(Translation from the Italian original which remains the definitive version) Management & Capitali S.p.A. Registered office - Via Valeggio 41 - Turin Head office - Via dell Orso 6 - Milan Share capital 80,000,000 Interim financial report at 30 September 2010 Management & Capitali S.p.A. capitale sociale euro 80.000.000,00 sede operativa: Via dell Orso 6-20121 Milano - Tel. +39 02 727371 - Fax +39 02 72737177 sede legale: Via Valeggio 41-10129 Torino - C.F. e Registro Imprese di Torino n. 09187080016 iscritta nell elenco generale di Banca d Italia ex art. 106 n. 37168 iscritta nell elenco speciale di Banca d Italia ex art. 107 n. 33097
Honorary chair Carlo De Benedetti Board of directors Franco Girard (Chair) (*) Giovanni Tamburi (Deputy chair) Alessandra Gritti Corrado Ariaudo François Pauly Giovanni Cavallini Giorgio Alpeggiani Massimo Segre Orazio Mascheroni (*) Board of statutory auditors Vittorio Ferreri (Chair) Angelo Rocco Bonissoni Emilio Fano Maurizio Barbieri (alternate) Stefano Gorgoni (alternate) Independent auditors KPMG S.p.A. (*) appointed by the shareholders on 27 April 2010
Interim financial report at 30 September 2010 This report at 30 September 2010 has been prepared in accordance with article 154-ter of the Consolidated Finance Act, introduced by Legislative decree no. 195/2007, and based on the Consob (the Italian Commission for listed companies and the stock exchange) communication no. DEM/8041082 of 30 April 2008. It gives a general overview of the financial position at 30 September 2010 and results of operations for the nine months then ended of the company and its subsidiaries and of the significant events that took place during the period which have affected their financial position. The attached interim separate statement of financial position and income statement of M&C S.p.A. ( M&C, the company or the parent ) have been prepared using the layouts included in the instructions issued by Banca d Italia in its Regulation of 16 December 2009; the accounting policies are unchanged with respect to those applied in the preparation of the 2009 annual financial statements. This report has not been audited by the independent auditors. *** Results for the first nine months of 2010 Management & Capitali S.p.A. M&C recorded a loss of 1.3 million for the first nine months of 2010 (profit of 0.1 million for the corresponding period of 2009), being the sum of: a) total income of 0.6 million; b) operating costs of 3.1 million, comprising: personnel expenses of 0.9 million; professional services, lease and other general costs of 1.4 million; fees of 0.8 million for the directors and statutory auditors; c) net gain of 1.2 million on the stock option plans. The directors prudently decided not to recognise deferred tax assets on the loss for the period. The loss for the period is mainly due to the smaller available liquidity following the distribution of share capital in August 2009, conversion of the Treofan bonds into shares (they generated interest of 6.3 million in the first nine months of 2009) and the worsening in market interest rates. The parent countered this situation by implementing cost cutting measures, the effects of which have mostly begun to be seen in the second half of 2010. At 30 September 2010, M&C has a net financial position of 42.8 million (31 December 2009: 45.9 million), equal to 0.11 per outstanding share, and equity of 95.6 million (31 December 2009: 100.8 million). Its net financial position includes Italian treasury bonds (CCT) of 21.4 million and temporary investments in corporate bonds of 5.2 million (both classified as available-for-sale financial assets) and bank current account balances of 16.2 million (classified under loans and receivables). The reduction in equity is due to the loss for the period ( 1.3 million) and: recognition of the repurchase of treasury shares as a negative reserve ( 2.4 million); a decrease in the stock option reserve following transfer of prior year accruals made for stock options held by the former director, Mr. Frau, to profit or loss ( 1.4 million); an increase in the reserve for unexercised stock options ( 0.2 million); fair value losses on available-for-sale assets ( 0.4 million); Interim financial report at 30 September 2010 3
At 30 September 2010, the company s portfolio includes the following investments: a 94.4% interest in Botto Fila S.p.A., already fully impaired at 31 December 2009; an investment in Treofan Holdings GmbH (roughly 41.6%, fully diluted), giving it significant influence thereover. No events took place in the third quarter of 2010 that would have had a significant effect on the group s financial position or results of operations. Investments: performance during the period Botto Fila S.p.A. M&C fully impaired its 94.4% investment in Botto Fila S.p.A. at 31 December 2009. At the reporting date, its transactions with the subsidiary include a loan of 5.5 million granted thereto and a term deposit of 1.7 million securing the employment commitments taken on for the first two years. The commitments expired on 20 October 2010 and the procedures to release the deposit are currently underway. Botto Fila prepared a reporting package at 30 September 2010 under IFRS for the purposes of this interim financial report. This reporting package shows sales of approximately 884 thousand metres of fabric and revenue of 14.1 million for the nine months, compared to 821 thousand metres and 12.3 million in the corresponding period of 2009, and in line with the business plan. During the period, management continued to implement the cost containment programme rolled out in 2009 and to research and develop new products. The subsidiary recorded a gross operating loss of 0.7 million for the nine months (including costs of 0.2 million to implement new management software which cannot be capitalised under IFRS) compared to a negative 0.9 million for the corresponding period of 2009 (which included non-recurring income of 0.8 million). Its loss for the nine months came to 1.8 million compared to a loss of 1.6 million for the first nine months of 2009. At 30 September 2010, Botto Fila had equity of 3.2 million (31 December 2009: 5.0 million) and net financial debt of 13.0 million (31 December 2009: 10.0 million), including cash and cash equivalents of 0.6 million, a payable of 5.5 million to the parent, an outstanding payable of 3.2 million to INPS (Italian social security institution) and financial liabilities of 4.9 million, including self-liquidating liabilities of 4.4 million. Treofan Holdings GmbH M&C s fully diluted 41.6% investment in Treofan Holdings GmbH ( Treofan ) at the reporting date is the result of: (i) (ii) (iii) the financial restructuring transaction, finalised on 29 September 2009, which gave M&C roughly 46% of the existing voting rights as described in the 2009 annual financial statements; Treofan s issue of warrants to Goldman Sachs to refinance the senior facility, as per the related contract; this issue diluted M&C s voting rights to roughly 41.6%; the warrants are currently being converted into ordinary Treofan Holdings GmbH shares; M&C s subscription of additional profit participation rights for an amount slightly higher than that originally agreed ( 2.3 million instead of 2.0 million), which meant that it maintained its percentage of voting rights at roughly 41.6% rather than the diluted 41% as provided for in the initial agreements. The additional profit participation rights are currently being converted into preferred Treofan Holdings GmbH shares. Given the materiality of the investment, even though the group does not control the company, the key results of the Treofan group for the period, provided by its management, are set out herein: resin (the group s main raw material) prices grew roughly 32% during the period and shot up by roughly 37% in June Interim financial report at 30 September 2010 4
and July 2010. The group sold 149,300 tonnes recording revenue of 345 million, up 3.2% and 17.7% on the corresponding period of 2009, respectively. The gross operating profit for the period was 29.1 million (8.4% of revenue) compared to 28.4 million for the corresponding period of 2009 (9.7% of revenue). At 30 September 2010, the Treofan group s net financial debt was 25.6 million (31 December 2009: 35.9 million). The improvement is mainly due to the generation of cash from operating activities and collection of 5 million from the issue of additional profit participation rights. Equity came to 87.2 million at the same date (31 December 2009: 72.9 million) with the difference relating mostly to the 6.7 million increase in the translation reserve. Once the ongoing conversion of all the issued profit participation rights has been completed, equity will amount to 93.7 million. Shareholding structure There are no shareholder agreements. The parent s ordinary shares are listed on the stock exchange managed by Borsa Italiana in the investment vehicles market (MIV) segment set up for investment companies. Its share capital of 80 million comprises 474.2 million ordinary shares. The preferred shares category was eliminated during the period following: a. the conversion of 3,118,555 preferred shares held by former directors into ordinary shares, as provided for by the by-laws and contracts, upon approval of the 2009 annual separate financial statements; b. the parent s purchase of 2,381,445 preferred shares from Messrs. Ariaudo and Frau, as resolved by the board of directors on 26 March 2010, and their subsequent conversion into ordinary shares. Treasury shares On 30 April 2010, the parent purchased 2,381,445 preferred shares from Messrs. Ariaudo and Frau, as resolved by the board of directors on 26 March 2010. Following transfer of title thereto, the shares were converted into the same number of ordinary shares. At the reporting date, M&C held 66,754,352 treasury shares repurchased for 50.0 million. Shareholding structure The following table shows the parent s main shareholders, according to the information available at 11 November 2010 and the share capital at that date. Interim financial report at 30 September 2010 5
