Merloni Elettrodomestici spa Financial Statements of the Group Parent Company

Transcription

1 Merloni Elettrodomestici spa Financial Statements of the Group Parent Company Report of the Board of Directors on trends in operations for the first six months of 1999 Prepared pursuant to art of the Italian Civil Code and in accordance with Consob (National Commission for Listed Companies and the Stock Exchange) resolutions No dated 30 June 1994 and No dated 2 August 1995 Merloni Elettrodomestici Spa Registered office Viale Aristide Merloni, Fabriano (Ancona) Share capital Lit. 112,547,936,000 full paid up Registered with the previous Register of Companies at Ancona Court, Reg. No Registered with Ancona C.C.I.A.A. (Chamber of Commerce for Industry, Agriculture and Handicraft) Reg. No Internet -

2 Economic background Projections for 1999 indicated a difficult six-month period for European economy and a recovery in the second part of the year. The projection was confirmed by results achieved in the first six months of the year, while in the second half, a lower growth than projected is expected. Recovery projections have been confirmed by stronger pressure on prices of raw materials, which could be only partly offset by a strengthening of the Euro on the Dollar. Inflation in Euro countries has remained steady confirming the corresponding expected steadiness in the Euro exchange rates; the projection for a possible recovery in the autumn in the Euro area will depend upon the subsequent actions of the American Federal Reserve expected next October. Russia, which in previous years had contributed to the development and profitability of Merloni Elettrodomestici, interrupted the negative economic trend caused by the August 1998 crisis. Our commercial and trademark position should enable to catch growth opportunities as soon as the recovery in internal consumption consolidates. Operating performance The financial statements for the first six months of 1999 shows a profit for the period of Lit. 6,997 million compared with the loss of Lit. 12,153 million in the corresponding six-month period in 1998; revenues are equal to Lit. 953,627 million compared with Lit. 1,057,487 million the previous year. The mere comparison of figures for the six months does not highlight the intense work carried out by Merloni Elettrodomestici along the following directives: 1. a conversion in pressure from Eastern markets towards Western markets 2. a decrease in structure costs 3. the pursuit of a development policy 4. growing attention to service the customers The significant recovery realized in Mature markets resulted in their incidence on total revenues passing from 68.3% to 78.4% with an increase in the comparison for the period equal to over 10 points. To encourage the conversion, the Commercial Management of Mature and of Developing markets was created in Paris and in Lugano respectively, with the objective of higher commercial efficiency, operating rationalization and semplification of structures. The result achieved in mature markets is particularly significant as competition dynamics in these markets deepened. Therefore, the recovery represents not only a reaction to the Russian crisis but also the constant consolidation of all specific strategic marketing interventions and programmes, tended to renew and strengthen our competitive, products, trademarks and services position. GFK/Nielsen data confirm an increase in market share in the first four months of 1999 on all mature markets (except for Germany) and in all products lines with a particular progress registered in the dish washers segment. 47

3 The performance achieved at operating level, strongly influenced by the lack of demand in the Russian market, shows a margin which, despite decreasing in absolute terms from 44 to 38 billion compared with the first six months of 1998, is substantially on the same level of incidence compared with sales (4.03 % compared with 4.20 in the first six months of 1998) thus proving the improvement in margins and in efficiency on costs. As far as the structure of company s costs is concerned, on the one hand the number of personnel decreased through a reorganization plan (whereby total cost by 10.6%), and, on the other hand, production at plants was rationalised, particularly in the Refrigeration segment. In this connection, appropriate accruals have been included in the financial statements for the six months, while benefits, in terms of decrease in costs and recovery of productivity will show their effect in the financial statements for the next year. As far as net short term indebtedness is concerned, it decreased compared with the end of the previous year (201 billion compared with billion at 1998). The financial structure in the six-month period absorbed the purchase of own shares for Lit. 9.7 billion, within the plan approved at shareholders meeting level. Net financial charges decreased by 4 billion approximately (8 billion in the first six months of 1999 compared with 12 in the period of comparison); the difference is mainly connected with the decrease in the average cost of financial sources (50% approximately compared with the corresponding cost in previous period). The development process of Merloni Elettrodomestici has not slowed down: investments amount to over Lit. 39 billion (Lit. 27 billion at 30 June 1998), largely for property, plant and equipment (over Lit. 25 billion). While operations connected with the launch of the digital line have continued (the first sales are expected by the end of the year, upon completion of the Milan call-center) and with the 2000 Dishwasher Platform. The willingness for higher focus on service to customers resulted in the creation of the Business Unit Consumer Care, which will guarantee the constant optimization of guarantee costs and of the level of service to consumers, besides developing new sources of income from innovative services (Digital). Furthermore, the search for further areas for improvement resulted in the launch of an additional project for the restructure of administrative services of Merloni Elettrodomestici, with the realization of a single paneuropean Administrative Services Centre at the Fabriano head office. Project of conformity to the year 2000 The project for the conformity to the year 2000 is in progress as required by the plan formulated by the control group, whose objective is to prepare an emergency plan operating for the duration of the project. Computer procedures and commercial, distribution, administrative, production and planning systems have been updated, while post-sale technical assistance is being completed. Next October, a test campaign will be carried out at the company s production plants to check and test industrial plants with built-in microprocessors. 48

