MERLONI ELETTRODOMESTICI SPA HALF YEAR REPORT 2002

Transcription

1 MERLONI ELETTRODOMESTICI SPA HALF YEAR REPORT 2002

2 CORPORATE BOARDS AND COMMIITTES: Board of directors Chairman Chief Executive Officer Directors Vittorio Merloni Andrea Guerra Francesco Caio Felice Colombo Alberto Fresco Carl H. Hahn Hugh Charles Blagden Malim Andrea Merloni Ester Merloni Francesco Merloni Roberto Ruozi Board of statutory auditors Chairman Auditors Alternate Auditors Angelo Casò Paolo Omodeo Salè Demetrio Minuto LeonelloVenceslai Fabrizio Colombo Human Resources Committee Francesco Caio Alberto Fresco Andrea Guerra Carl H. Hahn Audit committee Felice Colombo Hugh Malim Vittorio Merloni Roberto Ruozi Independent Auditors Price WatherhouseCoopers S.p.A. 2

3 MERLONI ELETTRODOMESTICI SPA Registered Office: V.le A.Merloni, Fabriano Secondary Office: Via della Scrofa, Roma Share Capital: Euro ,40 fully paid up Tax code/vat number Registered in the Register of Companies of the Court of Ancona under N BOARD OF DIRECTORS REPORT ON OPERATIONS FOR THE FIRST SEMESTER OF 2002 Economic background The growth in American economy in the first semester 2002, +1,1% compared to 2001 first semester, has positively affected trends in GDP (Gross Domestic Product) at a world-wide level, which registered a 2% increase compared to the same period in Within the European Union, the growth in economy in the UK has continued, with a 2,3% increase, while the European average approximates 1,4%. Among the rising countries, Turkey registered a growth equal to 2,1%, Poland rose by 0,1%, and CIS by 12,5%. Last, Argentine decreased by 11% as a result of the economicfinancial crisis started last January. Currency markets In the first semester 2002, the cost of money in the European Union has remained at 3,25%, unchanged compared with the end of Similarly, the USA have not registered variations compared with the end of the year (1,75%). In the course of the first semester of 2002 trends in currency markets were characterized by the average appreciation of the Euro on the Dollar by 11,2% approximately, on the English pound 5,7%, the Zloty reported a 16,2% depreciation, the Rouble 16,75%. The Turkish Lira reported a 24,3% depreciation, thus showing a big financial weakness on the market. Argentine ha devalued the Peso by 282%. The domestic appliances market in Europe Demand for domestic appliances in Europe is marginally negative, -0,4% compared with the first quarter of In west European markets, growth rates reported were almost all negative, with peaks in Germany (-9%) and in Portugal (-4%). The market in Italy has remained substantially steady 0,9%. Spain was the only country to show an increase in demand with +3,6% increase. Instead east Europe and CIS markets showed an increase, in average 6%. 3

4 The income statement The consolidation area has changed in the first semester 2002, GDA (General Domestic Appliances) has been consolidated with the proportional method because Merloni owns 50% with General Electric, thus all it s economic and balance sheets items have been included. The 22,7% increase in sales in due for 8,9% to proportional consolidation of GDA sales, and for the remaining part to internal growth, of which 11,7% due to an increase in sales volumes, and 2% due to an improvement in the sales mix. The operating margin (EBIT) was 73 millions of euro (48 millions of euro), with a Return on sales (EBIT as % of sales) equal to 6,6% (5,3%), showing a 52% growth compared to 2001 first semester. Consolidated income statement (Euro.millions) 2002 HALF YEAR 2001 HALF YEAR 2001 YEAR SALES variation 22,7% GROSS OPERATING MARGIN (EBITDA) As a % of sales (ROS) 11,4% 10,1% 11,5% OPERATING MARGIN (EBIT) As a % of sales 6,6% 5,3% 7,1% PROFIT BEFORE TAXES (PBT) variation 89% NET PROFIT 74 variation It has been possible to realize an increase in EBIT thanks to a more efficient management of raw material suppliers, due to the Company s growth in dimensions, which incidence on revenues from sale has decreased 1,6% compared to the same period in The increase in EBIT was possible also thanks to the constant control of the incidence of fixed costs, actually unchanged compared with the first quarter of Depreciation and amortization for the period are equal to 54 millions of euro (43 millions of euro), with a 4,9% incidence on sales; the value includes amortization for consolidation differences, reallocated among tangible and intangible fixed assets for 2 millions of euro. Profit before taxes (PBT), equal to 64 millions of euro (34 millions of euro), represents 5,8% of sales, increased by 89% compared to the first semester PBT increase benefited of the reduction in financial charges for the positive results of the currency management, which have compensated the greater level of indebtness, due to GDA acquisition (concluded March, 8, 2002). 4

