Socotherm Group. Consolidated Financial Statements

Transcription

1 Socotherm Group Consolidated Financial Statements as at 31 December

2 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Amounts in Euro/000 ASSETS Property, plant and equipment note Fixed Assets Investments in associates and joint ventures note Deferred tax assets note Other non current assets note Other non current assets Total non current assets Inventories note Trade receivables note Other receivables note Tax assets note Financial assets note Cash and cash equivalents note Total Current Assets Assets held for sale note Total assets

3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Amounts in Euro/000 LIABILITIES Share Capital note Share premium reserve note Legal reserve note Reserve for translation differences note 16 (38.610) (34.669) Traesury stock held note 17 (624) (624) Retained earnings and other reserves note 19 (44.756) (22.804) Profit (loss) for the period (11.277) Group interest in shareholders' equity Capital stocks and Minority interest reserves (1.228) (4.454) Net income for the period - Minority interest (1.472) (2.619) Minority interest in shareholders' equity note 21 (2.700) (7.073) Total shareholders' equity Borrowings from banks note Borrowings from other financial institutions note Borrowings from related party note Employee benefits note Provisions for risks and charges note Provision for deferred taxes note Other liabilities note Total non-current liabilities Borrowings from banks note Borrowings from other financial institutions note Trade payables note Other liabilities note Related party liabilities note Tax payables note Total current liabilities Liabilities held for sale note Total liabilities and shareholders' equity

4 CONSOLIDATED INCOME STATEMENT Amounts in Euro/000 INCOME STATEMENT Revenues from sales and services Change in inventories, works in progress, increases for internal works (146) (620) Other revenues and incomes Net revenues Raw materials Services Personnel costs Depreciation, amortization and writedowns Rental costs Other expenses Operating costs Operating profit (5.760) Net financial income (expenses) (2.969) (4.975) Net profit (loss) on exchanges Profit before taxes (9.635) Income taxes 59 (3.474) Profit (loss) for the year (13.109) Profit (loss) assets held for sale (787) Profit (loss) for the year (13.896) Minority interest in profit (loss) Group interest in profit (loss) (11.277) OTHER COMPONENTS OF COMPREHENSIVE INCOME STATEMENT COMPREHENSIVE INCOME STATEMENT (Amounts in thousand of Euro ) Profit (loss) for the year (Group and Minority) (13.895) Reserve for translation differences (4.813) (2.875) Other movements 0 0 Total (4.813) (2.875) Total comprehensive Profit (loss) for the year (16.771) 4

5 (Amounts in thousand of Euro) Changes in Consolidated Shareholders' Equity Share capital Share premium reserve payment shareholder Legal reserve Treasury shares Reserve for translation Other reserves Profit (loss) for the period Minority Total equity Balance at (624) (34.236) ( ) (9.734) Allocation of 2010 result: ( ) 0 Profit/(loss) for 2011: (11.277) (2.619) (13.895) Increase capital share Reserve for translation differences (434) (4.944) (2.875) Future increase capital share Other changes 0 Reclassification 4 4 Income (loss) for the period (434) (4.944) (11.277) (116) (16.770) Change in the scope of consolidation 0 0 Balance at (624) (34.670) (42.712) (11.277) (7.073) Balance at (624) (34.670) (42.712) (11.277) (7.073) Allocation of 2011 result: (11.277) Profit/(loss) for 2012: (1.472) Increase capital share Reserve for translation differences (3.940) (457) (415) (4.813) Future increase capital share 0 Other changes (10.216) (3.956) Reclassification Other component of result 2012 (3.940) (10.673) (8.686) Income (loss) for the period (3.940) (10.673) Change in the scope of consolidation 0 Balance at (624) (38.610) (64.661) (2.700)