4 In August, Information Technology Systems have been upgraded also by carrying out specific testing activities in Year 2000 IT environment. The applicative software worked properly without causing any problems. At the same time, a monitoring system has been set up by which all new information processes will be tested while being implemented, so as to assure their Year 2000 compliance since the beginning of their use. The suppliers segment was classified on the basis of the potential risk and of the impact that the non-supply might have on the company s production processes and targeted actions are in progress with high-impact and highrisk suppliers to solve the problem. In the first six months of 1999, the costs concerning the project of conformity to the year 2000 accounted in the statement of income are Lit. 404 million and the amount included in the fixed assets is Lit. 353 million. Significant events occurred after 30 June 199 and year-end projections Within this simplification and strategic rationalization process of Merloni Elettrodomestici, at the end of July, the residual minority shareholding in Philco Spa was acquired, thus acquiring the total direct control of the company. At the same time as the above mentioned transaction, Elettrodomestici sold part of own shares for a value of twenty billion approximately to the Group which previously held a minority interest in Philco, which becomes qualified shareholder (shareholding exceeding 2%) of the Group parent company. The dramatic events of the earthquake in Turkey determined the decision for humanitarian intervention, to enable Merloni Elettrodomestici to contribute to assuage the suffering of the population. This sign of sharing and solidarity also means the maximum consideration assigned to Merloni Elettrodomestici presence in the country, within the internazionalization the company intends to pursue and develop with regard to its operations. The earthquake did not involve the production plant of the company and the warehouse; also with regard to local suppliers, significant problems have not been identified. With regard to the economic perspectives of the country, it will undoubtedly take the time to recover lost wealth, but the interventions scheduled by the International Monetary Union Fund together with solidarity expressed but other European countries, enable to foresee actual opportunities of recovery. Our year-end sales projections are in line with those registered in the first part of the year. As to mature markets, results achieved in July and in August suggest even though with prudence, a confirmation of positive projections for future months. Taking into account the seasonality of the business, macro-economic and market reference indicators, actions started long ago and constantly being realised, the company considers to be able to show generally improving results also for the second half of the year, particularly compared with the corresponding period of the previous year, but also with the annual operating result for

5 Appendices to the report of the board of directors Merloni Elettrodomestici Spa Balance sheet in millions of Italian lira Income statement in millions of Italian lira Balance sheet in thousand of Euro Income statement in thousand of Euro Statement of cash flow Notes to the financial statements List of the shareholdings higher than 10% Report of the independent Auditors 51

6 Merloni Elettrodomestici spa Balance sheet (in million of Italian lira) Assets 30 June 31 December 30 June Share capital issued and not yet paid Fixed assets Intangible fixed assets: Installation and expansion costs 21 Research, development and advertising costs 2,451 1, Industrial patent rights and utilization of know-how 15,143 16,353 15,532 Concessions, licences, trademarks and similar rights 13,278 12,833 12,202 Other 1,509 1, ,381 32,242 28,275 Tangible fixed assets: Land and buildings 109, , ,433 Plant and machinery 119, , ,030 Industrial and commercial equipment 43,766 48,298 42,082 Others 12,290 14,376 14,238 Assets under construction and advances 21,560 16,835 11, , , ,353 Financial assets: Investments in: subsidiaries 195, , ,748 associated companies 26,290 26,290 26,290 other companies 10,732 10,760 8,221 Payments on future share capital increase: subsidiaries 17,124 Receivables: from others: (amount falling due within one year Lit. 251) 2,014 2,062 1,959 Other securities 3,719 3,719 3,719 Own shares (nominal value Lit. 10,629) 59,390 49,643 33, , , ,320 Total fixed assets 653, , ,948 Current assets Stocks: Raw materials, auxiliary materials and spare parts 38,679 47,045 46,701 Work in progress 11,211 12,681 9,654 Finished products and goods for resale 158, , ,796 Advances , , ,513 Receivables: Trade receivables (amount falling due beyond one year Lit. 57) 254, , ,944 From subsidiaries 290, , ,484 From associated companies 58,626 75,089 61,734 From parent companies 24 Others (amount falling due beyond one year Lit. 10,003) 42,709 37,888 53, , , ,817 Short term investments: Other shareholdings 1,891 1,489 3,190 Financial receivables 1,891 1,489 3,190 Cash: Bank and postal deposits 25,551 26,379 25,285 Cash on hand ,176 26,622 25,571 Total current assets 883,066 1,016, ,091 Accrued income and prepayments Total assets 1,536,884 1,654,711 1,576,126 52

7 Merloni Elettrodomestici spa Balance sheet (in million of Italian lira) Liabilities and shareholders equity 30 June 31 December 30 June Shareholders equity Share capital 112, , ,548 Share premiums reserve 4,596 20,856 Legal reserve 3,072 2,408 2,408 Reserve for own shares 59,390 49,643 33,383 Other reserves, detailed in the notes on the accounts 96, , ,303 Profit (loss) for the period 6,997 13,283 (12,153) 278, , ,345 Reserves for contingencies and obligations Provision for taxes 7,853 7,853 11,572 Others 44,516 18,782 30,012 52,369 26,635 41,584 Staff leaving indemnity 90,514 88,638 92,477 Payables Banks loans and overdrafts (falling due beyond one year Lit. 55,679) 306, , ,088 Other financing payables (falling due beyond one year Lit. 27,953) 36,143 51,275 77,246 Advances 3,438 14,441 2,927 Trade payables 317, , ,773 Notes payables Payables to subsidiaries 53,593 55,881 73,036 Payables to associated companies 273, , ,681 Payables to parent companies 31 1,800 Taxation payable 27,398 35,628 27,914 Social security payables 49,739 52,421 51,632 Other payables 44,659 25,450 43,933 1,112,747 1,252,946 1,180,030 Accrued liabilities and deferred charges 2,424 2,711 3,690 Total liabilities 1,536,884 1,654,711 1,576,126 Memorandum accounts 30 June 31 December 30 June List of direct and indirect guarantees Guarantees: for the benefit of third parties 5,400 8,400 8,250 for the benefit of associated companies Collaterals: for the benefit of third parties 65,022 78, ,878 Other memorandum accounts 179, , , , , ,772 53

