Shareholders General Meeting approved Cembre S.p.A. Financial Statements for the financial year ending 31 December 2008 and the documents annexed. Stating that the legal reserve had already reached an amount of 20% of Capital Stock, Shareholders General Meeting approved the allocation of the Company s 2008 financial year net profit of 8,790, (rounded of to 8,790,112 in Financial Statements) as follows: - dividend payments to shareholders, in the amount of 0.16 for each of the Company s 17,000,000 outstanding shares 2,720,000 - to the reserve for currency translation gains 54, to the extraordinary reserve 6,015, The dividend is payable from 21 May 2009 with a date of record of 18 May The Shareholders Meeting also resolved to allocate retained earnings already recorded in 2007, amounting to 83,525.97, to the extraordinary reserve. The consolidated financial statement for the financial year ending 31 December 2008 and documents annexed have been presented to Shareholders General Meeting. 128

127 Via Serenissima, Brescia (Italy) Phone: Telefax: