AGM Information • Apr 27, 2017
AGM Information
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Investor Relator Lucia Caccia Dominioni Tel: +39.035.4232840 - Fax: +39.035.3844606 email: [email protected]
Registered Office: Piazza Sant'Ambrogio, 16 – 20123 Milan Fully paid up share capital as at 31 December 2016 Euro 10,708,400 Milan Register of Companies no. 314026 Tax and VAT code 10227100152
Website: www.tesmec.com Switchboard: +39.035.4232911
TABLE OF CONTENTS
| TABLE OF CONTENTS 5 | |
|---|---|
| NOTICE OF CALL 7 | |
| COMPOSITION OF THE CORPORATE BODIES11 | |
| GROUP STRUCTURE13 | |
| REPORT ON OPERATIONS15 | |
| 1.Introduction 16 | |
| 2.Tesmec on the Stock Exchange Market 17 | |
| 3.Significant events occurred during the period and development of the company structure17 | |
| 4.Overview of the financial results 24 | |
| 5.Group performance 24 | |
| 6.Income statement and balance sheet situation as at 31 December 201627 | |
| 7.Regulatory framework of reference 35 | |
| 8.Main risks and uncertainties to which the Tesmec Group is exposed35 | |
| 9.Human Resources, Training and Industrial Relations 37 | |
| 10.Related party transactions40 | |
| 11.Parent company management performance40 | |
| 12.Corporate governance and self-regulatory code of conduct43 | |
| 13.Places where the Company operates 44 | |
| 14.Significant events occurred after the close of the financial period 44 | |
| 16.Other information44 | |
| DRAFT RESOLUTION OF ALLOCATION OF PROFIT OR LOSS FOR THE PERIOD 47 | |
| CONSOLIDATED FINANCIAL STATEMENTS OF THE TESMEC GROUP 49 | |
| Consolidated statement of financial position 50 | |
| Consolidated Income statement51 | |
| Consolidated statement of comprehensive income 52 | |
| Statement of consolidated cash flows53 | |
| Explanatory notes55 | |
| INDEPENDENT AUDITOR'S REPORT 121 | |
| FINANCIAL STATEMENTS OF TESMEC S.P.A. 125 | |
| Statement of financial position126 | |
| Comprehensive income statement128 | |
| Cash flow statement 129 | |
| Statement of changes in shareholders' equity 130 | |
| Explanatory notes131 | |
| REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS' MEETING187 | |
| INDEPENDENT AUDITOR'S REPORT 193 | |
| ENCLOSURES 197 |
NOTICE OF CALL
Piazza Sant'Ambrogio, 16 – 20123 Milan
Milan Register of companies no. 314026
Tax and VAT code: 10227100152
Share capital Euro 10,708,400
Website: "www.tesmec.com"
The shareholders are convened to the ordinary meeting at Tesmec S.p.A. ("Tesmec" or "Company") in Grassobbio (BG), Via Zanica 17/O, 24050, on 28 April 2017 at 10:30 a.m. in single call to discuss and deliberate on the following:
Pursuant to the law, those who have the right to vote may attend the Shareholder's Meeting. The right to attend and vote at the Shareholders' Meeting is certified by a notification to the Company, made by the intermediary, in favour of the person who has the right to vote, on the basis of evidences existing at the end of the accounting day of the seventh day of open market before the date scheduled for the Shareholders' Meeting in single call (record date), coincident with 19 April 2017. Therefore, those who will be the holders of the shares only after the record date mentioned above will be not entitled to attend and vote at the Shareholders' Meeting.
The share capital of Tesmec totals Euro 10,708,400.00 constituted by 107,084,000 ordinary shares with a nominal value of Euro 0.10 each. The shares are nominative, indivisible, and freely transferable. Pursuant to Article 9 of the Articles of Association, each share gives right to one vote in the ordinary and extraordinary shareholders' meetings of the Company. At the time of this notice of call, the Company holds 4.711.879 treasury shares.
Each person who is entitled to intervene in the Shareholders' Meeting may be represented by written proxy, in accordance with applicable law provisions, with the right to sign the proxy form available at the administrative office of Tesmec and on the website of the Company www.tesmec.com, under section "Shareholders' Meetings". The proxy may be granted through electronic document signed in electronic form pursuant to law. The proxy can be notified to the Company by means of registered letter sent to the headquarter in Grassobbio, Via Zanica 17/O or by e-mail to: [email protected]. Any eventual notification of the proxy made in advance does not exonerate the representative, when the credentials to access the meeting are verified, from the obligation to certify the conformity of the notified copy with its original and the identity of the shareholder represented.
The Company, pursuant to Article 135-undecies of Italian Legislative Decree no. 58/1998 ("TUF"), appointed Ms. Lucia Caccia Dominioni as the representative to whom holders of voting rights may grant a written proxy, free of charge for them and accompanied with voting instructions for all or part of the draft resolutions on the agenda,
provided that she receives it no later than the end of the second day of open market before the date scheduled for the Shareholders' meeting in single call (i.e. not later than 26 April 2017), in accordance with the modalities specified and by means of the specific proxy form, with relevant voting instructions, available on the website of the Company www.tesmec.com and at the administrative office of the Company. The proxy thereby granted is effective only for those proposed draft resolutions in relation to which voting instructions are given. The proxy and voting instructions can be withdrawn within the same deadline specified above (i.e. not later than 26 April 2017). There are no procedures for postal votes or by electronic means.
Pursuant to Article 127-ter of the TUF, those who have the right to intervene and vote in the Shareholders' Meeting are allowed to ask questions on the points on the agenda even before the meeting, by sending such questions, accompanied by the certification released by the intermediary proving their capacity as shareholders, by registered mail to the registered office or by e-mail to [email protected]. Questions received before the Shareholder's Meeting are answered at the latest during the meeting. The Company can provide a unified response to questions with the same content.
In order to facilitate the proper course of the Shareholder' Meeting and its preparation, the Shareholders are invited to submit the questions not later than the third day before the date scheduled for the Shareholders' meeting in single call (i.e. not later than 25 April 2017).
Pursuant to Article 126-bis of the TUF, the shareholders who, individually or jointly, represent at least one fortieth of the share capital with voting rights can request, within ten days from the publication of this notice (i.e. not later than 2017, 8th ofApril), additions to the agenda or submit new draft resolutions, specifying in the request the further arguments or the new draft resolutions proposed on points already on the agenda. The request must be submitted in writing by the proposing shareholders by registered mail to the registered office of the Company for the attention of the President or by e-mail to the address [email protected], accompanied by the relevant certification released by the intermediary proving the ownership of the above mentioned fraction of share capital. Within the abovementioned term and through the same modalities, any proposing shareholder must deliver to the Board of Directors a report on the points they propose to treat or the reasons underlying the further draft resolutions submitted on points already on the agenda. No addition to the agenda is allowed for those arguments on which the Shareholders' Meeting deliberates, in accordance with the law, upon proposals made by the directors or on the basis of a project or report prepared by them, other than those indicated under Article 125-ter, paragraph 1, of the TUF.
For any addition to the agenda and submission of new proposed draft resolutions, a notice is given through the same modalities used for the publication of this notice, at least fifteen days before the date scheduled for the Shareholders' Meeting.
The documents relating to the points on the agenda of the Shareholders' Meeting will be made available to the public within the terms provided by law at the administrative office in Grassobbio, Via Zanica 17/O of the Company and on the website of Borsa Italiana S.p.A., with the storage mechanism "eMarket-Storage" and also on the website of the Company www.tesmec.com, under section "Shareholders' Meetings".
Experts, financial analysts and journalists can attend the Shareholders' Meeting; to this end, they are invited to submit a request to attend the meeting at least two days before the meeting to the following number: fax +39 035 3844606.
The Articles of Association are available on the website of the Company www.tesmec.com.
Grassobbio, 29 March 2017
Tesmec S.p.A.
COMPOSITION OF THE CORPORATE BODIES
Board of Directors (in office until the date of the Shareholders' Meeting convened to approve the financial statements as at 31 December 2018)
| Chairman and Chief Executive Officer | Ambrogio Caccia Dominioni |
|---|---|
| Vice Chairman | Gianluca Bolelli |
| Directors | Sergio Arnoldi () Gioacchino Attanzio () Guido Giuseppe Maria Corbetta () Caterina Caccia Dominioni Lucia Caccia Dominioni Paola Durante () |
| (*) Independent Directors |
Board of Statutory Auditors (in office until the date of the Shareholders' Meeting convened to approve the financial statements as at 31 December 2018)
| Chairman | Simone Cavalli |
|---|---|
| Statutory Auditors | Stefano Chirico Alessandra De Beni |
| Alternate Auditors | Attilio Marcozzi Stefania Rusconi |
Members of the Control and Risk Committee (in office until the date of the Shareholders' Meeting convened to approve the financial statements as at 31 December 2018)
| Chairman | Sergio Arnoldi |
|---|---|
| Members | Gioacchino Attanzio Gianluca Bolelli |
Members of the Remuneration and Appointments Committee (in office until the date of the Shareholders' Meeting convened to approve the financial statements as at 31 December 2018)
| Chairman | Gioacchino Attanzio |
|---|---|
| Members | Sergio Arnoldi Caterina Caccia Dominioni |
| Lead Independent Director | Gioacchino Attanzio |
| Director in charge of the internal control and risk management system |
Caterina Caccia Dominioni |
| Manager responsible for preparing the Company's financial statements |
Andrea Bramani |
| Independent Auditors | Ernst &Young S.p.A. |
GROUP STRUCTURE
REPORT ON OPERATIONS
The parent company Tesmec S.p.A. (hereinafter "Parent Company" or "Tesmec") is a legal entity organised in accordance with the legal system of the Italian Republic. The ordinary shares of Tesmec are listed on the MTA (screen-based share market) STAR Segment of the Milan Stock Exchange. The registered office of the Tesmec Group (hereinafter "Group" or "Tesmec Group") is in Milan, Piazza S. Ambrogio 16.
The Tesmec Group is a leader in the design, production and marketing of special products and integrated solutions for the construction, maintenance and streamlining of infrastructures relating to the transmission of electrical power and data and material transport.
Founded in Italy in 1951 and managed by the Chairman and Chief Executive Officer Ambrogio Caccia Dominioni, the Group has more than 650 employees and production plants located in Grassobbio (Bergamo), Endine Gaiano (Bergamo), Sirone (Lecco) and Monopoli (Bari) in Italy, Alvarado (Texas) in the USA and Durtal in France. Moreover, as a result of the recent acquisitions of the companies Bertel, SGE and CPT, the Tesmec Group has other three production plants in Fidenza (Parma), Padua and Patrica (Frosinone), respectively. The Group also has a global commercial presence, with a direct presence on different continents, through foreign companies and sales offices in the USA, South Africa, Russia, Qatar, China and France.
As a result of its listing on the Stock Exchange on 1 July 2010, the Parent Company has pursued the stated objective of diversification of the types of products in order to offer a complete range of integrated solutions grouped into three main areas of business: Stringing equipment, Trencher and Rail.
Through the different types of product, the Group is able to offer:
▪ Machines and integrated systems for the installation, maintenance and diagnostics of the railway catenary wire system, plus customised machines for special operations on the line.
The know-how achieved in the development of specific technologies and innovative solutions and the presence of a team of highly-skilled engineers and technicians allow the Tesmec Group to directly manage the entire production chain: from the design, production and marketing of machinery to the supply of know-how relating to the use of systems and optimisation of work, to all pre- and post-sales services related to machinery and the increase in site efficiency.
As at 31 December 2016, the reference price of the Tesmec share is equal to Euro 0.5445 per share while at the date of this report it is equal to Euro 0.50 per share. Market capitalisation as at 31 December 2016 amounts to Euro 58.3 million (around Euro 56.4 million at the date of this report). The following chart shows the listing price trend of the shares of the Parent Company from 1 January 2016 to February 2017:
| Reference price as at 31 December 2016 Reference price as at 28 February 2017 |
0.5445 0.5270 |
|---|---|
| Maximum price (5 January 2016) (1) | 0.6510 |
| Minimum price (24 June 2016) (1) | 0.4410 |
(1) Intended as minimum and maximum prices recorded during the negotiations of the day, hence not coinciding with the official and reference prices at the same date
The completion of the diversification strategy in the trencher segment for service activities started with the acquisition of the Marais Group on 8 April 2015 continued with the following investments:
Moreover, the completion of the range in the new automation segment of power lines continued with the following investments:
▪ On 3 March 2016, the parent company Tesmec S.p.A. purchased for Euro 0.3 million the remaining 60% of the share capital of Bertel S.r.l., company characterised as a highly innovative start-up in that operating in a market with a high technical profile such as that of streamlining systems of Transmission Power Lines. As a result of this operation, Tesmec holds the entire share capital of the company. The effects of the acquisition were described in the next paragraph 3.1 Effects of the acquisition of the remaining 60% of Bertel.
▪ On 20 April 2016, the parent company Tesmec S.p.A. acquired 100% of CPT Engineering S.r.l., company specialised in the design and implementation of monitoring, protection and industrial automation solutions, which offers cuttingedge systems within the technologies of power lines. In detail, the transaction involved the purchase of the entire share capital of CPT against a price of Euro 0.3 million to which an earn-out up to a maximum of Euro 0.8 million is expected to be added related to the achievement of certain turnover results by the CPT and its economic balance. The payment of the price by Tesmec will be made by using own resources.
The effects of the acquisition were described in the next paragraph 3.2 Effects of the acquisition of CPT.
▪ On 28 April 2016, the subsidiary SGE S.r.l. finalised with effective date as from 1 July 2016 the acquisition by R&S Laboratorio S.r.l. of the business unit, already rented since 2014, active in technology research, design, manufacture and sale of sensors and fault and basic electrical quantity detectors in substations and medium voltage power lines.
The transaction is part of the more general development strategy of the offer in Energy Automation, in which the Group has recently completed the acquisition of Bertel and CPT described above.
The value of the transaction is Euro 1.4 million: Euro 0.9 million was already paid upon acquisition and the remaining part will be paid in subsequent instalments. The effects of the acquisition were described in the next paragraph 3.3 Effects of the acquisition of the SGE business unit.
▪ On 1 August 2016, Tesmec S.p.A. finalised the acquisition of Ampere S.r.l. in liquidation, of the business unit, including the Ampere trademark, involved in the sale of measuring and monitoring instruments and after-sales services for the production, transmission and distribution of electrical power for a price amounting to Euro 0.1 million.
This acquisition allows the Tesmec Group to expand the potential customer base of the Energy sector in Italy by benefiting from the strong relations that Ampere S.r.l. has with important customers.
These acquisitions represent a significant step in the growth process of Tesmec in the world of energy, allowing the Group to complete the portfolio of solutions offered at the level of different voltage classes (high, medium, low) to meet the new technological challenges related to renewable energy sources and to distributed generation. In fact, the combination of the excellent skills in the development of sensors with the excellent skills in electronic devices will allow the Tesmec Group to offer a wide range of integrated systems to manage efficiently and in a sustainable manner the requests of a market characterised by the increase in energy consumption.
Other significant events during the period include:
The Board of Directors decided to:
change the name of the current Remuneration Committee in "Remuneration and Appointments Committee" and to merge the function previously carried out by the Appointments Committee in the new Remuneration and Appointments Committee;
appoint the directors Gioacchino Attanzio (Chairman), Sergio Arnoldi and Caterina Caccia Dominioni as members of the new Remuneration and Appointments Committee;
The result was declared by the Commission during the public session held at the RFI Purchasing Department in Rome. The definitivly award was made in the month of December 2016.
The total value of the tender amounts to around Euro 91.8 million and, in the event of final awarding, the supply, to be completed within 4 years and also including a 6-year period of full maintenance service (FMS), is broken down as follows:
This result is due to the high technological content of the railway systems of the Tesmec Group that has been the key to the positive assessment.
As described above, on 3 March 2016, the parent company Tesmec S.p.A. purchased the remaining 60% of the share capital of Bertel S.r.l. (of which Tesmec already owned 40% of the share capital).
The value of the transaction amounted to Euro 300 thousand corresponding to the nominal value and will be paid in two tranches: the first one of Euro 150 thousand within 12 months and the second one of Euro 150 thousand within 24 months. Moreover, following the acquisition of Bertel S.r.l., it repaid the loan of Euro 260 thousand to the old shareholder.
The differential arising from this acquisition amounted to Euro 1,147 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. March 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Company acquisition | |||
|---|---|---|---|---|
| (Euro in thousands) | BERTEL | |||
| Assets | ||||
| Intangible assets | 2,539 | |||
| Property, plant and equipment | 162 | |||
| Other non-current assets | 598 | |||
| Inventories | 668 | |||
| Trade receivables | 285 | |||
| Other current assets | 757 | |||
| Cash and cash equivalents | 79 | |||
| Total assets | 5,088 | |||
| Liabilities | ||||
| Medium/long-term loans | 146 | |||
| Employee benefit liability | 133 | |||
| Interest-bearing financial payables (current portion) | 4,069 | |||
| Other current liabilities | 587 | |||
| Total liabilities | 4,935 | |||
| Fair value of net assets acquired | 153 |
As described above, on 20 April 2016, the parent company Tesmec S.p.A. purchased 100% of the share capital of CPT Engineering S.r.l. The transaction involved the purchase of the entire share capital of CPT against a price of Euro 300 thousand to which an earn-out up to a maximum of Euro 800 thousand is expected to be added related to the achievement of certain turnover results by the CPT and its economic balance. The payment of the price by Tesmec will be made by using own resources.
The differential arising from this acquisition amounted to Euro 100 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. April 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Company acquisition |
|---|---|
| (Euro in thousands) | CPT |
| Assets | |
| Intangible assets | 723 |
| Property, plant and equipment | 1,102 |
| Other current assets | 597 |
| Total assets | 2,422 |
| Liabilities | |
| Medium/long-term loans | 479 |
| Employee benefit liability | 206 |
| Other current liabilities | 1,537 |
| Total liabilities | 2,222 |
| Fair value of net assets acquired | 200 |
| Consideration for the acquisition/sale | (316) |
| Difference between consideration paid and net assets acquired | (116) |
As described above, on 28 April 2016, the subsidiary SGE S.r.l. finalised with effective date as from 1 July 2016 the acquisition by R&S Laboratorio S.r.l. of the business unit, already rented since 2014, active in technology research, design, manufacture and sale of sensors and fault and basic electrical quantity detectors in substations and medium voltage power lines.
The value of the transaction amounted to Euro 1.2 million and is paid in three tranches: the first Euro 644 thousand on July 1, 2016, the second of Euro 52 thousand on 1 August 2016 and the remaining amount to Euros 470 thousand in installments with maturities up to April 20, 2017
The differential arising from this acquisition amounted to Euro 575 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. July 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Business unit |
|---|---|
| (Euro in thousands) | SGE |
| Assets | |
| Intangible assets | 802 |
| Tangible assets | 34 |
| Total assets | 836 |
| Liabilities | |
| Employee benefit liability | 228 |
| Total liabilities | 228 |
| Fair value of net assets acquired | 608 |
| Consideration for the acquisition/sale | (1,183) |
| Difference between consideration paid and net assets acquired | (575) |
As described above, on 21 december 2016, the Board of Directors of Tesmec S.p.A. approved certain transactions with the related party Dream Immobiliare S.r.l. ("Dream") involving the properties situated in Grassobbio (Bergamo) ("Grassobbio Property Complex"), in Padua ("Padua Building") and Patrica (Frosinone) ("Frosinone Building"), in which factories of Tesmec and of its subsidiaries SGE S.r.l. ("SGE") and CPT Engineering S.r.l. ("CPT") are located.
- With regard to the Grassobbio Property Complex, where Tesmec's production plant also has its headquarters, the Company's Board of Directors has considered exercising of the option with respect to Dream to no longer be strategic for Tesmec, thereby allowing said option to expire. This option expires on 31 December 2016 and regards a takeover of the lease contract in place between Dream and Unicredit Leasing S.p.A. for said property complex for Euro 3,500 thousand.
The Board of Directors consequently renegotiated the rent and term of the lease contract with Dream, with respect to the portion of the Grassobbio Property Complex in which Tesmec carries out its activities, agreeing on a reduction in the annual rent of approximately Euro 160 thousand (from about Euro 1,960 thousand to Euro 1,800 thousand) and a new contract term with expiry envisaged for 30 January 2027. Consequently the availability of the property in the production site was also guaranteed.
As a result of these transactions, the Tesmec Group's Net Financial Position at 31 December 2016 will result in improvement for about Euro 16,579 thousand, primarily concerning the adjustment of the financial debt resulting from the renegotiation of the main clauses of the lease contract.
With regard to the Padua Building, where SGE currently conducts its production activities in the automation segment, following agreement with Dream Immobiliare, the latter agreed to replace SGE in the preliminary purchase agreement for said property, for the same amount .Dream agreed to lease said property to SGE starting from the purchase (expected in 2017) for an annual amount of Euro 75 thousand, determined based on the annual market rent indicated in the report drawn up by CBRE Valuation S.p.A.
With regard to the Frosinone Building, where CPT currently conducts its production activities in the automation segment, CPT and Dream reached an agreement involving its purchase by Dream for Euro 1,019 thousand.
Pursuant to the agreement reached by the parties, the Frosinone Building will therefore be let by Dream to CPT at an annual rent of Euro 63 thousand determined based on the annual market rent indicated in the report drawn up by CBRE Valuation S.p.A.
The transactions described above will involve, for Tesmec Group as at December 31, 2016 an improvement in the net financial position for Euro 17,716 thousand, a reduction of EBITDA for Euro 2,232 thousand and a reduction of net income for Euro 1,527 thousand.
Below a summary table showing the economic, patrimonial and financial effect of the transaction as at December 31, 2016:
| (In migliaia di Euro) | Grassobbio Property Complex |
Padua Building |
Frosinone Building |
Total |
|---|---|---|---|---|
| USES | ||||
| Net working capital | 738 | (33) | - | 705 |
| Fixed assets | (18,929) | - | (1,019) | (19,948) |
| Other long-term assets and liabilities | - | - | - | - |
| Net invested capital | (18,191) | (33) | (1,019) | (19,243) |
| SOURCES | ||||
| Net financial indebtedness | (16,579) | (118) | (1,019) | (17,716) |
| Shareholder's equity | (1,612) | 85 | - | (1,527) |
| Total sources of funding | (18,191) | (33) | (1,019) | (19,243) |
| (In migliaia di Euro) | Grassobbio Property Complex |
Padua Building |
Frosinone Building |
Total |
|---|---|---|---|---|
| Loss | (2,350) | - | - | (2,350) |
| Income | - | 118 | - | 118 |
| EBITDA | (2,350) | 118 | - | (2,232) |
| Tax | 738 | (33) | - | 705 |
| Effect on net result | (1,612) | 85 | - | (1,527) |
The accounting effects of these operations on an annual basis will be the rental costs of Euro 1,895 thousand which will be reflected on EBITDA and a decrease in financial expenses of Euro 754 thousand and amortization of Euro 610 thousand. These effects will produce a positive tax effect of Euro 196 thousand on the Group's taxable income, the net result will therefore suffer a worsening of Euro 335 thousand.
For further information please refer to the Information Document on significant transactions with related parties published on December 22, 2016 in the Investor Relations-Governance section on the website www.tesmec.com
The consolidated financial statements of Tesmec have been prepared in accordance with International Financial Reporting Standards (hereinafter the "IFRS" or the "International Accounting Standards"), which were endorsed by the European Commission, in effect as at 31 December 2016. The following table shows a summary of the main profit and loss indicators in 2016 and in 2015 and the main financial indicators as at 31 December 2016 and as at 31 December 2015.
| 2015 | OVERVIEW OF THE FINANCIAL RESULTS (consolidated figures) | 2016 |
|---|---|---|
| Key income statement data (Euro in millions) | ||
| 164.4 | Operating Revenues | 128.5 |
| 24.0 | EBITDA | 8.5 |
| 14.6% | EBITDA % | 6.6% |
| 22.0 | adj EBITDA | 11.6 |
| 13.4% | adj EBITDA % | 9.0% |
| 6.9 | Group Net Profit | (3.9) |
| Tesmec S.p.A. (Euro in millions) | ||
| 7.4 | Net income | 1.6 |
| Key financial position data (Euro in millions) | ||
| 145.8 | Net Invested Capital | 146.6 |
| 55.9 | Shareholders' Equity | 49.9 |
| 89.9 | Net Financial Indebtedness | 96.7 |
| 13.2 | Net investments in tangible and intangible fixed assets | (1.2) |
| 569 | Annual average employees | 659 |
The macroeconomic framework of 2016 was characterised by:
The sense of relative stability of the financial markets and, consequently, the possibility for the productive investments to restart in innovation and in infrastructures is accompanied by the expectation of a slight inflation in consumer prices, which is the sign of a new positiveness recovered by the economic operators after the presidential elections in the US.
World stock markets (Dow Jones, Nasdaq, Tokyo, London, Paris, Frankfurt) after the initial drop in January 2016 continued their development by reaching each time new records. In this context, Milan was an exception, weighed down by the crisis in bank shares.
On the other hand, in political terms, the belligerence conditions in the Middle East and in Africa worsened with the oil price that stood at 55 USD/barrel in the second half of the year.
The prices of major commodities (copper, aluminium, nickel) and of sound investments (gold and silver) slightly improved. The Euro was weak against major currencies and the dollar.
The Group realised in 2016 revenues of Euro 128,513 thousand against a figure of Euro 164,402 thousand in 2015 down by 21.8%. The decrease was mainly in the traditional Trencher segment, whose revenues decreased by 8.9% especially in two markets significant for the Group such as the US market - further affected until the end of the year by the expectation of the developments related to the presidential elections - and the Middle Eastern market, both strongly affected by the drop in oil prices. There was a contingent decrease by 41.5% in the Stringing equipment segment due primarily to the fact that 2016 was an exceptional year thanks to the success of the Abengoa contract. Whereas there was an increase by 52.2% in the Rail segment.
Moreover, globally, a complex economic situation was accompanied by a gradual change of approach in customer demand, more and more oriented towards service activities rather than towards the purchase of investment assets.
Moreover, revenues of the last quarter of 2016 were penalised by the postponement in the invoicing of some contracts already finalised but the start of the new year is benefiting from it.
The machines and integrated systems for the construction, maintenance and streamlining of underground and aerial power lines recorded a decrease in revenues by Euro 29,934 thousand (-41.5%) from Euro 72,146 thousand as at 31 December 2015 to Euro 42,212 thousand as at 31 December 2016.
Revenues as at 31 December 2015 benefited from the important project of Abengoa for the construction of more than 5,000 km of 500kV lines in Brazil. However, the awarding of the important Indonesian project acquired at the end of the year was of benefit to the order backlog and will positively affect revenues for the 2017 financial year. Within this segment, growth in revenues continued thanks to the sale of products of the new Automation business (of CPT, SGE and Bertel S.r.l. and of the Ampere business unit), confirming the validity of the strategic choices implemented in the past years that also focused on the market of streamlining of power lines.
High-powered truck trenchers and systems for the construction of underground infrastructures such as gas pipelines, oil pipelines, water systems, trenches for laying cables and for earth moving works recorded a decrease in revenues of Euro 7,919 thousand (-8.9%) from Euro 88,490 thousand as at 31 December 2015 to Euro 80,571 thousand as at 31 December 2016. This performance is attributable to the combined effect of the positive sales trend of service activities (+44.1% mainly carried out by the Marais Group) and the negative sales trend of machinery on the US and Middle Eastern markets.
Machines and integrated systems for the installation, maintenance and diagnostics of the railway catenary wire system, plus customised machines for special operations on the line recorded an increase in revenues by 52.2% compared to the previous year. Revenues as at 31 December 2016 amounted to Euro 5,730 thousand compared to Euro 3,766 thousand of the previous year; this increase is supported by an important flow of orders that concern multi-year activities confirming the success of the Group's strategy to complete its product range with activities that have higher recurrence in revenues.
It should be noted that revenues in 2016 include the effects of the state of completion of contracts in progress at the end of the year for a total amount equal to Euro 1,216 thousand and Euro 3,422 thousand in 2015.
With regard to the performance of the subsidiaries and companies included in the consolidation area and the development of their activities, we note that:
On 16 September 2016, the subsidiary Tesmec Service S.r.l. ranked first in the tender by negotiated procedure called by RFI - Rete Ferroviaria Italiana S.p.A., company of the Ferrovie dello Stato Italiane Group responsible for the overall management of the national rail network, for the supply of 88 multipurpose ladder trucks for the maintenance of the Italian railway network for a total value of Euro 91.8 million.
The figures relating to the three companies working in the Automation segment within the Stringing equipment and that generated total revenues of Euro 4,592 thousand and for which an integration process is envisaged are shown below.
As a consequence of the lower than expected financial results due, as already mentioned, to the postponement of some important already won projects in the last quarter of 2016, year-end working capital level has been higher than expected and has therefore caused a higher level of short term indebtedness.
Following such increase in the indebtedness level and the lower Group Ebitda, as better explained in paragraph 6.1 Group Profit and Loss Statement, the Group failed to comply with certain covenants of a financial nature requested by some mediumlong term loans with Italian banks. According to the requirements of International Accounting Standards the relative medium and long-term loans have been fully reclassified as short term, for a total counter value of EUR 12,273 thousand.
The Group has promptly initiated with the relevant credit institutions procedures for obtaining waivers for the year 2016 in relation to the said non-compliance with the covenants. At present, the Group believes that the waiver will be granted in the necessary technical due times. Such a consideration is supported both from the first few positive banks feed-back and from the 2017 budget which forecasts revenues of between 160 and 170 million euro, against which it is reasonable to assume an EBITDA of around 15%, in line with the Group historical data, and a significant improvement in Net Financial Debt.
The Group closed the financial period as at 31 December 2016 with a net loss of Euro 3,944 thousand compared to a net income of Euro 6,931 thousand as at 31 December 2015. The following table shows the trend of major economic indicators as at 31 December 2016 compared to 31 December 2015.