5 Financial performance Net Working capital as a percentage of sequential sales, passed to 3,8% compared with 8% in the first semester The decrease is attributable to the transfer of 113 millions of euro of receivables against the securitization transaction, completed in the end of June. Setting arise such extraordinary effect, but including GDA Net working Capital part (which percentage of sequential sales is 5%), the incidence of Net Working Capital on sequential sales would have been equal to 7,8%. Consolidated balance sheet (Euro millions) HALF YEAR HALF YEAR Year Trade receivables Inventory Payables to suppliers Net working capital As a % of sales (12-month rolling) 3,8% 8,0% 4,5% Other current assets/liabilities, net value (54) (45) (98) Tangible and intangible fixed assets Other medium/long-term liabilities, net value (143) (129) (121) TOTAL ASSETS Net financial indebtedness Group Shareholders' equity (*) Minority interest TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES The increase in fixed assets is mostly due to GDA consolidation, that is 80 millions of euro of intangible assets (21 millions due to goodwill and 59 millions due to trademarks), and a 26 millions of euro increase in tangible fixed assets. These values, certified by check, cover the consolidation difference (price paid and percentage of net equity bought). Furthermore GDA 69 millions of euro of tangible fixed assets have been consolidated. Consolidated cash flow (Euro milions) HALF YEAR HALF YEAR Year NET PROFIT (*) Depreciation and amortization Financial charges (including exchange differences) Variation in net working capital (6) (21) (3) Variation in other operating assets/liabilities and accruals (23) (25) 29 CASH FLOW FROM OPERATIONS Investments, net value (Capex) (218) (55) (105) Investments in other operations, net value Other - - (9) CASH FLOW FROM INVESTMENTS (218) (55) (114) Dividends (22) - (16) Financial charges (including exchange differences) (7) (16) (24) Variation in Shareholders' equity 4 (6) 17 Variation in the exchange translation reserve (32) - 2 Other CASH FLOW FROM FINANCIAL OPERATIONS (57) (21) (21) TOTAL CASH FLOW (179) (28) 75 Net opening financial indebtedness Net closing financial indebtedness

6 The cash flow is negative by 179 millions of euro, due to the payment of 191 millions of euro approximately for the purchase of 50% of General Domestic Appliances Holding Ltd., on March 8, The variation in the Net Working Capital is mostly attributable to the seasonality of the inventory. Net financial indebtness therefore passed from 151 millions of euro at the end of 2001, to 330 millions of euro, 191 millions of which attributable to the purchase of 50% of GDA. Gearing passed from 0,41 at the end of 2001, to 0,87, taking into account profit for the period gross of taxes. Setting aside the effect of the acquisition and of the related transactions, the debt/erquity ratio would have amounted to 0,66. Projections for the third trimester of 2002 are in line with the Company s growth trend reported in the first six months. October 30, 2002 To the Board of Directors The President Vittorio Merloni 6

7 INFORMATION BY GEOGRAPHIC AREA - JUNE 30, 2002 (thousands of Euro) West Europe East Europe Overseas Consolidated Sales to third parties Intersegment sales (**) Total revenues Result for the segment (*) Non attributable general expenses Diff. Between production value and cost Net financial charges (8.219) Revaluation (wrire-down) of shareholding Net extraordinary expenses (1.382) Result before taxes Taxes 0 Minority interest 308 Group result OTHER INFORMATIONS SEGMENT ASSETS percentage break-down per area 0,72 0,15 0,13 Receivables percentage break-down per area 0,70 0,24 0,06 Stock Total LONG-TERM ASSETS CENTRALIZED ASSTES TOTAL CONSOLIDATED ASSETS ,44 25,22 7,35 SEGMENT LIABILITIES Suppliers CENTRALIZED LIABILITIES TOTAL CONSOLIDATED LIABILITIES (*)Includes the following costs: costs of production, distribution costs, commercial, administrative and generalcosts directly attributable to markets West Europe includes: Italy, France, Portugal, Germany, the Netherlands, Great Britain, Belgium, Denmark,Finland Iceland, Norway, Sweden, Ireland, Austria, Switzerland, Greece. For management reasons, the following countries are Cyprus, Albania, Macedonia, Croatia, Serbia and Slovenia. East Europe includes: CIS, Poland, Bulgaria, Hungary, Czech Republic and Slovakia. Overseas includes: Turkey, South America, North America, Africa, Middle East and Far East (**) Includes intercompany revenues from sales and services produced in the geographic area and sold to other geographic areas. 7