8 Merloni Elettrodomestici spa Income statement (in million of Italian lira) 30 June 30 June 31 December Value of production Revenues from sales and services 953,627 1,057,487 2,114,781 Variations in work in progress, and finished goods 30,740 95,231 39,740 Variations in internal construction capitalised Other income (of which grants for the year Lit. 650) 5,677 5,543 15, ,216 1,158,261 2,170,549 Costs of production Raw materials, auxiliary materials, spare parts and goods 608, ,974 1,353,428 Cost for services 127, , ,904 Utilization of third parties assets 6,460 8,570 16,089 Personnel costs: salaries and wages 102, , ,415 social contributions 35,385 40,562 78,172 staff leaving indemnity 6,973 7,244 13,222 other costs 3,989 4,610 9,614 Depreciation and writedowns depreciation of intangible fixed assets 4,125 5,888 11,321 depreciation of tangible fixed assets 33,316 32,513 61,249 writedown of receivables recorded as current assets and cash 1,097 4,293 8,668 Variation in inventory of raw materials, auxiliary materials, spare parts and goods 8,366 (5,285) (5,629) Accruals for contingencies 5,700 Other operating charges 7,358 9,480 14, ,763 1,113,843 2,082,277 Difference between value and cost of production 38,453 44,418 88,272 Financial income and charges Income from investments (from subsidiaries Lit. 517) 688 1,018 33,186 Other financial income: receivables recorded as fixed assets securities recorded as fixed assets other financial income (from subsidiaries Lit. 212) (from associated companies Lit. 571) 6,291 8,951 18,539 Interest and other financial charges (from subsidiaries Lit. 1,411) (from associated companies Lit. 80) 14,670 21,919 41,500 (7,610) (11,832) 10,449 Adjustment to the value of financial operations: Revaluations: investments 402 Writedowns: investments 3,089 32,625 18,893 (2,687) (32,625) (18,893) Extraordinary income and expenses: Income 2 5 Expenses 21,159 12,116 43,013 (21,159) (12,114) (43,008) Result before taxes 6,997 (12,153) 36,820 Income taxes for the year 23,537 Profit (loss) for the year 6,997 (12,153) 13,283 54

9 Balance sheet (in thousand of Euro) Assets 30 June 31 December 30 June Share capital issued and not yet paid Fixed assets Intangible fixed assets: Installation and expansion costs 11 Research, development and advertising costs 1, Industrial patent rights and utilization of know-how 7,821 8,446 8,022 Concessions, licences, trademarks and similar rights 6,858 6,628 6,302 Other ,723 16,652 14,603 Tangible fixed assets: Land and buildings 56,381 56,800 56,001 Plant and machinery 61,734 65,029 57,859 Industrial and commercial equipment 22,603 24,944 21,734 Others 6,347 7,425 7,353 Assets under construction and advances 11,135 8,695 5, , , ,922 Financial assets: Investments in: subsidiaries 101, , ,744 associated companies 13,578 13,578 13,578 other companies 5,543 5,557 4,246 Payments on future share capital increase: subsidiaries 8,844 Receivables: from others: (amount falling due within one year Euro 130) 1,040 1,065 1,012 Other securities 1,921 1,921 1,921 Own shares (nominal value Euro 5,489) 30,672 25,638 17, , , ,740 Total fixed assets 337, , ,265 Current assets Stocks: Raw materials, auxiliary materials and spare parts 19,976 24,297 24,119 Work in progress 5,790 6,549 4,986 Finished products and goods for resale 81,852 65,217 95,439 Advances ,879 96, ,731 Receivables: Trade receivables (amount falling due beyond one year Euro 29) 131, , ,283 From subsidiaries 150, , ,230 From associated companies 30,278 38,780 31,883 From parent companies 12 Others (amount falling due beyond one year Euro 5,166) 22,057 19,568 27, , , ,106 Short term investments: Other shareholdings ,647 Financial receivables ,647 Cash: Bank and postal deposits 13,196 13,624 13,059 Cash on hand ,519 13,749 13,206 Total current assets 456, , ,691 Accrued income and prepayments Total assets 793, , ,001 55

10 Balance sheet (in thousand of Euro) Liabilities and shareholders equity 30 June 31 December 30 June Shareholders equity Share capital 58,126 58,126 58,126 Share premiums reserve 2,374 10,771 Legal reserve 1,587 1,244 1,244 Reserve for own shares 30,672 25,638 17,241 Other reserves, detailed in the notes on the accounts 50,005 52,319 52,319 Profit (loss) for the period 3,614 6,860 (6,277) 144, , ,424 Reserves for contingencies and obligations Provision for taxes 4,056 4,056 5,976 Others 22,991 9,700 15,500 27,046 13,756 21,476 Staff leaving indemnity 46,747 45,778 47,760 Payables Banks loans and overdrafts (falling due beyond one year Euro 28,756) 158, , ,150 Other financing payables (falling due beyond one year Euro 14,437) 18,666 26,481 39,894 Advances 1,776 7,458 1,512 Trade payables 163, , ,258 Notes payables Payables to subsidiaries 27,678 28,860 37,720 Payables to associated companies 141, , ,200 Payables to parent companies Taxation payable 14,150 18,400 14,416 Social security payables 25,688 27,073 26,666 Other payables 23,064 13,144 22, , , ,435 Accrued liabilities and deferred charges 1,252 1,400 1,906 Total liabilities 793, , ,001 Memorandum accounts 30 June 31 December 30 June List of direct and indirect guarantees Guarantees: for the benefit of third parties 2,789 4,338 4,261 for the benefit of associated companies Collaterals: for the benefit of third parties 33,581 40,386 54,681 Other memorandum accounts 92,940 77, , , , ,971 56