6 CONSOLIDATED STATEMENT OF CASH FLOWS Amounts in Euro/000 CONSOLIDATED STATEMENT OF CASH FLOWS Profit ( loss ) (13.895) (Profit)/loss on assets held for sale (6.514) 787 Amortizations tangible asset Revaluation tangible asset (8.800) (4.874) (Profit)/loss on tangible asset (418) 0 Allocation to allowance for doubtful trade receivables Revaluation trade receivables (758) 0 Write-off inventories (714) 126 Net deferred taxation (847) (716) Increases ( decreases ) in future provision for liabilities and charges (2.696) Increases ( decreases ) in benefit (343) (76) 0 Asset and liabilities changes (Increases) decreases in due from customers (1.901) (10.099) Increases ( decreases ) in inventories (7.259) (1.777) Increases ( decreases ) in due to suppliers Increases ( decreases ) other payables Net change in current tax asset and liabilities Increases ( decreases ) in other long term liabilities (Increases) decreases in other receivables Total cash flow from operations (770) (Investments) in non-current tangible assets (1.333) (2.238) Disinvestments in non-current tangible assets Acquisition of equity investments 31 0 Total cash flow from investments (8) (1.408) Change in debts for financial leases (1.243) (1.927) Change in short-term financial borrowings from bank and shareholders (4.252) Change in long term finacial receivables Change in short term finacial receivables (2.760) Change in bond 0 2 Ohter movemento on Shareholder's Equity 941 (10.893) Total cash flow from financing activities (9) (14.521) Cash flow for ther period (787) Change in liquid asset IFRS 5 0 (1.374) Starting cash and cash equivalents Final cash and cash equivalents

7 Explanatory Notes to the Consolidated Financial Statements General information Socotherm S.p.A. is an Italian company with registered office in Adria (RO), Viale Risorgimento no.62, whose shares were listed on the Milan Stock Exchange until 26 July The Socotherm Group is one of the leading world operators in the sector of coatings for piping used for the extraction and transport of petroleum, gas and water, with plants in Italy, Argentina, Brazil, United States, Venezuela, and Angola. The Group offers all types of coating for piping: external and internal anticorrosive, weighting in concrete and thermal insulation. Specifically, the Group is specialised in thermal insulation for the Deep Water sector (petroleum extraction from great depth) with technologically advanced solutions and high added-value. On 31 October 2012, ShawCor Ltd finalized the purchase of the entire capital of Fineglade Ltd, the special purpose vehicle incorporated in 2010 as a result of the capital increase and the consequent change of control in Socotherm Spa, as part of the Arrangement with Creditors procedure. Fineglade owns 95.8% of Socotherm S.p.A. For information relating to the Company of direction and coordination (ShawCor Ltd) please refer to what reported on Director s Report as on 31 December General criteria The Socotherm Group's consolidated financial statements as at 31 December 2012 were prepared in conformity with the IFRS international accounting standards and relative interpretations issued by the IASB, in effect at the date of approval of the financial statements and adopted according to the procedure mentioned in article 6 of Regulation (EC) no. 1606/2002 of 19 July 2002 of the European Parliament and Council. IFRS also includes all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretation Committee (IFRIC), previously named the Standards Interpretation Committee (SIC). The consolidated financial statements were also prepared in conformity to the ordinances promulgated in implementation of art. 9 of Legislative Decree no. 38 of The date of first adoption of the IAS/IFRS accounting standards was 01 January 2005 and the financial statements for the year ended as at 31 December 2005 were the first 7

8 prepared in accordance with these standards. These financial statements have been prepared in thousands of Euro. The analysis of the income statement and balance sheet was carried out, consistent with the provisions of the international IFRS 8 accounting standard relating to operating segments, showing the contribution of the two geographical areas the Group's business separately: E.M.E.A. (Europe, Middle East and Africa) and Americas (South America and North America), assumed as primary sectors and supplying the core data required per business sector, identified as secondary sectors. Current and non-current assets and current and non current liabilities are separately classified in the balance sheet. The costs and revenues are classified on the basis of the nature thereof, as this exposure provides reliable and more relevant information compared to classification by destination. Within the operating result ordinary operations were specifically identified, separately from the income and charges deriving from transactions that do not repeat frequently in the ordinary operations of the business, for example, capital gains and losses from the disposal of equity investments, restructuring costs and other non-recurring income and charges. The Cash Flow Statement was prepared by applying the indirect method by means of which the result for the period was adjusted by the effects of the transactions of a non-monetary nature, by any deferment of or provision for previous or future operational receipts or payments and by revenue or cost elements connected with the cash flows from investment or financial activities The Cash Flow Statement was prepared by applying the indirect method by means of which the result for the period was adjusted by the effects of the transactions of a non-monetary nature, by any deferment of or provision for previous or future operational receipts or payments and by revenue or cost elements connected with the cash flows from investment or financial activities. In the Balance Sheet, Income Statement, and Cash Flow Statement schedules no appropriate items were recorded relating to transactions with related parties as required by Consob Resolution no of 27 July 2006, as these were not of a material amount. The Parent Company s consolidated financial statements include the Parent Company s financial statements and those of the Italian and foreign companies over which the Parent Company directly or indirectly exercises control as an result of it having a majority of the voting rights or else sufficient voting rights to exercise a dominant 8