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues |
| Revenues from sales and services | 128,513 | 100.0% | 164,402 | 100.0% |
| Cost of raw materials and consumables | (49,029) | -38.2% | (82,838) | -50.4% |
| Cost of services | (28,225) | -22.0% | (27,345) | -16.6% |
| Payroll costs | (40,000) | -31.1% | (34,530) | -21.0% |
| Other operating (costs)/revenues, net | (4,613) | -3.6% | (2,718) | -1.7% |
| Non-recurring costs and revenues | (3,105) | -2.4% | 2,069 | 1.3% |
| Amortisation and depreciation | (12,830) | -10.0% | (11,230) | -6.8% |
| Development costs capitalised | 5,050 | 3.9% | 5,104 | 3.1% |
| Portion of losses/(gains) from the valuation of operational Joint Ventures using the equity method |
(71) | -0.1% | (99) | -0.1% |
| Total operating costs | (132,823) | -103.4% | (151,587) | -92.2% |
| Operating income | (4,310) | -3.4% | 12,815 | 7.8% |
| Financial expenses | (4,763) | -3.7% | (5,465) | -3.3% |
| Financial income | 614 | 0.5% | 502 | 0.3% |
| Foreign exchange gains/losses | 1,730 | 1,806 | ||
| Portion of losses/(gains) from the valuation of equity investments using the equity method |
(141) | -0.1% | (553) | -0.3% |
| Pre-tax profit | (6,870) | -5.3% | 9,105 | 5.5% |
| Income tax | 3,017 | 2.3% | (1,944) | -1.2% |
| Net result for the period | (3,853) | -3.0% | 7,161 | 4.4% |
| Profit/(loss) attributable to non-controlling interests | 91 | 0.1% | 230 | 0.1% |
| Group result | (3,944) | -3.1% | 6,931 | 4.2% |
Total revenues as at 31 December 2016 decreased by 21.8%.
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Sales of products | 98,721 | 76.8% | 140,550 | 85.5% | (41,829) |
| Services rendered | 28,562 | 22.2% | 20,430 | 12.4% | 8,132 |
| 127,283 | 99.0% | 160,980 | 97.9% | (33,697) | |
| Changes in work in progress | 1,230 | 1.0% | 3,422 | 2.1% | (2,192) |
| Total revenues from sales and services | 128,513 | 100.0% | 164,402 | 100.0% | (35,889) |
Services rendered mainly concern the trencher segment and are represented by the machine rental business carried out in the United States, in France, Australia, New Zealand and in South Africa.
The turnover of the Group continues to be produced almost exclusively abroad and in non-EU countries, in particular. Also sales made to customers based in Europe are at times intended for use outside the European continent. The revenue analysis by area is indicated below, compared with the 2016 financial period and the 2015 financial period, which indicates the decrease in the European and Middle Eastern markets and in North and Central America. It is emphasised that the segmentation by geographic area is determined by the country where the customer is, regardless of the place where the project activities are organised.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Italy | 15,522 | 10,992 | |
| Europe | 38,009 | 55,760 | |
| Middle East | 15,081 | 24,462 | |
| Africa | 18,143 | 21,429 | |
| North and Central America | 15,711 | 32,918 | |
| BRIC and Others | 26,047 | 18,841 | |
| Total revenues | 128,513 | 164,402 |
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | 2016 vs. 2015 | % change |
| Cost of raw materials and consumables | (49,029) | (82,838) | 33,809 | -40.8% |
| Cost of services | (28,225) | (27,345) | (880) | 3.2% |
| Payroll costs | (40,000) | (34,530) | (5,470) | 15.8% |
| Other operating (costs)/revenues, net | (4,613) | (2,718) | (1,895) | 69.7% |
| Non-recurring costs and revenues | (3,105) | 2,069 | (5,174) | -250.1% |
| Development costs capitalised | 5,050 | 5,104 | (54) | -1.1% |
| Portion of losses/(gains) from the valuation of operational Joint Ventures using the equity method |
(71) | (99) | 28 | -28.3% |
| Total operating costs net of depreciation and amortisation | (119,993) | (140,357) | 20,364 | -14.5% |
The table shows a decrease in operating costs of Euro 20,364 thousand (-14.5%) in a less than proportional way compared to the decrease in sales (-21.8%). The table shows that the shift of revenues on service activities resulted in a decrease in the cost for the purchase of raw materials and consumables (-40.8%) against an increase in costs of services by 6.4% and payroll costs by 15.8% also resulting from the change in the consolidation area (Bertel S.r.l., CPT S.r.l. and EAM S.r.l. subsequently merged in the company Group Marais SARL).
The item "non-recurring costs and revenues" includes an extraordinary cost component of Euro 2,232 thousand related to the new lease contract described in the paragraph 3.4 Effects of the New lease contract with related parties.
The 2015 financial year benefited from a positive net value of non-recurring costs and revenues of Euro 2,069 thousand (consisting of non-recurring costs for services of Euro 564 thousand and of Badwill of Euro 2,633 thousand) deriving from the acquisition of the Marais Group on 8 April 2015. Net of this item, the reduction would have been 15.8%.
In terms of margins, EBITDA amounts to Euro 8,520 thousand, which represents 6.6% of the sales for the period, compared to 14.6% recorded in 2016.
The 2016 financial period includes an extraordinary cost component of Euro 2,232 thousand related to the new lease contract described in paragraph 3.4 Effects of the New lease contract with related parties,in addition to Euro 873 thousand for nonrecurring costs. Conversely, in the 2015 financial period, the income statement included non-recurring costs for services of Euro 564 thousand and non-recurring revenues for Badwill of Euro 2,633 thousand deriving from the acquisition of the Marais Group. Without considering these effects, the EBITDA would have been 13.4%.
They were separately shown when calculating the EBITDA.
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Operating income | (4,310) | -3.4% | 12,815 | 7.8% | (17,125) |
| + Depreciation and amortisation | 12,830 | 10.0% | 11,230 | 6.8% | 1,600 |
| EBITDA (*) | 8,520 | 6.6% | 24,045 | 14.6% | (15,525) |
| + Non-recurring costs and revenues | 3,105 | 2.4% | (2,069) | -1.3% | 5,174 |
| adj EBITDA (**) | 11,625 | 9.0% | 21,976 | 13.4% | (10,351) |
(*) EBITDA is represented by the operating income gross of amortisation/depreciation. The EBITDA thus defined represents a measurement used by Company management to monitor and assess the company's operating performance. EBITDA is not recognised as a measure of performance by the IFRS and therefore is not to be considered an alternative measurement for assessing the performance of the Group's operating income. As the composition of EBITDA is not governed by the reference accounting standards, the criterion for determination applied by the Group may not be in line with the criterion adopted by others and is therefore not comparable.
(**) Adj EBITDA refers to EBITDA net from non-recurring factors.
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Stringing equipment | 765 | 0.6% | 8,517 | 5.2% | (7,752) |
| Trencher | (4,055) | -3.2% | 6,102 | 3.7% | (10,157) |
| Rail | (1,020) | -0.8% | (1,804) | -1.1% | 784 |
| Total operating income | (4,310) | -3.4% | 12,815 | 7.8% | (17,125) |
As a result of the above, the operating income as at 31 December 2016 stood at Euro -4,310 thousand (-3.4% of revenues) compared to Euro 12,815 thousand (7.8% of revenues) achieved as at 31 December 2015.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Net Financial Income/Expenses | (4,188) | (5,056) | |
| Foreign exchange gains/losses | 1,730 | 1,806 | |
| Fair value adjustment of derivative instruments | 39 | 93 | |
| Portion of losses/(gains) from the valuation of equity investments using the equity method |
(141) | (553) | |
| Total net financial income/expenses | (2,560) | (3,710) |
The net financial management increased compared to the same period in 2015 by Euro 1,150 thousand, mainly due to:
▪ Euro 76 thousand related to the effects of the different USD/EUR exchange rate trend in the two periods of reference that resulted in the recording of net profits totalling Euro 1,730 thousand in 2016 (Euro 190 thousand realised and Euro 1,540 thousand unrealised) against a net profit of Euro 1,806 thousand in 2015.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Net result | (3,853) | 7,161 | |
| % Effect on revenues | -3.00% | 4.36% | |
| Profit/(loss) attributable to non-controlling interests | 91 | 230 | |
| Group net result | (3,944) | 6,931 | |
| % Effect on revenues | -3.07% | 4.22% |
Results for the period amounted to Euro -3,853 thousand (Euro 7,161 thousand in 2015) after deducting positive taxes totalling Euro 3,017 thousand (Euro 1,944 thousand in 2015).
Net of the portion pertaining to minority interests, the net result is 3,944 thousand.
| Financial period ended 31 December | |||
|---|---|---|---|
| Ratio | Composition | 2016 | 2015 |
| Return on sales (R.O.S.) | Operating income / Net revenues | -3.4% | 7.8% |
| Return on investment (R.O.I.) | Operating income / Invested capital | -2.9% | 8.9% |
| Return on equity (R.O.E.) | Net income / Shareholders' equity | -7.9% | 12.4% |
| Invested capital turnover | Net revenues / Net invested capital | 0.88 | 1.13 |
| Working capital turnover | Net revenues / Net working capital | 1.69 | 2.59 |
| Debt ratio | Net financial indebtedness / Shareholders' equity | 1.94 | 1.61 |
(*) The Net financial indebtedness included as at 31 December 2015 debts related to the new lease contract of Grassobbio.
The table above shows concisely the main trends that characterised the financial statements of the Group as at 31 December 2016 compared to 31 December 2015. The ratios reflect the worsening of margins and efficiency of working capital caused by lower sales volumes.
The tables below show the income statement figures as at 31 December 2016 compared to those as at 31 December 2015, broken down into three operating segments.
| Financial period ended 31 December | ||||||
|---|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 | |
| Stringing equipment | 42,212 | 32.8% | 72,146 | 43.9% | (29,934) | |
| Trencher | 80,571 | 62.7% | 88,490 | 53.8% | (7,919) | |
| Rail | 5,730 | 4.5% | 3,766 | 2.3% | 1,964 | |
| Total revenues | 128,513 | 100.0% | 164,402 | 100.0% | (35,889) |
For a detailed breakdown of revenues by segment, reference is made to what is described in paragraph 5.2 Performance by segments.
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Stringing equipment | 41,447 | 32.3% | 63,629 | 38.7% | (22,182) |
| Trencher | 84,626 | 65.9% | 82,388 | 50.1% | 2,238 |
| Rail | 6,750 | 5.3% | 5,570 | 3.4% | 1,180 |
| Total operating costs | 132,823 | 103.4% | 151,587 | 92.2% | (18,764) |
Operating costs, depreciation and amortisation including, were down 12.3% compared to the prior period in a less than proportional way compared to the sales trend (-21.8%). The shift of revenues on service activities for the Trencher segment is the basis of the trend in operating costs that, despite the fall in revenues of 9.7%, show a 2.7% increase in that the personnel costs and costs for external services increased more than the decrease in cost of goods sold for the sale of machines.
The table below show the adj EBITDA as at 31 December 2016 compared to that as at 31 December 2015, broken down into three operating segments:
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Stringing equipment | 6,041 | 14.3% | 11,367 | 15.8% | (5,326) |
| Trencher | 4,482 | 5.6% | 10,955 | 12.4% | (6,473) |
| Rail | 1,102 | 19.2% | (346) | -9.2% | 1,448 |
| adj EBITDA (**) | 11,625 | 9.0% | 21,976 | 13.4% | (10,351) |
(*) EBITDA is represented by the operating income gross of amortisation/depreciation. The EBITDA thus defined represents a measurement used by Company management to monitor and assess the company's operating performance. EBITDA is not recognised as a measure of performance by the IFRS and therefore is not to be considered an alternative measurement for assessing the performance of the Group's operating income. As the composition of EBITDA is not governed by the reference accounting standards, the criterion for determination applied by the Group may not be in line with the criterion adopted by others and is therefore not comparable.
(**) Adj EBITDA refers to EBITDA net from non-recurring factors.
Margins decreased in absolute terms by Euro 15,525 thousand (to Euro 8,520 thousand in 2016 from Euro 24,045 thousand in 2015) and in percentage terms to 6.6% in 2016 from 14.6% in 2015. This result is the combined effect of trends that can be explained better segment by segment:
The financial position of the company as at 31 December 2016 compared to 31 December 2015 is briefly shown in the table below.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| USES | |||
| Net working capital (1) | 76,038 | 63,505 | |
| Fixed assets | 70,056 | 83,945 | |
| Other long-term assets and liabilities | 517 | (1,697) | |
| Net invested capital (2) | 146,611 | 145,753 | |
| SOURCES | |||
| Net financial indebtedness (3) | 96,691 | 89,876 | |
| Shareholders' equity | 49,920 | 55,877 | |
| Total sources of funding | 146,611 | 145,753 |
(1) The net working capital is calculated as current assets net of current liabilities excluding financial assets and financial liabilities. Net working capital is not recognised as a measure of performance by the IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
(2) The net invested capital is calculated as net working capital plus fixed assets and other long-term assets less long-term liabilities. The net invested capital is not recognised as a measure of performance under IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
(3) The net financial indebtedness is calculated as the sum of cash and cash equivalents, current financial assets including available–for–sale securities, noncurrent financial liabilities, fair value of hedging instruments and other non-current financial assets.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade receivables | 49,433 | 50,882 | |
| Work in progress contracts | 1,291 | 3,864 | |
| Inventories | 69,227 | 58,891 | |
| Trade payables | (31,197) | (39,049) | |
| Other current assets/(liabilities) | (12,716) | (11,083) | |
| Net working capital (1) | 76,038 | 63,505 |
(1) The net working capital is calculated as current assets net of current liabilities excluding financial assets and financial liabilities. Net working capital is not recognised as a measure of performance by the IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
Net working capital amounted to Euro 76,038 thousand, marking an increase of Euro 12,533 thousand (equal to 19.7%) compared to 31 December 2015. This trend was mainly attributable to the increase in the item Inventories as a result of the decrease in revenues in the last quarter of 2016, also as a result of slippage of some orders
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Intangible assets | 18,891 | 13,827 | |
| Property, plant and equipment | 47,289 | 65,352 | |
| Equity investments in associates | 3,869 | 4,763 | |
| Other equity investments | 7 | 3 | |
| Fixed assets | 70,056 | 83,945 |
Total fixed assets recorded a decrease of Euro 13,889 thousand attributable to the decrease in property, plant and equipment of Euro 18,063 thousand, which is due for Euro 19,948 thousand to the new lease contract described in paragraph 3.4 Effects of the New lease contract with related parties.
The increase in intangible assets of Euro 5,064 is mainly due to the change in the consolidation area for a total value of Euro 4,537 thousand related for Euro 839 thousand to the company acquired C.P.T. Engineering S.r.l. and for Euro 3,698 thousand to the line-by-line consolidation of the subsidiary Bertel S.r.l. as from 1 March 2016.
This amount includes as assets in progress and advance payments to suppliers the temporary differential of Euro 1,158 thousand generated by the acquisition of the remaining 60% of the equity investment in the company Bertel S.r.l. in March. As provided by IFRS 3, within 12 months after the transaction (i.e. March 2017), the recording of the acquisition will be completed through the final allocation of the emerging differential.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Financial receivables and other non-current financial assets | 327 | 484 | |
| Non-current trade receivables | 373 | 80 | |
| Deferred tax assets | 11,520 | 8,844 | |
| Employee benefit liability | (3,680) | (2,847) | |
| Deferred tax liabilities | (7,870) | (8,255) | |
| Other non-current liabilities | (153) | (3) | |
| Other long-term assets and liabilities | 517 | (1,697) |
Medium to long-term assets and liabilities increased by Euro 2,214 thousand from a negative balance of Euro -1,697 thousand as at 31 December 2015 to a positive balance of Euro 517 thousand as at 31 December 2016 mainly due to the recognition of tax receivables related to the tax losses of the subsidiaries Tesmec Usa and Bertel.
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | of which with related parties and group |
2015 | of which with related parties and group |
|
| Cash and cash equivalents | (18,501) | (21,204) | |||
| Current financial assets (1) | (9,053) | (7,608) | (11,871) | (11,499) | |
| Current financial liabilities | 70,010 | 33 | 45,178 | 1,241 | |
| Current portion of derivative financial instruments | 110 | 14 | |||
| Current financial indebtedness (2) | 42,566 | (7,575) | 12,117 | (10,258) | |
| Non-current financial liabilities | 53,916 | - | 77,409 | 14,743 | |
| Non-current portion of derivative financial instruments | 209 | 350 | |||
| Non-current financial indebtedness (2) | 54,125 | - | 77,759 | 14,743 | |
| Net financial indebtedness pursuant to CONSOB Communication No. DEM/6064293/2006 |
96,691 | (7,575) | 89,876 | 4,485 |
(1) Current financial assets as at 31 December 2016 and 31 December 2015 include the market value of shares and warrants, which are therefore considered cash and cash equivalents.
(2) Current and non-current financial indebtedness is not identified as an accounting element by the IFRS. The valuation criteria applied by the Group may not necessarily be the same as those adopted by other groups and therefore the balances obtained by the Group may not be comparable therewith.
Net indebtedness as at 31 December 2016 stood at Euro 96,691 thousand (Euro 89,876 thousand as at 31 December 2015) increasing by Euro 6,815 thousand.
The change is related to the postponement of revenues especially in the last quarter of 2016 that determined the increase in warehouse values as at 31 December generating a level of working capital higher than expected offset by the benefits of the effects of the new lease contract described in paragraph 3.4 Effects of the New lease contract with related parties of Euro 17,717 thousand.
The table below shows the breakdown of the following changes:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Share capital | 10,708 | 10,708 | |
| Reserves | 41,457 | 36,623 | |
| Result for the period | (3,944) | 6,931 | |
| Non-controlling interests | 1,699 | 1,615 | |
| Shareholders' equity | 49,920 | 55,877 |
The share capital amounts to Euro 10,708 thousand, fully paid up, and comprises 107,084,000 shares with a par value of Euro 0.1 each.
In the 2016 financial period, the major changes are due to the distribution of a dividend of Euro 2,566 thousand (Euro 0.025 per share), to the Group loss of Euro 3,944 thousand (net of the relevant share of minority interests) and to the increase in the translation reserve of Euro 829 thousand.
Reconcilement between the shareholders' equity values and the result for the period of the Parent Company with the corresponding consolidated values:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | Shareholders' Equity | Net income | |
| Amounts resulting from the financial statements of Tesmec S.p.A. | 45,711 | 1,648 | |
| Consolidation adjustments | |||
| a) Equity investments evaluated using the equity method | 2,021 | (212) | |
| b) Difference between book value and assets of consolidated equity investments | 1,776 | ||
| c) Results from consolidated equity investments | (5,073) | (5,073) | |
| d) Translation reserve | 6,560 | ||
| e) Elimination of dividends distributed by Companies of the Group | - | - | |
| f) Elimination of intercompany items | (2,774) | (307) | |
| Net effect of consolidation adjustments | 2,510 | (5,592) | |
| Amounts attributable to the Group | 48,221 | (3,944) |
Investments include capitalisations relevant to development projects (Euro 5,050 thousand) that refer to strategic activities as a result of which Tesmec manages to maintain its technological leadership position on traditional markets and increase the range of offered products and services (railway market, new generation trenchers, management of the electric system) plucking up the high level of internationalisation of its sales network.
Among the main year 2016 projects are mentioned in the stringing commissioning laying underground high-voltage lines and the executive system design of stringing RFI, while in the field trencher the realization of new models or new important components of pre-existing models.
The Group, producer and distributor of machinery and integrated systems for stringing equipment and Trencher, is subject, in the various countries where it operates, to several law and regulatory provisions, as well as national or international technical standards, applicable to companies operating in the same segment. The provisions on the protection of the environment take on particular importance.
The enactment of further regulatory provisions applicable to the Group or to its products or rather changes to the laws and regulations currently in force in areas where the Group operates, even internationally, could force the Tesmec Group to adopt stricter standards or influence its freedom of action in its areas of activity.
These factors could result in adjustment costs of production structures or of product characteristics, or even limit the operations of the Group with a subsequent negative effect on its activity and on its economic and financial situation.
Therefore, any change to the standards or regulatory criteria currently in force, as well as the occurrence of exceptional or unforeseeable circumstances, could force the Group to incur extraordinary expenses in environmental matters. These expenses could be significant and thus have adverse effects on the activity and the economic and financial situation of the Group. For more details on the subject of safety, environment and work, reference is made to the relevant paragraph.
In this paragraph, we outline the risk factors and uncertainties that may significantly affect the activity of the Tesmec Group. In particular, some information tending to illustrate the aims and policies of the Group on price, financial risk management, as well as tending to indicate the degree of exposure to credit risk, liquidity risk and cash-flow variation risks are set out below. This description is valid for the Tesmec Group, even if the risk management policy is decided by the Parent Company. Tesmec has implemented a mechanism for constantly monitoring these risks in order to prevent their potential negative effects and take the actions necessary to contain them.
Within its scope of operations, the Group is exposed, to a greater or lesser extent, to certain types of risk that are managed as follows.
The Group does not hold derivatives or similar products for purely speculative purposes.
A significant portion of the Group's revenues is generated by sales in foreign countries, including developing countries.
The main transaction currencies used for the Group's sales are the Euro and the US Dollar. The Group believes that if the exchange rate fluctuations of these two currencies are low, there is no risk to operating margins, insofar as the sale price could be adapted on each occasion to the exchange rate. However, if the US dollar were to depreciate significantly against the Euro, we cannot exclude negative effects on margins to the extent that a good portion of sales in US dollars concerns the productions of Italian factories that operate with costs in the Eurozone.
With regard to net exposure that is mainly represented by loans in US Dollars of Tesmec S.p.A., the forward buying of the American currency is adopted as the only hedging instrument. However, these hedges are carried out only for one part of the total exposure in that the timing of the inflow of the receipts in dollars is difficult to predict at the level of each sales invoice. Besides, for a good part of the sales in dollars, the Group uses the production of the American factory with costs in US dollars by creating in this way a sort of natural hedging of the currency exposure.
Forward sale instruments for fixing the exchange rate at the moment of the order are mainly used for covering the risk of the dollar exposure deriving from:
Despite the adoption of the above strategies aimed at reducing the risks arising from fluctuation of exchange rates, the Group cannot exclude that future changes thereof might affect the results of the Group. Fluctuations in exchange rates could also significantly affect the comparability of the results of each financial period.
Tesmec S.p.A. concluded during the year nine forward cover contracts of the Euro/IDR exchange rate (flexible/spot)still opened as at 31 December 2016.
For the Group, credit risk is closely linked to the sale of products on the market. In particular, the extent of the risk depends on both technical and commercial factors and the purchaser's solvency.
From a commercial viewpoint, the Group is not exposed to a high credit risk insofar as it has been operating for years in markets where payment on delivery or letter of credit issued by a prime international bank are usually used as payment methods. For customers located in the European region, the Group mainly uses factoring without recourse. The provisions for doubtful accounts are considered to be a good indication of the extent of the overall credit risk.
In general, price risk is linked to the fluctuation of commodity prices.
Specifically, the price risk of the Group is mitigated by the presence of many suppliers of raw materials as well as by the need to be sure on the supply volumes, in order not to affect the warehouse stock.
In reality, this risk seems remote for two fundamental reasons:
the existence and use of alternative suppliers;
the heterogeneity of raw materials and components used in the production of the Tesmec machinery: it is unlikely for all of them to be affected by increasing price tensions at the same time.
In particular, in the current market situation, this risk seems particularly weakened by the situation of oversupply in many markets.
The management of financial requirements and related risks (mainly interest rate risks, liquidity and exchange rate risks) is carried out by the Group on the basis of guidelines defined by the Group General Management and approved by the Chief Executive Officer of the Parent Company.
The main purpose of these guidelines is to guarantee the presence of a liability structure always in equilibrium with the structure of the balance sheet assets, in order to keep a very sound balance sheet structure. Forms of financing most commonly used are represented by:
The average cost of indebtedness is benchmarked to the trend of the 1/3-month Euribor rates for short-term loans and of the 3/6-month Euribor rates for medium to long-term loans. Some interest rate hedges have been set in place for floating mediumlong term loans.
The loans require compliance with certain covenants of both income nature that asset. Some of these financial parameters, as previously mentioned, have not been respected resulting in a reclassification of the short-term debt
The Tesmec Group adopts a supply policy aimed at diversifying the suppliers of components that are characterised by purchased volumes or by high added value. However, the termination for any reason of these supply relations could imply for the Group supply problems of such raw materials, semi-finished and finished goods as for quantity and time suitable for ensuring the continuity of production, or the provisioning could lead to time issues for achieving quality standards already acquired with the old supplier.
Even in the complex macroeconomic scenario in recent years, Tesmec continued to pay constant attention to the management of personnel policies indispensable for keeping the role and greater strategic weight that the knowledge and expertise of human resources has in the management of the company. The most truthful and accurate measurement of the contribution of human resources to the creation of value within the company continues to be the primary objective, by identifying as and when the possible methods of performance appraisal in the light of medium to long term strategies of the company's business. The philosophy of the Tesmec Group aims to achieve excellent performance in a context where the satisfaction and welfare of the individual are of key importance as it is believed that a high rate of retention is critical to the achievement of business objectives.
The 2016 figures show a strengthening of Italian level indicators and a trend reversal at group level due to the company reorganisation for the premises of Tesmec Usa:
Given the strategy of the Tesmec group to propose itself to customers not as a simple provider of advanced and innovative equipment but as a "solution provider" proposing itself as a technology and service provider, human resources play a central and increasingly strategic role because of the knowledge and experiences they incorporate in an invisible manner in determining the value generated by companies and in attributing them a sustainable competitive advantage in the long run.
The aim of Tesmec is to continue to grow, both through new acquisitions - as in 2016 for Ampere and CPT Engineering - and through an internal growth with the new activities in the Rail and Automation segments.
The following changes occurred in the average workforce employed by the Group in 2016 compared to 2015:
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| (average no. of employees) | 2016 | 2015 | 2016 vs. 2015 | % | |
| Tesmec S.p.A. | 315 | 307 | 8 | 2.6% | |
| Tesmec Service S.r.l. | 37 | 37 | - | 0.0% | |
| Tesmec USA, Inc. | 81 | 114 | (33) | -28.9% | |
| Tesmec SA (Pty) LTD | 14 | 11 | 3 | 27.3% | |
| OOO Tesmec RUS | 8 | 7 | 1 | 14.3% | |
| Bertel S.r.l. | 15 | - | 15 | 100.0% | |
| SGE S.r.l. | 13 | 11 | 2 | 18.2% | |
| CPT S.r.l. | 17 | - | 17 | 100.0% | |
| Tesmec New Technology Beijing LTD | 3 | 4 | (1) | -25.0% | |
| Marais Group | 156 | 78 | 78 | 100.0% | |
| Total | 659 | 569 | 90 | 15.8% |
There was an overall increase of 14% in human resources in 2016, with an average of 90 people, in relation to the pursuit of the company strategy in the search for new technology business (automation), and in international growth: Marais acquisition with the strengthening in all markets in which Marais is the leader (Africa, Australia, New Zealand, etc.)
The average age of the employees of the Group is 39 years. The figure breaks down into Italian companies with an average age of 39.50 years (workers 41 years, employees 40 of which 38 for women) and foreign companies with an average age of 38 years (workers 24.72, employees 41.40 of which 37.77 for women).
With Tesmec strengthening the Automation and Rail segments and with the purchase of Marais, the percentage of staff with University technical skills strengthened further to 30% and there was an increase in staff with high school diplomas to 52%.
Projections of employee age profiles for 2016 showed an increased percentage of younger profiles and a reduction in the older ones:
| AGE | 2016 | 2015 |
|---|---|---|
| < 25 | 7% | 6% |
| 25-34 | 29% | 25% |
| 35-44 | 30% | 30% |
| 45-54 | 22% | 26% |
| > 55 | 12% | 13% |
Payroll costs for 2016 amounted to Euro 39.9 million compared to Euro 34.5 million for the previous year with a percentage incidence on revenues of 31% and an absolute increase of 16%.
The factors that contributed most to growth during the year compared to 2015 are the consolidation of the scope of the Automation activities with the acquisition of 100% of Bertel, the acquisition of CPT Engineering and of the business unit from the Ampere company. Moreover, the contribution compared to 2015 of all the Marais company in line with the development of service business must be considered.
The restructuring started at the end of 2015 and mid 2016 in Tesmec Usa with the reduction in staff by 28% and the reorganisation of the management to face a negative economic stage of the market must be emphasised.
The improvement and development system of the value of human resources resulted in 2016 in a specific management programme for hiring and on board training with the following activities:
During 2016, Tesmec launched an initiative known as "Employer Branding" among all its collaborators worldwide (Suggestion Box) by focusing on the following areas to meet the needs of human capital growth with the change of the business model:
This phase was supported by a thorough analysis and mapping of requirements both as an expression of our resources and as management choice, redesigning an organisation that is more efficient and more responsive to market requirements with the following guidelines:
The growth process of Tesmec also consists of the enhancement of skills and development of a business culture that allows to get used to the pursuit of excellence, in a continuously developing organisation to adapt to continuous changes, through versatile and flexible structures in order to stimulate the change.
This is why a change management process was consolidated in a program carried out during the year - already started in previous years - to support the management of change in terms of company vision and business culture.
The main project in this area concerned the launch of a new terminology that would group five behavioural skills common to all positions, and would create a new business culture shared by all, through a "speed" model focused on three main areas of interest:
Tesmec placed the employees at the centre of their strategies for growth and development, favouring the increase of their well-being and of an ideal work-life balance.
In this perspective, our Company decided to introduce for the 2016 financial period, a new company incentive plan (in addition to and separately from the traditional forms of variable remuneration), called "Management Incentive Welfare". The Welfare Plan is intended for the Management and envisages using a set of different types of services aimed at increasing personal wellbeing, support to family life as well as social security and health coverage.
The "Welfare plan" is subject to the achievement of specific objectives of company and individual performance tailored according to the results achieved.