8 Consolidated financial statements (thousands of euro) Balance sheet 30 June June December 2001 ASSETS Registered office: Via Aristide Merloni 47, FABRIANO Share capital: Euro ,4 Fully paid in A) Share capital issued and not yet paid: - parte richiamata parte non richiamata totale B) Fixed assets: I- Intangible fixed assets: 1) installation and expansion costs ) research, development and expansion costs ) industrial patent rights and utilization of know-how ) concession, licences, trademarks, and similar rights ) goodwill 0 0 (0) 5-bis) consolidation difference ) intangible assets in progress and payment on account ) other Total II- Tangible fixed assets: 1) land and buildings ) plant and machinery ) industrial and commercial equipment ) other goods ) work in progress and advances Total III- Investments: 1) shareholdings in: a) subsidiary b) associated companies c) parent company 0 0 d) other enterprises ) receivables: a) receivables from subsidiary of which falling before the subsequent year 0 0 b) receivables fromassociated companies of which falling before the subsequent year 0 0 c) receivables from parent compay of which falling before the subsequent year 0 0 d) other receivables of which falling before the subsequent year ) other shareholdings ) shares in portfolio total nominal value Total Totalfixed assets (B) C) Current assets: I- Inventory: 1) raw materials, auxiliay materials and spare parts ) work in progress ) contracted work in progress ) finished products ) advances Total II- Receivables 1) trade receivables of which falling due beyond the subsequent year ) receivables from subsidiaries of which falling due beyond the subsequent year 0 0 3) receivables from aassociated companies of which falling due beyond the subsequent year 0 0 4) receivables from parent company of which falling due beyond the subsequent year 0 0 5) other receivables of which falling due beyond the subsequent year Total III- Financial assets not held as fixed assets: 1) shareholdings in subsidiaries 0 0 2) shareholdings in associated companies 0-0 3) shareholdings in parent company 0 0 4) other shareholdings ) group shares and quotes 0 0 total nominal value 0-0 7) financial recivables not held as fixed assets Total IV- Cash: 1) bank and postal deposits ) cheques ) cash on hand Total Total current assets(c) D) Accrued income and prepayments TOTAL - discount on bond issues

9 Balance sheet 30 June June December 2001 Liabilities and shareholders' equity A) Shareholders' equity: I- Share Capital II- Share premium reserve III- Revaluation reserve IV- Legal reserve V - Reserve for shares in portfolio VI- statutory reserves VII- Otherreserves, separetely indicated in the notes (2.254) VIII- Profit (losses) carried forward IX- Group profit (loss) for the year Group shareholders' equity X Share capital and reserves - minority interests X1 Profit (loss) for the year - minority interests Shareholders' equity - Minority interests Total B) Reserves for risk and charges: 1) pensions and similar obligations ) taxation ) consolidation reserve for future risks and charges ) other Total C) Staff leaving indemnity D) payables 1) debentures of which falling due beyond the subsequent year ) convertible debentures of which falling due beyond the subsequent year 0 0 3) bank loans payables of which falling due beyond the subsequent year ) other financing payables of which falling due beyond the subsequent year ) advances of which falling due beyond the subsequent year ) trade payables of which falling due beyond the subsequent year ) secured payables of which falling due beyond the subsequent year 0 0 8) payables to subsidiaries of which falling due beyond the subsequent year 0 0 9) payables to associated companies of which falling due beyond the subsequent year ) payables to parent company of which falling due beyond the subsequent year ) taxes payables of which falling due beyond the subsequent year ) social security payables of which falling due beyond the subsequent year ) other payables of which falling due beyond the subsequent year 7 7 Total E) Accrued liabilities and deferred charges TOTAL - premium on bond issues Memorandum accounts 30 giugno giugno dicembre 2001 List of direct and indirect guarantees guarantees: for the benefit of third parties for the benefit of associated companies - 0 avalli: a favore di terzi - 0 collaterals: for the benefit of third parties other memorandum accounts TOTAL

10 Income statement 30 June June December 2001 (thousands of euro) A) Value of production: 1) revenues from sales and services ) variations in work in progress and finished goods ) variations in contracted work in progress (7) 13 4) variations in fixed assets ) other income of which grants for the year Total B) Costs of production: 6) raw materials,auxiliary materials, spare parts and goods ) costs for services ) utilization of third parties' assets ) personnel costs: a) slaries and wages b) social contributions c) staff leaving indemnity d) other social contributions e) other costs ) depreciation/amortization and write downs: a) amortization of intangible fixed assetsù b) depreciation of tangible fixed assets c) other write-downs of fixed assets 0-2 d) write-down of receivables recorded as current assets and cash ) variations in inventory of raw materials, auxiliary materials spare parts and goods (4.721) (4.819) 12) accruals for risk ) other accruals ) other operating charges Total Differece between value and cost of production (A-B) C) Financial income and charges: 15) income from shareholdings of which from subsidiaries 0 (0) -of which from associated companies 0 0 -of which from other enterprises ) other financial income: a) receivables recorded as fixed assets from subsidiaries from associated companies from parent company from others 0 0 b) securities recorded as fixed assets 0 0 c) securities recoreded as current assets 0-0 d) other income from subsidiaries 0 (0) - from associated companies from parent company 0 (0) - from others ) interest and other financial charges from subsidiaries from associated companies from parent company from others Total (8.219) (18.015) (26.255) D) Adjustements to the value of financial operations: 18) revaluations: a) shareholding ) write-downs: a) shareholding 0 0 Total E) Extraordinary income and expenses: 20) income gains on disposal others ) expenses losses on disposals taxes concerning previous years others Totale (1.382) (224) Result before taxes (A-B+C+D+E) ) Income taxes for the year ) Profit loss for the year Prgit (loss9 for the year - minority interest Group profit 8loss) for the year