11 Income statement (in thousand of Euro) 30 June 30 June 31 December Value of production Revenues from sales and services 492, ,146 1,092,193 Variations in work in progress, and finished goods 15,876 49,183 20,524 Variations in internal construction capitalised Other income (of which grants for the year Euro 336) 2,932 2,863 8, , ,192 1,120,995 Costs of production Raw materials, auxiliary materials, spare parts and goods 314, , ,987 Cost for services 66,077 79, ,019 Utilization of third parties assets 3,336 4,426 8,309 Personnel costs: salaries and wages 53,074 59, ,220 social contributions 18,275 20,949 40,372 staff leaving indemnity 3,601 3,741 6,829 other costs 2,060 2,381 4,965 Depreciation and writedowns depreciation of intangible fixed assets 2,130 3,041 5,847 depreciation of tangible fixed assets 17,206 16,792 31,632 writedown of receivables recorded as current assets and cash 567 2,217 4,477 Variation in inventory of raw materials, auxiliary materials, spare parts and goods 4,321 (2,729) (2,907) Accruals for contingencies 2,944 Other operating charges 3,800 4,896 7, , ,252 1,075,406 Difference between value and cost of production 19,859 22,940 45,589 Financial income and charges Income from investments (from subsidiaries Euro 267) ,139 Other financial income: receivables recorded as fixed assets securities recorded as fixed assets other financial income (from subsidiaries Euro 109) (from associated companies Euro 295) 3,249 4,623 9,575 Interest and other financial charges (from subsidiaries Euro 729) (from associated companies Euro 41) 7,576 11,320 21,433 (3,930) (6,111) 5,396 Adjustment to the value of financial operations: Revaluations: investments 208 Writedowns: investments 1,595 16,849 9,757 (1,388) (16,849) (9,757) Extraordinary income and expenses: Income 1 3 Expenses 10,928 6,257 22,214 (10,928) (6,256) (22,212) Result before taxes 3,614 (6,277) 19,016 Income taxes for the year 12,156 Profit (loss) for the year 3,614 (6,277) 6,860 57

12 Merloni Elettrodomestici spa Statement of cash flow (in million of Italian lira) 30 June December 1998 A. Net opening cash (1) (292,700) (81,376) B. Cash flow from (for) operations for the year Profit (loss) for the period 6,997 13,283 Ordinary depreciation 37,441 72,570 (Revaluations) or writedowns of shareholdings 2,687 18,893 Variation in the staff leaving indemnity provision 1,876 (2,228) Provision for taxes (3,718) Other reserves 25,734 (2,160) Profit (loss) of operations for the year before variations in working capital 74,735 96,640 (Increase) Decrease in stocks on hand (22,292) (45,661) (Increase) Decrease in receivables recorded as current assets 153,249 (30,802) (Increase) Decrease in short term financial assets (6,250) Increase (Decrease) in trade payables and in other payables (19,757) (50,213) (Increase) Decrease in other items included in working capital (360) ,840 (132,644) 185,575 (36,004) C. Cash flow from (for) investment operations (Investments)/Disinvestments in fixed assets: intangible fixed assets (4,264) (11,430) tangible fixed assets (24,232) (75,355) investments (25,135) (3,935) (53,631) (90,720) D. Cash flow from (for) financial operations Variations in reserves (1,228) Distribution of profits (11,948) (11,863) New loans 5,865 Reimbursement of loans (28,380) (77,374) (40,328) (84,600) E. Cash flow for the period (B+C+D) 91,616 (211,324) F. Net closing cash (1) (A+E) (201,084) (292,700) (1) That is net short-term financial indebtedness. 58

13 Merloni Elettrodomestici spa Notes to the financial statements at 30 June 1999 Structure and content of the financial statements Interim financial statements for the period ended 30 June 1999 agree with the accounting records, regularly kept and integrated by appropriate adjustments, and are consistently compliant with the principles for the preparation of the financial statements established by articles 2423, 2423 bis, 2423 ter, 2424, 2424 bis, 2425, 2425 bis and to valuation criteria set forth by article 2426 of the Italian Civil Code, integrated, where applicable, by the accounting principles stated by Italian Chartered Accountants Committee and, in their absence, by those established by the International Accounting Standards Committee (I.A.S.C.) The Company has considered it appropriate to avail itself of the possibility granted by paragraph 5 of article 3 of Consob (National Commission for Listed Companies and the Stock Exchange) regulations, for the preparation of the half year report, approved with resolution No.8195 dated 30 June 1994, and presents the result for the period gross of taxes as well as of adjustments and accruals exclusively arising from the application of fiscal legislation. Variations occurred in assets and liabilities are commented when significant. Risks and losses for the period were taken into account on accrual basis. With regard to Consob recommendation dated , and with reference to I.A.S. 24, it should be noted that relationships with affiliated and associated companies are detailed in the consolidated financial statements in an appropriate paragraph. With reference to Consob recommendation dated 27 October 1998 and to IAS 14, regarding information to be supplied on the various categories of operations and geographic areas where the company operates, refer to the appropriate paragraph in the notes on the consolidated financial statements. Last, with reference to Consob recommendation dated 26 October 1998, regarding information to be supplied in the financial statements, following the introduction of the single European currency, and the recommendation dated 9 October 1998 on the Year 2000 issue, the relevant information is attached in the notes on the accounts and in the Director s report on operations. ACCOUNTING PRINCIPLES The valuation criteria adopted for the preparation of these financial statements are consistent with both those utilized for the preparation of the annual financial statements and those recommended by Consob. OTHER INFORMATION As required by article 2423 ter of the Italian Civil Code, to improve the representation of items in the financial statements, a new item was included among Investments denominated Payments on future share capital increase (Item B-III-1BIS). The item includes the sub-item subsidiaries (item B-III-1BISa) where receivables from Merloni Elettrodomestici Beyaz Esya Pazarlama As equal to Lit. 2,124 million were reclassified as future share capital increase. In the financial statements as of 31 December 1998 the amount was recorded as Receivables from subsidiaries among Current assets (item C-II-2). 59