The aim of the Tesmec Group is to increase human capital in accordance with corporate strategy. The training and education activities involved around 60% of personnel, favouring active methods to support the processes of fitting into the company or into highly professional roles.
The extensive training offered by the Group extended further through the year, with new initiatives to strengthen individual skills and improve performance by cultivating the diversity of experiences, cultures and contributions.
The dialogue and relationship with trade union organisations and worker representatives has a fundamental importance in the management of companies of the Group and is governed by a system of relations structured in ongoing, regular meetings, both linked to the supplementary labour contracts and the prospects for development and growth of the Group.
During 2016, in order to initiate the new organisational process, the definition of new roles and a system of valuation of human resources, the renewal of the internal integration platform slowed down in agreement with trade union organisations to reactivate it over the next year with increased sharing of efficiency goals through new forms of sustainability to payroll costs. During the year, Tesmec continued to pursue, thanks to the support of trade unions, a system of incentives for corporate profitability that encourages competitiveness and productivity to strengthen the global Tesmec system, achieve improvements in productivity, efficiency and company well-being by reconciling the demands of the companies and the persons who work for them, through a new pilot system of Flexible Benefit (flexible welfare solutions, from health to well-being, leisure time and training) that was able to limit fixed costs for the year by keeping the purchasing power of Tesmec employees high and competitive.
Tesmec S.p.A. considers the protection of the workers' health and safety and the protection of the environment of fundamental importance and pursues these goals in compliance with all current specific regulations, in addition to establishing services in each factory to manage and control the issues in question. The service is coordinated by the head of environment/security. The involvement of all employees, increased awareness and dissemination of the "safety culture" are considered to be decisive aspects for the achievement of the objectives of protection of the workers. Training is considered to be an important instrument, and is planned according to a precise timetable, based on strict technical standards and in compliance with the Italian State-Region Conference of 21/12/2011, implementing Article 37 of Italian Legislative Decree 81/2008. During 2016, the internal service activities in order to prevent and protect against risks continued, through frequent inspections of all production site departments, checking that the improvement actions had been started. All this within the system of
procedures for managing aspects impacting on safety and the environment, now widespread in all the functions involved.
The search for solutions to implement in order to eliminate or reduce risks is shared with the business departments that must implement these specific measures to ensure their acceptance by the workers and efficient application.
During 2016, the significant indicators of occupational safety and health were monitored with statistical trend analyses, by showing the consolidation of the excellent results achieved in previous years.
A precise system of environmental and safety authorisation was set up, assigned to the operating managers of the factories; they were trained through specific courses relating to Italian Legislative Decree 81/2008 for ASPPs or managers.
This led to greater involvement by the persons appointed to organise the work, with equal consideration for the aspects relating to environmental protection and workplace health and safety with respect to the production aspects.
There is still a great deal of attention paid to the prior assessment of all possible sources of risk to the health and safety of workers, including through the regularly monitoring of the working environments; the results show compliance with regulatory standards.
With regard to social responsibility and local territory matters, the company is committed to maintaining a high level of safety and environmental protection.
The current Organisational Model (Italian Legislative Decree 231/2001) is complete with the part relating to offences in violation of accident-prevention regulations and with regard to environmental crimes. It is kept updated.
The Tesmec Group maintains related party transactions especially with respect to entities controlled by persons who in Tesmec S.p.A. mainly carry out management functions with regard to real-estate transactions (rental of premises serving as means to production) and to a lesser extent for commercial activities. Commercial relations were mainly exercised with regard to the two companies in JV (Condux Tesmec and Tesmec Peninsula) with which transactions are regulated by special supply contracts at market conditions and agreed with the partner.
Significant related-party transactions.
In addition to what was reported in paragraph 3.3 Effects of the New lease contract with related parties of this Report for related-party transactions with Dream Immobiliare S.r.l., during the 2016 financial period, no additional significant relatedparty transactions were carried out. For the supplemental information requested by CONSOB Communication No. 6064293 of 28 July 2006 on related-party transactions, refer to note 38 of the consolidated financial statements of the Tesmec Group and to note 35 of the financial statements of the Parent Company.
The management performance of the Parent Company substantially reflects the performance previously commented at the consolidated level considering its weight on the total consolidated financial statements of the Group. For these reasons, the most important quantities relating to the financial statements of the Parent Company are stated below, referring to the comments on management carried out at the consolidated financial statement level.
The income statement of the Parent Company in 2016 compared with that of the prior financial period is summarised below:
| Financial period ended 31 December | ||||||
|---|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | ||
| Revenues from sales and services | 78,810 | 100.0% | 115,071 | 100.0% | ||
| Cost of raw materials and consumables | (35,688) | -45.3% | (64,164) | -55.8% | ||
| Cost of services | (17,719) | -22.5% | (17,764) | -15.4% | ||
| Payroll costs | (18,291) | -23.2% | (17,335) | -15.1% | ||
| Other operating (costs)/revenues, net | (2,249) | -2.9% | (775) | -0.7% | ||
| Amortisation and depreciation | (4,859) | -6.2% | (4,881) | -4.2% | ||
| Development costs capitalised | 2,751 | 3.5% | 3,000 | 2.6% | ||
| Total operating costs | (76,055) | -96.5% | (101,919) | -88.6% | ||
| Operating income | 2,755 | 3.5% | 13,152 | 11.4% | ||
| Financial expenses | (5,926) | -7.5% | (7,468) | -6.5% | ||
| Financial income | 5,252 | 6.7% | 5,541 | 4.8% |
| Pre-tax profit | 2,081 | 2.6% | 11,225 | 9.8% |
|---|---|---|---|---|
| Income tax | (433) | -0.5% | (3,813) | -3.3% |
| Net profit for the period | 1,648 | 2.1% | 7,412 | 6.4% |
Revenues from product sales refer to income deriving from the transfer of stringing machines and equipment and trenchers, these revenues decreased by 31.5%.
The table below illustrates the performance of EBITDA that decreased by 25.4% compared to that of the previous financial year mainly due to lower sales volumes.
| Financial period ended 31 December | ||||||
|---|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 | |
| Operating income | 2,755 | 3.5% | 13,152 | 11.4% | (10,397) | |
| + Depreciation and amortisation | 4,859 | 6.2% | 4,881 | 4.2% | (22) | |
| EBITDA | 7,614 | 9.7% | 18,033 | 15.7% | (10,419) |
(*) EBITDA is represented by the operating income gross of amortisation/depreciation. The EBITDA thus defined represents a measurement used by Company management to monitor and assess the company's operating performance. EBITDA is not recognised as a measure of performance by the IFRS and therefore is not to be considered an alternative measurement for assessing the performance of the Group's operating income. As the composition of EBITDA is not governed by the reference accounting standards, the criterion for determination applied by the Group may not be in line with the criterion adopted by others and is therefore not comparable.
Operating Profit equal to Euro 2,755 thousand in 2016, decreased by 79.1% compared to 2015 as a result of the trends already described in the comment on EBITDA and of additional amortisation related to investments in research and development of the current year.
Results for the period amounted to Euro 1,648 thousand (Euro 7,412 thousand in 2015) after deducting taxes totalling Euro 433 thousand (Euro 3,813 thousand in 2015).
The financial position of the Company as at 31 December 2016 compared to 31 December 2015 is briefly shown below.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| USES | |||
| Net working capital (1) | 38,814 | 24,743 | |
| Fixed assets | 57,255 | 73,775 | |
| Other long-term assets and liabilities | (2,319) | (1,610) | |
| Net invested capital (2) | 93,750 | 96,908 | |
| SOURCES | |||
| Net financial indebtedness (3) | 48,039 | 49,868 | |
| Shareholders' equity | 45,711 | 47,040 | |
| Total sources of funding | 93,750 | 96,908 |
(1) The net working capital is calculated as current assets net of current liabilities excluding financial assets and financial liabilities. Net working capital is not recognised as a measure of performance by the IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
(2) The net invested capital is calculated as net working capital plus fixed assets and other long-term assets less long-term liabilities. The net invested capital is not recognised as a measure of performance under IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
(3) The net financial indebtedness is calculated as the sum of cash and cash equivalents, current financial assets including available–for–sale securities, noncurrent financial liabilities, fair value of hedging instruments and other non-current financial assets.
The table below illustrates the details for a better understanding of changes in the two items:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade receivables | 34,578 | 31,164 | |
| Work in progress contracts | - | 1,883 | |
| Inventories | 35,983 | 28,713 | |
| Trade payables | (25,192) | (30,395) | |
| Other current assets/(liabilities) | (6,555) | (6,622) | |
| Net working capital (1) | 38,814 | 24,743 |
(1) The net working capital is calculated as current assets net of current liabilities excluding financial assets and financial liabilities. Net working capital is not recognised as a measure of performance by the IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
The Working capital compared to net revenues increased from 21.5% reported in 2015 to 49.3% in 2016. This result was affected by the decrease in trade payables of Euro 5,203 thousand and by the increase in inventories of Euro 7,270 thousand partially offset by the decrease in work in progress contracts of Euro 1,883 thousand and the increase in trade receivables of Euro 3,414 thousand.
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Intangible assets | 6,543 | 6,716 | |
| Property, plant and equipment | 10,563 | 30,571 | |
| Equity investments in subsidiaries | 38,408 | 33,047 | |
| Equity investments in associates | 1,738 | 3,438 | |
| Other equity investments | 3 | 3 | |
| Fixed assets | 57,255 | 73,775 |
The decrease in property, plant and equipment is related to the new lease contract described in paragraph 3.4 Effects of the New lease contract with related parties of Euro 18,929 thousand.
The increase in equity investments in subsidiaries is due to conversion of the total sum of Euro 3,000 thousand of financial receivables increasing the equity investment (Tesmec Service S.r.l. and Bertel S.r.l.) in that considered non repayable. The recapitalisation was necessary with regard to the start-up processes of the activities of these companies.
| 31 December | ||||||
|---|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | of which with related parties and group |
2015 | of which with related parties and group |
||
| Cash and cash equivalents | (14,526) | (15,451) | ||||
| Current financial assets (1) | (41,384) | (41,352) | (42,529) | (42,464) | ||
| Current financial liabilities | 61,015 | 10 | 38,918 | 1,211 | ||
| Current portion of derivative financial instruments | 108 | 14 | ||||
| Current financial indebtedness (2) | 5,213 | (41,342) | (19,048) | (41,253) | ||
| Non-current financial liabilities | 42,654 | - | 68,628 | 14,743 | ||
| Non-current portion of derivative financial instruments | 171 | 288 | ||||
| Non-current financial indebtedness (2) | 42,825 | - | 68,916 | 14,743 | ||
| Net financial indebtedness pursuant to CONSOB Communication No. DEM/6064293/2006 |
48,038 | (41,342) | 49,868 | (11,258) |
(1) Current financial assets as at 31 December 2016 and 31 December 2015 include the market value of shares and warrants, which are therefore considered cash and cash equivalents.
(2) Current and non-current financial indebtedness is not identified as an accounting element by the IFRS. The valuation criteria applied by the Group may not necessarily be the same as those adopted by other groups and therefore the balances obtained by the Group may not necessarily comparable therewith.
Net indebtedness stood at Euro 48,038 thousand as at 31 December 2016 from Euro 49,868 thousand as at 31 December 2015. The decrease in non-current financial indebtedness includes Euro 13,413 thousand related to the operation described in paragraph 3.4 Effects of the transaction with Related Parties. The current financial indebtedness is impacted by the reclassification as short-term loans for the loans were certain covenants haven't been respected
For comments regarding Shareholders' equity, refer to what is already described at consolidated level.
The Tesmec Group conforms to the self-regulatory code of conduct of listed companies approved in March 2006 and subsequently amended and updated in July 2015 by the Corporate Governance Committee and promoted by Borsa Italiana S.p.A., with additions and adjustments resulting from the characteristics of the Group.
The "Report on corporate governance and ownership structures" contains a general description of the corporate governance system adopted by the Group and shows the information on ownership structure and compliance to the self-regulatory code of conduct, including the main governance practices applied and the characteristics of the system of risk management and internal audit in relation to the process of financial reporting. The aforesaid Report is enclosed with the financial statements and subject to the same advertising terms provided for the financial statements, and it is available on the following website www.tesmec.com, in the Investors/Governance section.
For the information relating to corporate offices covered by the Directors of the Company, we make reference to what is reported in the Report on corporate governance and ownership structures. For the members of the Board of the Statutory Auditors, the complete and updated list of the corporate offices is published by CONSOB on its website, pursuant to Article 144-quinquiesdecies of the Issuer Regulation.
The places in which Tesmec S.p.A. carries on its activity are listed below:
On the date of this report, the Company holds a total of 4,711,879 treasury shares, equal to 4.40% of the Share Capital.
The significant events occurred after the close of the financial period include:
The confirmation of the validity of the strategic development choices made by the Group, which is well noted in the level of the order backlog achieved at the end of 2016, supports an expected growth in sales volumes for the first quarter of 2017 ranging from 15% to 20%, compared to the first quarter of 2016.
In connection with the above and with the new orders acquired at the beginning of the year, the Group expects revenues at the end of 2017 ranging from Euro 160 to Euro 170 million on the basis of which it is reasonable to assume an EBITDA of approximately 15%, in line with the historical data of the Group, and a significant improvement in the Net financial indebtedness in 2017.
With regard to the procedures that the Group has promptly started with the banks to get the waiver for the year 2016 in relation to failure to comply with certain covenants, the Group believes that there are reasons to believe that the waiver will be granted in the time frame strictly necessary.
Tesmec S.p.A. is controlled pursuant to Article 93 of the Consolidated Law on Finance (T.U.F.) by TTC S.r.l., holding company. TTC S.r.l. does not carry out the management and coordination activity on the Company pursuant to Article 2497-sexies, Italian Civil Code. TTC S.r.l. is a holding that performs the mere management function of the equity investments without carrying out management and coordination activities towards the subsidiaries.
Tesmec S.p.A. carries out management and coordination activities, pursuant to Articles 2497 et seq of the Italian Civil Code, towards Tesmec Service S.r.l., East Trenchers S.r.l., SGE S.r.l., Bertel S.r.l. and Tesmec Rail S.r.l.; this management and coordination activity consists in the preparation of directives, procedures and guidelines of the Group.
On 29 April 2016, the Shareholders' Meeting authorised the treasury share buy-back plan; the authorisation was granted for a period of 18 months; the authorisation of 29 April 2016 replaces the last authorisation resolved by the Shareholders' Meeting on 30 April 2015 and expiring in October 2016. The plan set the maximum quantity as 10% of Share Capital; from the launch of the buy-back plan resolved on 10 January 2012 (and renewed on 30 April 2014) to the date of the period covered by this report, 31 December 2016, a total of 4,711,879 shares (4.40% of Share Capital) have been purchased at an average price of Euro 0.5543 (net of commission) for a total equivalent value of Euro 2,612 thousand.
Pursuant to the 11971/99 CONSOB Regulation, equity investments held by Directors and Statutory Auditors in Tesmec and in its subsidiaries are recorded, according to diagram 3) provided in enclosure 3C) of the regulation above:
Tesmec Shares held by directors and statutory auditors
| Name | Shareholding | Role | Number of shares held at the beginning of the 2016 financial period |
Number of shares purchased |
Number of shares sold |
Number of shares held at the end of the 2016 financial period |
|---|---|---|---|---|---|---|
| Ambrogio Caccia Dominioni |
Direct | Chairman and Chief Executive Officer |
125,800 | 30,000 | - | 155,800 |
| Gianluca Bolelli | Direct | Vice Chairman | 101,000 | - | - | 101,000 |
| Caterina Caccia Dominioni | Direct | Director | 9,500 | - | - | 9,500 |
| Lucia Caccia Dominioni | Direct | Director | 9,500 | - | - | 9,500 |
| Stefano Chirico | Direct | Statutory Auditor | - | 11,492 | - | 11,492 |
The Company adopted an Organisational Model aimed at ensuring fair and transparent conditions in running the company business, to protect all holders of interest of the Company, tailored on the specificness of Tesmec S.p.A.
The Supervisory Body consists of Lorenzo G. Pascali, as Chairman, Maurizio Brigatti and Stefano Chirico, Statutory Auditor of the Company.
On 10 March 2017, the Board of Directors of the Company approved the Organisational, Management and Control Model updated in accordance with the measures relating to the offence of self-laundering (Italian Law 186/2014), environmental offences (Italian Law 68/2015) and corporate crimes (Provisions on crimes against public administration, Mafia-like associations and false accounting, Italian Law 69/2015).
Tesmec S.p.A., parent company, controls a single company (Tesmec USA, Inc.) that can be considered "Significant Company outside the EU" as defined by CONSOB Resolution no. 16191/2007, as amended.
With reference to this company, it should be noted that:
The Control and Risk Committee of Tesmec S.p.A., in order to fulfil its regulatory obligations, checked the adequacy of the administrative and accounting system for submitting on a regular basis the economic and financial data required for preparing the consolidated financial statements to the management and to the accounting auditor of Tesmec S.p.A., and the effectiveness of the information flow through meetings both with the accounting auditor and with the Manager responsible for preparing the financial statements.
Report of the Board of Directors of Tesmec S.p.A., drawn up pursuant to Articles 125-ter of Italian Legislative Decree no. 58 of 24 February 1998 ("TUF"), and 84-ter of the Regulation adopted with Consob Resolution no. 11971 of 14 May 1999, as subsequently amended and supplemented ("Issuers' Regulation").
Dear Shareholders,
This report shows the draft resolutions that the Board of Directors of Tesmec S.p.A. (hereinafter referred to as "Tesmec" or the "Company") intends to submit for your approval in relation to the points on the agenda of the ordinary shareholders' meeting that will be held on 28 April 2017, 10:30 am, in single call at Tesmec headquarters in Via Zanica 17/O, Grassobbio (BG).
The Company, within the term established by Article 154-ter of the TUF, must publish the annual financial statements comprising the draft financial statements, the consolidated financial statements, the directors' report and the certification set forth in Article 154-bis, paragraph 5, of the TUF. The audit reports prepared by the independent auditors as well as the reports indicated in Article 153 of the TUF are made fully available to the public together with the annual financial statements.
The draft financial statements were approved by the Board of Directors of the Company on 10 March 2017.
The directors' report will be made available to the public, together with the draft financial statements of Tesmec as at 31 December 2016, the consolidated financial statements of the Tesmec Group as at 31 December 2016, the certification of the Manager responsible for preparing the Company's financial reports, the report of the Board of Statutory Auditors and the Independent Auditors' Report, at the registered office and Borsa Italiana S.p.A. ("Borsa Italiana"), as well as on the website of the Company: www.tesmec.com and in accordance with to the other modalities prescribed by Consob within the terms provided by the regulations in force.
For a complete information on the subject in hand, reference is made to the Directors' report and to the additional documents made available to the public, within the timeframe prescribed by the law, at the registered office and Borsa Italiana, as well as on the website www.tesmec.com (Investors) and in accordance with to the other modalities prescribed by Consob.
You are invited to approve the financial statements as at 31 December 2016 of Tesmec that ended with a profit of Euro 1,647,916.
With reference to the results achieved, the Board of Directors proposes that you resolve:
Grassobbio, 29 March 2017.
TESMEC S.p.A.
The Chairman of the Board of Directors Ambrogio Caccia Dominioni
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 |
| NON-CURRENT ASSETS | |||
| Intangible assets | 6 | 18,891 | 13,827 |
| Property, plant and equipment | 7 | 47,289 | 65,352 |
| Equity investments in associates valued using the equity method | 8 | 3,869 | 4,763 |
| Other equity investments | 7 | 3 | |
| Financial receivables and other non-current financial assets | 9 | 324 | 473 |
| Derivative financial instruments | 19 | 3 | 11 |
| Deferred tax assets | 26 | 11,520 | 8,844 |
| Non-current trade receivables | 373 | 80 | |
| TOTAL NON-CURRENT ASSETS | 82,276 | 93,353 | |
| CURRENT ASSETS | |||
| Work in progress contracts | 10 | 1,291 | 3,864 |
| Inventories | 11 | 69,227 | 58,891 |
| Trade receivables | 12 | 49,433 | 50,882 |
| of which with related parties: | 753 | 4,050 | |
| Tax receivables | 13 | 1,705 | 486 |
| Other available-for-sale securities | 2 | 22 | |
| Financial receivables and other current financial assets | 14 | 9,049 | 11,849 |
| of which with related parties: | 8,944 | 11,499 | |
| Other current assets | 15 | 2,816 | 4,337 |
| Derivative financial instruments | 19 | 2 | - |
| Cash and cash equivalents | 16 | 18,501 | 21,204 |
| TOTAL CURRENT ASSETS | 152,026 | 151,535 | |
| TOTAL ASSETS | 234,302 | 244,888 | |
| SHAREHOLDERS' EQUITY | |||
| SHAREHOLDERS' EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS | |||
| Share capital | 17 | 10,708 | 10,708 |
| Reserves | 17 | 41,457 | 36,623 |
| Group net profit/(loss) | 17 | (3,944) | 6,931 |
| TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS | 48,221 | 54,262 | |
| Minority interest in capital and reserves | 1,608 | 1,385 | |
| Net profit/(loss) for the period attributable to non-controlling interests | 91 | 230 | |
| TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | 1,699 | 1,615 | |
| TOTAL SHAREHOLDERS' EQUITY | 49,920 | 55,877 | |
| NON–CURRENT LIABILITIES | |||
| Medium/long-term loans | 18 | 39,181 | 62,675 |
| of which with related parties: | - | 14,743 | |
| Bond issue | 2.3 | 14,735 | 14,672 |
| Derivative financial instruments | 19 | 209 | 350 |
| Employee benefit liability | 21 | 3,680 | 2,847 |
| Deferred tax liabilities | 26 | 7,870 | 8,255 |
| Other non-current liabilities | 150 | - | |
| Non-current trade payables | 3 | 3 | |
| TOTAL NON-CURRENT LIABILITIES | 65,828 | 88,802 | |
| CURRENT LIABILITIES | |||
| Interest-bearing financial payables (current portion) | 21 | 70,010 | 45,240 |
| of which with related parties: | 33 | 1,241 | |
| Derivative financial instruments | 19 | 110 | 14 |
| Trade payables | 22 | 31,197 | 39,049 |
| of which with related parties: | 153 | 199 | |
| Advances from customers | 3,463 | 1,694 | |
| Income taxes payable | 23 | 199 | 2,933 |
| Provisions for risks and charges | 24 | 3,704 | 3,392 |
| Other current liabilities | 25 | 9,871 | 7,887 |
| TOTAL CURRENT LIABILITIES | 118,554 | 100,209 | |
| TOTAL LIABILITIES | 184,382 | 189,011 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 234,302 | 244,888 |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 |
| Revenues from sales and services | 27 | 128,513 | 164,402 |
| of which with related parties: | 5,325 | 7,697 | |
| Cost of raw materials and consumables | 28 | (49,029) | (82,838) |
| of which with related parties: | (54) | (190) | |
| Cost of services | 29 | (28,225) | (27,345) |
| of which with related parties: | (178) | (291) | |
| Non-recurring costs for services | 29 | (873) | (564) |
| Payroll costs | 30 | (40,000) | (34,530) |
| Other operating (costs)/revenues, net | 31 | (4,613) | (2,718) |
| of which with related parties: | 209 | 139 | |
| Non-recurring other operating (costs)/revenues, net | 31 | (2,232) | - |
| Gain on a bargain purchase (badwill) | - | 2,633 | |
| Amortisation and depreciation | 32 | (12,830) | (11,230) |
| Development costs capitalised | 33 | 5,050 | 5,104 |
| Portion of losses/(gains) from the valuation of operational Joint Ventures using the equity method |
(71) | (99) | |
| Total operating costs | (132,823) | (151,587) | |
| Operating income | (4,310) | 12,815 | |
| Financial expenses | 34 | (6,618) | (7,881) |
| of which with related parties: | (873) | (1,031) | |
| Financial income | 35 | 4,199 | 4,724 |
| of which with related parties: | 126 | 130 | |
| Portion of gains/(losses) from associated companies and non operational Joint Ventures evaluated using the equity method |
(141) | (553) | |
| Pre-tax profit | (6,870) | 9,105 | |
| Income tax | 26 | 3,017 | (1,944) |
| Result for the period | (3,853) | 7,161 | |
| Profit/(loss) attributable to non-controlling interests | 91 | 230 | |
| Group result | (3,944) | 6,931 | |
| Basic and diluted earnings per share | (0.368) | 0.647 |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 |
| NET INCOME FOR THE PERIOD | (3,853) | 7,161 | |
| Other components of comprehensive income: | |||
| Other components of comprehensive income that will be subsequently reclassified to net income/(loss) for the year: |
|||
| Exchange differences on conversion of foreign financial statements | 17 | 832 | 3,617 |
| Other components of comprehensive income that will not be subsequently reclassified to net income/(loss) for the year: |
|||
| Actuarial profit/(loss) on defined benefit plans | 20 | (244) | 54 |
| Income tax | 45 | (15) | |
| (199) | 39 | ||
| Total other income/(losses) after tax | 633 | 3,656 | |
| Total comprehensive income (loss) after tax | (3,220) | 10,817 | |
| Attributable to: | |||
| Equity holders of parent | (3,314) | 10,587 | |
| Minority interests | 94 | 230 |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 |
| CASH FLOW FROM OPERATING ACTIVITIES | |||
| Net profit for the period | (3,853) | 7,161 | |
| Adjustments to reconcile net income for the period with the cash flows generated by (used in) operating activities: |
|||
| Amortisation and depreciation | 32 | 12,830 | 11,230 |
| Provisions for employee benefit liability | 20 | 558 | 155 |
| Provisions for risks and charges / inventory obsolescence / doubtful accounts | 1,191 | 1,910 | |
| Employee benefit payments | 20 | (279) | (270) |
| Payments/use of provisions for risks and charges | (136) | (479) | |
| Net change in deferred tax assets and liabilities | 26 | (2,840) | (219) |
| Change in fair value of financial instruments | 19 | (39) | (91) |
| Change in the consolidation area | - | 2,714 | |
| Change in current assets and liabilities: | |||
| Trade receivables | 12 | 1,366 | (14,211) |
| Inventories | 11 | (7,085) | (81) |
| Trade payables | 22 | (7,980) | 4,417 |
| Other current assets and liabilities | 42 | 2,732 | |
| NET CASH FLOW GENERATED BY OPERATING ACTIVITIES (A) | (6,225) | 14,968 | |
| CASH FLOW FROM INVESTING ACTIVITIES | |||
| Investments in property, plant and equipment | 7 | (13,695) | (11,529) |
| Investments in intangible assets | 6 | (7,431) | (6,815) |
| Change in the consolidation area | 6-3 | (6,538) | (14,873) |
| (Investments) / disposal of financial assets | 3,916 | (5,210) | |
| Proceeds from sale of property, plant and equipment and intangible assets | 6-7 | 9,842 | 5,295 |
| Grassobbio new lease contract effect | 5.4 | 18,978 | - |
| NET CASH FLOW USED IN INVESTING ACTIVITIES (B) | 5,072 | (33,132) | |
| NET CASH FLOW FROM FINANCING ACTIVITIES | |||
| Disbursement of medium/long-term loans | 18 | 24,339 | 26,577 |
| Repayment of medium/long-term loans | 18 | (21,474) | (15,157) |
| Grassobbio new lease contract effect | 5.4 | (16,579) | - |
| Change in the consolidation area | 998 | 5,067 | |
| Net change in short-term financial debt | 18 | 13,836 | 7,229 |
| Purchase of treasury shares | (316) | (1,186) | |
| Dividend distribution | 17 | (2,566) | (2,403) |
| Change in the consolidation area | 115 | 476 | |
| NET CASH FLOW GENERATED BY (USED IN) FINANCING ACTIVITIES (C) | (1,647) | 20,603 | |
| TOTAL CASH FLOW FOR THE PERIOD (D=A+B+C) | (2,800) | 2,439 | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (E) |
97 | 100 | |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (F) | 16 | 21,204 | 18,665 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (G=D+E+F) | 18,501 | 21,204 | |
| Additional information: | |||
| Interest paid | 3,789 | 4,592 | |
| Income tax paid | 3,756 | 2,207 |
| (Euro in thousands) | Share capital |
Legal reserve |
Share premium reserve |
Reserve of Treasury Shares |
Translation reserve |
Other reserves |
Result for the period |
Total Shareholders ' Equity Attributable to Parent Company Shareholders |
Total Shareholders´ Equity Attributable to Non Controlling Interests |
Total Shareholders' Equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2015 | 10,708 | 2,004 | 10,915 | (1,010) | 2,114 | 18,524 | 4,909 | 48,164 | 9 | 48,173 |
| Profit for the period | - | - | - | - | - | 6,931 | 6,931 | 230 | 7,161 | |
| Other profits/(losses) | - | - | - | - | 3,617 | 39 | - | 3,656 | - | 3,656 |
| Total comprehensive income/(loss) |
10,587 | 230 | 10,817 | |||||||
| Allocation of profit for the period |
- | 137 | - | 60 | - | 2,309 | (2,506) | - | - | - |
| Dividend distribution | - | - | - | - | - | (2,403) | (2,403) | - | (2,403) | |
| Purchase of treasury shares | - | - | - | (1,186) | - | - | - | (1,186) | - | (1,186) |
| Change in the consolidation area |
- | - | - | - | - | (900) | - | (900) | 1,376 | 476 |
| Balance as at 31 December 2015 |
10,708 | 2,141 | 10,915 | (2,136) | 5,731 | 19,972 | 6,931 | 54,262 | 1,615 | 55,877 |
| Result for the period | - | - | - | - | - | - | (3,944) | (3,944) | 91 | (3,853) |
| Other profits/(losses) | - | - | - | - | 829 | (199) | - | 630 | 3 | 633 |
| Total comprehensive income/(loss) |
(3,314) | 94 | (3,220) | |||||||
| Allocation of profit for the period |
- | - | - | 111 | - | 4,254 | (4,365) | - | - | - |
| Other profits/(losses) | - | - | - | - | - | 30 | - | 30 | - | 30 |
| Dividend distribution | - | - | - | - | - | (2,566) | (2,566) | - | (2,566) | |
| Purchase of treasury shares | - | - | - | (316) | - | - | - | (316) | - | (316) |
| Change in the consolidation area |
- | - | - | - | - | 125 | - | 125 | (10) | 115 |
| Balance as at 31 December 2016 |
10,708 | 2,141 | 10,915 | (2,341) | 6,560 | 24,182 | (3,944) | 48,221 | 1,699 | 49,920 |
The parent company Tesmec S.p.A. (hereinafter "Parent Company" or "Tesmec") is a legal entity organised in accordance with the legal system of the Italian Republic. The ordinary shares of Tesmec are listed on the MTA STAR Segment of the Milan Stock Exchange as from 1 July 2010. The registered office of the Tesmec Group (hereinafter "Group" or "Tesmec Group") is in Milan, Piazza S. Ambrogio 16.