9 influence at ordinary shareholders meetings. Those companies over which the Group is capable of exercising a significant influence, through its participation in decisions on their financial and operating policies are considered as related companies (it is presumed, in general, when the Parent Company directly or indirectly controls at least a fifth of the votes exercisable in the ordinary shareholders meetings). The results of the companies entering or exiting the scope of the consolidation during the course of 2012 are included in the consolidated income statement commencing from the effective date of acquisition and until the effective date of disposal. The changes that took place in the scope of the consolidation during the course of 2012 are relating to the companies Socotherm Infraviab S.r.l., Socotherm España and Socopower. The Directors proceeded to deconsolidation of subsidiaries subject to insolvency proceedings (classified as HFS at 31 December 2012) in compliance with IAS 27 par.3, which provides that the parent loses control of the subsidiary when it loses the power to govern the financial and operating policies. Reference date The consolidated financial statements were prepared on the basis of the financial statements approved by the shareholders/members shareholders' meetings or, in their absence, based on draft financial statements for the year ended 31 December 2012 approved by the Board of Directors. The reference financial year for these consolidated financial statements is from 1 January to 31 December Consolidation principles The financial statements utilised for the consolidation are suitably reclassified and adjusted for the purpose of standardising them with the Group's accounting standards and measurement criteria that are in line with those of the International Accounting Standards Board (IASB) and related interpretations of the International Reporting Interpretations Committee (IFRIC). The elements of the assets and liabilities, as well as the income and charges of the consolidated companies are taken line-by-line in the preparation of the consolidated financial statements. The receivables and payables, income and charges and profits and losses originating from transactions between the consolidated companies are eliminated. The carrying 9

10 value of the equity investments in the consolidated companies is eliminated against the corresponding fractions of the shareholders' equity of the subsidiaries at the date of acquisition (acquisition method), suitably adjusted to show the fair value of the assets and liabilities acquired. The difference between the carrying value of the equity investments, which is eliminated, and the corresponding portion of shareholders' equity, which is adopted, is booked to the assets and liabilities items of the consolidated financial statements. The residue, if negative, is booked to the income statement, or else, when it refers to estimates of unfavourable results, to a provision for liabilities and charges; if positive it is booked to an asset item called "goodwill". The amount of the capital and reserves of the subsidiaries corresponding to minority interests is booked to a shareholders' equity item called "minority interests"; the portions of the consolidated financial results corresponding to minority interests are booked to the item "profit/loss attributable to minority interests". The taxes on the undistributed profits of the consolidated companies are not usually recorded as it is presumed that the profits will be permanently reinvested within the Group. Should the company be aware of future dividend distributions the relative provision for deferred taxes is made. The financial statements of the foreign companies are translated into Euro by applying the exchange rates at the year-end to the balance sheet items and the average exchange rates of the financial year to the income statement items. The difference between the result for the year ended 31 December 2011 which results from the translation to the average exchange rates and that resulting from the translation based on the year end exchange rates and the effects on the assets and liabilities of the changes that occurred in the exchange rates between the start and end of the period ended 31 December 2012 are booked to a shareholders' equity account called " translation reserve". The exchange rates applied in the translation of the financial statements not expressed in Euro are shown in the following table (quantity of foreign currency per Euro): Currency Period Average Rate Closing Rate Average Rate Closing Rate Euro/US Dollar 1, , , ,29390 Euro/Australian Dollar 1, , , ,27230 Euro/Chinese Renminbi Yuan 8, , , ,15880 Euro/ Pesos Argentino 5, , , ,

11 Summary of accounting standards applied Classification of the financial instruments Accounting standard IAS 39 provides for the following types of financial instruments: financial assets recorded at their fair value with changes booked to the income statement, loans and receivables, investments held up to maturity and assets available for sale. Initially all the financial assets are recorded at fair value, increased, in the case of assets other than those recorded at fair value, by the ancillary charges with changes booked to the income statement. Subsequent to the initial recording the instruments are measured in relation to their classification, as provided by International Accounting Standard no. 39. The Group determines the classification of its financial assets after the initial recording and, where appropriate and permitted, reviews this classification at the end of each financial year. Financial assets recorded at their fair value with changes booked to the income statement This category includes the assets held for trading and those designated at the time of the first recording as financial assets recorded at fair value, with changes booked to the income statement. Assets held for trading are all those assets acquired for the purpose of sale in the short-term. Derivatives, including those unbundled, are classified as financial instruments held for trading except where they are designated as effective hedging instruments. Profits or losses on the assets held for trading are recorded in the income statement. Where a contract contains one or more embedded derivatives, the Parent Company values it as if the derivative must be unbundled from the base contract at the time when it becomes a contracting party. A revaluation check is made only if there are changes in the contractual conditions that significantly alter the cash flows that would otherwise arise. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed on an active market. Following the initial recording, these assets are valued in accordance with the amortised cost criterion using the effective discount rate method, net of any provision for impairment loss. Profits and losses are recorded to the income statement when the loans and receivables are eliminated from 11

