Annual Financial Report as at 31 December

Transcription

1 as at 31 December

2 as at 31 December 2011 Financial Statements as of approved by Shareholders Meeting on 4 May 2012 This document is an English translation of an Italian language. In the event of any inconsistency or interpretation difficulties reference should be made to the Italian language, which shall in any event prevail.

3 Nome Sezione Relazione finanziaria annuale 2

4 Table of Contents Table of Contents GOVERNANCE BODIES GROUP HIGHLIGHTS Key figures Financial Highlights Group s structure DIRECTORS REPORT ON OPERATIONS 20 Performance and financial highlights 24 Group economic and financial management 28 Economic and financial management of the parent company 32 Business outlook 32 Productive activities 39 Investments 40 Research & development 41 Parent company shares owned by it or by subsidiaries 41 Financial instruments 44 Information on personnel and the environment 45 Security and protection of personal data 45 Intergroup transactions and with related parties 45 Information on corporate governance 49 Subsequent events 3

5 Table of Contents Consolidated financial statements 51 Consolidated statement of financial position 52 Consolidated statement of income 53 Consolidated statement of comprehensive income 54 Consolidated cash flow statements 55 Summary statement of changes in consolidated shareholders' equity 56 Consolidated statement notes 119 Report of the Board of Statutory Auditors 121 Auditors report Financial statements 123 Statement of financial position 124 Income statement 125 Statement of comprehensive income 125 Cash flow statements 126 Statement of changes in shareholders' equity 127 Notes to the Financial Statements 185 Report of the Board of Statutory Auditors 188 Auditors report 4

6 Table of Contents 5

7 Nome Sezione Relazione finanziaria annuale 6

8 Nome Sezione Relazione finanziaria annuale GOVERNANCE BODIES 7

9 Governance Bodies 8

10 Governance Bodies BOARD OF DIRECTORS Chairman and CEO Directors Diego Bravar Aldo Cappuccio (independent) Fabio Faltoni Alessandro Firpo Debora Allen Guthrie Nicola Pangher Paolo Salotto Dario Scrosoppi Francesco Nicola Massimo Sogaro BOARD OF STATUTORY AUDITORS Chairman Auditors Mario Calligaris Andrea Fasan Roberto Lonzar Alternate Auditors Giovanni Caccamo Alessandro Saliva INDEPENDENT AUDITORS Reconta Ernst & Young Spa 9

11 Nome Sezione Relazione finanziaria annuale 10

12 Nome Sezione Relazione finanziaria annuale GROUP HIGHLIGHTS 11

13 Group Highlights TBS Group TBS Group was founded in research environment in the late 1980s as a advanced clinical engineering service provider. In line with integrated technology development (in both IT and telematics), the company s growth was marked by developments in Clinical Engineering itself. In fact, Clinical Engineering was no longer merely restricted to the secure and efficient management of biomedical equipment, but had expanded to comprise the integrated management of all technologies implemented in hospitals and social and healthcare facilities. Throughout the world, healthcare costs are the most significant item in public expenditure; they are growing faster than the GDP and threatening to become unsustainable. Technology accounts for 50% of overall costs. In this context, the Group s vision is to work towards containment and requalification of expenditure in the technology sector, especially in healthcare area, offering an integrated management that aims to improve the quality of social and healthcare services provided to citizens and to positively influence their healthcare expectations. The Group s mission is to develop outsourced integrated Clinical Engineering, e-health and e-government services so as to enhance the safety, effectiveness and efficiency of technologies used in hospitals, social and healthcare facilities as well as in other local authority entities. These technologies include biomedical equipment, additional medical devices, medical IT systems and solutions, telecare and telemedicine systems and solutions and e-government systems and solutions. Since December 2009 TBS Group is listed on AIM Italia (Italian Stock Exchange segment). TBS Group operates with two Business Units: Medical Equipment and Devices Division TBS Group works as an outsourcing management partner for all technology equipment, offering services to hospitals and public and private social and healthcare facilities. TBS Group offers a complete range of technical and management services for Clinical Engineering, which cater to the operational requirements of all types of clients, as they can be supplied both individually and as part of an integrated service, thus offering extreme flexibility according to customer needs. e-health & e-government Systems and Solutions Division TBS Group is active in product development and provides services in the following fields: IT products, systems and solutions for the Healthcare: production, supply and management of integrated systems for the computerized running of clinical services in hospitals and social assistance facilities. Products, systems and solutions for telecare and telemedicine: provision and management of telematic services including Remote Diagnostics, RPM (Remote Patient Monitoring) and continuity of care for social and healthcare facilities, local bodies, chemist s, homecare service providers and private citizens. Products, systems and solutions for the Public Administration: production, provision and management of integrated systems for the computerized running of demographic, social, tax, administration and government services as well as of human recourses management, protocol and document management of local entities, Regions and other public administration entities. 12

14 Group Highlights Key figures Group 1 Business Unit 2 Countries 13 Companies more than 20 Personnel over 2,300 Internal workshops over 350 Regional operational centres 46 Competence centres or companies 26 Healthcare structures over 1,000 Public bodies and local entities over 1,000 Medical equipment and devices managed 800,000 Maintenance activities 1,200,000 Telecare and telemedicine users 43,000 note: as at 30 March

15 Group Highlights Financial Highlights Revenue EBITDA EBIT Net result Shareholders equity Net financial position note: in millions of EUR 14

16 Group Highlights Group s structure TBS Group Medical devices and ICT systems Integrated solutions of e-health & e-government Clinical Engineering Medical IT 95% EBM (Italy) 100% TBS IT (Italy) 100% Delta X (Italy) 67.75% Insiel Mercato* (Italy) 52.7% Crimo Italia (Italy) 51% Caribel Programmazione (Italy) 100% SIC (Italy) 51% Erre Effe Informatica (Italy) 56% SLT (Italy) 100% PCS (Austria) 100% Subitec (Germany) e-government 100% MSI MedServ International (Germany) 100% TBS IT (Italy) 100% Surgical Technologies (The Netherlands) 67.75% Insiel Mercato* (Italy) 100% TBS BE (Belgium) 51% Caribel Programmazione (Italy) 100% TBS ES (Spain) 100% 100% TBS FR (France) TBS GB (United Kingdom) 50% Arabian Health Care TBS Saudi Ltd. (Saudi Arabia) *TBS Group % **Through Insiel Mercato 63.25% EBME Ltd. (United Kingdom) 100% 100% 100% 100% 100% TBS PT (Portugal) TBS SE (Serbia) TecnoBioPromo (Italy) TBS India (India) Sinopharm TBS (Beijing) 50% Clinical Engineering Technology Co. Ltd. (China) ICT 100% 100% TBS IT (Italy) TeSAN** (Italy) 70% TeSAN Televita (Italy) TBS Group participates also at: REM 03 Enterprise Fondazione Easy Care Consorzio sociale Care Expert Kell 100% TeSAN (UK) (United Kingdom) note: as at 30 march

17 Nome Sezione Relazione finanziaria annuale 16

18 Nome Sezione Relazione finanziaria annuale DIRECTORS REPORT ON OPERATIONS 17

19 Directors Report on Operations 18

20 Directors Report on Operations Directors report on operations for the separate financial statements and consolidated financial statements as at 31 December 2011 Shareholders, We would like to submit the consolidated financial statements of the TBS Group as at 31 December 2011 for your consideration. They were drawn up in accordance with the IAS/IFRS international accounting standards, and accompanied by this Report which serves to illustrate the performance of the Group as a whole both with respect to the year just ended and the future prospects for the current year. The considerations set out here below, in addition to the further information required under article 2428 of the Civil Code, also apply to the report on operations of the Parent Company, TBS Group Spa. The Company opted to present the report on operations for the separate financial statements and the consolidated financial statements as a single document, as permitted under article 40, second paragraph, 2-bis) of Italian Legislative Decree 127/1991. The consolidated financial statements comprise the financial statements of TBS Group Spa and the subsidiaries over which it exercises direct and indirect control. The list of companies included in the scope of consolidation as at 31 December 2011 is as follows: Subsidiary Head Office Share Type of Stake capital Investment % TBS Group Spa Trieste (Italy) EUR 3,663,002 Parent Parent Company Company Tecnobiopromo Srl (single-member Company) Trieste (Italy) EUR 44,370 Direct 100 Tesan Spa (single-member Company) Vicenza (Italy) EUR 8,320,000 Indirect 100 Tesan Televita Srl Udine (Italy) EUR 46,800 Indirect 70 Second Opinion Italy Srl (1) Trieste (Italy) EUR 98,000 (29,400 paid up) Direct 50 PCS Professional Clinical Software GmbH Klagenfurt (Austria) EUR 1,230,000 Indirect 100 TBS FR Telematic & Biomedical Services Sarl Lyon (France) EUR 1,690,500 Direct 100 TBS BE Telematic & Biomedical Services BVBA Loncin (Belgium) EUR 150,000 Direct 100 TBS G.B. Telematic & Biomedical Services Ltd Southend on Sea (United Kingdom) 500,000 Direct 100 Telematic & Biomedical Services SL (single-member Company) Barcelona (Spain) EUR 650,000 Direct 100 STB Servicios Telematicos e Biomedicos Lda (single-member Company) Lisbon (Portugal) EUR 100,000 Direct 100 Surgical Technologies BV Didam (The Netherlands) EUR 18,200 Direct

21 Directors Report on Operations Subsidiary Head Office Share Type of Stake capital Investment % Subitec GmbH Sulzbach (Germany) EUR 4,500,000 Direct 100 SLT Srl Cernusco sul Naviglio (Italy) EUR 47,000 Direct 56 Crimo Italia Srl Gualdo Tadino (Italy) EUR 103,165 Direct Caribel Programmazione Srl Pisa (Italy) EUR 58,824 Indirect (2) Elettronica Bio Medicale Srl Foligno (Italy) EUR 1,862,500 Direct (3) MSI MedServ International Deutschland GmbH Pfullendorf (Germany) EUR 321,000 Indirect 70,1 TBS IT Srl (single member Company) Trieste (Italy) EUR 8,000,000 Direct 100 TBS SE Telematic & Biomedical Services doo Belgrade (Serbia) RSD 465,000 Direct 100 Insiel Mercato Spa Trieste (Italy) EUR 3,246,808 Indirect 100 TBS INDIA Telematic&Biomedical Services Prv. Ltd (4) Bangalore (India) INR 5,000,000 Direct 100 Arabian Health Care TBS Saudi Ltd. Riyadh (Saudi Arabia) SAR 2,200,000 Indirect 50 Erre Effe Informatica Srl Arezzo (Italy) EUR 41,280 Indirect 51 (5) SIC Srl Trieste (Italy) EUR 100,000 Direct 100 Delta X Srl Perugia (Italy) EUR 10,000 Indirect 100 EBME Ltd. Sinopharm TBS (Beijing) Clinical Bedfordshire (United Kingdom) 103 Indirect (6) Engineering Technology Co. Ltd. Beijing (China) CNY 10,000,000 Direct 50 Tesan (UK) Ltd. Southend on Sea 10,000 (United Kingdom) (not paid up) Indirect 100 (1) Company wound up on 30 December 2011 (2) Following the valuation of a put and call option on the remaining 49% of the shares, the consolidation percentage is 100%. (3) Following the valuation of a put and call option on the remaining 5.03% of the shares, the consolidation percentage is 100%. (4) previously MNE Technologies Ltd. (5) Following the valuation of a put and call option on the remaining 49% of the shares, the consolidation percentage is 100%. (6) Following the valuation of final sale of the remaining 36.75% of the shares the consolidation percentage is 100%. PERFORMANCE AND FINANCIAL HIGHLIGHTS, SOME OF WHICH WERE COMPLETED IN THE FIRST FEW MONTHS OF 2012 Your Group continued to grow in 2011, both at an international and national level, pursuing its aim to develop as had been established when it was listed on the AIM market, and consolidating its objectives in view of market developments and the opportunities that arose during the year. In order to support the development at an international level, the TBS Group established the company Sinopharm TBS (Beijing) Clinical Engineering Technology Co. Ltd. in China on 19 April 2011, as a result of the partnership between the Group and the Company CSIMC Ltd. (China National Scientific Instruments and Materials Corporation), and paid its share of the share capital. Sinopharm TBS (Beijing) Clinical Engineering Technology Co. Ltd., with offices in Beijing, operates in the clinical engineering segment, providing outsourced clinical engineering services to Chinese health care structures. 20

22 Directors Report on Operations This operation confirms the TBS Group s policy to expand into the promising Asian markets. The strategy had initiated with purchase of the Indian Company, TBS India on 1 April In addition, on 22 August 2011 the subsidiary TBS GB Ltd., which operates in the clinical engineering segment in the United Kingdom, acquired 63.25% of EBME Ltd. for 1.25 million British Pounds, which can be increased with an earn out of up to a maximum of a further 0.5 million British Pounds, to be calculated by using a multiple of 6 of the EBITDA, net of the net financial position, to be calculated with reference to the EBME financial statements for the period ended at 31 March The remaining 36.75% of EBME Ltd. shall be acquired after approval of the financial statements of EBME Ltd. at 31/03/2012, through a share swap with a number of shares of the subsidiary TBS GB Ltd. After acquisition of the remaining portion, the Company EBME Ltd. will be merged into TBS GB Ltd., with the resulting entry of Mr. John Sandham, current shareholder and director of EBME Ltd., as minority shareholder and director of TBS GB Ltd. The contract signed between the parties also provides for a put option in favour of the minority shareholder and a call option in favour of TBS Group for the repurchase of the TBS GB shares that had been swopped. Please refer to Note 4 of the consolidated financial statements for further details. EBME Ltd. is an English Company that provides assistance and maintenance services for medical equipment, technical and management consultancy services, and to a lesser extent, supply of spare parts and consumables. In order to support development in Italy in 2011, your Company took part in the call for tenders for award of the IT and call centre branches of the company Agile, under extraordinary administration, through its subsidiary TBS IT. At the end of 2011, the extraordinary administrators called a meeting of the Group representatives to give notice that TBS IT was the only entity to make an offer, and they began negotiations, in association with the trade union organisations, to sign a trade union agreement pursuant to article 47 of Law no. 428/90 and 63, paragraph 4 and Legislative Decree 270/99 on 25 January This agreement was an indispensable pre-requisite to signing the contract to purchase the IT and Call Centre branches of Agile Srl, under extraordinary administration, subsequently signed on 7 February In financial terms, the overall price bid by TBS IT to purchase the branches of Agile was EUR 1 million, of which 900,000 for the IT Business Branch and 100,000 for the Call Centre Business Branch. The operation was put in place for the existing contracts with customers and the brand name of the Company, while the debts, credits and properties of Agile Srl did not form part of the deal; as regards employment matters, the industrial plan provides for a step by step recruitment programme over the period of the next three years, provided that certain turnover objectives of the Company branches of Agile sold to TBS IT have been achieved. The acquisition of the two Agile branches gives the Group the opportunity to acquire further specific skills allowing us to operate with both the Public Administration and Private parties, especially in the healthcare area, where we will be able to provide integrated technology management, offering real innovation in the services offered. Our vision has always been to be more efficient and competitive, focused on providing integrated management of outsourced and multi vendor services for both the biomedical equipment and IT and communication technology systems used by our customers. The Global IT services is an area in which there are interesting opportunities to integrate and extend our range of services. In addition, in 2011, we also examined certain interesting operations in the multi vendor clinical imaging equipment sector, which represents an opportunity to both increase the Group s technological expertise and increase our supply of outsourced clinical engineering services. This initiative involved two shareholding acquisition operations: on 30 May 2011, through the subsidiary EBM, of 100% of the Italian Company Delta X, which operates in multi vendor radiology equipment maintenance services; in March 2012, with a direct investment in REM Spa of Fisciano (SA) by the Parent Company. REM is specialised in the digital diagnostic imaging equipment maintenance sector (computed tomography, magnetic resonance, etc.). 21

23 Directors Report on Operations The agreement provides for the entrance of the TBS Group into the share capital of REM, with a 35% investment through a reserved capital increase that will involve the payment of EUR 2 million as share capital and premium; there will also be a call option in favour of the TBS Group, which can be exercised in one or two tranches, for the acquisition of a further 35% investment by The Group started up a project called Domino in the telemedicine and teleaid sector to promote an integrated domiciliary care service using a service centre, which combines its knowledge of health procedures and organisational capacity and experience with various companies in the sector to provide a real increase in the quality of healthcare management in the area. During 2011, your Group therefore continued to grow on an external basis despite the international crisis with its consequences on financial markets and real markets, which created cash flow problems and an increase in both shortterm and medium-long term borrowing costs for the Group. In addition, the chronic delays in payments in the healthcare and public administration sector in Italy, which currently represents 66.5% of the Group s turnover, worsened further during In order to support international growth and financial sustainability, the Company focused on looking for new institutional investors during the year. This had a successful conclusion when the Fondo Italiano di Investimento entered into the corporate structure, through a reserved capital increase of EUR 10 million (after which its investment amounted to 13.17%) and the subscription to a convertible bond loan of EUR 10 million (which would increase the percentage investment of Fondo Italiano di Investimento to 21.28% if it fully converts it). The Fondo Italiano d'investimento SGR Spa ( the Fund ) is a Company that was established on 18 March 2010 by a number of sponsoring banks and trade associations, on the initiative of the Ministry of Economy and Finance. The aim was to create a broader range of medium sized companies in the medium-term, giving incentives to business combinations between smaller companies in order to make them more competitive, including on an international scale. The agreement with the Fund was finalised at the end of 2011, and agreed by the Shareholders Meeting held on 31 January 2012; the capital payment and subscription to the convertible bond loan was carried out on 10 February The operation led to an increase in reserved capital of about EUR 10 million, through the subscription to new shares for a price of EUR 1.8 per share; the equity holding by the Fund represents 13.17% of the share capital after the increase. In addition a convertible bond loan was issued, for a total amount of about EUR 10 million, divided into 4,347,826 bonds with a nominal value of EUR 2.30 each. The conversion, to be exercised in whole or in part by 31 December 2014, will be on ordinary TBS Group shares which will be newly issued at a 1:1 ratio (one share for each bond converted). In the event of reimbursement, this may occur by 31 December The interest rate provided for the convertible bond loan has been set at the fixed nominal rate of 8% per year. The bond loan issue led to an increase in the share capital of a maximum number of a further 4,347,826 ordinary shares. In the event the Fund exercises its right to conversion of all the convertible bonds, and there are no further changes in the share capital, the share capital will amount to EUR 4,653,340.3, allocated among 46,533,403 shares; in this case the Fund will have a 21.28% holding of the share capital of the TBS Group. The new resources will permit the Group to both consolidate its position as a leading operator in clinical engineering services, and continue its growth in the innovative e-health and e-government areas in a financially sustainable way. The Parent Company, TBS Group Spa continued to prepare for the transfer from the AIM market to a regulated market during 2011, by progressively amending its procedures and the Company IT solutions, and developing the Group governance procedures. A significant element in this process involves reducing the times necessary to present the economic and financial figures, and providing information which is suitable for regulated markets in terms of quality. 22

24 Directors Report on Operations To that end, work on presentation of the 2011 annual financial report, similarly to the report presented at 2010 year end with the financial statements, were finished about a month earlier than the previous year. Lastly, work has continued on the cost-cutting measures implemented on the Group corporate structure. We have set the following operations in motion to reduce the number of Group companies and make the structure more streamlined and efficient: - The TBS Group Spa transferred the e-health branch, including its assets, to Insiel Mercato in In November 2011 PCS Professional Clinical Software GmbH, operating in the Austrian market, acquired the ICT Company branch from Subitec, with the aim of increasing its direct presence in Germany. - In March 2012, the remaining 29.9% of MSI was acquired by the subsidiary Subitec, which already held 70.1%; the endoscopy branch of the Company is scheduled to be transferred by Subitec to MSI in the first half of the year to combine the endoscopy services in one Company in Germany. - The Company SOIT was wound up at the end of 2011, while the Company Arabian Health Care TBS Saudi Ltd. is scheduled to be wound up in 2012; neither Company was operative. 23

25 Directors Report on Operations GROUP ECONOMIC AND FINANCIAL MANAGEMENT The table below presents a summary of the Group financial data for 2011 and a comparison with 2010, in accordance with IAS/IFRS, with further information on the interim EBITDA, corresponding to earnings before amortisation and depreciation, write-downs of intangible assets and property, plant and equipment, measurement of investment, net financial expenses and income taxes. Since the composition of the EBITDA, identified also with reference to the income statement of the separate financial statements of the parent Company, is not regulated by the reference accounting standards, the calculation criterion the Company applies might not be homogenous with that used by others, and therefore may not prove comparable. CONSOLIDATED STATEMENT OF INCOME (amounts in thousands of EUR) Sale of goods and rendering of services 195, ,080 Other revenue 2,183 1,581 Total revenue 197, ,661 Cost of materials 23,216 25,257 Service costs 77,246 73,978 Personnel costs 76,254 69,107 Other operating costs 3,045 2,914 Cost adjustments for in-house generation of non-current assets -1,955-1,493 Other provisions Total costs 177, ,945 EBITDA 19,585 20,716 ebitda % 9.9% 10.9% Amortisation, depreciation and write-downs 9,475 9,441 EBIT (operating profit) 10,110 11,275 ebit % 5.1% 5.9% Gain (losses) from investments 6-17 Financial income Financial expenses -4,522-2,862 PROFIT BEFORE TAX 5,864 9,127 Income taxes -5,142-3,177 NET PROFIT FOR THE PERIOD 722 5,950 attributable to the Group 307 5,592 attributable to minority interests The consolidated financial statements of your Group closed as at 31 December 2011 with total revenues and other income of EUR million, an increase of EUR 6.8 million over the of the previous year, up + 3.6%. TBS Group has therefore confirmed its capacity to grow both organically and through new acquisitions, reinforcing its European leadership in clinical engineering outsourced services. 24

26 Directors Report on Operations The breakdown of revenues and income by geographic area achieved by the TBS Group companies in Italy (TBS Group Spa, EBM, TESAN Group, Crimo Group, SOIT, Tecnobiopromo, Caribel, Insiel Mercato and Delta X), Austria (PCS), Germany (Subitec and MSI), the United Kingdom (TBS GB and EBME), France (TBS FR), Spain (TBS ES), Belgium (TBS BE), Portugal (TBS PT), the Netherlands (ST NL), Serbia (TBS SE) and India (TBS India) in the last three years can be summarized as follows: REVENUE (amounts in thousands of EUR) Italy 131, ,755 96,160 France 15,712 15,676 14,989 Germany 13,944 14,326 14,101 United Kingdom 17,137 15,316 14,582 Spain 5,671 7,120 7,224 Austria 5,853 5,944 4,979 Netherlands 3,522 3,184 3,433 Belgium 1,101 1,326 1,228 Portugal 1,121 1,334 1,361 Other European Union countries Other non-european Union countries 2,037 1, Total 197, , ,415 The 3.6% increase over the previous year also benefits from the different scope of consolidation, which includes the acquisition of MNE Technologies Private Limited in India (since April 2010), Erre Effe Informatica Srl (December 2010), SIC Srl (December 2010), Delta X Srl (May 2011) and EBME Ltd. in the United Kingdom (August 2011). If these companies had not been included the organic growth in consolidated revenue would have been 2.4%. The detailed figures in the business lines show revenues in line with the previous year, confirming the consolidation of the Company s leading position in clinical engineering services (which generate 79.8% of revenues, a 3.7% increase over 2010) and the strengthening of the e-health and e-government systems and solutions (20.2% of revenues which is +3.3% over the previous year). Analysis of the revenues by geographical area confirms that Europe is the main market for the Group: Italy represents 66.5% of turnover (65.4% in 2010), other European countries 32.4% (compared to 33.7% in 2010), while non European countries show a slight increase to 1.1% (0.9% the previous year). Consolidated EBITDA stands at EUR 19.6 million, recording a decrease of 1.1 million (-5.5%). This includes the contributions of the acquired companies, without which EBITDA would have been EUR 19.0 million, down EUR 1.7 million from the previous year. The reduction in EBITDA is primarily due to mostly non-recurring negative components and was mainly sustained by the e-health and e-government Business Units. In the first place, a portion of this reduction was caused by costs incurred in the first half year period of 2011 by the subsidiary Insiel Mercato. It was for establishment of the new Data Centre project, aimed at providing the Company with greater technological capacity in developing its cloud services. The amounts needed to continue with the restructuring process begun by the German subsidiary Subitec GmbH in order to restore profitability also added a further burden to the EBITDA. Profitability was partly restored in the second 25

27 Directors Report on Operations half of 2011, mainly due to the termination of an important order which was particularly onerous. Finally, certain other non-recurring costs recorded in 2011 should be added to these specific diseconomies, involving staff reorganisation operations and the renegotiation of some service contracts, consulting costs tied to merger operations and due diligence for new acquisitions, some of which have not yet been completed. The reduction in EBITDA is also reflected in the reduction in EBIT, which fell from EUR 11.3 million in 2010 to 10.1 million in 2011, with a decrease of EUR 1.2 million (-10.3%). This result was also influenced by the write-downs on the intangible assets of EUR 1.1 million for the Subitec engineering clinical CGU goodwill, which has now been fully written down (the e-health telemedicine and telecare CGUs goodwill had been written down by EUR 1 million the previous year, in addition to the Subitec clinical engineering CGU for a further EUR 1 million). The reduction in EBIT was also influenced by the increase in amortisation related to customer relations (EUR +0.4 thousand compared to the previous year with reference to the acquisitions during the year and those made at the end of 2010 only). There was a significant increase in the amount of financial charges during the year, increasing from EUR 2.9 million the previous year to EUR 4.5 million this year in absolute terms. The increase was due to the increase in the Euribor rate of about 0.6% and more specifically, to the increase of the spread in funding costs, both short and medium-long term, in addition to the financial expenses resulting from the increase in the credit assignment operations finalised during the period. Profit in 2011 amounted to EUR 0.7 million, with a drop of EUR 5.3 million compared to the EUR 6.0 million in We should remember that the profit for 2010 benefitted from the payment of substitute tax by the subsidiary EBM on the goodwill: profits for 2010 would have been EUR 2.6 million without that effect, thereby reducing the fall in 2011 to EUR 1.9 million. The table below presents a summary of the Group's key financial data for 2011 and a comparison with 2010, in accordance with IAS/IFRS: CONSOLIDATED BALANCE SHEET (amounts in thousands of EUR) 31/12/ /12/2010 Intangible assets 60,122 59,537 Property, plant and equipment 17,043 15,669 Other non-current assets 11,937 12,769 NON-CURRENT ASSETS 89,102 87,975 CURRENT ASSETS 157, ,425 TOTAL ASSETS 246, ,400 Group shareholders equity 54,096 54,948 Equity attributable to minority interests 2,605 2,400 Total shareholders' equity 56,701 57,348 NON-CURRENT LIABILITIES 37,644 43,510 CURRENT LIABILITIES 152, ,542 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 246, ,400 Net financial debt (NFD) and operating working capital (OWC) were calculated starting from the summary of the statement of financial position. 26

28 Directors Report on Operations (amounts in thousands of EUR) 31/12/ /12/2010 Medium and long term interest-bearing loans and borrowings -19,466-24,647 Short term interest-bearing loans and borrowings -71,803-54,960 Other financial assets 1,714 1,643 Current financial assets 2, Cash and cash equivalents 17,531 8,786 Net financial debt -69,325-68,929 (amounts in thousands of EUR) 31/12/ /12/2010 Inventories 7,544 6,483 Trade receivables 121, ,370 Trade payables -45,188-42,311 Operating working capital 83,407 79,542 The net financial debt at the end of the year amounted to EUR 69.3 million, with an increase of EUR 0.4 million compared to the EUR 68.9 million of The average financial debt in 2011, calculated starting from the 2010 year end figures, the half-yearly figures and considering the year end figures, amounts to EUR 67.4 million, against EUR 58 million in 2010; the increase in average debt during the year was therefore equal to EUR 9.4 million. The increase is due to the increase in the average healthcare payment times in Italy (source: Assobiomedica) which increased from 286 days in January to 317 days in December In addition, note the increase in short term loans and borrowings, which rose from EUR 55.0 to 71.8 million, while the medium and long term loans and borrowings fell from EUR 24.6 to 19.5 million; this trend represents the difficulties in obtaining medium-long term loans which did not just affect our Group, but the financial market in general. During 2011, in order to improve management of the financial debt which is closely related to working capital trends, your Group entered into credit assignment transactions, for a total of EUR 77 million compared to EUR 51 million the previous year. This increase was due to development in the macro-economic climate and further extensions in public sector payment terms. The agreement of these credit assignments meant that the increase in operating working capital from EUR 79.6 million in 2010 to EUR 83.4 million in 2011 could be kept down; the EUR 3.8 million increase reflects a minimum increase on incidence on revenue, which increased by 0.5%, from 41.7% in 2010 to 42.2% in The financial movements are analysed in the summary elements from the statements of cash-flows, summarised here below. CONSOLIDATED CASH FLOW STATEMENTS (amounts in thousands of EUR) CASH FLOW GENERATED BY INCOME MANAGEMENT 16,258 3,125 CASH FLOW USED IN INVESTING ACTIVITIES -11,806-16,819 CASH FLOW PROVIDED BY (USED IN ) FINANCING ACTIVITIES 4,370 13,916 TOTAL CASH FLOWS 8, CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 8,786 8,454 - Net foreign exchange difference CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 17,531 8,786 27

29 Directors Report on Operations The cash flow from income as at 31 December 2011 shows an improvement over the same period for the previous year of EUR 13.1 million, due in part to payment of higher income taxes partly generated by the substitute tax payment carried out in the first half of 2010 and partly due to improved capital management for the year. There was EUR 5.0 million less invested in 2011 than the corresponding period of 2010; 2010 was primarily characterised by the purchase of the Indian Company TBS India for EUR 6.4 million, while EBME and Delta X were both acquired in the present year for EUR 1.6 million. These activities helped to generate a total cash flow of EUR 8.8 million in 2011, considering the EUR 4.4 million generated by the financing activities, mainly resulting from the increase in short term loans and borrowings, after repayment of loans due to be paid back and payment of interest on the loans. The key economic and financial indicators as at 31 December 2011 and 2010, deriving from the ratios between certain data recorded in the income statement and balance sheet above, are shown below EBITDA/Total revenue 9.9% 10.9% EBIT/Total revenue 5.1% 5.9% EBT (*)/Total revenue 3.0% 4.8% Net profit for the year/total revenue 0.4% 3.1% Financial expenses/revenue 2.3% 1.5% Financial expenses/nfd 6.5% 4.2% NFD/Equity Attributable to Equity Holders of the Parent Total liabilities/equity Attributable to Equity Holders of the Parent NFD/EBITDA OWC/Total revenue 42.2% 41.7% (*) Earnings before tax ECONOMIC AND FINANCIAL MANAGEMENT OF THE PARENT COMPANY Firstly we note that up until 31 December 2010, the TBS Group Spa drafted its financial statements on the basis of the accounting standards issued by the National Boards of Chartered Accountants as reviewed by the OIC - Organismo Italiano di Contabilità [the Italian Accounting Body]. The number of investors in the Company went over 200 in 2010 and therefore it became an entity with financial instruments distributed among the public in accordance with article 116 of the Italian Consolidated Law on Finance ( TUF ). In accordance with the provisions of Legislative Decree no. 38 of 28 February 2005, the TBS Group Spa must draw up its financial statements in accordance with international accounting standards. In this context, the Company drafted the financial statements for the period ended at 31 December 2011 in accordance with the IFRS (the IFRS standards were adopted starting from 1 January 2010). Please refer to Note 33 of the financial statements for the comments and effects resulting from the transition to the international IFRS accounting standards. The table below summarises the evolution of the basic data of your Company compared to the previous year as far as the statement of income is concerned: 28

30 Directors Report on Operations INCOME STATEMENT (amounts in thousands of EUR) 31/12/ /12/2010 Sale of goods and rendering of services 9,556 9,305 Other revenue Total revenue 9,851 9,536 Cost of materials Service costs 6,588 5,907 Personnel costs 5,362 4,514 Other operating costs Cost adjustments for in-house generation of non-current assets Total costs 12,097 10,878 EBITDA -2,246-1,342 ebitda % -22.8% -14.1% Amortisation, depreciation and write-downs EBIT -3,218-2,235 ebit % -32.7% -23.4% Gain (losses) from investments -5,094-5,180 Dividends 13,887 4,194 Financial income Financial expenses PROFIT BEFORE TAX 5,037-3,599 Income taxes 1, NET PROFIT FOR THE PERIOD 6,079-3,324 The revenues of the parent Company are mainly from the management fees that it bills its subsidiaries and for consultancy and coordination services given, and the revenues related to administrative, legal and tax service contracts with Group companies. The increase in 2011 over the previous year is due to the increase in the amount billed to the Group companies, partially offset by the decrease in revenues from third parties for the services related to the e-health and e- Government systems and solutions Business Unit, which was transferred to the subsidiary Insiel Mercato starting from 1 November The increase in external service costs compared to the previous year is mainly due to the increase in charges for technical, commercial, legal and administrative charges. The increase in labour costs is due to the higher number of employees compared to EBITDA was EUR -2.2 million, while it was equal to EUR -1.3 million last year, showing a decrease of EUR 0.9 million. This reduction is mainly due to the lower staff costs charged back to the subsidiaries through the management fee contracts signed with them (the corporate staff was estimated to be about 10% of the total in 2010 and about 20% in 2011) and the higher consultancy costs considered as being for the parent Company and therefore which could not be charged back to the subsidiaries. More specifically they regard costs related to the extraordinary assignment that the parent Company was involved in and the significant costs for potential acquisitions of target companies that did not go through. Net of amortisation/depreciation, which is substantially stable compared to the previous year, EBIT stood at EUR -3.2 million compared to EUR -2.2 million the previous year. 29

31 Directors Report on Operations The gains (losses) from investments almost all refer, in both years, to the write-down in the investment in the German subsidiary, Subitec, on the basis of the impairment test results made by the Company. Financial charges went from EUR -0.7 million to EUR -0.8 million. Dividends decided on by the subsidiaries increased significantly from EUR 4.2 million in 2010 to EUR 13.9 million in With regard to taxes, the Company opted for the tax consolidation regime for the three-year period as the head tax consolidating entity. The following Group companies were included in the consolidation as consolidated companies: Crimo Italia Srl, Caribel Programmazione Srl, Tesan Televita Srl, SLT Srl, SIC Srl, Tecnobiopromo Srl, Erre Effe Informatica Srl and Insiel Mercato Spa. This item therefore includes the current IRES and IRAP for the year, the economic component related to the deferred tax assets and liabilities and income of EUR 3 million from the consolidation. The income for the year of EUR 6.1 million derives from significant dividends received during the year, which covered the fixed Company overheads which were not charged back to the Group companies. The table below, instead, summarises the processing of the basic data of your Company compared to the previous year as far as the balance sheet is concerned. BALANCE SHEET (amounts in thousands of EUR) 31/12/ /12/2010 ASSETS NON-CURRENT ASSETS - Assets with indefinite useful life (goodwill) Intangible assets with finite useful life 2,912 2,936 Intangible assets 3,006 3,030 - Land and buildings 1,139 1,177 - Plants and machinery Other property, plant and equipment Property, plant and equipment 1,559 1,471 - Investments in subsidiaries 68,155 61,484 - Investments in associated companies and joint ventures Investment in other companies Investments 68,274 61,631 - Other non-current assets Deferred tax assets Other non-current assets TOTAL NON-CURRENT ASSETS 73,376 66,831 CURRENT ASSETS Trade receivables 9,181 10,425 Other current assets 3,451 4,731 Income tax receivables Current financial assets 11,151 16,548 Cash and cash equivalents TOTAL CURRENT ASSETS 24,723 32,544 TOTAL ASSETS 98,099 99,375 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 30

32 Directors Report on Operations (amounts in thousands of EUR) 31/12/ /12/2010 SHAREHOLDERS' EQUITY - Share capital 3,613 3,617 - Reserves 55,362 49,802 TOTAL SHAREHOLDERS' EQUITY 58,975 53,419 NON-CURRENT LIABILITIES Medium and long term interest-bearing loans and borrowings 6,494 13,127 Employee Severance Indemnity Deferred tax liabilities Provisions for risks and charges 5,056 9,156 TOTAL NON-CURRENT LIABILITIES 12,309 23,024 CURRENT LIABILITIES Trade payables 3,556 3,066 Other current liabilities 2,274 2,740 Short term interest-bearing loans and borrowings 20,984 15,778 Tax payables 0 1,348 TOTAL CURRENT LIABILITIES 26,814 22,932 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 98,099 99,375 The increase in non-current assets is almost all due to the increase in investments which increased from EUR 61.6 million as at 31 December 2010 to EUR 68.3 million as at 31 December The changes mainly refer to acquisition of the investment in TBS IT (EUR million), already indirectly held in the previous year through the subsidiaries TBS GB and TBS FR, recording the investment in Insiel Mercato (EUR 3.8 million) following subscription to the capital increase with related premium through the branch transfer (in 2010 the Company was entirely held through TBS IT; now 40.29% is directly held, and the rest is indirectly held), payment of capital to the Chinese subsidiary Sinopharm TBS (EUR 0.6 million), recapitalisation of the Spanish subsidiary TBS ES (EUR 0.3 million) and transfer of the investments in Tesan, PCS, Caribel and Erre Effe to Insiel Mercato (EUR -8.2 million). Current assets are down by EUR 7.8 million mainly due to sale of the e-health receivables to Insiel Mercato following the transfer (EUR -1.1 million), reduction in the receivables from Italian subsidiaries who are included in the tax consolidation for the consolidation income (EUR -1.5 million) and lower financial receivables from Group companies (EUR -5.3 million). The reduction in the risk provision is due to the lower Subitec investment provision which was recapitalised during the year through waiver of the right to the receivable of EUR 9 million and it was written-down once again at yearend by EUR 5.1 million. Trade payables are slightly up, partly due to the higher costs incurred by the Company during the year. The overall net financial position, calculated without including the financial receivables from the subsidiaries, is on the debit side, and increased from EUR 11.9 million in 2010 to EUR 16.0 million at the end of the year in question. In addition, the evaluation of the debt of the TBS Group Spa is examined together with the consolidated debt as the Parent Company performs the function of coordination of the financial assets and liabilities of its subsidiaries also. 31

33 Directors Report on Operations BUSINESS OUTLOOK In 2012 TBS Group intends to continue with its growth path, both organically and through external lines, by targeting acquisitions to make. The transactions finalised in the first few months of 2012 confirm the strategies adopted by management aimed at increasing technological know-how and strengthening the availability of clinical engineering services on the market. This strategy involves the extension of services and solutions offered to new segments (such as diagnostic imaging) and the supply of integrated management, through outsourcing and multi vendor sectors in both biomedical equipment and the entire range of ICT systems and solutions used by customers. The internationalisation process will also play an important part in the future, with the aim of strengthening the presence of the TBS Group in countries where it already operates and which have particularly strategic significance. Finally, the Group will continue with its commitment to improve the efficiency of the corporate organisation, including by unifying the legal entities that operate in a single country in order to streamline the structure, and optimise the costs of the individual companies. The order portfolio in place at present is over EUR 230 million; this amount does not include either estimates for the companies that work on the basis of single quotations (for example: the endoscopy sector), or other estimates regarding non-contractual activities. PRODUCTIVE ACTIVITIES The TBS Group offers integrated clinical engineering and e-health services to hospitals and healthcare facilities, both public and private, in Italy and abroad. The Group s vision is to work towards reducing and upgrading healthcare expenses in the technological sector, through integrated management, in order to increase the quality of public healthcare services, with positive effects on their healthcare expectations. The mission of the TBS Group is to develop integrated clinical engineering, e-health and e-government services as an outsourcer, to make the use of technology in hospitals and healthcare facilities safer, more effective and efficient with the technology, including biomedical equipment and other medical devices, medical IT systems and solutions (Hospital Information System) and the telecare and telemedicine systems and solutions (Remote Patient Monitoring). TBS Group operates under Group Management that is mainly concentrated in the Parent Company, TBS Group Spa, and two Business Units (the Medical equipment and devices Business Unit and the e-health & e-government Business Unit). Group Management The Parent Company TBS Group Spa, with the Chairman and the CEO, the ten Corporate Departments, the staff and the three General Managers, provide the Group companies with management and administrative assistance services, the supply of services in general, and consulting and coordination services for the companies, especially in the financial area. It also carries out control on behalf of the Parent Company, TBS Group Spa and Group business development activities. Medical equipment and devices Business Unit The operations related to this Business Unit, coordinated by two Group General Managers and also called clinical engineering services, include: consultancy services on purchases, testing and training on medical devices, preventative and corrective maintenance of biomedical equipment, safety and control checks of functional quality, computerised management of the activities carried out. 32

34 Directors Report on Operations e-health and e-government Systems and Solutions Business Unit The operations related to this Business Unit, coordinated by a Group General Manager and called e-health and e-government products and services, include: development of medical IT products with the provision of services for their installation, testing and maintenance, and any integration and management with other IT products already present in the hospital and public healthcare service bodies telecare and telemedicine services related to the operational centres (e-health centres) with the integrated supply, installation, testing and maintenance of telecare and telemedicine systems development of IT products for the Public Administration with the provision of services for their installation, testing and maintenance, and any integration necessary with other IT products already present in the local and regional entities or other public administration bodies. The Group is the leading Company in the area of clinical engineering services supplied by the Medical Equipment and Devices Business Unit in Italy, the United Kingdom and France, is second by market share in Spain, and has a strong foothold in Germany. The Group is also one of the main operators in the sector in Portugal, Holland and Belgium. With reference to the e-health systems and solutions Business Unit, the Group is the leading Company in Italy in the telecare area and the second most important Company in Austria in medical IT products and services. The productive activities supplied by your Group broken down by the two Business Units, Medical Equipment and Devices Business Unit and e-health & e-government Systems and Solutions Business Unit, are illustrated below. Medical Equipment and Devices Business Unit These services are mainly carried out in Italy through the subsidiary EBM. EBM has maintained a widespread commercial presence all over Italy, thereby consolidating its leadership role in its sector of specialisation. The Company submitted tenders for 26 new calls for tender at a national level in 2011, for a base value of EUR 157 million. It was awarded 8 of these contracts (including in temporary joint ventures) for a total acquired value of EUR 84.6 million. The most significant of these include: ESTAV Nord Ovest (Tuscany), three-year for a value of EUR 8 million annually; Unified hospitals of Ancona, seven years for EUR 4 million; ASL Vicenza, five-years for EUR 2.5 million annually; AO Monza, four-year for EUR 1 million; INRCA of Ancona, four-year for EUR 0.7 million annually. The productive activities of EBM in 2011 involved the provision of outsourced clinical engineering services for the integrated, overall management of biomedical equipment, entailing: stock management of movable assets; preventative and corrective maintenance; checks on electrical safety and ensuring the equipment owned by the public and private healthcare facilities is up to standard; consultancy on acquisitions and staff training. These services were mainly provided following the acquisition of public contracts tendered by public healthcare facilities. These contracts are normally long-term. The specific aim of the procurement activities in 2011 was to consolidate the contractual relationships with suppliers in order to improve purchasing terms and obtain higher levels of technical and quality reliability. The partnership with the main producers in the sector led to a strengthening of the service arms activities, thereby consolidating the sales network in the territory and improving the professional training of the technicians and engineers. The financial terms of the framework agreements entered into with the big producers at a national level were all improved; in addition the Programmed Activity model was implemented during the year at a country-wide level (preventative maintenance, safety checks, function controls). The continued, timely monitoring of the supply sub-contracts (known as partner contracts) meant that there were significant credits by year end due to the lower costs. 33