The publication of Tesmec's consolidated financial statements for the period ended as at 31 December 2016 was authorised by means of the resolution of the Board of Directors on 10 March 2017.
The consolidated financial statements of the Tesmec Group as at 31 December 2016 comprise the consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income, consolidated cash-flow statement, statement of changes in consolidated shareholders' equity and the related explanatory notes. These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and approved by the European Union according to the text published on the Official Journal of the European Communities (OJEC) and in effect as at 31 December 2016 and on the basis of the provisions issued in implementation of Article 9 of Italian Legislative Decree no. 38/2005. These IFRS principles also include all of the revised international accounting standards (called "IAS") and all interpretations of the International Financial Reporting Interpretation Committee ("IFRIC"), previously called Standing Interpretations Committee ("SIC").
The reference accounting standards adopted in the current yearly consolidated financial statements are consistent with those used for preparing the yearly consolidated financial statements of the Group for the period ended as at 31 December 2015, also prepared according to the international accounting standards, with the exception of the principles and interpretations of new application, explained in note 3.2.
The financial statements and relevant explanatory notes are presented in Euro and all values are rounded to the nearest thousand, unless otherwise indicated.
The Company considered that there are no significant uncertainties on the principle of going-concern, even in the light of the economic and financial soundness of the Parent Company and of the Group.
As indicated in the Report on Operation, such robustness is confirmed optic perspective from revenue forecasts at the end of 2017, including between 160 and 170 million euro, against which it is reasonable to assume an EBITDA in line with the Group's historical data , and a significant improvement in net debt.
The level of backlog reached at the end of 2016 and the expected path for the first quarter with growth estimated at between 15 and 20% over the previous quarter supports commented expectancy of sales volume growth.
In compliance with the provisions of CONSOB resolution no. 15519 of 27 July 2006, information on the adopted financial statement reporting format compared to what is stated in IAS 1 are indicated below for the consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income, statement of changes in consolidated shareholders' equity as well as the method used for representing the financial flows in the statement of consolidated cash-flows compared to those specified in IAS 7:
in the consolidated statement of financial position, it was decided to represent current and non-current assets and current and non-current liabilities classified separately, in accordance with IAS 1;
the statement of changes in consolidated shareholders' equity occurred during the period are represented through a table that reconciles the opening and closing balances of each item of the Group shareholders' equity;
It should be noted that, in accordance with the above-mentioned resolution, the amounts of the positions or transactions with related parties and (positive and/or negative) income components resulting from non-current events or operations, i.e. from operations or facts that do not recur with frequency in the usual course of business were reported under specific sub-items, in case of significant amounts, in the consolidated statement of financial position, consolidated income statement and statement of consolidated cash flows.
The consolidated financial statements are prepared on the basis of the draft financial statements approved by the Boards of Directors. The financial statements of subsidiaries are prepared using the same accounting policies of the parent company. Subsidiaries are fully consolidated from the date of acquisition, i.e. from the date on which the Group acquires the control, and they are no longer consolidated on the date on which the control is transferred outside the Group.
All balances and intragroup transactions, including any unrealised gains and losses arising from relations between companies of the Tesmec Group are completely written off.
Acquisitions of subsidiaries are recorded in accordance with the purchase method that involves the allocation of costs of the business combination at fair values of assets, liabilities and contingent liabilities acquired at the date of acquisition and the entry of the results of the acquired Company from the date of acquisition until the close of the financial period.
Non-controlling interests represent the portion of the profit or loss and equity related to net assets not held by the Group and are shown in a separate item of the consolidated income statement, of the consolidated statement of comprehensive income and of the consolidated statement of financial position, separately from profit and equity attributable to Group shareholders. Associated companies are those in which the Group holds at least 20% of the voting rights or exercises a significant influence, but not control or joint control, on financial and operating policies. Equity investments in associates are evaluated using the equity method. Profit or loss attributable to parent company shareholders is recognised in the consolidated financial statements from the date on which the significant influence began and until the date on which it ceases.
Joint ventures are defined in accordance with IAS 31 as a contractual agreement whereby two or more parties undertake an economic activity subject to joint control. The equity investments acquired or sold during the financial period are consolidated using equity method for the period in which the joint control was exercised.
On 31 December 2016, the consolidation area changed with respect to that as at 31 December 2015:
| Percentage held | |||||
|---|---|---|---|---|---|
| Name | Registered office | Currency | Share capital Currency unit |
Directly | Indirectly |
| TESMEC USA, Inc. | Alvarado (Texas) | US Dollar | 31,200,000 | 100.00% | - |
| TESMEC Service S.r.l. | Grassobbio - BG - (Italy) | Euro | 100,000 | 100.00% | - |
| TESMEC SA (Pty) Ltd | Johannesburg (South Africa) | South African Rand | 510 | 100.00% | - |
| SGE S.r.l. | Grassobbio - BG – (Italy) | Euro | 10,000 | 100.00% | - |
| Bertel S.p.A. | Milan (Italy) | Euro | 500,000 | 100.00% | - |
| East Trenchers S.r.l. | Milan (Italy) | Euro | 100,000 | 100.00% | - |
| TESMEC FRANCE SARL | Lyon (France) | Euro | 300,000 | 100.00% | - |
| OOO TESMEC RUS | Moscow (Russia) | Russian Rouble | 450,000 | 100.00% | - |
| Tesmec New Technology Beijing Beijing (China) Ltd. |
Euro | 200,000 | 100.00% | - | |
| CPT S.r.l. | Patrica - FR - (Italy) | Euro | 78,000 | 100.00% | - |
| Tesmec Rail S.r.l. | Monopoli - BA - (Italy) | Euro | 10,000 | 100.00% | - |
| Marais Technologies SA | Durtal (France) | Euro | 3,785,760 | 86.79% | - |
| Group Marais SA | Durtal (France) | Euro | 3,700,000 | - | 86.79% |
| Marais Trenching (Pty) Ltd. AFS | Pretoria (South Africa) | South African Rand | 500,000 | - | 69.43% |
| MAFRI SARL | Tunis (Tunisia) | Tunisian Dinar | 20,000 | - | 86.75% |
| Marais Laying Technologies (Pty) Ltd. Australie |
Sydney (Australia) | Australian Dollar | 100 | - | 86.79% |
| Marais Laying Technologies (Pty) Ltd. Nouvelle Zelande |
Auckland (New Zealand) | New Zealand Dollar | 100 | - | 86.79% |
| Marais Cote d'Ivoire | Abidjan (Ivory Coast) | CFA Franc | 6,500,000 | - | 86.79% |
| Percentage held | |||||
|---|---|---|---|---|---|
| Name | Registered office | Currency | Share capital Currency unit |
Directly | Indirectly |
| Locavert SA | Bouillargues (France) | Euro | 403,735 | 39.00% | - |
| SEP Cergy 95 | Marne la Vallée (France) | Euro | - | - | 26.04% |
| SEP Moselle 57 | Pont à Mousson (France) | Euro | - | - | 43.40% |
| SEP Semafor 77 | Marne la Vallée (France) | Euro | - | - | 28.64% |
| SEP Laison Natixis 77 | Marne la Vallée (France) | Euro | - | - | 28.64% |
| SEP College 77 | Marne la Vallée (France) | Euro | - | - | 28.64% |
| MIR SA | Tunis (Tunisia) | Tunisian Dinar | 300,000 | - | 42.53% |
| Percentage held | |||||
|---|---|---|---|---|---|
| Name | Registered office | Currency | Share capital Currency unit |
Directly | Indirectly |
| Condux Tesmec Inc | Mankato (Minnesota) | US Dollar | 2,500,000 | 50.00% | - |
| Tesmec Peninsula WLL | Doha (Qatar) | Qatar Riyal | 7,300,000 | 49.00% | - |
| Marais Tunisie SA | Tunis (Tunisia) | Tunisian Dinar | 459,000 | - | 42.53% |
| Marais Lucas Technologies (Pty) Ltd. |
Macquarie Park NSM (Australia) |
Australian Dollar | 332,400 | - | 43.40% |
The company Locavert SA e Marais Lucas Technologie (Pty) Ltd. closes its company financial year as at 30 June of each year. Financial statements used for evaluating the equity investment in accordance with the equity method refer to the most recent available interim closing of accounts.
The financial statements were modified, if necessary, in order to make them consistent with the accounting policies of the Group, which are in accordance with the IFRS adopted by the European Union.
The consolidated financial statements are presented in Euro, which is the functional and presentation currency adopted by the Headquarter. Each company of the Group defines its functional currency, which is used to evaluate the items included in each financial statement. Foreign currency transactions are initially recognised using the exchange rate (referring to the functional currency) which is applicable on the transaction date. Monetary assets and liabilities in foreign currency are reconverted in the functional currency at the exchange rate in force at the end of the reporting period.
All exchange-rate differences are recognised in the income statement.
Non-monetary items, measured at their historical cost in foreign currency, are translated by using the exchange rates in force on the date of initial recognition of the transaction.
The conversion into Euro of the financial statements of the foreign companies being consolidated is carried out according to the current exchange-rate method, which contemplates using the exchange rate in force at the end of the reporting period for the translation of the financial items and the average exchange-rate of the year for the income statement items.
Exchange-rate differences deriving from translation are directly posted to equity and separately recorded in a special fair-value reserve. On disposal of a foreign company, accumulated exchange-rate differences posted to equity with regard to that particular foreign company are recognised in the income statement.
The exchange rates used to determine the value in Euros of the financial statements of subsidiary companies expressed in foreign currency (exchange rate to 1 Euro) are shown below:
| Average exchange rate | End-of-period exchange rate | ||||
|---|---|---|---|---|---|
| for the period ended as at 31 December | as at 31 December | ||||
| 2016 2015 |
2015 | 2015 | |||
| US Dollar | 1.107 | 1.110 | 1.054 | 1.089 | |
| Bulgarian Lev | 1.956 | 1.956 | 1.956 | 1.956 | |
| Russian Rouble | 74.145 | 68.072 | 64.300 | 80.674 | |
| South African Rand | 16.265 | 14.172 | 14.457 | 16.953 | |
| Renminbi | 7.352 | 6.973 | 7.320 | 7.061 | |
| Qatar Riyal | 4.029 | 4.039 | 3.837 | 3.963 | |
| Algerian Dinar | 121.097 | 111.361 | 116.379 | 116.702 | |
| Tunisian Dinar | 2.376 | 2.177 | 2.499 | 2.210 | |
| Australian Dollar | 1.488 | 1.478 | 1.460 | 1.490 | |
| New Zealand Dollar | 1.589 | 1.593 | 1.516 | 1.592 | |
| CFA Franc | 655.957 | 655.957 | 655.957 | 655.957 |
To better represent the financial statement contents, the bond issue of Euro 15 million and with maturity date 31 December 2021, included in the item "Medium/long-term loans" was reclassified, also for the 2015 financial year, to the item "Bond issue".
The table below summarises the effect of the reclassification made:
| (Euro in thousands) | 31 December 2015 (restated) |
31 December 2015 |
|---|---|---|
| Medium/long-term loan | 62,675 | 77,409 |
| Medium/long-term loan | 62,675 | 77,409 |
| Bond issue | 14,672 | - |
| Total bond issue | 14,672 | - |
| Interest-bearing financial payables (current portion) | 45,240 | 45,178 |
| Interest-bearing financial payables (current portion) | 45,240 | 45,178 |
The consolidated financial statements have been prepared in accordance with the historical cost principle, with the exception of the derivative financial instruments and financial assets held for sale stated at fair value.
There are no financial assets held to maturity. Financial transactions are accounted for as of the date they are traded.
The accounting policies adopted in the consolidated Financial Statements as at 31 December 2015 were applied in the same way also to all the periods of comparison.
The consolidated financial statements are presented in Euro; all values are rounded to the nearest thousand, unless otherwise indicated.
Business combinations are recorded by using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred at fair value at the date of acquisition and the amount of any minority interest in the acquired company. For each business combination, the purchaser must consider any minority interest in the acquired company at fair value or in proportion to the share of the minority interest in the identifiable net assets of the acquired company. Acquisition costs are paid and classified among administrative expenses.
When the Group acquires a business, it must classify or designate the acquired financial assets or the liabilities assumed in accordance with the contract terms, the economic conditions and other relevant conditions existing at the date of acquisition. This includes the verification to establish whether an embedded derivative must be separated from the host contract. If the business combination is carried out in several stages, the purchaser must recalculate the fair value of the previously held equity investment measured at equity and recognise any resulting profit or loss in the income statement.
Each contingent consideration must be recognised by the purchaser at fair value at the date of acquisition. The fair value change in the contingent consideration classified as asset or liability will be recognised in accordance with IAS 39, in the income statement or in the statement of the other components of comprehensive income. If the contingent consideration is classified in the shareholders' equity, its value must not be recalculated until its discharge is recorded as opposed to shareholders' equity. The goodwill is initially measured at cost that arises as surplus between the sum of the paid consideration and the amount recognised for the minority shares compared to identifiable net assets acquired and liabilities undertaken by the Group. If the consideration is lower than the fair value of the net assets of the acquired subsidiary, the difference is recognised in the income statement.
After initial recognition, goodwill is measured at cost, net of any accumulated impairment loss. For impairment loss verification, the goodwill acquired in a business combination must be allocated, from the date of acquisition, to each cash-flow generating unit of the Group that is expected to benefit from the combination, regardless of whether other assets or liabilities of the acquired entity are assigned to such units.
If the goodwill has been allocated to the financial-flow generating unit and the entity disposes of part of the assets of such unit, the goodwill associated to the asset disposed of 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 asset disposed of must be determined on the basis of the values related to the asset disposed of and of the retained part of the financial-flow generating unit.
Intangible assets are recorded in the assets at purchase cost when it is likely that the use of the asset will generate future economic benefits and when the cost of the asset can be measured reliably. Intangible assets acquired by means of business combinations are recorded at fair value at the date of acquisition, if this value can be measured reliably. Intangible assets with definite lives are amortised on a straight-line basis over their estimated useful life and submitted to impairment test whenever there is a possible impairment loss. The residual useful life is reviewed at the end of each financial period or more frequently, if necessary. Changes in the expected estimated useful life or in the ways in which future economic benefits related to the intangible asset are achieved by the Group are recognised by changing the period and/or the method of amortisation and treated as changes in accounting estimates. Amortisation charges of intangible assets with definite lives are recognised in the income statement in the category of cost consistent with the function of the intangible asset.
Intangible assets with indefinite lives are tested annually for impairment losses on an individual basis or in terms of cashgenerating unit.
Profits or losses deriving from the disposal of an intangible asset are measured as the difference between the net income and the book value of the asset and are recognised in the income statement upon disposal.
The estimate of the useful life of intangible assets with definite lives is set below:
| Years | |
|---|---|
| Industrial rights and patents | 5 |
| Development costs | 5 |
| Trademarks | 5 |
| Other intangible assets | 3 - 5 |
Research costs are posted to the income statement when they are borne.
Development costs borne with regard to a particular project concerning the development of new excavating machines, stringing equipment and/or railway machines, of their significant individual components and/or of significant customisations that materialise in new models included in the catalogue, are capitalised only when the Group can show the ability to complete the technical work in order to make it available for use or for sale, its intention to complete the said asset in order to use it or transfer it to third parties, the ways in which it will generate probable future economic benefits, the availability of technical, financial or other type of resources to complete the development, its ability to reliably consider the cost attributable to the asset during its development and the existence of a market for the products and services deriving from the asset or usefulness for internal purposes. Capitalised development costs include only expenses borne that can be directly charged to the development process.
During the period of development, the asset is annually reviewed in order to recognise any impairment loss. After the initial recognition, development costs are measured at cost decreased by any accumulated amortisation or loss. The amortisation of the asset starts when the development is complete and the asset is available for use. It is amortised with reference to the period in which the connected project is expected to generate revenues for the Group, estimated on average over five years. If the projects to which such assets refer are abandoned or the related machines are no longer included in the catalogue, specific impairment indicators are recognised, and therefore the asset is tested for impairment and written down for any impairment loss recognised as previously described for intangible assets with definite lives.
The purchase costs of the rights and trademarks are amortised over a period of time during the useful life of the acquired asset, which was determined in five years. Rights and trademarks includes the purchase of know-how for the production of railways materials related to the acquisistion of the business unit of company AMC2 from the subsidiary Tesmec Service S.r.l..
Property, plant and equipment acquired separately, with the exception of the land and buildings item, are recorded at historical cost, including directly imputable additional costs necessary for putting the asset into operation for the use for which it was acquired. This cost includes the charges for replacing part of the machines and plants when they are borne, if complying with the recognition criteria.
Property, plant and equipment acquired by means of business combinations are recorded at fair value on the date of acquisition.
Maintenance and repair costs, which are not likely to enhance and/or extend the residual life of the assets, are paid during the financial period in which they are borne, otherwise they are capitalised.
Property, plant and equipment are stated net of the related accumulated depreciation and any impairment loss determined as described below. The depreciation is calculated on a straight-line basis according to the estimated useful life of the asset for the company, which is reviewed every year and any change, if necessary, is applied prospectively.
The estimate of the useful life of the main classes of property, plant and equipment is set below:
| Years | |
|---|---|
| Buildings | 40 |
| Plant and machinery | 10 |
| Fixtures and fittings, tools and equipment | 4 |
| Leasehold Trenchers | 5 |
| Other assets | 4 – 5 |
If significant parts of property, plant and equipment have different useful lives, these components are recorded separately. Lands, both without construction and belonging to buildings, are recorded separately and are not depreciated since they have an unlimited useful life.
The Group, based on the considerations made, established that the temporarily leased Trencher machines can be depreciated on a pro-rata basis according to actual use. In particular, they are depreciated at an annual 20% rate during the lease period. In the event that these trenchers are not leased temporarily during the reporting period, the depreciation process is suspended. Instead for Trenchers machines totally addressed to lease activity, due to it is necessary a usual replacement of significative parts of these machines, the group depreciate separately the following components, on the base of their useful life:
The book value of property, plant and equipment is subject to an impairment test when events or changed circumstances indicate that the book value cannot be recovered. If there is an indication of this type and, in the event that the book value exceeds the estimated realisable value, assets are written down so as to reflect their realisable value. The realisable value of property, plant and equipment is represented by the net sales price and the usage value, whichever is higher.
When defining the usage value, the expected future financial flows are discounted back using a pre-tax discount rate that reflects the current market estimate of the cost of money placed in relation to the timescale and specific risks of the asset. In relation to assets that do not generate fully independent financial flows, the realisable value is determined in relation to the financial-flow generating unit to which the asset belongs. Impairment losses are recorded in the income statement among costs for amortisation, depreciation and write-downs. These impairment losses are reversed if the reasons that generated them no longer exist.
At the time of sale or when there are no future economic benefits, expected from the use of an asset, it is written off from the financial statements and any loss or profit (calculated as the difference between the transfer value and the book value) is posted to the income statement in the year of the aforesaid writing off.
Lease contracts are classified as Financial or Operating Lease at the beginning of the Lease contract.
Financial lease contracts, which substantially transfer to the Group all the risks and benefits deriving from the ownership of the leased asset, are capitalised on the starting date of the lease at fair value of the leased asset or at present value of the lease payments, if lower. Lease payments are prorated between principal and interests in order to obtain the application of a constant interest rate on the residual balance of the debt. Financial expenses are posted directly to the income statement. Lease contracts in which the lessor substantially retains all risks and benefits related to the ownership of the asset are classified as operating leases.
If the Group signs lease contracts that substantially transfer to the customers all the risks and benefits deriving from the ownership of the leased asset, the revenues concerning the transfer of the asset are recorded in the financial statements and are capitalised, on the starting date of the lease at the fair value of the leased asset or at the present value of the lease payments, if lower. Moreover, a borrowing that corresponds to the present value of the lease payments still due is recorded in the balance sheet. Financial expenses are posted directly to the income statement.
At the end of each reporting period, the Group considers the possible existence of impairment loss indicators of intangible assets with definite lives, of property, plant and equipment and of financial lease assets. If these indicators exist, an impairment test is carried out.
The recoverable value is determined as the fair value of an asset or financial-flow generating unit net of sales costs and its usage value, whichever is higher, and is determined by single asset, with the exception of the case in which this asset generates financial flows that are not widely independent from those generated by other assets or groups of assets, in which case the Group estimates the recoverable value of the clash-flow generating unit to which the asset belongs.
When determining the usage value, the Group discounts back the present value of future estimated financial flows, by using a pre-tax discount rate that reflects the market evaluations on the time value of money and specific risks of the asset.
In order to estimate the usage value, the future financial flows are derived from the business plans approved by the Board of Directors, which represent the best estimate made by the Group on the economic conditions laid down in the plan period. The projections of the plan cover normally a period of three financial periods; the long-term growth rate used in order to estimate the terminal value of the asset or of the unit is normally lower than the average long-term growth rate of the segment, country or market of reference. Future financial flows are estimated by referring to the current conditions: therefore, estimates do not consider benefits deriving from future restructuring for which the Group has not yet committed itself or future investments for improving or optimising the asset or the unit.
If the book value of an asset or financial-flow generating unit is greater than its recoverable value, this asset was impaired and consequently amortised until its recoverable value is reached.
Impairment losses incurred by operating assets are recognised in the income statement in the categories of cost consistent with the function of the asset that showed the impairment loss. At the end of each reporting period, the Group also considers the possible existence of elements indicating a decrease in impairment losses previously recognised and, if these indicators exist, it estimates the recoverable value again. The value of an asset previously written down can be restored only if there were changes in the estimates used for determining the recoverable value of the asset after the last recognition of an impairment loss. In this case, the book value of the asset is set to the recoverable value, however without the possibility for the value thus increased to exceed the book value that would have been determined, net of amortisation, if no impairment had been recognised in previous years. Each reversal of impairment loss is recognised as an income in the income statement; after recognising a reversal of impairment loss, the amortisation rate of the asset is adjusted in future periods, in order to distribute the changed book value, net of any residual value, on a straight-line basis over the remaining useful life.
The Group holds investments in jointly controlled companies classified as joint ventures. From 2012 on the base of the operative phase of two distributive joint ventures (Condux Tesmec and Tesmec Peinsula) the results of the same have been classified in the operative components of the operative Income. With the acquisition of Group Marais two new joint ventures (Marais Tunisie SA, Marais Luca Technology Pty Ltd.) entered in the consildated area of the Group. Considering the kind of activity and effective operative phase of them, their result has been registered in the non-operative components of the the income, together with the other results of the other related companies.
A joint venture is a contractual agreement whereby two or more parties undertake an economic activity subject to joint control; a jointly-controlled company is a joint venture that involves the establishment of a separate company in which each shareholder has an equity investment. The Group consolidates the equity investment in the joint venture with the equity method. After applying the equity method, the Group determines whether it is necessary to record any additional impairment loss with reference to the net equity investment. In this case the Group calculates the amount of the loss as difference between the recoverable value of the joint venture and the inscription value of the same in its proper balance sheet, emerging that difference in "Portion of gains/(losses) from associated companies and operational Joint Ventures evaluated using the equity method".
The joint venture draws up the financial statements of the same financial period of the parent company and applies homogeneous accounting policies. Any lack of homogeneity in the applied accounting policies are corrected by adjustments. When the Group brings or sells assets to the joint venture, the recognition of profit or loss shares deriving from the operation reflects the contents of the operation itself. When the Group purchases goods or services from the joint venture, it does not recognise its own profit share deriving from the operation until it sells such asset or service to an independent third party. The result of the income statement of the joint ventures that offer an operational contribution was included in the Group's Operating Income.
An associate is a company over which the Group exercises a significant influence and is not classifiable as subsidiary or joint venture.
The Group consolidates its equity investments in associates with the equity method.
The application of the equity method implies the entry in the balance sheet of the cost increased by the changes following the acquisition of the net asset of the associate in the portion attributable to the Group. After applying the equity method, the Group determines whether it is necessary to record any additional impairment loss with reference to the net equity investment. In this case the Group calculates the amount of the loss as difference between the recoverable value of the associate company and the inscription value of the same in its proper balance sheet, emerging that difference in "Portion of gains/(losses) from associated companies and non-operational Joint Ventures evaluated using the equity method".
The income statement reflects the Group's share of the Company's operating result. If a company recognises adjustments directly posted to the shareholders' equity, the Group recognises its share and shows it in the statement of changes in shareholders' equity, if applicable. Any unrealised profit and loss deriving from transactions between the Group and the subsidiary is written off in proportion to the equity investment.
In case the draw-up date of the balance sheet of some associated company is not in line with that of the Group, for the purposes of the Group's consolidated financial statements, the companies will prepare interim closing accounts on dates next to the end of the reporting period of the Group. The accounting policies used comply with those used by the Group, for transactions and events of the same nature and in similar circumstances.
These assets are measured according to the amortised cost approach by using the effective discount rate method net of any provision for impairment.
The amortised cost is calculated taking into consideration any discount or purchase premium and includes the commissions that are part and parcel of the effective interest rate and of the transaction costs.
Receivables falling due after one year, interest bearing or paying interests lower than the market, are discounted by using interest rates in line with market references.
Financial assets derecognized from Group statement of financial position when:
Inventories are measured at the purchase and/or production cost, whichever lower, calculated by using the weighted average cost method, and the net realisable value. The purchase cost is inclusive of additional expenses; the cost of production includes directly attributable costs and a share of indirect costs, reasonably attributable to the products. The net estimated realisable value consists of the estimated sales prices less the estimated completion costs and the costs estimated to make the sale. Write-down allowances are allocated for materials, finished products, spare parts and other supplies considered obsolete or slow-moving, taking into account their future expected usefulness or their realisable value.
A work order is a contract specifically negotiated for the construction of an asset according to the instructions of the company commissioning the work, which defines in advance the design and specifications.
Work order revenues include the considerations initially agreed with the company commissioning the work, in addition to variations in the commissioned work and to price changes provided for in the contract that can be measured reliably.
When the work order result can be measured reliably, work order revenues and costs are recognised as sales and as costs on the basis of the percentage of completion; the work in progress is calculated by referring to the costs of the work order borne until the end of the reporting period as a percentage of total costs estimated for each work order.
The costs borne in relation to future activities of the work order are excluded from the work order costs when calculating the work in progress and are recorded as inventories.
Total estimated costs for each work order are reviewed periodically, and when the costs of the work order are expected to be greater than its total revenues, the expected loss is recognised immediately as a cost.
Trade receivables and other current assets are initially recorded at fair value, which generally corresponds to the nominal value and subsequently measured at amortised cost and reduced in case of impairment losses. Moreover, trade receivables are adjusted to their estimated realisable value by entering a special adjustment provision.
Receivables in foreign currency other than the reporting currency are recorded at the exchange rate of the date of operation and subsequently converted to the exchange rate at the end of the financial period. The profit or loss resulting from the conversion is attributed to the income statement.
If the maturity of the trade receivables and of the other current assets does not fall within the normal commercial terms and do not bear interests, a detailed discounting process is applied based on assumptions and estimates.
The Tesmec Group assigns part of its trade receivables through factoring without recourse. Receivables assigned following factoring operations can be written off from the assets of the balance sheet only if the risks and benefits related to their legal ownership were substantially transferred to the assignee.
They are recorded initially at fair value and subsequently measured according to the amortised cost.
A financial asset (or, if applicable, part of a financial asset or part of a group of similar financial assets) is written off from the financial statements when:
If the Group has transferred the rights to receive financial flows from an asset and has not transferred or retained substantially all the risks and benefits or has not lost control over it, the asset is recognised in the financial statements of the Group to the extent of its residual involvement in the asset itself. The residual involvement that takes the form of a guarantee on the transferred asset is measured at the initial book value of the asset or the maximum value of the consideration that the Group could be obliged to pay, whichever lower.
If the residual involvement takes the form of an option issued and/or purchased on the transferred asset (including the cashsettled options or the like), the measure of the involvement of the Group corresponds to the amount of the transferred asset that the Group may repurchase; however, in case of a put option issued on an asset measured at fair value (including the cashsettled options or with similar provisions), the measure of the residual involvement of the Group is limited to the fair value of the transferred asset or the exercise price of the option, whichever lower.
Cash and short-term deposits include cash on hand as well as on-demand and short-term bank deposits; in this last case, with original maturity of no more than three months. Cash and cash equivalents are booked at nominal value and at the spot exchange rate at the end of the financial period, if in currency, corresponding to the fair value.
Loans are initially stated at fair value of the amount received, net of any related loan acquisition costs. After initial statement, loans are valued using the amortised cost approach, applying the effective interest rate method. Any profit or loss is recorded in the income statement when the liability is discharged, in addition to using the amortisation process.
The repurchased treasury shares are recognised at cost and deducted from shareholders' equity. The purchase, sale or cancellation of treasury shares does not give rise to any profit or loss in the income statement. The difference between the acquisition value and the consideration, in case of transfer, is recognised in share premium reserve. The voting rights related to the treasury shares are cancelled as well as the right to receive dividends. In case of exercise of share options during the period, these are met with treasury shares.
Given the granted terms of payment, when a financial operation is configured, payables measured with the amortised cost approach are submitted to the discounting back of the nominal value to be paid, recording the discount as a financial charge. Payables in foreign currency are aligned with the exchange rate at the end of the financial period and profits or losses deriving from the adjustment are posted to the income statement in unrealised exchange profits/losses.