11 MERLONI ELETTRODOMESTICI SPA - Bilancio consolidato al Statement of changes in consolidated shareholders' equity (thousands of euro) Balance at 31/12/2001 Consolidate d profit for 2001 carried forward Distribution of dividends Variation in share capital (*) Conversion of savings shares Variation in the consolidation area Other movements exchange translation reserve Result for the year Balance at 30/06/2002 Shareholders' equity Goup: Share capital Share premium reserve Revaluation reserve Legal reserve Statutory reserve 0 0 Reserve for shares in portfolio (1.267) Extraordinary reserve (14.331) 354 Reserve for grants on capital account Reserve for exchange differences (30.795) (23.911) Consolidation reserves Other reserves Profit (loss) carried forward (7.562) (398) Profit (loss) for the year (73.852) Total Group shareholders' equity (21.893) (30.795) Minority interest: Share capital and reserves (1.136) Profit (loss) 312 (312) Total shareholders' equity - Minority in (1.136) TOTAL (21.893) (31.931) (*) stock option excercise

12 CASH FLOW STATEMENT 30-giu dic-01 Result of operations Depreciation and amortization Taxes (0) (41.489) Gross operating cash flow Variation in operating working capital (49.953) Variation in trade receivables (40.930) Variation in inventory (95.624) (7.052) Variation in trade payables Variation in other short-term assets and liabilities (1.225) (11.182) Variation in the staff leaving indemnity Variation in other funds (3.828) Net operating cash flow Invest./disinv. In tangible fixed assets ( ) (84.147) Invest/disinv. In intangible fixed assets (goodwill excluded) (66.868) (18.265) Variation in goodwill (32.769) (2.930) Invest/disinv. In financial assets (1.217) (9.054) Cash flow from investments ( ) ( ) Free Cash Flow ( ) Financial charges/income (6.966) (23.083) Extraordinary expenses/income (1.382) (224) Variation in share capital Variation in reserves (23.129) Variation in the conversion reserve (31.670) Variation in shares portfolio (354) Variation in the minority interest (1.135) (574) Dividends (22.291) (15.716) Residual Cash Flow ( ) Variation in the net financial position Decreases (incresases) in financial assets (12.466) Decreases (incresases) in short-term financial assets ( ) Increases (decreases) in long term loans Increases (decreases9 in short term loans Total variation in net financial position (75.390)

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENT AT JUNE 30, 2002 Structure and content of the financial statement The consolidated financial statement at June 30, 2002 were prepared in conformity with Law Decree No. 127/1991, and with regard to those aspects not specifically dealt with by the decree, integrated by the accounting principles stated by the Consigli Nazionali dei Dottori Commercialisti e dei Ragionieri (National Board of Chartered Accountants) and, in their absence, by those of the International Accounting Standards Committee (IASC) and of the Financial Accounting Standards Board (FASB). Furthermore, in the preparation of the explanatory notes, the new regulation regarding information on companies were taken into account, introduced by the Law Decree No. 58/1998 ( Testo Unico Draghi ) and subsequent enacting and integrating Decrees, as well as Consob (National Commission for Listed Companies and the Stock Exchange) recommendations. These financial statements reflect the full consolidation of the financial statements of Merloni Elettrodomestici Spa and its subsidiaries. The list of companies included in the consolidation area at June 30,2002 is attached. The consolidation area changed compared to December 31, 2001, because Merloni Elettrodomestici UK Limited and Merloni UK France LLP have been included, while Merloni Electromanager Suisse Sa has been removed because is for sale. During the first half of 2002 Merloni Elettrodomestici Spa transferred 1.468% of its investment in Merloni Indesit Polska Spzoo to Simest Spa, the holding company for the overseas operations). Regarding the agreement with Simest Spa, Merloni Elettrodomestici Spa has 100% of the right to vote in the shareholders assembly. In the consolidation area at June 30, 2002 General Domestic Appliances Ltd has been included with the proportional method. The firm s acquisition was concluded March 8, 2002 by Merloni Elettrodomestici UK, for 50% of its value. The price paid for 50% of the Net Equity (equal to thousands of euro) is, temporary, thousands of euro. Such amount will be definitive at the end of the Completion, eventual changes will not have a great impact on the value above. The generated consolidation difference, equal to thousands of euro, it has been allocated, after an independent expert valuations, in such way: thousands of euro to Tangible Fixed Assets; thousands of euro to Trademarks; and thousands of euro to Goodwill. Furthermore the associated Haier Merloni Washing Machine Ltd has been valued with the Shareholder s Equity method for the first time. The financial statements of companies included in the consolidation area were prepared in accordance with accounting principles and criteria set forth in article 2423 and following articles of the Italian Civil Code, in line with principles established by the Consigli Nazionali dei Dottori Commercialisti e dei Ragionieri (National Board of Chartered Accountants) and, in their absence, with international principles stated by the International Accounting Standards Committee (IASC) and by the Financial Accounting Standards Board (FASB), as recommended by Consob (National Commission for Listed Companies and the Stock Exchange). Merloni Elettrodomestici group decided to make use of the right; given in art. 3, paragraph 5 of Consob s regulation (National Commission for Listed Companies and the Stock Exchange), 13