35 Directors Report on Operations The acquisition by EBM of the entire share capital of Delta X Srl, as decided by the Board of Directors in its meeting of 5 November 2010 to take effect from 31 May 2011, led to progressively higher levels of specialisation being achieved in the diagnostic imaging area, with significant commercial and income benefits starting from this year. The integration between the internal work carried out through the endoscopy business unit/workshop with the other EBM workers, forms part of the strategy to create standalone specialist centres that can generate fruitful collaborations with endoscopy worshops of other Group companies. CRIMO Italia works in an area that deals with the specific repair of biomedical and endoscopy equipment and surgical instruments, and it provides clinical engineering services for healthcare institutions and private institutions. The company is a leader in this sector due to the broad diversification of products and services, facilitating customers who avail of it to meet their maintenance requirements. The company began to make inroads into the Southern Italian market, which has traditionally been resistant to the entry of small operators, with promising results in Sicily. It is beginning to operate in Campania and Puglia also. As regards performance and operating results, both revenues and EBITDA have also increased this year. In terms of the number of repairs, all the company departments showed good general performance, which is definitely due to customer satisfaction for the fast service, the quality of the repairs and the efficiency of the equipment and surgical instrument collection system. As previously mentioned, the corporate reorganisation process was completed during the year. The aim was to simplify the structure and improve organisational efficiency and reduce costs; the subsidiary M.D. Service Srl was completely integrated through a merger which took place on with benefits leading to improvements in revenues from this Business Unit. The company SLT continued with its sales of electromedical testing equipment during 2011, to the great satisfaction of our main supplier, Fluke Biomedical. The budgets agreed were easily exceeded, and an exclusive distribution contract was entered into to act as the sole European distributor, along with England, but which has the advantage of the exclusive production of certain devices for Fluke. Its leading position on the market was confirmed, with steady orders which were sometimes from the biggest production and Global Service companies. The remaining portion of turnover is from sales to small companies that provide electromedical equipment maintenance services. On the other hand, direct sales to hospitals fell by a half during the year, confirming the trend towards increasing externalisation of services, with certain benefits from the viewpoint of overall payment terms. Laboratory work involving the maintenance and calibration of instruments also increase by 15%, confirming that the instruments sold are mainly sent to SLT for maintenance and calibration. Efforts continued to obtain the Accredia certification for the SLT laboratory during the year. Significant investments were made to this end, especially in terms of man hours. This certification is expected to be obtained in the first few months of Finally, the company Tecnobiopromo continued to operate on a steady basis, both in Italy and abroad, in the purchase and sale of spare parts and other consumable materials related to biomedical equipment. The reduction of prices in France due to DRGs in 2011 had a significant impact, especially in the private healthcare organisations that forced their sub-suppliers to reduce their prices. Therefore there was strong pressure to reduce sales prices for TBS FR. However, TBS FR managed to improve profitability in 2011 compared to the previous year, obtaining higher profits in terms of sales and margins compared to previous years. Finally, TBS FR began to operate with new high added value services, such as diagnostic imaging, in order to obtain new revenues and maintain profitability in the medium term. As regards operations in Belgium, the company TBS BE remained steady in terms of profitability in the year ended as at 31 December 2011, despite the fall in revenues compared to the previous year. The Belgian market showed it had the potential for future development that will have to be supported by a sales organisation that takes account of the cultural and linguistic situation in the country. 34

36 Directors Report on Operations The precarious situation in Spain, with the resulting lack of funds, has led to delays in the implementation of certain contracts which had already been awarded to your company TBS ES; the particularly weak public finance situation in Portugal is also a problem, and payment delays are making it difficult to perform certain contracts, even though your Group has a limited presence in this country. Our company TBS GB has consolidated its leadership position in the United Kingdom, increasing revenues and renewing important long-term contracts in the biomedical sector for private hospitals. The acquisition of a majority holding in EBME Ltd., which also operates in the clinical engineering field, and provides consultancy services, meant that new public and private contracts could be acquired. Business was good in Holland too, where your Dutch subsidiary, Surgical Technologies BV, is a leading company in the endoscopy equipment repair sector. Thanks to prudent local management, it has achieved an excellent position on the flexible and rigid endoscopy equipment repair services market, despite the strong presence of the big endoscopy producers, and the other smaller independent multi vendor companies. Germany continues to be a strong market for medical equipment and device producers. Profits in our company Subitec were heavily penalised during the year due to certain orders carrying negative margins; they were terminated last year. A new managerial team is now in place and aim to stabilise Subitec s presence on the German market. New activities include the entry of the Group onto the Indian market through TBS India. The year 2011 was important for the consolidation of the Indian company s operations, and despite the high staff turnover which is typical in this market, the company achieved interesting results for the development of the business in the future, helped by the support of new managers who have joined the company. In the second half of the year, more specifically, new customers were acquired with increased profits and revenues in the clinical engineering sector; one of the most significant events during the year was the Service Arm agreement with Philips, and the start up of operations in Mumbai, Delhi and other locations in Southern India. New commercial initiatives were also promoted with important public and private customers. A joint venture was also initiated in China in 2011, with establishment of the company Sinopharm TBS. Productive activities of the Group companies relating to the Medical Equipment and Devices Business Unit were carried out with specific contracts in 2011 in roughly 1,000 Healthcare Facilities and/or Hospitals, public and/or private, in ten European countries and India and China. More specifically, the Group used over 350 clinical engineering technical workshops within healthcare facilities, 8 specialised workshops for endoscopy equipment maintenance, 1 specialised workshop for surgical instrument maintenance, 2 specialised diagnostic imaging workshops and 2 specialised brachytherapy and cobalt therapy equipment workshops to carry out its technical work and its integrated biomedical equipment management services. On the whole, the productive activities of the Business Unit involved integrated management of more than 800,000 biomedical and endoscopy equipment and surgical instruments for a replacement value of more than EUR 5,000,000,000. Consulting activities on purchases and acceptance tests were carried out on this machinery park, Healthcare Technology Assessment, stock valuation and replacement plans, training of staff who will use the equipment, risk evaluation, acceptance testing with over 1,200,000 maintenance activities, of which 800,000 for scheduled maintenance and safety verification, 400,000 troubleshooting operations followed up by their repairs and about 80,000 surgical instrument repairs. e-health & e-government Systems and Solutions Business Unit The Business Unit is present on the market today with Information and Communication Technology (ICT) products and services for medical, telemedicine and telecare, in addition to integrated Public Administration IT solutions. The integration of Insiel Mercato Spa as the reference Company with a coordination role for the Business Unit was completed in 2011 through assignment of the e-health Business Unit, including its assets, from the TBS Group Spa to Insiel Mercato Spa. 35

37 Directors Report on Operations More specifically, Insiel Mercato Spa decided to increase its paid capital for a nominal total of EUR 1,308,058 in addition to EUR 2,534,117 as a premium, by issuing of a total of 1,308,058 ordinary shares with a nominal value of EUR 1.00 each, to be subscribed and freed up entirely by ITAL TBS Telematic & Biomedical Services Spa, and therefore not including the option right by the shareholder TBS IT Telematic & Biomedical Services Srl, through contribution in kind of full ownership of the e-health Company branch. This contribution was made for an amount equal to the shareholders equity of the transferred Company branch as resulting from the financial position as at 30 June 2011, equal to EUR 3,842,175. The allocation of the abovementioned contribution amount between the share capital and the share premium was made on the basis of the economic value of the branch being transferred as resulting from an expert s report, as subsequently updated, drawn up an using all the assumptions as necessary pursuant to article 2343 ter II paragraph, letter b of the Civil Code and the economic value of the transferee Insiel Mercato Spa. Following agreement to the capital increase, TBS IT Telematic & Biomedical Services Srl now holds 59.71% (100% prior to the transfer) of the share capital of Insiel Mercato Spa, while the remaining portion of 40.29% is held by ITAL TBS Telematic & Biomedical Services Spa. The industrial activities of the Business Unit as a whole were developed in both Italy and abroad. Italy represented by far the most important market for the e-health & e-government Business Unit of the TBS Group in 2011, even though significant steps were taken to increase its international scope. The main countries that the Business Unit operated in during the year besides Italy were Austria, the United Kingdom, Germany, Slovenia and the Netherlands. The e-health & e-government business units recorded an overall increase in revenues in 2011 (+3.3%) against a reduction in EBITDA compared to 2010 both in terms of percentage (-7.5%) and in absolute terms (EUR 0.3 million). This may be mainly due to the diseconomies of scale faced during the first half of 2011 by the Company Insiel Mercato Spa in the establishment of the new data centre. The idea behind the new data centre was to increase the services available with innovative functions (Cloud Computing). In addition the second half of 2011 showed encouraging signs of a pick-up, with constant growth in profit margins. With respect to the market, we should further separate the activities between Italy and abroad and ICT and Telemedicine/Telecare. The overall data trends for revenues in 2011 for ICT (-0.95%) in Italy was in line with trends in amounts spent in ICT by the Public Administration in Italy (-2% average annual growth rate Dati Assinform Osservatorio PA_2011), even though the different sectors showed different trends (-3.5% central Public Administration, -2.3% local Public Administration, -0.9% Regions, +2.4% Healthcare). The reduction in the budgets of the Public Administration in general forced them to optimise resources resulting in calls for tenders that were delayed/halted, difficulties in managing and pushing the projects forward and cash shortfalls. The current critical situation of the entire Public Administration system in Italy was clearly felt in 2011, from the calls for tenders to payments. Despite this context, the TBS Group managed to confirm its role as an emerging player in the sector through certain significant achievements by its subsidiaries (Insiel Mercato Spa, Caribel Programmazione Srl and Erre Effe Informatica Srl). More generally, work was concentrated on the integrated management of IT products and services both for the Public Administration and Health care, aimed at meeting the requirements of over one thousand customers in the country, providing innovative systems and knowledge through solutions aimed at the integration, interoperability and application cooperation, in line with the biggest technological platforms on the market and the open source systems. Despite the worry hanging over the Italian economic system, casting a cloud over 2011 and affecting the ICT sector, the Business Unit managed to carry out its significant investment plans. As confirmation of this, on 23 December 2011, Insiel Mercato Spa completed its purchase of a shareholding in the Company SAIM - Südtirol Alto Adige Informatica Medica Srl through a notarial deed, increasing its holding from 2.5% to 46.5%. The transaction was considered significant in terms of ensuring an adequate position in the computerisation of 36

38 Directors Report on Operations the Alto Adige ASL, and also to create a good technological outpost in a strategically significant area with a view to expanding the business of Insiel Mercato Spa abroad. Industrial investments are mainly focused on the development and update of the company-owned product portfolio, where the work done involves implementation of new functions and application modules and the significant improvement of existing functions. The integration and development of joint cooperation practices continued between Insiel Mercato and the other companies belonging to the Business Unit, especially Caribel Programmazione Srl and Erre Effe Informatica Srl, mainly with respect to commercial operations, but also administrative and operative. Business in the specific sector of telemedicine and telecare are developed in Italy by the companies belonging to the Tesan Group. As noted, the Tesan Group started operations in 1987 in the Region of Veneto and supplied teleaid and telecontrol services for the elderly and/or disabled also during 2011 directly or through its subsidiaries in the regions of Veneto, Friuli Venezia Giulia, Lombardy, Piedmont, Valle d Aosta, Liguria, Emilia Romagna, Tuscany, Lazio, Marche, Campania and Sardinia. Considering the users of the subsidiary Tesan Televita Srl as well, the number of users receiving the Telerescue and Telecontrol service as at 31/12/2011 totalled more than 37,000. There was a significant increase in turnover in the country between the previous year and 2011 (+12%). This success was due to the upselling techniques used to encourage new subscribers for special orders and existing customers (entry into three hospitals in Lombardy), and the award of important new orders during the year by the Company Tesan Spa. The award of a tender for the CUP Friuli Venezia Giulia Service - to a temporary joint venture that Tesan Televita Srl belongs to was especially significant. Other significant activities include the start up of the type c) tele-monitoring service as part of the teleaid and telecontrol service of the Veneto Region for the RENEWING HEALTH European Project. The proposed project has the aim of reducing the hospital rates of chronic Veneto patients through tele-monitoring and assistance provided. With respect to markets outside Italy, a basic strategic target by management over the next few years is growth in international markets for the creation of value in the Business Unit. The objectives at the source of the choice can be summarised into 3 main points: reduction of business risk by diversifying the activities on a geographical basis; increase revenue growth rates, by investing in countries with increasing demand for ICT, Telemedicine and Telesupport services; increase the profitability of the business in general. The ICT industrial activities abroad have been mainly developed by the Company PCS Professional & Clinical Software GmbH in Austria and Germany. Starting from 1 November 2011, PCS Professional & Clinical Software GmbH acquired the ICT Company branch from its sister Company, Subitec, with the aim of increasing its direct presence in Germany. In confirmation of the above, a branch office has been opened in Dortmund (Germany), with two employees monitoring the market directly. The effects of the serious economic crisis in Europe during 2011 also affected Austria, mainly by reducing spending by customers, with a resulting reduction in average market prices. However, an effective commercial strategy that focused on significant customer loyalty building exercises, and the careful selection of collaborations through selected partnerships meant that revenues and EBITDA in 2011 were substantially in line with 2010 figures. The main product (Patidok 2.0) has achieved such a level of reliability that it is used by over 100 customers in healthcare related facilities (both public and private) in Austria and Germany, and is also widespread in Italy. Still in foreign markets, the award of its first tender contract abroad by the Company Insiel mercato Spa was particularly significant. The contract is in the healthcare area in Slovenia and involves the creation of a computerised transfusion system. The Company also entered into a contract in the Netherlands for a dermatological chart. As regards the telemedicine and telecare Business Unit, foreign activities are mainly based in the United Kingdom through TBS GB Ltd., with the support of Tesan Spa. 37

39 Directors Report on Operations The first steps were taken towards internationalising Tesan s Business Model in 2011, resulting in the establishment of Tesan (UK) Ltd. in November. The Company, which is not yet operative on an industrial level, was founded with the aim of establishing itself in the eyes of important institutions and entities in Britain, and to start taking part in calls for tenders involving the supply of telemedicine and telecare services in the UK. The United Kingdom is a strategically important country in this area since demand for telemedicine and telecare services are expected to rise on a consistent basis. The short term market approach should be taken by teaming up with local partners to be ready in the medium-long term to avail of opportunities and maximise the investment. Consolidated revenue and EBITDA by Business Unit The total Group revenues and income in 2011, amounting to EUR million (EUR million in 2010), can be broken down by Medical equipment and device (also Clinical Engineering) and e-health and e-government Systems and Solutions (also e-health and e-government) Business Units. REVENUE (amounts in millions of EUR) Medical equipment and devices e-health & e-government Systems and Solutions Total The Medical equipment and devices Business Unit's increased turnover in 2011 compared to 2010 (EUR 5.6 million, equal to +3.7%) is mainly due to the following factors: the significant increase in revenues in the Italian subsidiary EBM (increase of about EUR 5.0 million). EBM operates in the integrated management of biomedical equipment; in France and Germany, revenues remained substantially stable, while in the Netherlands and the United Kingdom (partly because of the acquisition of the Company EBME) there was more than a 10% increase in activities. The effects of the economic crisis were felt in Spain, with a drop of over 20% from the previous year. The increase in the e-health & e-government systems and solutions Business Unit (EUR 1.3 million equal to +3.3%) is mainly due to the new Company Erre Effe and the previously noted turnover of the subsidiary Tesan. EBITDA for the Group in 2011, amounting to EUR 19.6 million (EUR 20.7 million in 2010), can be broken down by Medical equipment and devices (also Clinical Engineering) and e-health and e-government Systems and Solutions (also e-health and e-government) Business Units. EBITDA (amounts in millions of EUR) Medical equipment and devices % on revenues 10.1% 11.0% e-health & e-government Systems and Solutions % on revenues 9.2% 10.4% Total % on revenues 9.9% 10.9% 38

40 Directors Report on Operations The reduction of EBITDA in 2011 compared to 2010 of the Medical equipment and devices Business Unit amounted to EUR 0.8 million (equal to -4.8%), and is due to the difficulties in returning the Company Subitec GmbH to profitability, which operates in the clinical engineering services area in Germany, as described above. The EBITDA in the e-health & e-government System and Solutions Business Unit also fell from EUR 4.0 to 3.7 million (-0.3 million, equal to -7.5%); the reason for this drop is also due to the Company Insiel Mercato as described above. Please refer to the explanatory notes to the Group's consolidated financial statements as at 31 December 2011 for additional details on the information concerning costs and investments, in addition to the results of the separate business segments. INVESTMENTS Investments in intangible assets totalling EUR 6,652,000 were made during the year in the following areas: Intangible assets with definite useful life (amounts in thousands of EUR) Acquisitions during the year Development 68 Concessions, licenses, trademarks and similar rights 819 Other intangible assets 3,389 Assets under construction 2,376 Total 6,652 The investments made mainly include: under the Other intangible assets category, the valuation of the customer relations arising following acquisition of EBME Ltd. in August 2011 (EUR 3.1 million) and of Delta X (EUR 0.2 million) in May 2011; under the assets under construction category, further costs incurred by the Parent Company and PCS for the Pharma-phi project described above for a total of EUR 0.3 million, to create software for endoscopy management (EUR 0.2 million), for the implementation of the cash management software (EUR 0.2 million); the costs incurred by Tesan (EUR 0.3 million) for development of the Chronious project; the costs incurred by Insiel Mercato (EUR 1.0 million) for improvement of the portfolio of products owned by the Company; investments falling under Concessions, licenses, trademarks and similar rights, relating to the purchase of software licences. Investments in property, plant and equipment for EUR 5.5 million were made during the year in the following areas: Property, plant and equipment with definite useful life (amounts in thousands of EUR) Acquisitions during the year Land and buildings 562 Plants and machinery 2,598 Other property, plant and equipment 1,740 Work in progress 568 Total 5,468 The investments in property, plant and equipment mainly regard property leased by the newly acquired Delta X (EUR 0.5 million), equipment, machines and other goods for Tesan amounting to EUR 0.9 million and for EBM for EUR

41 Directors Report on Operations million, and investments made by Crimo for a total of EUR 0.6 million for the work in progress for the construction of a pickling plant. RESEARCH & DEVELOPMENT Research & development in 2011 continued for both the e-health & e-government Systems and Solutions Business Unit and the Medical Equipment and Devices BU. The strategic goal also pursued in 2011 in the e-health Business Unit was to continue development of the new phi Technology-based medical IT platform, in particular aiming at presenting the division as a prominent contact in the field of customized medicine and in that of genetic and molecular data management beside the more classic medical indicators. More specifically, throughout 2011, the TBS Group continued with its phi Pharma project, funded by the Friuli Venezia Giulia Region, as part of the project involving the integration of electronic medical records with molecular medicine and personalised forms. In addition, the Ministry for Research (MIUR) approved the Nutraceutical and Nutrigenomics, personalised diet route project, on which the research department of the TBS Group will work with the subsidiary Tesan. With respect to the subsidiary Tesan, activities concerning the Chronious project as part of the EU VII Framework Programme continued in The aim of this project is to develop a versatile platform that can be used by both patients and healthcare professionals. By using multiparameter sensors, the platform can monitor the state of various chronic pathologies. The project is continuing successfully, and is appearing in publications and presentations at important international conferences. In addition Tesan started up the European Fearless project, approved at the beginning of 2011 by the research division of the EU, focused on developing acoustic and visual sensors to identify situations of danger and emergency. In addition, a third European project was approved during the current year, called I DONT FALL, with the aim of creating a platform based on environmental and home sensors for specific categories of vulnerable patients. In the current year, the subsidiary Caribel Programmazione continued with its Health&Home research project, funded with European research Ambient Assisted Living funds, and aimed at improving healthcare-welfare services for senior citizens who have chronic heart failure (CHF), in addition to a research project funded by the Tuscany Region called In_PISTA, (Integrazione di Protocolli di Interoperabilità semantica e di Servizi Terminologici distribuiti per l Assistenza sanitaria territoriale [Ingegration of semantic interoperable protocols and terminological services distributed for the territorial health assistance]) involving the consolidation and extension of support standards to the interoperability and integration of healthcare computer systems. With respect to research and development in the e-health area by Group companies in 2011, the subsidiary, Insiel Market was approved to carry out a research project, funded by European funds, called Proteomics platform for the personalisation of care. The Domino project fits well into the logic of the R&D route being followed by the Group. This is being carried out by the subsidiary EBM, which is coordinating and integrating the services provided by the various TBS Group companies on the same ICT platform, and a single service centre. Within the medical equipment and devices Business Unit, research activities in 2011 have been aimed at all stages of the life cycle of a device, from definition of the requirements to identification of the equipment to discard and the risks related to the materials; the main idea is to provide instruments to healthcare management to support them in planning investments, establish improved maintenance policies and optimise management of the equipment within the production cycle. 40

42 Directors Report on Operations PARENT COMPANY SHARES OWNED BY IT OR BY SUBSIDIARIES, ALSO THROUGH TRUST COMPANIES OR THIRD PARTIES The total amount of own shares held by TBS Group as at 31 December 2011 is 496,145 shares, equal to 1.35% of the share capital. Those already held before the beginning of the plan to purchase own shares totalled 397,910 (own shares to service the stock option plan). The shareholders' meeting of 30 October 2009 resolved to allocate 397,910 own shares of the Issuer held portfolio to a stock option plan, assigning the shares to key people and collaborators of the Company and Group in the ratio of one share per each assigned option. Employees and collaborators had already been assigned 309,386 own shares as at the 2009 balance sheet date, and on 16 December 2010 the Board of Directors resolved to postpone division of the additional 88,524 shares until 31 December This assignment has not yet been made. The number of shares issued minus the total number of own shares held by TBS Group as at 31/12/2011 was 36,133,875 whereas it was 36,128,989 on 29 March Own shares are purchased only on the AIM Italia multilateral trading system, organized and managed by Borsa Italiana S.p.A., according to the operational procedures set out, which do not allow direct combination of purchasing trading proposals with pre-established sales trading proposals. Purchases are compliant with the authorisation issued by the Ordinary Shareholders' Meeting of 29 June 2010 and those following. With reference to the provisions of (EC) Regulation no. 2273/2003, the daily amounts purchased cannot exceed 25% of the average daily trading volume of the shares during the 20 days of trading prior to the dates of purchase. The Ordinary Shareholders' Meeting of 29 June 2010 authorised the purchase of 366,300 own shares for a total of 366,300 ordinary shares, representing 1% of the Company's share capital; this authorisation expired on 28 December Therefore the Shareholders Meeting of 31 January 2012 decided to authorise, in accordance with articles 2357 and 2357 ter of the Italian Civil Code, to purchase the maximum number of 263,179 ordinary shares issued by the Company, with a nominal value of EUR 0.10 each, and the execution of acts of disposition in accordance with the methods described in more detail in the minutes of the Shareholders' Meeting, to which reference should be made. This authorisation is aimed at having own shares available for any staff stock option plans, reducing any anomalous stock movements - obviously without prejudice to the parity of treatment of the shareholders offering shareholders an additional instrument to liquidate their investments, and finally, to facilitating any purchases or extraordinary financing through the sale, exchange or assignment of said shares, or other business that requires availability of own shares. Subsidiaries do not have shares of the parent Company, not even through trust companies or third parties. FINANCIAL INSTRUMENTS: GROUP GOALS AND POLICIES AND DESCRIPTION OF THE RISKS With reference to article 40 of Italian Legislative Decree 127/1991, the major risks and uncertainties to which TBS Group is exposed are listed below, broken down into the following categories: External risks. Financial risks. The Parent Company, through its subsidiaries, and in relation to its management and coordination, also has to manage these risks and uncertainties, for which the information pursuant to article 2428, 1st paragraph is hereby provided. 41

43 Directors Report on Operations EXTERNAL RISKS Risks related to the general state of the economy The economic-financial situation of the Group may be influenced by the general economic situation of the country that it is operating in, since public spending, which affects the reference sector, is related to the performance of the gross domestic product of a country. The most immediate consequence may be a requirement to reduce costs of the business carried out by your Group, without having to reduce the activities, since quality levels of the services provided must be maintained. The cost reduction policy may also be an opportunity to develop our services with the reference customers since they have often promoted good cost reduction policies due to more efficient use of human resources and the benefits resulting from the economies of scale in purchasing processes and management of suppliers. In any case, the healthcare and public administration sectors are characterised by a very low level of cyclicity, representing a typically defensive market which is less prone to decline than others in periods of crisis. Risks relating to market trends The constant growth of healthcare expenditure and the citizens' increased awareness of healthcare with a resulting increase in expectations regarding the level and extent of healthcare services supplied lead hospital and social healthcare facilities on the one hand to improve quality and spectrum of services supplied, and on the other to increase their efficiency and cut waste. The need to meet these market pressures is persuading hospital and social healthcare facilities to invest considerable resources in technologies that allow them to optimize processes so as to increase quality and reduce costs. It is nevertheless not easy to estimate the future permanence of these market trends and availability of adequate public financial resources for the purpose. The Italian health market is highly regulated and influenced by the public sector, which conditions its spending dynamics. The allocation of public financial resources could in the future be limited by the parallel growth of private hospital and social healthcare facilities, and therefore the future development of the Group companies activities will also depend on their ability to continue to penetrate the private market. The segment in which the Group operates is also marked by technological changes. The future development of the Group s activity will therefore also depend on its ability to stay in step with technological development and keep a qualitatively high level of services. The factors mentioned above could have negative impacts on the economic and financial position of the Group if they actually come into effect and are improperly managed. Risks relating to the international presence of the Group The Group's international presence and strategy focused on further expansion abroad (also outside the European Union) could expose the Group to various types of risks deriving from, for example, changes in local regulations, the political, economic and social situation and extraordinary events today unforeseeable. The probability that these events take place varies from one country to the next, and is hard to forecast. Nevertheless, one or more of these events could have a negative impact on the Group's economic and financial situation. The Group continues to maintain its historical presence almost exclusively in European countries (around 99% of turnover); it has a strong presence of Central and Western Europe and in countries that were less affected by the crisis (Germany, France and the United Kingdom). Risks relating to carrying out clinical engineering services, to e-health services and products and to insurance coverage adequacy The Group companies are exposed to risks associated with the type of activities carried out and with the methods of supplying services. 42

44 Directors Report on Operations In particular, the e-health & e-government services and products include medical IT services and products. Potential defects in carrying out these activities or in the products could generate liability of the Group companies to customers or third parties and give rise to subsequent claims for compensation for damage. For this reason, and to cover these risks, the Group maintains insurance policies in line with the accepted practice of the segment to cover: (i) third-party and employee liability, and (ii) product liability. However, there can be no certainly that the insurance coverage is adequate for potential damage caused by the events listed above. The risk that the Group has to shoulder possible additional burdens and cost therefore cannot be ruled out, with consequent negative effects on the economic and financial situation. Please note that in recent years there have never been events causing cases of Group Company liability for those risks following which the Group has had to sustain expenses. This is why the directors of the Group Companies have not deemed it necessary to make specific allocations for this purpose. FINANCIAL RISKS With reference to letter d) bis, subsection 2, of article 40 of Italian Legislative Decree 127/1991, and article 2428, 6-bis of the Italian Civil Code for the Parent Company, please note that the main financial instruments used by the Group are trade receivables and payables, cash and cash equivalents and bank borrowing. The Group's financial management is handled and coordinated by the parent Company TBS Group; in fact, the main bank credit lines, whether direct or in the form of guarantee, are chiefly concentrated at the Parent Company. As at 31 December 2011 there are derivatives on rates not regarded as hedging from the accounting viewpoint in the subsidiary EBM. In particular, the contract entered into by EBM (CAP Plain Vanilla) for the notional amount of EUR 250,000, subject to amortisation, guarantees the Company the return of the greater of the value between 0 and the value determined by the formula as contractually defined by the parties. EMB paid an initial premium of 2.0% on the notional amount of this derivative contract. The fair value of the derivative instrument as at 31 December 2011 was EUR 8. Risks relating to the payment terms of clients The revenues generated by TBS Group come from services supplied to hospital and public social healthcare facilities and from consulting and coordination services. A provision for doubtful debts equal to approximately 2.0% of the gross amount of the trade receivables has been allocated to protect against residual doubtful debts Payments made by the Group Companies are conditioned by availability of cash flows and the lengthy payment terms imposed by Public Administrations, especially in Italy and Spain. The average collection time in 2011 fluctuated between 286 (273 in 2010) and 307 (297 in 2010) days (Assobiomedica data). The situation worsened in the second half of the year, and to date, there are no signs of improvement; more specifically, there are difficulties in certain regions in the Centre and South of Italy where payment terms are over two years. The Italian Group companies also find it difficult to receive lines of credit from institutions that acquire credit on a non-recourse basis. The difficulty in finalising securitisation transactions in one of the most difficult regions, Campania, is leading to a significant increase in existing payables and overdue payables. Risks relating to the variation in exchange rates The Group's consolidated financial statements are stated in EUR. However, considering the fact that the separate financial statements of some Group companies are stated in currencies other than the Euro, the economic and financial figures of the Group could be affected by changes in exchange rates between the respective currencies and the Euro because of conversion into Euro at the time of consolidation. 43

45 Directors Report on Operations These companies are TBS GB and EBME (United Kingdom), which have an 8.7% incidence on the Group's 2011 consolidated revenues, TBS India, TBS SE (Serbia) with incidences of less than 1% on the Group's 2011 consolidated revenues. The Company Arabian Health Care TBS Saudi was not in operation at the end of 2011 and was wound up in However, both the revenues and costs of TBS GB and TBS India are stated and recognized in the same currency, thereby attaining a partial natural hedging. The Group's growth strategy, which also looks to development in areas having currencies other than the Euro, might increase the effects pointed out above created by the exchange rate fluctuations. Risks related to financial debt due to fluctuation of interest rates Furthermore, with a view to generally reduce risks, the Group Companies concentrate their financial operations only on primary banks and on instruments that are easy to liquidate. Net consolidated financial debt of TBS Group as at 31 December 2011 is equal to about EUR 69.3 million. It is primarily due to the needs of working capital linked to the terms of payment by its customers in several geographic areas and to financing acquisition transactions. As the Company's gross financial debt is mainly characterised by variable interest rates in so far as they are linked to the 3- and 6-month Euribor rates, financial expenses could rise if interest rates increase, leading to negative effects on the Group's economic and financial position. This occurred in 2011, with an average increase of the Euribor rate of 0.6%. It must also be kept in mind that factoring operations bring about a partial natural hedging of almost 50% on short-term debt on turnover in Italy. As a consequence, there is a risk tied to a potential worsening of the general market conditions. It should also be stressed that the reference rate reached its maximum at 5% in the last 13 years, and an average value of about 2.8%. The increase in short term interest rates was marked by variations in the Euribor spreads of about 1-2 points on short term rates and 3-4 points on medium-long term rates, more than the increase in the base Euribor rate. The parent Company took out several loans, which demand observance of specific financial indicators that are described in detail in the explanatory notes to the financial statements. The parent Company nevertheless deems that these financial indicators - to be calculated periodically - have no features or burdens dissimilar to those generally found in market practice. These indicators were found to have been observed at the end of financial year 2011, with the exception of a Unicredit Group loan (residual balance as at 31/12/2011 approximately EUR 1.4 million, entirely classified under the short-term borrowings). Should the Company be unable to observe the indicators set forth in the loans it has raised, it could be required to immediately repay the relevant loan in addition to being found in breach of the obligations and limitations contemplated therein. The occurrence of said events could have negative effects on the Group's economic and financial position. The difficulty in getting medium-long term loans in 2011, along with the possible ongoing situation whereby payment terms are becoming increasingly longer in the sector in question, may result in cash flow problems and difficulties in meeting obligations with suppliers, banks, employees and other third parties. INFORMATION ON PERSONNEL AND THE ENVIRONMENT The total number of personnel working within the Group at the end of 2011 came to 2,052, resulting 104 more than 2010, of which 45 are tied to the acquisitions of EBME Ltd. and Delta X Srl. With reference to the consolidated cost cutting measures employed by the Company in order to simplify the structures and create centres of excellence, the e-health branch of TBS Group Spa was assigned to Insiel Mercato, with the resulting transfer of 60 staff from the TBS Group to the subsidiary Insiel Mercato. The involvement of key people from the Group companies continues, along with sharing of best practices. 44

46 Directors Report on Operations To that end, there was a Managers Meeting held in January 2011 as usual, along with specific workshops in accordance with the particular department (finance/hr, technical, sales, etc.) and Business Unit. In view of this, the quality management system is also undergoing review, with introduction of the CORPORATE Organisational Model, whereby the parent company certificate is extended to the organisational model development and management activities for the group companies that plan and provide clinical engineering services. As for the environmental issues, as at the closing date of the financial statements the Group companies are not aware of any environmental problem that might affect use of their existing tangible assets. SECURITY AND PROTECTION OF PERSONAL DATA Within the scope of Legislative Decree 196/03 known as the Personal data Protection Code, work was carried out to evaluate the data protection systems in the Group Companies subject to said regulations; they showed substantial compliance with the provisions of the regulations. INTERGROUP TRANSACTIONS AND WITH RELATED PARTIES The Company works within the scope of a Group of companies, and acts as the Parent Company. More specifically, the Parent Company provides consultancy and coordination services in the administrative, legal and tax areas on behalf of the Group companies. The reciprocal services and obligations between the subsidiaries and the Parent Company are governed by a specific framework service contract. In addition, within the scope of the production and commercial joint approach, the Group companies have reciprocal commercial relations in which they both sell and purchase other products and services to and from the other Group companies. The relations between the Group companies are conducted on an arm s length basis, considering the quality of the goods and the services provided. Relations with related parties include transactions resulting from normal economic-financial relations with companies or key individuals as determined by the shareholders or directors of the Company or subsidiaries or who are linked by family relations. These transactions are governed on an arm s length basis. The information on relations with related parties requested by Consob communication no of 28 July 2006 is presented in note 34 to the consolidated financial statements and note 30 of the separate financial statements. Accrued remuneration for directors with key responsibilities: (amounts in thousands of EUR) Salaries (*) Remuneration (**) Salaries (*) Remuneration (**) Diego Bravar Nicola Pangher (*) The amounts shown relate to the gross salaries paid to Company employees (**) The amounts shown relate to remuneration paid to Company directors INFORMATION ON CORPORATE GOVERNANCE The Company has a traditional corporate governance system. The board of directors is elected by the shareholders' meeting and the Board of Statutory Auditors performs the tasks required by article 2403 of the Italian Civil Code. The Company is listed on AIM Italia, managed by Borsa Italiana. Starting in 2011 the Company has attained the requirements to be considered issuer of financial instruments distributed among the public in a significant manner according to art. 116 of the Italian Consolidated Law on Finance (T.U.F.). 45

47 Directors Report on Operations TBS Group has issued only ordinary shares. Those that are at present the major shareholders are listed on the Company's web site. Art. 8 of the Company's Articles of Association requires the disclosure and communication obligation for share transfers exceeding the threshold of 3% or amendment of exercising the right to vote equal to or greater than 3%. Breach of this disclosure and communication obligation entails suspension of voting rights for one year. This article provides that the following applies to the Company, even though it is not listed on a regulated market: articles of the Italian Consolidated Law on Finance ( T.U.F. ) with respect to takeover and public swap offers. The new AIM Issuers Regulation which came into effect on 1 March 2012, increased the threshold from 3% to 5%; the Company intends to adjust its Articles of Association to reflect this new threshold, making the necessary changes, at the meeting called to approve the financial statements. It also intends to adjust its Articles of Association with respect to the internal company public offer, and more specifically providing for the panel of arbitrators as established under the new Issuers Regulations. A shareholders agreement covers 61.98% of the share capital (Clinical Engineering & Information Technology, Fondo Italiano d Investimento SGR S.p.A., Allegro S.a.r.l., Monte Paschi Fiduciaria S.p.A. and the beneficiary, Mr. Fabio Faltoni, Servizi integrati per la Sanità SiS S.r.l., Itatech S.r.l., Emmepi S.r.l., Capitol Health Special Fund L.P. and Sipi Investimenti S.p.A.). It obliges the participants not to sell the shares covered for periods up to five years, starting from 2009 (this obligation has already ceased for Sipi Investimenti S.p.A.). A pre-shareholders' meeting consultation agreement and a voting syndicate for electing members of the Board of Directors, the Chairman and CEO and the Board of Statutory Auditors is required for the same periods of the block syndicate. Agreement signees are also obliged to choose the CEO of the subsidiary Elettronica Bio Medicale. A right of withdrawal among agreement signees is also provided for during the term of the agreement. The shareholders' meeting of 30 October 2009 resolved to allocate 397,910 own shares of the Issuer held portfolio to a stock option plan, assigning the shares to key people and collaborators of the Company and Group in the ratio of one share per each assigned option. The Board of Directors subsequently determined a price of EUR 2.50 per share as the strike price. The shareholders meeting held on 31 January 2012 resolved as follows: 1) to authorise, in accordance with articles 2357 and 2357 ter of the Italian Civil Code, the purchase of the maximum number of 263,179 ordinary shares issued by the Company, with a nominal value of EUR 0.10 each, and execution of the acts of disposition in accordance with the following terms: (i) the minimum purchase price of the ordinary shares must not be less than the nominal value of the security, equal to EUR 0.10; the maximum purchase price may not be higher than 10% above the reference price that the security will have recorded in the stock exchange trading session the day before any single purchase transaction; (ii) the authorisation to acquire is issued for a period of eighteen months starting from 10 February 2012, while authorisation for the disposition is given without any time limits; (iii) the acquisitions shall be made within the limits of the distributable profits and available reserves as resulting from the most recent approved financial statements; (iv) the acquisitions and dispositions shall be communicated to the public in accordance with article 17 of the AIM Issuers Regulations as amended; (v) the acquisitions of own shares shall be made in such a way as to ensure parity of treatment among all the Shareholders. Therefore the acquisitions shall be made exclusively, and even more than once, on the AIM Italia multilateral trading system, organized and managed by Borsa Italiana S.p.A., in accordance with the operational procedures set out by the Authorities which do not permit direct combination of acquisition trading proposals with pre-established sales trading proposals. (vi) the maximum number of own shares that can be acquired on a daily basis shall not be higher than 25% of the average daily volume of TBS Group shares traded on the market. In accordance with article 5 of 46

48 Directors Report on Operations Regulation EC 2273/2003, this limit may be exceeded in the event of extremely low market liquidity, in accordance with the conditions provided by said regulation, i.e. (a) previously informing Borsa Italiana of the intention not to comply with the 25% limit; (b) adequately informing the public of the fact that the 25% limit may not be complied with and in any case that the 50% limit of the average daily trading volumes will not be exceeded; 2) to authorise the Chairman-CEO: (a) to identify the reserve provisions to use for the acquisition and establishment of the non-disposable reserve pursuant to the third paragraph of article 2357 ter of the Civil Code, in accordance with the provisions of the law in order to have full availability of existing reserves; (b) to establish procedures, time-frames and terms for the optimal execution of this resolution; 3) to authorise the Board of Directors to dispose of its own shares in accordance with the procedures and terms that it considers most suitable for the purposes indicated above. The Company currently holds 501,031 own shares in portfolio. The Company has adopted almost all the institutions and procedures envisaged and suggested by Borsa Italiana's Code of Conduct. The current Board of Directors was appointed by the Shareholders' Meeting of 30 October 2009 and will expire with the shareholders' meeting called to approve the 2011 financial statements. The Board is chaired by the Chairman-CEO, to whom the following powers have been given: 1. legal representation of the Company; 2. all powers for ordinary administration; 3. supervision of examination and definition of the strategic guidelines of the Company and Group to propose to the Board of Directors for their approval; 4. within the scope of the strategic guidelines indicated by the Board of Directors: a. supervises drafting of the industrial plans and consequent implementation processes; b. supervises overall Group governance; c. defines the organisation structures; d. manages and develops business; 5. supervises the execution of the other resolutions of the Board of Directors; 6. gives the instructions for recruiting and using Group personnel, however with the boards of directors still empowered to appoint and annul management personnel; coordinates the Group's remuneration policy; 7. gives the instructions for administration expenses; 8. supervises the preparation of the annual and interim accounting documents and in general the preparation of all draft resolutions to submit to the Board of Directors; 9. if the urgent nature of the decision so requires, he can exercise any power of the Board of Directors with an expenditure threshold of EUR 5,000, except for what the law reserves for the Board; specifically, he can resolve on legal actions to bring and support in any instance and court; he may take legal action in criminal courts formulating charges and accusations; he may resolve on purchases, sales and exchanges of registered movable and immovable assets and in general on the use of Company funds and grant proxies, also with representation, to enter into deeds concerning and ensuing from passed resolutions; he may resolve on taking part in public tenders and contract work without limit of amount, with the right to sign articles of association of temporary associations of companies and any necessary pertinent deeds; he must report on said operations in the first call of the Board meeting subsequent to exercising said powers. For greater clarity: 10. Bringing and supporting legal actions in any instance and court, whether civil or criminal, without limit of petitum and expense, formulating charges and accusations, with the right to take legal action in executive venue, to settle, waive, accept waivers, etc.; 47

49 Directors Report on Operations 11. Decide whether or not to take part in public tenders and contract work with the right to sign articles of association of temporary associations of companies and any pertinent and consequent deeds and with regard to participation in tenders, the possibility of signing guarantees; 12. Exercise any power lying with the Board of Directors with an expenditure threshold equal to EUR 5,000, should the nature of urgency so require, with the qualification that in said case, the CEO himself shall determine the nature of the operation's urgency and upon its completion he must report on it at the first call of the Board meeting subsequent to execution of the urgent action; 13. In particular, the Board of Directors assigns the right to grant to the CEO proxies regarding the execution of one or more actions within the powers given to him, as well as the right to give general proxies within the limits of his powers. In the role of Chief Executive Officer the Chairman-CEO is the foremost person in charge of managing the Company, but always acts within the strategic guidelines and with the consent of the Board of Directors to which he reports in advance, even in the case of significant operations carried out by subsidiaries, except in rare cases of urgency, in which case he immediately brings his decisions to the Board for ratification. An independent director is also a member of the Board of Directors. Taking the provisions of the Borsa Italiana Code of Conduct and the criteria set forth in the T.U.F. as guidelines, his requisites are checked by the Board of Directors and Board of Statutory Auditors each year. The board of directors met six times during The Head of Administration and Control and the General Managers of the Group are almost always present and often invited to give presentations at the board meetings. It is consolidated practice of the Company to promptly supply the documentation for the board works to the Board members. The Board of Directors appointed an Internal Control Committee made up of three non-executive directors (of whom one is an accounting and financial expert) and chaired by the independent director, and a Nomination, Remuneration and Governance Committee made up of three non-executive directors, one of whom is the independent director. The Company has an internal control system with the purpose of ensuring effective running and management of the Company's activity through mapping, verification and assessment of the major risks. The Board has appointed the Chairman-CEO to supervise the functionality of the internal control system. The Internal Control Committee carries out the internal control preliminary checking activity, collaborates with the management and maintenance of this system, examines the Internal Audit work plans, and expresses its opinion on the subject of transactions with related parties. The Internal Control Committee and Board of Statutory Auditors work in close contact and often call joint meetings. The Internal Audit function has been created, and it also comprises the function of Internal Control Supervisor, who reports directly to the Chairman-Managing Director. The Board of Statutory Auditors, Supervisory Body, Manager of the Administration and Control function and the Privacy, Safety and Environment, Quality and Information Technology functions all take part in the TBS Group internal control system. The Internal Control System is published on the Company s website. The Nomination, Remuneration and Governance Committee has collaborated, and is collaborating, on the creation of a policy concerning the nominations in the administrative bodies and key people within the Group and on a consistent remuneration policy. It also expresses its preliminary opinion on the nominations in the administrative bodies and key people of the Group and on their remuneration. Considering that the Board has set remuneration only for the Chairman-CEO and for the independent director because of the commitment demanded of him in the governance institutions of the Company, the Committee has expressed its favourable opinion for both cases of compensation and in any case voiced its opinion in the absence of the interested party. 48