14 Comment to the main balance sheet figures (Except otherwise indicated, values included in these explanatory notes are expressed in million of Italian lira) ASSETS Fixed assets Intangible fixed assets The composition and summary movements in intangible fixed assets are detailed as follows: Description Installation Research, Industrial Concessions, Other Total and development patent rights and licences, expansion and utilization of trademarks and costs advertising costs know-how similar rights Opening values Historical cost 208 1,369 40,225 22,422 2,508 66,732 Accumulated deprec. (208) (28) (23,872) (9,589) (793) (34,490) Total 1,341 16,353 12,833 1,715 32,242 Variations Acquisitions 1,174 2, ,263 Write offs (208) (6,723) (1,990) (49) (8,970) Utilization of funds 208 6,724 1, ,971 Deprec. for the year (64) (3,492) (355) (214) (4,125) Total 1,110 (1,210) 445 (206) 139 Closing values Historical cost 2,543 35,783 21,233 2,467 62,026 Accumulated deprec. (92) (20,640) (7,955) (958) (29,645) Total 2,451 15,143 13,278 1,509 32,381 The break-down of installation and expansion costs, research, development and advertising costs at historical cost is set out below: Description Historical cost at Historical cost at 30/06/ /12/1998 Share capital increase 208 Total Industrial patent rights and utilization of know-how include Lit. 35,535 million of purchases of software and Lit.247 million of patents. In the first six months of 1999, acquisitions are entirely attributable to costs incurred for the development and improving of software programs. Depreciation of software accounted for Lit. 3,477 million. Trademarks are composed of the value of the new Indesit trademark of Lit. 1,819 million, depreciated over ten years, and of Indesit Elettronica trademark, acquired by the indirect subsidiary Merloni Financial Services Sa for Lit. 2,200 million, depreciated over 13 years on a straight line basis. Ariston trademark s right of use, exiping in 2050, has to be taken into consideration. In the first six months of 1999, licences were depreciated by Lit. 175 million amount. Other intangible fixed assets mainly include: expenses relating to None plant in leasing for a residual amount of Lit. 1,283 million depreciated by Lit. 143 million;

15 expenses incurred for offices in the CIS for a residual amount of Lit. 217 million, depreciated by Lit. 67 million; costs to get loans with a residual book value of Lit. 8 million, depreciated by Lit. 4 million. Furthermore, it should be noted that intangible fixed assets do not include revaluations/writedowns for previous years and for the present period. Tangible fixed assets Set out below a breakdown of movements in tangible fixed assets: Land Plant Industrial and Other Assets under Total and and commercial goods construction buildings machinery equipment and advances Opening values Historical cost 127, , ,798 50,487 16, ,791 Revaluations 22,587 1, ,580 Accumulated deprec. (40,370) (223,785) (200,702) (36,111) (500,968) Total 109, ,913 48,298 14,376 16, ,403 Variations Acquisitions 1,577 8,769 8,672 1,222 4,725 24,965 Disposals (1) (2,769) (1,724) (1,135) (5,629) Utilization of funds 2,210 1, ,896 Deprec.for the year (2,388) (14,552) (13,176) (3,200) (33,316) Reclassification from other goods Reclassification to other goods (37) (37) Total (812) (6,379) (4,532) (2,086) 4,725 (9,084) Closing values Historical cost 129, , ,746 50,574 21, ,127 Revaluations 22,587 1, ,580 Accumulated deprec. (42,758) (236,164) (212,182) (38,284) (529,388) Total 109, ,534 43,766 12,290 21, ,319 Investments carried out in the period are oriented to the renewal and widening of the products range and to the reorganization and automatisation of processes. Disposals, summarized in the schedule above, are due to ordinary renewal requirements of fixed assets. As indicated below in the comment to memorandum accounts, some fixed assets are subject to restrictions and guarantees against loans received in the medium and long term. The net book value of tangible fixed assets recorded in the financial statements is net of accumulated accelerated depreciation accrued pursuant to DPR 917/86 in years prior to 1993, to take advantage of fiscal benefits. Accumulated accelerated depreciation accrued in 1993 and in 1997 is recorded among Other reserves in shareholders equity. 61

16 Investments The value recorded in the financial statements is equal to Lit. 314,971 million, with a Lit. 24,170 million increase compared with the balance at 31 December Lit. 2,124 million of the increase are due to the reclassification of payments on future share capital increase for the benefit of Merloni Elettrodomestici Beyaz Esya Pazarlama As from Receivables from subsidiaries in Current assets to Payments on future share capital increase to subsidiaries as pointed out in the paragraph Other information. Shareholdings The detailed summary of movements in shareholdings are as follows: Description Subsidiaries Associated Other Total companies companies Opening values Historical cost 272,346 26,290 10, ,396 Writedowns (74,019) (74,019) Total 198,327 26,290 10, ,377 Variations Acquisitions Writedowns (3,089) (3,089) Reimbursements (28) (28) Total (2,625) (28) (2,653) Closing values Historical cost 272,810 26,290 10, ,832 Writedowns (77,108) (77,108) Total 195,702 26,290 10, ,724 The analytical breakdown of the financial statements balance is as follows: Company s name % 30/06/99 31/12/98 Subsidiaries: Merloni Ariston International Sa , ,007 Merloni Domestic Appliances Ltd (53.49% held by Merloni Ariston International Sa) ,278 7,278 Merloni Electrodomésticos Sa (Spain) ,515 16,515 Merloni Elettrodomestici Beyaz Esya Pazarlama As Merloni Elettrodomestici Beyaz Esya Sanayi Ve T. As Merloni Elettrodomestici Ceska Rep Merloni Elettrodomestici Poland Spzoo ,582 22,582 Merloni Financial Services Sa ,000 10,000 Merloni Indesit Bulgaria Srlu Merloni Indesit Domaci Elektrospotrebice Sro Merloni Indesit Haztartastechnikai Kft Merloni Indesit Polska Spzoo ,625 Merloni Investment Ltd ,737 4,737 Philco Italia Spa ,671 17,671 Star Spa ,448 10,448 Total subsidiaries 195, ,327 62