14 concerning the semester financial report, approved with Delibera n.8195, 30 June 1994, and has presented the period result before taxation as well as not including adjustments and provisions only due to fiscal regulation. Events after closing of the period Merloni Elettrodomestici and General Electric signed, on June 25, 2002, a Put and Call agreement, which gives the right to General Electric to sell and to Merloni Elettrodomestici to buy the remaining 50% of the English company General Domestic Appliances at the moment owned by General Electric. The agreement will last seven years, running from January 2003, following an eventual first sale option by General Electric and will terminate in December The amount due for all the Put Option, in favour of General Electric, is 357 millions of USD. Commissions for all the Call Option are 385 millions of USD, with a nine month gap for each option. The effectiveness of this agreement was subordinate by Anti Trust Authorities approval, granted October 8, On October 23, 2002 Barclays Bank issued a guarantee in favour of General Electric for the 357 millions of USD options above mentioned. As provided in the contract, dated June 25, 2002, Merloni will exercise control over GDA starting from November 1,

15 Deviations No exceptional circumstances have arisen such to make it necessary to apply deviations as of art. 29 paragraph 4 and 5 of Law Decree No. 127/1991. Valuation Criteria The valuation criteria adopted for the preparation of the consolidated financial statements are in line with those utilized by the Group Parent Company and are consistent with those recommended by Consob. Consolidation Principles and Translation Criteria Assets and liabilities of consolidated companies are recorded applying the full integration method, not considering GDA that, since is owned for 50% with G.E., is consolidated with the proportional method. The balance sheet value of consolidated shareholding is eliminated against shareholders equity of invested companies; the elimination is made on the basis of book values at the date of the first inclusion in the consolidation. The difference between the acquisition cost and shareholder s equity at current value of invested companies at the date of acquisition of the shareholding, is allocated where possible to assets and liabilities of invested companies. Possible remaining differences, when positive, are recorded as Consolidation difference in intangible assets and amortized over 5 years (concerning GDA over 10 years). Should shareholders equity exceed acquisition cost, after deduction of fixed assets and the accrual to the Consolidation reserve for future risk and charges, such amount in excess would be credited to consolidation shareholders equity as consolidation reserve. The portion of shareholder s equity of minority interest of consolidated subsidiaries is recorded as Share capital and reserves minority interest among shareholder s equity; the portion of minority interest of the net result of such companies is separately disclosed in the consolidated income statement as Profit (loss) for the year minority interest. Profits not yet realized arising from intergroup transactions are eliminated, as well as receivables and payables and all transactions among companies included in the transaction. The financial statements of foreign companies were translated into euro on the basis of the following criteria: - assets and liabilities at the exchange rate existing at the end of the period; - revenues and costs, as well as income and charges, applying the average exchange rates for the period; - items forming shareholders equity, at the exchange rate existing in the related period of formation. 15

16 Exchange differences arising from the translation of closing shareholders equity to historical exchange rates compared with exchange rates existing at financial statements date, are directly recorded to shareholders equity, with differences between the operating result at average exchange rates and operating result in euro at the exchange rates existing at the end of the period (28 June 2002), in the item Exchange translation reserve included among other reserves. The following schedule indicates exchange rates applied for the translation of currencies not part of the euro area, in whose connection fixed exchange rates in force December 31, 1998 have been applied. Currency Opening rate of exchange Average rate of exchange Closing rate of exchange Average rate of exchange previous year US dollar 1, , , ,11795 Argentine peso 0,653 0, , ,11795 English pound 1, , , ,60978 Swiss franc 0, , , ,66224 Poland spzoo 0, , , ,27260 Average exchange rates have been calculated weighing average monthly exchange rates with sales of each company. With regard to foreign subsidiaries and associated companies operating in high inflation rate countries, shareholdings reflect adjustments arising from the application of international principles regarding accounting for inflation. Since 1997, Merloni Group has adopted the international accounting principle FAS52 instead of IAS 29 previously applied, to improve the representation of Group trends in operations and shareholders equity. The main distortions deriving from the application of IAS 29 concern: inventory valuation, valuation of purchase and production costs, valuation of fixed assets and accordingly amortization. The above mentioned distortions are caused by the differential inflation write-down, significant in high inflation rate countries, where Merloni Group operates and amplified by the fact that the majority of purchases and investments carried out by subsidiaries are paid in Euros. The impact on shareholders equity items and on the result for the year deriving from the application of the different accounting principle adopted is explained in detail in the paragraph commenting Group shareholders equity. 16