50 Directors Report on Operations No bonuses of any kind are envisaged in case of takeover bid and there are no particular agreements regarding severance of the directors or key people of the Group. The Board of Statutory Auditors, Internal Control Committee, Internal Audit and Supervisory Body have access to corporate information necessary for performing the tasks assigned to them. The current Board of Statutory Auditors was appointed by the Shareholders' Meeting of 30 October 2009 and will expire with the shareholders' meeting called to approve the 2011 financial statements. It met five times during 2010 along with the Internal Control Committee. The independent auditors, Reconta Ernst & Young, were appointed by the Shareholders Meeting held on 21 June 2011, to carry out the audit of the separate and consolidated financial statements for the years , in accordance with article 17 of Legislative Decree 39/2010. Pursuant to Italian Law 231/2001, the Company has a organisation model and has appointed the Supervisory Body. It gave the Group Companies precise instructions so that they carry on in the same manner. The company Reply S.p.A., which was appointed to update the company risk mapping and to formulate a Business Risk Assessment for the Parent Company and the two most important Group companies - Insiel Mercato and Elettronica Bio Medicale is finishing up its work; the Company is reviewing and completing its internal procedures, partly on the basis of Reply s work. The new AIM Issuers Regulations came into effect on 1 March The new regulations have a significant impact on the main governance procedures of the Company, and pursuant to the decisions made by the Board of Directors in its meeting of 29 March 2012, updated the Procedures regarding transactions made by directors and other key figures with respect to internal dealing, the Procedures regarding internal management and external communications of privileged information, with respect to Company information, and the Procedures with Related Parties, Significant Transactions, Reverse take-overs and Substantial Changes of Business. More specifically this last procedure has been subject to the most significant changes since the specific rules of the AIM no longer apply and reference was made to article 10 of the Consob regulation adopted by resolution no of 12 March To this regard, it is to be pointed out that the Internal Control Committee examined nine cases of relations with related parties during 2011 and reported the results of the preliminary check and its option to the Board of Directors. The Shareholders' Meeting Regulations are also published on the Company's web site. The Investor Relator for the Company is Mr. Paolo Salotto ( ir@italtbs.com). SUBSEQUENT EVENTS The following significant events that occurred in early 2012 are reported. They are described in further detail in the explanatory note no. 36 in the consolidated financial statements and in the notices put on our website under the Investor Relations section: on 6 February 2012, purchase contracts for the IT and Call Centre branches of Agile Srl, in extraordinary administration were agreed by TBS IT (fully held by the TBS Group). Agile Srl is a company that operates in the design and creation of information and communications technology solutions and services in Italy, and had taken over these areas of activity from Eutelia Spa before both companies were placed into administration by the magistrature and the Ministry of Development. In financial terms, the overall price offered by TBS IT to purchase Agile was EUR 1 million, of which EUR 900,000 for the IT division and EUR 100,000 for the Call Centre division, to be funded by a share capital increase of TBS Group; 49

51 Directors Report on Operations on 31 January 2012, the extraordinary shareholders meeting of the TBS Group approved the reserved capital increase for the Fondo Italiano d Investimento (the Fund ) which provides for the issue of 5,555,556 new subscribed shares at a price of EUR 1.8 per share, of which EUR 1.7 as the premium. The newly issued shares have standard rights attached and the same characteristics as all the other outstanding shares. The Fund subscribed to and paid for this on 9 February In addition, the meeting approved the issue of a convertible bond loan, also reserved to the Fund, which provides for the issue of 4,347,826 bonds with a nominal value of EUR 2.30 each. The conversion, to be exercised in whole or in part by 31 December 2014, will be on ordinary TBS Group shares which will be newly issued at a 1:1 ratio (one share for each bond converted). In the event of reimbursement, this may occur by 31 December The interest rate provided for the convertible bond loan has been set at the fixed nominal rate of 8% per year. The Fund subscribed to and paid for the bond loan on 9 February. The extraordinary meeting therefore approved the amendment to article 6 of the Articles of Association in order to take account of the fact that the operations described will involve the increase of the share capital of the TBS Group by 5,555,556 and 4,347,826 further ordinary shares respectively. In the event that there are no further changes in the share capital, and that the Fund exercises its right to conversion with respect to all the convertible bonds, the share capital of TBS Group will amount to EUR 4,653,340.30, allocated among 46,533,403 shares; on 2 March 2012, the TBS Group signed an investment agreement with REM Spa of Fisciano (SA), specialised in the digital diagnostic imaging equipment maintenance sector (computed tomography, magnetic resonance, etc.). The agreement, accompanied by a know-how transfer agreement, provides for the entrance of the TBS Group into the share capital of REM, through a reserved capital increase of EUR 2 million, acquiring a 35% shareholding. The agreement also provided for a call option in favour of the TBS Group, which can be exercised in one or two tranches, for the acquisition of a further 35% investment by 2014; on 15 March 2012 the purchase of the minority portion of 29.9% of MSI was completed by Subitec, at a price of EUR 50,000. PROPOSAL FOR RESOLUTION BY THE SHAREHOLDERS MEETING The Financial Statements for 2011 that we are submitting for your approval show a profit of EUR 6,078, that we suggest should be allocated as follows: legal reserve: EUR 111,111.40; dividend: EUR 1,000, (EUR for each of the 41,684,545 outstanding shares, net of own shares); extraordinary reserve: EUR 4,967,214.84; We would like to thank you for the confidence you have entrusted us with and ask you to approve the financial statements along with the explanatory notes and this report on operations. Trieste, 29 March 2012 On behalf of the Board of Directors The Chairman Mr. Diego Bravar 50

52 Consolidated Financial Statement as at 31 December 2011 Consolidated financial statements as at 31 December 2011 Drawn up based on the International Financial Reporting Standards (IFRS) CONSOLIDATED STATEMENT OF FINANCIAL POSITION (amounts in thousands of EUR) Notes ASSETS NON-CURRENT ASSETS - Assets with indefinite useful life (goodwill) 34,356 35,544 - Intangible assets with finite useful life 25,766 23,993 Intangible assets 7 60,122 59,537 - Land and buildings 5,575 5,162 - Plants and machinery 7,693 7,927 - Other property, plant and equipment 3,775 2,580 Property, plant and equipment 8 17,043 15,669 - Investment in associated companies Investment in other companies Other financial assets 15 1,714 1,643 - Other non-current assets Deferred tax assets 33 8,996 10,135 Other non-current assets 11,937 12,769 NON-CURRENT ASSETS 89,102 87,975 Inventories 10 7,544 6,483 Trade receivables , ,370 Other current assets 12 7,316 5,372 Income tax receivables 13 1,218 1,165 Current financial assets 15 2, Cash and cash equivalents 15 17,531 8,786 CURRENT ASSETS 157, ,425 TOTAL ASSETS 246, ,400 SHAREHOLDERS' EQUITY - Share capital 3,613 3,617 - Reserves 50,483 51,331 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 54,096 54,948 EQUITY ATTRIBUTABLE TO MINORITY INTERESTS 2,605 2,400 CONSOLIDATED SHAREHOLDERS EQUITY 14 56,701 57,348 51

53 Consolidated Financial Statement as at 31 December 2011 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (amounts in thousands of EUR) Notes LIABILITIES Medium and long term interest-bearing loans and borrowings 15 19,466 24,647 Employee Severance Indemnity 16 6,668 6,553 Deferred tax liabilities 33 10,394 10,212 Provisions ,684 Other non-current liabilities NON-CURRENT LIABILITIES 37,644 43,510 Trade payables 19 45,188 42,311 Other current liabilities 20 32,610 24,666 Short term interest-bearing loans and borrowings 15 71,803 54,960 Tax payables 13 2,515 2,605 CURRENT LIABILITIES 152, ,542 TOTAL LIABILITIES 189, ,052 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 246, ,400 CONSOLIDATED STATEMENT OF INCOME (amounts in thousands of EUR) Notes Sale of goods and rendering of services , ,080 Other revenue 23 2,183 1,581 Total revenue 197, ,661 Cost of materials 24 23,216 25,257 Service costs 25 77,246 73,978 Personnel costs 26 76,254 69,107 Other operating costs 27 3,045 2,914 Cost adjustments for in-house generation of non-current assets 28-1,955-1,493 Amortisation, depreciation and write-downs 29 9,475 9,441 Other provisions Total costs 187, ,386 OPERATING PROFIT (EARNINGS BEFORE INTEREST AND TAXES) 10,110 11,275 Gain (losses) from investments Financial income Financial expenses 32-4,522-2,862 PROFIT BEFORE TAX 5,864 9,127 Income taxes 33-5,142-3,177 NET PROFIT FOR THE PERIOD 722 5,950 Net profit attributable to minority interests NET PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 307 5,592 Earnings per share attributable to ordinary equity holders of the Parent Company (amounts in EUR) 6 - basic diluted

54 Consolidated Financial Statement as at 31 December 2011 Consolidated statement of comprehensive income (amounts in thousands of EUR) Notes Net profit of the period (A) 722 5,950 Change in foreign currency translation reserve Other comprehensive income, net of taxes (B) Net profit for the period (A)+(B) 645 6,061 Net profit for the period attributable to: - Minority interests Equity holders of the parent 230 5,703 Total 645 6,061 53

55 Consolidated Financial Statement as at 31 December 2011 CONSOLIDATED CASH FLOW STATEMENTS (amounts in thousands of EUR) Adjustments to reconcile income gross of taxes with financial flows net of operating activities: Profit before tax 5,864 9,127 - Amortisation, depreciation and write-down of intangible assets and property, plant and equipment 9,475 9,441 - (Gain)/losses on disposal of non-current assets, including investments Net Increase/(decrease) in the Employee Severance Indemnity provision and other personnel funds 1, Net Increase/(decrease) in provisions for liabilities and charges Interest and other financial income Financial expenses 4,522 2,862 - Costs for share-based payments Total 20,921 20,947 Net change of capital for the period (Increase)/decrease in inventories (Increase)/decrease in trade receivables -4,707-8,400 Increase/(decrease) in trade payables 2, Increase/(decrease ) in other assets and liabilities 3, Total 193-8,145 Interest and other financial income collected Income taxes paid -4,890-9,839 CASH FLOW GENERATED (USED IN) BY INCOME MANAGEMENT 16,258 3,125 - Additions to intangible assets -3,336-3,253 - Additions to property, plant and equipment -4,695-6,053 - Net change in financial loans and other financial assets -2, Disposal of intangible assets Disposal of property, plant and equipment Acquisition of subsidiaries, net of cash acquired -1,520-7,956 CASH FLOWS PROVIDED BY (USED IN ) INVESTMENT ACTIVITIES -11,806-16,819 CASH FLOWS FROM FINANCING ACTIVITIES - Net increase/(decrease) in short term interest-bearing loans and borrowings 17,477 19,256 - Net increase/(decrease) in medium and long term interest-bearing loans and borrowings -7,836-1,908 - Purchase of own shares Dividends paid -1,000-1,003 - Dividends paid to minority interests Interest and other financial expenses paid -4,096-2,534 - Interest receivables and other financial income collected Other changes CASH FLOWS PROVIDED BY (USED IN ) FINANCING ACTIVITIES 4,370 13,916 TOTAL CASH FLOWS 8, CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 8,786 8,454 - Net foreign exchange difference CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 17,531 8,786 54

56 Consolidated Financial Statement as at 31 December 2011 SUMMARY STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY (amounts in thousands of EUR) Share Share Foreign Other Net profit Equity Minority Profit (loss) Equity Consolidated capital premium currency reserves for the attributable interests attributable attributable shareholders reserve transl. and period to equity and to minority to minority equity reserve retained holders reserves interests interests earnings of the parent Consolidated shareholders' equity 31/12/2009 IAS/IFRS 3,624 34, ,246 3,720 50,515 1, ,177 52,692 Allocation of 2009 result 3,720-3, Changes in foreign currency translation reserve Net profit as at 31 December ,592 5, ,950 Net profit for the period ,592 5, ,060 Equity dividends -1,087-1, ,232 Share option plan Acquisition of minority interests Own shares and other changes Consolidated shareholders' equity 31/12/2010 IAS/IFRS 3,617 34, ,801 5,592 54,948 2, ,400 57,348 Allocation of 2010 result 5,592-5, Changes in foreign currency translation reserve Net profit as at 31 December Net profit for the period Equity dividends -1,084-1, ,379 Share option plan Other changes Own shares Consolidated shareholders' equity 31/12/2011 IAS/IFRS 3,613 34, , ,096 2, ,605 56,701 55

57 Consolidated Financial Statement as at 31 December 2011 NOTE 1 - General information, layout and content of the Consolidated Financial Statements, IFRS compliance and scope of Consolidation General information The purpose of TBS Group Spa (hereinafter also "TBS Group" or "Parent Company") and its direct and indirect subsidiaries (hereinafter jointly "the TBS Group" or "the Group") is to supply products and above all services to both public and private health authorities in the following business sectors: 1. Medical equipment and devices: preventive and corrective maintenance of all biomedical equipment and endoscopic instruments of public or private hospitals, verifications of safety and functional quality checks, electronic management, advice on purchasing, inspections and training. 2. e-health & e-government systems and solutions: medical IT services for the installation and integrated management of all IT systems (clinical and administrative) in the healthcare field, telecare, telemonitoring, telediagnostics and teleconsultation services for all public and private health facilities and public social assistance bodies in a perspective of authentic social-healthcare integration. Finally, the development of IT products for the Public Administration with the provision of services related to their installation, testing and maintenance, and any integration necessary with other IT products already present in the local and regional entities or other public administration bodies. TBS Group Spa is a company listed in AIM Italia, a market organised and managed by Borsa Italiana. The registered office of TBS Group is at the AREA Science Park in Padriciano (Trieste), Italy. The Group has grown internally and through a series of key acquisitions in Italy and Europe, and now operates in ten European countries and India and China. These consolidated financial statements were approved with a resolution of the Board of Directors on 29 March Layout and content of the consolidated financial statements and IFRS compliance The consolidated financial statements of the TBS Group were drawn up in compliance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and approved by the European Commission at the date of the financial statements. The IFRS are also intended to include all the main revised international accounting standards (IAS), all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) previously known as the Standing Interpretations Committee (SIC). The consolidated financial statements are based on the historical cost principle, except for the financial derivative instruments that are recorded at fair value. The consolidated financial statements of the TBS Group are stated in euro, which is the functional currency of the economies in which the Group mainly operates. Unless otherwise indicated, the values stated in the financial statements and notes are stated in thousands of euro. The TBS Group has adopted the following financial statements: 1. Consolidated statement of financial position: assets and liabilities are distinctly classified between current and non-current. 2. Consolidated statement of income: classification by type. 3. Consolidated statement of comprehensive income. 4. Summary statement of changes in shareholders' equity. 5. Consolidated cash flow statement: the indirect method was adopted for stating the cash flows. 56

58 Consolidated Financial Statement as at 31 December 2011 The accounting standards adopted are comparable to those used as at 31 December 2010, apart from the adoption of the following new or revised IFRS or IFRIC standards which were applied for the first time by the Group starting from 1 January The adoption of these revised standards and interpretations did not have any financial effects on the financial affairs of the Group, partly because they govern cases and situations that do not pertain to the Group. IAS 24 Related party disclosures (change) The IASB issued a change to IAS 24 which clarifies the definition of related parties. The new definition emphasises the symmetry in the identification of related parties, and more clearly defines the circumstances in which persons and managers with key responsibilities must be considered to be related parties. In the second place, the change introduces an exemption from the general requirements for disclosure of related parties for transactions with governments and with subsidiaries under joint control or significant influence of the government just as with the entity itself. Adoption of these changes had no impact on the Group s financial position or performance. IAS 32 Financial instruments: presentation in the financial statements (change) The standard includes a change to the definition of financial liability in order to classify the rights issues in foreign currencies (and certain options and warrants) as instruments that represent capital if these instruments are attributed on a pro rata basis to all the holders of the same class of instrument (not including derivatives) that represent the capital of the entity, or for the purchase of a fixed number of instruments that represent the capital of the entity or for the purchase of a fixed number of instruments that represent the capital of the entity for a fixed amount in any currency. This change had no impact on the Group s financial position or performance. IFRIC 14 Advance payments for a revision of the minimum funding payments (change) The change removes an unintentional consequence that occurs when an entity is subject to minimum funding requirements and provides for an advance payment to meet said requirements. The change allows an entity to treat the advance payments that regard a minimum funding provision as an asset. The Group is not subject to minimum funding requirements This change had no impact on the Group s financial position or performance. IFRS 3 Business Combinations The options available to measure non-controlling interests (NCI) were changed. Only the non-controlling interest components that represent an actual share of the interest that guarantees the holders a proportionate interest in the net assets of the company in the event of liquidation can be valued at fair value or alternatively in accordance with the proportionate share of the net identifiable assets in the acquired company. All the other components must be valued at the fair value on the purchase date. IFRS 7 Financial instruments: additional information The change is aimed at simplifying and improving the information through reducing the amount of information on the guarantees held and the request for more quality information in order to improve the context setting of the quantitative portion respectively. 57

59 Consolidated Financial Statement as at 31 December 2011 IAS 1 Presentation of Financial Statements This change is accompanied by the request for the reconciliation of the changes of all the shareholders' equity components to be presented in the explanatory notes or in the financial statements. In addition the IASB has issued the following standards or interpretations already adopted by the European Union, which the Group has not adopted in advance, but whose adoption will be mandatory for the accounting periods that will start after 1 January 2012 or later. The Group intends to adopt these standards when they enter into effect: IAS 1 Presentation of Financial Statements The change to IAS 1 changes the grouping of the other components of the statement of comprehensive income. The items that could be reclassified (or recycled ) in the income statement in future (for example upon cancellation or settlement) should be presented separately from the items that will never be reclassified. The change only regards the way they are presented, and has no impact on the Group s financial position or performance. The change will come into effect for the financial periods starting from 1 July 2012 or afterwards. IAS 19 Employee benefits The IASB issued numerous changes to IAS 19. These range from radical changes such as elimination of the corridor mechanism and the concept of expected returns from the plan assets, to simple clarifications and terminology. The change will come into effect for the financial periods starting from 1 January 2013 or afterwards. IAS 28 Investments in associated companies Following the new IFRS 11 and IFRS 12, IAS 28 was renamed Investments in associates and joint ventures, and describes application of the equity method for equity holdings in jointly controlled companies, in addition to associated companies. The change will come into effect for the financial periods starting from 1 January 2013 or afterwards. IFRS 10 Consolidated financial statements IFRS 10 replaces the section of IAS 27 - Consolidated and Separate financial statements - that governs the accounting of consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation Special purpose entities. IFRS 10 establishes a single control model that can be applied to all companies, including special purpose entities. Compared to the requirements under IAS 27, the changes introduced by IFRS 10 require management to make discretionary evaluations as to whether a company is a subsidiary and must therefore be included within the scope of consolidation. This standard applies to the financial years starting from 1 January 2013 onwards. 58

60 Consolidated Financial Statement as at 31 December 2011 IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in joint ventures and SIC-13 jointly controlled entities Contributions in kind by the controlling parties. IFRS 11 eliminates the option of accounting for jointly controlled companies using the proportionate consolidation method. Jointly controlled companies that fall under the definition of a joint venture must be accounted for using the equity method. This standard applies to the financial years starting from 1 January 2013 onwards. IFRS 12 Disclosure of interests in other entities IFRS 12 includes all the provisions on disclosures that had previously been included under IAS 27 for consolidated financial statements, and all the disclosure provisions of IAS 31 and IAS 28. This disclosure relates to the interests of a company in subsidiaries, jointly controlled companies, associates and structured vehicles. There are also additional situations in which disclosures must be made. This standard applies to the financial years starting from 1 January 2013 onwards. IFRS 13 Fair value measurement IFRS 13 establishes a single framework within the scope of the IFRS system for all fair value measurements. IFRS 13 does not change the cases in which the fair value method is required to be used, but provides a framework on how to measure the fair value within the scope of the IFRS when the application of fair value is required or permitted. This standard applies to the financial years starting from 1 January 2013 onwards. The consolidated financial statements are drawn up in euros, rounding off the amounts to the nearest thousand, and comprising the balance sheet, the statement of income, the statement of comprehensive income, the changes in shareholders equity, the statement of cash-flow and the following explanatory notes. The amounts used for the consolidation are derived from the economic and financial positions prepared by the Directors of each of the subsidiaries. This data has been changed and reclassified as necessary in order to standardise the data to international accounting standards and the standard classification used within the Group. 59

61 Consolidated Financial Statement as at 31 December 2011 Scope of consolidation The consolidated financial statements comprise the financial statements of TBS Group Spa and the subsidiaries in which it exercises direct and indirect control. The companies included in the scope of consolidation as at 31 December 2011 are listed below: Subsidiary Head Office Share Type of Stake % capital Investment TBS Group Spa Trieste (Italy) EUR 3,663,002 Parent Company Parent Company Tecnobiopromo Srl (single-member company) Trieste (Italy) EUR 44,370 Direct 100 Tesan Spa (single-member company) Vicenza (Italy) EUR 8,320,000 Indirect 100 Tesan Televita Srl Udine (Italy) EUR 46,800 Indirect 70 Second Opinion Italy Srl (1) Trieste (Italy) EUR 98,000 (29,400 paid up) Direct 50 PCS Professional Clinical Software GmbH Klagenfurt (Austria) EUR 1,230,000 Indirect 100 TBS FR Telematic & Biomedical Services Sarl Lyon (France) EUR 1,690,500 Direct 100 TBS BE Telematic & Biomedical Services BVBA Loncin (Belgium) EUR 150,000 Direct 100 TBS G.B. Telematic & Biomedical Services Ltd Telematic & Biomedical Services SL Southend on Sea (United Kingdom) 500,000 Direct 100 (single-member company) Barcelona (Spain) EUR 650,000 Direct 100 STB Servicios Telematicos e Biomedicos Lda (single-member company) Lisbon (Portugal) EUR 100,000 Direct 100 Surgical Technologies BV Didam (The Netherlands) EUR 18,200 Direct 100 Subitec GmbH Sulzbach (Germany) EUR 4,500,000 Direct 100 SLT Srl Cernusco sul Naviglio (Italy) EUR 47,000 Direct 56 Crimo Italia Srl Gualdo Tadino (Italy) EUR 103,165 Direct 51,05 Caribel Programmazione Srl Pisa (Italy) EUR 58,824 Indirect 51,00 (2) Elettronica Bio Medicale Srl Foligno (Italy) EUR 1,862,500 Direct 94,97 (3) MSI MedServ International Deutschland GmbH Pfullendorf (Germany) EUR 321,000 Indirect 70,1 TBS IT Srl (single member company) Trieste (Italy) EUR 8,000,000 Direct 100 TBS SE Telematic & Biomedical Services doo Belgrade (Serbia) RSD 465,000 Direct 100 Insiel Mercato Spa Trieste (Italy) EUR 3,246,808 Indirect 100 TBS INDIA Telematic&Biomedical Services Prv. Ltd (4) Bangalore (India) INR 5,000,000 Direct 100 Arabian Health Care TBS Saudi Ltd. Riyadh (Saudi Arabia) SAR 2,200,000 Indirect 50 Erre Effe Informatica Srl Arezzo (Italy) EUR 41,280 Indirect 51 (5) SIC Srl Trieste (Italy) EUR 100,000 Direct 100 Delta X Srl Perugia (Italy) EUR 10,000 Indirect 100 EBME Ltd. Sinopharm TBS (Beijing) Clinical Engineering Bedfordshire (United Kingdom) 103 Indirect 63,25 (6) Technology Co. Ltd. Beijing (China) CNY 10,000,000 Direct 50 Tesan (UK) Ltd. Southend on Sea 10,000 (United Kingdom) (not paid up) Indirect 100 (1) Company wound up on 30 December 2011 (2) Following the valuation of a put and call option on the remaining 49% of the shares, the consolidation percentage is 100%. (3) Following the valuation of a put and call option on the remaining 5.03% of the shares, the consolidation percentage is 100%. (4) Previously MNE Technologies Ltd. (5) Following the valuation of a put and call option on the remaining 49% of the shares, the consolidation percentage is 100%. (6) Following the valuation of final sale of the remaining 36.75% of the shares, the consolidation percentage is 100%. 60

62 Consolidated Financial Statement as at 31 December 2011 The scope of consolidation as at 31 December 2011 has changed since 31 December 2010, following: the acquisition of 100% of the company Delta X through the subsidiary EBM. The company provides radiology equipment maintenance services; the acquisition of 63.25% of EMBE Ltd. through the subsidiary TBS GB. This company operates in the United Kingdom in the area of clinical engineering and provides assistance and maintenance services for medical equipment, technical and management consultancy services, and to a lesser extent, the supply of spare parts and consumables; payment of the share capital of Sinopharm TBS (Beijing) Clinical Engineering Technology Co. Ltd. as a result of the partnership between TBS Group Spa and CSIMC Ltd. (China National Scientific Instruments and Materials Corporation). The company has its offices in Beijing, and began operating in the clinical engineering segment; the company Tesan (UK) Ltd. was established on 4 November 2011 through Tesan Spa, with a share capital of 10,000 British pounds, not yet paid up. The company has not yet started up operations. Note 2 Accounting standards Consolidation principles The consolidated financial statements comprise the TBS Group Spa (Parent Company) financial statements and those of its subsidiaries drawn up as at 31 December each year. The financial statements of the subsidiaries are drawn up adopting the same accounting standards as the Parent Company. Any consolidation adjustments are introduced to make the items affected by application of different accounting standards homogeneous. All balances and intergroup transactions, including any unrealised profits deriving from relations between Group companies, are completely eliminated. Unrealised profits and losses with associated companies are eliminated for the Group portion. Unrealised losses are eliminated, except for the case in which they represent permanent losses. The subsidiaries are fully consolidated starting from the date of acquisition, or from the date when the Group acquires control, and they stop being consolidated on the date when control is transferred outside the Group. The only exceptions to integral consolidation are the companies: Second Opinion Italy Srl (wound up at the end of 2011), the Arabian Health Care TBS Saudi Ltd and Sinopharm TBS (Beijing) and Clinical Engineering Technology Co. Ltd., a 50% joint venture. These companies are consolidated by the proportionate method. The losses are attributed to the minority shareholders, even if this implies that the minority interests have a negative balance. The changes in the equity investment of the parent company in a subsidiary that do not entail loss of control are recorded as capital transactions. In particular in acquisitions of minority interests, the difference between the price paid and the book value of net assets acquired is recognised directly in equity. If the parent company loses control of a subsidiary, it: eliminates the assets (including any goodwill) and liabilities of the subsidiary; eliminates the book values of any minority interest in the former subsidiary; eliminates the differences in exchange rates recorded in shareholders' equity; records the fair value of the consideration received; records the fair value of any amount of investment kept in the former subsidiary; records all gains and losses in the statement of income; reclassifies the parent company's interest of the components previously recorded in the consolidated statement of comprehensive income to the statement of income or to retained earnings, as appropriate. 61

63 Consolidated Financial Statement as at 31 December 2011 Foreign currency transactions and translation of financial statements of subsidiaries prepared in currencies other than the euro currency The consolidated financial statements are stated in euros, which is both the functional and presentation currency adopted by the Parent Company. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are then translated at the financial statements reference date using the closing exchange rate. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax effects attributable to exchange differences on those borrowings are also dealt with in equity. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The functional currency used by the English subsidiary TBS GB Telematic and Biomedical Services Ltd and EBME Ltd. is the British pound. The functional currency used by the Serbian subsidiary TBS SE doo is the Serbian dinar, that used by the Indian subsidiary TBS India Ltd. is the Indian rupee, that used by the jointly controlled Arabian Health Care TBS Saudi Ltd is the Saudi riyal and that used by the jointly controlled Sinopharm TBS (Beijing) Clinical Engineering Technology Co. Ltd. is the renminbi. At the closing date of the financial statements, the assets and liabilities of subsidiaries, including any goodwill arising on acquisition of a foreign operation, are translated into the Group presentation currency (the euro) at the exchange closing rate, while the income statements are translated at the average exchange rate for the reference period. The exchange differences arising on the translation at a different rate than the closing one, and those generated by the translation of the opening shareholders equities at an exchange rate different from the closing one, are taken directly to a separate component of equity, in an appropriate reserve. On disposal of a foreign entity, the differences in exchange rates recorded in shareholders equity relating to that particular foreign entity are recognised in profit or loss. The exchange rates applied as at 31 December 2011 for translating financial statements in foreign currency are as follows (1 euro=foreign currency) and corresponding to those made available by the Italian Foreign Exchange Office: Currency Average exchange Exchange rate Average exchange Exchange rate rate 2011 as at 31/12/2011 rate 2010 as at 31/12/2010 Pound Sterling (GBP) Serbian dinar (RSD) Indian rupee Saudi riyal Renminbi

64 Consolidated Financial Statement as at 31 December 2011 Accounting policies Intangible assets with indefinite useful life Business combinations and goodwill Business combinations are recorded using the acquisition method. The cost of an acquisition is measured as the sum of the transferred consideration measured at fair value as at the date of acquisition and the amount of any minority investment in the acquisition. The acquirer must measure any minority investment in the acquisition at fair value or in proportion to the amount of the minority investment in the identifiable net assets of the acquisition. The acquisition costs are paid and classified as administrative expenses. When the Group acquires a business, it must classify or designate the acquired financial assets or liabilities assumed according to the contractual terms, economic conditions and other pertinent conditions existing on the acquisition date. This includes a verification to determine if an incorporated derivative must be separated from the primary contract. If the business combination is carried out in two or more stages, the acquirer must recalculate the fair value of the investment previously held and measured with the equity method and record any resulting profit or loss in the statement of income. The acquirer must record all potential considerations at fair value as at the acquisition date. The change in fair value of the potential consideration classified as asset or liability must be recorded in the statement of income or statement of the other consolidated statement of comprehensive income components pursuant to the instructions set forth in IAS 39. If the potential considerations are classified in the shareholders' equity, its value must not be recalculated until its extinction is recorded against shareholders' equity. Goodwill is initially measured at the cost that arises as an excess of the summation of the consideration paid and the amount recognised for the minority interests with respect to the identifiable acquired assets and liabilities taken on by the Group. If the consideration is less than the fair value of the net assets of the acquired subsidiary, the difference is recorded in profit and loss. Following initial recognition, goodwill is no longer amortized and is measured at the reduced cost of the accumulated losses of value calculated with the methods described hereunder. In order to verify reduced value, the goodwill acquired in a business combination must, from the date of acquisition, be allocated to every Group cash generating unit that anticipates benefits from the combination, regardless of the fact that other assets or liabilities of the acquired entity are assigned to said units. Goodwill is tested for impairment annually and whenever circumstances indicate that its carrying value may be impaired, as provided for in IAS 36 - Impairment of assets. Any impairment is identified through measurement of the capacity of single units to generate cash flows meant to recover allocated goodwill through the procedure indicated below in the Impairment section. When the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognised in profit or loss. Should the causes having generated the impairment cease to exist, impairment losses are not reversed. If the goodwill was allocated to a cash generating unit and the entity divests itself of part of the assets of that unit, the goodwill associated with the divested asset must be included in the book value of the asset when the profit or loss deriving from the divestment is determined. The goodwill associated with the divested asset must be determined based on the relevant values of the divested asset and of the part kept by the cash generating unit. 63

65 Consolidated Financial Statement as at 31 December 2011 Intangible assets with definite useful life Intangible assets acquired separately are measured on initial recognition at cost, while those acquired in a business combination are measured at fair value as at the date of acquisition. Following initial recognition, intangible assets with finite useful life are carried at cost less any accumulated amortisation and any impairment determined in accordance with the methods detailed in the Impairment section. Intangible assets owned by the Group and acquired exclusively to manage specific contracts, are amortised over the shortest period between the intangible asset s residual useful life and the residual duration of the underlying contract (three years on average). For the remaining owned intangible assets with finite useful life, amortisation is calculated on a straight-line basis over an average period of five years, corresponding to the estimated useful life. The useful life of an intangible asset is reviewed annually. The Group applies the following policies to intangible assets: Development Costs Software, licenses Other intangible and trademarks assets Useful lives Finite Finite Finite Amortisation method used Amortised on a straight-line Amortised on a straight-line Amortised on a straight-line basis basis over a period of 5 years basis over a period of 3-5 years over a period of 3/10 years Internally generated or Internally Internally Acquired acquired generated/acquired generated/acquired Impairment test Annually or more Annually or more Annually or more for recognition of frequently if indicators frequently if indicators frequently if indicators impairment of impairment exist of impairment exist of impairment exist Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statements of income upon disposal. Property, plant and equipment - Owned assets Property, plant and equipment is stated at purchase or production cost. The cost of the assets includes directly attributable costs and those necessary for putting the asset into operation for the use for which it was acquired, in addition to the present value of the estimated cost for dismantling and removing the asset, where applicable and in presence of current obligations. Improvements to leased assets are recognised at cost under property, plant and equipment coherently with the nature of the cost incurred. The expenses incurred for ordinary and/or cyclical maintenance and repairs are directly recognised in the statements of income as incurred. The capitalization of costs related to the enlargement, updating or improvement of an asset owned or in use by third parties is carried out exclusively within the limits in which they meet the requirements for being separately identified as an asset or part of an asset. The cost of property, plant and equipment is reduced by depreciation, calculated on a straight-line basis over the estimated useful life of the asset, and by any accumulated impairment, determined in accordance with the methodology detailed in the Impairment section. 64

66 Consolidated Financial Statement as at 31 December 2011 For owned assets, the depreciation rates which correspond to the estimated useful lives are as follows: Description Rate Buildings 3% Plants and machinery 15% and 25% Industrial and commercial equipment 15% and 25% Furnishings 15% Office equipment 12% Office electronic machines 20% Motor vehicles 25% Assets owned but acquired specifically to manage specific contracts are amortised over the shortest period between the intangible asset s residual useful life and the residual duration of the underlying contract (three years on average). The above depreciation rates are reviewed at least annually; any adjustments, as deemed appropriate, are applied prospectively. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and residual carrying amount of the asset) is included in the statement of income in the year the asset is derecognised. Property, plant and equipment - Leased assets Assets held under finance leases, which substantially provide the Group with all the risks and rewards of ownership, are recognised as assets and liabilities at their fair value or, if lower, at the present value of the minimum lease payments including any sum to be paid for exercising the purchase option. The corresponding liability due to the lessor is recorded under financial liabilities. Lease payments are apportioned between interest expense and reduction of financial liabilities so as to achieve a constant periodic interest rate on the outstanding balance of the liability. Financial expenses are included in statements of income. Assets held under finance leases are depreciated using the following depreciation rates: Description Rate Buildings 3% Industrial and commercial equipment 15% and 25% Motor vehicles 25% Leases where the lessor retains substantially all the risks and rewards of ownership of the assets are classified as operating leases. Operating lease expenditures are charged to the statement of income over the lease term. Impairment of assets At the balance sheet date and if there are any indicators of impairment, an assessment is carried out to determine the recoverable value of the intangible assets or property, plant and equipment, or group of intangible assets or property, plant and equipment (Cash Generating Units, hereinafter also referred to as CGUs), net of sale costs and value 65

67 Consolidated Financial Statement as at 31 December 2011 in use. When the asset s carrying amount exceeds its recoverable amount the asset is written down to its recoverable amount. The recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the cost of money over time and the risks specific to the asset. For an asset that does not generate independent cash inflows, the recoverable amount is determined for the cash-generating unit to which it has been allocated. Impairment losses are recognised in the statement of income with the costs for amortisation and depreciation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indicator that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. Investment in associated companies The Group s investment in its associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Group s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group s net investment in the associate. The consolidated statement of income reflects the Group s share in the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, the Group recognises its share of any such change and discloses those, when applicable, in the consolidated statements of changes in shareholders equity. The income statement reflects the share of the results of operations of the associate. The associated companies fiscal year and accounting policies used by the associated companies are the same as the Group for similar transactions and events in similar circumstances. Investment in other companies Investments in other companies for which fair value cannot be reliably assessed are stated at the acquisition or subscription cost less any distribution of share capital and reserves and after any impairment, determined by the same methods indicated previously for property, plant and equipment. Should the reasons for the impairment cease to exist, the original value shall be restored in subsequent years. Financial assets and other non-current assets Receivables and other non-current assets to be held to maturity are recognised at cost, represented by the fair value of the initial consideration given, including transaction costs. The initial measurement is subsequently adjusted in order to reflect capital repayments, any write-downs and the amortisation of the difference between the repayment value and the valuation on initial recognition. Amortisation is recorded on the basis of the effective internal interest rate, represented by the rate which equals, at the time of the initial recognition, the present value of the estimated cashflows and the measurement of initial recognition (amortised cost method). 66

68 Consolidated Financial Statement as at 31 December 2011 Inventories Inventories are valued at the lower of the purchase or manufacturing cost and net realisable value, represented by the amount that Group companies expect to receive from sale in the ordinary course of the business, less costs of completion and estimated selling costs. The purchase cost, which also includes direct accessory costs (including shipping, handling, etc.), is calculated for raw materials and for finished products using the FIFO method. Service contracts in progress at the end of the year for which is not possible to reliably measure the accrued margin, are valued based on the specific costs incurred at the closing date of the balance sheet. Slow-moving and obsolete stock is written-down according to its potential use or sales value. Trade receivables and other receivables Trade receivables are recognised at their estimated realisable value, which corresponds to nominal value less writedowns reflecting the estimated losses, if any. A provision for doubtful account is made when there is an objective indication (such as a probable insolvency or the debtor facing significant financial difficulty) that the Group is unable to recover all the amount due on the basis of original invoicing conditions. The book value of the receivable is reduced through a provision. Receivables subject to impairment are removed from the accounts when it is ascertained that they are not recoverable. Any medium and long term loans containing an implicit interest component are discounted using an appropriate market interest rate. Current financial assets Financial assets kept for negotiation purposes are recorded on the basis of the negotiation date and, at the time of the initial entry on the balance sheet, are valued at the purchase price, represented by the fair value of the initial consideration given in exchange, net of transaction costs. Following the initial recognition, current financial assets are assessed at fair value and corresponding variation in fair value are included in profit and loss. The fair value of these instruments is determined by referring to the market value at the closing date of the period in which the instrument is recorded; the fair value of financial instruments not listed in an active market is determined by using valuation techniques commonly in use. Own shares Own shares which are reacquired are deducted from equity. No gain or loss is recognised in the statements of income upon the purchase, sale, issue or cancellation of the Group s own shares. Share-based payments Stock options are estimated at fair value using the model based on the Black and Scholes formula, determined by the date of assignment. The relevant cost is recognised in the statement of income under personnel costs (if concerning employees) or under service costs (if concerning directors) during the period in which the conditions for exercising 67

69 Consolidated Financial Statement as at 31 December 2011 them mature and a contra entry is recognised in an equivalent increase of the shareholders' equity. The changes in the present value of the shares after the date of assignment have no effect on the initial valuation. Any effect of dilution of options not yet exercised is reflected in the calculation of the diluted earnings per share. Cash and cash equivalents Cash and cash equivalents include deposits held at call or available in a very short period for which no expenses for collection have to be incurred. They are recorded at their nominal value. For the purposes of the Consolidated Statements of Cash-Flows, cash and cash equivalents is presented gross of bank overdrafts at the Financial Statements closing date. Termination indemnities Employee benefits paid on or after termination of the employment through defined benefit programmes (Employee Severance Indemnity) or other long term benefits (Termination Indemnities) are recognised on an accrual basis. The liability relating to defined benefit plans, net of any related plan asset, is determined on the basis of actuarial assumptions and is recognised on an accruals basis, in line with services rendered in order to obtain the benefits; liabilities are measured by an independent actuary. The amount of actuarial profits and losses that must be recognised for each defined benefit plan is fully recognised in the statements of income. Following amendments made to the Employee Severance Indemnity by law No. 296 of 27 December 2006 (Financial Law 2007) and subsequent Decrees and Regulations issued in early 2007, the Employee Severance Indemnity of Italian companies matured as at 1 January 2007 or at the date the option to be exercised by employees was selected is included in the category of programmes with defined contribution, both in the case of supplementary allowance as well as of allocation to the Treasury Fund of the INPS. The accounting of this Employee Severance Indemnity is therefore assimilated with other types of contribution deposits. Provisions Provisions for risks and future charges are recognised when the Group has a present obligation (legal or implicit) resulting from a past event, when it is probable that an outflow of Group s resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Changes in the assessment are reflected in profit and loss of the period during which the change occurred. If the potential discount effect is significant, the provisions are discounted using a pre-tax discount rate that reflects the specific risks of the liabilities. Once the discount is carried out, the increase of the provision due to the passing of time is recognised as a financial expense. Loans All long-term loans are initially recognised at fair value of consideration received less directly attributable transaction costs. After initial recognition, long-term debts are subsequently measured at amortised cost using the effective interest method. 68

70 Consolidated Financial Statement as at 31 December 2011 Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. Derivatives The Group uses financial derivative instruments such as interest rate swaps to hedge against risks resulting from interest rate fluctuations. These derivative instruments are initially recognised at fair value at the date on which they are entered into; the fair value is then periodically measured and recorded in relation to the characteristics and to the subsequent classification of the instrument. For the purposes of hedge accounting, hedges are classified as: fair-value hedges, if they refer to the exposure to the risk of changes in the fair value of the underlying asset or liability; or to an irrevocable commitment (with the exception of exchange risks); cash-flow hedges, if they refer to the exposure to the risk of fluctuation in cash flows attributable to a specific asset or liability or to a highly probable planned transaction or to the exchange rate risk of an irrevocable commitment; hedge of a net investment in a foreign entity. On entering into a hedge transaction, the Group designates and officially records the hedge ratio to which hedge accounting will be applied, its risk management strategy and objectives. The documentation includes details of the hedge instrument, the element or transaction being hedged, the type or risk and the method through which the company intends to measure hedge efficiency in offsetting exposure to changes in fair value of the element hedged or of the financial flows attributable to the hedged risk. These hedges are expected to be highly efficient in offsetting exposure of the element hedged from changes in fair value or of financial flows attributable to the hedged risk; valuations showing that the hedges are effectively highly efficient are carried out on an ongoing basis throughout the reporting periods to which they apply. The fair value of interest rate swap contracts is determined by referring to the market value of similar instruments. Cash-flow hedges are recorded as assets when the fair value is positive and as liabilities when it is negative; in these cases the derivative is measured at fair value and changes in value are recorded directly in a shareholders equity reserve that is posted to the profit and loss account in the accounting periods in which the underlying cash-flows are manifested. Any profit or loss deriving from changes in the fair value of derivatives not suited for hedge accounting is posted directly to profit or loss. Trade payables and other debts Trade payables with a due date within the standard commercial terms are not discounted and are recognised at cost (identified by the nominal value). Other liabilities are entered at cost (identified by nominal value). Revenue recognition Revenues are recognised when it is probable that the economic benefits will flow to the Group and the revenues can be reliably measured. 69

71 Consolidated Financial Statement as at 31 December 2011 Revenue is shown net of discounts, reductions, returns and other sales taxes. In particular, revenue from the sale of goods is recognised according to the contractual terms when the significant risks and rewards of ownership relating to the goods are transferred to the buyer. Rendering of services revenues are recognised by stage of completion. This is measured as the percentage of the incidence of costs incurred with respect to the total costs estimated for each contract. When the contract outcome cannot be reliably measured, revenue is recognised only to the extent of the expenses incurred that are recoverable. Financial revenue is recorded on an accrual basis. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and all underlying conditions will be met. When a grant relates to cost items, it is recognised as income over the proper period in order to be correlated to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of income over the expected useful life of the relevant asset. Accounting for costs and expenses Costs and expenses are recorded when they relate to goods and services sold or consumed during the year or by systematic allocation when their future utility cannot be identified. Interest Interest income and expense are recognised as the interest accrues on the net carrying amount of the underlying value of financial asset or liability, using the effective interest rate. Dividends Dividends are recognised when the right of shareholders to receive payment is established. This right arises following the decision made on distribution made (by 31 December each year) by the subsidiary. Income taxes Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date and in those countries in which the Group operates. Current taxes relating to items recorded directly to equity are recognised directly to equity and not to the profit and loss. 70