17 Company s name % 30/06/99 31/12/98 Associated companies: Faber Factor Spa ,800 4,800 M&B Marchi e Brevetti Srl Merloni Progetti Spa ,856 20,856 Co.Pro. Spa Total associated companies 26,290 26,290 Other enterprises: Centro Energia Operator Teverola Srl Centro Energia Teverola Spa ,500 1,500 Consorzio delle Dennie Haier Merloni Ltd ,860 4,860 Haier Merloni Electrical Appliance Co. Ltd ,091 3,091 Istituto Mobiliare Italiano Spa ,204 1,204 Spa Education Srl Spa Ricerche ed Education Srl Consorzio CONAI Unifabriano Scarl Total other enterprises 10,732 10,760 Changes for the period are due to the following: Subscriptions/acquisitions of subsidiaries Amount Merloni Indesit Polska Spzoo 464 Total 464 Writedowns of subsidiaries Merloni Indesit Polska Spzoo (3,089) Total (3,089) Reimbursement of capital of other enterprises Spa Education Srl (28) Total (28) Investment in Merloni Indesit Polska Spzoo has increased by Lit. 464 million, equals to 882,600 zloty, for the subscription of the share capital increase resolved by the Polish subsidiary. As Merloni Indesit Polska at the end of the six months showed an equity deficit, the investment was entirely written down by Lit. 3,089 million. Spa Education Srl resolved its winding up and partially reimbursed the capital subscribed by Merloni Elettrodomestici Spa equal to Lit. 28 million. Taking into account the relevance of majority shareholdings, as required by Law Decree 127/91, the Company prepared the consolidated financial statements at the same date. 63

18 Payments on future share capital increase Subsidiaries The item includes: The receivable of Lit. 2,124 million from Merloni Elettrodomestici Beyaz Esya Pazarlama As already previously commented; The receivable of Lit. 15,000 million from Merloni Elettrodomestici Poland Spzoo, following the 32,160,000 zloty doplata resolved in February by the Board of Directors of the subsidiary. Receivables Others Other receivables are composed of long-term loans granted to employees who suffered damages to estate following the earthquake occurred on 26 September 1997 in the Marches and Umbria regions. The loans, which bear interest at subsidized rates (treated in compliance with fiscal legislation on the subject) last ten years and are reimbursed monthly with constant instalments. The portion expiring within one year is equal to Lit. 251 million. Other securities Other securities are composed of government treasury bonds (CCT) with nominal value of Lit. 3,755 million, with maturity in year 2000, recorded at purchase cost, which are not expected to be sold within the next twelve months. The balance sheet value is lower than market value. Own shares The Lit. 9,747 million increase is due to the purchase in the first six months of 1999 of No. 1,521,000 ordinary shares and subsequent sale of No. 339,000 ordinary shares. Taking into account that at 31 December 1998 the portfolio already included No. 9,447,500 ordinary shares, at the end of the period, the Company had No. 10,629,500 own ordinary shares. Current assets Stocks Item shows a balance of Lit. 208,882 million (Lit. 186,590 million the previous period) and it can be detailed as follows: Description Opening Movements Closing balance for the year balance Raw materials, auxiliary materials and spare parts 47,045 (8,366) 38,679 Work in progress 12,681 (1,470) 11,211 Finished products and goods for resale 126,278 32, ,488 Advances 586 (82) 504 Total 186,590 22, ,882 64

19 The decrease in raw materials compared with the previous period is mainly due to exceptional supplies in inventory at 31 December 1998, following the crisis in the previous Soviet Union, gradually utilized in the first six months of The increase in finished products is connected with the seasonality of sales. Closing inventory is net of the obsolescence provision of Lit. 4,050 million (Lit. 3,000 million at 31 December 1998) which takes into account foreseen realizable value of products and materials either slow moving or difficult to market. Receivables Item shows a balance of Lit. 646,117 million (Lit. 801,490 million the previous period) and it can be detailed as follows: Description Opening Bad debts provision Other Closing balance Accruals (-) Utilization + movemts +/(-) balance Trade receivables 291,913 (1,097) 982 (37,566) 254,232 Receivables from subsidiaries 396,600 (106,050) 290,550 Receivables from associated companies 75,089 (16,463) 58,626 Others 37,888 4,821 42,709 Total 801,490 (1,097) 982 (155,258) 646,117 Trade receivables Trade receivables include Lit. 171,710 million of bills and banks receipts of which Lit. 57 million expiring beyond twelve months. They relate to commercial transactions and services rendered. The balance of trade receivables is net of the bad debts provision of Lit. 15,305 million; the provision is considered adequate against estimated losses on receivables. Losses recorded to the income statement are equal to Lit. 1,743 million, including the accrual to the bad debts provision of Lit. 1,097 million. With regard to the Group receivables from customers in the CIS, we have increased the portion of bad debts provision allotted to CSI customers in order to get it lined-up to actual analysis of callectibility. Such accrual is not relevant and relates to the credit ordinary management. In fact, it should be noted that the situation of collections has come back normal in spite of a lower sales level and selected customers, which however assure the Company a potential growth in more positive economic-financial market conditions. Receivables from subsidiaries and associated companies Item represents the Company s receivables from subsidiaries and associated companies for commercial transactions and services rendered except for Lit. 44,189 million which represent loans listed below: 65