17 COMMENTS TO THE MAIN BALANCE SHEET ITEMS ASSETS FIXED ASSETS Intangible fixed assets The composition and summary movements in Intangible Fixed Assets are set out in the following table: Intangible fixed assets Opening balance Increases Decreases Amortiz ation for the year Variations in the consolidati on area Reclassifi cations Closing balance Installation and expansions costs Research, (860) development and advertising costs Industrial patent rights and utilization of know-how Concessions, licences, trademarks and similar rights Goodwill Intangible assets in progress and payments on account (6.888) Other (828) Total (399) Installation and expansion costs at historical costs are set out in this way: Installation and expansion costs Historical cost 30/06/2002 Historical cost 31/12/2001 Costs for establishment of companies Share capital increase Merger costs Start-up costs Total Accumulated amortization Financial statements balance

18 The increase in industrial patent rights and utilization of know-how mainly refers to costs incurred by the Group Parent company for some important organizational projects such as the SSC (Shared Service Center), for the centralization at the registered office of administrative services of Merloni Group companies operating in mature markets (300 thousands of euro), the project Distinta Base project aiming at the creation of a single environment for the planning, production and filling of data within the end of the year, in order to increasingly standardize Group spare parts (1.072 thousands of euros), and the projects C2C and BUCC aiming at entirely redesigning, within two years, customer management (orders, logistic, invoicing, post sale services, etc.), the increase is about thousand euros for the year The increase (900 thousands of euro) in cost for licences and trademarks is mostly due to Sap licence, bought by the Group Parent in 2002, furthermore there is an increase of about 59 millions of euro due to the allocation of price difference on GDA Holdings trademarks. The English subsidiary owns 3 trademarks: Hot Point, Creda, and Cannon, these trademarks detain 23% of English market share; furthermore Hot Point has a 96 % awareness. The increase in goodwill includes GDA Holding Ltd. goodwill ( thousands of euro), of which thousands of euro concerning the price difference not attributable to assets and trademarks and thousands of euro related to the increased price difference, posted after the capitalization of the additional attributable expenses; the remaining goodwill value is due to the purchase of another 10% of Star Spa (495 thousands of euro). The voice Intangible assets in progress and payments on account decreases of about 7 millions of euro due to the start up of C2C and BUCC, previously described, the remaining value mostly refers to two Wrap Spa research and development projects not yet finished. During 2002 the Group Parent has reclassified in the voice financial assets the beneficial interest on Star shares previously included in intangible assets (399 thousands of euro). Tangible fixed assets The composition and summary movements in tangible fixed assets are detailed in the schedule below: Tangible fixed assets OPENING VALUES Land and buildings Plant and machinery Industrial and commercial equipment Other goods Work in progress and advances Total Historical cost* Revaluations Accumulated (62.363) ( ) ( ) (45.200) - ( ) depreciations Write-downs (93) - - (2) - (95) Total VARIATIONS Acquisitions Revaluations Disposals (230) (3.576) (4.936) (1.177) (2.710) (12.630) Utilization of depreciation funds Depreciation for the year (6.176) (22.561) (10.530) (5.316) - (44.583) Write-downs

19 Variation in the consolidation area Exchange difference (4.089) (2.478) (12) (491) - (7.070) Reclassifications (4.026) - Total (3.050) CLOSING VALUES Historical cost Revaluations Accumulated (88.561) ( ) ( ) (65.220) - ( ) depreciation Write-downs (93) - - (78) - (171) Total (*) Historical cost includes the effects of fluctuation in exchange rates on tangible fixed assets in foreign currency starting from 1987, the first year of full consolidation. Investments carried out during the year mostly concern the following objectives: strengthen production capacity; rationalize production through the standardization of processes and product structure; widen the product s range to support the Company s multibrand policy and complete renewal of the Indesit range; quality improvement through the redesign of products and the review of production processes; reduction in production costs through the automation of processing production flexibility, for the reduction in stock of finished products and improved services to customers, replacing strict plants with flexible and computerized ones; significant interventions were carried out to improve the environmental aspect and safety at work; last, renewal of informatics and organizational processes. Plants and machinery decrease is mostly due to the sales of the associated company Fabrica Portugal Sa, while the decrease in industrial and commercial equipment is due to the assets sales of the subsidiary GDA Holdings Ltd. Variation in the consolidation area includes increases due to GDA Holdings Ltd (a subsidiary) integration Translation differences mainly reflect the effect of the devaluation of the Argentine peso on the value of Argentron fixed assets. As subsequently discussed in the comment to memorandum accounts, part of property, plant and equipment is subjected to restrictions and guarantees against loans received in the medium and long term. Financial assets Shareholding At 30 June, 2002 the most important shareholdings not included in the consolidation area are the following: 19