72 Consolidated Financial Statement as at 31 December 2011 Deferred taxes Deferred income tax is provided using the liability method on temporary differences at the balance-sheet date between the reference fiscal values for assets and liabilities and the values recorded in the financial statements. Deferred tax liabilities are recognised for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of deductible temporary differences and tax losses, can be utilised, except: where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. In assessing the probability of the availability of a future income against the entry of deferred assets for tax losses one considers: there must exist sufficient temporary differences with regard to the same tax authorities and the same tax subject that will turn into taxable amounts against which tax losses may be used prior to their expiration; that unused tax losses result from identifiable causes that are unlikely to be repeated; that there exist opportunities for tax planning on the basis of which there will be taxable income during the year in which tax losses may be used. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities relating to items recognised directly in equity are recognised in equity and not in the statement of income. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set offering of current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Net income per share Earnings per share are calculated by dividing the net profit for the period attributable to the shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, net of own shares. 71

73 Consolidated Financial Statement as at 31 December 2011 In order to calculate the diluted earnings per share, the weighted average number of shares outstanding, net of own shares, is modified assuming the conversion of all the potential shares with dilutive effect. Even the net profit of the Group is adjusted in order to consider the effects of the conversion, net of the relative taxes. Use of estimates The preparation of the Group financial statements requires the directors to make estimates and assumptions that affect the reported amounts of the assets and liabilities and the disclosure of information on contingent assets and liabilities at the date of the financial statements. Nonetheless, the uncertainty of these assumptions and estimates may determine impacts requiring a significant adjustment to the accounting value of these assets and/or liabilities at a future date. The estimates are essentially used to recognize provisions for doubtful account, inventory obsolescence, amortisation, depreciation and write-downs of non-current property, plant and equipment and intangible assets, employee benefits, deferred income taxes and other provisions for risks and charges. Estimates and assumptions are revised periodically and the effects of every variation are immediately reflected on the profit and loss. Specifically, goodwill is verified at least once a year for any losses of value; this test requires an estimate of the value in use of the CGU to which the goodwill is attributed, based in turn on an estimate of the cash flow expected from the unit and its discounting at an appropriate discount rate. As at 31 December 2011, the carrying value of goodwill was EUR 34,356,000 (2010: EUR 35,544,000). Further details are provided in Note 7. NOTE 3 Segment reporting For operating purposes, the Group is organised into two operating segments: Medical equipment and devices and e-health and e-government systems and solutions (e-health & e-government for short). The Medical Equipment and Devices segment provides effective management support to public and private health facilities for medical devices and other telematic technology, both in terms of purchasing advice and lowering maintenance and operating costs and of training and enhanced safety. The e-health & e-government sector provides solutions and services for the integrated management of clinical reporting systems for hospitals and/or departments, local health units and/or home care services and IT solutions to manage the demographic, social, tax, administrative, management and document services of local and regional entities and the public administration in general. It also provides telemedicine and telecare solutions for the integration of assistance between the territory and the hospital and for the implementation of telematic assistance services for social and home healthcare for the purpose of cost reduction. Management separately monitors the operating results of each business unit in order to make decisions on resource allocation and performance appraisal. The results of financial management and income taxes are managed at group level and are not therefore allocated to individual operating segments. Prices for transferring items between operating segments are determined under the same conditions as those applied to third party transactions. 72

74 Consolidated Financial Statement as at 31 December 2011 Operating segments The table below presents data on Group revenues and results for the financial years ended 31 December 2011 and 2010 respectively. (amounts in thousands of EUR) Medical e-health & Total Medical e-health & Total equipment and e-government equipment and e-government devices devices Revenue Sales to third parties and other revenue 157,651 39, , ,064 38, ,661 Total revenue 157,651 39, , ,064 38, ,661 Operating profit by business segment 9, ,110 10, ,275 Gain (losses) from investments 6-17 Financial income (expenses) -4,252-2,131 Profit before tax 5,864 9,127 Income taxes 5,142 3,177 Net profit for the period 722 5,950 The operating profit of the medical equipment and device segment was subject to impairment of EUR 1,091,000 for the goodwill for the CGUs identified in the segment. The operating profit of both segments included a writedown for impairment of EUR 1,000,000 each as at 31 December Revenue rose from EUR 152,064,000 in 2010 to EUR 157,651,000 in 2011 in the Medical Equipment and Devices segment, posting an absolute increase of EUR 5,587,000 and a percentage increase of 3.7%. EUR 2,194,000 of the increase is due to the change in the scope of consolidation (EBME and Delta X) and to the revenue of Erre Effe, which did not form part of the Group s turnover the previous year since it had been acquired on 31 December The operating profit of the segment fell, in absolute terms, by EUR 1,481,000, from EUR 10,790,000 to EUR 9,309,000, with the incidence on revenue falling to 5.9% from 7.1% the previous year. The decrease is mainly due to the downturn in the overall performance of the German subsidiary Subitec compared to 2010, which was also subject to impairment. Revenue rose from EUR 38,597,000 in 2010 to EUR 39,855,000 in 2011 in the e-health and e-government segment, posting an absolute increase of EUR 1,258,000 and a percentage increase of 3.3%. The operating profit increased in absolute terms by EUR 316,000 and in terms of percentage incidence on revenue, from 1.3% in 2010 to 2.0% in However, the operating profit in 2010 was reduced by EUR 1,000,000 in 2010 for the write-down of the goodwill related to the e-health telemedicine and telecare CGU. Without this write-down, the operating profit of the previous year would have been EUR 1,485,000 with a 3.8% incidence on revenue. 73

75 Consolidated Financial Statement as at 31 December 2011 The table below shows assets and investments relating to the Group s individual operating segments as at 31 December 2011 and 2010: (amounts in thousands of EUR) Medical e-health & Total Medical e-health & Total equipment and e-government equipment and e-government devices devices Assets and liabilities Assets by segment 174,621 71, , ,961 60, ,814 Equity investments Non-allocated assets Total assets 174,859 71, , ,225 61, ,400 Liabilities by segment 135,930 53, , ,421 47, ,052 Non-allocated liabilities Total liabilities 135,930 53, , ,421 47, ,052 (amounts in thousands of EUR) Medical e-health & Total Medical e-health & Total equipment and e-government equipment and e-government devices devices Other information Investments 8,374 3,746 12,120 7,882 6,602 14,484 Amortisation and depreciation 5,457 2,872 8,329 4,897 2,544 7,441 Write-downs of intangible assets 1, ,146 1,000 1,000 2,000 Other non-monetary costs 2,177 1,154 3, ,460 The following table shows Group revenue by geographic area as at 31 December 2011 and 2010: (amounts in thousands of EUR) Italy European Other Total Italy European Other Total Union Union Revenue Sales to third parties 131,407 64,061 2, , ,756 64,225 1, ,661 Infra-sector Sales Total revenue 131,407 64,061 2, , ,756 64,225 1, ,661 74

76 Consolidated Financial Statement as at 31 December 2011 NOTE 4 Business combinations Acquisition of Delta X Srl On 30 May 2011 the Group acquired 100% of the shares of Delta X Srl, a company operating in the medical equipment and device segment, through the subsidiary EBM. More specifically, the company provides radiology equipment maintenance services. The price for acquisition of the investment was EUR 200,000, fully paid in. The fair value of assets and liabilities identifiable at the date of acquisition is as follows: (amounts in thousands of EUR) Fair value Book at value acquisition Total current assets Total non-current assets TOTAL ASSETS 1,767 1,564 Total current liabilities Total non-current liabilities TOTAL LIABILITIES 1,567 1,503 Fair value of net assets Purchase price 200 Cash acquired 77 The fair value of the net acquired assets includes EUR 203,000 relating to the recognition of customer relations, gross of the related tax effect amounting to a total of EUR 64,000. Recognition of customer relations has been made on the basis of the discounted net margins that the company will develop according to its existing customer base as at the date of acquisition. It should be noted that the initial recognition for this business combination is to be considered final. Delta X was consolidated from the date of acquisition, being the date on which the Group obtained control, which coincided with the date in which the purchase contract was entered into. If the combination had taken place at the beginning of the year, it would have contributed EUR 11,000 to the Group profit (the Company contributed to the Group results with a loss of EUR 14,000 from the date of acquisition, an amount that does not include the net effect of the amortisation of the value due to the customer relations at the time of acquisition) and EUR 413,000 to the consolidated revenue (from the date of acquisition the Company contributed EUR 209,000 to the group revenues). Acquisition of EBME Ltd. On 22 August 2011, the subsidiary TBS GB Ltd. acquired 63.25% of EMBE Ltd. This company operates in the United Kingdom in the area of clinical engineering and provides assistance and maintenance services for medical equipment, technical and management consultancy services, and to a lesser extent, the supply of spare parts and consumables. The purchase price for 63.25% of EBME was 1.25 million British pounds, and was paid on 22 August. The contract provides for an earn out to be calculated by using an EBITDA multiple of 6, net of the net financial position, following closure of the financial statements of EBME on 31 March In any case, the earn out may not be more than 0.5 million British pounds. The remaining 36.75% of EBME shall be acquired after approval of the financial statements as 75

77 Consolidated Financial Statement as at 31 December 2011 at 31 March 2012, through a share swap with a number of TBS GB shares that will be calculated by valuing the two Companies with an EBITDA multiple of 6, net of the Net Financial Position. The contract also provides for a put option in favour of the minority shareholder and a call option in favour of TBS Group for the repurchase of the TBS GB shares swopped. These options can be exercised after approval of the financial statements as at 31 December 2014 on the basis of a valuation of the company with an EBITDA multiple of 6, net of the NFP with reference to the most recent financial statements approved. In addition, following this operation, EBME will then be merged with TBS GB. Considering the characteristics of the options reciprocally granted to the purchaser and seller based on the best knowledge and estimates of the growth in EBITDA and expected net financial position currently available, the earn out and put option were valued, which present value was recognised as financial debt of EUR 1,081,000 (of which EUR 266,000 short term debt) against the purchase cost of the residual share of the investment. The fair value of assets and liabilities identifiable at the date of acquisition is as follows: (amounts in thousands of EUR) Fair value Book at value acquisition Total current assets Total non-current assets 3, TOTAL ASSETS 3, Total current liabilities Total non-current liabilities TOTAL LIABILITIES 1, Fair value of net assets 2, Goodwill 96 Transaction price, when paid, for EUR 1,430 thousand 2,511 Cash acquired 34 The fair value of the net acquired assets includes EUR 3,118,000 relating to the recognition of customer relations, gross of the related tax effect amounting to a total of EUR 779,000 and the value of certain warehouse inventories of EUR 23,000, gross of the tax effect equal to a total of EUR 6,000. Recognition of customer relations has been made on the basis of the discounted net margins that the company will develop according to its existing customer base as at the date of acquisition. In calculating the timeframe in which such margins will be achieved, an annual drop rate of 10% has been applied. It should be noted that the initial recognition for this business combination is to be considered final. EBME was consolidated from the date of acquisition, being the date on which the Group obtained control, which coincided with the date in which the purchase contract was entered into. If the combination had taken place at the beginning of the year, it would have contributed EUR 216,000 to the Group profit (the Company contributed to the Group results with EUR 110,000 from the date of acquisition, an amount that does not include the net effect of the amortisation of the value due to the customer relations at the time of acquisition) and EUR 2,010,000 to the consolidated revenue (from the date of acquisition the Company contributed EUR 642,000 to the group revenues). NOTE 5 Financial risk management The main financial liabilities of the Group include bank loans, trade payables and miscellaneous payables and financial guarantees. The main objective of these liabilities is to finance the Group s operating activities. The Group has financial 76

78 Consolidated Financial Statement as at 31 December 2011 receivables and other trade and non-trade receivables, liquid assets and short-term deposits directly originating from operating activities. The assessment of interest rate risk, credit risk, liquidity risk and foreign exchange risk is a responsibility the Group Management is entrusted with, and the relevant information is given below. Interest rate risk The Group is exposed to interest rate risk because of the variable interest rate of its existing financial debt (Euribor plus a varying margin depending on the type of financing involved). Fluctuations in market interest rates influence the cost of the various types of financing directly affecting financial expenses at Group level. Sensitivity analysis The Company s financial structure consists almost entirely of variable rate financial instruments. As a result, the sensitivity analysis is conducted solely for this type of instrument. By virtue of the above, a hypothetical, instant and unfavourable 100 bps change in the short term interest rate, applicable to the variable rate of financial assets and liabilities, would increase net annual pre-tax charges by approximately EUR 700,000. Credit risk Most Group loans are contracted by public bodies or private bodies affiliated with the public sector. It is therefore felt that the Group has no significant exposure to credit risk. There is no significant concentration of credit risk in the Group and a provision for doubtful debts has in any case been allocated to protect against residual doubtful debts. Liquidity risk The Group continuously maintains balance and flexibility between funding sources and uses. Two primary factors that influence the Group s liquidity are, on the one hand, resources generated or absorbed by operations or investments, particularly of entities outside the Group, and on the other hand, the expiry and renewal of debts. The breakdown of financial payables as at 31 December 2011 is presented under Note 15. In any event, it is felt that liquidity from operations should be sufficient to cover requirements. It should however be emphasized that considering the fact that the customers primarily consist of public bodies, with significantly extended payment terms and anyway subject to the availability of financial resources, even linked to public debt management policies, the leading Italian Group companies have assigned credit to factoring companies in order to boost cash flows. Specifically, receivables (and relevant benefits and risks) totalling EUR 77 million (EUR 51 million as at 31 December 2010) were assigned during

79 Consolidated Financial Statement as at 31 December 2011 Exchange rate risk The Group operates primarily in the eurozone. There is therefore no significant exposure to exchange rate risk. The main currency fluctuations relate to the translations into EUR of the financial statements of its English subsidiary, which are presented in pounds sterling, its Indian subsidiary, presented in Indian rupees, its Serbian subsidiary, presented in Serbian dinars and the Arabian joint venture, presented in Saudi riyals. Capital Management The Group s primary capital management objective is to guarantee that a solid credit rating and appropriate levels of capital indicators are maintained in order to support its work and maximize shareholder value. The Group manages the capital structure, making changes to it in line with changes in economic conditions. The Group may adjust the dividends paid to shareholders, reimburse capital or issue new shares in order to maintain or adapt the capital structure. It should be noted that the Parent Company s Shareholders' Meeting held on 21 June 2011 approved the distribution of dividends for EUR 1,084,000. The Group monitors its capital via the net financial debt / Group shareholders equity ratio. This ratio for each period considered is shown below: (amounts in thousands of EUR) Medium and long term interest-bearing loans and borrowings 19,466 24,647 Short term interest-bearing loans and borrowings 71,803 54,960 Non-current financial assets -1,714-1,643 Current financial assets -2, Cash and cash equivalents -17,531-8,786 Net financial debt 69,325 68,929 Equity attributable to Equity Holders of the Parent 54,096 54,948 Net financial debt/ Equity attributable to Equity Holders of the Parent Fair value valuation and the relative hierarchical levels of valuation All the financial instruments recognised at fair value are classified in the three categories shown below: Level 1: market quotation Level 2: valuation techniques (based on observable market figures) Level 3: valuation techniques (not based on observable market figures) 78

80 Consolidated Financial Statement as at 31 December 2011 The Group held the following financial instruments valued at fair value as at 31 December 2011: Asset valued at fair value (amounts in thousands of EUR) 31 December 2011 Level 1 Level 2 Level 3 Financial assets at fair value recognised on the statement of income Capital redemption policy EBM 1,680 1,680 Derivative contracts (Cap Plain Vanilla) EBM 0 0 All the assets and liabilities that are valued at fair value as at 31 December 2011 can be classified under hierarchical level number 2 of the fair value valuation. In addition, there were no transfers from Level 1 to Level 2 or to Level 3 and vice versa. NOTE 6 Earnings per share As required by IAS 33 Earnings per share, information pertaining to the data used in calculating the basic and diluted earnings per share is provided. Basic earnings per share are calculated by dividing the net profit for the period attributable to the ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, net of own weighted shares. It is further highlighted that there are no preference dividends, conversions of preference shares or other similar effects that affect the financial results attributable to the holders of ordinary capital instruments. The calculation of earnings per share has however potentially been influenced by the share option plan that was approved by the company in the course of its AIM listing and for which reference to Note 35 should be made, on the basis of the average share price in the period of the company's listing (01/01/ /12/2011) in relation to the strike price reserved for current option assignees. Share listing performance was on average lower than the strike price reserved for current option assignees and did not cause any dilution effect on the outstanding shares. 79

81 Consolidated Financial Statement as at 31 December 2011 The results and the number of ordinary shares used in the calculation of basic and diluted earnings per share are presented below Net profit attributable to ordinary shareholders of the parent company for the purposes of calculating basic and diluted earnings per share 307,000 5,592,000 Weighted average number of ordinary shares, including own shares, for the purposes of calculating basic earnings per share 36,630,020 36,630,020 Weighted average number of own shares -485, ,519 Weighted average number of ordinary shares, not including own shares, for the purposes of calculating basic earnings per share 36,144,557 36,225,501 Effect of dilution: - share options 0 0 Weighted average number of ordinary shares, excluding own shares, for the purposes of calculating diluted earnings per share 36,144,557 36,225,501 Net income per share: - basic, per period income appertaining to ordinary shareholders of the parent company diluted, per period income appertaining to ordinary shareholders of the parent company NOTE 7 Intangible assets Goodwill Goodwill refers to cost of the business combination paid in excess allocation of merger deficits or for the acquisition of controlling interests in certain subsidiaries. The 2011 goodwill refers to the surplus paid by the Group for the acquisition of controlling interests in EBME, as noted in Note 4. Goodwill posted prior to 31 December 2010 refers to the surplus paid by the Group as broken down below: in 2010 for the acquisition of controlling interest of TBS India and Erre Effe; in 2009 for acquisition of controlling interest of MSI and Insiel Mercato and of recognition of the Put & Call option regarding purchase of the minority interest of EBM and Caribel; in 2008 for acquisition of controlling interests in Caribel and EBM, for purchase of a further stake in Tesan and SLT, the NCA Group and the Panacea Group; in 2007 for acquisition of controlling interests in SLT, the Spanish NCA Group (then merged by incorporation by parent company TBS ES at the end of 2007) and the Panacea Group; in 2006 for the acquisition of a controlling interest in Subitec GmbH; in 2005 for acquisition of controlling interests in Surgical Technologies BV, Surgical Technologies Italia Srl and STI Deutschland GmbH (the latter then merged by incorporation by the respective parent companies TBS Group and TBS DE during 2007); in 2004 for the acquisition of the Clinical Engineering s segment of General Electric Medical Systems; in fiscal years prior to 2004 following Parent Company s acquisition of various Business lines, even in several stages, in the sectors of the former Clinical Engineering Italy, e-health Telemedicine and Telecare and of e-health Patidok. 80

82 Consolidated Financial Statement as at 31 December 2011 The following table details the goodwill value allocated to the respective cash generating units ( CGU ): (amounts in thousands of EUR) Clinical Engineering Italy 11,357 11,357 Clinical Engineering Europe 4,561 4,588 Clinical Engineering Subitec 0 1,091 e-health Telemedicine and Telecare 7,560 7,560 e-health & e-government software production 7,852 7,922 Clinical Engineering India 3,026 3,026 Total goodwill 34,356 35,544 The book value of goodwill as at 31 December 2011 amounted to EUR 34,356,000. The difference compared to the value as at 31 December 2010 amounted to EUR 1,188,000 and derives: from accounting for EUR 96,000 of goodwill arising from the acquisition of EBME. This Company belongs to the Clinical Engineering Europe CGU; from recognition of the TBS GB EUR/GBP foreign exchange translation difference of EUR 33,000 attributed to the Clinical Engineering Europe CGU; from the reduction of the goodwill in Clinical Engineering Europe by EUR 156,000 following adjustment of the original acquisition price of the investment in the German subsidiary MSI after it failed to achieve certain economic parameters contractually established when the purchase was being made; from recalculation of Goodwill equal to EUR 70,000 based on the put/call option contract arising after the purchase of the company Caribel attributed to e-health & e-government CGU; from impairment of the EUR 1,091,000 goodwill attributed to Clinical Engineering Subitec CGU, to which reference is made below. Goodwill impairment test The residual goodwill recorded in the financial statements and detailed above was allocated to a number of CGUs in both business segments. In particular, goodwill was allocated as follows (broken down by legal entity/business branch and reference CGU): CGU Cash Generating Units Clinical Engineering Italy Clinical Engineering Europe Clinical Engineering Subitec e-health Telemedicine and Telecare e-health & e-government Software Production Clinical Engineering India Goodwill for acquisition of business branches and/or companies EBM, Tecse, Serisia, DMS, Amplisim, General Electric, Surgical Technologies Italia, GS Service, Tecnobiopromo, Asic, SLT, Crimo, Pancli, MD TBS FR, TBS GB, TBS PT, TBS BE, TBS ES, Surgical Technologies MSI, EBME Subitec Finter, Medicall, Gesan, Comtel, Tesan, Tesan Televita, SOIT Insiel Mercato,PCS, Eurosystems, Caribel, Erre Effe TBS India The above CGUs were created by combining business activities based on the type of service provided and the areas in which cash flows are generated through the provision of such services. 81

83 Consolidated Financial Statement as at 31 December 2011 As stated in IAS 36 Impairment of assets, the impairment test was fully performed by comparing the recoverable amount of the goodwill with the corresponding carrying amount of the individual CGUs as at 31 December Value in use was used for the recoverable amount as it is deemed reasonably higher than the fair value net of sale costs. Cash flow projections for , as taken from the financial plans prepared by the Parent Company and approved by its Board of Directors and by the Boards of Directors of the single subsidiaries, were normally used to calculate the value in use. In some cases the elaborated plan cover a longer time span ( ). Cash-flows for years subsequent to the last year included in the plan were discounted on the assumption of an indefinite timeframe for the various CGUs at an annual growth rate ranging from 1-1.5% (3% for Clinical Engineering India CGU) The main parameters used for calculating the discount rate (WACC) were: Risk free Market Unlevered Risk Debt/equity Cost WACC premium Beta premium ratio of debt Clinical Engineering Italy 6.68% 5.00% % % 9.01% Clinical Engineering Europe 4.32% 5.00% % % 7.911% Clinical Engineering Subitec 1.75% 5.00% % % 7.50% Clinical Engineering India 7.91% 8.60% % % 10.67% e-health Telemedicine and Telecare 6.68% 5.00% % % 7.73% e-health & e-government 6.68% 5.00% % % 7.73% As regards the risk free rate, rates of return were used, of ten-year state securities for reference nations, at the commencement date of the budget reference period. Especially with reference to the CGUs operating in Italy, the use of this risk free rate represents a prudent choice by the directors in view of the average risk free rates for 2011 and the first few months of The unlevered Beta used in the various CGUs considered is the one which better reflects the information about the segment in which they operate. To calculate the WACC for individual CGUs, the beta coefficient was used and redetermined considering the leverage arising from the Group s debt/equity ratio as at 31 December 2011, a ratio deemed representative for the future years of the plan as well. This approach was adopted as the Parent Company manages its own financial debt and that of its subsidiaries through the disbursement of intercompany loans, based on individual company needs. As a result of the impairment testing, management recognised: impairment of EUR 1,091,000 with reference to the Clinical Engineering Subitec CGU, which reduced the goodwill value recorded as at 31 December 2010 to zero. In view of the zero growth expectations (g rate), and the WACC which is one percentage point higher, the loss to account for would be higher by about 0.5 thousand, therefore leading to a write-down of the invested capital not comprising goodwill of the CGU also. No impairment would have been necessary with a 2% growth (g rate) and a discount rate of 1 percentage point lower. These impairment losses were recognised in the income statement under amortization, depreciation and writedowns. Impairment tests revealed that discounted Clinical Engineering Italy, Clinical Engineering Europe, Clinical Engineering India, e-health and e-government software production CGU cash-flows exceeded the relative carrying values, therefore no impairment was necessary. In addition, the e-health Telemedicine and Telecare CGU were not impaired; however, since the growth prospects (g rate) are 0.5% compared to the rate of 1.5% used for the test and the WACC is one percentage point higher than that used, and equal to 7.73%, the value in use would be lower by about EUR 2 million, with a write down of residual goodwill of about the same amount. 82

84 Consolidated Financial Statement as at 31 December 2011 As at 31 December 2011 (as seen in the following table), impairment losses totalled EUR 3,087,000 for the e- Health & e-government software production CGU, EUR 2,800,000 for the e-health Telemedicine and Telecare CGU, EUR 2,891,000 for the Clinical Engineering Subitec CGU and EUR 300,000 for the Clinical Engineering Europe CGU. (amounts in thousands of EUR) Residual Total and goodwill at write-downs beforehand 31/12/2011 made Clinical Engineering Italy 11,357 0 Clinical Engineering Europe 4, Clinical Engineering Subitec 0 2,891 1,091 1, e-health Telemedicine and Telecare 7,560 2,800 1,000 1,800 e-health & e-government software production 7,852 3,087 3,087 Clinical Engineering India 3,026 0 Total goodwill 34,356 9,078 1,091 2,000 5,987 Intangible assets with definite useful life The table below provides a breakdown Intangible assets with definite useful life as appearing in the balance sheet: (amounts in thousands of EUR) Development Concessions, licenses, trademarks and similar rights 3,777 4,158 Other intangible assets 17,496 16,759 Intangible assets under construction and advances 4,315 2,758 Total intangible assets 25,766 23,993 Changes in the period for Intangible assets with definite useful life are shown below: (amounts in thousands of EUR) Development Concessions, Other Intangible Total licenses, intangible assets under intangible trademarks assets construction assets and similar and advances rights Cost at 1 January 2011 net of provisions 318 4,158 16,759 2,758 23,993 Net additions ,389 2,376 6,652 Disposals (historical cost) 0 1, ,327 Disposals (accumulated depreciation) 0-1, ,187 Depreciation in the period 207 1,815 2, ,625 Foreign exchange translation differences Reclassifications and other As at 31 December ,777 17,496 4,315 25,766 83

85 Consolidated Financial Statement as at 31 December 2011 (amounts in thousands of EUR) At 1 January 2011 Cost or fair value 3,204 10,362 22,681 2,758 39,005 Accumulated depreciation and impairment -2,886-6,204-5, ,012 Residual net value 318 4,158 16,759 2,758 23,993 Total (amounts in thousands of EUR) As at 31 December 2011 Cost or fair value 3,271 10,624 26,006 4,315 44,216 Accumulated depreciation and impairment -3,093-6,847-8, ,450 Residual net value 178 3,777 17,496 4,315 25,766 Total Development costs mainly included expenses incurred by EBM and Caribel, respectively for the development of clinical engineering software and for the Aster and Pasc projects, which envisage the development of social-assistance application systems. Concessions, licenses and trademarks costs primarily relate to software licences and programmes purchased from third parties, to costs incurred by the parent company for implementation of the Hyperion software, and to costs incurred by the Group relating to the development of an international, multilingual Patidok international and phi module. Amortisation is calculated on a straight-line basis over a period of 3/5 years. The other intangible assets item mainly included portfolio orders and relations with customers acquired through business combinations. In particular, the item included net book values of: EUR 358,000 for the value, net of the amortisation of the customer relations which arose in 2007 following purchase of the NCA Group, subsequently merged into TBS ES. The amortisation of the customer relations is on a straight line basis over a 10-year period; EUR 887,000 relating to the net book value of relations with customers arising from the acquisition of the Panacea Group in August 2007; this asset is amortised on a straight-line basis over a period of 10 years; EUR 452,000 relating to the net book value of portfolio orders arising from the acquisition of the General Electric Medical Systems business branch in Portfolio orders are amortised on a straight-line basis over a period of 10 years; EUR 190,000 relating to the net book value of relations with customers arising from the acquisition of Caribel in July 2008; this asset is amortised on a straight-line basis over a period of 10 years; EUR 4,992,000 relating to the net book value of relations with customers arising from the acquisition of EBM in December 2008; this asset is amortised on a straight-line basis over a period of 10 years; EUR 3,513,000 relating to the net book value of relations with customers arising from the acquisition of Insiel Mercato in December 2009; this asset is amortised on a straight-line basis over a period of 10 years; EUR 2,563,000 relating to the net book value of relations with customers arising from the acquisition of TBS India in April 2010; this asset is amortised on a straight-line basis over a period of 10 years; EUR 1,009,000 relating to the value of relations with customers arising from the acquisition of Erre Effe in December Relations with customers is amortised on a straight-line basis over a period of 10 years; EUR 305,000 relating to the value of relations with customers arising from the acquisition of SIC in December Relations with customers is amortised on a straight-line basis over a period of 3 years; EUR 3,014,000 relating to the value of relations with customers arising from the acquisition of EBME. The amortisation is on a straight-line basis over a period of 10 financial periods; EUR 179,000 relating to the value of relations with customers arising from the acquisition of Delta X. The amortisation is on a straight-line basis over a period of 5 financial periods. 84

86 Consolidated Financial Statement as at 31 December 2011 Assets under construction primarily relate to: expenses incurred by PCS and TBS Group in implementing the Pharma-phi project for the development of new software called phi-technology in the year and previous years (EUR 1,252,000). This software represents the evolution of Patidok, already used by hospitals. The Group has placed particular attention on protecting the investments of customers who purchased Patidok in the past, giving them the opportunity of gradually migrating to phi-technology, thanks to the full interoperability of the two operating platforms. The technology applied to the new software is based on advanced international standards and will become the Group s only IT platform for the routing of all IT fields: Medical, Clinical engineering and Telecare and Telemedicine. The project is due to be completed in the first few months of The Pharma-phi project has been included in the Friuli Venezia Giulia Region finance plan, under the SPD Objective Assistance to large industrial companies for investment in research and development activities ; costs incurred by the subsidiary Tesan in the development of the Chronious project (EUR 1,228,000); costs incurred by the subsidiary Tesan for implementation of a social-healthcare portal (EUR 72,000); costs incurred by the subsidiary Insiel Mercato for the development of new functions and new application modules of the company-owned product portfolio (EUR 1,267,000); costs incurred by the Parent Company for software to use for cash management (EUR 186,000); costs incurred by the Parent Company to create further management software (EUR 118,000 for IT systems and EUR 142,000 for the administrative area). Total investments of EUR 6,652,000 were made and mainly include: under the Other intangible assets category, the valuation of the customer relations arising following acquisition of EBME in August 2011 (EUR 3,118,000) and Delta X in May 2011 (EUR 203,000); under the Assets under construction category, further costs incurred by the Parent Company and by PCS for the Pharma-phi project described above (EUR 68,000 and 258,000 respectively), to create software for endoscopy management (EUR 230,000), for the implementation of the cash management software (EUR 186,000); the costs incurred by Tesan (EUR 301,000) for development of the Chronious project; the costs incurred by Insiel Mercato (EUR 1,028,000) for improvement of the portfolio of products owned by the company; investments falling under Concessions, licenses, trademarks and similar rights, relating to the purchase of software licences. The reclassifications mainly refer to transfer to the concessions, licenses, trademarks and similar rights category, of the costs incurred by Insiel Mercato (EUR 263,000), for the software to be used for the public administration or for hospital facilities, and the software created by the Parent Company the endoscopy management (EUR 360,000). The reclassification of EUR 124,000 is for the costs incurred the previous year, classified under current assets, for charges incurred to create the quotation project on a regulated market. The amortisation of capitalised costs is based on the useful life estimated at three or five years. NOTE 8 Property, plant and equipment The table below presents the net balances for property, plant and equipment: (amounts in thousands of EUR) Land and buildings 5,575 5,162 Plants and machinery 7,693 7,927 Other property, plant and equipment 3,775 2,580 Total property, plant and equipment 17,043 15,669 85

87 Consolidated Financial Statement as at 31 December 2011 Changes in the period are shown below: (amounts in thousands of EUR) Land and Plants and Other property, Work in Total property, buildings machinery plant and progress plant and equipment equipment Cost at 1 January 2011 net of provisions 5,162 7,927 2, ,669 Net additions 562 2,598 1, ,468 Disposals (historical cost) ,437 Disposals (accumulated depreciation) ,031 Depreciation in the period 172 2, ,704 Foreign exchange translation differences Reclassifications and other As at 31 December ,575 7,693 3, ,043 (amounts in thousands of EUR) At 1 January 2011 Cost or fair value 6,130 19,438 5, ,868 Accumulated depreciation and impairment ,511-2, ,199 Residual net value 5,162 7,927 2, ,669 Total (amounts in thousands of EUR) As at 31 December 2011 Cost or fair value 6,692 21,215 6, ,892 Accumulated depreciation and impairment -1,117-13,522-3, ,849 Residual net value 5,575 7,693 3, ,043 Total Land and buildings Owned or leased buildings are those regarding the parent company (EUR 1,139,000) and the subsidiaries PCS Professional Clinical Software GmbH (EUR 976,000), Crimo, EBM, Caribel, Erre Effe and Delta X (for the increase of EUR 528,000). These are amortised at an annual rate of 3%. The subsidiary PCS has issued a EUR 500,000 guarantee for the twenty-year loan granted by BKS in Plants and machinery The item mainly relates to Clinical Engineering equipment. Other property, plant and equipment This item primarily relates to electronic office equipment, furniture and furnishings, cars and motor vehicles. 86

88 Consolidated Financial Statement as at 31 December 2011 Work in progress The work in progress refers to the costs incurred by the subsidiary Crimo Italia Srl for the construction of a new cleaning machine, the pickling and passivation of metallic surfaces through application of an ionising detergent that acts on an electrolytic basis. The company applied for a grant for this project called Rigenerinox, to be completed in The investments in property, plant and equipment amounted to EUR 5,468,000, and mainly regard property leased by the newly acquired Delta X (EUR 528,000), equipment, machines and other goods for Tesan amounting to EUR 870,000 and for EBM amounting to EUR 1,097,000, and investments made by Crimo for a total of EUR 568,000 for the above-mentioned work in progress. Leased assets mainly refer to the equipment, vehicles, plants and machinery, and buildings of consolidated companies; minimum payments, present value and the presumed repayment period of these leased assets are detailed on the following table: (amounts in thousands of EUR) Minimum Present Minimum Present payment value payment value Within 1 year Between 1 and 5 years Beyond 5 years 1, Total minimum payments 2,454 1,903 2,041 1,583 Financial expenses Total minimum payments present value 1,903 1,903 1,583 1,583 Present value was determined based on the amortisation schedules communicated by finance leasing companies and does not significantly diverge from the present value of minimum payments calculated by discounting cash flows due to the rental payments as indicated in the schedule at the same interest rate of the finance lease contract. NOTE 9 Other non-current assets Investment in associated companies The table summarises the breakdown of investments in associated companies: (amounts in thousands of EUR) 2011 % held 2010 % held SMS in liquidation % % Me.Sys % % TH MED % % O3 Enterprise % % Easy Care Foundation % % SIGE Consortium % % Care Expert Social Consortium % % Kell % % Bis consortium % % Saim % n,a, Total investment in associated companies

89 Consolidated Financial Statement as at 31 December 2011 The acquisition of a further 44% of the capital of SAIM - Südtirol Alto Adige Informatica Medica Srl, with offices in Bolzano was made through the subsidiary Insiel Mercato (2.5% of which had already been held as at 31/12/2010 and which had therefore been classified under investments in other companies). None of the companies mentioned are listed on any regulated market. The following table summarises the essential information on these investments: (amounts in thousands O3 Easy Care Care Expert SMS in Kell SIGE Mesys of EUR) Enterprise Foundation Social liquidation Consortium Consortium Current assets ,091 26,213 1,229 Non-current assets Current liabilities ,177-1,492 Medium and long term borrowings Net assets (liabilities) Revenue ,466 1,628 Operating result Investments in other companies Interests held by the Group in other companies are summarized below: (amounts in thousands of EUR) 2011 % held 2010 % held Medic4All AG % % Molecular Biology Consortium % % ISBEM % % UTE (ES) 4 n,d, 3 n,d, ReMedia Consortium 1 n,d, 1 n,d, Ancitel % % SAIM % Venice Research Consortium 10 n,d, 10 n,d, IRCAB Foundation 17 n,d, 17 n,d, Sanitanet % 0 n,d, Promotrieste Consortium 1 n,a, Other Total investments in other companies Other non-current assets (amounts in thousands of EUR) Other non-current assets Total other non-current assets Other non-current assets as at 31 December 2011 almost entirely relate to deposits and guarantees. 88

90 Consolidated Financial Statement as at 31 December 2011 NOTE 10 Inventories The breakdown of inventories as at 31 December 2011 is as follows: (amounts in thousands of EUR) Work in progress Cost Inventory write-down provision Net realisable value Raw & auxiliary materials and consumables Cost 8,141 7,108 Inventory write-down provision Net realisable value 7,471 6,428 Advances 0 0 Total inventories 7,544 6,483 Long-term contracts refer to the subsidiaries PCS and MSI. In particular, EUR 552,000 relates to a single project referred to as NoeHIT for the supply of software programmes and services in the Lower Austria Region. The value at issue is fully covered by drawing from the provision for impairment of contract work, accrued in previous years to cover a customer dispute, for which legal proceedings have been brought to recover the amounts owing. Raw materials primarily relate to consumables and spare parts for the endoscopy and Clinical Engineering businesses that are, for the most part, stored at contracting authorities premises. They are measured at purchase cost calculated with the FIFO method, adjusted by the inventory write-down of EUR 670,000 at 31 December 2011 (EUR 680,000 at 31 December 2010). Overall changes in the inventory write-down provision for the two financial periods are shown below: (amounts in thousands of EUR) Inventory write-down provision as at 1 January Utilization in the year Foreign exchange translation differences -1 6 Provisions of the period Inventory write-down provision as at 31 December NOTE 11 Trade receivables The table below provides a breakdown of trade receivables: (amounts in thousands of EUR) Trade receivables customers 119, ,875 Trade receivables associated companies 4,478 15,038 Allowance for doubtful accounts -2,445-1,543 Total trade receivables 121, ,370 89

91 Consolidated Financial Statement as at 31 December 2011 Trade receivables as at 31 December 2011 amount to EUR 121,051,000 (EUR 115,370,000 as at 31 December 2010), net of a provision for doubtful debts of EUR 2,445,000 (EUR 1,543,000 as at 31 December 2010). As in previous years, even in 2011 some Group companies entered into receivables assignment deals with factors, resulting in receivables assigned totalling EUR 77 million being removed from the balance sheets (EUR 51 million in 2010). Receivables from associated companies relate to receivables of EUR 4,325,000 from the SIGE Consortium, EUR 79,000 from Me.Sys., EUR 50,000 from Saim and EUR 24,000 from TH Med. Changes in the provision for doubtful debts in the two periods under consideration are as follows: (amounts in thousands of EUR) At 1 January 1,543 1,468 Change in the scope of consolidation 0 24 Accruals for the period Utilization At 31 December 2,445 1,543 The analysis of the past-due loans and those to mature as at 31 December 2011 is as follows: (amounts in thousands of EUR) Total Not < Over 180 overdue days days days days days Trade receivables customers 123,496 84,001 3,556 6,601 5,220 10,289 13,829 The analysis of the allowance for doubtful accounts as at 31 December 2011 is the following: (amounts in thousands of EUR) Total Not < Over 180 overdue days days days days days Allowance for doubtful accounts 2, ,426 The high total for overdue receivables is justified by the fact that the Group works primarily with public bodies, who are known for their extended repayment timeframes. Despite payments being received with significant delays compared to contractual repayment terms, this does not expose the amounts shown to any repayment risk, apart from those amounts already presented in the financial statements. NOTE 12 Other current assets The table below provides a breakdown of other current assets: (amounts in thousands of EUR) Social security receivables Amounts receivable for Government s grants Receivables from employees Prepaid expenses and accrued income Other tax credits 1,302 2,045 Other receivables 4,589 2,047 Total other current assets 7,316 5,372 90

92 Consolidated Financial Statement as at 31 December 2011 Receivables from employees mainly consist of advances paid to employees against expenses incurred for performing their work and of cash given to employees who travel at the time of their recruitment and withheld when the employee leaves the company. Other tax credits mostly include VAT credits. Receivables from others mainly include: receivables from temporary associations of companies for rebilling the subsidiary EBM for EUR 1,738,000; charges of EUR 952,000 incurred during the year due to the increase in share capital completed on 9 February 2012, fully subscribed and paid by Fondo Italiano d Investimento SGR. Please refer to Note 36 for more details; charges incurred in 2010 and 2011 of EUR 200,000 for the Star market quotation project. Both items are directly deducted from equity following completion of the transactions to which they refer. NOTE 13 Income taxes payable and receivable (amounts in thousands of EUR) Income tax receivable 1,218 1,165 Total income tax receivables 1,218 1,165 Income tax receivable refers to amounts receivable from individual countries for direct taxes (IRES - corporate income tax and income tax of various countries) which should be recovered within the following year, as well as amounts receivable for tax withheld by companies on interest receivables. (amounts in thousands of EUR) Income tax payables 2,515 2,605 Total income tax payables 2,515 2,605 Income taxes payable refer to current taxes for the year still to be paid and record the amounts that the individual companies must pay to the financial administrations of the individual countries. Such payables are calculated in accordance with the tax rates currently in force in the individual countries. NOTE 14 Consolidated shareholders equity As at 31 December 2011, the item amounted to EUR 56,701,000 as opposed to EUR 57,348,000 as at 31 December For changes in shareholders equity, please refer to the relevant Statement of changes in consolidated shareholders equity. Share capital The subscribed and paid-up share capital of TBS Group consists of 36,630,020 shares with a nominal value of EUR 0.10 each. The total amount of own shares held by the Company as at 31 December 2011 amounts to 496,145 (460,043 own shares at 31 December 2010). 91

93 Consolidated Financial Statement as at 31 December 2011 Share premium account The share premium account, set up following a number of Parent Company capital increases, amounted to EUR 34,419,000 as at 31 December The decrease compared to the previous year is due to the purchase of own shares for the part ascribable to share premium. Foreign currency translation reserve The foreign currency translation reserve as at 31 December 2011 showed a loss of EUR 619,000 (loss of EUR 542,000 as at 31 December 2010) and was generated by including the following into the consolidated statements: the subsidiary TBS GB, whose functional currency is the British pound, TBS SE, whose functional currency is the Serbian dinar, TBS India, whose currency is the Indian rupee, Arabian Health Care TBS, whose currency is the Saudi riyal and Sinopharm TBS, whose currency is the renminbi. Other reserves and retained earnings Other reserves include: the First-Time Adoption (FTA) reserve deriving from the first-time application of the international accounting standards as at 1 January 2004; retained earnings: the item includes the retained results achieved by the consolidated companies and their consolidation adjustments. They are stated net of the dividends decided as EUR 1,084,000 by the Parent Company on the basis of the Shareholders' Meeting resolution of 21 June Minority interests and reserves This item amounts to EUR 2,605,000 as at 31 December 2011, compared to EUR 2,400,000 as at 31 December This change, and the profits in the period attributable to minority interests, is primarily attributable to: dividends distributed by Tesan Televita to minorities (EUR 47,000); dividends decided by Crimo for minorities (EUR 195,000); dividends distributed by SLT to minorities (EUR 53,000); the minority share (EUR 90,000) for the refusal of a loan by the minority shareholders of MSI due to the adjustment of the sales price of the majority shares resulting from the failure to achieve certain contractually established targets. For the changes in shareholders' equity attributable to minority interests, please refer to the "Summary statement of changes in shareholders' equity". 92