12 an accounting point of view or when the value is impaired, in addition to through amortisation. Investments held to maturity Financial assets that are not derivative instruments and that are characterised by payments on a fixed or determinable maturity date are classified as investments held to maturity when the company has the intention and capacity to maintain them in its portfolio until maturity. Following the initial recording, the financial investments held to maturity are valued with the amortised cost criterion using the effective interest rate method. Profits and losses are recorded to the income statement when the investment is eliminated from an accounting point of view or when the value is impaired, in addition to through amortisation. Financial assets available for sale Financial assets available for sale are those financial assets, excluding the derivative instruments, which were designated as such or are not classified in any of the other three previous categories. Following the initial recording, the financial assets held for sale are measured at their fair value and the profits and losses are recorded in a separate item of the shareholders' equity. When the assets are eliminated from the accounting the profits or losses accumulated in the shareholders' equity are booked to the income statement. Financial liabilities recorded at their fair value with changes booked to the income statement Financial liabilities recorded at their fair value with changes booked to the income statement comprise liabilities held for trading and financial liabilities designated at the time of initial recording to be held at fair value with changes booked to the income statement. Liabilities held for trading are all those acquired for the purpose of sale in the shortterm. Derivatives, including those unbundled, are classified as financial instruments held for trading except where they are designated as effective hedging instruments. Following the initial recording at the fair value, the financial liabilities held for trading continue to be valued at their fair value; the profits and losses on valuation are recorded in a separate item of the shareholders' equity while the liabilities are kept in the portfolio and there is no evidence of impairment. 12

13 Financial liabilities at amortised cost All the financial liabilities are included in this category, with the exception of those valued at fair value with changes booked to the income statement and/or held for trading. Following the initial recording, these liabilities are valued in accordance with the amortised cost criterion using the effective discount rate method, net of any provision for impairment loss. Fair value Fair value is defined as the consideration for which an asset can be exchanged, or a liability can be extinguished, between knowledgeable and willing parties, in a transaction between third parties; it does not represents the amount that an entity would receive or would pay in a compulsory transaction or a liquidation sale. In this area it is appropriate to make a distinction between active markets and nonactive markets. Active markets are those where the listed prices are promptly available and representative of the prices of effective transactions. In this case the fair value is provided from the listing of the published price. Non-active markets, on the other hand, are markets whose prices may not be representative of effective transactions. In this case the fair value can be determined by obtaining an independent valuation from market counterparties and/or resorting to valuation techniques, for example discounting future cash flows and the options valuation models. In relation to its functions the company determines, at every financial year-end the fair value of the financial instruments on hand. This value is obtained by utilising the market prices (mark to market) where the financial instruments held are listed in active markets, or else by obtaining an independent valuation from market counterparties, and/or by using appropriate pricing models (mark to model) developed internally in the case of financial instruments for which significant market prices are not available. The financial assets and liabilities that are liquid or have a due date within twelve months are assumed to have a carrying value that approximates fair value. Amortised cost The financial loans and liabilities are valued at amortised cost. Amortised cost is determined by application of the effective interest rate net of any provisions for enduring impairment. The calculation takes account of any premium or discount on the acquisition and includes the transaction costs and commissions that are an integral part of the effective interest rate. The amortised cost of future flows of medium/long- 13