20 Lit. 5,081 million, as loan to Merloni Ariston International Sa (Luxembourg); Lit. 9,795 million from Merloni Ariston International Sa (Lugano branch) as balance of current account relationships between the Company and its subsidiary which manages the Group centralized treasury; Lit. 305 million, as loan to Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As; Lit. 27,422 million as balance of short-term loans to Faber Factor Spa; Lit. 304 million to Merloni Indesit Bulgaria Ltd, Lit. 1,058 million to Merloni Indesit Domaci Sro, Lit. 146 million to Merloni Indesit H. Haztartastechnikai Kft and Lit. 78 million to Merloni Indesit Polska as advances on services. Balance sheet figure is as follows: Subsidiaries 30/06/99 31/12/98 Fabrica Portugal Sa 2,562 2,502 Merloni Ariston International Sa (Lugano Branch) 9,881 23,867 Merloni Ariston International Sa (Luxembourg) 5,081 66,193 Merloni Domestic Appliances Ltd 34,673 45,377 Merloni Electrodomésticos (Portugal) Sa 25,302 26,689 Merloni Electrodomésticos (Spain) Sa 21,835 20,872 Merloni Electroménager Sa 81,005 84,634 Merloni Elettrodomestici Beyaz Esya Pazarlama As 2,124 Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As 3,278 7,007 Merloni Hausgerate Gmbh 14,072 23,043 Merloni Huishoudapparaten BV 15,144 24,690 Merloni Indesit H.Haztartastechnikai Kft Merloni Indesit Bulgaria Ltd Merloni Indesit Domaci Elektrospotrebice Sro 1, Merloni Indesit Polska Spzoo 21,928 26,636 Merloni International Trading Bv (Lugano branch) 23,265 14,795 Merloni South America Investment Ltd 23,164 23,165 Star Spa 622 1,353 Philco Italia Spa 7,227 2,668 Total 290, ,599 Associated companies Faber Factor Spa 48,487 56,181 Co. Pro. Spa 6 Argentron Sa 6,468 11,192 M&B - Marchi e Brevetti Srl Merloni Progetti Spa 3,486 6,623 Protecno Sa 789 Sofarem 3 6 Total 58,626 75,090 66

21 Other receivables Balance sheet figure is as follows: Description 30/06/99 31/12/98 Social security institutions 4,654 1,010 Advances to employees Tax authorities 25,230 26,473 Guarantee deposits 1,027 1,022 Suppliers, advances account 3,863 2,822 Affiliated companies Other 7,403 5,767 Total 42,709 37,888 The receivable from the tax authorities includes Lit. 8,271 million of export reimbursements for iron and steel industry, Lit. 2,335 million of VAT credit and Lit. 14,537 million of IRPEG/IRAP taxes (corporation taxes and tax on production activity). Lit. 8,975 million of such receivables are expected to be collected beyond one year. Suppliers, advances account, include advances on services and on purchases of raw materials. Others include a receivable with nominal value of Lit. 7,710 million from minority shareholders of Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As. Such receivable was written down in the previous period by Lit. 4,087 million. Among other receivables, deposits of Lit. 1,027 million should be mentioned, expected to be collected beyond twelve months. Short term investments Other shareholdings The shareholding in Stoves Group Plc, a company listed on London Stock of Exchange operating in the domestic appliances segment, is not considered as significant as to require a commitment in the medium and long term. On the basis of average listings registered by the shares of the company in June 1999, the company was revalued by Lit. 402 million. Cash Cash is equal to Lit. 26,176 million, representing the balance at the end of the period of bank and postal deposits and cash on hand. Compared with 31 December 1998, the decrease amounts to Lit. 446 million. Accrued income and prepayments The value recorded in the financial statements is equal to Lit. 147 million and compared with the end of 1998, it shows an increase of Lit. 73 million. Figure is detailed as follows: Prepayment of charges for future years of Lit. 112 million; Accrual of Lit. 35 million for interest on government treasury bonds (CCT) recorded in financial statements. 67

22 LIABILITIES Shareholders equity Item shows a balance of Lit. 278,830 million, detailed as follows: Share Share Legal Reserve Other Profit/ Total sharecapital premiums reserve for own reserves (loss) for holders reserve shares the period equity Balances at 31/12/98 112,548 4,596 2,408 49, ,303 13, ,781 Allocation of profit: - Reserves (1,335) - Dividends (11,948) (11,948) Movements in reserves (4,596) 9,747 (5,151) Profit for the period 6,997 6,997 Balances at 30/06/99 112,548 3,072 59,390 96,823 6, ,830 At 30 June 1999, Share capital was fully subscribed and paid up. No variations have occurred compared with 31 December Description Shares at 30/06/1999 Shares subscribed during the year Number Value Number Value Ordinary shares 91,508,268 91,508,268,000 Savings shares 21,039,668 21,039,668,000 Legal reserve has increased following the transfer of 5 per cent of profit for 1998 as resolved by the Shareholders Meeting held on 30 April Share premiums reserve was utilized to increase the Reserve for own shares, recorded in the financial statements in compliance with art.2357-ter of the Italian Civil Code. Other reserves Other reserves are detailed as follows: Description 30/06/99 31/12/98 Extraordinary reserve 671 Reserve pursuant to art. 14 Law 64/86 4,798 4,798 Reserves from accelerated depreciation 40,184 40,184 Grant, Regional Law 29/ Grant, Law 29/05/82 No Adjustment to the cost of plants (Casmez) - Law 218/78 1,674 1,674 Reserve pursuant to art. 21 L. 219 dated 14/5/81 42,647 47,798 Lump sums granted, Regional Law 19/ Lump sums granted, Law 448/92 6,543 6,543 Total 96, ,303 68