Provisions for risks and charges are made when the Group must face up a current liability (legal or implicit) that is the result of a past event; an outflow of resources is likely to meet this obligation and it is possible to make a reliable estimate of its amount. When the Group believes that a provision for risks and charges will be partially or totally reimbursed, for example in the case of risks covered by insurance policies, the compensation is recognised separately in the assets only if it is practically certain. In this case, the cost of any provision is stated in the income statement net of the amount recognised for the compensation.
If the discounting back effect of the value of money is significant, provisions are discounted back using a pre-tax discount rate that reflects, if appropriate, the specific risks of the liabilities. When discounting back is carried out, the increase in the provision due to the passage of time is recognised as a financial expense.
The Group makes provisions for product guarantees in relation to the guarantee contractually granted to its customers on the sold machines. These provisions are calculated on the basis of the historical incidence of costs for product guarantee borne in past financial periods, of the period of validity of the granted guarantees and benchmarked again in relation to the amount of revenues of the period to which they refer, and revised annually.
Post employment benefits are defined on the basis of plans, even though not yet formalised, which are classified as "defined contribution" and "defined benefit" in relation to their characteristics.
The Italian legislation (Article 2120 of the Italian Civil Code) establishes that, at the date on which each employee rescinds the employment contract with the company, he/she receives an allowance called TFR (severance indemnity). The calculation of this allowance is based on some items forming the yearly pay of the employee for each year of work (properly revalued) and on the length of the employer-employee relationship. According to the Italian civil law, this allowance is reflected in the financial statements according to a calculation method based on the allowance accrued by each employee at the reporting date, if all employees rescind the employment contract on that date.
The IFRIC of the IASB dealt with the TFR matter, as defined by the Italian legislation, and concluded that, in accordance with IAS 19, it must be calculated according to a method called Projected Unit Credit Method (the so-called PUCM) in which the amount of the liability for the acquired benefits must reflect the expected resignation date and must be discounted back.
The Group's net liability deriving from defined benefit plans is calculated separately for each plan by estimating the amount of the future benefit that the employees acquired in exchange for the work carried out in the current financial period and in prior financial periods; this benefit is discounted back to calculate the present value. As provided by the revised version of IAS 19, actuarial gains and losses are recorded in full in the comprehensive income statement in the period in which they arise. The evaluation of liabilities is made by an independent actuary.
The Group has no other defined benefit pension plan.
The Group's liability deriving from defined-contribution plans is limited to the payment of contributions to the State or to an asset or legally separate entity (so-called fund), and is determined on the basis of the contributions due.
Government grants are recognised in the financial statements when there exists a reasonable certainty that the company will meet all the conditions for receiving the contributions and that the contributions will be received. When the contributions are related to cost components, they are recognised as revenues, but are allocated systematically across the financial periods in order to be proportionate to the costs that they intend to compensate. If a contribution is related to an asset, the asset and the contribution are recognised for their nominal values and they are gradually discharged to the income statement, on a straight-line basis, along the expected useful life of the asset of reference.
If the Group receives a non-monetary contribution, the asset and contribution are recognised at their nominal value and discharged to the income statement, on a straight-line basis, along the expected useful life of the asset of reference. In case of loans or similar forms of assistance supplied by government entities or similar institutions that have an interest rate lower than the current market rate, the effect related to the favourable interest rate is considered as an additional government grant.
The financial instruments are initially recognised at fair value and, after initial recognition, measured in relation to the classification, as required by IAS 39.
For financial assets, this treatment is differentiated among the following categories:
With reference to financial liabilities, only two categories are established:
▪ financial liabilities at fair value through profit or loss;
▪ liabilities at amortised cost.
The methods for determining the fair value with reference to such financial instruments, with accounting or information purposes, are summarised below with reference to the main categories of financial instruments, to which they have been applied:
Derivative financial instruments are used solely with the intent to hedge financial risks relating to exchange-rate changes on commercial transactions in foreign currency and interest rate risks on interest-bearing loans and borrowings.
In accordance with IAS 39, hedging derivative financial instruments can be recorded according to the methods established for hedge accounting only when:
All derivative financial instruments are measured at fair value. When financial instruments have the characteristics to be recorded in hedge accounting, the following accounting treatments are applied:
Fair value hedge – if a financial derivative is designated as a hedge of the exposure to changes in the present value of a balancesheet asset or liability that may affect the income statement, the profit or loss arising from the future evaluation of the present value of the hedging instrument is recognised in the income statement, as well as the profit or loss on the item being hedged. Cash flow hedge – if a financial derivative is designated as a hedge of the exposure to changes in cash flows of a balance-sheet asset or liability or of a highly probable expected transaction and that may affect the income statement, the effective portion of profits or losses on the financial instrument is recognised in equity; the accumulated profit or loss is reversed from equity and recorded in the income statement in the same period in which the transaction to be hedged is recognised; the profit or loss associated with a hedging, or with an ineffective hedging, are recorded in the income statement when the ineffectiveness is recognised.
If the conditions for the application of hedge accounting do not apply, the effects deriving from the fair value measurement of the derivative financial instrument are booked directly to the income statement.
Revenues and costs are stated on an accrual basis. Revenues and income, presented net of returns, discounts, allowances and premiums, are recorded at fair value insofar as it is possible to reliably determine such value and its economic benefits are likely to be enjoyed.
Revenues from the sale of goods are recognised when all the following conditions are met:
More specifically, with reference to sales with CIF condition, risks and benefits related to the ownership of the asset are transferred to the end customer, and therefore the revenues are recognised, when the asset is handed over at the broadside of the ship.
With regard to any machine completed and not yet shipped to the customer (bill and hold) for reasons that do not depend on the Group, revenues are recognised if the following conditions established by Appendix 1 of IAS 18 have been complied with:
is still available at the warehouse of the company and relevant transport; therefore, it is reasonable for the sale to be carried out;
With reference to the sales to the Joint ventures, if the risks and benefits related to the ownership of the asset are transferred to them, the revenue is recorded in the income statement. If, at the reporting date, the Joint venture has not transferred the ownership of the asset to the end customer, the margin achieved with it, following the application of the equity method by the Tesmec Group in the consolidated financial statements, is reversed in relation to the amount of shares held in the capital of the company.
If the trade agreements related to the sales of machines contemplate their on-site testing at the premises of the purchaser as a binding condition for the acceptance of the machine, risks and benefits are transferred, and therefore the revenues are recognised, when the machine has been tested and the purchaser has accepted.
Revenues from services rendered are recognised when all the following conditions are met:
In particular, the Tesmec Group provides services that contemplate an excavation activity carried out by using machines belonging to the company and specialised workers employed by third-party companies. The provision of these services is contractually regulated by agreements with the counterpart that indicate, among other things, the timing for carrying out the excavation and contemplate a price per excavated metre that changes according to different hardness of the soil. Revenues are recognised on the basis of the progress of the excavation to date, as resulting from the states of the work-in-progress recognised and agreed with the counterpart.
Moreover, the Tesmec Group provides after-sales services concerning the machines sold. If these services are requested after the expiry of the guarantee period, the service is contractually regulated by agreements with the counterpart. Revenues are recognised based on the time and components used by the technicians during repair operations.
Financial income and expenses are recognised on an accrual basis on the basis of interests accrued on the net value of the related financial assets and liabilities, by using the effective interest rate.
The fair value of the financial instruments listed on an active market is based on market prices at the end of the reporting period. The fair value of financial instruments that are not listed on an active market is determined by using measurement techniques based on a series of methods and assumptions related to market conditions at the end of the reporting period.
Dividends are recorded when the right of the shareholders to receive the payment arises, coinciding with the time in which they are decided.
Taxes reflect an estimate of the tax burden, determined by applying the laws and regulations in force in the Countries where the Tesmec Group carries on its activity. Taxable income for tax purposes differs from the pre-tax profit or loss indicated in the income statement, because it excludes positive and negative components that will be taxable or deductible in other financial periods and excludes items that will never be taxable or deductible. Current tax liabilities are calculated by using the rates in force or substantially approved at the end of the reporting period.
Current tax liabilities are recorded in the current liabilities net of any paid tax advances.
Deferred taxes are calculated on the temporary differences resulting at the end of the reporting period among the tax values used as a reference for assets and liabilities and the values indicated in the financial statements.
Deferred tax assets are recognised for all the temporary deductible differences and for retained tax assets and liabilities, insofar as the existence of appropriate future tax profits that can apply the use of the temporary deductible differences and of the retained tax assets and liabilities is likely.
The value to be stated in the financial statements for deferred tax assets is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient income for tax purposes will be available in the future for this tax credit to be used totally or partially. Deferred tax assets not recognised are reviewed every year at the end of the reporting period and are recognised to the extent that the pre-tax profit is probably sufficient to allow the recovery of these deferred tax assets.
Deferred tax assets and liabilities are measured based on tax rates that are expected to be applied to the financial period in which such assets are sold or such liabilities are discharged, considering the rates in force and those already issued or substantially issued at the end of the reporting period.
Deferred tax assets and liabilities are recognised directly in the income statement, with the exception of those relating to items recognised directly in equity, in which case the related deferred taxes are also accounted for consistently without booking to the income statement.
Deferred tax assets and liabilities are offset, if there is a legal right to offset current tax assets against current tax liabilities, and the deferred taxes refer to the same tax entity and to the same tax authority.
Assets for deferred tax assets and liabilities for deferred tax liabilities are classified as non-current assets and liabilities.
Revenues, costs and assets are recognised net of value added tax with the exception of the case in which:
The net amount of indirect taxes on sales and purchases that can be recovered from or paid to the tax authorities is recorded in the financial statements item other receivables and payables depending on the sign of the balance. VAT related to invoicing to public bodies is paid to the Tax authority when the receivable is collected during suspended VAT, pursuant to Italian Presidential Decree no. 633/72 and subsequent amendments.
The basic earnings per share are calculated by dividing the Group's economic result by the weighted average of the outstanding shares during the period. For the purposes of the calculation of the diluted earnings per share, the weighted average of the outstanding shares is modified by assuming the conversion of all the potential dilutive shares. The net result is also adjusted to take account of the effects, net of tax, of the conversion.
The diluted earnings per share coincide with the basic earnings, since there are no outstanding shares or options other than ordinary shares.
The accounting standards adopted for the preparation of the interim condensed consolidated financial statements are the same as those adopted for the preparation of the consolidated financial statements for the year ended 31 December 2015, with the exception of the adoption as of 1 January 2016 of the new standards, amendments and interpretations. The Group has not adopted in advance any new standard, interpretation or change issued but not yet in force.
The nature and effects of these changes are shown below. Albeit these new standards and amendments were applicable for the first time in 2016, they had no impact on the consolidated financial statements of the Group or on the interim consolidated report on operations of the Group. The nature and impact of each new standard/amendment is listed below:
IAS 19 requires an entity to consider contributions from employees or third parties in the recording of defined benefit plans. When the contributions are related to the provided service, they should be attributed to the periods of service as a negative benefit. This amendment clarifies that, if the amount of contributions does not depend on the number of years of service, the entity is allowed to recognise these contributions as a reduction of the cost of service in the period in which the service is rendered, instead of allocating the contribution to the periods of service. This amendment is effective for annual periods beginning on or after 1 February 2015. This amendment is not relevant to the Group, given that none of the entities that are part of the Group have plans comprising contributions of employees or third parties.
This improvement applies prospectively and clarifies various points related to the definition of performance and service conditions representing vesting conditions, including:
Therefore, these improvements did not affect the accounting standards of the Group, since none of the entities forming part of the Group have plans that require share-based remuneration.
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable). This is consistent with the Group's current accounting policy, and thus this amendment had no impact on the Group's accounting policy.
The amendment applies prospectively and clarifies that:
The Group did not apply the aggregation criteria provided by IFRS 8.12. In the previous periods, the Group presented the reconciliation of the segment's assets with total assets and continues to present it in Explanatory Notes, inasmuch as the reconciliation is provided to the highest decision-making level.
The amendment applies prospectively and clarifies that in IAS 16 and in IAS 38 an asset can be revalued with reference to observable data both by adjusting the gross book value of the asset to the market value and by determining the market value of the book value and adjusting proportionally the gross book value in such a way that the resulting book value is equal to the market value. Moreover, the accumulated amortisation and depreciation is the difference between the gross book value and the book value of the asset. The Group has not recorded any revaluation adjustment during the interim period of reference.
The amendment applies prospectively and clarifies that a management entity (entity providing key management personnel services) is a related party subject to related party disclosures. Moreover, an entity that makes use of a management entity must disclose the costs incurred for management services. This amendment is not relevant for the Group in that it does not receive management services from other entities.
The amendments to IFRS 11 require that a joint operator that records the acquisition of a stake in a joint arrangement, whose assets represent a business, must apply the relevant principles of IFRS 3 regarding the accounting of business combinations.
The amendments also clarify that, if joint control is maintained, the interest previously held in a joint operation is not subject to re-measurement at the time of the acquisition of an additional interest in the same joint operation. Moreover, an exclusion from the scope of IFRS 11 was added to clarify that the amendments do not apply when the parties that share control, including the entity that prepares the financial statements, are under the share control of the same last controlling party.
The changes apply both to the acquisition of the initial stake in a joint arrangement and to the acquisition of further stakes in the same joint arrangement. The amendments must be applied from years starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group in that during the period there were no acquisitions of interests in a joint operation.
The amendments clarify the principle contained in IAS 16 Property, plant and equipment and IAS 38 Intangible Assets: revenues reflect a model of economic benefits generated by the management of a business (to which the asset belongs), rather than economic benefits that are consumed with the use of the asset. This means that a revenue-based method cannot be used to depreciate property, plant and equipment and could be used only in very limited circumstances for the amortisation of intangible assets. The amendments must be applied from years starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group in that the Group does not use methods based on revenues for the amortisation/depreciation of non-current assets.
These amendments have no impact on the Group in that the Group has no bearer plants.
The amendments will allow entities to use the net equity method to recognise investments in subsidiaries, joint ventures and associates in its separate financial statements. Entities that are already applying the IFRS and decided to change the accounting criteria by passing to the net equity method in their separate financial statements must apply the change retrospectively. In case of first adoption of the IFRS, the entity that decides to use the equity method in its own separate financial statements must apply it from the date of transition to the IFRSs. The amendments take effect for financial periods starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the consolidated financial statements of the Group.
These amendments take effect for financial periods starting 1 January 2016 or later. They include:
Assets or disposal groups are generally held for sale or for distribution to owners. The amendment states that the change from one to another of these methods of disposal should not be considered a new plan to sell, but rather a continuation of the original plan. Therefore, there is no interruption in the application of the requirements of IFRS 5. This amendment must be applied prospectively.
The amendment states that a servicing contract that includes a fee can lead to a continuous involvement in a financial asset. An entity must define the nature of the fee and of the agreement on the basis of the guidance in IFRS 7 on continuous involvement to consider whether a disclosure is requested. The definition of which service contract involves continuous involvement must be made retrospectively. However, the disclosure required must not be presented for the financial years preceding the first-time application of this amendment.
The amendment clarifies that the disclosure requirements on fees do not apply to condensed interim financial statements, unless this disclosure provides a significant updating of the information presented in the last financial statements. This amendment must be applied retrospectively.
The amendment clarifies that the active market (market depth) of high-quality company bonds must be defined by reference to the currency of the bond, rather than the country in which the bond is located. When there is no active market for highquality company bonds in that currency, the rates of the related Italian Government bonds must be used. This amendment must be applied prospectively.
The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments have no impact on the Group.
The amendments to IAS 1 clarify rather than amend significantly some of the already existing requirements of IAS 1 . The amendments clarify:
In addition, the amendments clarify the requirements that apply when sub-totals are presented in the statement of profit/(loss) for the year or of other components of the statement of comprehensive income or in the statement of financial position. These amendments take effect for financial periods starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group.
The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.
These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.
The following standards have been approved by the European Union but will apply from 2018; therefore, they are not applicable by the company in the financial statements at December 31, 2016.
▪ IFRS 9 "Financial instruments": this standard, approved by the European Union on November 29, 2016, entirely replaces IAS 39 "Financial instruments: recognition and measurement" and introduces two new criteria to recognize and measure financial assets and liabilities. The main changes introduced by IFRS 9 may be summarized as follows: financial assets can be measured either at fair value or at their amortized cost. As a result, the categories "loans and receivables", "available-for-sale financial assets" and "held-to-maturity investments" disappear. Classification within the two categories is carried out on the basis of an entity's business model and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if both of the following requirements are met: the objective of the entity's business model is to hold assets to collect contractual cash flows (and therefore in substance not to earn trading profits) and the characteristics of the cash flows of the asset are solely payments of principal and interest. A financial asset is measured at fair value if it is not measured at amortized cost. The rules to account for derivatives have been simplified, as the embedded derivative and the host financial asset are no longer recognized separately.
All equity instruments - listed or unlisted - must be measured at fair value (IAS 39 established on the other hand that unlisted equity instruments should be valued at cost if fair value could not be reliably measured).
An entity has the option of presenting changes in the fair value of equity instruments that are not held for trading in equity; that option is not permitted for equity instruments that are held for trading. This designation is permitted on initial recognition, may be adopted for each individual instrument and is irrevocable. If an election is made for this option, changes in the fair value of these instruments may never be reclassified from equity to the income statement. Dividends on the other hand continue to be recognized in the income statement.
IFRS 9 does not permit reclassifications between the two categories of financial asset except in the rare case of a change in an entity's business model. In this case, the effects of the reclassification are applied prospectively.
The disclosures required to be made in the notes have been adjusted to the classification and measurements rules introduced by IFRS 9. On November 19, 2013, the IASB issued an amendment to this standard which mainly regards the following:
A partial amendment to the standard was issued in July 2014 on the subject of the valuation of financial instruments, with the introduction of the expected-loss impairment model for loans which replaces the impairment model based on realized losses. The amendment in question is applicable from January 1, 2018.
IFRS 15 also includes the disclosure requirements that are significantly more extensive than the existing standard concerning the nature, amounts, timing and uncertainty of revenues and cash flows arising from contracts with customers.
The provisions of IFRS 15, following the amendments made with the amendment issued on September 11, 2015, will be effective for years beginning on or after January 1, 2018.
During 2016, the company started a preliminary assessment of the effects of IFRS 15 still in the process of being completed.
The following standards and amendments to existing standards are still pending approval by the European Union and are therefore not applicable by the company. The dates indicated reflect the expected effectiveness date and enacted in the standards; this date is however subject to the actual approval by the competent bodies of the European Union:
▪ on September 11, 2014, the IASB published an amendment to IFRS 10 "Consolidated Financial Statements" and IAS 28 "Shareholdings in affiliates and joint ventures", in order to resolve the conflict between IAS 28 and IFRS 10. According to the provisions of IAS 28, the gain or loss resulting from the sale or transfer of a non-monetary asset to a joint venture or associate in exchange for a share in the capital of the latter is limited to the shareholding in the joint venture or associate by other investors extraneous to the transaction. In contrast, IFRS 10 requires the recording of the entire gain or loss in the event of loss of control of a subsidiary, even if the entity continues to hold a non-controlling stake in it, including in this case also the sale or transfer of a subsidiary to a joint venture or associate. The amendments introduced require that for a sale or transfer of an asset or a subsidiary to a joint venture or associate, the measure of the gain or loss to be recognized in the financial statements of the seller (or transferor) depends on whether the asset or subsidiary sold (or transferred) constitute a business, under the meaning of IFRS 3. If the assets or the subsidiary sold represent a
business, the entity shall recognize the gain or loss on the entire investment held; otherwise, the portion of the gain or loss related to the share still held by the entity shall be eliminated. For said amendments, a date of first application has not been established yet;
The preparation of the financial statements requires the directors to carry out discretionary assessments, estimates and assumptions that affect the values of revenues, costs, assets and liabilities and the indication of contingent liabilities at the end of the reporting period. The final results may differ from said estimates. Estimates are used for recognising:
Deferred tax assets are recognised for all the temporary differences and all retained tax losses, in so far as the existence of adequate taxable future profits for which such losses may be used is likely. Directors are requested a significant discretionary assessment to determine the amount of deferred tax assets that can be recorded. They must estimate the probable time in which it will reveal itself and the amount of taxable future profits as well as a future tax planning strategy.
Provision for severance indemnity is determined by using actuarial evaluations. The actuarial evaluation requires assumptions on discount rates, future increases in salary, turnover and death rates. Since these are long-term plans, such estimates are subject to a significant level of uncertainty.
Development costs are capitalised on the basis of the accounting standard explained below. The directors must make assumptions on future cash flows expected from fixed assets, discount rates to be applied and the periods during which the expected benefits reveal themselves in order to determine the values to be capitalised.
An impairment loss occurs when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher value between its fair value deducted the selling costs and its value in use. Fair value less selling costs is equal to the amount obtainable from the sale of an asset or cash-generating unit in a free transaction between knowledgeable, willing parties, deducted from writing off costs. The calculation of the value in use is based on a discounted cash flow model. The cash flows are derived from the budget of the next three years and do not include restructuring activities for which the Group has not yet committed to or significant future investments that will increase the results related activity included in the cash generating unit evaluated. The recoverable amount depends significantly on the discount rate used in the discounted cash flow model, as well as the expected cash flows in the future and the growth rate used for extrapolation.
Moreover, estimates are used for recognising provisions for bad debts, product guarantees, provisions for risks and charges, inventory obsolescence, amortisation, depreciation and write-downs of assets, fair value of derivative financial instruments.
Estimates and assumptions are periodically revised and the effects of each change are immediately reflected in the income statement.
The Group is exposed in varying degrees to financial risks related to the core business. In particular, the Group is exposed at the same time to the market risk (interest-rate risk and exchange-rate risk), liquidity risk and credit risk.
The management of financial risks (mainly interest-rate risks) is carried out by the Group on the basis of guidelines defined by the Board of Directors. The purpose is to guarantee a liability structure always in equilibrium with the structure of the balance sheet assets, in order to keep a very sound balance sheet structure.
Forms of financing most commonly used are represented by:
The average cost of indebtedness is benchmarked to the trend of the 3-month EURIBOR rates plus a spread that depends on the financial instrument used and on the rating Group share.
The Group uses derivative financial instruments in order to hedge the interest-rate risk and the exchange-rate risk. The Group does not apply the Cash Flow Hedge Accounting with reference to such positions, in that they do not meet the requirements provided in this regard by the IFRS.
The trading of derivative instruments with speculative purposes is not contemplated.
The Group's exposure to interest rate risk is managed by taking overall exposure into consideration: as part of the general policy to optimise financial resources, the Group seeks equilibrium, by using less expensive forms of financing.
With regard to the market risk for changes in the interest rate, the company's policy is to hedge the exposure related to the portion of medium to long-term indebtedness. Derivative instruments such as Swaps, Collars and Caps are used to manage this risk.
As at 31 December 2016, there were eleven positions related to derivative instruments of interest rate swap hedging the risk related to the potential increase in interest bearing financial payables (current portion) due to fluctuating market rates. The notional value of these positions was equal to Euro 27.4 million, with a negative equivalent value of Euro 235 thousand.
As at 31 December 2015, there were eight positions related to derivative instruments of interest rate swap hedging the risk related to the potential increase in interest bearing financial payables (current portion) due to fluctuating market rates. The notional value of these positions was equal to Euro 27.8 million, with a negative equivalent value of Euro 353 thousand.
The short-term portion of interest bearing financial payables (current portion), which is mainly used to finance working capital requirements, is not subject to interest-rate risk hedging.
The cost of bank borrowing is benchmarked to the EURIBOR/LIBOR rate plus a spread that depends on the type of credit line used and is the same by type of line. The applied margins can be compared to the best market standards. The interest rate risk to which the Group is exposed is mainly originated from existing financial payables.
The main sources of exposure of the Group to the interest-rate risk refer to existing interest bearing financial payables (current portion) and interest bearing financial payables and to the existing derivative instruments. In particular, the potential impacts on the Income Statement of the 2017 financial period (compared to 2016) referable to the interest-rate risk are set below:
The potential changes in fair value of the effective component of existing hedging derivative instruments affect Shareholders' Equity.
The Group estimated the potential impacts on the Income Statement and on Shareholders' Equity of the 2017 financial period (compared to 2016, calculated with reference to the situation existing at the end of the 2015 reporting period, respectively) produced by a simulation of the change in the term structure of the interest rates, by using internal measurement models, based on the general acceptance approach. In particular:
With reference to the situation as at 31 December 2016, a parallel shift of the term structure of interest rates equal to +100 basis points (+1%) would result in an increase in financial expenses accrued in the 2017 financial period of Euro 296 thousand, offset by an increase of Euro 147 thousand in the spread collected for the existing derivatives. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in financial expenses of Euro 56 thousand, offset by a decrease of Euro 37 thousand in the collected spread for the existing derivatives.
With reference to the situation as at 31 December 2015, a parallel shift of the term structure of interest rates equal to +100 basis points (+1%) would result in an increase in financial expenses accrued in the 2016 financial period of Euro 230 thousand, offset by an increase of Euro 85 thousand in the spread collected for the existing derivatives. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in financial expenses of Euro 42 thousand, offset by a decrease of Euro 24 thousand in the collected spread for the existing derivatives.
| Interests | |||||||
|---|---|---|---|---|---|---|---|
| 31 December 2016 | 31 December 2015 | ||||||
| (Euro in thousands) | Residual debt | Impact on the IS +100 bps |
Impact on the IS -30 bps |
Residual debt | Impact on the IS +100 bps |
Impact on the IS -30 bps |
|
| Borrowings/Bond issue | 124,621* | (296) | 56 | 123,137* | (230) | 42 | |
| Total Loans | 124,621* | (296) | 56 | 123,137* | (230) | 42 | |
| (Euro in thousands) | Notional | Impact on the IS +100 bps |
Impact on the IS -30 bps |
Notional | Impact on the IS +100 bps |
Impact on the IS -30 bps |
|
| Derivative instruments hedging cash flows |
27,369 | 147 | (37) | 27,761 | 85 | (24) | |
| Total Derivative instruments | 27,369 | 147 | (37) | 27,761 | 85 | (24) | |
| Total | (149) | 19 | (145) | 18 |
(*) The residual debt is considered before amortised costs
| Fair value sensitivity of derivatives | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial period ended 31 December 2016 | ||||||||||
| (Euro in thousands) | Notional value |
Net FV | Net FV +100 bps |
Net FV +100 bps |
Impact on IS +100 bps |
Impact on SE +100 bps |
Net FV -30 bps |
Net FV -30 bps |
Impact on IS -30 bps |
Impact on SE -30 bps |
| Derivative instruments hedging cash flows |
27,369 | (235) | 62 | 298 | 298 | - | (312) | (76) | (76) | - |
| Total | 27,369 | (235) | 62 | 298 | 298 | - | (312) | (76) | (76) | - |
| Financial period ended 31 December 2015 | ||||||||||
| (Euro in thousands) | Notional value |
Net FV | Net FV +100 bps |
Net FV +100 bps |
Impact on IS +100 bps |
Impact on SE +100 bps |
Net FV -30 bps |
Net FV -30 bps |
Impact on IS -30 bps |
Impact on SE -30 bps |
| Derivative instruments hedging cash flows |
27,761 | (353) | (70) | 278 | 278 | - | (434) | (87) | (87) | - |
| Total | 27,761 | (353) | (70) | 278 | 278 | - | (434) | (87) | (87) | - |
With reference to the situation as at 31 December 2016, a parallel shift of the term structure of interest rates of +100 basis points (+1%) would result in an increase in the asset value of the existing hedging derivative instruments of Euro 298 thousand, with an impact on the Income statement of the 2017 financial period. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in the asset value of the existing hedging derivative instruments of around Euro 76 thousand, with an impact only on the Income statement of the 2017 financial period.
With reference to the situation as at 31 December 2015, a parallel shift of the term structure of interest rates of +100 basis points (+1%) would result in an increase in the asset value of the existing hedging derivative instruments of Euro 278 thousand, with an impact on the Income statement of the 2016 financial period. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in the asset value of the existing hedging derivative instruments of around Euro 87 thousand, with an impact only on the Income statement of the 2016 financial period.
The assumptions concerning the extent of changes in market parameters used for the simulation of shocks were formulated on the basis of an analysis of the historical development of such parameters with reference to a time scale of 12 months.
The company has a much parcelled out customer structure being mostly end-consumers. Moreover, most of the contemplated forms of collection include advance payments of the supply or a deposit not less than 30% of the sale.
This structure zeroes the credit risk; the validity of this approach is endorsed by the low amount of receivables at the end of the financial period compared to the amount of annual sales.
There are no significant concentrations of credit risk exposure in relation to individual debtors to be reported. All positions relating to trade receivables - both with reference to the end of the 2015 and 2013 reporting periods - expire before 12 months.
The Group manages the liquidity risk by controlling strictly the elements forming the working capital and in particular trade receivables and payables.
The Company tends to obtain upstream a good cash generation in relation to sales and then use it for paying the suppliers without compromising the short-term balance of the treasury and avoid problems and tensions in current liquidity.