14 term financial instruments at a floating-rate was calculated by applying the rate determined at the last re-fixing date, supplied by the lending bank, at 31 December Business combinations The acquisition of subsidiaries is booked in accordance with the acquisition method. The cost of the acquisition is determined by the summation of the current values, at the date of acquiring control, of the assets acquired and liabilities assumed or adopted in exchange for control and the identifiable assets, liabilities and contingent liabilities of the company acquired that comply with the conditions for recording according to IFRS3 are shown at their current values at the date of acquisition. Non-current assets Tangible assets Non-current tangible assets are recorded at the acquisition or production cost including the ancillary charges. The cost of manufacturing in-house production includes the costs of raw materials, materials, energy, direct labour as well as the general production and industrial expenses for the amounts reasonably chargeable. Tangible assets are depreciated by reference to their cost, in a systematic and constant manner on the basis of rates considered as appropriate with respect to the useful life of the related assets, defined as the residual useful life. The following rates were utilised: Depreciation rates % Land and buildings 0% - 3% Plant and equipment 5% - 12,5% Industrial and commercial equipment 20% Other tangible assets 20% - 25% Ordinary maintenance expenses are all debited to the income statement. Maintenance expenses of an incremental nature are attributed to the asset to which they refer and depreciated over the residual useful life. Should the individual components of an asset be characterised by different useful lives, they are recorded separately so as to be depreciated consistent with their life (component approach). The assets in the course of construction are recorded at cost under Assets under development until their construction is completed; the cost is classified in the related item 14

15 and subject to depreciation from the time of their completion. Leased Assets Lease contracts are classified as financial leases when the terms of the contract are such as to substantially transfer all the risks and benefits of ownership to the lessee. Assets acquired through financial lease agreements are booked in accordance with the financial method provided by international accounting standard IAS 17. The assets leased are recorded as Group assets at their fair value at the date the contract is entered into and the corresponding liability to the lessor is booked as a payable to other financiers. The payments for lease instalments are divided between the capital amount, applied to reduce the financial liability, and the interest portion is booked to the income statement. Depreciation is calculated on the assets recorded in the financial statements at rates consistent with those of the owned assets. Grants Capital grants are recorded when a reasonable certainty exists that all the conditions provided for their receipt are respected and the grant will be disbursed. They are represented in the financial statements as deferred income and booked to the income statement on the basis of the useful life of the asset to which they refer. Intangible assets Intangible assets including those assets without an identifiable physical substance, under the control of the company and capable of producing future economic benefits. Non-current intangible assets are recorded at their acquisition or production cost including ancillary charges. Assets with a defined useful life are systematically amortised for the period of their anticipated future usefulness. Research costs are booked to the income statement in the period when they are incurred. Development costs are capitalised and expensed to the income statement by amortisation should they refer to projects directed at the realisation of new production processes and new products, the marketing of which and with margins such as to allow the recovery of the costs incurred, is realistically sure. Industrial patent rights and utilisation rights to intellectual property are amortised based on their presumed utilisation life, in any case not exceeding that fixed by the licence contracts. Concessions, licences, brands and similar rights recorded as assets are amortised based on 15

16 their anticipated useful life, in any case not exceeding that fixed by the purchase contract; should the utilisation period not be determinable or there is no contract, their life is established as five financial years. Goodwill Goodwill emerges during preparation of the consolidated financial statements when the carrying values of the equity investments is eliminated against the corresponding fractions of shareholders' equity of the subsidiaries. As previously described, any surplus not attributable to individual elements of the assets of the consolidated companies is booked to the income statement or else, where there are the due prerequisites, recorded in assets under the item "goodwill". Goodwill, as with the other assets having an indefinite useful life, is not subjected to systematic amortisation, but subjected to an annual impairment test conducted at the Cash Generating Unit level to which corporate management books the goodwill itself. Any writedowns are not subject to subsequent value reinstatement. In the case of disposal of a subsidiary, the amount of the goodwill attributed thereto is included in the determination of the capital gain or loss on disposal. Impairment of the non-financial assets IAS/IFRS require that the value of non-current tangible and intangible assets be evaluated when there are indicators that lead to the consideration that value impairment could exist. In the case of goodwill, intangible assets with an indefinite useful life or assets not available for use, this evaluation is carried out at least annually. The recoverability of the recorded values is verified by comparing the carrying value with the higher of the net sale price (when there is an active market) and the usable value of the asset. The usable value is defined on the basis of discounting the expected cash flows from the utilisation of the asset (and by an aggregation of assets known as cash generating units) and from its disposal at the end of its useful life. The cash generating units were identified consistent with the Group's organizational structure and business, as homogeneous aggregations that generate autonomous incoming cash flows deriving from the continuous utilisation of the assets recorded therein. The cash flows are determined on the basis of reasonable and documentable assumptions representative of the best estimate of the future economic conditions that will occur during the residual useful life of the asset. 16