20 Shareholding in subsidiaries Shareholding percentage 30/06/ /12/2001 Balance sheet value Shareholding percentage Balance sheet value Merloni Indesit Bulgaria Srlu 100, ,00 21 Consorzio Consumer Care 99, ,99 6 Merloni Appliances Asia Pacific Pte 100, ,00 79 Ltd Merloni Elettrodomestici Ceska 100, ,00 26 Republika Sro Merloni Domestic Appliances 100, ,00 13 Norway As Distretto dell Elettrodomestico 56, ,67 26 Merloni Electromenager Suisse Sa 100,00 (28) - - Total Shareholding in associated companies Shareholding percentage 30/06/ /12/2001 Balance sheet value Shareholding percentage Balance sheet value M&B Marchi e Brevetti Srl 50, ,00 10 Merloni Progetti Spa 33, , Faber Factor Spa 50, , MPE Spa 33, , Adria Lab Srl 40, , Haier Merloni (Qingdao) Washing Machine Co. Ltd 30, , Trade Place 25, Other minor shareholdings Total Shareholdings in other companies Shareholding percentage 30/06/ /12/2001 Balance sheet value Shareholding percentage Balance sheet value Haier Merloni Electrical Appl.Co.Ltd 15, ,

21 Meurice Ets 10, , San Paolo IMI 0, , CO.PRO. Spa 16, , H.E.C. Sa , Other minor shareholdings Total Shareholding in associated companies, valued applying the equity method, include the portion of profit for the year. Concerning the shareholding in Merloni Progetti Spa and MPE Spa the adjust at the net equity value has been done at December 31,2002 because there were not available consolidated financial statements at June 30,2002. Receivables - Other receivables The amount is mostly made of ( thousands of euro) bank deposits at international credit institutions ( thousands of euro at December 31, 2002) as guarantee of loans issued by the institutions to Merloni group companies. In addition, the balance includes guarantee deposits (513 thousands of euro) and long-term loans (778 thousands of euro) granted by the Group Parent Company to employees who suffered property damage following the earthquake occurred in Shares in portfolio The decrease of thousands of euro is due to the Group Parent sale of n ordinary shares. At the end of the period the Group Parent had n ordinary shares in portfolio on the whole, with a value of thousands of euro. Therefore the average unit price is 2,93 euro. CURRENT ASSETS Inventory Inventory shows a balance of thousands of euro. Compared with December 31, 2001, the increase is attributable to the higher level of stock due to the seasonality of production and the higher volumes of sales. Receivables The balance of thousands of euro ( thousands at December 31, 2001) can be detailed as follows: - Trade receivables Trade receivables amount to thousands of euro net on the bad debts provision of thousands of euro and they relate to commercial transactions and services rendered. The Group Parent Company and some subsidiaries have insurance contacts to partially cover insolvency risks. Receivables were written down to cover risks of losses for receivables in litigation and doubtful receivables. The accrual for the period is equal to thousands of euro. - Receivables from subsidiaries and associated companies 21

22 Balances are composed as detailed in the table below: Receivables from subsidiaries 30/06/ /12/2001 Merloni Indesit Bulgaria Srlu Philco Great Britain Ltd Merloni El.Ceska Republika Sro M.D.A.Hellas Mepe (Grecia) Merloni El. Hàztartàstechnikai kft M.D.A Norway Ast Indesit Hausgerate Vertriebsges mbh Total Receivables from associated companies 30/06/ /12/2001 Faber Factor Spa Merloni Progetti Spa Protecno Sa Sofarem Sarl M.&B.Marchi e Brevetti Srl Trade Place Srl Adria Lab Srl Total Receivables from Group companies having a financial and commercial nature are under market terms. More detailed information are set out in the paragraph on intercompany transactions. - Other receivables The item is detailed as follows: Other receivables 30/06/ /12/2001 Social security Advances to employees Tax authorities Suppliers, advances for services Insurance reimbursements Receivable for sale of business operation

23 Other Total Receivables from tax authorities mainly include balance pertaining to the Group Parent Company and in particular: reimbursement for export of thousands of euro, Vat credit of thousands of euro, Irpeg (corporation tax) credit of thousands of euro, Irap (tax on productive activities) credit of thousands of euro, and other tax credits of 934 thousands of euro. GDA Holdings has a credit of thousands of euro. That amount includes thousands of euro that are collectable over the next year. Receivable for sale of business operation pertain to the Group Parent Company for the sale of the operation concerning finished products stock management situated in Fabriano. Other receivables include mainly grants for the year to be collected of thousands of euro. Financial assets not held as fixed assets -Financial receivables not held as fixed assets This item represents the Group Parent Company s receivable from Faber Factor Spa regarding the internal current account remunerated at market terms and utilized for the operating management of existing factoring transactions ( thousands of euro). This item also includes a receivable ( thousands of euro) concerning the securitization done in June Cash The balance of cash ( thousands of euro compared to thousands of euro the previous year) includes short-term bank deposit of treasury in Lugano and in Merloni Ariston International, Sa for thousands of euro ( thousands of euro in 2001) and other bank deposits mainly in Poland. The value of cash net of bank deposits and of cash on hand (935 thousands of euro), equal to thousands of euro ( thousands of euro at December 31, 2001), represents the balance of bank and postal current accounts, registering a decrease of 19.4 millions of euro approximately compared to the previous year. The decrease in cash is mainly due to finance the operating business and to the payment for GDA Holdings Ltd. acquisition. Accrued income and prepayments This item is illustrated in the table below: Accrued income and prepayments 30/06/ /12/2001 Accrual of interest receivable