94 Consolidated Financial Statement as at 31 December 2011 NOTE 15 - Net financial debt The Group s net financial debt can be broken down as follows: (amounts in thousands of EUR) A. Current financial assets 2, B. Cash and cash equivalents 17,531 8,786 C. Liquidity (A. + B.) 20,230 9,035 D. Other non-current financial assets 1,714 1,643 E. Medium and long term interest-bearing loans and borrowings 19,466 24,647 F. Short term interest-bearing loans and borrowings 71,803 54,960 G. Net financial debt (C. + D. - E. - F.) -69,325-68,929 For further information on the breakdown of financial assets and liabilities, please refer to the paragraphs below. Current financial assets The table below provides a breakdown of the current financial assets: (amounts in thousands of EUR) Short-term financial receivables 2, Marketable securities Total current financial assets 2, Other financial receivables relate to: Receivables from the Lazio region for EBM relating to health facilities in the region, assigned during the financial period and collected in 2012 for EUR 2,578,000; receivables due to TBS GB for EUR 58,000; securities owned by Caribel for EUR 26,000; EUR 37,000 in other receivables payable to the Parent Company. Cash and cash equivalents The table below provides a breakdown of cash on hand: (amounts in thousands of EUR) Cash and cash equivalents 17,531 8,786 Total cash and cash equivalents 17,531 8,786 This relates to temporary cash on hand at banking institutions and liquid assets normally on hand at company offices. 93

95 Consolidated Financial Statement as at 31 December 2011 Other non-current financial assets The table below provides a breakdown of the non-current financial assets: (amounts in thousands of EUR) Other non-current financial assets 1,714 1,643 Total other financial assets 1,714 1,643 Other non-current financial assets primarily relate to a capital redemption policy taken out by EBM for a nominal EUR 1,150,000 tied to the guarantee of the SIGE Consortium and recorded in the financial statements at its fair value of EUR 1,364,000 and to a policy entered into by EBM to partly cover employee severance indemnity and directors end-of-term indemnity, valued at EUR 316,000. Medium and long term interest-bearing loans and borrowings The table below provides a breakdown of the medium and long term interest-bearing loans and borrowings: (amounts in thousands of EUR) within beyond Total within beyond Total 5 years 5 years 5 years 5 years Leasing contracts debts , ,323 Medium/long term bank loans 12, ,105 18, ,201 Debts payable to other providers 4, ,932 4, ,123 Total medium and long term interest-bearing loans and borrowings 17,964 1,502 19,466 23,240 1,407 24,647 Medium and long term interest-bearing loans and borrowings are detailed in the following table: Medium and long term interest-bearing loans and borrowings (amounts in thousands of EUR) EUR 14 million loan granted to TBS Group by Mediocredito - Banca di Roma in May ,259 EUR 3 million loan granted to TBS Group by Friuladria in March ,307 EUR 5 million loan granted to TBS Group by Cassa di Risparmio del FVG in June ,939 3,201 EUR 3.5 million loan granted to TBS Group by BMPS in April ,799 2,491 EUR 3 million loan granted to TBS Group by Banca Popolare di Verona in October ,540 2,274 EUR 5 million loan granted to EBM by Cassa di Risparmio del FVG in November 2008 (*) 937 2,187 Total of EUR 2.5 million in loans to EBM by Cassa di Risparmio del FVG in August and September EUR 5 million loan granted to TBS IT by B.P di Vicenza in December ,084 3,075 Mortgage granted by BKS to PCS in December EUR 5 million loan granted to TBS Group by Banca Popolare di Milano and transferred to Insiel Mercato in March ,322 na 94

96 Consolidated Financial Statement as at 31 December 2011 (amounts in thousands of EUR) EUR 180,000 loan granted to Caribel by Antonveneta in September EUR 250,000 loan granted to EBM by Banca Marche in November EUR 200,000 loan granted to EBM by BMPS in September Total non-current portion of medium/long interest-bearing loans 13,105 19,201 F.I.T. loan granted to Caribel P.I.A. loan granted to Caribel Financial payable to Caribel minority shareholders for the acquisition of a 49.00% interest in Caribel (put & call options) 1,085 1,098 Financial payable to EBM minority shareholders for the acquisition of a 5.03% interest in EMB (put & call options) 1,671 1,747 Financial payable to Erre Effe minority shareholders for the acquisition of a 49.00% interest in Erre Effe (put & call options) Financial payable to EBME minority shareholders for the acquisition of a 36.75% interest in EMBE 828 Other payables of the subsidiary EBM 78 Total non-current portion debts payable to others 4,932 4,123 Non-current portion of leasing contracts debts 1,429 1,323 Total medium and long term interest-bearing loans and borrowings 19,466 24,647 Some loans require compliance (financial covenants) with certain parameters based on the consolidated financial statements of the Parent Company at the year-end. These financial parameters, to be calculated on an annual basis, have no features or obligations differing from those generally found in accepted market practice and had been observed at the end of 2011, with the sole exception of a loan to the Unicredit Group (outstanding balance of EUR 1,380,000 as at 31 December 2011) that was reclassified as a short-term loan in connection with elimination of the acceleration clause with the resulting possibility that the bank will request the company to immediately repay the loan, although there was no notification made by the bank. Leasing contracts debts Leasing contracts debts refer to financial leasing contracts entered into by the parent company and by the subsidiaries Tesan, Crimo, TBS ES, Caribel, EBM and Erre Effe and Delta X. Please refer to the paragraph in Note 8 regarding assets held under finance leases for further details. Medium and long term interest-bearing loans The characteristics of the major loans currently active are described below. EUR 14 million pooled loan granted to TBS Group by Medio Credito Centrale - Banca di Roma in May 2006 The loan is paid back in quarterly deferred instalments; the first instalment expired in January 2008 and the final one is due for payment in December 2012, with an interest rate equal to 3-month Euribor plus a spread. This spread could be modified up to 0.3 points, in connection to TBS Group audited consolidated figures, with covenants regarding the ratio between net financial position and shareholders equity and the ratio between net financial position and gross operating margin. Moreover the loan agreement requires compliance with indicators calculated on TBS Group 95

97 Consolidated Financial Statement as at 31 December 2011 audited consolidated accounting values, regarding the ratio between net financial debt and shareholders equity and the ratio between gross operating profit and financial expenses. If those indicators should not fall within the settled limits, the bank is entitled to rescind the contract, in accordance to Italian Civil Code, article 1456; the Bank has the option of maintaining the loan with newly agreed conditions. As at 31 December 2011 the company was compliant with those covenants. As at 31 December 2011, the outstanding loan amount was EUR 3,259, short term. EUR 3 million loan granted to TBS Group by Friuladria in March The EUR 3 million loan is repayable in 57 quarterly deferred instalments with the first instalment paid in April 2009 and the last instalment scheduled for December The loan interest rate is the 6-month Euribor rate plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 1,307,000, consisting of EUR 649,000 repayable over the short term and EUR 658,000 repayable over the medium/long term. EUR 5 million loan granted to TBS Group by Cassa di Risparmio del FVG in June The EUR 5 million loan is repayable over 16 quarterly deferred instalments with the first instalment paid in September 2010 and the last instalment due in June The loan interest rate is the 3-month Euribor rate plus a spread. The loan agreement requires compliance with several indicators of the consolidated financial statements of TBS Group regarding the ratio between net financial position and shareholders' equity and the ratio between net financial position and gross operating profit and between net operating profit and financial expenses. If those indicators should not fall within the settled limits, the bank is entitled to rescind the contract, in accordance with Italian Civil Code, article 1456, if the Company, within 90 days from the bank warning notice, has not remedied its position, or has not renegotiated the terms with the bank. Those indicators were compliant as at 31 December As at 31 December 2011, the outstanding loan amount was EUR 3,188,000, consisting of EUR 1,249,000 repayable over the short term and EUR 1,939,000 repayable over the medium/long term. EUR 3.5 million loan granted to TBS Group by Banca Monte dei Paschi di Siena in April The loan is repayable in deferred instalments. Pay back on the loan started in December 2010 and will end in June The loan interest rate is the 6-month Euribor rate plus a spread. Moreover the loan agreement requires the compliance with indicators calculated on TBS Group audited consolidated accounting values, regarding the ratio between net financial debt and shareholders equity and the ratio between EBITDA and net financial debt. If those indicators should not fall within the settled limits, the Bank is entitled to rescind the contract, in accordance to Italian Civil Code, article Those indicators were compliant at 31 December As at 31 December 2011, the outstanding loan amount was EUR 2,491,000, consisting of EUR 692,000 repayable over the short term and EUR 1,799,000 repayable over the medium/long term. EUR 3 million loan granted to TBS Group by Banca Popolare di Verona in October 2010 The loan is repayable in quarterly deferred instalments. Pay back on the loan started on 31 March 2011 and will end on 31 December The loan interest rate is the 3-month Euribor rate plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 2,279,000 consisting of EUR 739,000 repayable over the short term and EUR 1,540,000 repayable over the medium/long term. EUR 5 million loan granted to TBS Group (now transferred to EBM) by Cassa di Risparmio del Friuli Venezia Giulia in November The loan is repayable in quarterly deferred instalments. Pay back on the loan started in December 2009 and shall end in September The loan interest rate is the 3-month Euribor rate plus a spread. The loan agreement requires 96

98 Consolidated Financial Statement as at 31 December 2011 the compliance with several indicators of the consolidated financial statements of TBS Group regarding the ratio between net financial position and shareholders' equity and the ratio between net financial position and gross operating profit and between net operating profit and financial expenses. If those indicators should not fall within the settled limits, the bank is entitled to rescind the contract, in accordance with Italian Civil Code, article 1456, if the Company, within 90 days from the bank warning notice, has not remedied its position, or has not renegotiated the terms with the bank. Those indicators were compliant as at 31 December As at 31 December 2011, the outstanding loan amount was EUR 2,187,000, consisting of EUR 1,250,000 repayable over the short term and EUR 937,000 repayable over the medium/long term. Total of EUR 2.5 million loans to EBM by Cassa di Risparmio del FVG granted in August and September The loans are repayable in 14 monthly instalments starting from 20 January 2011 for the EUR 1.5 million loan and from 16 February 2011 for the EUR 1 million loan. The interest rate of the loans is equal to the 1-month Euribor rate plus a spread. As at 31 December 2011 the outstanding amount of the loans was EUR 432 thousand repayable over the short term. EUR 5 million loan granted to TBS IT by Banca Popolare di Vicenza in December The EUR 5 million loan is repayable in 20 quarterly deferred instalments with the first instalment due in March 2010 and the last instalment in December The loan interest rate is the 3-month Euribor rate plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 3,082,000, consisting of EUR 998,000 repayable over the short term and EUR 2,084,000 repayable over the medium/long term. Mortgage granted by BKS to PCS in December The EUR 819,000 loan is secured by a EUR 500,000 mortgage. It is repayable in monthly instalments, and the first instalment was paid in January The interest rate is equal to a 3-month Euribor plus a spread. Following the purchase of nearby land used as an employee car park, the original amount was increased by EUR 140,000 in September The total outstanding loan amount as at 31 December 2011 was EUR 770,000, consisting of EUR 54,000 repayable over the short term and EUR 716,000 repayable over the medium/long term (of which EUR 424,000 beyond 5 years). EUR 5 million loan granted to TBS Group by Banca Popolare di Milano (now transferred to Insiel Mercato) in March The loan is repayable in quarterly deferred instalments; the first instalment expired in June 2011 and the final one is due for payment in March The loan interest rate is equal to the arithmetic mean of the daily 6-month Euribor rates plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 4,290,000, consisting of EUR 968,000 repayable over the short term and EUR 3,322,000 repayable over the medium/long term. EUR 2.5 million loan granted to the TBS Group by Unicredit Corporate Banking Spa in May The loan is repayable in quarterly deferred instalments. Pay back of the loan started in September 2010 and shall end in June The loan interest rate is the 3-month Euribor rate plus a spread. The loan agreement requires compliance with several indicators of the consolidated financial statements of TBS Group regarding the ratio between net financial debt and shareholders' equity and the ratio between net financial debt and EBITDA. If these indicators do not fall within the established limits, the bank reserves the right to appeal to loss of the acceleration clause pursuant to art of the Italian Civil Code and to declare the contract rescinded pursuant to art of the Italian Civil Code. As at 31 December 2011, the outstanding loan amount was EUR 1,380,000, consisting, in accordance with the original repayment schedule, of EUR 465,000 repayable over the short term and EUR 915,000 repayable over the 97

99 Consolidated Financial Statement as at 31 December 2011 medium/long term. The entire outstanding loan amount was classified short term due to failure to observe the contractual covenants. Debts payable to other providers Medium/long term loans payable to others are detailed in the following table: F.I.T. loan (special Revolving Fund for Innovation and Technology) with starting capital of EUR 265,000 granted in June 2003 by the Ministry of Productive Activities to Caribel. The loan is repayable in annual instalments. The date of extinction is June The outstanding loan amount as at 31 December 2011 is EUR 110,000 of which EUR 27,000 falls due within the year and EUR 83,000 comes due beyond the year. P.I.A. loan (Integrative Incentive Package for local development) with a starting capital of EUR 206,000, granted in November 2007 by the Ministry of Productive Activities to Caribel, apart from EUR 386,000 granted in The loan is repaid in annual instalments. The date of extinction is March The outstanding loan amount as at 31 December 2011 is EUR 287,000 of which EUR 41,000 falls due within the year and EUR 246,000 comes due beyond the year (of which EUR 163,000 beyond 5 years). The loan is tied to execution of the Aster-Med project. EUR 1,085,000 financial payable to Caribel minority shareholders. Based on the agreement signed by Caribel minority shareholders, the Group proceeded with valorisation of the Put & Call option for purchase of 49% of Caribel shares. The nominal value of the payable according to the contractual agreements is EUR 1,207,000. This borrowing is stated at its present value of EUR 1,085,000. The discounting rate used is 5.5%. EUR 1,671,000 financial payable to EBM minority shareholders. Based on the agreement signed by EBM minority shareholders, the Group proceeded with valorisation of the Put & Call option for purchase of 5.03% of EBM shares. The nominal value of the payable according to the contractual agreements is EUR 1,901,000. This payable is posted at its current amount of EUR 1,671,000 net of the dividends paid in The discounting rate used is 2.8%. EUR 941,000 financial payable to Erre Effe minority shareholders. Based on the agreement signed by Erre Effe minority shareholders, the Group proceeded with valorisation of the Put & Call option for purchase of 49% of Erre Effe shares. The nominal value of the payable according to the contractual agreements is EUR 1,220,000. This borrowing is stated at its present value of EUR 941,000. The discounting rate used is 6.7%. EUR 828,000 financial payable to EBME minority shareholders. In accordance with the agreement signed with the minority shareholder of EBME, the Group calculated the value of an earn out (which was recognised under current liabilities) and the remaining 36.75% of EBME to be settled with a share swop of TBS GB shares. The contract also provides for a put option in favour of the minority shareholder and a call option in favour of TBS Group for the repurchase of the TBS GB shares swopped. The nominal value of the payable for the put option according to the contractual agreements is EUR 943,000. This is stated at its present value of EUR 828,000. The discounting rate used is 4.5%. 98

100 Consolidated Financial Statement as at 31 December 2011 EUR 587,000 financial payable to MSI minority shareholders. The outstanding loan amount, including interest, as at 31 December 2011 is EUR 129,000 falling due within the year. Short term interest-bearing loans and borrowings The table below provides a breakdown of the short term interest-bearing loans and borrowings: (amounts in thousands of EUR) Short term leasing contracts debts Bank short-term 67,826 51,508 Debts payable to factors 2,724 2,065 Other short-term borrowings 717 1,127 Other short-term borrowings with associated companies 62 Short term interest-bearing loans and borrowings 71,803 54,960 Short term interest-bearing loans and borrowings relate to those Group short-term borrowings from leasing companies, factoring companies, banks, other financial institutions and other lenders. Amounts due to banks include bank overdrafts, advanced payments of invoices, current portion of medium/long term borrowings and other short term loans. Current liabilities (amounts in thousands of EUR) EUR 14 million loan granted to TBS Group by Mediocredito - Banca di Roma in May ,259 3,011 EUR 3 million loan granted to TBS Group by Friuladria in March EUR 5 million loan granted to TBS Group by Cassa di Risparmio del FVG in June ,249 1,200 EUR 3.5 million loan granted to TBS Group by BMPS in April EUR 3 million loan granted to TBS Group by Banca Popolare di Verona in October EUR 5 million loan granted to EBM by Cassa di Risparmio del FVG in November ,250 1,250 Total of EUR 2.5 million in loans to EBM by Cassa di Risparmio del FVG in August and September ,068 EUR 5 million loan granted to TBS IT by B.P di Vicenza in December Mortgage granted by BKS to PCS in December EUR 5 million loan granted to TBS Group by Banca Popolare di Milano in March na Mortgage granted to TBS Group by Unicredit in May ,380 2,278 EUR 180,000 loan granted to Caribel by Antonveneta in September EUR 100,000 loan granted to Caribel by BMPS in December EUR 250,000 loan granted to EBM by Banca Marche in November EUR 200,000 loan granted to EBM by BMPS in January Various loans granted to Subitec 0 57 Total short-term portions of medium/long-term loans 11,767 13,085 Current account overdrafts, advances on invoices and other short-term borrowings 56,059 38,423 Total short-term bank loans 67,826 51,508 99

101 Consolidated Financial Statement as at 31 December 2011 (amounts in thousands of EUR) F.I.T. loan granted to Caribel P.I.A. loan granted to Caribel TBS Group liabilities for dividends Tesan liabilities for grants collected, payable to the project partners 0 64 TBS GB liabilities for grants collected, to be repaid Insiel Mercato liabilities with the associated company Saim 62 0 Loan from minority shareholders to MSI Debts payable to EBM minority shareholders 0 3 Debts payable to EBME minority shareholders for the earn out Debts payable to Erre Effe minority shareholders 68 0 Tesan debts for tenths to be paid 12 0 Other loans and borrowings 6 20 Total short-term portion of other borrowings 779 1,127 Current leasing contracts debts Current amounts due to factors 2,724 2,065 Total short term interest-bearing loans and borrowings 71,803 54,960 Derivatives In October 2007, the subsidiary EBM entered into a derivative contract (CAP Plain Vanilla), which may not be regarded as hedging for accounting purposes, for a notional amount of EUR 250,000 subject to amortisation, which guarantees the company the return of the greater of 0 and the value determined by the formula as contractually defined by the parties. EBM paid an initial premium of 2.0% on the notional amount of this derivative contract. The expiration date of the derivative contract is scheduled for 1 November The positive fair value of the derivative instrument as at 31 December 2011 is close to 0 (EUR 10 at 31 December 2010). NOTE 16 Employee Severance Indemnity The table below shows changes in the Employee Severance Indemnity provision: (amounts in thousands of EUR) At 1 January 6,553 6,234 Change in the scope of consolidation Accruals for the period (actuarial loss/profit included) 1, Financial expenses Benefits paid -2, Other 0 19 At 31 December 6,668 6,

102 Consolidated Financial Statement as at 31 December 2011 According to accounting standards, and IAS 19 in particular, the employee severance indemnity is regarded as a defined benefit obligation whereby the liability is measured on the basis of actuarial methods. Following promulgation of Italian Law no. 296 of 27 December 2006 (Financial Law 2007) and subsequent Decrees and Regulations issued in early 2007, significant amendments have been introduced to employee severance indemnity. As a result of these modifications, the difference between the actuarial value determined at the end of 2006 and the value resulting from the new actuarial calculation made at the same date was recorded in the statement of income of Again in the aftermath of Italian Financial Law 2007, the employee severance indemnity accrued from 1 January 2007 or from the date the option to be exercised by employees was selected is included in the category of programmes with defined contribution, both in the case of supplementary allowance as well as in the case of allocation to the INPS Treasury Fund. The accounting of this Employee Severance Indemnity is therefore assimilated with other types of contribution deposits. As at 31 December 2011 and 31 December 2010 the breakdown of the provisions by Italian and foreign companies to which said reserve applies is expressed in percentage terms and absolute values on the following table: (amounts in thousands of EUR) % Value % Value Italian companies 93.5% 6, % 6,111 Foreign companies 6.5% % 442 Total 100.0% 6, % 6,553 Employee Severance Indemnity liabilities were measured by independent actuaries in application of the Projected Unit Credit Method. For Italian entities, the actuarial assumptions used were as follows: Annual probability of termination due to death ISTAT 08 ISTAT 07 death-rate tables death-rate tables, lowered to 85%, lowered to 85% lowered per gender lowered per gender Annual probability of termination due to disability INPS data lowered INPS data lowered to 70% to 70% Annual probability of attrition due to other causes 5.00% 5.00% Annual probability of request of indemnity advance by employees 2.00% 2.00% Annual interest rate 4.46% 4.50% Annual inflation rate 2.00% 2.00% Retirement age Current INPS Current INPS retirement rules retirement rules 101

103 Consolidated Financial Statement as at 31 December 2011 The actuarial calculations relating to Austrian and French subsidiaries took into account the discount rate and the retirement age that are more pertinent to them and, in particular: PCS TBS FR PCS TBS FR Discount rate 5.00% 4.30% 5.00% 4.50% Retirement age Annual rate of real salary increase 2.75% 2.75% NOTE 17 Provisions The table below provides a breakdown of provisions for liabilities and charges: (amounts in thousands of EUR) Tax risk Other FISC Provision for Total provisions provisions for litigation liabilities and charges At 1 January , ,684 Accruals for the year Utilisation for the year ,036 As at 31 December Tax risk provision relates to: EUR 14,000 to the Parent Company for the tax inspection for the 2003 year, after which a dispute began, with judgement of the court of first instance issued in early The amount in the financial statements is equal to the outstanding amount still to be paid based on the judgement of the first instance; EUR 125,000 to the Parent Company for the 2009 tax inspection by Tax Authorities regarding direct taxes and VAT for the year 2007 and the other years still open to inspection. On 27 October 2010 agreement to the tax assessments reports notified during 2010 was reached with the Tax and Revenue Office. The provision comprises allocation for the assessment of financial year 2008 for taxes, penalties, interest and social security contributions not yet settled on the basis of the aforesaid agreement. These amounts shall be paid to the Tax and Revenue Office once the payment schedule has been received; EUR 53,000 for the Parent Company allocated for the probable negative judgement of the Court of Cassation concerning the dispute on Italian Law 388. The dispute regards recovery of the tax credit envisaged by article 8 of Italian Law 388/2000 concerning which the Parent Company won the case before the provincial and regional tax commissions, and the Court of Cassation has still not disclosed the operative part of the judgement. Other provisions for risks and future charges regards: EUR 21,000 for Subitec provisions in previous years against risks for guarantees issued to customers; EUR 30,000 to the provisions in the financial statements of Insiel Mercato hedging possible future losses on certain contracts. A part of the provisions was used during the year (EUR 150,000) since the risks related to previous allocations no longer existed; EUR 28,000 for the provisions of Insiel Mercato in relation to possible staff related risks. EUR 619,000 for the provision allocated the previous year was freed up. The renewed supplementary company agreement was signed in September 2011 meaning that the risks related to the failure to sign it no longer exist; 102

104 Consolidated Financial Statement as at 31 December 2011 EUR 61,000 to the provisions of TBS India hedging the risk connected with the SLA clause included in customer contracts. EUR 7,000 were used during the year; EUR 86,000 to the provisions of PCS for the risk of having to return part of the sums collected for contributions in past years to the relevant bodies. PCS used EUR 218,000 of the provision for the grants already made to the relevant entities. The provisions for the year amounted to EUR 9,000. The provision for litigation relates to the subsidiary TBS FR for EUR 73,000 in order to cover the risk of employee disputes (EUR 36,000 was used). EUR 26,000 are for the provisions regarding TBS PT and EUR 40,000 regard TBS BE. The supplementary customer indemnity provision was allocated by the Italian companies EBM, Tesan, Crimo and Tecnobiopromo and includes provisions for indemnity payable in certain cases of dissolution of agent contracts. The provision was calculated in accordance with the Collective Bargaining Agreements for Agents and Sales Representatives for Industry of 20 March 2002 and is recorded at current value (the provisions amount to EUR 39,000 and the utilisation to EUR 6,000). NOTE 18 - Other non-current liabilities (amounts in thousands of EUR) Other non-current liabilities Total other non-current liabilities Other non-current liabilities mainly refer to deferred income relating to grants obtained by Caribel and Crimo. The amount will be recognised in the Income Statement as a revenue, according to the occurrence, on the basis of depreciation schedules of property, plant and equipment for which the grants were obtained. NOTE 19 Trade payables The table below provides a breakdown of trade payables: (amounts in thousands of EUR) Trade payables to suppliers 44,437 41,814 Trade payables to associated companies Total trade payables 45,188 42,311 Trade payables as at 31 December 2011 amount to EUR 45,188,000 (EUR 42,311,000 as at 31 December 2010). Trade payables are non-interest bearing and payment conditions are aligned to the terms commonly in use in the areas in which the business is developed. In particular, payment extension normally applied is about 130 days and basically was in line with that of the previous year. Trade payables are not secured. Amounts due to associated companies amount to EUR 751,000, of which EUR 178,000 are due to Me.Sys., EUR 148,000 to O3 Enterprise, and EUR 425,000 to SIGE. 103

105 Consolidated Financial Statement as at 31 December 2011 NOTE 20 Other current liabilities The table below provides a breakdown of other current liabilities: (amounts in thousands of EUR) Payables to employees 7,088 6,407 Social security liabilities 4,209 3,847 Customer advance payments on invoices VAT payable 14,900 7,980 Other tax liabilities 2,248 1,790 Other payables 4,152 4,488 Total other current liabilities 32,610 24,666 Payables to employees include payables for salaries and wages for the month of June, to be paid in the following month, accruals in the six-month period towards the additional 13th month salary, payables to employees for untaken leave. Social security liabilities primarily consist of payables to the Italian Institute for Social Security (INPS), the Italian Workers Compensation Authority (INAIL) and the Local Social Security Institutes, as well as amounts due for contributions towards 13th month salary and leave. The VAT payable relates mostly to deferred VAT due by Insiel Mercato, payable to the Treasury only when the company collects receivables (and thus VAT) from Public Bodies. Other taxes payables primarily comprise employee and collaborator tax withholdings. The Other payables item relates to various payables such as amounts due to directors, freelancers, etc. NOTE 21 - Guarantees granted, commitments and financial liabilities Assets pledged as guarantees for financial liabilities The subsidiary PCS has issued an EUR 500,000 mortgage-backed security against the loan granted by BKS. Guarantees given The Parent Company gave a Performance Bond guarantee for EUR 6,650,000, with expiry on 31 December 2012, to the Friuli Venezia Giulia autonomous region to guarantee the compliance in the transfer agreement for 100% of Insiel Mercato shares. Tesan and Tesan Televita have provided guarantees to the value of EUR 4,641,000 in favour of customers for participation in calls for tender. EBM has provided insurance guarantees to the value of EUR 32,348,000 for the proper execution of works in favour of customers and for participation in calls for tender and EUR 1,150,000 in favour of the associated company SIGE Consortium. Insiel Mercato has provided guarantees to the value of EUR 1,963,000 in favour of customers and for participation in calls for tender. 104

106 Consolidated Financial Statement as at 31 December 2011 NOTE 22 Revenues The table below provides a breakdown of revenues as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Sale of goods and rendering services 195, ,085 Change in inventories of work in progress 18-5 Total revenue 195, ,080 Revenues primarily relate to contractual amounts accrued on the basis of the progress of services performed and accrued in the year, changes in contract work in progress for services that have a value at year-end but have not been completed, invoices issued to customers or entities in temporary joint ventures with the Group for the sale of consumables and spare parts, and ISTAT adjustment invoices in the period at issue and previous periods. The increase in revenues is mainly due to the revenues from EBM (increase of EUR 5 million). The revenues not included in the scope of consolidation for the 2010 financial period, and those acquired on 31 December 2010, which therefore did not contribute to Group turnover last year, amount to a total of EUR 2,197,000 (of which EUR 1,106,000 from Erre Effe, EUR 642,000 from EBME, EUR 209,000 from Delta X and EUR 240,000 from TBS India which was included in the scope of consolidation from April 2010). NOTE 23 - Other income The table below provides a breakdown of other income as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Grants Other operating revenues 1, Total other income 2,183 1,581 Revenue grants include both revenues linked to cost components and revenues linked to investments in non-current assets, and are recognised on an accruals basis for their offsetting against related costs. The positive components regarding use of the risk provisions are recognised under other revenues. NOTE 24 Cost of raw materials and consumables The table below provides a breakdown of the cost of raw materials and consumables as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Raw materials, consumables and goods 24,249 24,842 Changes in inventories of raw materials, consumables and goods -1, Total raw materials, consumables and goods 23,216 25,257 The costs shown primarily relate to the purchase of spare parts for medical devices on receipt of orders. 105

107 Consolidated Financial Statement as at 31 December 2011 NOTE 25 Service costs The table below provides a breakdown of service costs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Consultancy and technical contracts 48,741 46,828 Legal administrative and commercial services 5,006 4,372 Travel expenses 3,360 3,711 Telephone expenses 1,886 1,584 Directors remuneration 1, Board of statutory remuneration Commission on sales 1,667 1,490 Banks and factors charges Insurance Transportation and shipping 1,118 1,096 Other repairs and maintenance 1,470 2,154 Advertising, promotion, exhibitions and trade fairs Leases and rentals 2,586 2,486 Vehicle rental 2,328 2,154 Other service costs 5,515 4,629 Total service costs 77,246 73,978 The increase in service provision costs as at 31 December 2011 compared to the previous year was strictly linked to the increase in turnover. Other costs for services is a residual item that includes other charges such as utilities, postal charges and meal vouchers. The following table provides the 2011 fees for the services involving the audit of the separate and consolidated financial statements for the year, and the limited audit for the half-year report, as provided by the independent auditors and by other companies belonging to its network. (amounts in thousands of EUR) Party who provided the service: considerations attributable to 2011 amount Reconta Ernst & Young S.p.A. Parent Company - TBS Group Spa auditing service 99 Reconta Ernst & Young S.p.A. Parent Company - TBS Group Spa other services 12 Reconta Ernst & Young S.p.A. Italian subsidiaries auditing service 148 Reconta Ernst & Young S.p.A. foreign subsidiaries auditing service 133 Total

108 Consolidated Financial Statement as at 31 December 2011 NOTE 26 Personnel costs The table below provides a breakdown of personnel costs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Salaries and wages 56,779 51,161 Social security contributions 15,105 13,598 Retirement benefits Employee Severance Indemnity and similar obligations 2,282 2,269 Other personnel costs 1,890 1,902 Total personnel costs 76,254 69,107 The increase in personnel costs as at 31 December 2011 compared to the previous year is primarily due to the increase in personnel related to increase in turnover. The Other personnel costs item primarily relates to costs for temporary work and staff leaving incentives for the year. The changes in the number of Group employees in the last two financial years, taking into account the companies acquired in the periods, are summarised below: 1 January 2010 Recruitment Resignations 31 December 2010 Managers Employees 1, ,919 Total 1, ,948 1 January 2011 Recruitment Resignations 31 December 2011 Managers Employees 1, ,020 Total 1, ,052 Recruitment in 2011 includes 10 employees for Delta X (company acquired in May 2011) and 35 employees, one of whom is a manager, for EBME (company acquired in August 2011). NOTE 27 Other operating costs The table below provides a breakdown of other operating costs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Write-downs of receivables under current assets Taxes Other costs 1,520 1,963 Other operating costs 3,045 2,

109 Consolidated Financial Statement as at 31 December 2011 Other costs primarily relate to membership charges, marketing and promotional costs and costs pertaining to previous years. NOTE 28 - Cost adjustments for in-house generation of non-current assets The following table illustrates the extent of the cost adjustments for in-house generation of non-current assets as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Cost adjustments for in-house generation of non-current assets 1,955 1,493 Total cost adjustments for in-house generation of non-current assets 1,955 1,493 The item Cost adjustments for in-house generation of non-current assets as at 31 December 2011 amounted to EUR 1,955,000 (EUR 1,493,000 as at 31 December 2010). It related entirely to personnel and service expenses incurred for some new software and information technologies developments. In particular, should such costs be deducted from the corresponding income statement item, there would be a reduction in personnel and service costs. NOTE 29 Amortisation, depreciation and write-downs The following table shows the breakdown of amortization, depreciation and write-downs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Depreciation of property, plant and equipment 3,704 3,240 Amortisation of intangible assets 4,625 4,201 Goodwill impairment 1,091 2,000 Other write-downs 55 0 Total amortisation, depreciation and write-downs 9,475 9,441 The increase in amortisation of intangible assets as at 31 December 2011 compared to 31 December 2010 primarily relates to the amortisation of customer relations of EBME and Delta X acquired during the year, and Erre Effe and SIC, acquired on 31 December 2010 (a total of EUR 392,000) whose amortisation process started during the current period. The increase in the amortisation of intangible assets is mainly due to the investments made by Tesan. Please refer to Note 7 for more information on the goodwill write-downs resulting from the impairment tests. 108

110 Consolidated Financial Statement as at 31 December 2011 NOTE 30 Other provisions The table below provides a breakdown of other provisions for doubtful account as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Allocation to contractual risk provision for disputes FISC and TFM allocation Allocation to other provisions for liabilities and charges 9 32 Total allocation to provisions Please refer to Note 17 for the related comments. NOTE 31 - Investments accounted for using the equity method Investments in associated companies are measured using the equity method, and this resulted in a net revaluation of EUR 6,000 according to the following breakdown: (amounts in thousands of EUR) TH Med 0-12 Easy Care Foundation SMS -5 0 Kell Mesys 57 0 O3 6 0 Other -2 0 Total (revaluations) losses from investments 6-17 No significant permanent losses were recorded in relation to investment in other companies. 109

111 Consolidated Financial Statement as at 31 December 2011 NOTE 32 Financial income and expenses The table below provides a breakdown of financial income and expenses as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Bank interest payable 4,177 2,419 Other financial expenses Actuarial termination indemnity loss Gains (losses) from equity investments 0 9 Total financial expenses 4,522 2,862 Bank interest receivables Other interest receivables Other financial income Total financial income Total financial income and expenses 4,250 2,131 The increase in financial expenses is due to the increase in the cost of debt, the increase in expenses due to the assignment of receivables, and the financial expenses resulting from the assignment of receivables owed from the health facilities of the Lazio region. NOTE 33 - Income taxes The table below provides a breakdown of income taxes with separate current, deferred and advanced taxes and, in relation to current taxes, a breakdown of Italian and foreign taxes: (amounts in thousands of EUR) IRAP 1,924 1,811 IRES 1,488 2,786 Allocation to the tax risk provision 0 53 Substitute tax 0 3,528 Current income taxes - foreign 1,136 1,295 Taxes for previous years Current income taxes 4,747 9,595 (Advance)/deferred taxes 395-6,418 Total income taxes 5,142 3,

112 Consolidated Financial Statement as at 31 December 2011 The following table shows the tax incidence on earnings before tax as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Earnings before tax 5,864 9,127 Income taxes 5,142 3,177 Incidence on earnings before taxes 87.7% 34.8% The tax incidence on the earnings before taxes for 2010 resulted from the significant effects of the payment of substitute tax by EBM on the goodwill recorded on its financial statements following the assignment of the company division by the Parent Company which took effect on 1 July Without this effect, the incidence of tax would have been 72.0% of the earnings before taxes. The increase in the incidence compared to the theoretical incidence of 2010 is mainly due to the IRAP which is calculated on a different taxable base from the earnings before tax base. No items were directly added to or deducted from shareholders equity. The reconciliation between the theoretical tax rate and the actual one is only proposed for IRES purposes, which has the typical characteristics of an income tax considering the rate applicable to the Parent Company. Taking into account the rate of the Italian regional tax on productive activities IRAP, applicable to the Parent Company, to which Italian Group companies are subject, there was no reconciliation between the theoretical and effective tax rate in light of the different tax base. (amounts in thousands of EUR) 2011 Tax basis Income taxes % Earnings before tax 5,864 Theoretical tax charge 1, % Taxes on permanent adjustments % - Donations 15 - Motor vehicle expenses Write-downs, capital losses, contingent liabilities Non-deductible amortisation Non-deductible taxes 55 - Telephone expenses Other changes 50 - Put and call interest Dividends received 532 Subtotal 2,314 Taxes on permanent adjustments % - IRAP deduction on IRES Other changes Subtotal Foreign subsidiaries in deficit for whom income taxes were not entered 1, % Effect of different tax rates/fiscal legislation in foreign jurisdictions % Taxes for previous years % Subtotal 3,251 IRAP (current and deferred) 1, % Effective tax charge 5, % 111

113 Consolidated Financial Statement as at 31 December 2011 Deferred tax assets and liabilities The following table details deferred tax assets: (amounts in thousands of EUR) Financial Statements Financial Statements statements of income statements of income Deferred income on previous losses 1, , Investments write downs 0 0 Capitalization write-off Revenue recognition Employee severance indemnity Accrual una tantum 0 0 Allowance for bad debts Inventory write-downs Receivables for deferred tax assets for substitute tax 6, ,925 6,925 Other temporary differences , ,996-1,149 10,135 6,141 The Group recorded deferred taxes relating to temporary differences between the civil and fiscal assessment of Group companies, based on the consideration that future taxable amounts will absorb all the temporary differences (including consolidation adjustments) that generated them. In calculating deferred taxes, reference was made to the rates in force in the various countries. One of the most significant amounts is allocation of deferred tax assets on tax losses arising in TBS FR, Subitec, PCS and TBS ES that can be offset by the future taxable profits of the companies in which the losses arose. In particular, the deferred tax assets recorded and the theoretical tax assets arising from tax losses that may be carried forward are as follows: (amounts in thousands of EUR) Deferred Theoretical Deferred Theoretical tax assets deferred tax assets deferred recorded tax assets recorded tax assets TBS FR Subitec (merged in TBS DE) 278 3, ,798 TBS ES 298 1, PCS Deferred tax assets on losses carried forward 1,105 5,453 1,357 4,

114 Consolidated Financial Statement as at 31 December 2011 The amount of deferred tax assets which can be carried forward, linked to the corresponding tax base, can be broken down by individual company as follows: (amounts in thousands of EUR) Unlimited Total TBS FR Subitec TBS ES PCS Deferred tax assets on losses carried forward ,105 Details of deferred tax liabilities are as follows: (amounts in thousands of EUR) Financial Statements Financial Statements statements of income statements of income Difference between fiscal-ifrs goodwill amortisation 3, , Deferred tax following orders portfolio and relations with customers 5, , Employee severance indemnity Accelerated depreciation 0-21 Allowance for doubtful accounts R&D capitalization Other temporary differences 1, Total deferred tax liabilities 10, , The deferred tax liabilities were recorded against all the taxable temporary differences, and more specifically: on write-downs of goodwill amortisation after their initial recognition on the basis of the fiscally deductible amortisation; on the portfolio order and customer relations accounting on the basis of the purchase price allocations of the various purchases made by the Group. NOTE 34 Related party disclosures The consolidated financial statements include the financial statements of TBS Group and of those subsidiaries falling under the scope of consolidation. Transactions between TBS Group and the related subsidiaries were eliminated from the Consolidated Financial Statements. 113

115 Consolidated Financial Statement as at 31 December 2011 Transactions with related parties (relating to financial and equity interests) were not removed when preparing the consolidated financial statements and are broken down as follows: (amounts in thousands of EUR) Costs Revenues Receivables Payables Costs Revenues Receivables Payables SEGES 302 (*) Paolo Salotto Alessandro Firpo Bio B.i.t Capitol Health Brian De Francesca Nicholas Bosanquet 43 Total (*) of which costs for assets and other current assets EUR 32,000. Mr. Paolo Salotto is the Investor Relator and Director of various Group companies. The amounts shown in the table relate to remuneration for consultant and management work in the acquisitions area. Seges Srl is considered a related party since Mr. Paolo Salotto is its Chairman. Relations with Seges are regulated by a consultancy agreement in the Administration, Finance and Control Departments of the Company, with particular reference to administration, accounting, extraordinary finance and tax issues. Mr. Alessandro Firpo, a close relative of a Director of the Parent Company, entered into an agreement with the Parent Company for the Promote-and-Support projects for the development of corporate activities such as monitoring and analysis of tenders, assistance with bid documentation in preparation for tenders, presentation of integrated company activities to potential clients, market analysis, subsidiaries organization and support in the analysis of disclosure obligations concerning AIM pre- and post-listing. Bio Bit Srl is considered to be a related party since Mr. Nicola Pangher and Mr. Diego Bravar are shareholders and directors of the company. Mr. Paolo Salotto is a director there. It provided administrative and IT consultancy services to the Parent Company. Mr. Brian De Francesca is Business Development Manager of TBS GB. The total amount of financial receivables for TBS GB as at 31 December 2011 is shown in the table. Mr. Nicholas Bosanquet is a manager at TBS GB, and entered into a consultancy contract with TBS GB. Capitol Health Consultants Inc. is considered to be a related party as it is a subsidiary of Capitol Health Special Fund L.P., one of the shareholders of the Parent Company. Relations with Capitol Health are regulated by a strategic and financial consulting agreement under General Management. 114

116 Consolidated Financial Statement as at 31 December 2011 Relations with the associated companies are stated in amounts in thousands of EUR as at 31 December 2011 below. (amounts in thousands of EUR) Costs Revenues Receivables Payables Costs Revenues Receivables Payables Cisic (*) 2 Meditel (**) Me.Sys TH MED O3 Enterprise Fondazione Easy Care 10 Consorzio SIGE 78 10,685 4, ,365 14, SMS in liquidation 1 Saim Total ,772 4, ,419 15, (*) liquidated December 2010 (**) company in which there are no longer any investments since 2011 Accrued remuneration for TBS Group directors with key responsibilities: (amounts in thousands of EUR) Salaries (*) Remuneration (**) Salaries (*) Remuneration (**) Diego Bravar Nicola Pangher (*) The amounts shown relate to the gross salaries paid to company employees (**) The amounts shown relate to remuneration paid to company directors NOTE 35 Share-based payments On 30 October 2009, the Ordinary Shareholders Meeting of the Parent Company resolved to allocate 397,910 own shares held in portfolio as at that date to a share option plan, assigning the shares to certain employees and staff of the Group, with one share, with standard rights, for each option assigned (the total number of own shares of the Parent Company allocated to the share option plan, following the split of shares approved by the Extraordinary Shareholders Meeting of the Parent Company on 30 October 2009, is 397,910). 115

117 Consolidated Financial Statement as at 31 December 2011 The Board of Directors of TBS Group subsequently determined a price of EUR 2.50 per share as the strike price of the related option on 20 November 2009, also selecting the key people listed below as share option plan beneficiaries and the number of related options assigned: Pietro Torrusio 47,441 Stefano Beorchia (**) 29,105 Nicola Seren (**) 29,105 Alberto Steindler (**) 29,105 Paolo Salotto (*) 29,105 Brian De Francesca 29,105 Mario Ciabocco (**) 29,105 Olivier Brosset (**) 29,105 Bill Moffitt (**) 29,105 Alfred Amann (**) 29,105 Not yet assigned 88,524 Total 397,910 (*) Board Member of the Parent Company at the listing date. (**) Group company employee at the listing date. At the same meeting, the Board of Directors also granted the Chairman the right to allocate the remaining 88,524 shares to other key managers, to be identified by 31 October 2010, whereas the Board of Directors meeting of 16 December 2010 resolved to postpone division to 31 December This has not yet been carried out. Each share option plan assignee may exercise the options as follows: for 1/3, 12 months after assignment (no one exercised the option); for 1/3, 24 months after assignment (no one exercised the option); for 1/3, 36 months after assignment. Without prejudice to the starting dates when options may be exercised, each option may be exercised up until the end of the fifth year from the date of assignment. The fair value of granted options was estimated at the assignment date using the model based on the Black and Scholes formula, taking into account the terms and conditions of assignment. The table below shows the hypotheses used in estimating the value of the options: 2009 Expected volatility (%) Risk free interest rate (%) Expected duration of the option (years) 3 years Weighted average price of shares (EUR) 2.5 The expected volatility was determined based on the historical volatility of company shares and reflects the hypothesis that the historical volatility is indicative of future trends, something which might not occur. No other characteristic of share option plans was considered for measuring fair value. It should be noted that sector volatility for similar company shares is equal to %. The cost, equal to EUR 58,000, relating to the above share-based payment, is recognised in the income statement under personnel costs (for EUR 48,000) and service costs (for EUR 10,000) with a contra entry directly recognised in shareholders equity. 116