17 Discounting is carried out at a rate that takes account of the implicit risk of the business sector. An impairment is recorded if the recoverable value of an asset is less than the carrying value; this loss is recorded in the income statement, except when the asset has previously been revalued by recording a reserve in the shareholders' equity. When an asset impairment, other than goodwill, ceases to exist or reduces, the carrying value of the asset or of the cash flows generating unit is increased up to the new estimate of the recoverable value and cannot exceed the value that would have been determined if no loss for impairment had been recorded. The reversing of an impairment is booked to the income statement, unless the asset was previously recorded at its revalued value; in this case it is booked to the shareholders' equity reserves. Equity investments The assets consisting of equity investments in related companies are measured in accordance with the net equity method, that is at an amount equal to the corresponding fraction of the shareholders' equity resulting from the last financial statements of the companies themselves, after having deducted any dividends and made the adjustments required by the consolidated financial statements preparation standards. The gains or losses deriving from the application of the net equity method are recorded in the income statement under the item income and charges from equity investments. The results of the companies classified as destined for sale, any inherent income or revenue and gains or losses deriving from the disposal of such companies are included in the Net profit/(loss) from the assets sold or destined for sale account. Other equity investments are measured at their cost, adjusted for any impairment losses. It is considered that the cost of the equity investments in other companies constitutes a reasonable approximation of their market value. When the reasons for the write-downs to exist, the equity investments measured at their cost are written-up within the limits of the write-downs made, recording the effect in the income statement. Current assets Inventories of raw materials, semi-finished and finished products Inventories are valued at the lower of the purchase or manufacturing cost, including 17

18 ancillary charges, and the presumed realisable value as deduced from market trends. Obsolete and slow-moving stocks are written-down taking into account the possibility of their utilisation and realisation. The cost configuration adopted is weighted average cost. The net realisable value is determined based on the net sale price reduced by both any manufacturing expenses still to be incurred and direct sales expenses. Work in progress on orders When the financial result of a job order can be reliably estimated the related revenues are valued on the basis of the contract consideration accrued with reasonable certainty, in proportion to the percentage of completion of the order at the year-end, based on the ratio between the costs incurred for the order up to the financial yearend and the total estimated costs of the order. When a loss is anticipated on the projects, this is fully allocated in the financial year when it becomes noted. The requests for additional charges presented to the principals are accounted for when it can be reliably presumed that they will be accepted and on condition that their amount can be reasonably estimated. Work in progress on orders for which the revenue cannot be reliably estimated is booked at cost, applying the completed job order method. Receivables Receivables are shown at their expected realisation value, taking into account the degree of debtor solvency for the period remaining of the receivable, outstanding disputes and guarantees exercisable. This value is obtained by a direct write-down of the receivables themselves carried out analytically for the more significant positions and in a lump sum for homogeneous classes of the other positions. The carrying value of the receivables constitutes a reasonable approximation of their fair value, as all the items are of a current character. Fair value was separately calculated for derivative instruments. Included in the other receivables category are also the security deposits paid early, which are valued at their carrying value, since the amortised cost criterion is not applied for these instruments as it is not possible to determine the future cash flows. Other assets and liabilities This item respectively includes the accruals and deferrals, which are recorded on the basis of the matching and timing concept of the costs and income common to two or more financial years. 18

19 The assets that are not expected to be realised within twelve months from the reference date of the financial statements are classified as Other non-current assets. Cash and cash equivalents Cash and cash equivalents comprise the cash on hand, bank and postal deposits and the securities having an original maturity of less than 3 months. Treasury shares Treasury shares are recorded at cost and booked as a reduction of the shareholders' equity. All profits and losses from the trading thereof are recorded in an appropriate shareholders' equity reserve. Non-current assets destined for disposal Non-current assets or groups of directly connected assets/liabilities, which constitute a combination of generating units of financial flows, the sale of which is highly probable, are respectively recorded to the items Assets destined for sale and Liabilities destined for sale at the lower of their carrying value and the fair value net of selling costs. The positive or negative balance of the income and charges (dividends, interest, etc.) as well as the measurements, as determined above, of such assets/liabilities, net of the relative current and deferred taxation, is recorded in the item Net result of assets sold or destined for sale of the income statement. The valuation reserves relative to non-current assets destined for sale, registered as a contra entry of the changes in value relevant for that purpose are shown separately in the comprehensive income statement. Financial payables Financial payables, recorded at their fair value, are initially measured on the basis of the amounts due plus the transaction costs. The initial value booked is subsequently adjusted in order to consider the capital repayments and overall repayments, calculated by utilising effective interest rate method; this rate exactly discounts the future payments and receipts over the expected life of the financial instrument, including charges and base points paid (in addition to those not yet incurred, but whose occurrence is considered highly probable). The values recorded at the last fixing before the measurement date are utilised for the determination of the future flows related to variable interest rates. The amortised cost method was not applied to leases of an operating nature and to payables due to banks not directly related to disbursement of loans, as these are of a current nature. 19