23 The extraordinary reserve was created allocating profit for the period of Lit. 671 million. The reserve for depreciation arises from accruals recorded in 1993 and in 1997, calculated to take advantage of fiscal benefits which, for statutory purposes, represent accruals of profits (against such reserve the related deferred taxes have been accrued). An available amount of Lit. 5,151 million were withdrawn from the Reserve pursuant to art. 21 Law 219/81 to increase the Reserve for own shares in portfolio, recorded in the financial statements in accordance with art ter of the Italian Civil Code. Reserves for contingencies and obligations The item shows a balance of Lit. 52,369 million, (Lit. 26,635 million at 31 December 1998). It can be detailed as follows: Description Opening Income Utilization Other Closing balance statement movements balance accruals Taxation 7,853 7,853 Other provisions: - provision for products warranty 12, (1,300) 2,947 14,917 - Exchange fluctuations provision Provision for future risks 5,150 23,577 (500) 28,227 - Provision for agents leaving indemnity 1, (198) 1,072 Total other provisions 18,782 24,785 (1,998) 2,947 44,516 Total provision for contingencies and obligation 26,635 24,785 (1,998) 2,947 52,369 Taxation The provision was accrued against both accruals calculated in the past exclusively pursuant to fiscal legislation, and other income whose fiscal charge was deferred over several years (mainly grants received on capital account). The item includes Lit.1,660 million relating to the reclassification of grants on capital account for the portion of taxes written down from the above mentioned reserves. As far as deferred taxes accrued against accelerated depreciation calculated in 1993 and in 1997 are concerned, a recalculation was made in the light of the new accounting principle adopted (IAS 12 revised). At present, besides deferred tax liabilities, deferred tax assets are also taken into account, arising mainly whenever costs not allowed on accrual basis are recorded to the income statement (mainly cash allowed accruals/expenses); the explained above matter relates to an average period when analyses can be based on reliable valuations. At 30 June 1999, the provision was equal to Lit. 6,193 million. In the course of the six months, the deferred tax provision was not subjected to variations. 69

24 Provision for fiscal risks The provision of Lit 89 million relates to a VAT litigation born in The Company settled fiscal years from 1985 through 1990 for effect of the application of Law 413/91. The Company, supported by its fiscal consultants, considers that the settlement of financial years still subject to potential tax assessment will not lead to make further accruals in order to face fiscal risks also for litigation at present still to be settled and that arose during the mentioned years. Other Provision for products warranty The provision represents the estimate of costs to be incurred for assistance on products sold covered by warranty. The provision amounts to Lit. 14,917 million and it is considered adequate to cover the specific risk to which it refers. In the course of the first six months of the year, a further accrual of Lit. 700 million was made to the provision for one-year warranty on products. Besides ordinary one-year warranty, granted on all products sold in Italy, the Company gives customers the opportunity of obtaining wider warranty valid up to five years on specific products, paying a pre-determined price. Such voluntary warranty provision during the period increased by Lit. 2,947 million for subscriptions of customers, while Lit. 1,300 million were utilized. Exchange fluctuations provision Receivables and payables translated at exchange rates running at the end of the period, taking into account forward contracts signed as hedge, determined an accrual equals to Lit. 300 million. Provision for future risks The provision amounts to Lit. 28,227 million, and it is detailed as follows: Lit. 15,377 million of costs expected to be incurred with regard to future extraordinary interventions on the company s organization structure; Lit. 5,400 million represent accruals calculated to cover the commitment to buy the shareholding in Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As back from Simest Spa. In 1996, the Company renegotiated buy back terms, postponing them to 30 September The accrual for the period amounts to Lit. 1,400 million; Lit. 5,250 million represent the provision created for planned technical maintenaces not yet carried out, on particular products sold in the previous years, mainly on British and Dutch market; Lit. 400 million represent the residual provision accrued for the reconstruction of an important architectural complex with historical, cultural and religious relevance situated in Fabriano, denominated Collegio Gentile, seriously damaged by 1997 earthquake. Lit. 500 million of the original provision of Lit. 900 million were utilized in the course of the six months; 70

25 Lit. 1,800 million represent the accrual in order to build a village for the population who suffered damages following the earthquake in Turkey. Provision for agents leaving indemnity In the first six months of 1999, Lit. 198 million of the provision ( Lit. 1,072 million) were utilized. The accrual amounts to Lit. 208 million. Staff leaving indemnity The amount is computed in accordance with laws and labour contracts. At the termination of employment each employee of any category, from worker to manager, excluding independent workers, is entitled to receive a deferred salary computed on a formula basis which takes into consideration the gross annual salary and the seniority of the employee. For each year of service, the employee matures a portion of TFR which is equal to the annual gross salary divided by 13.5 (approximately one month s salary). The portion is revalued every year taking into consideration 0.75% of the rate inflation. Accordingly, since the computation is based solely on actual payroll data, no actuarial involvement is necessary. The item shows a balance of Lit. 90,514 million (Lit. 88,638 million at 31 December 1998) and it is detailed as follows: Opening balance 88,638 Income statement accruals 6,973 Utilization for reimbursements and advances (4,775) Cometa fund (322) Closing balance 90,514 We set out below a breakdown of workforce divided per category: Qualification Employees at Employees at 1999 six months 30/06/99 31/12/98 monthly full time fixed contract full time fixed contract average Executives, Managers Middle management Employees Workers 3, , ,813 Total 4, , ,852 At 30 June 1999, the number of employees includes 33 individuals seconded abroad. Payables Item shows a balance of Lit. 1,112,747 million (Lit. 1,252,946 million at 31 December 1998) and it is detailed as follows: 71