118 Consolidated Financial Statement as at 31 December 2011 NOTE 36 Subsequent events The significant events that occurred after 31 December 2011 and up to the date the consolidated financial statements were prepared are described below: On 6 February 2012, sales contracts for the IT and Call Centre branches of Agile Srl, in extraordinary administration, were signed in favour of TBS IT (fully held by the TBS Group). Agile Srl is a company that operates in the design and creation of information and communication technology solutions and services in Italy, and had taken over these areas of activity from Eutelia Spa before both companies were placed into administration by the magistrature and the Ministry of Development. In financial terms, the overall price offered by TBS IT to purchase Agile was EUR 1 million, of which EUR 900,000 for the IT division and EUR 100,000 for the Call Centre division, to be funded by a share capital increase of TBS Group described below. On 31 January 2012, the extraordinary shareholders meeting of the TBS Group approved the reserved capital increase for the Fondo Italiano d Investimento (the Fund ) which provides for the issue of 5,555,556 new subscribed shares at a price of EUR 1.8 per share, of which EUR 1.7 as the premium. The newly issued shares have standard rights attached and have the same characteristics as all the other outstanding shares. The Fund subscribed to and paid for this on 9 February. An agreement governing the terms and conditions of future support of the existing shareholders agreement by the Fund was agreed between the main shareholders. In addition, the meeting approved the issue of a convertible bond loan, also reserved to the Fund, which provides for the issue of 4,347,826 bonds with a nominal value of EUR 2.30 each. The conversion, to be exercised in whole or in part by 31 December 2014, will be on ordinary TBS Group shares which will be newly issued at a 1:1 ratio (one share for each bond converted). In the event of reimbursement, this may occur by 31 December The interest rate provided for on the convertible bond loan has been set at the fixed nominal rate of 8% per year. The Fund subscribed to and paid for the bond loan on 9 February. The extraordinary meeting therefore approved the amendment to article 6 of the Articles of Association in order to take account of the fact that the operations described will involve the increase of the share capital of the TBS Group by 5,555,556 and 4,347,826 further ordinary shares respectively. In the event that there are no further changes in the share capital, and that the Fund exercises its right to conversion with respect to all the convertible bonds, the share capital of TBS Group will amount to EUR 4,653,340.3, allocated among 46,533,403 shares. The extraordinary meeting resolved to grant the Chairman - CEO the authority to fully implement the decisions described above. On 31 January 2012, after having examined the Report of the Board of Directors, the ordinary shareholders meeting resolved to authorise the purchase of own shares to reach a maximum of a further 263,179 ordinary shares, with a nominal value of EUR 0.10 each, (TBS Group Spa currently owns 501,031 shares). On 2 March 2012, an investment agreement was made with REM Spa of Fisciano (SA), specialised in the diagnostic imaging sector through the sale and technical assistance of equipment reserved to this market. The agreement provides for the entrance of TBS Group into the share capital of REM through a reserved capital increase that will involve the payment of EUR 2 million as the nominal value plus premium, at the end of which the TBS Group shall have a 35% holding. This operation will mean that the capital of REM will increase by a nominal EUR 328,050 to a nominal EUR 504,690 through the issue of 17,664 new ordinary shares with a nominal value of EUR 10 and a premium of EUR for each of these. The agreement also provides for a call option in favour of TBS Group that can be exercised in one or two tranches for the purchase of a further 35% holding. The option can be exercised as one solution, by 31 December 2014, or alternatively in two tranches, with the first expiring on 31 December 2013 for the purchase of a 16% interest in the share capital and 31 December 2014 for purchase of the remaining 19%. 117

119 Consolidated Financial Statement as at 31 December 2011 If the call option is exercised, the TBS Group will pay a price calculated by using a 6.5 multiple of the EBITDA (net of the net financial position) recorded by the company in the 2013 financial period if the option is exercised in one tranche only, and if it is exercised in two tranches, in 2012 for the first tranche and 2013 for the second. In any case the minimum price for the exercise of the call option shall equal a total of EUR 2,508,000. On 15 March 2012 the purchase of a further 29.9% of the MSI shares was completed through the subsidiary Subitec (previously 71.1% held) at a price of EUR 50,000. Trieste, 29 March 2012 On behalf of the Board of Directors The Chairman Mr. Diego Bravar 118

120 Consolidated Financial Statement as at 31 December 2011 Report of the Board of Statutory Auditors on the Consolidated Financial Statements for the financial year ending of TBS Group S.p.A. Pursuant to Article 2429, 2nd paragraph, of the Italian Civil Code and Section 153, 1st paragraph, of Italian Legislative Decree 58/98 Shareholders, During the course of the financial year ending 31 December 2011, our work was based on the provisions of the law and the Principles of Conduct of the Board of Statutory Auditors issued by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti contabili (the Italian National Council for Public Accountants and Accounting Professionals). This report has been drawn up pursuant to and in compliance with the provisions of the law in force regarding companies listed on the Italian Stock Exchange, in view of the fact that shares in TBS Group S.p.A. are currently listed on AIM Italia. The consolidated financial statements TBS Group S.p.A. s consolidated financial statements for the financial year ending 2011 were notified to us within the timescale established by law, accompanied by the Directors Report on Operations, and have been drawn up in accordance with the International Financial Reporting Standards (the IFRS) issued by the International Accounting Board (the IABS) and adopted by the European Union and the IAS. Having considered the draft financial statements for the year ending , we report as follows. The results for the company are positive at EUR 722,000; in their explanatory notes to the financial statements, the Board of Directors has set out the basis of valuation adopted and provided the information required by law in relation to the Statement of Financial Position as well as the Statement of Income, also providing the further information deemed necessary for the purposes of as detailed an understanding as possible of the said financial statements. As we are not in charge of carrying out the statutory audit of the financial statements, we have however monitored the overall approach adopted in relation to the same and the overall compliance with the law as far as the manner in which they are drawn up and structured is concerned. In relation to these aspects we have no particular comments to make. We have established that the requirements of the law in relation to the preparation of the Directors Report on Operations have been satisfied and have no particular comments to make. To the best of our knowledge, in drawing up the financial statements the directors have not departed from the requirements of the law for the purposes of Article 2423, fourth paragraph of the Italian Civil Code. 119

121 Consolidated Financial Statement as at 31 December 2011 On 12 April 2012, the Indipendent Auditors issued its report pursuant to Clauses 14 and 16 of Italian Legislative Decree No. 39 of , with no exceptions, reservations or requests for information being made or expressed. Trieste, THE BOARD OF STATUTORY AUDITORS 120

122 Consolidated Financial Statement as at 31 December

123 Consolidated Financial Statement as at 31 December

124 Financial Statements as at 31 December 2011 Financial statements as at 31 December 2011 Drawn up in accordance with international accounting standards STATEMENT OF FINANCIAL POSITION Notes 2011 of which with 2010 of which with related parties related parties ASSETS NON-CURRENT ASSETS Assets with indefinite useful life (goodwill) 4 93,512 93,512 Intangible assets with definite useful life 5 2,911,949 2,936,230 Intangible assets 3,005,461 3,029,742 Land and buildings 1,138,624 1,176,786 Plants and machinery 16,988 12,216 Other property, plant and equipment 402, ,096 Property, plant and equipment 6 1,558,519 1,471,098 Investments in subsidiaries 68,155,301 61,484,264 Investments in associated companies and joint ventures 37,376 65,433 Investment in other companies 81,709 81,709 Investments 7 68,274,386 61,631,406 Other financial assets Other non-current assets 8 17,665 4,845 Deferred tax assets , ,152 Other non-current assets 536, ,012 TOTAL NON-CURRENT ASSETS 73,375,072 66,831,258 CURRENT ASSETS Trade receivables 9 9,181,338 8,956,173 10,424,797 8,711,529 Other current assets 10 3,450,996 1,709,080 4,730,889 3,199,846 Income tax receivables , ,224 Current financial assets 13 11,151,020 11,113,764 16,547,548 16,422,666 Cash and cash equivalents , ,790 TOTAL CURRENT ASSETS 24,723,733 32,543,248 TOTAL ASSETS 98,098,805 99,374,

125 Financial Statements as at 31 December 2011 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY Notes 2011 of which with 2010 of which with related parties related parties Share capital 3,613,388 3,616,998 Reserves 55,361,714 49,801,901 TOTAL SHAREHOLDERS' EQUITY 12 58,975,102 53,418,899 NON-CURRENT LIABILITIES Medium and long term interest-bearing loans and borrowings 13 6,494,292 13,127,232 Employee Severance Indemnity , ,631 Deferred tax liabilities , ,467 Provisions 15 5,056,189 9,156,219 TOTAL NON-CURRENT LIABILITIES 12,309,377 23,024,549 CURRENT LIABILITIES Trade payables 16 3,555, ,720 3,065, ,509 Other current liabilities 17 2,274, ,047 2,739, ,629 Short term interest-bearing loans and borrowings 13 20,984,525 1,548,060 15,778,053 2,911,407 Tax payables ,347,866 TOTAL CURRENT LIABILITIES 26,814,326 22,931,058 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 98,098,805 99,374,506 INCOME STATEMENT Notes 2011 of which with 2010 of which with related parties related parties Sale of goods and rendering of services 19 9,556,482 8,767,332 9,305,370 7,747,603 Other revenue , ,483 Total revenue 9,851,068 9,536,853 Cost of materials ,113 34, ,655 Service costs 22 6,588,084 1,146,588 5,907, ,095 Personnel costs 23 5,362,140 4,514,135 Other operating costs ,729 88, , ,394 Cost adjustments for in-house generation of non-current assets , ,913 Amortisation, depreciation and write-downs , ,442 Total costs 13,068,892 11,771,654 OPERATING PROFIT (EARNINGS BEFORE INTEREST AND TAXES) -3,217,824-2,234,801 Gain (losses) from investments 27-5,094,412-5,179,911 Dividends 28 13,886,780 13,886,780 4,194,193 4,194,193 Financial income , , , ,815 Financial expenses ,791 27, ,358 69,289 PROFIT BEFORE TAX 5,036,976-3,599,076 Income taxes 29 1,041, ,201 NET PROFIT FOR THE PERIOD 6,078,755-3,323,

126 Financial Statements as at 31 December 2011 STATEMENT OF COMPREHENSIVE INCOME Note Net profit of the period 6,078,755-3,323,875 Other components of the comprehensive profit: Transfer capital gain 560,258 Total comprehensive profit 6,639,013-3,323,875 CASH FLOW STATEMENTS (amounts in thousands of EUR) 2011 of which with 2010 of which with related parties related parties Adjustments to reconcile income gross of taxes with financial flows net of operating activities: Profit before tax 5,037-3,599 Amortisation, depreciation and write-down of intangible assets and property, plant and equipment Write-down/(write-backs) of investments 5,095 5,167 Net increase/(decrease) in the Employee Severance Indemnity provision and other personnel funds 5 2 Dividends -13,887-13,887-4,194-4,194 Interest and other financial income Financial expenses Costs for share-based payments Total -2,237-1,232 Net change of capital for the period - (Increase)/decrease in inventories (Increase)/decrease in trade receivables ,734-6,055 - Increase/(decrease) in trade payables Increase/(decrease ) in other assets and liabilities 1,219 2,991 Total 1,718-2,591 Interest and other financial income collected Income taxes paid -3, CASH FLOW GENERATED (USED IN) BY INCOME MANAGEMENT -3,470-3,907 Additions to intangible assets ,290 Additions to property, plant and equipment Net change in financial loans and other financial assets Acquisition of equity investments -9, , Dividends received 9,137 9,137 3,425 3,425 Disposal of property, plant and equipment 0 2 CASH FLOWS PROVIDED BY (USED IN ) INVESTMENT ACTIVITIES -1,140-4,194 CASH FLOWS FROM FINANCING ACTIVITIES - Net increase/(decrease) in short term interest-bearing loans and borrowings 8,543 2,056 9,043 1,846 - Net increase/(decrease) in medium and long term interest-bearing loans and borrowings -2,

127 Financial Statements as at 31 December 2011 (amounts in thousands of EUR) 2011 of which with 2010 of which with related parties related parties Purchase of own shares Dividends paid -1,000-1,000 Interest and other financial expenses paid Interest receivables and other financial income collected CASH FLOWS PROVIDED BY (USED IN ) FINANCING ACTIVITIES 4,583 7,198 TOTAL CASH FLOWS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 385 1,288 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (amounts in thousands of EUR) Share capital Share Other reserves Net profit Shareholders' premium and retained for the period equity reserve earnings Shareholders' equity 31/12/2009 IAS/IFRS 3,624 34, ,456 57,812 Allocation of 2009 result 20,456-20,456 0 Net profit as at 31 December ,324-3,324 Net profit for the period ,324-3,324 Equity dividends -1,087-1,087 Share option plan Own shares and other changes Shareholders' equity 31/12/2010 IAS/IFRS 3,617 34,472 18,654-3,324 53,419 Allocation of 2010 result -3,324 3,324 0 Transfer capital gain Net profit as at 31 December ,079 6,079 Net profit for the period ,079 6,639 Equity dividends -1,084-1,084 Share option plan Own shares and other changes Shareholders' equity 31/12/2011 IAS/IFRS 3,613 34,419 14,864 6,079 58,

128 Financial Statements as at 31 December 2011 Notes to the Financial Statements NOTE 1 - General information, layout and content of the financial statements and IFRS compliance General information TBS Group Spa operates as the Parent Company of Italian and foreign companies that are involved in the supply of products, and more especially services, to both public and private healthcare companies in the following areas: 1. Medical equipment and devices: preventive and corrective maintenance of all biomedical equipment and endoscopic instruments for public and private hospitals, safety and functional quality checks, electronic management, advice on purchasing, inspections and training. 2. e-health & e-government systems and solutions: medical IT services for the installation and integrated management of all IT systems (clinical and administrative) in the healthcare field, telecare, telemonitoring, telediagnostics and teleconsultation services for all public and private health facilities and public social assistance bodies in a perspective of authentic social-healthcare integration. Finally, the development of IT products for the Public Administration with the provision of services for their installation, testing and maintenance, and any integration necessary with other IT products already present in the local and regional entities or other public administration bodies. The Company also offers its subsidiaries strategic management, consulting and coordination, and administrative assistance services. During 2011 and up to 31 October, it also operated in the health sector in the role of direct supplier of e-health services. It no longer operates in this sector following the transfer of the company branch to the subsidiary Insiel Mercato Spa on 28 October 2011, which came into effect on 1 November More specifically, the Shareholders' Meeting of Insiel Mercato Spa resolved a share capital increase, not including option rights, for a total of a nominal amount of EUR 1,308,008 and a share premium of EUR 2,534,117, through the issue of 1,308,058 new ordinary shares with a nominal value of EUR 1.00 each, to be freed up by contribution in kind pursuant to art of the Italian Civil Code, with contribution of the ownership of the e-health branch mentioned above. Following the agreement to the capital increase, TBS Group Spa now holds 40.29% of the share capital of Insiel Mercato Spa while the remaining portion of 59.71% is held by the subsidiary TBS IT Telematic & Biomedical Services Srl. The tables show the impact resulting from the sums transferred in order to provide a clearer understanding of the asset-financial movements made by the company. TBS Group Spa is a company listed in AIM Italia, a market organised and managed by Borsa Italiana. The registered office of TBS Group is in the AREA Science Park in Padriciano (Trieste), Italy. The company developed the group through a series of acquisitions of subsidiaries that were considered to be strategic in Italy, Europe, and over the last few years also in India and China. These financial statements were approved with a resolution of the Board of Directors on 29 March

129 Financial Statements as at 31 December 2011 Layout and content of the financial statements and IFRS compliance The financial statements are the separate financial statements of the Parent Company TBS Group Spa. Up until 31 December 2010 TBS Group Spa drafted its financial statements on the basis of the accounting standards issued by the National Boards of Chartered Accountants as reviewed by the OIC - Organismo Italiano di Contabilità [the Italian Accounting Body]. The number of investors in the TBS Group Spa went over 200 during 2010, therefore it became a Company that issues financial instruments that are widely distributed among the public in accordance with article 116 of the Italian Consolidated Law on Finance ( TUF ). In accordance with the provisions of Legislative Decree no. 38 of 28 February 2005, the Company must draw up its financial statements in accordance with international accounting standards. In this context, the TBS Group Spa drafted the financial statements in compliance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and approved by the European Commission by 31 December IFRS also include all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), previously called the Standing Interpretations Committee (SIC). The transition date was 1 January Please refer to Note 33 for the comments and effects resulting from the transition to the international IFRS accounting standards. The financial statements are based on the historical cost principle, except for the financial derivative instruments that are recorded at fair value. The financial statements of TBS Group Spa are stated in euros. The values stated in the Statement of Financial Position, the Income statement and the Comprehensive Statement of Income of the Financial Statements are in euros, while the other accounting statements and explanatory notes are stated in thousands of euros The company has adopted the following financial statements: 1. Statement of financial position: assets and liabilities are distinctly classified between current and non-current. 2. Income statement: classification by type. 3. Statement of comprehensive income. 4. Cash Flow Statement: the indirect method was adopted for stating the cash flows. 5. Summary statement of changes in shareholders' equity. NOTE 2 Accounting standards and measurement Standardisation of the accounting standards, IFRS standards or new or revised IFRICs and interpretations already adopted in effect or which will enter into effect in subsequent years The accounting standards adopted are comparable to those used as at 31 December 2010, apart from the adoption of the following new or revised IFRS or IFRIC standards which were applied for the first time by the Company starting from 1 January The adoption of these revised standards and interpretations did not have any financial effects on the financial affairs partly because they govern cases and situations that do not apply. IAS 24 Related party disclosures (change) The IASB issued a change to IAS 24 which clarifies the definition of related parties. The new definition emphasises the symmetry in the identification of related parties, and more clearly defines the circumstances in which persons and managers with key responsibilities must be considered to be related parties. In the second place, the change introduces an exemption from the general requirements for disclosure of related parties for transactions with governments and with subsidiaries under joint control or significant influence of the government just as with the entity itself. Adoption of these changes had no impact on the financial position or performance. 128

130 Financial Statements as at 31 December 2011 IAS 32 Financial instruments: presentation in the financial statements (change) The standard includes a change to the definition of financial liability in order to classify the rights issues in foreign currencies (and certain options and warrants) as instruments that represent capital if these instruments are attributed on a pro rata basis to all the holders of the same class of instrument (not including derivatives) that represent the capital of the entity, or for the purchase of a fixed number of instruments that represent the capital of the entity or for the purchase of a fixed number of instruments that represent the capital of the entity for a fixed amount in any currency. This change had no impact on the financial position or performance. IFRIC 14 Advance payments for a revision of the minimum funding payments (change) The change removes an unintentional consequence that occurs when an entity is subject to minimum funding requirements and provides for an advance payment to meet said requirements. The change allows an entity to treat the advance payments that regard a minimum funding provision as an asset. The company is not subject to minimum funding requirements. This change had no impact on the financial position or performance. IFRS 7 Financial instruments: additional information The change is aimed at simplifying and improving the information through reducing the amount of information on the guarantees held and the request for higher quality information in order to improve the context setting of the quantitative portion respectively. IAS 1 Presentation of Financial Statements This change is accompanied by the request for the reconciliation of the changes of all the shareholders' equity components to be presented in the explanatory notes or in the financial statements. The Company has chosen to present them in the financial statements. The IASB has issued the following standards or interpretations already adopted by the European Union, which the Company has not adopted in advance, but whose adoption will be mandatory for the accounting periods that will start from 1 January 2012 or later. The Company intends to adopt these standards when they enter into effect: IAS 1 Presentation of Financial Statements The change to IAS 1 changes the grouping of the other components of the statement of comprehensive income. The items that could be reclassified (or recycled ) in the income statement in future (for example upon cancellation or settlement) should be presented separately from the items that will never be reclassified. The change only regards the way they are presented, and has no impact on the financial position or performance. The change will come into effect for the financial periods starting from 1 July 2012 or later. IAS 19 Employee benefits The IASB issued numerous changes to IAS 19. These range from radical changes such as elimination of the corridor mechanism and the concept of expected returns from the plan assets, to simple clarifications and terminology. The change will come into effect for the financial periods starting from 1 January 2013 or later. IAS 27 Separate financial statements Following the new IFRS 10 and IFRS 12 standards, IAS 27 is now limited to accounting for subsidiaries, jointly controlled and associated companies in the separate financial statements. The changes will come into effect for the financial periods starting from 1 January 2013 onwards. IAS 28 Investments in associated companies Following the new IFRS 11 and IFRS 12, IAS 28 was renamed to Investments in associates and joint ventures, and describes application of the equity method for equity holdings in jointly controlled companies, in addition to 129

131 Financial Statements as at 31 December 2011 associated companies. The change will come into effect for the financial periods starting from 1 January 2013 or afterwards. IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in joint ventures and SIC-13 jointly controlled entities Contributions in kind by the controlling parties. L IFRS 11 eliminates the option of accounting for jointly controlled companies using the proportionate consolidation method. On the other hand, jointly controlled companies that comply with the definition of a joint venture must be accounted for using the equity method. This standard applies to the financial years starting from 1 January 2013 onwards. IFRS 12 Disclosure of interests in other entities IFRS 12 includes all the provisions on disclosures that had previously been included under IAS 27 for consolidated financial statements, and all the disclosure provisions of IAS 31 and IAS 28. This disclosure relates to the interests of a company in subsidiaries, jointly controlled companies, associates and structured vehicles. There are also additional situations in which disclosures must be made. This standard applies to the financial years starting from 1 January 2013 onwards. IFRS 13 Fair value measurement IFRS 13 establishes a single framework within the scope of the IFRS system for all fair value measurements. IFRS 13 does not change the cases in which the fair value method is required to be used, but provides a framework on how to measure the fair value within the scope of the IFRS when the application of fair value is required or permitted. This standard applies to the financial years starting from 1 January 2013 onwards. Accounting policies The accounting standards and measurement criteria adopted to draft the financial statements for the period ended 31 December 2011 are reported below. Intangible assets with indefinite useful life - goodwill Goodwill deriving from the acquisition of company branches is initially recognised at cost, and represents the surplus of the business combination cost over the amount owned by the company of the net fair value of the assets, liabilities and potential liabilities identifiable in the branch acquired. After initial recognition, the goodwill is not amortised, and it is reduced by any accrued losses, as determined by the procedures described below. Goodwill is subject to loss analyses on an annual basis, or even more often if events or changes of circumstances occur which could lead to any impairment. In order to carry out the impairment tests, at the date of acquisition, any goodwill found is allocated to each of the cash flow generating units expected to benefit the from synergic effects resulting from the acquisition, regardless of whether the other assets or liabilities of the company have been assigned to those units or unit groups. Each unit or group of units that the goodwill is allocated to: - represents the lowest level within the company in which the goodwill is monitored for internal management purposes; and 130

132 Financial Statements as at 31 December is not broader than the segments that can be identified on the basis of how the segment reporting is presented in the consolidated financial statements of TBS Group Spa, calculated in accordance with the provisions of the IFRS 8 standards of segment reporting. Any impairment is identified through measurement of the capacity of single units to generate cash flows meant to recover allocated goodwill through the procedure indicated below in the Impairment section. When the recoverable amount of the cash generating unit is less than its carrying amount, an impairment loss is recognised in profit or loss. Should the causes having generated the impairment cease to exist, impairment losses are not reversed. At the time of sale of part of a company or the entire company previously acquired, and from which acquisition goodwill had emerged, the corresponding residual goodwill value is taken into account when calculating the capital gains or losses to be recognised on the income statement. Intangible assets with definite useful life Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets with finite useful life are carried at cost less any accumulated amortisation and any impairment determined in accordance with the methods detailed in the Impairment section. The useful life of an intangible asset is reviewed annually. The Company applies the following policies to intangible assets: Development Costs Software, Other intangible licenses and trademarks assets Useful lives Finite Finite Finite Amortisation method used Amortised on a straight-line Amortised on a straight-line Amortised on a straight-line basis over a period of 5 years basis over a period of 3/5 years basis over a period of 3 years Internally generated or acquired Internally Internally Acquired generated/acquired generated/acquired Impairment test for Annually or more Annually or more Annually or more recognition of impairment frequently if indicators frequently if indicators frequently if indicators of impairment exist of impairment exist of impairment exist Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement upon disposal. Property, plant and equipment - Owned assets Property, plant and equipment is stated at purchase or production cost. The cost of the assets includes directly attributable costs and those necessary for putting the asset into operation for the use for which it was acquired, in addition to the present value of the estimated cost for dismantling and removing the asset, where applicable and in presence of current obligations. Improvements to leased assets are recognised at cost under property, plant and equipment in accordance with the nature of the cost incurred. The expenses incurred for ordinary and/or cyclical maintenance and repairs are directly recognised on the income statement as incurred. The capitalization of costs related to the enlargement, updating or improvement of an asset 131

133 Financial Statements as at 31 December 2011 owned or in use by third parties is carried out exclusively within the limits in which they meet the requirements for being separately identified as an asset or part of an asset. The cost of property, plant and equipment is reduced by depreciation, calculated on a straight-line basis over the estimated useful life of the asset, and by any accumulated impairment, determined in accordance with the methodology detailed in the Impairment section. For owned assets, the depreciation rates which correspond to the estimated useful lives are as follows: Description Rate Buildings 3% Plants and machinery 15% Industrial and commercial equipment 15% Furnishings 12% Office equipment 12% Office electronic machines 20% Motor vehicles 25% The above depreciation rates are reviewed at least annually; any adjustments, as deemed appropriate, are applied prospectively. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and residual carrying amount of the asset) is included in the income statement in the year the asset is derecognised. Property, plant and equipment - Leased assets Assets held under finance leases, which substantially provide the Company with all the risks and rewards of ownership, are recognised as assets and liabilities at their fair value or, if lower, at the present value of the minimum lease payments including any sum to be paid for exercising the purchase option. The corresponding liability due to the lessor is recorded under financial liabilities. Lease payments are apportioned between interest expense and reduction of financial liabilities so as to achieve a constant periodic interest rate on the outstanding balance of the liability. Financial expenses are included in the income statement. Assets held under finance leases are depreciated using the following depreciation rates: Description Rate Buildings 3% Leases where the lessor retains substantially all the risks and rewards of ownership of the assets are classified as operating leases. Operating lease expenditures are charged to the income statement over the lease term. Impairment of assets At the balance sheet date and if there are any indicators of impairment, an assessment is carried out to determine the recoverable value of the intangible assets or property, plant and equipment, or group of intangible assets or 132

134 Financial Statements as at 31 December 2011 property, plant and equipment (Cash Generating Units, hereinafter also referred to as CGUs), net of sale costs and value in use. When the asset s carrying amount exceeds its recoverable amount the asset is written down to its recoverable amount. The recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the cost of money over time and the risks specific to the asset. For an asset that does not generate independent cash inflows, the recoverable amount is determined for the cash-generating unit to which it has been allocated. Impairment losses are recognised in the income statement with the costs for amortisation and depreciation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indicator that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. Investments in subsidiaries and associated companies Investments in subsidiaries are stated at the acquisition or subscription cost, including the accessory charges, less any distribution of share capital and reserves and after any impairment, determined by the same methods indicated previously for property, plant and equipment. Should the reasons for the impairment cease to exist, the original value shall be restored in subsequent years. These adjustments are recognised on the income statement. The risk resulting from any losses that exceed the shareholders equity is recognised in a provision to the extent that the company is committed to fulfilling legal or implicit obligations with respect to the investee company, or in any case to the extent it is willing to cover its losses. Most subsidiaries and associated companies close their books on the same date as the Company; however, accounting year end for the directly controlled TBS India and indirectly controlled EBME is 31 March each year. Therefore these companies draw up a reporting package in accordance with the international accounting standards as at 31/12. Investments in other companies Investments in other companies for which fair value cannot be reliably assessed are stated at the acquisition or subscription cost less any distribution of share capital and reserves and after any impairment, determined by the same methods indicated previously for property, plant and equipment. Should the reasons for the impairment cease to exist, the original value shall be restored in subsequent years. Financial assets and other non-current assets Receivables and other non-current assets to be held to maturity are recognised at cost, represented by the fair value of the initial consideration given, including transaction costs. The initial measurement is subsequently adjusted in order to reflect capital repayments, any write-downs and the amortisation of the difference between the repayment value and the valuation on initial recognition. Amortisation is recorded on the basis of the effective internal interest rate, represented by the rate which equals, at the time of the initial recognition, the present value of the estimated cashflows and the measurement of initial recognition (amortised cost method). 133

135 Financial Statements as at 31 December 2011 Trade receivables and other receivables Trade receivables are recognised at their estimated realisable value, which corresponds to nominal value less writedowns reflecting the estimated losses, if any. A provision for doubtful accounts is made when there is an objective indication (such as a probable insolvency or the debtor facing significant financial difficulty) that the Company is unable to recover all the amount due on the basis of original invoicing conditions. The book value of the receivable is reduced through a provision. Receivables subject to impairment are removed from the accounts when it is ascertained that they are not recoverable. Any medium and long term loans containing an implicit interest component are discounted using an appropriate market interest rate. Current financial assets Financial assets kept for negotiation purposes are recorded on the basis of the negotiation date and, at the time of the opening entry on the balance sheet, are valued at the purchase price, represented by the fair value of the initial consideration given in exchange, net of transaction costs. Following the initial recognition, current financial assets are assessed at fair value and the corresponding variation in fair value is included in profit and loss. The fair value of these instruments is determined by referring to the market value at the closing date of the period in which the instrument is recorded; the fair value of financial instruments not listed in an active market is determined by using valuation techniques commonly in use. Own shares Own shares which are reacquired are deducted from equity. No gain or loss is recognised in the income statement upon the purchase, sale, issue or cancellation of the Group s own shares. Share-based payments Stock options are estimated at fair value using the model based on the Black and Scholes formula, determined by the date of assignment. The relevant cost is recognised in the income statement under personnel costs (if concerning employees) or under service costs (if concerning directors) during the period in which the conditions for exercising them mature and a contra entry is recognised in an equivalent increase of the shareholders' equity. The changes in the present value of the shares after the date of assignment have no effect on the initial valuation. Cash and cash equivalents Cash and cash equivalents include deposits held at call or available in a very short period for which no expenses for collection have to be incurred. They are recorded at their nominal value. For the purposes of the Statements of Cash-Flows, cash and cash equivalents is presented gross of bank overdrafts at the Financial Statements closing date. 134

136 Financial Statements as at 31 December 2011 Termination indemnities Employee benefits paid on or after termination of the employment through defined benefit programmes (Employee Severance Indemnity) or other long term benefits (Termination Indemnities) are recognised on an accrual basis. The liability relating to defined benefit plans, net of any related plan asset, is determined on the basis of actuarial assumptions and is recognised on an accruals basis, in line with services rendered in order to obtain the benefits; liabilities are measured by an independent actuary. The amount of actuarial profits and losses that must be recognised for each defined benefit plan is fully recognised in the income statement. Following amendments made to the Employee Severance Indemnity by law No. 296 of 27 December 2006 (Financial Law 2007) and subsequent Decrees and Regulations issued in early 2007, the Employee Severance Indemnity of Italian companies matured as at 1 January 2007 or at the date the option to be exercised by employees was selected is included in the category of programmes with defined contribution, both in the case of supplementary allowance as well as of allocation to the Treasury Fund of the INPS. The accounting of this Employee Severance Indemnity is therefore assimilated with other types of contribution deposits. Provisions Provisions for risks and future charges are recognised when the Company has a present obligation (legal or implicit) resulting from a past event, when it is probable that an outflow of the Company s resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Changes in the assessment are reflected in profit and loss of the period during which the change occurred. If the potential discount effect is significant, the provisions are discounted using a pre-tax discount rate that reflects the specific risks of the liabilities. Once the discount is carried out, the increase of the provision due to the passing of time is recognised as a financial expense. Loans All long-term loans are initially recognised at fair value of consideration received less directly attributable transaction costs. After initial recognition, long-term debts are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. Trade payables and other debts Trade payables with a due date within the standard commercial terms are not discounted and are recognised at cost (identified by the nominal value). Other liabilities are entered at cost (identified by nominal value). Foreign currency transactions Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are then translated at the financial statements 135

137 Financial Statements as at 31 December 2011 reference date using the closing exchange rate. All differences are taken to profit or loss. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Revenue recognition Revenues are recognised when it is probable that the economic benefits will flow to the Company and the revenues can be reliably measured. Revenue is shown net of discounts, reductions, returns and other sales taxes. In particular, revenue from the sale of goods is recognised according to the contractual terms when the significant risks and rewards of ownership relating to the goods are transferred to the buyer. Rendering of services revenues are recognised by stage of completion. This is measured as the percentage of the incidence of costs incurred with respect to the total costs estimated for each contract. When the contract outcome cannot be reliably measured, revenue is recognised only to the extent of the expenses incurred that are recoverable. Financial revenue is recorded on an accrual basis. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and all underlying conditions will be met. When a grant relates to cost items, it is recognised as income over the proper period in order to be correlated to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset. Accounting for costs and expenses Costs and expenses are recorded when they relate to goods and services sold or consumed during the year or by systematic allocation when their future utility cannot be identified. Interest Interest income and expense are recognised as the interest accrues on the net carrying amount of the underlying value of financial asset or liability, using the effective interest rate. Dividends Dividends are recognised when the right of shareholders to receive payment is established. This right arises following the decision made on distribution made (by 31 December each year) by the subsidiary. 136

138 Financial Statements as at 31 December 2011 Income taxes Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date and in those countries in which the Group operates. Current taxes relating to items recorded directly to equity are recognised directly to equity and not to the profit and loss. Deferred taxes Deferred income tax is provided using the liability method on temporary differences at the balance-sheet date between the reference fiscal values for assets and liabilities and the values recorded in the financial statements. Deferred tax liabilities are recognised for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of deductible temporary differences and tax losses, can be utilised, except: where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. In assessing the probability of the availability of a future income against the entry of deferred assets for tax losses one considers: there must exist sufficient temporary differences with regard to the same tax authorities and the same tax subject that will turn into taxable amounts against which tax losses may be used prior to their expiration; that unused tax losses result from identifiable causes that are unlikely to be repeated; that there exist opportunities for tax planning on the basis of which there will be taxable income during the year in which tax losses may be used. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities relating to items recognised directly in equity are recognised in equity and not in the income statement. 137

139 Financial Statements as at 31 December 2011 Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Use of estimates The preparation of the financial statements requires the directors to make estimates and assumptions that affect the reported amounts of the assets and liabilities and the disclosure of information on contingent assets and liabilities at the date of the financial statements. Nonetheless, the uncertainty of these assumptions and estimates may determine impacts requiring a significant adjustment to the accounting value of these assets and/or liabilities at a future date. The estimates are essentially used to recognize provisions for doubtful accounts, amortisation, depreciation and write-downs of non-current property, plant and equipment and intangible assets, employee benefits, deferred income taxes and other provisions for risks and charges. Estimates and assumptions are revised periodically and the effects of every variation are immediately reflected on the profit and loss. NOTE 3 Financial risk management The main financial liabilities of the Company include bank loans, trade payables and miscellaneous payables and financial guarantees. The main objective of these liabilities is to finance the Company s operating activities. The Company has financial receivables and other trade and non-trade receivables and liquid assets directly originating from operating activities and its activities as the parent company. The assessment of interest rate risk, credit risk, liquidity risk and foreign exchange risk is a responsibility the Company Management is entrusted with, and the relevant information is given below. Interest rate risk The Company is exposed to interest rate risk because of the variable interest rate of its existing financial debt (Euribor plus a varying margin depending on the type of financing involved). Fluctuations in market interest rates influence the cost of the various types of financing directly affecting financial expenses at Company level. There is therefore a certain risk related to any worsening of general market conditions. There are also significant financial receivables and payables between the Company and its subsidiaries, also subject to variable rates. Sensitivity analysis The Company s financial structure consists almost entirely of variable rate financial instruments. As a result, the sensitivity analysis is conducted solely for this type of instrument. By virtue of the above, a hypothetical, instant and unfavourable 100 bps change in the short term interest rate, applicable to the variable rate of financial assets and liabilities, would increase net annual pre-tax charges by approximately EUR 160,

140 Financial Statements as at 31 December 2011 Credit risk Most Company loans are contracted by public bodies or private bodies affiliated with the public sector. Therefore the Company is not significantly exposed to credit risk. However, there is no significant concentration of credit risk and a provision for doubtful debts in any case was allocated to protect against residual doubtful debts. Following the transfer of the e-health company branch, receivables from third parties are currently insignificant (EUR 239,000). Liquidity risk The activities carried out by the Company, in its role as parent company, includes funding certain subsidiaries; on the other hand, if there are Group companies with a financial surplus that exceeds their normal requirements, this surplus will be directed to the parent company in the form of funding This said, the Company continuously maintains balance and flexibility between funding sources and loans at Group level. Two primary factors that influence the Company s liquidity are, on the one hand, resources generated or absorbed by operations or investments of the company and/or of the parent companies, and on the other hand, the expiry and renewal of debts. The breakdown of financial payables as at 31 December 2011 is presented under Note 13. In any event, it is felt that liquidity from operations at Group level should be sufficient to cover requirements. It should however be emphasized that considering the fact that the customers primarily consist of public bodies, with significantly extended payment terms and in any case, subject to the availability of financial resources, even linked to public debt management policies, the leading Italian Group companies have assigned credit to factoring companies in order to boost cash flows. There were positive effects on cash availability in the company and Group in the first few months of 2012 following finalisation of share capital transactions for EUR 10 million and the issue of a convertible bond loan for a further EUR 10 million. Please refer to the Capital management section and Note 32 Subsequent events for further information on these transactions. Finally, as already noted in Note 13, certain loans require compliance (financial covenants) with certain parameters based on the consolidated financial statements of the TBS Group at year-end. Exchange rate risk The Company operates primarily in the eurozone. There is therefore no significant exposure to exchange rate risk. Capital Management The Company s primary capital management objective is to guarantee that a solid credit rating and appropriate levels of capital indicators are maintained in order to support its work and maximize shareholder value. The Company manages the capital structure, making changes to it in line with changes in economic conditions. The Company may adjust the dividends paid to shareholders, reimburse capital or issue new shares in order to maintain or adapt the capital structure. It should be noted that the Shareholders' Meeting held on 21 June 2011 approved the distribution of dividends for EUR 1,084, The Company monitors its capital via the net financial debt /shareholders equity ratio. 139

141 Financial Statements as at 31 December 2011 This ratio for each period considered is shown below: (amounts in thousands of EUR) 2011 of which with 2010 of which with related parties related parties Medium and long term interest-bearing loans and borrowings 6,494 13,127 Short term interest-bearing loans and borrowings 20,985 1,548 15,779 2,911 Non-current financial assets 0 0 Current financial assets -11,151-11,114-16,548-16,423 Cash and cash equivalents Net financial debt 15,971 11,973 Shareholders' equity 58,975 53,419 Net financial debt/shareholders equity On 27 December 2011, TBS Group Spa signed an investment agreement with Fondo Italiano di Investimento SGR which provides for the following: an increase in reserved capital to the Fund for about EUR 10 million, through the subscription to new shares for a price of EUR 1.8 per share, of which 1.7 as the premium. This increase will involve the issue of 5,555,556 new shares, thereby increasing the share capital to EUR 4,218, represented by 42,185,576 shares. The Fund s holding shall amount to 13.17% of the share capital after the increase; the issue of a convertible bond loan, reserved to the Fund, for a total amount of about EUR 10 million, divided into 4,347,826 bonds with a nominal value of EUR 2.30 each. The conversion, to be exercised in whole or in part by 31 December 2014, will be on ordinary TBS Group Spa shares which will be newly issued at a 1:1 ratio (one share for each bond converted). Repayment may be made by 31 December The bond loan issue will lead to an increase in the share capital of a maximum number of a further 4,347,826 ordinary shares. In the event that there are no further changes in the share capital, and the Fund exercises its right to conversion with respect to all the convertible bonds, the share capital of TBS Group Spa will reach EUR 4,653,340.30, allocated among 46,533,403 shares, and the Fund will then have a 21.28% holding of the share capital. NOTE 4 - Assets with indefinite useful life (goodwill) This item includes the goodwill (EUR 94,000) that emerged following the Panacea Clinical Services Srl merger in It was not necessary to make any write-downs on the basis of the impairment test made on the Clinical Engineering Italy CGU to which the goodwill was attributed. NOTE 5 - Intangible assets with definite useful life The table below provides a breakdown Intangible assets with definite useful life as appearing in the balance sheet: (amounts in thousands of EUR) Development 0 0 Concessions, licenses, trademarks and similar rights 1,865 2,184 Other intangible assets Intangible assets under construction and advances 1, Total intangible assets 2,912 2,

142 Financial Statements as at 31 December 2011 Changes in the period in Intangible assets with definite useful life are shown below: (amounts in thousands of EUR) Development Concessions, Other Intangible Total licenses, intangible assets under intangible trademarks assets construction assets and similar and advances rights Cost at 1 January 2011 net of provisions 0 2, ,936 Net additions Decreases from transfer of the e-health branch (historical cost) Decreases from transfer of the e-health branch (accumulated amort./dep./imp.) Disposals (historical cost) Depreciation in the period Reclassifications and other As at 31 December , ,003 2,912 At 1 January 2011 Totale Cost or fair value 1,413 3, ,337 Accumulated depreciation and impairment -1,413-1, ,401 Residual net value 0 2, ,936 As at 31 December 2011 Totale Cost or fair value 1,413 3, ,003 6,503 Accumulated depreciation and impairment -1,413-1, ,591 Residual net value 0 1, ,003 2,912 Software, patent and trademark costs primarily relate to software licences and programmes purchased from third parties, costs incurred for implementation of the Hyperion software, and costs incurred relating to the development of an international, multilingual Patidok international and phi module. Amortisation is calculated on a straight-line basis over a period of 5 years. Assets under construction primarily relate to: expenses incurred in implementing the Pharma-phi project for the development of new software called phi- Technology in the year and previous years (EUR 557,000). This software represents the evolution of Patidok, already used by hospitals. Special attention has been given to protecting the investments of customers who purchased Patidok in the past, giving them the opportunity of gradually migrating to phi-technology, thanks to the full interoperability of the two operating platforms. The technology applied to the new software is based on advanced international standards and will become the only IT platform for the routing of all IT fields: Medical, Clinical engineering and Telecare and Telemedicine. The project is due to be completed in the first few months of The Pharma-phi project has been included in the Friuli Venezia Giulia Region finance plan, under the SPD Objective Assistance to large industrial companies for investment in research and development activities ; costs incurred for software to use for cash management (EUR 186,000); costs incurred to create further management software (EUR 118,000 for IT systems and EUR 142,000 for the administrative area). 141