The stratification of existing liabilities with reference to 2016 and to 2015 financial periods, with regard to financial instruments, by residual maturity, is set out below.
| 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Maturity | Financial payables/Bonds | Financial | |||||
| Capital | Interests | Trade payables | instruments | Total | |||
| (Euro in thousands) | a | b | c | d | a+b+c+d | ||
| Within 12 months | 70,319 | 2,806 | 31,197 | 186 | 104,508 | ||
| Between one and two years | 19,830 | 2,199 | - | 52 | 22,081 | ||
| Between two and three years | 8,104 | 1,463 | - | 7 | 9,574 | ||
| Between three and five years | 24,429 | 2,360 | - | (4) | 26,785 | ||
| Between five and seven years | 589 | 199 | - | - | 788 | ||
| After more than 7 years | 1,350 | 194 | - | - | 1,544 | ||
| Total | 124,621* | 9,221 | 31,197 | 241 | 165,280 |
| 31 December 2015 | ||||||
|---|---|---|---|---|---|---|
| Maturity | Financial payables/Bonds | Financial | ||||
| Capital | Interests | Trade payables | instruments | Total | ||
| (Euro in thousands) | a | b | c | d | a+b+c+d | |
| Within 12 months | 45,921 | 3,821 | 39,049 | 242 | 89,033 | |
| Between one and two years | 13,339 | 3,512 | - | 123 | 16,974 | |
| Between two and three years | 18,230 | 3,795 | - | 19 | 22,044 | |
| Between three and five years | 17,052 | 3,722 | - | (7) | 20,767 | |
| Between five and seven years | 18,351 | 2,819 | - | (6) | 21,164 | |
| After more than 7 years | 10,244 | 1,797 | - | - | 12,041 | |
| Total | 123,137* | 19,466 | 39,049 | 371 | 182,023 |
(*) The residual debt is considered before amortised costs
The estimate of expected future expenses implicit in loans and of expected future differentials implicit in derivative instruments was determined on the basis of the term structure of interest rates in Euro existing at the reporting dates (31 December 2016 and 31 December 2015).
The Group is exposed to exchange-rate fluctuations of the currencies in which the sales to foreign customers are paid (US Dollars and South African Rand). This risk is expressed if the equivalent value in Euro of revenues decreases following negative exchange-rate fluctuations, thereby preventing the Company from achieving the desired margin. This risk is increased due to the relevant time interval between the moment in which the prices of a shipment are fixed and the moment in which the costs are converted in Euro.
The potential impacts on the Income Statement of the 2017 financial period (compared to 2016) referable to the exchangerate risk are determined by the revaluation/write-down of asset and liability items in foreign currency.
The Group estimated the potential impacts on the income statement of the 2017 financial period (compared to 2016, calculated with reference to the situation existing at the end of the 2015 reporting period, respectively) produced by a shock of the exchange-rate market, by using internal measurement models, based on the general acceptance approach.
| 2016 Exposure in foreign currency (USD) | 2016 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (USD/000) | Liabilities Equity (USD/000) (USD/000) |
Income statement EUR/USD exchange rate +5% (EUR/000) |
Income statement EUR/USD exchange rate -5% (EUR/000) |
|
| Trade receivables | 8,854 | - | 8,854 | (420) | 420 |
| Trade payables | - | 2 | 2 | - | - |
| Total net exposure with regard to equity items |
8,854 | 2 | 8,856 | (420) | 420 |
| Derivative instruments | - | - | - | - | - |
| 2015 Exposure in foreign currency (USD) | 2015 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (USD/000) | Liabilities (USD/000) |
Equity (USD/000) |
Income statement EUR/USD exchange rate +5% (EUR/000) |
Income statement EUR/USD exchange rate -5% (EUR/000) |
| Trade receivables | 10,990 | 10,990 | (505) | 505 | |
| Trade payables | 83 | 83 | (4) | 4 | |
| Total net exposure with regard to equity items |
10,990 | 83 | 11,073 | (509) | 509 |
| Derivative instruments | - | - | - | - | - |
| 2016 Exposure in foreign currency (ZAR) | 2016 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Liabilities Assets (ZAR/000) (ZAR/000) |
Equity (ZAR/000) | Income statement EUR/ZAR exchange rate +5% (EUR/000) |
Income statement EUR/ZAR exchange rate -5% (EUR/000) |
|
| Trade receivables | 74,885 | - | 74,885 | (259) | 259 |
| Trade payables | - | - | - | - | - |
| Total net exposure with regard to equity items |
74,885 | - | 74,885 | (259) | 259 |
| Derivative instruments | - | - | - | - | - |
| 2015 Exposure in foreign currency (ZAR) | 2015 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (ZAR/000) | Liabilities Equity (ZAR/000) (ZAR/000) |
Income statement EUR/ZAR exchange rate +5% (EUR/000) |
Income statement EUR/ZAR exchange rate -5% (EUR/000) |
|
| Trade receivables | 63,375 | - | 63,375 | (2,911) | 2,911 |
| Trade payables | - | - | - | - | - |
| Total net exposure with regard to equity items |
63,375 | - | 63,375 | (2,911) | 2,911 |
| Derivative instruments | - | - | - | - | - |
| 2016 Exposure in foreign currency (IDR) | 2016 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (IDR/000) | Liabilities (IDR/000) |
Equity (IDR/000) | Income statement EUR/IDR exchange rate +5% (EUR/000) |
Income statement EUR/IDR exchange rate -5% (EUR/000) |
| Trade receivables | - | - | - | - | - |
| Trade payables | - | - | - | - | - |
| Total net exposure with regard to equity items |
- | - | - | - | - |
| Derivative instruments | 158,497,466 | - | 158,497,466 | (559) | 559 |
The assumptions concerning the extent of changes in market parameters used for the simulation of shocks were formulated on the basis of an analysis of the historical development of such parameters with reference to a time scale of 30-60-90 days, consistent with the expected duration of exposures.
The following table shows the book values for each class of financial assets and liabilities identified by IAS 39:
| Loans and receivables/payables |
Guarantee deposits |
Cash and cash equivalents |
Available-for sale financial assets |
Fair value recognised in the income |
|
|---|---|---|---|---|---|
| (Euro in thousands) | statement | ||||
| Financial assets: | |||||
| Financial receivables | 324 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 3 |
| Trade receivables | 373 | - | - | - | - |
| Total non-current | 697 | - | - | - | 3 |
| Trade receivables | 49,433 | - | - | - | - |
| Financial receivables from related parties | 7,608 | - | - | - | - |
| Financial receivables from third parties | 1,441 | - | - | - | - |
| Other available-for-sale securities | - | - | - | 2 | - |
| Derivative financial instruments | - | - | - | - | 2 |
| Cash and cash equivalents | - | - | 18,501 | - | - |
| Total current | 58,482 | - | 18,501 | 2 | 2 |
| Total | 59,179 | - | 18,501 | 2 | 5 |
| Financial liabilities: | |||||
| Loans | 36,997 | - | - | - | - |
| Non-current portion of finance leases, net | 2,184 | - | - | - | - |
| Bond issue | 14,735 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 209 |
| Trade payables | 3 | - | - | - | - |
| Total non-current | 53,919 | - | - | - | 209 |
| Loans | 37,848 | - | - | - | - |
| Other financial payables (short-term leases) | 1,099 | - | - | - | - |
| Other short-term payables | 31,063 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 110 |
| Trade payables | 31,197 | - | - | - | - |
| Total current | 101,207 | - | - | - | 110 |
| Total | 155,126 | - | - | - | 319 |
In relation to financial instruments measured at fair value, the following table shows the classification of such instruments on the basis of the hierarchy of levels required by IFRS 13, which reflects the significance of the inputs used in measuring the fair value. The levels are broken down as follows:
▪ level 1 - quoted prices without adjustment recorded in an active market for measured assets or liabilities;
The following table shows the assets and liabilities that are measured at fair value as at 31 December 2016, divided into the three levels defined above:
| Book value as at 31 December 2016 |
Level 1 | Level 2 | Level 3 | |
|---|---|---|---|---|
| (Euro in thousands) | ||||
| Financial assets: | ||||
| Derivative financial instruments | 3 | - | 3 | - |
| Total non-current | 3 | - | 3 | - |
| Other available-for-sale securities | 2 | - | - | 2 |
| Derivative financial instruments | 2 | - | 2 | - |
| Total current | 4 | - | 2 | 2 |
| Total | 7 | - | 5 | 2 |
| Financial liabilities: | ||||
| Derivative financial instruments | 209 | - | 209 | - |
| Total non-current | 209 | - | 209 | - |
| Derivative financial instruments | 110 | - | 110 | - |
| Total current | 110 | - | 110 | - |
| Total | 319 | - | 319 | - |
The completion of the diversification strategy in the trencher segment for service activities started with the acquisition of the Marais Group on 8 April 2015 continued with the following investments:
Moreover, the completion of the range in the new automation segment of power lines continued with the following investments:
The transaction is part of the more general development strategy of the offer in Energy Automation, in which the Group has recently completed the acquisition of Bertel and CPT described above.
The value of the transaction is Euro 1.4 million: Euro 0.9 million was already paid upon acquisition and the remaining part will be paid in subsequent instalments. The effects of the acquisition were described in the next paragraph 5.2 Effects of the acquisition of the SGE business unit.
▪ On 1 August 2016, Tesmec S.p.A. finalised the acquisition of Ampere S.r.l. in liquidation, of the business unit, including the Ampere trademark, involved in the sale of measuring and monitoring instruments and after-sales services for the production, transmission and distribution of electrical power for a price amounting to Euro 0.1 million. This acquisition allows the Tesmec Group to expand the potential customer base of the Energy sector in Italy by
These acquisitions represent a significant step in the growth process of Tesmec in the world of energy, allowing the Group to complete the portfolio of solutions offered at the level of different voltage classes (high, medium, low) to meet the new technological challenges related to renewable energy sources and to distributed generation. In fact, the combination of the excellent skills in the development of sensors with the excellent skills in electronic devices will allow the Tesmec Group to offer a wide range of integrated systems to manage efficiently and in a sustainable manner the requests of a market characterised by the increase in energy consumption.
Other significant events during the period include:
benefiting from the strong relations that Ampere S.r.l. has with important customers.
The Board of Directors decided to:
The result was declared by the Commission during the public session held at the RFI Purchasing Department in Rome.
The total value of the tender amounts to around Euro 91.8 million and, in the event of final awarding, the supply, to be completed within 4 years and also including a 6-year period of full maintenance service (FMS), is broken down as follows:
This result is due to the high technological content of the railway systems of the Tesmec Group that has been the key to the positive assessment.
As described above, on 3 March 2016, the parent company Tesmec S.p.A. purchased the remaining 60% of the share capital of Bertel S.r.l. (of which Tesmec already owned 40% of the share capital).
The value of the transaction amounted to Euro 300 thousand corresponding to the nominal value and will be paid in two tranches: the first one of Euro 150 thousand within 12 months and the second one of Euro 150 thousand within 24 months. Moreover, following the acquisition of Bertel S.r.l., it repaid the loan of Euro 260 thousand to the old shareholder.
The differential arising from this acquisition amounted to Euro 1,147 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. March 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Company acquisition |
|---|---|
| (Euro in thousands) | BERTEL |
| Assets | |
| Intangible assets | 2,539 |
| Property, plant and equipment | 162 |
| Other non-current assets | 598 |
| Inventories | 668 |
| Trade receivables | 285 |
| Other current assets | 757 |
| Cash and cash equivalents | 79 |
| Total assets | 5,088 |
| Liabilities | |
| Medium/long-term loans | 146 |
| Employee benefit liability | 133 |
| Interest-bearing financial payables (current portion) | 4,069 |
| Other current liabilities | 587 |
| Total liabilities | 4,935 |
| Fair value of net assets acquired | 153 |
As described above, on 20 April 2016, the parent company Tesmec S.p.A. purchased 100% of the share capital of CPT Engineering S.r.l. The transaction involved the purchase of the entire share capital of CPT against a price of Euro 300 thousand to which an earn-out up to a maximum of Euro 800 thousand is expected to be added related to the achievement of certain turnover results by the CPT and its economic balance. The payment of the price by Tesmec will be made by using own resources.
The differential arising from this acquisition amounted to Euro 100 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. April 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Company acquisition |
|---|---|
| (Euro in thousands) | CPT |
| Assets | |
| Intangible assets | 723 |
| Property, plant and equipment | 1,102 |
| Other current assets | 597 |
| Total assets | 2,422 |
|---|---|
| Liabilities | |
| Medium/long-term loans | 479 |
| Employee benefit liability | 206 |
| Other current liabilities | 1,537 |
| Total liabilities | 2,222 |
| Fair value of net assets acquired | 200 |
| Consideration for the acquisition/sale | (316) |
| Difference between consideration paid and net assets acquired | (116) |
As described above, on 28 April 2016, the subsidiary SGE S.r.l. finalised with effective date as from 1 July 2016 the acquisition by R&S Laboratorio S.r.l. of the business unit, already rented since 2014, active in technology research, design, manufacture and sale of sensors and fault and basic electrical quantity detectors in substations and medium voltage power lines.
The value of the transaction amounted to Euro 1.2 million and is paid in three tranches: the first Euro 644 thousand on July 1, 2016, the second of Euro 52 thousand on 1 August 2016 and the remaining amount to Euros 470 thousand in installments with maturities up to April 20, 2017
The differential arising from this acquisition amounted to Euro 575 thousand and has been provisionally allocated among Assets in progress and advance payments to suppliers in that, as provided by IFRS 3, within 12 months after the transaction (i.e. July 2017), the recording of the acquisition will be completed through the final allocation of the arising differential.
Assets and liabilities at fair value are broken down below:
| Book values of the acquired company | Business unit |
|---|---|
| (Euro in thousands) | SGE |
| Assets | |
| Intangible assets | 802 |
| Tangible assets | 34 |
| Total assets | 836 |
| Liabilities | |
| Employee benefit liability | 228 |
| Total liabilities | 228 |
| Fair value of net assets acquired | 608 |
| Consideration for the acquisition/sale | (1,183) |
| Difference between consideration paid and net assets acquired | (575) |
As described above, on 21 december 2016, the Board of Directors of Tesmec S.p.A. approved certain transactions with the related party Dream Immobiliare S.r.l. ("Dream") involving the properties situated in Grassobbio (Bergamo) ("Grassobbio Property Complex"), in Padua ("Padua Building") and Patrica (Frosinone) ("Frosinone Building"), in which factories of Tesmec and of its subsidiaries SGE S.r.l. ("SGE") and CPT Engineering S.r.l. ("CPT") are located.
- With regard to the Grassobbio Property Complex, where Tesmec's production plant also has its headquarters, the Company's Board of Directors has considered exercising of the option with respect to Dream to no longer be strategic for Tesmec, thereby allowing said option to expire. This option expires on 31 December 2016 and regards a takeover of the lease contract in place between Dream and Unicredit Leasing S.p.A. for said property complex for Euro 3,500 thousand.
The Board of Directors consequently renegotiated the rent and term of the lease contract with Dream, with respect to the portion of the Grassobbio Property Complex in which Tesmec carries out its activities, agreeing on a reduction in the annual rent of approximately Euro 160 thousand (from about Euro 1,960 thousand to Euro 1,800 thousand) and a new contract term with expiry envisaged for 30 January 2027. Consequently the availability of the property in the production site was also guaranteed.
As a result of these transactions, the Tesmec Group's Net Financial Position at 31 December 2016 will result in improvement for about Euro 16,579 thousand, primarily concerning the adjustment of the financial debt resulting from the renegotiation of the main clauses of the lease contract.
With regard to the Padua Building, where SGE currently conducts its production activities in the automation segment, following agreement with Dream Immobiliare, the latter agreed to replace SGE in the preliminary purchase agreement for said property, for the same amount .Dream agreed to lease said property to SGE starting from the purchase (expected in 2017) for an annual amount of Euro 75 thousand, determined based on the annual market rent indicated in the report drawn up by CBRE Valuation S.p.A.
With regard to the Frosinone Building, where CPT currently conducts its production activities in the automation segment, CPT and Dream reached an agreement involving its purchase by Dream for Euro 1,019 thousand.
Pursuant to the agreement reached by the parties, the Frosinone Building will therefore be let by Dream to CPT at an annual rent of Euro 63 thousand determined based on the annual market rent indicated in the report drawn up by CBRE Valuation S.p.A.
The transactions described above will involve, for Tesmec Group as at December 31, 2016 an improvement in the net financial position for Euro 17,716 thousand, a reduction of EBITDA for Euro 2,232 thousand and a reduction of net income for Euro 1,527 thousand.
Below a summary table showing the economic, patrimonial and financial effect of the transaction as at December 31, 2016:
| (In migliaia di Euro) | Grassobbio Property Complex |
Padua Building |
Frosinone Building |
Total |
|---|---|---|---|---|
| USES | ||||
| Net working capital | 738 | (33) | - | 705 |
| Fixed assets | (18,929) | - | (1,019) | (19,948) |
| Other long-term assets and liabilities | - | - | - | - |
| Net invested capital | (18,191) | (33) | (1,019) | (19,243) |
| SOURCES | ||||
| Net financial indebtedness | (16,579) | (118) | (1,019) | (17,716) |
| Shareholder's equity | (1,612) | 85 | - | (1,527) |
| Total sources of funding | (18,191) | (33) | (1,019) | (19,243) |
| (In migliaia di Euro) | Grassobbio Property Complex |
Padua Building |
Frosinone Building |
Total |
|---|---|---|---|---|
| Loss | (2,350) | - | - | (2,350) |
| Income | - | 118 | - | 118 |
| EBITDA | (2,350) | 118 | - | (2,232) |
| Tax | 738 | (33) | - | 705 |
| Effect on net result | (1,612) | 85 | - | (1,527) |
The accounting effects of these operations on an annual basis will be the rental costs of Euro 1,895 thousand which will be reflected on EBITDA and a decrease in financial expenses of Euro 754 thousand and amortization of Euro 610 thousand. These effects will produce a positive tax effect of Euro 196 thousand on the Group's taxable income, the net result will therefore suffer a worsening of Euro 335 thousand.
For further information please refer to the Information Document on significant transactions with related parties published on December 22, 2016 in the Investor Relations-Governance section on the website www.tesmec.com
The breakdown of Intangible assets as at 31 December 2016 and as at 31 December 2015 is indicated in the table below:
| 31 December | ||||||
|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||
| (Euro in thousands) | Historical cost |
Accum. amort. |
Net value | Historical cost |
Accum. amort. |
Net value |
| Development costs | 51,796 | (37,174) | 14,622 | 40,017 | (28,405) | 11,612 |
| Rights and trademarks | 6,368 | (4,063) | 2,305 | 5,433 | (3,218) | 2,215 |
| Assets in progress and advance payments to suppliers | 1,964 | - | 1,964 | - | - | - |
| Total intangible assets | 60,128 | (41,237) | 18,891 | 45,450 | (31,623) | 13,827 |
The following table shows the changes in intangible assets for the period ended 31 December 2016:
| (Euro in thousands) | 01/01/2016 | Increases due to purchases |
Change in the consolidation area |
Decreases | Amortisation | Exchange rate differences |
31/12/2016 |
|---|---|---|---|---|---|---|---|
| Development costs | 11,612 | 5,883 | 3,228 | (49) | (6,114) | 62 | 14,622 |
| Rights and trademarks | 2,215 | 858 | 35 | - | (805) | 2 | 2,305 |
| Assets in progress and advance payments to suppliers |
- | 690 | 1,274 | - | - | - | 1,964 |
| Total intangible assets | 13,827 | 7,431 | 4,537 | (49) | (6,919) | 64 | 18,891 |
As at 31 December 2016, intangible assets net of amortisation totalled Euro 18,891 thousand, up Euro 5,064 thousand on the previous year due to the new development activities started in the rail segment, stringing equipment and in streamlining systems.
Increases for the period totalled Euro 7,431 thousand mainly consisting in Development costs capitalised of Euro 5,883 thousand, which were fully offset by the amortisation of the period (Euro 6,114 thousand).
These costs are related to projects for the development of new products and equipment that are expected to generate positive cash flows in future years.
The change in the consolidation area amounted to Euro 4,537 thousand and was related for Euro 839 thousand to the company acquired during the period (C.P.T. Engineering S.r.l.) and for Euro 3,698 thousand to the line-by-line consolidation of the subsidiary Bertel S.r.l. as from 1 March 2016.
This amount includes as assets in progress and advance payments to suppliers the temporary differential of Euro 116 thousand generated by the acquisition of the company CPT Engineering S.r.l. and of Euro 1,158 thousand by the acquisition of the remaining 60% of the equity investment in the company Bertel S.r.l. in March. As provided by IFRS 3, within 12 months after the transaction (i.e. March 2017), the recording of these acquisitions will be completed through the final allocation of the emerging differential.
The following table shows the changes in intangible assets for the period ended 31 December 2015:
| (Euro in thousands) | 01/01/2015 | Increases due to purchases |
Change in the consolidation area |
Decreases | Reclassifications | Amortisation | Exchange rate differences |
31/12/2015 |
|---|---|---|---|---|---|---|---|---|
| Development costs | 10,365 | 5,769 | - | (23) | - | (4,816) | 317 | 11,612 |
| Rights and trademarks | 386 | 921 | 7 | (2) | 1,550 | (647) | - | 2,215 |
| Assets in progress and advance payments to suppliers |
1,621 | 125 | - | (196) | (1,550) | - | - | - |
| Total intangible assets |
12,372 | 6,815 | 7 | (221) | - | (5,463) | 317 | 13,827 |
The breakdown of Property, plant and equipment as at 31 December 2016 and as at 31 December 2015 is indicated in the table below:
| 31 December | |||||||
|---|---|---|---|---|---|---|---|
| 2016 | 2015 | ||||||
| (Euro in thousands) | Historical cost | Accum. depr. | Net value | Historical cost | Accum. depr. | Net value | |
| Land | 1,934 | (137) | 1,797 | 5,943 | (128) | 5,815 | |
| Buildings | 15,995 | (4,400) | 11,595 | 30,130 | (5,517) | 24,613 | |
| Plant and machinery | 16,424 | (11,767) | 4,657 | 19,609 | (11,711) | 7,898 | |
| Equipment | 6,937 | (5,330) | 1,607 | 6,011 | (4,744) | 1,267 | |
| Other assets | 45,001 | (17,890) | 27,111 | 41,268 | (16,049) | 25,219 | |
| Assets in progress and advance payments to suppliers |
522 | - | 522 | 540 | - | 540 | |
| Total property, plant and equipment |
86,813 | (39,524) | 47,289 | 103,501 | (38,149) | 65,352 |
The following table shows the changes in property, plant and equipment for the period ended 31 December 2016:
| (Euro in thousands) | 01/01/2016 | Increases due to purchases |
Change in the consolidation area |
Decreases | Reclassifications | Depreciation | Exchange rate differences |
31/12/2016 |
|---|---|---|---|---|---|---|---|---|
| Land | 5,815 | - | 189 | (4,205) | - | (9) | 7 | 1,797 |
| Buildings | 24,613 | 111 | 856 | (15,743) | 2,468 | (904) | 194 | 11,595 |
| Plant and machinery | 7,898 | 327 | 54 | (86) | (2,468) | (1,110) | 42 | 4,657 |
| Equipment | 1,267 | 722 | 100 | (65) | (11) | (410) | 4 | 1,607 |
| Other assets | 25,219 | 12,535 | 802 | (8,654) | 11 | (3,478) | 676 | 27,111 |
| Assets in progress and advance payments to suppliers |
540 | - | - | (18) | - | - | - | 522 |
| Total property, plant and equipment |
65,352 | 13,695 | 2,001 | (28,771) | - | (5,911) | 923 | 47,289 |
As at 31 December 2016, property, plant and equipment totalled Euro 47,289 thousand, down compared to the previous year by Euro 18,063 thousand.
The decrease is due to the new lease contract described in paragraph 5.4 Effects of the New lease contract with related parties of Euro 19,948 thousand and to the change in the consolidation area of Euro 2,001 thousand.
The latter concerns the companies acquired during the period (EAM S.r.l. acquired by Group Marais SA and subsequently merged within it and CPT Engineering S.r.l.) of Euro 1,839 thousand and the acquisition of the remaining 60% of the equity investment in the company Bertel S.r.l. of Euro 162 thousand in March.
The reclassification of Euro 2,468 thousand was made for a better accounting of items previously classified as plant and machinery.
The following table shows the changes in property, plant and equipment for the period ended 31 December 2015:
| (Euro in thousands) | 01/01/2015 | Increases due to purchases |
Change in the consolidation area |
Decreases | Reclassifications | Depreciation | Exchange rate differences |
31/12/2015 |
|---|---|---|---|---|---|---|---|---|
| Land | 5,457 | - | 342 | - | - | (6) | 22 | 5,815 |
| Buildings | 24,596 | 72 | - | - | 190 | (867) | 622 | 24,613 |
| Plant and machinery | 6,007 | 233 | 2,732 | (42) | 37 | (1,258) | 189 | 7,898 |
| Equipment | 503 | 264 | 945 | (77) | - | (419) | 51 | 1,267 |
| Other assets | 10,831 | 10,934 | 10,698 | (4,806) | - | (3,217) | 779 | 25,219 |
| Assets in progress and advance payments to suppliers |
722 | 26 | 149 | - | (376) | - | 19 | 540 |
| Total property, plant and equipment |
48,116 | 11,529 | 14,866 | (4,925) | (149) | (5,767) | 1,682 | 65,352 |
The breakdown of equity investments in associates valued using the equity method as at 31 December 2016 and 2015 is indicated in the table below:
| 31 December | ||
|---|---|---|
| (Euro in thousands) | 2016 | 2015 |
| Associated companies: | ||
| Locavert SA | 410 | 403 |
| Bertel S.p.A. | - | 1,079 |
| SEP Moselle 57 | 16 | 15 |
| SEP Semafor 77 | 7 | - |
| SEP Laison Natix 77 | 9 | - |
| Subtotal | 442 | 1,497 |
| Joint Ventures: | ||
| Condux Tesmec Inc | 3,285 | 3,105 |
| Marais Tunisie SA | 142 | 161 |
| Subtotal | 3,427 | 3,266 |
| Total Equity investments in associates valued using the equity method | 3,869 | 4,763 |
Following the application of the equity method to investments - accounting standard adopted by the Group on the Joint ventures - the margin achieved by Tesmec S.p.A. on the machines sold to them and not yet transferred to third-party customers as at 31 December 2016 was reversed against the value of the investment (if not sufficient, by creating a relevant covering provision).
The main financial statements items of associates and Joint Venture are summarised below:
| 31 December 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Euro in thousands) | % held | Revenues | Net income |
Assets | Liabilities | Shareholders' Equity |
Equity investment value in the Consolidated Financial Statements |
Value of provision for risks due to losses |
| Associated companies: | ||||||||
| Locavert SA | 38.63% | 461 | 8 | 648 | 238 | 410 | 410 | - |
| SEP Moselle 57 | 50.00% | 168 | 2 | 93 | 78 | 16 | 16 | - |
| SEP College 77 | 33.00% | 4 | (4) | 56 | 60 | (4) | - | 4 |
| SEP Cergy 95 | 30.00% | 1 | 4 | 12 | 12 | - | - | - |
| SEP Semafor 77 | 33.00% | 7 | 7 | 7 | - | 7 | 7 | - |
| SEP Laison Natix 77 | 33.00% | 9 | 9 | 9 | - | 9 | 9 | - |
| Joint Ventures: | ||||||||
| Condux Tesmec Inc. | 50.00% | 3,981 | 75 | 5,057 | 1,772 | 3,285 | 3,285 | - |
| Tesmec Peninsula | 49.00% | 342 | (145) | 5,015 | 4,795 | 220 | - | 269 |
| Marais Tunisie SA | 49.00% | 85 | (5) | 380 | 197 | 183 | 142 | - |
| Marais Lucas Technologies Pty Ltd. | 50.00% | - | (57) | 302 | 2,173 | (1,871) | - | 1,933 |
The values of the equity investments were tested for impairment. The key assumptions used by Management are estimates of future business plans. The expected earnings flows cover a period of three years subsequent to those of reference of the impairment test and they are based on plans reviewed by Board of Directors on 10 March 2017.
The discount rate used (WACC) - defined as the weighted average cost of capital net of taxes - was differentiated according to the country of reference, the values of which are positioned in a range between 7% and 15%. Cash flows beyond the three years were extrapolated using a growth rate of 1.1%. The results of the impairment test showed that as at 31 December 2016, the recoverable amount of the CGU exceeds the carrying amount. The results underwent also a sensitivity analysis in order to consider the possible effects of changes in the key assumptions underlying the impairment process. This analysis involved a reasonably possible change in the expected growth rate of about +/- 0.25%, the discount rate used of about +/- 2%, and the EBIT value resulting from the Plan of about +/- 10%.
The following table sets forth the breakdown of financial receivables and other non-current assets as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Guarantee deposits | 323 | 472 | |
| Financial receivables from third parties | 1 | 1 | |
| Total financial receivables and other non-current financial assets | 324 | 473 |
Financial receivables and other non-current financial assets compared to the previous financial year decreased by Euro 149 thousand as a result of the return of deposits previously received by the subsidiary Tesmec USA, Inc.
The following table sets forth the breakdown of work in progress contracts as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Work in progress (Gross) | 1,291 | 9,158 | |
| Advances from contractors | - | (5,294) | |
| Work in progress contracts | 1,291 | 3,864 | |
| Advances from contractors (Gross) | - | - | |
| Work in progress (Gross) | - | - | |
| Advances from contractors | - | - |
"Work in progress" refers exclusively to the rail segment where the machinery is produced in accordance with specific customer requirements. "Work in progress" is recognised as an asset if, on the basis of an analysis carried out for each contract, the gross value of work in progress is greater than advances from customers; it is recognised as a liability if the advances are greater than the related work in progress. If the advances are not collected at the reporting date, the corresponding amount is recognised as trade receivables.
The reduction occurred thanks to a billing stream that exceeded the new amount of work in progress on order.
The following table sets forth the breakdown of Inventories as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Raw materials and consumables | 32,803 | 32,886 | |
| Work in progress | 12,360 | 9,824 | |
| Finished products and goods for resale | 23,958 | 16,134 | |
| Advances to suppliers for assets | 106 | 47 | |
| Total Inventories | 69,227 | 58,891 |
The measurement bases of inventories with regard to raw materials and consumables, work in progress, finished goods and merchandise remained unchanged compared to the prior financial period.
In total, inventories increased by 17.6% amounting to Euro 10,336 thousand despite the decrease in revenues in relation to the postponement of some deliveries and to the finalisation of the Indonesian contract.
The changes in the provisions for inventory obsolescence for financial periods ended 31 December 2016 and 2015 are indicated in the table below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 4,960 | 3,318 | |
| Provisions | 320 | 1,012 | |
| Change in the consolidation area | - | 522 | |
| Exchange rate differences | 52 | 108 | |
| Total provisions for inventory obsolescence | 5,332 | 4,960 |
The value of the provisions for inventory obsolescence increased by Euro 372 thousand compared to the prior financial period due to the increase in slow moving material and spare parts.