20 The financial effects of the amortised cost valuation are booked to the item Net financial income (charges). The loan convertible into Socotherm shares was booked as a short-term payable, the restitution being requested following admission to the Arrangement with Creditors. Employee benefits Considering the indications provided by the International Accounting Standards Board (IASB) and International Financial Reporting Interpretation Committee (IFRIC), the staff severance indemnity was considered as a post employment benefit of the defined plan type; based on international accounting standard IAS 19 its value is determined actuarially. The actuarial valuation is conducted based on the accrued benefits method using the Project Unit Credit Method (PUM) as provided in paragraphs of IAS 19; this methodology is substantiated in valuations that express the average current value of the pension obligations due, based on the service that the worker has provided until the period when the valuation itself is made, projecting, however, the worker s remuneration. Through the actuarial valuation the current service cost, which defines the amount of the rights accrued during the financial year by the employees, is booked to the income statement in the item labour costs. The interest cost, which constitute the figurative charge that the company would incur by requesting a loan of an amount equal to the staff benefit from the market, is booked to the income statement under financial charges. Commencing from 1 January 2007 the Finance Law and related implementing decrees have introduced significant changes in the regulation of staff leaving indemnities, amongst which are the worker s choices in connection with the allocation of their accruing staff leaving indemnities. Specifically, new staff leaving indemnities flows may be directed by the worker to chosen pension forms or else kept in the company (in which case the latter shall pay staff leaving indemnities contributions to an INPS treasury account). The staff leaving indemnities due from 1 January 2007 are treated as a Defined Contribution Plan, both in the case of an option for complementary welfare, and in the case of allocation to the INPS Treasury Fund. The staff leaving indemnities provision accrued at 31 December 2006 continues to be treated as a Defined Benefit Plan, the actuarial valuation of which, however, excludes the component relative to future salary increases. Provisions for liabilities and charges Provisions for liabilities and charges are raised to cover losses or payables of a 20

21 determined nature that are certain or probable, for which nevertheless the amount or date of occurrence were not determinable at the financial year-end. These provisions are recorded when: (i) an actual legal or implicit obligation deriving from a past event exists; (ii) it is probable that the fulfilment of the obligation will be against payment; (iii) the amount of the obligation can be reliably estimated. An implicit obligation is defined as an obligation that arises at the time when the company has notified other parties, through consolidated practices, corporate policies or a sufficiently specific public announcement, which it will accept the obligations, so as to give third parties the expectation as a result that the company will honour the obligation. The changes in the estimate of the provisions are reflected in the income statement for the period when the change took place. Provisions are recorded at a value that represents the best estimate of the amount the company would reasonably pay to eliminate the obligation or transfer it to others at the end of the period. Adequate information on the liabilities evaluated as possible is given in the explanatory notes. Payables Payables are recorded at their book value, corresponding to the presumed repayment value. Fair value was not therefore calculated, as the carrying value constitutes a good approximation. Payables for which payment is expected after twelve months from the date of the financial statements are classified as non-current payables. Revenue and costs recognition Revenues and income, costs and charges are recorded net of returns, discounts, allowances and bonuses, as well as the taxes directly connected with the sale of the products. Revenues for sales of products are recognised at the time of transfer of the risks and benefits connected to ownership, which generally coincides with the shipment or delivery of the goods. Revenues from the provision of services relating to the execution of normal business are recognised at the time when the services are provided. Revenues and costs of a financial nature are recognised on an accruals basis, based on the amount financed and the effective interest rate applicable, which represents the rate that discounts the future receipts and payments estimated over the expected life of the financial assets and liabilities, in order to show these at their carrying value. Dividends are recorded when the shareholders right to receive payments is established. Income taxes 21