143 Financial Statements as at 31 December 2011 Total investments of EUR 772,000 were made during the year, and mainly include: under the Assets under construction category further costs incurred for implementation of the above-mentioned Pharma Phi project (EUR 68,000), the creation of the endoscopy management software (EUR 230,000), the implementation of cash management software (EUR 186,000) and for the creation of other management software (EUR 44,000 for the IT systems and EUR 142,000 for the administrative area); investments falling under Concessions, licenses, trademarks and similar rights, relating to the purchase of software licences for EUR 100,000. The reclassifications mainly refer to transfer of the endoscopy management software created to the Industrial patent, intellectual property, license and trademarks category (EUR 360,000). The amortisation of capitalised costs under this item is based on the useful life estimated at three or five years. NOTE 6 Property, plant and equipment The table below presents the net balances for property, plant and equipment: (amounts in thousands of EUR) Land and buildings 1,139 1,177 Plants and machinery Other property, plant and equipment Total property, plants and machinery 1,559 1,471 Changes in the period are shown below: (amounts in thousands of EUR) Land and Plants and Other Total buildings machinery property, plant property, plant and equipment and equipment Cost at 1 January 2011 net of provisions 1, ,471 Net additions Decreases from transfer of the e-health branch (historical cost) Decreases from transfer of the e-health branch (accumulated amort./dep./imp.) Depreciation in the period As at 31 December , ,559 At 1 January 2011 Total Cost or fair value 1, ,239 Accumulated depreciation and impairment Residual net value 1, ,471 As at 31 December 2011 Total Cost or fair value 1, ,360 Accumulated depreciation and impairment Residual net value 1, ,

144 Financial Statements as at 31 December 2011 Land and buildings This regards leased buildings. They are depreciated at an annual rate of 3%. The table below shows the total minimum payments on for the lease, and their current value at the date of the financial statements, shown for their scheduled payment date Minimum Value Payment Value payment current minimum current Within 1 year Between 1 and 5 years Beyond 5 years Total minimum payments Financial expenses Total minimum payments present value The lease contract entered into by the company provides for variable financing costs of 5.75%. Present value was determined based on the amortisation schedules communicated by the finance leasing company and does not significantly diverge from the present value of minimum payments calculated by discounting cash flows due to the rental payments as indicated in the schedule at the same interest rate of the finance lease contract. Of the payables as at 31 December 2011 shown above, EUR 37,000 are short-term and EUR 558,000 are medium/long-term (of which EUR 383,000 beyond 5 years). With regard to the financial debt as at 31 December 2010, distinction is made between EUR 35,000 short-term and EUR 596,000 medium/long-term (of which EUR 427,000 beyond 5 years). Plants and machinery The item mainly includes heating systems, and telephone and data transmission systems. Other property, plant and equipment The item includes electronic office equipment, furniture and furnishings, cars and mobile phones. 143

145 Financial Statements as at 31 December 2011 NOTA 7 Investments in subsidiaries, associated companies and other companies (amounts in thousands of EUR) Balance Reclass. Recapitalis. Purch./ Contributions/ Capital gains/ Write- Balance Investments in subsidiaries 1/1/11 sale mergers losses downs/ 31/12/11 reval. EBM 31, ,786 Caribel PCS 2,205-2, Tecnobiopromo TESAN 5,259-5, TBS GB 6,630 6,630 TBS FR 2,620 2,620 TBS BE STB Surgical Technologies 2,637 2,637 SLT CRIMO 1,949 1,949 TBS INDIA 6,092 6,092 SIC TBS SE 5 5 TBS ES TBS IT 0 10,140 10,140 Insiel Mercato 0 3,842 3,842 Sinopharm TBS sub total 61, ,542-8, ,155 Investments in Balance Reclass. Recapitalis. Purch./ Contributions/ Capital gains/ Write- Balance associated companies 1/1/11 sale mergers losses downs/ 31/12/11 reval. SMS Srl in liquidation x I Srl Enterpise Easy Care Found Care Expert Soc. Cons. 2 2 sub total Investment in other companies ISBEM Medic4All AG CBM Consortium 2 2 sub total TOTAL 61, ,542-8, ,

146 Financial Statements as at 31 December 2011 Provision for risk on Balance Reclass. Recapitalis. Purch./ Contributions/ Capital gains/ Write- Balance investment 1/1/11 sale mergers losses downs/ 31/12/11 reval. TBS ES SUBITEC -8,790 9,000-5,075-4,865 Total -8, , ,075-4,865 The acquisitions refer to the following: the acquisition on 16 September 2011 of 100% of the company TBS IT Srl previously held by the subsidiary TBS GB Ltd (51%) and TBS FR Sarl (49%); subscription to the share capital increase of Insiel Mercato Spa by paying the share premium through assignment of the e-health branch. Following that operation, TBS Group Spa now holds 40.29% of Insiel Mercato Spa while the remaining portion of 59.71% is held by the subsidiary TBS IT Telematic & Biomedical Services Srl. Prior to the assignment, TBS Group indirectly held 100% of Insiel Mercato Spa through TBS IT; on 19 April 2011, the establishment of the joint venture called SINOPHARM TBS between TBS Group Spa and CSIMC Ltd. (China National Scientific Instruments and Materials Corporation). The assignments refer to the investments in the subsidiaries Caribel Programmazione Srl, PCS GmbH, Tesan Spa and the associated company O3 Enterprise Srl. These investments fall under the e-health branch activities assigned to Insiel Mercato Spa. With reference to the write-down on the investment in Subitec, please refer to the section on Fund risks and charges in Note

147 Financial Statements as at 31 December 2011 The data required by art. 2427, subsection 5, of the Italian Civil Code for subsidiaries and directly held associated companies is given below: (amounts in thousands of EUR) Head Office Currency Share Capital SE 2011 Share % Share % Book Company 31/12/2011 result value (IAS) (IAS) assigned Investments in subsidiaries EBM Foligno (Italy) EUR 1,863 39,578 6, ,786 Caribel Pisa (Italy) EUR PCS Klagenfurt (Austria) EUR 1,230 2, Tecnobiopromo Trieste (Italy) EUR TESAN Vicenza (Italy) EUR 8,320 13, TBS GB Southend on Sea (United Kingdom) EUR 599 4,311 2, ,630 TBS FR Lyon (France) EUR 1,691 2, ,620 TBS BE Loncin (Belgium) EUR STB Lisbon (Portugal) EUR Surgical Technologies Didam (The Netherlands) EUR ,637 SLT Cernusco sul Naviglio (Italy) EUR Crimo Gualdo Tadino (Italy) EUR 103 3, ,949 TBS INDIA Bangalore (India) EUR 73 1, ,092 SIC Trieste (Italy) EUR TBS SE Belgrade (Serbia) EUR TBS ES Barcelona (Spain) EUR 650 1, TBS IT Trieste (Italy) EUR 8,000 9, ,140 Insiel Mercato Trieste (Italy) EUR 3,247 10, ,842 Sinopharm TBS Beijing (China) EUR 1,226 1, sub-total 68,155 SUBITEC Sulzbach (Germany) EUR 4,500-3,760-3, ,865 Reserve for write-downs of inv. in subsidiaries -4,865 Investments in associated companies SMS in liquidation Palermo (Italy) EUR x I Trieste (Italy) EUR Enterprise Trieste (Italy) EUR Easy Care Found. Reggio Emilia (Italy) EUR Care Expert Soc. Cons. Reggio Emilia (Italy) EUR sub-total 37 The data on the Shareholders Equity and the profit (loss) for the year shown for the subsidiaries are taken from the reporting packages drawn up in accordance with the IAS/IFRS standards in order to prepare the consolidated financial statements, and only for the companies considered to be significant for the group, subject to auditing by the independent auditors. The data on the Shareholders Equity and the profit (loss) for the year shown for the associated companies were taken from the most recent financial statements available which had been approved by the respective general meetings. 146

148 Financial Statements as at 31 December 2011 NOTE 8 Other non-current assets (amounts in thousands of EUR) Other non-current assets 18 5 Total other non-current assets 18 5 The item is entirely made up of guarantee deposits. NOTE 9 Trade receivables (amounts in thousands of EUR) 2011 Receivables assigned 2010 e-health branch Trade receivables customers 239 1,111 1,717 Trade receivables Related Parties 8,956 8,712 Allowance for doubtful accounts Total trade receivables 9,181 10,425 Please refer to Note 30 for more information on the trade receivables from related parties. Changes in allowance for doubtful accounts during the two years considered were as shown below: (amounts in thousands of EUR) At 1 January 4 4 Accruals for the period 10 0 Utilization 0 0 At 31 December 14 4 The analysis of the past-due loans and those to mature as at 31 December follows: (amounts in thousands of EUR) Total Current Expired since beyond 180 Trade receivables customers Trade receivables Related Parties 8,956 4, ,852 Total 9,195 4, ,091 The analysis of the allowance for doubtful accounts as at 31 December is the following: (amounts in thousands of EUR) Total Not overdue < Over 180 days days days days days Allowance for doubtful accounts

149 Financial Statements as at 31 December 2011 The analysis of the receivables by geographic area is the following: Receivables by geographic area (amounts in thousands of EUR) Related parties Others Total Italy 5, ,009 EU 2,995 2,995 Non-EU Total 8, ,195 NOTE 10 Other current assets (amounts in thousands of EUR) Social security receivables Amounts receivable for Government s grants Receivables from employees Prepaid expenses and accrued income Other tax credits 110 1,044 Other receivables 1, Receivables Related Parties 1,709 3,200 Total other current assets 3,451 4,731 The receivables from employees mainly comprise advances paid to employees against expenses incurred for performing their work. Other tax credits mostly include VAT credits. Other receivables mainly comprise: charges of EUR 952,000 incurred during the year are due to the increase in share capital finalised on 9 February 2012, fully subscribed and paid by Fondo Italiano d Investimento SGR. Please refer to Note 32 for more details; costs incurred in 2010 and 2011 of EUR 200,000 for the Star market quotation project. Both items shall be directly deducted from equity following completion of the transactions to which they refer. NOTE 11 Income taxes payable and receivable (amounts in thousands of EUR) Income tax receivable Total current tax receivable

150 Financial Statements as at 31 December 2011 Income tax receivable refers to amounts receivable from the Treasury for direct taxes (IRES and IRAP) which should be recovered within the following year, as well as amounts receivable for tax withheld by the company on interest receivables. (amounts in thousands of EUR) Income tax payables 0 1,348 Total income tax payables 0 1,348 Income taxes payable refer to current taxes for the year still to be paid and record the amounts that the Company must pay the Treasury. The tax advances paid in 2011 were higher than the tax due. NOTE 12 Shareholders equity As at 31 December 2011, the item amounted to EUR 58,975,000 as opposed to EUR 53,419,000 as at 31 December For changes in shareholders equity, please refer to the relevant Statement of changes in shareholders equity. Share capital The subscribed and paid-up share capital of TBS Group Spa consists of 36,630,020 shares with a nominal value of EUR 0.10 each. The amount recorded in the financial statements is net of the own shares held by the company, for the part ascribable to capital (EUR 50,000). The total amount of own shares held by the Company as at 31 December 2011 amounts to 496,145 (460,043 own shares at 31 December 2010). Share premium account The share premium account, set up following a number of Company capital increases, amounted to EUR 34,419,000 as at 31 December This account is also recorded in the financial statements net of the own shares held by the company, for the part ascribable to share premiums (EUR 789,000). The decrease compared to the previous year is due to the further purchase of own shares in 2011 for the part ascribable to share premiums. Other reserves and retained earnings Other reserves include: - the First-Time Adoption (FTA) reserve deriving from the first-time application of the international accounting standards as at 1 January 2010; - retained earnings. They are stated net of the dividends decided as EUR 1,084,000 by the Parent Company on the basis of the Shareholders' Meeting resolution of 21 June

151 Financial Statements as at 31 December 2011 The breakdown of the reserves is as follows. STATEMENT OF AVAILABILITY, POSSIBLE DISTRIBUTION AND USE OF SHAREHOLDERS' EQUITY (amounts in thousands of EUR) Summary of the uses made during the three previous years: Amount Possibility Amount to hedge for other Type/Description of use available losses reasons Share capital 3,613 Legal reserve hedging losses Share premium reserve 34,419 - hedging losses 34,419 - distrib. shareholders Revaluation reserve 1,842 - hedging losses 1,842 Reserve to purchase own shares Voluntary extraordinary reserve 15,736 - hedging losses 15,736 2,358 - capital increase - distrib, shareholders FTA reserve Retained earnings -2,585 - hedging losses -2,585 - capital increase - distrib, shareholders Net profit for the period 6,079 6,079 Total 58,975 55,362 Non-distributable amount 13,724 Distributable remaining amount 41,638 The non-distributable amount totalling EUR 13,724 is given by the sum of the net residual value as at 31/12/2011 of the development costs capitalised during the year and previously (EUR 1,153,000), the intangible assets under construction (EUR 1,003,000), the capital gains during the year following assignment of the e-health branch (EUR 560,000), the legal reserve (EUR 733,000), and on the basis of the provisions of article 2426 of the Civil Code, from the capital gains resulting from application in previous years of the equity method for measuring investments in subsidiaries (EUR 10,275,000). 150

152 Financial Statements as at 31 December 2011 NOTE 13 - Net financial debt The Company s net financial debt can be broken down as follows: (amounts in thousands of EUR) 2011 of which with 2010 of which with related parties related parties A. Current financial assets 11,151 11,114 16,548 16,423 B. Cash and cash equivalents C. Liquidity (A. + B.) 11,508 16,933 D. Other non-current financial assets 0 0 E. Medium and long term interest-bearing loans and borrowings 6,494 13,127 F. Short term interest-bearing loans and borrowings 20,985 1,548 15,779 2,911 G. Net financial debt (D + E + F - C) 15,971 11,973 For further information on the breakdown of financial assets and liabilities, please refer to the paragraphs below. Current financial assets (amounts in thousands of EUR) Short-term financial receivables Short-term financial receivables from Related Parties 11,114 16,423 Marketable securities 0 49 Total current financial assets 11,151 16,548 The financial receivables from Related Parties refer to loans granted to subsidiaries. These loans provide for the payment of interest calculated at market conditions. Please refer to Note 30 for further details on the breakdown. Cash and cash equivalents (amounts in thousands of EUR) Cash and cash equivalents Total cash and cash equivalents The balance shows the cash and cash equivalents and existence of cash and securities as at the year-end date. 151

153 Financial Statements as at 31 December 2011 Medium and long term interest-bearing loans and borrowings The table below provides a breakdown of the medium and long term interest-bearing loans and borrowings: (amounts in thousands of EUR) within beyond Total within beyond Total 5 years 5 years 5 years 5 years Leasing contracts debts Medium/long term bank loans 5,936 5,936 12,531 12,531 Total medium and long term interest-bearing loans and borrowings 6, ,494 12, ,127 Medium and long term interest-bearing loans and borrowings are detailed in the following table: (amounts in thousands of EUR) 2011 Assign branch e-health EUR 14 million loan granted to TBS Group by Mediocredito - Banca di Roma in May ,258 EUR 3 million loan granted to TBS Group by Friuladria in March ,307 EUR 5 million loan granted to TBS Group by Cassa di Risparmio del FVG in June ,939 3,201 EUR 3.5 million loan granted to TBS Group by BMPS in April ,799 2,491 EUR 3 million loan granted to TBS Group by Banca Popolare di Verona in October ,540 2,274 EUR 5 million loan granted to TBS Group by Banca Popolare di Milano in March ,528 Total non-current portion of medium/long interest-bearing loans 5,936 12,531 Non-current portion of leasing contracts debts Total medium and long term interest-bearing loans and borrowings 6,494 13,127 Some loans require compliance (financial covenants) with certain parameters based on the consolidated financial statements at year-end. These financial parameters, to be calculated on an annual basis, were calculated in accordance with standard market practices in terms of characteristics and charges, and were compliant as at 2011 year end, with the sole exception of a Unicredit Group loan (outstanding balance of EUR 1,380,000 as at 31 December 2011) that was reclassified as a short-term loan since the acceleration clause has come into effect, giving the bank the right to request the company to repay the loan immediately, although there has been no notification to that effect from the bank. Leasing contract debts The leasing contract debts refer to the finance leases entered into to purchase the property at Cernusco al Naviglio. For further details please refer to the section in Note 6 concerning leases. 152

154 Financial Statements as at 31 December 2011 Medium and long term interest-bearing loans The characteristics of the major loans currently active are described below. EUR 14 million pooled loan granted by Medio Credito Centrale - Banca di Roma in May 2006 The loan is paid back in quarterly deferred instalments; the first instalment expired in January 2008 and the final one is due for payment in December 2012, with an interest rate equal to 3-month Euribor plus a spread. This spread could be modified by up to 0.3 points, in connection to audited consolidated figures, with covenants regarding the ratio between net financial position and shareholders equity and the ratio between net financial position and gross operating margin. Moreover the loan agreement requires compliance with indicators calculated on TBS Group audited consolidated accounting values, regarding the ratio between net financial debt and shareholders equity and the ratio between gross operating profit and financial expenses. If those indicators should not fall within the settled limits, the bank is entitled to rescind the contract, in accordance with article 1456 of the Italian Civil Code, unless the Bank agrees to keep on the loan under new terms if necessary if so requested by TBS Group Spa. As at 31 December 2011 the company was compliant with those covenants. As at 31 December 2011, the outstanding loan amount was EUR 3,259, short term. Loan granted in March 2009 by Friuladria for a total amount of EUR 3 million The EUR 3 million loan is repayable in 57 quarterly deferred instalments with the first instalment paid in April 2009 and the last instalment scheduled for December The loan interest rate is the 6-month Euribor rate plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 1,307,000, consisting of EUR 649,000 repayable over the short term and EUR 658,000 repayable over the medium/long term. EUR 5 million loan granted by Cassa di Risparmio del FVG in June The EUR 5 million loan is repayable over 16 quarterly deferred instalments with the first instalment paid in September 2010 and the last instalment due in June The loan interest rate is the 3-month Euribor rate plus a spread. The loan agreement requires compliance with several indicators of the consolidated financial statements regarding the ratio between net financial position and shareholders' equity and the ratio between net financial position and gross operating profit and between net operating profit and financial expenses. If those indicators should not fall within the agreed limits, the bank is entitled to rescind the contract, in accordance with Italian Civil Code, article 1456, if the Company has not remedied its position or renegotiated the terms with the bank within 90 days of receipt of the bank warning notice. Those indicators were compliant as at 31 December As at 31 December 2011, the outstanding loan amount was EUR 3,188,000, consisting of EUR 1,249,000 repayable over the short term and EUR 1,939,000 repayable over the medium/long term. EUR 3.5 million granted by Banca Monte dei Paschi di Siena in April The loan is repayable in deferred instalments. Repayment on the loan started in December 2010 and will end in June The loan interest rate is the 6-month Euribor rate plus a spread. Moreover the loan agreement requires the compliance with indicators calculated on TBS Group audited consolidated accounting values, regarding the ratio between net financial debt and shareholders equity and the ratio between EBITDA and net financial debt. If those indicators should not fall within the agreed limits, the Bank is entitled to rescind the contract, in accordance to Italian Civil Code, article Those indicators were compliant as at 31 December As at 31 December 2011, the outstanding loan amount was EUR 2,491,000, consisting of EUR 692,000 repayable over the short term and EUR 1,799,000 repayable over the medium/long term. EUR 3 million loan granted by Banca Popolare di Verona in October The loan is repayable in quarterly deferred instalments. Repayment on the loan started on 31 March 2011 and will end on 31 December The loan interest rate is the 3-month Euribor rate plus a spread. As at 31 December 2011, the outstanding loan amount was EUR 2,279,000 consisting of EUR 739,000 repayable over the short term and EUR 1,540,000 repayable over the medium/long term. 153

155 Financial Statements as at 31 December 2011 EUR 2.5 million loan granted by Unicredit Corporate Banking Spa in May The loan is repayable in quarterly deferred instalments. Repayment on the loan started in September 2010 and shall end in June The loan interest rate is the 3-month Euribor rate plus a spread. The loan agreement requires compliance with several indicators of the consolidated financial statements regarding the ratio between net financial debt and shareholders' equity and the ratio between net financial debt and EBITDA. If these indicators do not fall within the agreed limits, the bank reserves the right to invoke the acceleration clause pursuant to article 1186 of the Italian Civil Code and declare the contract rescinded pursuant to article 1456 of the Italian Civil Code. As at 31 December 2011, the outstanding loan amount was EUR 1,381,000, allocated on the basis of the original repayment schedule, between EUR 465,000 repayable over the short term and EUR 916,000 repayable over the medium/long term. The entire outstanding loan amount was classified as short term due to failure to comply with the contractually agreed covenants. Short term interest-bearing loans and borrowings The table below provides a breakdown of the short term interest-bearing loans and borrowings: (amounts in thousands of EUR) 2011 Payables assigned 2010 e-health branch Short term leasing contracts debts Bank short-term 19,231 12,719 Debts payable to factors 0 6 Other short-term borrowings Other short term borrowings with Related Parties 1, ,911 Short term interest-bearing loans and borrowings 20,985 15,778 Other short term borrowings with Related Parties comprises payables to subsidiaries only. Short term interest-bearing loans and borrowings are detailed in the following table: (amounts in thousands of EUR) EUR 14 million loan granted to TBS Group by Mediocredito - Banca di Roma in May ,259 3,011 EUR 3 million loan granted to TBS Group by Friuladria in March EUR 5 million loan granted to TBS Group by Cassa di Risparmio del FVG in June ,249 1,200 Mortgage granted to TBS Group by BMPS in April Mortgage granted to TBS Group by Banca Popolare di Verona in October Mortgage granted to TBS Group by Unicredit in May ,381 2,278 Total short-term portions of medium/long-term loans 7,969 8,520 Current account overdrafts, advances on invoices and other short-term borrowings 11,262 4,199 Total bank payables 19,231 12,719 Current leasing contracts debts Current amounts due to subsidiaries 1,548 2,911 Liabilities for dividends Other payables 29 Total short term interest-bearing loans and borrowings 20,985 15,

156 Financial Statements as at 31 December 2011 Current account overdrafts, advances on invoices and other short-term borrowings mainly comprise short term loans granted by BNL for a total of EUR 3 million, advances of EUR 2.3 million and ordinary current account overdrafts for EUR 5.5 million. NOTE 14 Employee Severance Indemnity The table below shows changes in the Employee Severance Indemnity provision: (amounts in thousands of EUR) At 1 January Accruals for the period (actuarial loss/profit included) 5 1 Financial expenses Benefits paid Assignment e-health branch -27 At 31 December Defined benefit plans in effect in Italy refer to employee severance indemnity only. With the adoption of new international accounting standards, and IAS 19 in particular, employee severance indemnity is regarded as a defined benefit obligation whereby the liability is measured on the basis of actuarial methods. Employee Severance Indemnity liabilities were measured by independent actuaries in application of the Projected Unit Credit Method, without application of the corridor method. Following promulgation of Law No. 296 of 27 December 2006 (Financial Law 2007) and subsequent Decrees and Regulations issued in early 2007, the Employee Severance Indemnity matured as at 1 January 2007 or on the date the option to be exercised by employees was selected, and is included in the category of programmes with defined contribution, both in the case of supplementary allowance as well as allocation to the Treasury Fund of the INPS. The accounting of this Employee Severance Indemnity is therefore assimilated with other types of contribution deposits. The main assumptions used to calculate the current value of the employee severance indemnity are shown below: Annual probability of termination due to death ISTAT 08 death-rate tables ISTAT 07 death-rate tables lowered to 85%, lowered lowered to 85%, lowered per gender per gender Annual probability of termination due to disability INPS data lowered to 70% INPS data lowered to 70% Annual probability of request of indemnity advance by employees 2.00% 2.00% Annual interest rate 4.46% 4.50% Retirement age Current INPS Current INPS retirement rules retirement rules 155

157 Financial Statements as at 31 December 2011 NOTE 15 Provisions (amounts in thousands of EUR) Tax risk provisions Provision for risk Total on investment At 1 January ,965 9,156 Write-downs 5,075 Recapitalisations -9,175 As at 31 December ,865 5,056 Tax risk provision relates to: - EUR 14,000 for the tax inspection for the 2003 tax year, after which a dispute began, with judgement of the court of first instance issued in early The amount in the financial statements is equal to the outstanding amount still to be paid based on the judgement of the first instance; - EUR 124,000 for the 2009 tax inspection by Tax Authorities regarding direct taxes and VAT for the year 2007 and the other years still open to inspection. The tax assessment notices given in 2010 by the Tax and Revenue Office were agreed to on 27 October The provision includes the allocation for the assessments made for 2008 for taxes, penalties, interest and social security contributions not yet settled on the basis of the aforesaid agreement. These amounts shall be paid to the Tax and Revenue Office once the payment schedule has been received; - EUR 53,000 allocated for the probable negative judgement by the Court of Cassation concerning the dispute on Italian Law 388. The dispute regards recovery of the tax credit envisaged by article 8 of Italian Law 388/2000 concerning which the Company won the case before the provincial and regional tax commissions, and the Court of Cassation has still not disclosed the operative part of the judgement. The Provision for risk on investment refers to the write-down of the subsidiary Subitec GmbH only, on the basis of the results of the impairment test. More specifically, the write-down results from a comparison between the carrying amount of the investment on 1 January 2011 with the equity value of the subsidiary at 31 December 2011, calculated as the sum between the recoverable value and the net financial position of Subitec (if negative). Value in use was used for the recoverable amount as it is deemed reasonably higher than the fair value net of sale costs. Cash flow projections for , as taken from the financial plans prepared by the Parent Company and approved by its Board of Directors and by the Board of Directors of Subitec, were used to calculate the value in use. This plan was then extended for a further two financial periods, to establish a plan for The cash-flows for years subsequent to the last year included in the plan were discounted on the assumption of an indefinite timeframe at an annual growth rate of 1%. The chief parameters used for calculating the discount rate (WACC) were: Risk free Market Unlevered Risk Debt/equity Cost WACC premium Beta premium ratio of debt 1.75% 5.00% % % 7.50% As regards the risk free rate, rates of return were used of ten-year German state securities at the commencement date of the budget reference period. The unlevered Beta is the one which gives a better reflection of the data in the segment that Subitec operates in. The beta coefficient considers the leverage effect resulting from the debt/equity ratio of the TBS Group at 31 December 2011 since the Group substantially manages its finances on a centralised basis, by giving intercompany loans in accordance with the requirements of each of the various companies. 156

158 Financial Statements as at 31 December 2011 NOTE 16 Trade payables Trade payables as at 31 December 2011 amount to EUR 3,556,000 (EUR 3,066,000 as at 31 December 2010). (amounts in thousands of EUR) Trade payables to suppliers 2,851 2,285 Trade payables Related Parties Total trade payables 3,556 3,066 Trade payables are non-interest bearing and payment conditions are aligned to the terms commonly in use in the areas in which the business is developed. Trade payables are not secured. The trade payables to related parties mainly comprise payables to subsidiaries and associated companies. Further details are provided in Note 30. NOTE 17 Other current liabilities (amounts in thousands of EUR) 2011 Payables assigned 2010 e-health branch Payables to employees Social security liabilities Customer advance payments on invoices 0 0 VAT payable Other tax liabilities Other payables ,162 Other payables to Related Parties 27 Payables to subsidiaries for tax consolidation Total other current liabilities 2,274 2,740 The other payables include grants on investments in non-current assets of EUR 562,000 and recognised on an accruals basis for their offsetting against related costs. NOTE 18 - Guarantees granted, commitments and financial liabilities Guarantees given MEMORANDUM ACCOUNTS (amounts in thousands of EUR) Minority interests for guarantees granted 118,917 87,834 Purchase and sale commitments 3,108 3,215 Other loans 4,290 0 Total 126,315 91,

159 Financial Statements as at 31 December 2011 The Company gave a Performance Bond guarantee for EUR 6,650,000, with expiry on 31 December 2012, to the Friuli Venezia Giulia autonomous region to guarantee compliance in the transfer agreement for 100% of Insiel Mercato Spa shares. In addition, the Company gave guarantees, signed letters of patronage and warrants to grant credit in favour of the subsidiaries. Purchase and sale commitments include a value of EUR 3,108,000 that represents the residual commitment in consideration of the put & call options tied to acquisition of the controlling stake of the company EBM (EUR 1,901,000) and Caribel (EUR 1,207,000). The Company transferred the residual debt on the mortgage contract entered into with Banca Pop. di Milano with the assignment of the company branch to the subsidiary Insiel Mercato Spa mentioned above. However, despite the fact that the transferor notified the bank of the transfer, the bank had not yet given notice of the registration of transfer as at 31 December Therefore the company was still jointly liable for the debt remaining at year end, and recorded in the financial statements of the subsidiary for a total of EUR 4,290,000. NOTE 19 Revenues (amounts in thousands of EUR) Sale of goods and rendering services 789 1,557 Revenue - Related Parties 8,767 7,748 Total revenue 9,556 9,305 The revenues from sales of goods and services mainly refer to payments for the work carried out in the e-health area. The reduction in revenues compared to the previous year is partly related to assignment of the e-health branch which took effect from 1 November In 2011, revenue also came in as a result of entering into a Management service agreement in 2010 between TBS Group Spa and each of the subsidiaries. In its capacity as parent company, TBS Group Spa has a highly qualified central structure that the group companies do not have and do not plan to implement for reasons of efficiency and relevant onerousness, so it is able to supply Corporate Management services. Therefore, TBS Group Spa committed itself to placing at the disposal of the group companies consulting and coordination services aimed at running, implementing and expanding the business of its subsidiaries and at achieving high efficiencies and a better exploitation of resources, in addition to offering the specialised services listed below: a) use of the research results and developments introduced within the group; b) assistance on administrative, financial and management control problems; c) support in corporate organisation activities, in coordinating legal activities and in supervising quality policies; d) supervision of the human resources management policies, particularly with training activities, identification of the criteria for searching for qualified personnel, determining tools for assessing individual and collective performance, and defining remuneration policies; e) coordination in the technical activities, particularly in defining production processes, with particular focus on the industrial cost reduction policies, even through international checks on the best purchase prices of materials and equipment; f) definition of the sales policies to coordinate the portfolio of service offers both at the intercompany level and between the different business units, and to optimise the distribution networks; g) assistance in the IT system activities to optimise use of the most efficient solutions and coordinate the purchase and use of hardware systems and software products; 158

160 Financial Statements as at 31 December 2011 h) consulting and assistance in preparing marketing strategies, including the revision and analysis of market data, the selection and assessment of specific means of communication to use in the field of the service promotion activities; i) all other consulting and assistance regarding management and strategy that might lead to significant business developments in the interest of the Group companies. Revenue regarding remuneration of these services (management fees) for 2011 totalled EUR 5,833,000 (EUR 5,394,000 for the previous year). In addition significant revenues also came from service contracts entered into with certain Italian companies belonging to the group (EUR 1,616,000 at 31 December 2011). The breakdown of revenues by geographic area is shown in the following table: Revenues by geographic area (amounts in thousands of EUR) Related Others Total parties Italy 6, ,001 EU 2,418 2,418 Non-EU Total 8, ,556 NOTE 20 - Other income (amounts in thousands of EUR) Grants Other operating revenues 0 5 Total other income Grants for EUR 250,000 (also recognised in the form of tax credits), refer to development costs. They are charged to the income statement in accordance with the amortisation of the capitalised projects (Pharma phi, phi-gen and Sympar) to which they refer. In addition training grants of EUR 45,000 were accounted for. NOTE 21 Cost of raw materials and consumables (amounts in thousands of EUR) Raw materials, consumables and goods Purchase of materials from Related Parties 35 Changes in inventories of raw materials, consumables and goods 0 2 Total raw materials, consumables and goods The item refers to purchase costs for goods and spare parts regarding the medical IT activity following acquired orders. The reduction compared to the previous year is also related to the transfer of the company branch 159

161 Financial Statements as at 31 December 2011 NOTE 22 Service costs The breakdown of the service costs follows: (amounts in thousands of EUR) Consultancy and technical contracts Consultancy and technical contracts- Related Parties Legal administrative and commercial services 1, Administrative and commercial services- Related Parties Travel expenses Telephone expenses Directors remuneration Board of statutory remuneration Commission on sales 0 0 Banks and factors charges Insurance Transportation and shipping Other repairs and maintenance Other repairs and maintenance Related Parties 0 6 Advertising, promotion, exhibitions and trade fairs Leases and rentals Vehicle rental Other service costs 1,061 1,347 Other service costs - Related Parties Total service costs 6,588 5,907 The payments contractually agreed for 2011 for services by Reconta Ernst & Young amount to EUR 105,000 for the auditing services for the consolidated financial statements and EUR 12,000 for other services. NOTE 23 Personnel costs The table below provides a breakdown of personnel costs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Salaries and wages 3,834 3,172 Social security contributions 1, Retirement benefits 7 6 Employee Severance Indemnity and similar obligations Other personnel costs Total personnel costs 5,362 4,

162 Financial Statements as at 31 December 2011 The item includes the entire cost for employees, including merit pay increases, changes of category, automatic increase in the cost-of-living allowance, cost of accrued holidays not taken, legal provisions and collective agreements. The other personnel costs item primarily relates to costs for temporary work and staff leaving incentives for the year. Employment figures The opening headcount, broken down by category, underwent the following changes compared to the previous year. EMPLOYEES Managers and middle managers Employees Blue-collar staff Total Average The national labour contract applied is that of the metal and mechanical industry segment. NOTE 24 Other operating costs The table below provides a breakdown of other operating costs as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Write-downs of receivables under current assets 10 0 Taxes Other costs Other costs - Related Parties Other operating costs NOTE 25 - Cost adjustments for in-house generation of non-current assets (amounts in thousands of EUR) Cost adjustments for in-house generation of non-current assets Total cost adjustments for in-house generation of non-current assets The item Cost adjustments for in-house generation of non-current assets as at 31 December 2011 amounts to EUR 395,000 (EUR 543,000 as at 31 December 2010). It is related entirely to capitalised costs for personnel and service incurred for some new software and application developments. In particular, should such costs be deducted from the corresponding income statement item, there would be a reduction in personnel and service costs. The main capitalised costs refer to the PHI Technology project (EUR 68,000), development of the endoscopy software (EUR 230,000), and implementation of administrative software to be used by the IT systems division (EUR 97,000). 161

163 Financial Statements as at 31 December 2011 NOTE 26 Amortisation, depreciation and write-downs (amounts in thousands of EUR) Depreciation of property, plant and equipment Amortisation of intangible assets Other write-downs 56 0 Total amortisation, depreciation and write-downs NOTE 27 Gains (losses) from investments The losses from investments for a total of EUR 5,094,000 refer to the write-down made on the company Subitec on the basis of the impairment test results, accounting for EUR 5,075,000 (EUR 5,169,000 the previous year). For further details please refer to Note 7. NOTE 28 Financial income and expenses and dividends (amounts in thousands of EUR) Dividends from subsidiaries (Related Parties) 13,887 4,194 Bank interest receivables 1 0 Interest receivables - Related Parties Other interest receivables 0 1 Other financial income Total financial income Bank interest payable Interest payables - Related Parties Leasing interest payable Other interest payable 63 Other financial expenses Actuarial termination indemnity loss Gains (losses) from equity investments Total financial expenses Total financial income and expenses and dividends 13,349 3,816 Interest receivables amount to a total of EUR 274,000 and include interest from loans granted to subsidiaries (EUR 273,000) and the interest accrued with banks to a residual extent. Interest payable amounts to a total of EUR 792,000 and includes interest due to banks (EUR 765,000) and to a residual extent to the interest on loans received from subsidiaries (EUR 27,000). 162

164 Financial Statements as at 31 December 2011 The breakdown of the investment dividends in the subsidiaries is as follows: Dividends from subsidiaries (amounts in thousands of EUR) TBS GB 6, EBM 4,749 2,374 PCS 1,610 Surgical Technologies 900 1,200 Crimo Caribel SLT 66 Total dividends 13,887 4,194 NOTE 29 Taxes in the period The table below provides a breakdown of income taxes with separate current, deferred and advanced taxes: (amounts in thousands of EUR) IRAP IRES -1,089-1,050 Allocation to the tax risk provision 0 53 Taxes for previous years Current income taxes -1, (Advance)/deferred taxes Total income taxes -1, The company adhered to the provisions set forth under article 117 et seq. of the Consolidation Act on Income Taxes in its capacity as parent company. The amount of IRES shown in the table (positive for EUR 1,089,000) therefore refers to the amount between IRES due (EUR 1,903,000) and the income (net of charges) resulting from the tax consolidation (EUR 2,992,000). Details of the losses/gain from consolidation are shown below: TESAN -204 EBM 2,511 TBS IT -11 INSIEL MERCATO -3 TESAN TELEVITA 101 CRIMO 347 SLT 128 TECNOBIOPROMO 0 ERRE EFFE 77 CARIBEL 42 SIC 4 TOTAL 2,

165 Financial Statements as at 31 December 2011 The following table shows the tax incidence on earnings (as a whole, positive, partly due to the significant gains from consolidation) before tax as at 31 December 2011 and 31 December 2010: (amounts in thousands of EUR) Earnings before tax 5,037-3,599 Income taxes -1, Incidence on earnings before taxes -20.7% 7.6% No items were directly added to or deducted from shareholders equity. As far as IRES is concerned, reconciliation between the current theoretical tax rate and the actual tax rate is shown below: (amounts in thousands of EUR) 2011 Tax basis Taxes % Earnings before tax 5,037 Theoretical tax charge 1, % Taxes on permanent adjustments 1, % - Write-down due to impairment 5,075 - Write-downs, capital losses, contingent liabilities Non-deductible interest Telephone expenses 51 - Motor vehicle expenses 19 - Non-deductible amortisation 21 - Other changes (+) 33 Subtotal 5,936 Taxes on permanent adjustments -3, % - Non taxable dividends -13,355 - IRAP deduction on IRES Other changes -10 Subtotal - 13,368 Taxes for previous years % Consolidation adjustments % Subtotal - 1,094 IRAP (current and deferred) % Effective tax charge - 1, % 164

166 Financial Statements as at 31 December 2011 Deferred tax assets and liabilities The following table details deferred tax assets: TAXABLE AMOUNT DEFERRED TAX DEFERRED TAX RECEIVABLES IRES IRAP IRES IRAP TOTAL Goodwill amortisation Research project grants Unpaid manager remuneration Association grants deductible on a cash basis Staff performance bonuses deductible on a cash basis Legal costs Other write-downs Surplus maintenance Capitalised cost write-back Total 1, The Company recorded deferred taxes relating to temporary differences between the civil and fiscal assessment, based on the consideration that future taxable amounts will absorb all the temporary differences that generated them. Details of deferred tax liabilities are as follows: TAXABLE AMOUNT DEFERRED TAXES DEFERRED TAXES LIABILITIES IRES IRAP IRES IRAP TOTAL Doubtful debt deductions EC section Software amortisation deductions EC section Cap. gain taxable amount from transfer 1, Dividends not received Leasing Implem. Employee Severance Indemnity Total 1, NOTE 30 Related party disclosures In accordance with Consob letter of 28 July 2006, disclosure on related parties is made in these explanatory notes in the respective sections. The credit/debt ratios, and the financial income and charges that TBS Group Spa grants its subsidiaries, associated companies and related parties, for the relevant period, are summarised in the tables below: 165

167 Financial Statements as at 31 December 2011 Relations with subsidiaries (amounts in thousands of EUR) DEBITS / CREDITS 2011 REVENUE / COSTS 2011 Trade Fin. Receiv. Trade Fin. Payables Marketing Dividends Fin. Marketing Fin. Company receivables receivables due to payables debts due to revenue income costs charges tax consol. tax consol. Tecnobiopromo TESAN (*) TesanTelevita (*) PCS (*) , TBS FR , TBS BE TBS GB , TBS ES 784 3, STB Subitec 1,299 2, Surgical Technologies SLT CRIMO Caribel EBM 1,769 3,248 1, ,512 4, MSI (*) TBS IT INSIEL MERCATO (*) 2, , TBS INDIA TBS SE Erre Effe (*) Delta X (*) SIC Sinopharm TBS Total 8,956 11,114 1, , ,767 13, (*) Indirectly controlled 166

168 Financial Statements as at 31 December 2011 (amounts in thousands of EUR) DEBITS / CREDITS 2010 REVENUE / COSTS 2010 Trade Fin. Receiv. Trade Fin. Payables Marketing Dividends Fin. Marketing Fin. Company receivables receivables due to payables debts due to revenue income costs charges tax consol. tax consol. Tecnobiopromo TESAN , TesanTelevita (*) PCS , TBS FR 589 3, TBS BE TBS GB TBS ES 757 4, STB Subitec 884 8, Surgical Technologies , SLT CRIMO Caribel EBM 2,860 3, ,992 2, MSI (*) TBS IT (*) INSIEL MERCATO (*) 1, , TBS INDIA TBS SE SIC S.O.IT Total 8,701 16,423 3, , ,748 4, (*) Indirectly controlled. Relations with associated companies (amounts in thousands of EUR) Company Receivables Payables Revenues Costs Receivables Payables Revenues Costs Cisic 2 O3 Enterprise Easy Care Foundation 10 SMS in liquidation 1 Total The transactions carried out with subsidiaries and associated companies basically involve the provision of services and the obtaining and use of financial resources; they form part of ordinary operations and are handled at market conditions, i.e. at arm s length conditions. 167

169 Financial Statements as at 31 December 2011 Relations with the other related parties (amounts in thousands of EUR) Company name Receivables Payables Revenues Costs Receivables Payables Revenues Costs SEGES Paolo Salotto Alessandro Firpo Bio B.i.t Capitol Health Brian De Francesca 20 Total Mr. Paolo Salotto is the Investor Relator and Director of various Group companies. The amounts shown in the table relate to remuneration for consultant and management work in the acquisitions area. Seges Srl is considered a related party since Mr. Paolo Salotto is its Chairman. Relations with Seges are regulated by a consultancy agreement in the Administration, Finance and Control Departments of the Company, with particular reference to administration, accounting, extraordinary finance and tax issues. Mr. Alessandro Firpo, a close relative of a director of the Company, entered into an agreement with the company for the Promote-and-Support projects for the development of corporate activities such as monitoring and analysis of tenders, assistance with bid documentation in preparation for tenders, presentation of integrated company activities to potential clients, market analysis, subsidiaries organization and support in the analysis of disclosure obligations concerning AIM preand post-listing. Bio Bit Srl is considered to be a related party since Mr. Nicola Pangher and Mr. Diego Bravar are shareholders and directors of the company. Mr. Paolo Salotto is a director there. It provided administrative and IT consultancy services. Capitol Health Consultants Inc. is considered to be a related party as it is a subsidiary of Capitol Health Special Fund L.P., one of the shareholders of the Company. Relations with Capitol Health are regulated by a strategic and financial consulting agreement under General Management. Accrued remuneration for directors with key responsibilities: (amounts in thousands of EUR) Salaries (*) Remuneration (**) Salaries (*) Remuneration (**) Diego Bravar Nicola Pangher (*) The amounts shown relate to the gross salaries paid to company employees (**) The amounts shown relate to remuneration paid to company directors NOTE 31 Share-based payments On 30 October 2009, the Ordinary Shareholders Meeting of the Company resolved to allocate 397,910 own shares held in portfolio as at that date to a share option plan, assigning the shares to certain employees and staff of the Group, with one share, with standard rights, for each option assigned (the total number of own shares of the Company allocated to the share option plan, following the split of shares approved by the Extraordinary Shareholders Meeting of the Company on 30 October 2009, is 397,910). 168