24 Prepayment of interest payable Insurance premiums Advertising costs Rents and leases Premium on issue of debenture loan Expenses for the issue of the debenture loan Other operating costs GDA acquisition costs Other prepayments Total Accrual of interest receivable includes mostly interests matured on the deposit of Merloni Ariston International Sa at the Banque Nazionale de Paris. LIABILITIES SHAREHOLDERS EQUITY Share Capital The table below shows the new composition of share capital, fully subscribed and paid as at June 30, 2002: Description Shares at the end of the period number Value Ordinary shares ,38 Savings shares ,60 A resolution of the extraordinary Shareholders Meeting on September 16, 1998 (and subsequently modified on May the 5th 2000 and May the 7th 2001) allows for a maximum Share Capital increase of euro issuing a maximum of nominal shares, as prescribed by Italian Law (Civil Code, article 2441, paragraph 8 on Group Executives and Managers stock option plan). Following this resolution, subscription options were exercised with the issue of new ordinary shares carrying a nominal value of 0.9 euro. The Shareholders Meeting held on October 23, 2001, resolved for a maximum additional Share Capital increase of euro issuing a maximum of ordinary shares as prescribed by Italian Law (Civil Code, article 2441, paragraph 8 on Group Executives and Managers stock 24

25 option plan). Furthermore the Shareholders Meeting held on October 23, 2001 resolved for a maximum new Share capital increase of euro ordinary shares as prescribed by Italian Law Civil Code, article 2441, paragraphs 5 and 6 on stock option plan for external Directors appointed with significant tasks for the strategic management of company. In addition, the shareholders meeting on May 6, 2002 voted a maximum capital increase of 180,000, issuing a maximum of 200,000 ordinary shares, pursuant to article 2441, clauses 5 and 6, Italian Law Civil Code (stock options for external directors who are assigned tasks deemed significant for the strategic management of the company). Capital stock voted (*) Capital stock subscribed and paid in (*)(**) Capital stock after conversion from savings to ordinary shares , ,40 1st employees stock option plan , ,58 launched 19th September nd employees stock option plan ,00 - launched 23rd October st directors stock option plan launched 23rd October ,00-2nd directors stock option plan ,00 - launched 6th May 2002 Total , ,98 (*) ordinary and savings shares (**) capital wrote on the Register of Companies at June 30,2002 is equal to ,40 euro Share premium reserves The reserve has been restated at ,60 euro with the amount arising from the conversion saving shares into ordinary shares at the ratio of 1:1, and equal to ,60 euro. The 2002 increase is given by the euro share premium at the moment of the stock options exercise. Revaluation reserve The reserves remain unchanged during the accounting period. Legal reserve The reserve increased by euro as a result of the allocation of profit realized by the Group Parent Company during Treasury shares The reserve, created in 1996 by the parent company, following buy back transactions, as required 25

26 by article 2357 ter of the Italian Civil Code, has decreased due to disposal of private shares throughout 2002 (1.267 thousands of euro). Other reserves Other reserves are composed as follows: Description 30/06/ /12/2001 Grants on capital account Cumulative translation effect (23.911) Extraordinary reserve Consolidation reserve Restricted reserve for profits Total (2.254) The cumulative translation effect includes exchange differences arising from the translation of consolidated foreign currency results written directly to consolidated net equity in conformity with I.A.S. 21. Furthermore, the item includes the effect of adjustment of the net equity values of foreign investments. A decrease of 30,795,000 is due to the Euro s appreciation with respect to all the other currencies in use within the company. The extraordinary reserves decreases by thousands of euro is due to profit distribution arisen from previous accounting periods. The 740 thousands of euro increase in Consolidation Reserve is due to a first time consolidation treatment of the Subsidiary Haier Merloni Washing Machine Ltd following net equity method. The restricted reserve for profits was accrued by the Group Parent Company in compliance with Law Decree n.124 art.13 dated 1996 for tax breaks purposes. Profit (Losses) carried forward The item amounts to thousands of euro at closing of period. It includes profits of thousands of euro (6.991 thousands of euro at 31st December 2001) that were carried forward in relation to associated companies valued with the equity method. Reconciliation with the financial statements of the Group Parent Company The comparison between shareholders equity, as of statutory accounts of the Group Parent Company Merloni Elettrodomestici Spa at June 30, 2002 and December 31, 2001 and consolidated shareholders equity at the same dates and corresponding data, is set out in the table below: Shareholder s equity 30/06/ /12/2001 Result for Shareholder s the year equity Result for the year 26