22 Income taxes are determined on the basis of taxable income of each consolidated company, pursuant to the tax laws currently in force in the individual countries, on the basis of a forecast of the tax charges to be met; they are shown in the Income taxes item with an indication of current, prepaid and deferred taxes. Deferred taxes are calculated in relation to some income components, the tax effect of which is deferred to subsequent financial years. Prepaid tax assets are booked when it is probable that future taxable income will be available against which they can be recovered. The recoverability of the prepaid tax assets is re-examined at every financial year-end, and the portion for which recovery is no longer probable is booked to the income statement. Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities. Current and deferred taxes are booked directly to the income statement, with the exception of those relating to items directly recorded to the shareholders' equity following the accounting criterion. Amounts denominated in foreign currencies The monetary assets and liabilities originally expressed in foreign currencies, recorded on the basis of the exchange rates in force at the date on which they arose, are aligned with the exchange rates prevailing at the financial statements date. Profits and losses deriving from the translation of the monetary assets and liabilities are respectively credited and debited to the income statement. The monetary elements to be collected or paid with regards to foreign operations for which settlement is not planned, nor is it likely that it will occur in the foreseeable future, are considered in substance as part of net investment; in the consolidated financial statements the exchange rate differences deriving from a monetary element which is part of net investment in a foreign operation are shown in shareholders funds. Goodwill and other adjustments made to report the assets and liabilities of acquired foreign entities at their fair value are shown as assets and liabilities of the foreign companies and are translated at the year-end exchange rate. Subsequent to the year-end no substantial changes in the exchange rates occurred such as to generate significant effects on the items denominated in foreign currencies at 31 December Derivative instruments 22

23 Derivative instruments are current financial assets and liabilities recorded at fair value. The accounting method and contra entry varies according to whether or not they are designated as hedging instruments pursuant to the requisites of IAS 39. Consistent with the provisions of IAS 39, the derivative instruments can be accounted for in accordance with the methods established for hedge accounting only when, at the start of the hedging, there was the formal designation and documentation of the hedging relationship itself, it is presumed that the hedging will be highly effective during the full period, the effectiveness can be reliably measured and the hedging itself will be highly effective during the various accounting periods over which it is designated. Share based payments In line with the provisions of IFRS2 the Group classifies Stock options in the context of share based payments and for those falling into the equity settled category, which provides for the physical delivery of the shares, it provides for the determination of the fair value of the option rights issued on the assignment date and their recording as a personnel cost to be spread linearly throughout the vesting period with a contra entry to the appropriate shareholders' equity reserve. This entry is made on the basis of the rights effectively accruing to entitled personnel, taking into account the conditions of use thereof that are not based on the securities market value. The fair value is determined using the binomial model. In accordance with transitional standards, this standard has not been applied to the assignments prior to 7 November Use of estimates The preparation of the IFRS financial statements requires that management make estimates and assumptions that have an effect on the values of the assets and liabilities recorded and the information relating to potential assets and liabilities at the year-end. Nevertheless the uncertainty regarding these hypotheses and estimates could determine results that will, in the future, require a significant adjustment of the carrying value of these assets and/or liabilities. Outlined below are the key hypotheses regarding the future and other major sources of uncertainty in the estimates at the date of the financial statements; these could produce significant adjustments in the carrying amounts of the assets and liabilities in the next financial year. The elaboration of the projected figures, as well as the determination of an appropriate discount rate require, to a large extent, estimations. It should be noted that the capacity to realise the new Business Plan and, therefore the forecasts and cash flows on the basis of which the recoverability of the asset items (specifically intangible and tangible assets and 23

24 deferred tax assets) is subordinate to the prerequisite of a going concern, regarding which you are referred to the appropriate paragraph. Finally, the valuations that lead to quantification of the provisions for liabilities and charges are subject to estimates, including those relating to legal and tax disputes, the results of which are uncertain at the date of preparation of this document. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. Adoption of new accounting standards Evaluation and measurement criteria are based on IFRS standards and relative interpretations in force on 31 December 2012, as approved by the European Union. The following accounting standards, amendments and interpretations were applied for the first time by the company from 1st January The following accounting amendments, improvements and interpretations, effective from 1 January 2012, govern cases and case studies not applicable to the Group at the date of these financial statements, but that may have accounting effects on future transactions or agreements: Amendments and new standards and interpretations. The accounting standards adopted are consistent with those of the previous year, except for the following amendments to IFRS, applicable since 1 January 2012: IAS 12 Deferred tax: recovery of underlying assets IFRS 1 Severe hyperinflation and removal of fixed dates for first-time adopters IFRS 7 Enhanced disclosures Transfers of financial assets The adoption of standards and interpretations is described below: IAS 12 - Deferred tax: recovery of underlying assets This amendment clarifies the measurement of deferred taxes on investment property measured at fair value. The amendment introduces the rebuttable presumption that the carrying value of an investment property, measured using the fair value model provided by IAS 40, will be recovered through the sale and that, consequently, the related deferred tax should be measured on a sale basis. The presumption is refuted if the investment property is depreciable and held with the objective of using all of its 24