170 Financial Statements as at 31 December 2011 The Board of Directors subsequently determined a price of EUR 2.50 per share as the strike price of the related option on 20 November 2009, also selecting the key people listed below as share option plan beneficiaries and the number of related options assigned: Pietro Torrusio 47,441 Stefano Beorchia (**) 29,105 Nicola Seren (**) 29,105 Alberto Steindler (**) 29,105 Paolo Salotto (*) 29,105 Brian De Francesca 29,105 Mario Ciabocco (**) 29,105 Olivier Brosset (**) 29,105 Bill Moffitt (**) 29,105 Alfred Amann (**) 29,105 Not yet assigned 88,524 Total 397,910 (*) Board Member of the Parent Company at the listing date. (**) Group company employee at the listing date. At the same meeting, the Board of Directors also granted the Chairman the right to allocate the remaining 88,524 shares to other key managers, to be identified by 31 October 2010, whereas the Board of Directors meeting of 16 December 2010 resolved to postpone division to 31 December This has not yet been carried out. Each share option plan assignee may exercise the options as follows: - for 1/3, 12 months after assignment (no one exercised the option); - for 1/3, 24 months after assignment (no one exercised the option); - for 1/3, 36 months after assignment. Without prejudice to the starting dates when options may be exercised, each option may be exercised up until the end of the fifth year from the date of assignment. The fair value of granted options is estimated at the assignment date using the model based on the Black and Scholes formula, taking into account the terms and conditions of assignment. The table below shows the hypotheses used in estimating the value of the options: 2009 Expected volatility (%) Risk free interest rate (%) Expected duration of the option (years) 3 years Weighted average price of shares (EUR) 2.5 The expected volatility was determined based on the historical volatility of company shares and reflects the hypothesis that the historical volatility is indicative of future trends, something which might not occur. No other characteristic of share option plans was considered for measuring fair value. It should be noted that sector volatility for similar company shares is equal to %. The cost, equal to EUR 58,000, relating to the above share-based payment, is recognised in the income statement under personnel costs (for EUR 48,000) and service costs (for EUR 10,000) with a contra entry directly recognised in shareholders equity. 169

171 Financial Statements as at 31 December 2011 NOTE 32 Subsequent events The significant events that occurred after 31 December 2011 and up to the date the financial statements for the period were prepared are described below: On 6 February 2012, sales contracts for the IT and Call Centre divisions of Agile Srl, in extraordinary administration, were signed in favour of TBS IT (fully held by the TBS Group). Agile Srl is a company that operates in the design and creation of information and communication technology solutions and services in Italy, and had taken over these areas of activity from Eutelia Spa before both companies were placed into administration by the magistrature and the Ministry of Development. In financial terms, the overall price offered by TBS IT to purchase Agile was EUR 1 million, of which EUR 900,000 for the IT division and EUR 100,000 for the Call Centre division, to be funded by a share capital increase of TBS Group Spa described below. On 31 January 2012, the extraordinary Shareholders Meeting of the TBS Group Spa approved the reserved capital increase for the Fondo Italiano d Investimento (the Fund ) which provides for the issue of 5,555,556 new subscribed shares at a price of EUR 1.8 per share, of which EUR 1.7 as the premium. The newly issued shares have standard rights attached and the same characteristics as all the other outstanding shares. The Fund subscribed to and paid for this on 9 February. An agreement governing the terms and conditions of future agreement to the existing shareholders agreement by the Fund was agreed between the main shareholders. In addition, the meeting approved the issue of a convertible bond loan, also reserved to the Fund, which provides for the issue of 4,347,826 bonds with a nominal value of EUR 2.30 each. The conversion, to be exercised in whole or in part by 31 December 2014, will be on ordinary TBS Group Spa shares which will be newly issued at a 1:1 ratio (one share for each bond converted). In the event of reimbursement, this may occur by 31 December The interest rate provided for the convertible bond loan has been set at the fixed nominal rate of 8% per year. The Fund subscribed to and paid for the bond loan on 9 February. The extraordinary meeting therefore approved the amendment to article 6 of the Articles of Association in order to take account of the fact that the operations described will involve the increase of the share capital of the TBS Group Spa by 5,555,556 and 4,347,826 further ordinary shares respectively. In the event that there are no further changes to the share capital, and the Fund exercises its right to conversion with respect to all the convertible bonds, the share capital of TBS Group Spa will amount to EUR 4,653,340.30, allocated among 46,533,403 shares. The extraordinary meeting resolved to grant the Chairman - Managing Director the authority to fully implement the decisions described above. On 31 January 2012, after having examined the Report of the Board of Directors, the ordinary Shareholders Meeting resolved to authorise the purchase of own shares to reach a maximum of a further 263,179 ordinary shares, with a nominal value of EUR 0.10 each, (TBS Group Spa currently owns 501,031 shares). On 2 March 2012, an investment agreement was made with REM Spa of Fisciano (SA), specialised in the diagnostic imaging sector through the sale and technical assistance of equipment reserved to this market. The agreement provides for the entry of TBS Group Spa into the share capital of REM through a reserved capital increase that will involve the payment of EUR 2 million as the nominal value plus premium, at the end of which the TBS Group Spa shall have a 35% holding. This operation will mean that the capital of REM will increase by a nominal EUR 328,050 to a nominal EUR 504,690 through the issue of 17,664 new ordinary shares with a nominal value of EUR 10 and a premium of EUR for each of these. The agreement also provides for a call option in favour of TBS Group Spa - that can be exercised in one or two tranches for the purchase of a further 35% holding. The option can be exercised as one solution, by 31 December 2014, or alternatively in two tranches, with the first expiring on 31 December 2013 for purchase of a 16% interest in the share capital and the second on 31 December 2014 for purchase of the remaining 19%. 170

172 Financial Statements as at 31 December 2011 If the call option is exercised, the TBS Group Spa will pay a price calculated by using a 6.5 multiple of the EBITDA (net of the net financial position) recorded by the company in the 2013 financial period if the option is exercised in one tranche only, and if it is exercised in two tranches, in 2012 for the first tranche and in 2013 for the second. In any case the minimum price for the exercise of the call option shall equal a total of EUR 2,508,000. On 15 March 2012 the purchase of a further 29.9% of the MSI shares was completed through the subsidiary Subitec (previously 71.1% held) at a price of EUR 50,000. Note 33 Transition to the international IFRS accounting standards Preface The number of investors in the TBS Group Spa went over 200 in 2010 and therefore it became an issuer of financial instruments distributed among the public in accordance with article 116 of the Italian Consolidated Law on Finance ( TUF ). In accordance with the provisions of Legislative Decree no. 38 of 28 February 2005, the Company must draw up its financial statements in accordance with international accounting standards. In this context, TBS Group Spa drafted the financial statements for the period ended at 31 December 2011 in accordance with the IFRS. The transition date was 1 January The financial statements of TBS Group Spa up to 31 December 2010 had been drafted in accordance with Italian accounting standards. In view of the above, the information required under IFRS 1 shall be illustrated below. More specifically, said information regards the impact that the conversion to the International Accounting Standards (IFRS) had with reference to the 2010 financial year, on the financial position, financial performance and cash flows. To this end, the following was prepared: notes on the first application rules of the IFRS (IFRS 1) and the other IFRS standards adopted, including the assumptions of the Directors about the IFRS standards and interpretations in effect, in addition to the accounting policies adopted when preparing the first financial statements drawn up in accordance with the IFRS standards on 31 December 2011; reconciliation of the shareholders' equity in accordance with the previous accounting standards and the equity recorded in accordance with the IFRS on the following dates: date of transition to the IFRS (1 January 2010); 31 December 2010, drafted and presented in order to be compared to the data at 31 December 2011; reconciliation of the financial results in the financial statements of 31 December 2010 drafted in accordance with the previous accounting standards with the financial results resulting from application of the IFRS for the same year; the comments on the reconciliation statements of the shareholders equity and the financial results; the IFRS balance sheet as at 31 December 2010 and the IFRS income statement for 2010; the comments on the main reclassifications and adjustments made due to application of the IFRS standards to the items on the balance sheet as at 31 December 2010 and the income statement for As more analytically illustrated below, the IFRS balance sheet and the IFRS income statement were obtained by making the appropriate IFRS reclassifications and adjustments to the final data, drawn up in accordance with Italian law, in order to reflect the changes in the presentation, recognition and measurement principles requested by the IFRS standards. The information in this section is intended to provide a complete overview of the transition process to the international accounting standards for TBS Group Spa. 171

173 Financial Statements as at 31 December 2011 RULES OF FIRST APPLICATION, ACCOUNTING OPTIONS AT FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS BY THE TBS GROUP The following choices were made with respect to the options provided by the International Financial Reporting Standards ( IFRS ): a) Presentation of the financial statements The current/non current standard was adopted for the balance sheet (statement of financial position) schedule, while costs were classified by nature in the income statements; this involved the reclassification of the historical financial statements prepared in accordance with the schedules provided under the Civil Code. b) Optional exemptions provided by the IFRS upon first-time adoption of the IFRS (1 January 2010) measurement of the property, plants and equipment and the intangible assets at fair value or, alternatively, revaluation as deemed cost: TBS Group Spa opted to maintain the historical cost as the measurement principle for the intangible assets and the property, plants and equipment; employee benefits: the cumulative actuarial gains and losses from the beginning of the defined benefit plans up to the transition date to the IAS/IFRS are directly recognised to the shareholders equity at the transition date (1 January 2009); share-based payments: the application of IFRS 2 (share-based payment transactions) is permitted for annual financial statements for the financial periods starting from 1 January 2005; the company therefore applied the provisions of this standard. c) Accounting treatment used pursuant to the options available under the IFRS measurement of property, plant and equipment and intangible assets: after their initial recognition at cost, IAS 16 and IAS 38 provide that these assets can be measured at cost (and depreciated/amortised) or at fair value. TBS Group Spa decided to adopt the cost method; investments in subsidiaries after their initial recognition at deemed cost, IAS 27 provides that these assets can be measured at cost or in accordance with IAS 39 (at fair value). TBS Group Spa decided to adopt the cost method; inventories: according to IAS 2 the cost of inventories must be determined by using the FIFO method or the weighted average cost formula. TBS Group Spa decided to adopt the FIFO method. MAIN IMPACTS RESULTING FROM APPLICATION OF THE IFRS ON THE OPENING STATEMENT OF FINANCIAL POSITION AS AT 1 JANUARY 2010 AND THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2010 The differences that emerged from application of the IFRS standards compared to the Italian accounting standards, and the choices made by TBS Group Spa from the range of accounting options provided under IFRS as described above, meant that the accounting figures prepared in accordance with the previous Italian rules had to be re-processed, with significant effects on the shareholders equity, the net financial position and the net profits of the Company in some cases, which can be summarised as follows: 172

174 Financial Statements as at 31 December 2011 Opening statement of financial position as at 1 January 2010 Adjustments for Italian standards IFRS application IFRS Shareholders' equity 59,354,105-1,541,683 57,812,422 Net financial position 4,709, ,916 4,045,305 Financial statements for the year ending 31 December 2010 Adjustments for Italian standards IFRS application IFRS Shareholders' equity 55,908,793-2,489,894 53,418,899 Net financial position -11,343, ,797-11,973,843 With reference to the adjustments made in application of the IAS standards to the net financial position, with reference to 1 January 2010 and 31 December 2010, the adjustments mainly refer to recognition of the liabilities to leasing companies in accordance with the provisions of IAS 17. More specifically, the main adjustments can be summarised as follows: a) Adjustments to the shareholders equity and the profit for the year Shareholders equity Shareholders equity Net profit as at 1 January 2010 as at 31 December 2010 for 2010 Shareholders' equity and profit for the period drawn up in accordance with Italian accounting standards 59,354,105 55,908,793-2,358,350 Adjustments to the balance sheet items in accordance with the IFRS a) Write-back of start-up and expansion costs -20,073-35,007-14,934 b) Leasing 32,404 55,326 22,922 c) Write-back/reclassification improvements to leased assets (leasing) 23,991 34,956 10,965 d) Write-back of improvements to leased assets (rents) -1,834-24,205-22,371 e) Stock exchange costs -1,204, , ,079 f) Goodwill 0 10,390 10,390 g) Investments in subsidiaries 0 4,117,878 4,117,878 h) Impairment of investments 0-5,167,142-5,167,142 i) Investment accessory charges charged to the income statement 0-180, ,770 j) Reclassification of own shares -679, ,998 0 k) Measurement of own shares ,390 l) Stock options ,126 m) Employee severance indemnity adjustments 50,255 49, n) Reclassification of tax risk provision ,751 o) Revenue recognition -140, ,000 Total gross IFRS adjustments -1,939,149-2,750, ,492 Tax effects of the IFRS adjustments 397, , ,032 Total net IFRS adjustments -1,541,683-2,489, ,524 Total shareholders equity and profit from the financial statements drawn up in accordance with the IFRS 57,812,422 53,418,899-3,323,

175 Financial Statements as at 31 December 2011 Explanatory notes to the reconciliation statements The main IFRS adjustments and reclassifications made to the amounts drawn up in accordance with the Italian Accounting Standards are explained below: a) Start-up and expansion costs: The start-up and expansion costs regarding accessory costs incurred for capital increases, statutory amendments and extraordinary merger operations are capitalised in accordance with Accounting Standard 24 of the CNDCR [National Board of Chartered Accountants]. IAS 38 provides that start-up and expansion costs incurred in relation to capital operations are directly deducted from the shareholders' equity reserves at the date of the operation; since the other start-up and expansion costs do not meet the requirements for recognition under intangible assets, they must be charged to the income statement. This different accounting treatment compared to Italian Accounting Standards had the following impacts: as at 1 January 2010: a reduction in the intangible assets of EUR 20,000 resulting in a reduction of the shareholders equity of EUR 14,000, net of a tax effect of EUR 6,000 (for recognition of deferred tax assets); as at 31 December 2010: a reduction in the intangible assets of EUR 35,000 resulting in a reduction of the shareholders equity of EUR 24,000, net of a tax effect of EUR 11,000 (for recognition of deferred tax assets); correspondingly, the gross profits for 2010 were reduced by EUR 15,000 due to the effect of the lower amortisation/depreciation of EUR 15,000 and the higher service costs of EUR 30,000, which, net of the positive tax effect of EUR 5,000, had a negative effect on the net profit for the year of EUR 10,000. b) Leasing Italian standards provide that lease payments and the accrued deferral of any lump sum payments for both finance and operating leases are charged to the income statement regardless of whether the lessor kept the risks and rewards incident to ownership or not. In accordance with the provisions of IAS 17, the definition of a contractual agreement as a leasing transaction is based on the substance of the agreement, and requires an evaluation of whether performance of the agreement depends on the use of one or more specific assets and if the agreement transfers the right to use this asset. Finance lease contracts that substantially transfer all the risks and rewards resulting from ownership of the leased asset to the Company must be capitalised at the date of commencement of the lease term at the fair value of the leased assets, or if lower, the current value of the lease payments. Lease payments are apportioned between interest expense and reduction of financial liabilities so as to achieve a constant periodic interest rate on the outstanding balance of the liability. Financial expenses are included in the income statement. The capitalised leased assets are depreciated on a time scale which is the shorter of the estimated useful life of the asset or the lease term unless it is reasonably certain that the company will obtain ownership of the asset at the end of the contract. Lease contracts where the lessor substantially retains all the risks and rewards of ownership are classified as operating leases. Operating lease payments are charged to the income statement at constant rates over the lease term. This different accounting treatment had the following impacts: as at 1 January 2010: an increase in the land and buildings item of EUR 965,000, a decrease of other current assets of EUR 269,000, an increase in medium and long term loans and borrowings of EUR 631,000 and an increase in short term loans and borrowings of EUR 33,000, which, net of a negative tax effect of EUR 10,000 led to an increase in total shareholders equity of EUR 22,000; 174

176 Financial Statements as at 31 December 2011 as at 31 December 2010: an increase in the land and buildings item of EUR 934,000, a decrease of other current assets of EUR 248,000, an increase in medium and long term loans and borrowings of EUR 596,000 and an increase in short term loans and borrowings of EUR 35,000, which, net of a negative tax effect of EUR 17,000 led to an increase in total shareholders equity of EUR 38,000; correspondingly, the gross profits of 2010 recorded an increase of EUR 23,000 due to the combined effects of higher depreciation of EUR 30,000, higher financial expenses of EUR 11,000 and lower service costs of EUR 64,000, which net of the negative tax effect of EUR 7,000, resulted in a positive effect on the net profit for the year of EUR 16,000. c) Write-back/reclassification of improvements to leased assets In accordance with Italian accounting standards, the Company must capitalise costs incurred for improvements and incremental expenses for leased goods under intangible assets if these costs cannot be separated from the assets themselves (i.e. cannot have independent function). In accordance with the provisions of IAS 17, finance leasing contracts that transfer substantially all the risks and rewards resulting from ownership of the leased assets to the Company, must be capitalised (see also section b) above). The capitalised costs under the intangible assets, in accordance with Italian accounting standards, were reclassified according to the nature of the asset under property, plant and equipment under their specific category, and a new depreciation rate was defined in accordance with the useful life of the leased assets. This different accounting treatment had the following impacts: as at 1 January 2010: a reduction in the intangible assets of EUR 226,000 and an increase in land and buildings of EUR 250,000, which, net of a negative tax effect of EUR 8,000 (due to recognition of the deferred tax provision) resulted in an increase in the shareholders equity of EUR 16,000; as at 31 December 2010: a reduction in the intangible assets of EUR 208,000 and an increase in land and buildings of EUR 243,000, which resulted in an increase of the shareholders equity of EUR 24,000, net of a negative tax effect of EUR 11,000; correspondingly, the gross profits for 2010 were increased by EUR 11,000 due to the effect of the lower amortisation/depreciation for the same amount, which, net of the negative tax effect of EUR 3,000, had a positive effect on the net profit for the year of EUR 8,000. d) Costs for improvements to leased assets (rented assets) In accordance with the Italian accounting standards, the Company capitalises the costs incurred for improvements and incremental expenses for assets rented by the company, under intangible assets. On the other hand, the IFRS require these costs to be recognised in the income statement in the year that they are incurred in, without the asset separability requirement of the company. This different accounting treatment had the following impact: as at 1 January 2010: a reduction in the intangible assets of EUR 2,000 resulting in a reduction of the shareholders equity of EUR 1,000, net of a positive tax effect of EUR 1,000 (for recognition of deferred tax assets); as at 31 December 2010: a reduction in the intangible assets of EUR 24,000 resulting in a reduction of the shareholders equity of EUR 17,000, net of a positive tax effect of EUR 7,000 (for recognition of deferred tax assets); correspondingly, the gross profits for 2010 were reduced by EUR 22,000 due to the effect of the lower amortisation of EUR 8,000 and the higher service costs of EUR 30,000, which, net of the positive tax effect of EUR 7,000, had a negative effect on the net profit for the year of EUR 15,

177 Financial Statements as at 31 December 2011 e) Stock exchange costs Since the costs incurred by the Company to be listed on the Italian AIM market, which were finalised on 23 December, involved costs related to the admission to the Stock Exchange through an IPO, they were treated the same way as charges incurred to increase the share capital would be. Therefore in accordance with accounting standard 24 of the CNDCR, they were capitalised under start-up and expansion costs. Similarly, during 2010, the Company stopped posting the costs incurred during the year for consultancy on the Star market listing project under intangible assets. IAS 32 provides that costs incurred in relation to capital operations are allocated among assets placed for sale and those offered for subscription. The first are charged to the income statement, the second as a direct deduction of the shareholders equity. Considering that the TBS Group Spa shares were all put up for public offer, all the listing costs must be fully accounted for as direct deductions of the shareholders equity at the time the transaction is finalised. This different accounting treatment compared to Italian Accounting Standards had the following impact: as at 1 January 2010: a reduction in the intangible assets of EUR 1,204,000 resulting in a reduction of the shareholders equity of EUR 826,000, net of a positive tax effect of EUR 378,000 (for recognition of deferred tax assets); as at 31 December 2010: a reduction in the intangible assets of EUR 903,000 resulting in a reduction of the shareholders equity of EUR 619,000, net of a positive tax effect of EUR 284,000 (for recognition of deferred tax assets); correspondingly, the gross profits for 2010 were increased by EUR 301,000 due to the lower amortisation for the same amount, which, net of the negative tax effect of EUR 95,000, had a positive effect on the net profit for the year of EUR 206,000. f) Goodwill According to Italian accounting standards, goodwill recorded on the financial statements must be amortised over the timescale of its useful life. However, according to the International accounting standards, goodwill should not be systematically amortised in the income statements, but should be subject to periodic assessments, made on an annual basis at least in order to identify any impairment. This different accounting treatment had the following impact: as at 31 December 2010: an increase in the value of the assets with undefined useful lives of EUR 10,000 and an increase of the same amount in the shareholders equity; the gross profit (and net) record an increase of EUR 10,000 due to the write-back of the goodwill amortisation. g) Measurement at cost of the investments in subsidiaries In accordance with Italian accounting standards, the assets comprising investments in subsidiaries can be measured either in accordance with the purchase cost principle, increased by accessory charges, or in accordance with the equity method. TBS Group Spa measured its investments in subsidiaries in accordance with the equity method. IAS 27 provides that an investment in a subsidiary can be either accounted for at cost or in accordance with IAS 39 (fair value). The Company opted to measure at cost. However, upon first adoption of the international accounting standards, IFRS 1 permits investments at cost to be measured in accordance with the provisions of IAS 27 or at the deemed cost. This, in turn, may be the fair value of an investment (determined in accordance with the provisions of IAS 39) at the date of transition to the IFRS or at the 176

178 Financial Statements as at 31 December 2011 value posted in the financial statements drafted in accordance with the local accounting standards (Italian accounting standards in the case of TBS Group Spa) at the same date. The Company opted for the second alternative. With reference to the accounting treatment of dividends, in accordance with Italian accounting standards, they are accounted for as a reduction of investments when cashed in accordance with the equity method. On the other hand, IAS 27 provides for recognition of the dividends in the income statement when the right to receive them arises. This different accounting treatment had the following impact: as at 1 January 2010: no impact in relation to the option adopted by the company to maintain the carrying value resulting from application of the previous accounting standards for all the subsidiaries; as at 31 December 2010: a reduction in the value of the investments in subsidiaries of EUR 1,606,000 and a decrease in the related risk provisions related to subsidiaries of EUR 5,724,000 with a resulting increase in the total shareholders equity of EUR 4,118,000. Net profit was reduced by EUR 4,118,000 due to write-back of the investment revaluations of EUR 6,882,000 and write-back of the investment write-downs of EUR 6,806,000 resulting from application of the equity method in accordance with Italian accounting standards, and recognition of dividends decided by certain subsidiaries of EUR 4,194,000. h) Impairment tests on investments As noted above, in accordance with Italian accounting standards, TBS Group Spa measures its investments in subsidiaries in accordance with the equity method, while the company opted to adopt the cost method for the financial statements drawn up in accordance with the international accounting standards. The company performed the impairment test as at 31 December 2010 in order to measure recoverability of the carrying amount at cost of the investments. Any differences in terms of write-downs between the Italian accounting standards and the international accounting standards results from the fact that according to the Italian standards, the company had already accounted for any costs resulting from the write-down of the investments in the income statement in application of the equity method (and substantially related to the negative results of the subsidiaries during the year), while with the international accounting standards, the company has to measure recoverability of the carrying amount using the impairment test, at least at the end of each period, which result will not necessarily correspond to the accrued losses made by the subsidiary. This different accounting treatment had the following impact: as at 31 December 2010: a reduction in the value of the investments in subsidiaries of EUR 5,167,000 with a resulting decrease in the total shareholders equity of the same amount; the net profits are reduced by EUR 5,167,000 due to accounting for the write-down made by the company. i) Investment accessory charges charged to the income statement According to Italian accounting standards, the purchase cost of the investments also includes the accessory charges (including banking and financing intermediation costs, or commissions, expenses, revenue stamp costs, etc.). If significant packages are acquired, these costs can also include consultancy fees paid to professionals for the preparation of contracts and feasibility studies and/or advantages of the purchase). On the other hand, IFRS 3 revised requires recognition in the income statement of any costs associated with business combinations if incurred (legal, adviser, expert, auditor and professional fees in general). Therefore the Company charged the accessory charges incurred for acquisitions made during 2010 to the income statement, and so they are no longer recognised under long-term investments. 177

179 Financial Statements as at 31 December 2011 This different accounting treatment had the following impact: as at 31 December 2010: a reduction in the value of the investments in subsidiaries of EUR 181,000 and a concomitant reduction in the total shareholders' equity for the same amount; the net profits are reduced by EUR 181,000 due to the fact that the accessory charges incurred in 2010 for the purchase of investments are allocated to service costs. j) Reclassification of own shares In accordance with the provisions of article 2424 of the Civil Code and the provisions of Italian accounting standards 20, own shares must be recorded under the assets of the balance sheet, separately from the other investments, in group B.III Long-term investments, item no. 4, or in group C.III Short term investments, item no. 5 with regard to the allocation attributed. In addition, when recording own shares, the assets of the balance sheet must also be recorded under liabilities, in the group Shareholders Equity, as a contra entry for the same amount, the item A.V. Reserve for own shares. On the other hand, the international accounting standards require the instruments representing the issuer s capital (own shares) not to be recorded as a financial asset, but to be deducted from the shareholders equity. Any gains or losses resulting from the subsequent trading or cancellation of the own shares acquired are then reflected directly in the shareholders equity. This different accounting treatment had the following impact: as at 1 January 2010: a decrease in the value of the other financial assets of EUR 680,000 and a concomitant reduction in total shareholders equity of the same amount; as at 31 December 2010: a decrease in the value of the other financial assets of EUR 708,000 and a concomitant reduction in total shareholders equity of the same amount; k) Measurement of own shares According to the Italian accounting standards, own shares recorded under current assets must be recorded as the lower between cost and the realisable value as inferred from market trends. On the other hand, in accordance with the international accounting standards, no gain or loss is recognised in the income statement on the purchase, sale or cancellation of the own shares. This different accounting treatment had the following impact: as at 31 December 2010: the gross profit (and net) for 2010 increased by EUR 74,000 due to the write-back of the own share write-down pursuant to the Italian accounting standards. The effect was zero when these effects were recognised directly as a contra entry to the reduction in the shareholders equity as at 31 December l) Stock options The Italian accounting standards do not provide for any accounting of share based payments. On the other hand, IFRS 2 provides that they should be calculated at their fair value. The cost is recognised on the income statement during the period in which the conditions for their exercise mature, and a contra entry is recognised in an equivalent increase of the shareholders' equity. 178

180 Financial Statements as at 31 December 2011 This different accounting treatment compared to the Italian Accounting Standards - that did not influence the opening or closing shareholders equity for had the following impact: as at 31 December 2010: gross profits (and net) for 2010 recorded a decrease of EUR 120,000 due to the higher staff costs of EUR 97,000 and the higher service costs of EUR 23,000. The effect was zero when this effect was recognised directly as a contra entry to the shareholders equity as at 31 December m) Adjustments to the Employee Severance Indemnity The Italian standards require liabilities for the Employee Severance Indemnity to be recognised on the basis of the nominal debt matured in accordance with the statutory provisions in effect at the date the books are closed. According to the IFRS, employee severance indemnity falls under the defined benefit plan type, subject, in accordance with the actuarial valuation (which considers statistical elements related to mortality, reviewable changes in salary, etc.) to express the current value of the benefit, payable at the end of the work relationship, that the employees have matured at the date of the financial statements. For IFRS purposes, all the actuarial gains and losses were recognised at the date of adoption of the IFRS, and all the actuarial gains and losses matured from the first adoption date were recognised directly on the income statement without using the corridor method. This different accounting treatment had the following impact: as at 1 January 2010: a reduction of the employee severance indemnity provision of EUR 50,000, which, net of a negative tax effect of EUR 14,000, results in a total increase of the shareholders equity of EUR 36,000; as at 31 December 2010: a reduction of the employee severance indemnity provision of EUR 50,000 resulting in an increase of the total shareholders equity of EUR 36,000, net of a negative tax effect of EUR 14,000; correspondingly, the gross profits for 2010 were reduced by EUR 1,000 due to the effect of the lower staff costs of EUR 13,000 and the higher financial expenses of EUR 14,000, which, net of the negative tax effect of EUR 0, had a positive effect on the net profit for the year of EUR 1,000. n) Reclassification of allocation to tax risk provision The allocations made in 2010 by TBS Group Spa against tax risks were classified in the financial statements drawn up in accordance with the Italian accounting standards at item 12) Allocations for risks. In the financial statements drawn up in accordance with the IFRS, the total value of these provisions was classified in accordance with their nature as provided under IAS 1. In this case, since it is an allocation related to higher taxes, a reduction of Other allocations was recognised of EUR 53,000 and an increase of the same amount to taxes. The impact on the gross profits for the year was positive for EUR 53,000, while the impact on the net result was zero. o) Revenue recognition In 2004, TBS Group transferred the rights to develop and integrate Patidok software to SIC Srl, a company in which it has a 14% investment (the Italian version, capitalised under intangible assets in accordance with Italian accounting standards), keeping the economic use rights however. By separate agreement dated 1 February 2005, SIC undertook to carry out the modifications, adaptations and integrations of the software product comprising a few different models to create the international, multilingual version, for the transferring company. The parties agreed that upon completion of the adaptation phase, SIC would transfer a complete copy of the new software version to the Company, with the right to use it and to apply the basic software in its country of residence only. 179

181 Financial Statements as at 31 December 2011 IAS 18 provides that the revenues from the sale of the goods must be recognised when all the following conditions have been fulfilled: a. the entity has transferred the significant risks and related benefits of ownership of the goods to the acquiring party; b. the entity no longer exercises the usual continuous level of activity associated with ownership or effective control of the sold goods; c. the revenues can be reliably valued; d. it is likely that the economic benefits resulting from the transaction will be used by the entity; e. the costs incurred, or to be incurred, regarding the transaction can be reliably calculated. From an analysis of the contracts between the parties, the sale in question will not meet all the requirements required under IAS 18 and will therefore not be considered to have been realised. This different accounting treatment had the following impact: as at 1 January 2010: a reduction in the intangible assets of EUR 140,000 resulting in a reduction of the total shareholders equity of EUR 96,000, net of a positive tax effect of EUR 44,000 (for recognition of deferred tax assets); as at 31 December 2010: gross profits for 2010 recorded an increase of EUR 140,000 due to the effects of the lower amortisation for the same amount, which, net of the negative tax effects of EUR 44,000, result in a positive effect on the net profits for the year of EUR 96,000. No impact on the shareholders equity. IFRS BALANCE SHEET AS AT 31 DECEMBER 2010 AND IFRS INCOME STATEMENT FOR THE YEAR ENDED AS AT 31 DECEMBER 2010 In order to provide more information on the shareholders equity and the net profit reconciliation statements, along with the comments on the adjustments made to the balances prepared in accordance with the Italian accounting standards, the balance sheet and income statements as at 31 December 2010 are attached, with the following records for each item in single columns: the amounts calculated in accordance with the Italian accounting standards reclassified in accordance with the IFRS schedules; the effects of conversion to the IFRS; the IFRS amounts calculated. 180

182 Financial Statements as at 31 December 2011 BALANCE SHEET AS AT 31 DECEMBER 2010 Italian accounting standards Notes Effects of the IFRS conversion to standards the IFRS ASSETS NON-CURRENT ASSETS Assets with indefinite useful life (goodwill) 83, ,391 93,512 Intangible assets with definite useful life 4,231, ,295,077 2,936,230 Intangible assets 4,314,428-1,284,686 3,029,742 Land and buildings 0 3 1,176,786 1,176,786 Plants and machinery 12, ,216 Other property, plant and equipment 282, ,096 Property, plant and equipment 294,312 1,176,786 1,471,098 Investments in subsidiaries 63,195, ,710,750 61,484,264 Investment in associated companies 65, ,433 Investment in other companies 153,164-71,455 81,709 Investments 63,413,611-1,782,205 61,631,406 Other financial assets Other non-current assets 712, ,998 4,845 Deferred tax assets 391, , ,152 Other non-current assets 1,104, , ,012 NON-CURRENT ASSETS 69,127,151-2,295,893 66,831,258 Trade receivables from third parties 10,424, ,424,797 Other current assets 4,853, ,081 4,730,889 Income tax receivables 455, ,224 Current financial assets 16,547, ,547,548 Cash and cash equivalents 384, ,790 CURRENT ASSETS 32,666, ,081 32,543,248 TOTAL ASSETS 101,793,480-2,418,974 99,374,506 SHAREHOLDERS' EQUITY Share capital 3,663,002-46,004 3,616,998 Reserves 52,245,791-2,443,890 49,801,901 SHAREHOLDERS' EQUITY 55,908,793-2,489,894 53,418,899 LIABILITIES Medium and long term interest-bearing loans and borrowings 12,531, ,695 13,127,232 Employee Severance Indemnity 378, , ,631 Deferred tax liabilities 370, , ,467 Provisions 9,708, ,171 9,156,219 NON-CURRENT LIABILITIES 22,988,731 35,818 23,024,549 Trade payables to third parties 3,065, ,065,539 Other current liabilities 2,739, ,739,600 Short term interest-bearing loans and borrowings 15,742, ,102 15,778,053 Tax payables 1,347, ,347,866 CURRENT LIABILITIES 22,895,956 35,102 22,931,058 TOTAL LIABILITIES 45,884,687 70,920 45,955,607 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 101,793,480-2,418,974 99,374,

183 Financial Statements as at 31 December 2011 INCOME STATEMENT 2010 Italian accounting standards Notes Effects of the IFRS conversion standards to the IFRS Sale of goods and rendering of services 9,305, ,305,370 Other revenue 231, ,483 Total revenue 9,536, ,536,853 Cost of materials 278, ,655 Service costs 5,707, ,080 5,907,275 Personnel costs 4,430, ,587 4,514,135 Other operating costs 785, ,060 Cost adjustments for in-house generation of non-current assets -606, ,913 Amortisation, depreciation and write-downs 1,348, , ,442 Other provisions 52, ,751 0 Total costs 11,995, ,097 11,771,654 OPERATING PROFIT (EARNINGS BEFORE INTEREST AND TAXES) -2,458, ,097-2,234,801 Gain (losses) from investments -10, ,169,067-5,179,911 Dividends 18 4,194,193 4,194,193 Financial income 361, ,801 Financial expenses -715, , ,359 PROFIT BEFORE TAX -2,823, ,492-3,599,076 Income taxes 465, , ,201 NET PROFIT FOR THE PERIOD -2,358, ,524-3,323,875 Below are the comments on the main reclassifications and adjustments made due to application of the IFRS standards to the items on the balance sheet as at 31 December 2010 and the statement of income for Balance sheet items Assets 1. Intangible assets with indefinite useful life The adjustment refers to the write-back of the goodwill amortisation. 2. Intangible assets with definite useful life These adjustments mainly involve the elimination of those costs that do not meet the IFRS requirements for recognition under intangible assets, reclassification under property, plant and equipment of certain improvements on leased goods, reclassification to remove the costs incurred by the Company for the Italian AIM Market listing finalised on 23 December 2009 from shareholders equity, and reclassification under other current assets of the costs incurred in 2010 for consultancy related to the Star market listing project. 3. Property, plant and equipment The amendments regard the classification from intangible assets to property, plant and equipment of costs that meet the IAS 16 defined requirements to be considered property, plant and equipment, and recognition of the residual value of the leased assets. 182

184 Financial Statements as at 31 December Investments The amendment reflects the impact of measuring investments at cost instead of using the equity method as had been done in accordance with Italian accounting standards, and recognition of the costs for business combinations in the income statement (costs for lawyers, advisors, experts, auditors and professionals in general). 5. Other financial assets The adjustment refers to the reclassification removing the own shares held by the Company from the shareholders equity amount. 6. Deferred tax assets The adjustment includes the tax effects resulting from the adjustments made to the various items following application of the IFRS. 7. Other current assets The adjustment refers to the write-back of the accrued income on the lease payments recognised in accordance with the Italian accounting standards, and classification of the costs incurred in 2010 under this item, for consultancy related to the Star market listing project. Balance sheet items Liabilities 8. Medium and long term interest-bearing loans and borrowings The change in this item refers to recognition of the medium-long term loans and borrowings with leasing companies. 9. Employee Severance Indemnity These amendments mainly refer to application of the actuarial methods to calculate the employee severance indemnity. 10.Deferred tax liabilities The adjustment includes the tax effects resulting from the adjustments made to the various items following application of the IFRS. 11.Provisions for risks and charges This amendment regards the write-back of the risk fund for the elimination of the write-downs made in application of the net method for certain investments in subsidiaries and recognition of the write-down resulting from the impairment tests on the Subitec investment. 12.Short term interest-bearing loans and borrowings The change in this item refers to recognition of the short term loans and borrowings with leasing companies. Amendments to the income statement items 13.Service costs The amendments mainly refer to the joint effects resulting from recognition of previously capitalised costs to intangible assets, that did not have the characteristics to be kept, from write-back of lease payment costs, from 183

185 Financial Statements as at 31 December 2011 recognition of the accessory charges incurred for the acquisition of investments and from costs related to the stock option plan to the income statement (for the part related to collaborators of the Company). 14.Personnel costs The changes in personnel refer to the amendments resulting from discounting the employee severance indemnity in accordance with the provisions of IAS 19 and the costs related to the stock option plan (for the part related to Company employees). 15.Amortization, depreciation and write-downs These amendments mainly reflect: the write-back of the goodwill amortisation; the write-back of the amortisation for the long-term charges that were cancelled since they do not fall under the definition of assets provided by IAS 38; the write-back of the amortisation related to the stock exchange costs, which reduced the shareholders equity in accordance with the definition of the international accounting standards; the amortisation/depreciation of finance lease assets. 16.Other provisions This item was reduced following the reclassification to tax of an allocation to the risk provision related to higher taxes. 17. Gain (losses) from investments The adjustments refer to the write-back of the write-downs and revaluations of the investments in subsidiaries resulting from application of the shareholders equity in accordance with Italian accounting standards, recognition of the write-downs resulting from the impairment test of the Subitec investment, and write-back of the write-down on the own shares in order to put their values in line with market values. 18.Dividends The adjustment refers to recognition of the dividends paid during the year by certain subsidiaries in the income statement. 19.Financial expenses The adjustments refer to the financial component resulting from application of the actuarial methods to the employee severance indemnity and the interest paid to leasing companies for the goods out on finance leases. 20.Taxes This item was changed due to the advanced taxes and deferred taxes regarding all the impacts resulting from application of the IFRS, and the reclassification required under point 16. Trieste, 29 March 2012 On behalf of the Board of Directors The Chairman Mr. Diego Bravar 184

186 Financial Statements as at 31 December 2011 Report of the Board of Statutory Auditors on the financial statements ended of TBS Group S.p.A. Pursuant to Article 2429, 2nd paragraph, of the Italian Civil Code and Article 153, 1st paragraph, of Italian Legislative Decree 58/98 Shareholders, During the course of the financial year ending 31 December 2011, our work was based on the provisions of the law and the Principles of Conduct of the Board of Statutory Auditors issued by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti contabili (the Italian National Council for Public Accountants and Accounting Professionals). This report has been drawn up pursuant to and in compliance with the provisions of the law in force regarding companies listed on the Italian Stock Exchange, in view of the fact that shares in TBS Group S.p.A. are currently listed on AIM Italia. Supervision activity We have supervised compliance with the law and with the Company's bylaws as well as respect for the principles of proper management. We have attended the Shareholders and Board of Directors Meetings and, on the basis of the information available, noted no breaches of the law or of the Company's bylaws; nor did we note any operations that were clearly careless, risky, in potential conflict of interest or such as to jeopardise the integrity of the shareholders' equity. We have obtained information on a periodic basis from the Administrative Bodies regarding business performance on the whole and business outlook, as well as on those operations undertaken by the Company and its subsidiaries which, given their nature and size, are deemed to be the most significant from an economic and financial point of view and where the company's assets are concerned, satisfying ourselves that the resolutions adopted and implemented complied with the law and with the Company's bylaws. We have no particular comments to make in this respect. We have met on a number of occasions with the independent auditors from which no significant data and information that must be highlighted and be referred to in this report. We became acquainted with the organisational structure of the company and, to the extent to which this falls within our own particular sphere of competence, have monitored the extent to which this is adequate and functions properly. Our work here has also involved acquiring information from department managers and holding meetings arranged for the purpose with the members of the Supervisory Body established pursuant to Italian Legislative Decree 231/01. To this regard, we have no particular comments to make. We became acquainted with the administrative and accounting system and, to the extent to which this falls within our own particular sphere of competence, have monitored the extent to which this is adequate and functions properly as well as the extent to which it can be properly relied upon to give a faithful illustration of management: this was done by obtaining information from department managers and from the party instructed to carry out the statutory audit. To this regard, we have no particular comments to make. No reports were received under art of the Italian Civil Code. 185

187 Financial Statements as at 31 December 2011 The operations undertaken by the Company as referred to in Articles 2391 and 2391-bis of the Italian Civil Code were resolved upon in accordance with the law in force, the Code of Conduct adopted by the Company and the internal assessment and approval procedure in relation to related party transactions, which procedure was established in compliance with AIM Rule 13, with prompt and adequate notification being provided to the public where necessary. Where transactions carried out with Companies in the group or with related parties are concerned, intragroup transactions came to our attention concerning standard dealings with subsidiaries and associated companies, as well as with other related parties, having an economic nature or concerning assets. The aforementioned transactions with subsidiaries and associated companies, with the parent company and with other related parties are considered to have been at a fair price and in the interests of the company. No other transactions with related parties of an atypical and/or unusual nature and/or capable of having a significant effect on the Company's economic and financial position came to our attention. During the 2011 financial year, the Board of Statutory Auditors issued and put forward a proposal on the mandate appointment for the statutory audit of the financial statements pursuant to Section 13 of Italian Legislative Decree No. 39/2010 and two opinions pursuant to Article 2441 of the Italian Civil Code, paragraph IV, concerning the suitability of the share issue price and the issue of a debenture convertible into shares related to the increase in capital reserved to third party investors. In compliance with Italian Legislative Decree 231/2001 as subsequently amended and in compliance with the Company s own organization, management and control model and the related code of ethics, during the course of 2011 the Company continued its work to ensure that an effective system is in operation that is capable of preventing liability to any extent in relation to offences punishable pursuant to Italian Legislative Decree 231/2001 as subsequently amended and supplemented. During the supervision activity as set out above, no additional significant events emerged such as to require their mention in this report. Financial statements TBS Group S.p.A. s financial statements for the financial year ending 2011 were notified to us within the timescale established by law, accompanied by the Directors Report on Operations, and have been drawn up in accordance with the International Financial Reporting Standards (the IFRS) issued by the International Accounting Board (the IABS) and adopted by the European Union and the IAS. Having considered the draft financial statements for the year ending , we report as follows. The results for the company are positive at EUR 6,639,013 and, in their explanatory notes to the financial statements, the Board of Directors has set out the basis of valuation adopted and provided the information required by law in relation to the Statement of Financial Position as well as the Statement of Income, also providing the further information deemed necessary for the purposes of as detailed an understanding as possible of the said financial statements. As we are not in charge of carrying out the statutory audit of the financial statements, we have monitored the overall approach adopted in relation to the same and the overall compliance with the law as far as the manner in which they are drawn up and structured is concerned. In relation to these aspects we have no particular comments to make. We have established that the requirements of the law in relation to the preparation of the Directors report on operations have been satisfied and have no particular comments to make. To the best of our knowledge, in drawing up the financial statements the directors have not departed from the requirements of the law for the purposes of Article 2423, fourth paragraph of the Italian Civil Code. On 12 April 2012, the Indipendent Auditor issued its report pursuant to Clauses 14 and 16 of Italian Legislative Decree No. 39 of , with no exceptions, reservations or requests for information being made or expressed. 186

188 Financial Statements as at 31 December 2011 Conclusions With the results of the work carried out by the party instructed to carry out the statutory audit of the financial statements also being taken into account, the Board of Statutory Auditors proposes to the Shareholders Meeting that the financial statements for the year ending be approved as drawn up by the Directors, together with the proposal regarding profit allocation as drawn up by the directors. Trieste, THE BOARD OF STATUTORY AUDITORS 187

189 Financial Statements as at 31 December

190 Financial Statements as at 31 December

191 Company data and information for the shareholders Headquarters TBS Group Spa AREA Science Park, Padriciano Trieste Italy Tel Fax Legal data Share capital: Euro 4,653, subscribed and paid-up 4,218, Number of ordinary shares: 42,185,576 Own shares: 501,031 Fiscal code, VAT and Companies Register of Trieste under n. IT REA Investor Relations Tel Fax The present document is also available in the section Investor Relations on the website 190

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193 TBS Group Spa AREA Science Park Padriciano Trieste - Italy tel fax info@italtbs.com