Name % of share capital Romed S.p.A. (Carlo De Benedetti) 27.5 Tip S.p.A. 20.3 Treasury shares in portfolio 14.1 La Luxembourgoise SA 6.1 Banca Intermobiliare di Investimenti e Gestioni S.p.A. 4.4 Aholding S.r.l. Other and market 1.7 25.9 Total 100.0 Other information Management and coordination, related party transactions With respect to article 2497-sexies of the Italian Civil Code, M&C is not managed or coordinated by another company. Related parties and related party transactions: Aholding S.r.l., controlled by M&C s director Corrado Ariaudo, which receives fees for his position ( 138 thousand for the period) following an ongoing reversibility agreement between Aholding and Corrado Ariaudo. In addition, Aholding acquired M&C s investment in Comital for 4 million, 3 million of which was paid with the sales deed and 1 million to be paid before 15 March 2011 without interest and secured by a pledge on 25% of the Comital shares sold. M&C also purchased 1,417,515 preferred M&C shares from Aholding at 1 each. M&C purchased 963,930 preferred M&C shares from the former director, Carlo Frau, at 1 each. CIR S.p.A., indirectly controlled by the honorary chair, Carlo De Benedetti, with which M&C has a lease agreement for the offices in Via dell Orso 6, Milan where the parent s operations are based; the related lease payments for the period were 132 thousand. The lease agreement was renegotiated reducing the leased space and the related annual payments, which amount to 70 thousand from 1 July 2010. KOS S.p.A., indirectly controlled by the honorary chair, Carlo De Benedetti, which purchased office fittings no longer used by the parent for 24 thousand. Transactions with Comital S.p.A., indirectly controlled by the director Corrado Ariaudo since 30 April 2010, related to title to profit participation rights issued by Comital and the recharging of costs incurred on its behalf for 17 thousand. Botto Fila S.p.A., to which M&C gave a loan amounting to 5.5 million at the reporting date that generated interest income of 124 thousand during the period. Omniservizi Finanziari&Amministrativi S.r.l., which is 30% owned by Aholding S.r.l. and with which M&C has an annual contract for the supply of accounting and administrative services ( 106 thousand for the period). The payable to Omniservizi Finanziari&Amministrativi amounted to 36 thousand at the reporting date. The contract has been renegotiated and the consideration amounts to an annual 120 thousand starting from 1 April 2010. The director Massimo Segre provides ongoing consultancy and corporate office services to M&C via Studio Segre and Studio Segre S.r.l.. The related payable for the period is 95 thousand plus his fees as director of 17 thousand. The amounts due for the consultancy and corporate office Interim financial report at 30 September 2010 6
services reflect the renegotiation of the fees which have been decreased to 120 thousand per annum starting from 1 January 2010. TIP S.p.A., of which directors Giovanni Tamburi and Alessandra Gritti are chair and deputy chair, respectively, and which receives their fees for the positions as deputy chair and director of M&C ( 78 thousand for the period) following an existing reversibility agreement between TIP S.p.A. and the two directors. At the reporting date, the payable due to TIP S.p.A. amounted to 78 thousand. Treofan Holdings GmbH, in which M&C has an investment, to which professional services of 250 thousand were charged and costs incurred on its behalf of 16 thousand were recharged. Transactions carried out with related parties take place at normal market conditions. Brief description of related party transactions: ( '000) Loans and receivables Other assets 30.09.2010 9 months 2010 Available-for-sale financial assets Treasury shares Other liabilities Personnel expense Other admin. expenses Other income Interest income (expense) Aholding S.r.l. 992 - - 1,418 8 138 - - (8) Carlo Frau - - - 964 - - - - - CIR S.p.A. - - - - - - 132 - - KOS S.p.A. - - - - - - - - - Comital S.p.A. - 9 830 - - - - 17 - Botto Fila S.p.A. 5,511 - - - - - - - 124 Omniservizi S.r.l. - - - - 36-106 - - Studio Segre - - - - 17 17 95 - - Tamburi Investment Partners S.p.A. - - - - 78 78 - - - Treofan Holdings GmbH - 26 - - - - - 266 - Total 6,503 35 830 2,381 139 233 333 283 116 % of financial statements caption 26.7% 1.5% 3.0% 0.0% 15.6% 12.5% 23.0% 97.1% 26.3% Stock option plans The existing stock option plans have changed with respect to that disclosed in the 2009 annual financial statements due to the cancellation of options assigned to the director Carlo Frau as part of his resignation package. The situation at the reporting date is as follows: Options Assigned in Asssigned Average Exercised Cancelled Expiry previous years during the exercise during the during the Name Position held date (no.) period (no.) price period period Number Held at period end Average exercise price Expiry date Corrado Ariaudo Director 18,050,000-0.38 2016 - - 18,050,000 0.38 2016 Giovanni Canetta Manager 1,180,000-0.38 2016 - - 1,180,000 0.38 2016 Former directors - 38,266,000-0.38 2016-12,274,000 25,992,000 0.38 2016 57,496,000 - - 12,274,000 45,222,000 Atypical and/or unusual transactions Pursuant to the Consob communication of 28 July 2006, neither the parent nor the group have undertaken atypical and/or unusual transactions during the period that have not been communicated to the market as required by the Issuer Regulation. Interim financial report at 30 September 2010 7
Subsequent events M&C s employment commitments taken on as part of Botto Fila s acquisition of business units expired on 20 October 2010. The parent had set up a term deposit of 1.7 million as guarantee and the procedures for its release are currently being carried out. The Treofan Group completed its sale of the Belgium Treofan Benelux S.A., based in Lieges, in October 2010. Outlook M&C will focus on managing its investments during the last quarter of the year in order to increase their value. Any additional investments will only be made after a prudent and selective analysis is made considering and proportionate to its available resources. The risks and uncertainties linked to the current recession are not serious enough to affect the company s financial position. Milan, 11 November 2010 The Chair Franco Girard (signed on the original) Interim financial report at 30 September 2010 8
M&C S.p.A. INTERIM FINANCIAL STATEMENTS Statement of financial position Income statement Interim financial report at 30 September 2010 9
MANAGEMENT & CAPITALI S.p.A. Statement of financial position as at 30 September 2010 ( '000) STATEMENT OF FINANCIAL POSITION ASSETS 30.09.2010 31.12.2009 10. Cash and cash equivalents 3 1 40. Available-for-sale financial assets 27,472 22,513 60. Loans and receivables 24,361 31,250 90. Investments 37,808 39,500 100. Property, equipment and investment property 56 101 110. Intangible assets 1 1 120. Tax assets 4,477 3,825 140. Other assets 2,359 4,531 Total assets 96,537 101,722 LIABILITIES AND EQUITY 30.09.2010 31.12.2009 90. Other liabilities 894 892 100. Post-employment benefits 28 52 120. Share capital 80,000 80,000 130. Treasury shares (50,032) (47,649) 160. Reserves 67,287 70,077 170. Valuation reserves (377) (100) 180. Loss for the period/year (1,263) (1,550) Total liabilities and equity 96,537 101,722 Interim financial report at 30 September 2010 10
MANAGEMENT & CAPITALI S.p.A. Income statement for the three and nine months ended 30 September 2010 ( '000) INCOME STATEMENT 9 months 2010 9 months 2009 3rd quarter 2010 3rd quarter 2009 10. Interest and other income 449 11,243 169 2,822 20. Interest and other expense (8) - - - Net interest income 441 11,243 169 2,822 40. Commission expense (1) (2) - (1) Net commission expense (1) (2) - (1) 90. Net loss from the sale or repurchase of: a) financial assets - (6,785) - (462) Total income 440 4,456 169 2,359 110. Administrative expenses a) personnel expense (462) (2,575) (457) (798) b) other administrative expenses (1,447) (1,802) (221) (1,030) 120. Depreciation and net impairment losses on property, equipment and investment property (25) (31) (7) (11) 130. Amortisation and net impairment losses on intangible assets (1) (1) - - 160. Other net operating income 232 85 1 67 Operating profit (loss) (1,263) 132 (515) 587 Pre-tax profit (loss) from continuing operations (1,263) 132 (515) 587 190. Income taxes - - - - Post-tax profit (loss) from continuing operations (1,263) 132 (515) 587 Profit (loss) for the period (1,263) 132 (515) 587 Earnings (loss) per share (*) (0.0031) 0.0003 (0.0013) 0.0014 Diluted earnings (loss) per share (*) (0.0028) 0.0003 (0.0011) 0.0013 (*) Calculated considering outstanding shares, less treasury shares * * * Pursuant to article 154-bis.2 of the Consolidated Finance Act, the manager in charge of financial reporting, Marco Viberti, states that the financial information in this report is consistent with the accounting records, ledgers and documents. Interim financial report at 30 September 2010 11