The adequacy of the provision is assessed on a regular basis to constantly monitor the actual level of inventories recovered through sales.
The table below shows the breakdown of trade receivables as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade receivables from third-party customers | 48,680 | 46,832 | |
| Trade receivables from related parties | 753 | 4,050 | |
| Total trade receivables | 49,433 | 50,882 |
For terms and conditions relating to receivables from related parties, refer to paragraph 35.
Trade receivables from customers as at 31 December 2016 amounted to Euro 49,433 thousand down by Euro 1,449 thousand compared to the 2015.
The decrease in trade receivables from related parties primarily due to the reduction in receivables from the related party M.T.S. Officine meccaniche S.p.A. (from Euro 2,170 thousand in 2015 to Euro 308 thousand in 2016).
financial period mainly for a decrease of trade receivables from related parties. The latter fell by Euro 3,297 thousand mainly due to deconsolidation of the Joint Venture Marais Algerie Sarl amounting to Euro 1,102 thousand, reclassified to trade receivables from third-parties.
The balance of trade receivables is shown net of provisions for doubtful accounts. This provision was calculated in an analytical manner by dividing the receivables in classes depending on the level of customer and Country risk and by applying to each class an expected percentage of loss derived from historical experience.
The changes in the provisions for doubtful accounts for the financial periods ended 31 December 2016 and 2015 are indicated in the table below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 4,064 | 2,138 | |
| Provisions | 420 | 798 | |
| Change in the consolidation area | - | 1,237 | |
| Uses | (1,538) | (153) | |
| Exchange rate differences | 18 | 44 | |
| Total provisions for doubtful accounts | 2,964 | 4,064 |
Provisions and uses related to the provisions for doubtful accounts are included in "other operating (costs)/revenues, net" of the income statement.
The utilisations for the period refer to the positive outcome of cases relating to certain receivables of the Marais Group against which a special fund was prudently set aside.
The following table sets forth the breakdown of tax receivables as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| IRAP receivables | 33 | 8 | |
| IRES receivables | 503 | - | |
| Other direct income taxes | 1,169 | 478 | |
| Total tax receivables | 1,705 | 486 |
The item tax receivables increased compared to the previous financial year of Euro 1,219 thousand mainly due to the recording of direct taxes of the French subsidiary Marais Technologies SAS.
The following table sets forth the breakdown of financial receivables and other current financial assets as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Financial receivables from related parties | 8,944 | 11,497 | |
| Financial receivables from third parties | 47 | 287 | |
| Other current financial assets | 58 | 65 | |
| Total financial receivables and other current financial assets | 9,049 | 11,849 |
The decrease in current financial assets from Euro 11,849 thousand to Euro 9,049 thousand is mainly due to the decrease in credit positions relating to specific contracts signed with JV related parties on which an interest rate is applied and repayable within 12 months, and to the acquisition of the remaining 60% of the company Bertel S.r.l., which led to the line-by-line consolidation of the company compared to the 2015 financial period during which the consolidation occurred with the equity method.
The following table sets forth the breakdown of other current assets as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Prepaid expenses | 785 | 680 | |
| VAT credit | 1,242 | 2,576 | |
| Other receivables | 349 | 879 | |
| Advance to suppliers for services | 314 | 179 | |
| Other tax receivables | 126 | 23 | |
| Total Other current assets | 2,816 | 4,337 |
Other current assets is considered receivable and therefore was not subject to value adjustment.
VAT credit, which amounted to Euro 1,242 thousand as at 31 December 2016, decreased by Euro 1,334 thousand compared to 31 December 2015 in relation to the decrease in sales for the period and, as a result, to less purchases of materials.
The following table sets forth the breakdown of the item as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Bank and post office deposits | 18,471 | 20,509 | |
| Cash on hand | 23 | 59 | |
| Other cash | 7 | 636 | |
| Total cash and cash equivalents | 18,501 | 21,204 |
Cash and cash equivalents are deposited in current deposits and they are remunerated at a floating rate related to the Euribor trend. The balance as at 31 December amounts to Euro 18,501 thousand and decreased of Euro 2,703 thousand.
Cash and cash equivalents are recorded in Tesmec S.p.A. for Euro 14,524 thousand, Tesmec USA, Inc. for Euro 947 thousand, Tesmec Service S.r.l. for Euro 1,451 thousand and the other companies of the Group for total amount of Euro 1,549 thousand. The stated values can be readily converted into cash and are subject to a non-significant risk of change in value. The book value of cash and cash equivalents is deemed to be aligned to their fair value at the end of the reporting period.
The Group believes that the credit risk related to cash and cash equivalents is limited since it mainly represents deposits divided across domestic and international banking institutions.
Share capital and reserves
The share capital amounts to Euro 10,708 thousand, fully paid up, and comprises 107,084,000 shares with a par value of Euro 0.1 per share.
The following table sets forth the breakdown of Other reserves as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Revaluation reserve | 86 | 86 | |
| Extraordinary reserve | 25,294 | 20,559 | |
| Change in the consolidation area | 125 | (900) | |
| Severance indemnity valuation reserve | (479) | (278) | |
| Network Reserve | 824 | 794 | |
| Retained earnings/(losses brought forward) | 2,380 | 3,759 | |
| Bills charged directly to shareholders' equity | |||
| on operations with entities under common control | (4,048) | (4,048) | |
| Total other reserves | 24,182 | 19,972 |
The revaluation reserve is a reserve in respect of which tax has been deferred, set up in accordance with Italian Law 72/1983.
The value of translation differences has a negative impact on Shareholders' Equity of Euro 829 thousand as at 31 December 2016.
As a result of the resolution of 29 April 2016, with the approval of the 2015 financial statements, the Shareholders' Meeting of Tesmec S.p.A. decided to allocate the profit of the Parent Company of Euro 7,412 thousand, as follows:
Medium/long-term loans include medium-long term loans from banks, payables towards other providers of finance and payables towards leasing companies for tangible fixed assets recorded in the consolidated financial statements in accordance with the financial leasing accounting method. The following table shows the breakdown thereof as at 31 December 2016 and as at 31 December 2015, with separate disclosure of the current portion:
| 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | of which current portion |
2015 | of which current portion |
| Banca Nazionale del Lavoro – loan at floating interest rate with a 2- year pre-amortisation; original value Euro 6 million; drawn down on 1 July 2010 with maturity date 31 May 2018; floating interest rate equivalent to 6-month Euribor rate + spread of 2.25%, half-yearly repayment. |
1,846 | 1,846 | 2,769 | 923 |
| BNL-BNP Paribas Group - loan in pool; original value Euro 21 million, drawn down on 11 March 2011 Euro 8 million with maturity date 4 March 2016, floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25). On 4 and 5 August 2011, Euro 4 million, on 9 November 2011, Euro 2 million, on 9 February 2012, Euro 2 million, on 31 May 2012, Euro 2 million and on 23 October 2012, another Euro 3 million with maturity date 4 March 2013, floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25) with option to extend repayment in 54 months (in 9 deferred half-yearly instalments) last instalment expiring on 4 September 2017, 6-month Euribor rate + spread of 1.90% (+/- 0.25), half-yearly repayment. |
1,922 | 1,922 | 6,093 | 4,169 |
| Simest UGF - loan for a total of Euro 1.9 thousand and drawn down the first tranche of Euro 580 thousand on 28 March 2013 with maturity date 14 February 2020, special annual interest rate of 0.4994% and second tranche of Euro 397 thousand to be used as from 14 March 2014 with maturity date 14 February 2020, special annual interest rate of 0.4994%, two months of prepayment and half-yearly repayment. |
990 | 283 | 1,273 | 283 |
| Cariparma - loan of Euro 1.5 million, drawn down on 21 October 2013 with maturity date 21 October 2017, floating interest rate equivalent to 3-month Euribor rate + spread of 3%, quarterly repayment. |
389 | 389 | 767 | 378 |
| Banca Popolare dell'Emilia Romagna – unsecured loan; original value Euro 3 million; drawn down on 20 November 2013 with maturity date 7 November 2016; floating interest rate equivalent to 3-month Euribor rate + spread of 3.5%, quarterly repayment. |
- | - | 1,031 | 1,031 |
| Banco di Desio - unsecured loan of Euro 1.5 million, drawn down on 10 December 2013 with maturity date 10 December 2016, floating interest rate equivalent to 3-month Euribor rate + spread of 4%, amended on 11 November 2015 in Euribor 6-month + 2%, one month of prepayment and monthly repayment. |
- | - | 518 | 518 |
| Veneto Banca - unsecured loan of Euro 2.5 million, drawn down on 23 December 2013 with maturity date 31 December 2018, floating interest rate equivalent to 6-month Euribor rate + spread of 1.30%, half-year repayment. |
234 | 117 | 1,546 | 506 |
| BCC Chiro - loan of Euro 3.5 million 70% backed by Sace guarantee, drawn down on 27 March 2014 with maturity date 27 March 2022, floating interest rate equivalent to 6-month Euribor rate + spread of 3.95%, one year of prepayment and half-year repayment. |
2,570 | 2,570 | 3,036 | 465 |
| Sondrio - loan of Euro 1 million, drawn down on 4 August 2014 with maturity date 31 August 2017, floating interest rate equivalent to 1- month Euribor rate + spread of 3.5%, monthly repayment. |
231 | 231 | 568 | 337 |
| Banca Popolare di Bergamo - loan of Euro 1.5 million, drawn down on 9 October 2014 with maturity date 9 October 2016, floating interest rate equivalent to 3-months Euribor rate + spread of 2.25%, monthly repayment. |
- | - | 630 | 630 |
|---|---|---|---|---|
| Banca Carige S.p.A. - loan of Euro 2 million, drawn down on 27 March 2015 with maturity date 31 December 2018, floating interest rate equivalent to 3-month Euribor rate + spread of 1.75%, 6 months of prepayment and half-year repayment. |
1,153 | 571 | 1,714 | 561 |
| Cariparma - loan of Euro 4 million, drawn down on 26 March 2015 with maturity date 26 March 2020, floating interest rate equivalent to 6-month Euribor rate + spread of 2.50%, six months of prepayment and half-year repayment. |
3,072 | 3,072 | 3,949 | 877 |
| Monte dei Paschi di Siena - loan of Euro 5 million, drawn down on 11 August 2015 with maturity date 30 September 2020, floating interest rate equivalent to 6-months Euribor rate + spread of 1.90%, six months of prepayment and quarterly repayment. |
4,139 | 1,104 | 4,965 | 826 |
| Veneto Banca - loan of Euro 2 million, drawn down on 28 September 2015 with maturity date 30 September 2019, floating interest rate equivalent to 6-month Euribor rate + spread of 1.3%, monthly repayment. |
1,376 | 495 | 1,866 | 484 |
| Banca di Desio - loan of Euro 1.8 million, drawn down on 27 October 2015 with maturity date 10 May 2020, fixed interest rate of 1.85%, seven months of prepayment and monthly repayment. |
1,538 | 440 | 1,790 | 252 |
| Credito Valtellinese - loan of Euro 3 million, drawn down on 15 December 2015 with maturity date 5 January 2019, floating interest rate equivalent to 3-month Euribor rate + spread of 1.65%, one month of prepayment and monthly repayment. |
2,074 | 986 | 2,963 | 889 |
| Banca Popolare dell'Emilia Romagna - loan of Euro 5 million, drawn down on 18 December 2015 with maturity date 18 March 2021, floating interest rate equivalent to 3-month Euribor rate + spread of 1.85%, 3 months of prepayment and quarterly repayment. |
4,239 | 967 | 4,950 | 711 |
| Banca Popolare di Milano - loan of Euro 5 million, drawn down on 08 April 2016 with maturity date 30 April 2021, floating interest rate equivalent to 3-months Euribor rate + spread of 1.80%, monthly repayment. |
4,347 | 4,347 | - | - |
| Banco Popolare - loan of Euro 2.750 million, drawn down on 29 April 2016 with maturity date 15 December 2020, floating interest rate equivalent to 6-month Euribor rate + spread of 1.70%, 2 months of prepayment and half-year repayment. |
2,741 | 685 | - | - |
| Banca del Mezzogiorno - loan of Euro 5 million, drawn down on 23 June 2016 with maturity date 30 June 2021, floating interest rate equivalent to 6-month Euribor rate + spread of 2%, monthly repayment. |
4,491 | 4,491 | - | - |
| Banca Popolare di Milano - loan of Euro 4 million, drawn down on 06 July 2016 with maturity date 31 July 2017, floating interest rate equivalent to 3-months Euribor rate + spread of 0.80%, monthly repayment. |
3,110 | 3,110 | - | - |
| Banco di Desio e Brianza - loan of Euro 700 thousand, drawn down on 19 July 2016 with maturity date 10 January 2018, floating interest rate equivalent to 6-month Euribor rate + spread of 1%, one month of prepayment and monthly repayment. |
535 | 494 | - | - |
| Unipol Banca - loan of Euro 2 million, drawn down on 27 October 2016 with maturity date 31 October 2019, floating interest rate equivalent to 3-months Euribor rate + spread of 1.90%, monthly repayment |
1,878 | 651 | - | - |
| Banca Popolare di Bergamo - loan of Euro 2 million, drawn down on 11 November 2016 with maturity date 11 May 2019, floating interest rate equivalent to 3-months Euribor rate + spread of 1.75%, monthly repayment |
1,927 | 788 | - | - |
| Credito Adesso Creval - loan of Euro 1.5 million, drawn down on 15 December 2016 with maturity date 30 April 2020, floating interest rate equivalent to 6-month Euribor rate + spread of 3.75%, half-year repayment |
1,476 | 242 | - | - |
| Comerica - unsecured loan received by TESMEC USA and guaranteed by a building owned by this company; amounting to USD 4.7 million, drawn down on 3 July 2013 with maturity date 3 July 2018, monthly repayment with constant principal and floating interest rate equivalent to 1-month LIBOR + spread 3.25%. |
3,499 | 326 | 3,588 | 285 |
|---|---|---|---|---|
| Pret senior - loan received from Marais Technologies SAS of Euro 17 million, drawn down on 10 February 2009 with maturity date 1 April 2020, annual repayment and fixed interest rate of 2.45%. |
4,180 | 1,045 | 5,725 | 1,545 |
| BPI - loan received from Group Marais of Euro 250 thousand, drawn down on 29 November 2013 with maturity date 30 June 2021, quarterly repayment as from 31 March 2016 and interest rate 0%. |
238 | 63 | 250 | 25 |
| Emprunt ICCREA + 1 AN - loan received from Group Marais of Euro 4 million, drawn down on 20 September 2016 with maturity date 20 September 2019, floating interest rate equivalent to 3-month Euribor rate + spread of 1.85%, quarterly repayment. |
3,667 | 1,333 | - | - |
| Emprunt EAM trancheuse Tesmec - loan received from EAM S.r.l. (now Group Marais) of Euro 132 thousand, drawn down on 20 September 2016 with maturity date 20 September 2019, interest rate of 2.14%, quarterly repayment. |
52 | 45 | - | - |
| Equipment finance - loan received from Marais Laying NZ of \$ 90 thousand, taken out on 23 May 2016, with maturity date 30 November 2017, base floating interest rate of 5.7% plus a 1.25% margin, monthly repayment. |
37 | 37 | - | - |
| Mutuo Chiro Banca Pop Cassinate - loan received from CPT Engineering S.r.l. of Euro 200 thousand, drawn down on 17 July 2012 with maturity date 16 July 2018, floating interest rate equivalent to 3- month Euribor rate + spread of 2%, monthly repayment. |
68 | 43 | - | - |
| Mutuo BCC Anagni - loan received from CPT Engineering S.r.l. of Euro 200 thousand, drawn down on 27 March 2015 with maturity date 27 March 2020, floating interest rate equivalent to 3-month Euribor rate + spread of 1.5%, monthly repayment. |
136 | 39 | - | - |
| Mutuo Ipotecario Banca Intesa - loan received from CPT Engineering S.r.l. of Euro 600 thousand, drawn down on 01 June 2004 with maturity date 30 June 2021, floating interest rate equivalent to 6- month Euribor rate + spread of 1.4%, half-yearly repayment. |
213 | 45 | - | - |
| Banca Popolare dell'Emilia - loan received from Bertel Srl of Euro 500 thousand, drawn down on 01 July 2014 with maturity date 27 December 2017, floating interest rate equivalent to 3-month Euribor rate + spread of 4.5%, monthly repayment. |
175 | 175 | - | - |
| Total Interest-bearing financial payables | 58,543 | 32,952 | 49,991 | 15,695 |
| Less current portion | (32,952) | (15,695) | ||
| Non-current portion of interest-bearing financial payables | 25,591 | 34,296 | ||
| Loan due to Simest | 11,406 | 11,406 | ||
| Total medium-long term loans | 36,997 | 45,702 | ||
| Non-current portion of finance leases | 3,283 | 1,099 | 19,428 | 2,455 |
| Less current portion | (1,099) | (2,455) | ||
| Non-current portion of finance leases, net | 2,184 | 16,973 | ||
| Total current portion | 34,051 | 18,150 | ||
| Medium/long-term loans | 39,181 | 62,675 |
ICCREA-BCC, BNL, Comerica and Banca del Mezzogiorno loan contracts contain financial covenant clauses. In particular, they require that certain parameters, calculated on the basis of the financial statements of the Group and of the financial statements of Tesmec USA, have to be met; they are verified on a semi-annual and annual basis.
In general, covenants are based on the observance of the following relations:
Net financial indebtedness/Shareholders' equity
Effective Net Worth
Based on the results of the financial statements of the Company and of the Tesmec Group, some expected covenants on medium to long-term loans have not been observed.
Following the failure to comply with certain covenants of a financial nature, some medium and long-term loans have been fully reclassified as short term, according to the requirements of International Accounting Standards, for a total counter value of EUR 12,273. The Group has promptly initiated with the relevant credit institutions procedures for obtaining waivers for the year 2016 in relation to the said non-compliance with the covenants. At present, the Group believes that the waiver will be granted in the necessary technical due times. Such a consideration is supported both from the first few positive banks feedback and from the 2017 budget which forecasts revenues of between 160 and 170 million euro, against which it is reasonable to assume an EBITDA of around 15%, in line with the Group historical data, and a significant improvement in Net Financial Debt.
Note that during 2016 new medium to long term loans were opened for a value of Euro 23,741 thousand against a total value of the same lines repaid of Euro 35,593 thousand (of which Euro 14,743 thousand related to the new lease contract described in paragraph 5.4 Effects of the New lease contract with related parties.
The average cost of indebtedness is benchmarked to the trend of the 3-month Euribor rates plus a spread applied depending also on the type of the financial instrument used.
The table below shows the figures relevant to the outstanding loans of the Company as at 31 December 2016, by indicating the portion due within one year, within 5 years and after more than 5 years:
| Residual | Portion | |||||
|---|---|---|---|---|---|---|
| value as at | Portion | Portion | after | |||
| Description | Maturity | Interest rate | 31 | within 12 | within | more |
| December | months | 5 years | than 5 | |||
| 2016 | years | |||||
| Banca Nazionale del Lavoro |
31-May-18 | floating interest rate equivalent to 6-month Euribor rate + spread of 2.25% |
1,846 | 1,846 | - | - |
| Banca Nazionale del Lavoro |
04-Mar-16 | floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25) |
||||
| Banca Nazionale del Lavoro |
04-Sep-17 | floating interest rate equivalent to 6-month Euribor rate + spread of 1.90% (+/- 0.25) |
1,922 | 1,922 | - | - |
| Simest UGF | 04-Feb-20 | special annual interest rate of 0.4994% | 990 | 283 | 707 | - |
| Cariparma | 21-Oct-17 | floating interest rate equivalent to 3-months Euribor rate + spread 3% |
389 | 389 | - | - |
| Veneto Banca | 31-Dec-18 | floating interest rate equivalent to 6-months Euribor rate + spread 1.3%. |
234 | 117 | 117 | - |
| BCC Chiro | 27-Mar-22 | floating interest rate equivalent to 6-months Euribor rate + spread 3.95% |
2,570 | 2,570 | - | - |
| Sondrio | 31-Aug-17 | floating interest rate equivalent to 1-month Euribor + spread 3.5% |
231 | 231 | - | - |
| Banca Carige S.p.A. | 31-Dec-18 | floating interest rate equivalent to 3-months Euribor rate + spread 1.75%. |
1,153 | 571 | 582 | - |
| Cariparma | 26-Mar-20 | floating interest rate equivalent to 6-months Euribor rate + spread 2.50%. |
3,072 | 3,072 | - | - |
| Monte dei Paschi di Siena |
30-Sep-20 | floating interest rate equivalent to 6-months Euribor rate + spread 1.90%. |
4,139 | 1,104 | 3,035 | - |
| Veneto Banca | 30-Sep-19 | floating interest rate equivalent to 6-months Euribor rate + spread 1.3%. |
1,376 | 495 | 881 | - |
| Banca di Desio | 10-May-20 | fixed interest rate 1.85% | 1,538 | 440 | 1,098 | - |
| Credito Valtellinese | 05-Jan-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.65% |
2,074 | 986 | 1,088 | - |
| Banca Popolare dell'Emilia Romagna |
18-Mar-21 | floating interest rate equivalent to 3-months Euribor rate + spread 1.85%. |
4,239 | 967 | 3,013 | 259 |
| Banca Popolare di Milano |
30-Apr-21 | floating interest rate equivalent to 3-months Euribor rate + spread 1.80% |
4,347 | 4,347 | - | - |
|---|---|---|---|---|---|---|
| Banco Popolare | 15-Dec-20 | floating interest rate equivalent to 6-months Euribor rate + spread 1.70% |
2,741 | 685 | 2,056 | - |
| Banca del Mezzogiorno | 30-Jun-21 | floating interest rate equivalent to 6-months Euribor rate + spread 2% |
4,491 | 4,491 | - | - |
| Banca Popolare di Milano |
31-Jul-17 | floating interest rate equivalent to 3-months Euribor rate + spread 0.80% |
3,110 | 3,110 | - | - |
| Banco di Desio e Brianza | 10-Jan-18 | floating interest rate equivalent to 6-months Euribor rate + spread 1% |
535 | 494 | 41 | - |
| Unipol Banca | 31-Oct-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.90% |
1,878 | 651 | 664 | 563 |
| Banca Popolare di Bergamo |
11-May-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.75% |
1,927 | 788 | 801 | 338 |
| Credito Adesso Creval | 30-Apr-20 | floating interest rate equivalent to 6-months Euribor rate + spread 3.75% |
1,476 | 242 | 1,234 | |
| Coamerica | 03-Jul-18 | floating interest rate equivalent to 1-month LIBOR + spread 3.25% |
3,499 | 326 | 1,210 | 1,963 |
| Pret senior | 01-Apr-20 | fixed interest rate 2.45% | 4,180 | 1,045 | 3,135 | - |
| BPI | 30-Jun-21 | interest rate 0% | 238 | 63 | 175 | - |
| Emprunt ICCREA | 20-Sep-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.85% |
3,667 | 1,333 | 2,334 | - |
| Emprunt EAM trancheuse Tesmec |
20-Sep-19 | fixed interest rate 2.14% | 52 | 45 | 7 | - |
| Equipment finance | 30-Nov-17 | base floating rate of 5.7% plus a 1.25% margin | 37 | 37 | - | - |
| Mutuo Chiro Banca Pop Cass |
16-Jul-18 | floating interest rate equivalent to 3-months Euribor rate + spread 2% |
68 | 43 | 25 | - |
| Mutuo BCC Anagni | 27-Mar-20 | floating interest rate equivalent to 3-months Euribor rate + spread 1.5% |
136 | 39 | 97 | - |
| Mutuo Ipotecario Banca Intesa |
30-Jun-21 | floating interest rate equivalent to 6-months Euribor rate + spread 1.4% |
213 | 45 | 168 | - |
| Banca Popolare dell'Emilia |
27-Dec-17 | floating interest rate equivalent to 3-months Euribor rate + spread 4.5% |
175 | 175 | - | - |
| Total | 58,543 | 32,952 | 22,468 | 3,123 |
As required by CONSOB Communication of 28 July 2006 and in compliance with CESR Recommendation of 10 February 2005 "Recommendations for the consistent implementation of the European Commission's Regulation on Prospectuses", the Group's net financial indebtedness is as follows:
| 31 December | ||||||
|---|---|---|---|---|---|---|
| (Euro in thousands) | 2015 | of which with related parties and group |
2014 | of which with related parties and group |
||
| Cash and cash equivalents | (18,501) | (21,204) | ||||
| Current financial assets (1) | (9,053) | (7,608) | (11,871) | (11,499) | ||
| Current financial liabilities | 70,010 | 33 | 45,178 | 1,241 | ||
| Current portion of derivative financial instruments | 110 | 14 | ||||
| Current financial indebtedness (2) | 42,566 | (7,575) | 12,117 | (10,258) | ||
| Non-current financial liabilities | 53,916 | - | 77,409 | 14,743 | ||
| Non-current portion of derivative financial instruments | 209 | 350 | ||||
| Non-current financial indebtedness (2) | 54,125 | - | 77,759 | 14,743 | ||
| Net financial indebtedness pursuant to CONSOB Communication No. DEM/6064293/2006 |
96,691 | (7,575) | 89,876 | 4,485 |
(1) Current financial assets as at 31 December 2016 and 31 December 2015 include the market value of shares and warrants, which are therefore considered cash and cash equivalents.
(2) Current and non-current financial indebtedness is not identified as an accounting element by the IFRS. The valuation criteria applied by the Group may not necessarily be the same as those adopted by other groups and therefore the balances obtained by the Group may not be comparable therewith.
Net indebtedness as at 31 December 2016 stood at Euro 96,691 thousand (Euro 89,876 thousand as at 31 December 2015) increasing by Euro 6,815 thousand.
The change is related to the postponement of revenues especially in the last quarter of 2016 that determined the increase in warehouse values as at 31 December generating a level of working capital higher than expected offset by the benefits of the effects of the new lease contract described in paragraph 3.4 Effects of the New lease contract with related parties of Euro 17,717 thousand.
The table below shows the breakdown of the following changes:
This table shows the comparison between the book value and the fair value of the financial instruments as at 31 December 2016:
| (Euro in thousands) | Book value as at 31 December 2016 |
Fair value |
|---|---|---|
| Financial liabilities: | ||
| Loans (*) | 89,580 | 96,211 |
| Non-current portion of finance leases, net | 3,283 | 3,401 |
| Total | 92,863 | 99,612 |
(1) The item includes the value of short-term loans to third parties of Euro 4,896 thousand classified in item "Interest-bearing financial payables (current portion)".
The Group signed some contracts related to derivative financial instruments whose contractual characteristics and related fair value as at 31 December 2016 and 2015 are shown in the table below:
| Counterparts | Type | Debt interest rate (fixed) | Credit interest rate (variable) |
Start date | Maturity date |
Notional principal |
Fair Value (Euro/000) as at 31 December |
||
|---|---|---|---|---|---|---|---|---|---|
| (Euro) | 2016 | 2015 | |||||||
| BNL | IRS | 1.15% 1st year; 1.65% | 3-month Euribor | 01/01/2011 | 31/05/2018 | 1,846,154 | (65) | (128) | |
| 2nd year; 2% 3rd year; | |||||||||
| 2.60% five following years | |||||||||
| BNL | IRS | Fixed interest rate 2.57% | 3-month Euribor | 05/09/2011 | 04/03/2016 | - | - | (14) | |
| BNL | IRS | Fixed interest rate 1.49% | 3-month Euribor | 04/03/2012 | 04/09/2017 | 1,506,844 | (19) | (58) | |
| BNL | IRS | Fixed interest rate 0.8% | 3-month Euribor | 04/03/2013 | 04/09/2017 | 1,382,044 | (10) | (29) |
| Liabilities for derivative instruments beyond the financial period | (209) | (350) | ||||||
|---|---|---|---|---|---|---|---|---|
| Liabilities for derivative instruments within the financial period | (110) | (14) | ||||||
| Assets for derivative instruments beyond the financial period | 3 | 11 | ||||||
| Assets for derivative instruments within the financial period | 2 | - | ||||||
| HSBC | FLEXIBLE | - | - | 01/07/2017 | 29/08/2017 | 501,097 | 1 | - |
| HSBC | FLEXIBLE | - | - | 31/05/2017 | 03/07/2017 | 505,310 | (2) | - |
| HSBC | FLEXIBLE | - | - | 30/06/2017 | 27/07/2017 | 591,214 | (3) | - |
| HSBC | FLEXIBLE | - | - | 05/05/2017 | 01/06/2017 | 1,145,813 | (4) | - |
| HSBC | FLEXIBLE | - | - | 05/06/2017 | 03/07/2017 | 1,338,732 | (6) | - |
| HSBC | FLEXIBLE | - | - | 01/07/2017 | 29/08/2017 | 590,031 | 1 | - |
| HSBC | FLEXIBLE | - | - | 31/03/2017 | 10/05/2017 | 1,416,612 | (15) | - |
| HSBC | FLEXIBLE | - | - | 02/03/2017 | 18/04/2017 | 3,204,723 | (36) | - |
| HSBC | FLEXIBLE | - | - | 18/04/2017 | 29/05/2017 | 1,411,836 | (15) | - |
| Banca Popolare di Milano |
IRS | Fixed interest rate 0.12% | 3-month Euribor | 31/01/2017 | 30/04/2021 | 4,275,556 | (7) | - |
| Banco Popolare | IRS | Fixed interest rate 0.06% | 6-month Euribor | 03/10/2016 | 15/12/2020 | 2,750,000 | (10) | - |
| Comerica | IRS | Fixed interest rate 1.74% | USD-Libor-BBA | 12/01/2015 | 07/01/2018 | 3,878,419 | (37) | (62) |
| Monte dei Paschi di Siena |
CAP | Interest rate for the period 0.61% |
6-month Euribor | 31/12/2016 | 30/09/2020 | 4,166,667 | (44) | (19) |
| Cariparma | CAP | Interest rate for the period 0.75% |
3-month Euribor | 21/01/2014 | 23/10/2017 | 585,469 | - | - |
| Emilia Romagna | CAP | Interest rate for the period 0.50% |
3-month Euribor | 07/05/2014 | 07/11/2016 | - | - | - |
| Iccrea | CAP | Interest rate for the period 0.75% |
6-month Euribor | 27/09/2015 | 27/09/2020 | 2,357,143 | 3 | 11 |
| Cariparma | IRS | Fixed interest rate 0.34% | 6-month Euribor | 07/05/2015 | 26/03/2020 | 3,555,556 | (30) | (26) |
| Veneto Banca | IRS | Fixed interest rate 1.09% | 6-month Euribor | 31/12/2013 | 31/12/2018 | 1,064,634 | (16) | (28) |
The Group uses derivative financial instruments in order to hedge the interest-rate risk and the exchange-rate risk. The transactions for interest-rate risk hedging are limited to medium to long term loans. These hedging transactions are mainly related to medium-term loans. The exchange-rate hedging transactions are limited to the amounts of the Indonesian commissions in the tending industry.
The Group does not account for these financial instruments according to the methods established for hedge accounting since they do not meet all the requirements provided on this matter by the international accounting standards. Therefore, the changes in fair value of the financial instruments are attributed to the income statement during the financial period under review.
The financial management of the Group does not envisage the trading of derivative instruments with speculative purposes.
The Group has no defined benefit pension plans in the strict sense. However, the severance indemnity fund allocated by the Parent Company and Italian subsidiaries required by Article 2120 of the Italian Civil Code, in terms of recognition in the financial statements, falls under this type and as such was accounted for, as shown in the applied accounting policies.
The following table shows the changes for the period ended 31 December 2016 and 31 December 2015 of employee benefits:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Present value of the liability at the beginning of the period | 2,847 | 3,016 | |
| Financial expense | 59 | 48 | |
| Service Cost | 131 | (25) | |
| Change in the consolidation area | 310 | - |
| Benefits accrued | 368 | 132 |
|---|---|---|
| Benefits paid | (279) | (270) |
| Financial loss (profit) | 260 | (112) |
| Demographic loss (profit) | (16) | 58 |
| Present value of the liability at the end of the period | 3,680 | 2,847 |
With the adoption of the IFRS, the severance indemnity is considered a defined-benefit liability to be accounted for in accordance with IAS 19 and, as a result, the relevant liability is measured based on actuarial techniques. The main assumptions used in determining the present value of the severance indemnity are shown below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Annual discount rate | 1.30% | 2.00% | |
| Inflation rate | 1.50% | 1.50% | |
| Expected turnover rate of employees | 3.00% | 3.00% | |
| Advance rate | 2.00% | 2.00% |
The sensitivity analyses are shown below by using an annual discount rate of +0.5% and -0.5% compared to the annual discount rate used on the valuation date.
| Discount rate | |||
|---|---|---|---|
| (Euro in thousands) | 0.50% | -0.50% | |
| Effect on the aggregate current cost of the service and of the financial expenses | 224 | 219 | |
| Reported value for liabilities with respect to defined benefit plans | 3,443 | 3,872 |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Mortality | 2004 ISTAT tables | 2004 ISTAT tables | |
| Disability | INPS tables | INPS tables | |
| Retirement age | 67 N/F | 67 N/F |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Advance frequency % | 0.95% | 0.97% | |
| Turnover frequency % | 33.49% | 21.51% |
The average number of employees by company, expressed in terms of full-time employees is shown in the following table:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (average no. of employees) | 2016 | 2015 | 2016 vs. 2015 | % |
| Tesmec S.p.A. | 315 | 307 | 8 | 2.6% |
| Tesmec Service S.r.l. | 37 | 37 | - | 0.0% |
| Tesmec USA, Inc. | 81 | 114 | (33) | -28.9% |
| Tesmec SA (Pty) LTD | 14 | 11 | 3 | 27.3% |
| OOO Tesmec RUS | 8 | 7 | 1 | 14.3% |
| Bertel S.r.l. | 11 | - | 11 | 100.0% |
| SGE S.r.l. | 13 | 11 | 2 | 18.2% |
| CPT S.r.l. | 12 | - | 12 | 100.0% |
| Tesmec New Technology Beijing LTD | 3 | 4 | (1) | -25.0% |
| Marais Group | 156 | 78 | 78 | 100.0% |
| Total | 650 | 569 | 81 | 14.2% |
The average number of employees as at 31 December 2016 shows the growing trend of the Group in 2016 mainly related to the acquisition of the remaining 60% of the company Bertel S.r.l. and of the acquisition of the company CPT Engineering S.r.l. and Marais (remember that the Group Marais was acquired in April 2015 and the average number of employees in 2015 reflects consolidation for only nine months).
The following table sets forth the breakdown of Interest bearing financial payables (current portion) for the 2016 and 2015 financial periods:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Advances from banks against invoices and bills receivables | 28,011 | 18,403 | |
| Other financial payables (short-term leases) | 1,099 | 2,455 | |
| Payables due to factoring companies | 2,201 | 4,822 | |
| Current account overdrafts | 779 | 22 | |
| Short-term loans to third parties | 4,896 | 3,806 | |
| Current portion of medium/long-term loans | 32,952 | 15,695 | |
| Other short-term financial payables | 72 | 37 | |
| Total interest-bearing financial payables (current portion) | 70,010 | 45,240 |
The current portion of medium/long-term loans increased by Euro 24,770 thousand following the reclassification of short-term portion of medium/long-term loansfor Euro 12,273 thousand because of failure to comply with contractual obligations related to financial covenants with reference to the financial statements of the Group as described in paragraph 19. The increase in payables due to factoring companies is due to the increased use of "reverse factoring" for third suppliers who met an increasing popularity especially in the range of small and medium-sized suppliers.
The breakdown of Trade payables as at 31 December 2016 and as at 31 December 2015, respectively, is indicated in the table below:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade payables due to third-parties | 31,044 | 38,850 | |
| Trade payables due to related parties | 153 | 199 | |
| Total trade payables | 31,197 | 39,049 |
Trade payables as at 31 December 2015 decreased by Euro 7,852 thousand, 20.1% compared to the previous financial period as a result of a lower volume of purchases due to the reduction in sales.
This figure includes payables related to the normal course of business by the Group, in particular the purchase of raw materials and outsourced works.
Note also that there are no payables with maturity exceeding five years at the above dates.
The breakdown of Income taxes payable as at 31 December 2016 and as at 31 December 2015, respectively, is indicated in the table below:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Current IRES tax liabilities | 77 | 2,590 | |
| Current IRAP tax liabilities | 54 | 339 | |
| Other current taxes | 68 | 4 | |
| Total income taxes payable | 199 | 2,933 |
IRES and IRAP taxes payable as at 31 December 2016 includes the net payable due by the Group for the payment of direct income taxes and the decrease for the period is related to the parent company Tesmec S.p.A.
Provisions for risks and charges mainly refers to the product guarantee fund and partially to the adjustment of the value of consolidated investments by using the equity method. With reference to the guarantee fund, the calculation is based on a historical, statistical and technical analysis of the interventions under guarantee carried out on sales in prior financial periods and includes both the cost of labour and that for spare parts used.
Changes in the provisions for risks and charges as at 31 December 2016 and as at 31 December 2015 are indicated below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 3,392 | 1,040 | |
| Provisions | 451 | 100 | |
| Change in the consolidation area | - | 2,709 | |
| Uses | (154) | (479) | |
| Exchange-rate differences | 15 | 22 | |
| Value as at 31 December | 3,704 | 3,392 |
The following table sets forth the breakdown of Other current liabilities as at 31 December 2016 and 2015:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Due to social security | 1,891 | 2,395 | |
| Due to INAIL (National Insurance Institute for Industrial Accidents) | 191 | 168 | |
| Due to trade funds | 169 | 162 | |
| Due to employees and collaborators | 3,259 | 2,601 | |
| Guarantee deposits payable | 739 | - | |
| Due to others | 1,918 | 1,170 | |
| Accrued expenses and liabilities | 340 | 603 | |
| Other current taxes | 1,364 | 788 | |
| Total other current liabilities | 9,871 | 7,887 |
Other current liabilities increased compared to the prior financial period of Euro 1,984 thousand and refers to Guarantee deposits payable in connection with machinery rental contracts.
Deferred tax assets and liabilities
The following table sets forth the breakdown of deferred taxes as at 31 December 2016 and 2015:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Deferred tax assets | 11,520 | 8,844 | |
| Deferred tax liabilities | 7,870 | 8,255 |
The breakdown of net deferred taxes as at 31 December 2016 and 2015 is shown in the following table by type by listing the items that present underlying temporary differences:
| 31 December | 31 December | Financial period ended 31 December |
|||||
|---|---|---|---|---|---|---|---|
| Statement of financial position |
Shareholders' equity | Income statement | |||||
| (Euro in thousands) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Deferred tax assets | |||||||
| Reversals of intangible assets | 55 | 86 | - | - | (31) | 17 | |
| Obsolescence fund | 1,375 | 952 | - | - | 423 | 218 | |
| Unrealised exchange-rate losses | 470 | 736 | - | - | (266) | 362 | |
| Tax effect on UCC gain reversals | 241 | 334 | - | - | (93) | (58) | |
| Tax effect on intercompany margin adjustments | 1,123 | 1,111 | 120 | 356 | (108) | (30) | |
| Deferred tax assets Tesmec USA | 3,303 | 2,290 | 182 | (254) | 831 | 1,944 | |
| Deferred tax assets Bertel | 757 | - | 602 | - | 155 | - | |
| Deferred tax assets Marais Group | 2,500 | 2,695 | 197 | 2,695 | (392) | - | |
| Other temporary differences | 1,696 | 640 | 68 | (18) | 988 | 238 | |
| Total deferred tax assets | 11,520 | 8,844 | 1,169 | 2,779 | 1,507 | 2,691 | |
| Deferred tax liabilities | |||||||
| Unrealised exchange-rate gains | (1,448) | (1,457) | (1) | - | 10 | (677) | |
| Difference of value - USA building | (303) | (302) | (1) | (22) | - | - | |
| Capitalisation of Development costs Tesmec USA | (841) | (1,094) | 228 | (88) | 25 | - | |
| Deferred tax liabilities Tesmec USA | (1,202) | (1,105) | (296) | (132) | 199 | (747) |
| Profits allocated to network reserve | (217) | (250) | 33 | - | - | - |
|---|---|---|---|---|---|---|
| Tax effect on intercompany margin adjustments | - | - | - | 58 | - | - |
| Deferred tax liabilities of Marais Group | (3,832) | (3,977) | (537) | (3,609) | 682 | (368) |
| Other temporary differences | (27) | (70) | (255) | (13) | 298 | 235 |
| Total deferred tax liabilities | (7,870) | (8,255) | (829) | (3,806) | 1,214 | (1,557) |
| Effect on Shareholders' Equity | ||||||
| Net balance deferred wealth taxes | 3,650 | |||||
| Represented in the income statement as follows: | ||||||
| Deferred tax assets | 1,507 | |||||
| Deferred tax liabilities | 1,214 | |||||
| Deferred tax liabilities, net | 2,721 |
The change in deferred tax assets is due to the recognition of tax receivables relating to losses incurred by Tesmec USA and Bertel S.r.l.; the inclusion of this receivable is supported by the recoverability expectations expressed by the business plans.
Profit before taxes and the allocation for income taxes for the financial periods as at 31 December 2016 and 2015 are summarised below:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Consolidated pre-tax profits | (6,870) | 9,105 | ||
| Current taxation: | ||||
| Italy | 94 | (3,774) | ||
| USA | 4 | 635 | ||
| Rest of the World | 198 | 61 | ||
| Deferred tax liabilities/assets | ||||
| Italy | 169 | 276 | ||
| USA | 2,089 | 1,196 | ||
| Rest of the World | 463 | (338) | ||
| Total Income taxes | 3,017 | (1,944) |
The reconciliation between the nominal tax rate established by the Italian legislation and the effective tax rate resulting from the consolidated financial statements is set below:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Profit before tax | (6,870) | 9,105 | ||
| IRES tax rate in force during the period | 27.50% | 27.50% | ||
| Theoretical tax charge | 1,889 | (2,504) | ||
| Irap | (157) | (653) | ||
| Permanent tax differences | 458 | 1,638 | ||
| Effect of different tax rate for foreign companies | 827 | (425) | ||
| Total difference | 1,285 | 1,213 | ||
| Total tax charge as per income statement | 3,017 | (1,944) |
In the 2016 and 2015 financial periods, revenues from sales and services amounted to Euro 128,513 thousand and Euro 164,402 thousand, respectively. The breakdown is set below:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Sales of products | 98,721 | 140,550 | ||
| Services rendered | 28,562 | 20,430 | ||
| 127,283 | 160,980 | |||
| Changes in work in progress | 1,230 | 3,422 | ||
| Total revenues from sales and services | 128,513 | 164,402 |
The Group realised in 2016 revenues of Euro 128,513 thousand against a figure of Euro 164,402 thousand in 2015 down by 21.8%. The trend of the three segments is shown below:
The machines and integrated systems for the construction, maintenance and streamlining of underground and aerial power lines recorded a decrease in revenues by Euro 29,934 thousand (-41.5%) from Euro 72,146 thousand as at 31 December 2015 to Euro 42,212 thousand as at 31 December 2016.
Revenues as at 31 December 2015 benefited from the big project of Abengoa for the construction of more than 5,000 km of 500kV lines in Brazil. However, the awarding of the important Indonesian project acquired at the end of the year was of benefit to the order backlog and will positively affect revenues for the 2017 financial year. Within this segment, growth in revenues continued thanks to the sale of products of the new Automation business (of CPT, SGE and Bertel S.r.l. and of the Ampere business unit), confirming the validity of the strategic choices implemented in the past years that also focused on the market of streamlining of power lines.
High-powered truck trenchers and systems for the construction of underground infrastructures such as gas pipelines, oil pipelines, water systems, trenches for laying cables and for earth moving works recorded a decrease in revenues of Euro 7,919 thousand (-8.9%) from Euro 88,490 thousand as at 31 December 2015 to Euro 80,571 thousand as at 31 December 2016. This performance is attributable to the combined effect of the positive sales trend of service activities (+44.1% mainly carried out by the Marais Group) and the negative sales trend of machinery on the US and Middle Eastern markets.
Machines and integrated systems for the installation, maintenance and diagnostics of the railway catenary wire system, plus customised machines for special operations on the line recorded an increase in revenues by 52.2% compared to the previous year. Revenues as at 31 December 2016 amounted to Euro 5,730 thousand compared to Euro 3,766 thousand of the previous year; this increase is supported by an important flow of orders that concern multi-year activities confirming the success of the Group's strategy to complete its product range with activities that have higher recurrence in revenues.
It should be noted that revenues in 2016 include the effects of the state of completion of contracts in progress at the end of the year for a total amount equal to Euro 1,216 thousand and Euro 3,422 thousand in 2015.
For the financial periods as at 31 December 2016 and 31 December 2015, cost of raw materials and consumables amount to Euro 49,029 thousand and Euro 82,838 thousand, respectively. The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Cost for the purchase of raw materials and consumables | 57,063 | 80,193 | ||
| Change in inventories | (8,034) | 2,645 | ||
| Total cost of raw materials and consumables | 49,029 | 82,838 |
Cost of raw materials and consumables decreased by Euro 33,809 thousand (-40.8%) more than proportionally than the increase in sales volumes (-20.1%), due to the greater weight of the revenues from services to total revenues.
The table below shows the breakdown of recurring and non-recurring costs for services that amounted in 2016 and in 2015 to Euro 29,098 thousand and Euro 27,909 thousand, respectively.
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Transport, customs and incidental expenses | 4,487 | 4,653 | ||
| Outsourced work service | 3,467 | 3,683 | ||
| External production services | 754 | 1,020 | ||
| Services for legal, tax, technical and other consultancy | 7,225 | 4,377 | ||
| Banking services | 726 | 1,301 | ||
| Insurance | 563 | 592 | ||
| Energy, water, gas, telephone expenses and postage | 1,335 | 1,344 | ||
| Board and lodging expenses and travelling allowance | 3,694 | 3,256 | ||
| Directors' and Auditors' fees | 918 | 1,252 | ||
| Advertising and other selling expenses | 1,116 | 799 | ||
| Maintenance services | 765 | 744 | ||
| Commissions and additional expenses | 2,955 | 3,941 | ||
| Other general expenses | 1,093 | 947 | ||
| Total costs for services | 29,098 | 27,909 |
The increase in costs for services (+4.3%) is due to the following changes:
During the financial periods ended 31 December 2016 and 31 December 2015, payroll costs amounted to Euro 40,000 thousand and Euro 34,530 thousand, respectively, up by 15.8%.
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Wages and salaries | 29,435 | 25,160 | ||
| Social security charges | 8,390 | 6,948 | ||
| Employee severance indemnity | 1,062 | 915 | ||
| Other personnel costs | 1,113 | 1,507 | ||
| Total payroll costs | 40,000 | 34,530 |
The increase by 15.8% of this item is related to the acquisitions for the period and the increase in service activities in Group revenues.
During the financial periods ended 31 December 2016 and 31 December 2015, other net operating (costs)/revenues amounted to Euro 6,845 thousand and Euro 2,718 thousand, respectively.
The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Provisions for risks and other net provisions | (172) | (488) | ||
| Rents | 875 | 937 | ||
| Hiring | 2,570 | 986 | ||
| Other lease and rental expenses | 1,166 | 1,179 | ||
| Sundry taxes | 694 | 826 | ||
| Non-recurring other operating (costs)/revenues, net | 2,232 | - | ||
| Other revenues | (1,714) | (1,311) | ||
| Other | 1,194 | 589 | ||
| Total other operating (costs)/revenues, net | 6,845 | 2,718 |
The item Other operating (costs)/revenues, net increased by Euro 4,127 thousand in that this item contains non-recurring costs of Euro 2,232 thousand shown in the Consolidated Income Statement related to the New lease contract described in the paragraph 5.4 Effects of the New lease contract with related parties.
Please note that the year 2015 benefited from a non-recurring amount of Euro 2,633 thousand relating to Badwill resulting from the acquisition of the Group Marais.
During the financial periods ended 31 December 2016 and 31 December 2015, depreciation and amortisation amounted to Euro 12,830 thousand and Euro 11,230 thousand, respectively, with a 14.2% increase. The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Amortisation of intangible assets | 6,919 | 5,463 | ||
| Depreciation of property, plant and equipment | 5,911 | 5,767 | ||
| Total amortisation and depreciation | 12,830 | 11,230 |
The increase in amortization of intangible assets is the result of acquisitions of the period.
Development costs capitalised for the financial periods ended 31 December 2016 and 31 December 2015 amounted to Euro 5,050 thousand and Euro 5,104 thousand, respectively.
The Group continued to develop the projects for the launch of new models and new functionalities of own products, which are requested from the markets, in order to maintain its leader sector position.
During the financial periods ended 31 December 2016 and 31 December 2015, financial expenses amounted to Euro 6,618 thousand and Euro 7,881 thousand, in line with the previous year The decrease compared to the previous year is due to lower losses on unrealized exchange rates.
The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Bank interests expense | 339 | 507 | ||
| Interests payable for factoring and billing discounts | 203 | 342 | ||
| Interests payable on interest-bearing loans and borrowings | 2,615 | 2,477 | ||
| Interests payable on advance loans on exports | 104 | 174 | ||
| Other sundry financial expenses | 463 | 705 | ||
| Financial expenses on lease contracts | 929 | 1,150 | ||
| Realised foreign exchange losses | 770 | 396 | ||
| Unrealised foreign exchange losses | 1,085 | 2,020 | ||
| Fair value adjustment of derivative instruments | 110 | 110 | ||
| Total financial expenses | 6,618 | 7,881 |
Financial expenses shows a decrease compared to the previous financial year of Euro 1,263 thousand as a result of:
During the financial periods ended 31 December 2016 and 31 December 2015, financial income amounted to Euro 4,199 thousand and Euro 4,724 thousand, respectively.
The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Interests from banks | 58 | 71 | ||
| Realised foreign exchange gains | 960 | 1,193 | ||
| Unrealised foreign exchange gains | 2,625 | 3,029 | ||
| Fair value adjustment of derivative instruments | 149 | 203 | ||
| Sundry income | 407 | 228 | ||
| Total financial income | 4,199 | 4,724 |
Financial income slightly increased by Euro 525 thousand mainly due to the exchange gains.
For management purposes, the Tesmec Group is organised into strategic business units on the basis of the nature of the goods and services supplied, and presents three operating segments for disclosure purposes:
Stringing equipment segment
▪ machines and integrated systems for overhead and underground stringing of power lines and fibre optic cables; integrated solutions for the streamlining, management and monitoring of low, medium and high voltage power lines (smart grid solutions).
▪ Machines and integrated systems for the installation, maintenance and diagnostics of the railway catenary wire system, plus customised machines for special operations on the line.
No operating segment has been aggregated in order to determine the indicated operating segments subject-matter of the reporting.
| 31 December | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||||||
| (Euro in thousands) | Stringing equipment |
Trencher | Rail | Not allocated |
Consolidated | Stringing equipment |
Trencher | Rail | Not allocated |
Consolidated |
| Intangible assets | 10,655 | 3,526 | 4,710 | - | 18,891 | 4,537 | 3,664 | 5,626 | - | 13,827 |
| Property, plant and equipment |
1,966 | 45,209 | 114 | - | 47,289 | 11,456 | 53,792 | 104 | - | 65,352 |
| Financial assets | 3,289 | 776 | 138 | - | 4,203 | 4,187 | 692 | 371 | - | 5,250 |
| Other non-current assets | 1,169 | 3,113 | 95 | 7,516 | 11,893 | 146 | 2,775 | 78 | 5,925 | 8,924 |
| Total non-current assets | 17,079 | 52,624 | 5,057 | 7,516 | 82,276 | 20,326 | 60,923 | 6,179 | 5,925 | 93,353 |
| Work in progress contracts |
- | - | 1,291 | - | 1,291 | - | - | 3,864 | - | 3,864 |
| Inventories | 15,366 | 53,151 | 710 | - | 69,227 | 12,580 | 45,865 | 446 | - | 58,891 |
| Trade receivables | 15,387 | 33,600 | 446 | - | 49,433 | 13,247 | 36,874 | 761 | - | 50,882 |
| Other current assets | 2,312 | 2,740 | 30 | 8,492 | 13,574 | 826 | 3,244 | 309 | 12,315 | 16,694 |
| Cash and cash equivalents |
818 | 487 | 1,425 | 15,771 | 18,501 | - | - | - | 21,204 | 21,204 |
| Total current assets | 33,883 | 89,978 | 3,902 | 24,263 | 152,026 | 26,653 | 85,983 | 5,380 | 33,519 | 151,535 |
| Total assets | 50,962 | 142,602 | 8,959 | 31,779 | 234,302 | 46,979 | 146,906 | 11,559 | 39,444 | 244,888 |
| Shareholders' equity attributable to Parent Company Shareholders Shareholders' equity |
- | - | - | 48,221 | 48,221 | - | - | - | 54,262 | 54,262 |
| attributable to non controlling interests |
- | - | - | 1,699 | 1,699 | - | - | - | 1,615 | 1,615 |
| Non-current liabilities | 971 | 10,217 | 1,712 | 52,928 | 65,828 | 35 | 9,086 | 372 | 79,309 | 88,802 |
| Current financial liabilities | - | - | - | 70,120 | 70,120 | - | - | - | 45,254 | 45,254 |
| Trade payables | 10,620 | 18,244 | 2,333 | - | 31,197 | 15,820 | 22,248 | 981 | - | 39,049 |
| Other current liabilities | 1,557 | 7,609 | 404 | 7,667 | 17,237 | 531 | 6,135 | 277 | 8,963 | 15,906 |
| Total current liabilities | 12,177 | 25,853 | 2,737 | 77,787 | 118,554 | 16,351 | 28,383 | 1,258 | 54,217 | 100,209 |
| Total liabilities | 13,148 | 36,070 | 4,449 | 130,715 | 184,382 | 16,386 | 37,469 | 1,630 | 133,526 | 189,011 |
| Total shareholders' equity and liabilities |
13,148 | 36,070 | 4,449 | 180,635 | 234,302 | 16,386 | 37,469 | 1,630 | 189,403 | 244,888 |
| Financial period ended 31 December | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | ||||||||||
| (Euro in thousands) | Stringing equipment |
Trencher | Rail | Consolidated | Stringing equipment |
Trencher | Rail | Consolidated | ||
| Revenues from sales and services |
42,212 | 80,571 | 5,730 | 128,513 | 72,146 | 88,490 | 3,766 | 164,402 | ||
| Operating costs net of depreciation and amortisation |
(37,593) | (77,712) | (4,688) | (119,993) | (60,779) | (75,466) | (4,112) | (140,357) | ||
| EBITDA | 4,619 | 2,859 | 1,042 | 8,520 | 11,367 | 13,024 | (346) | 24,045 | ||
| Amortisation and depreciation |
(3,854) | (6,914) | (2,062) | (12,830) | (2,850) | (6,922) | (1,458) | (11,230) | ||
| Total operating costs | (41,447) | (84,626) | (6,750) | (132,823) | (63,629) | (82,388) | (5,570) | (151,587) | ||
| Operating income | 765 | (4,055) | (1,020) | (4,310) | 8,517 | 6,102 | (1,804) | 12,815 | ||
| Net financial income/(expenses) |
(2,560) | (3,710) | ||||||||
| Pre-tax profit | (6,870) | 9,105 | ||||||||
| Income tax | 3,017 | (1,944) | ||||||||
| Net result for the period | (3,853) | 7,161 | ||||||||
| Profit/(loss) attributable to non-controlling interests |
91 | 230 | ||||||||
| Group reuslt | (3,944) | 6,931 |
It should be noted that non-current non-current assets mainly refer to the value of deferred tax assets recorded in the consolidated financial statements of the Group. Current unallocated assets relate to current account ratios and short-term financial receivables from related parties.
Management monitors the operating income of its business units separately for the purpose of making decisions on resource allocation and performance assessment. Segment performance is assessed on the basis of operating income. Group financial management (including financial income and charges) and income tax are managed at Group level and are not allocated to the individual operating segments.
The following table gives details of economic and equity transactions with related parties. The companies listed below have been identified as related parties as they are linked directly or indirectly to the current shareholders: In particular, for the financial period ended 31 December 2016, the breakdown of each related party is indicated below:
| 31 December | 31 December | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||||||
| (Euro in thousands) | Trade receivables |
Current financial receivables |
Non current financial payables |
Current financial payables |
Trade payables |
Trade receivables |
Current financial receivables |
Non current financial payables |
Current financial payables |
Trade payables |
| Associates: | - | - | - | - | - | |||||
| Locavert S.A. | 78 | - | - | - | - | 12 | - | - | - | - |
| Bertel S.p.A. | - | - | - | - | - | 25 | 2,524 | - | - | - |
| SEP Cergy | - | - | - | - | - | - | 46 | - | - | - |
| SEP Moselle | - | 32 | - | - | - | - | 32 | - | - | - |
| SEP Semafor 77 | - | - | - | 20 | - | - | - | - | 20 | - |
| SEP Laison | - | - | - | 13 | - | - | - | - | 10 | - |
| SEP College | - | 6 | - | - | - | - | 6 | - | - | - |
| Subtotal | 78 | 38 | - | 33 | - | 37 | 2,608 | - | 30 | - |
| Joint Ventures: | - | - | - | - | - | |||||
| Condux Tesmec Inc. | 206 | 332 | - | - | - | 576 | 2,307 | - | - | 1 |
| Tesmec Peninsula | 39 | 3,508 | - | - | 34 | 44 | 4,690 | - | - | 7 |
| Marais Algerie SARL | - | - | - | - | - | 1,102 | - | - | - | - |
| Marais Tunisie | - | 2 | - | - | - | - | 2 | - | - | - |
| Marais Lucas | - | 794 | - | - | - | - | 794 | - | - | - |
| Subtotal | 245 | 4,636 | - | - | 34 | 1,722 | 7,793 | - | - | 8 |
| Related parties: | - | - | - | - | - | |||||
| Ambrosio S.r.l. | - | - | - | - | 4 | - | - | - | - | - |
| Ceresio Tours S.r.l. | - | - | - | - | 1 | - | - | - | - | - |
| Dream Immobiliare S.r.l. | - | 4,270 | - | - | 212 | - | 1,096 | 14,743 | 1,211 | 52 |
| TTC S.r.l. | - | - | - | - | - | - | - | - | - | 42 |
| Fintetis S.r.l. | - | - | - | - | - | 30 | - | - | - | - |
| Lame Nautica S.r.l. | - | - | - | - | - | 1 | - | - | - | - |
| M.T.S. Officine meccaniche S.p.A. | 308 | - | - | - | - | 2,170 | - | - | - | - |
| Reggiani Macchine S.p.A. | 122 | - | - | - | (112) | 52 | - | - | - | 77 |
| Comatel | - | - | - | - | - | 38 | - | - | - | - |
| C2D | - | - | - | - | 14 | - | - | - | - | 20 |
| Subtotal | 430 | 4,270 | - | - | 119 | 2,291 | 1,096 | 14,743 | 1,211 | 191 |
| Total | 753 | 8,944 | - | 33 | 153 | 4,050 | 11,497 | 14,743 | 1,241 | 199 |
| Financial period ended 31 December | Financial period ended 31 December | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||||||
| (Euro in thousands) | Revenues | Cost of raw materials |
Cost of services |
Other operating (costs)/ revenues, net |
Financial income and expenses |
Revenues | Cost of raw materials |
Cost of services |
Other operating (costs)/ revenues, net |
Financial income and expenses |
| Associates: | ||||||||||
| Locavert S.A. | 225 | - | - | - | - | 66 | - | - | - | - |
| Bertel S.p.A. | - | - | - | - | - | 138 | - | 3 | 16 | 45 |
| Subtotal | 225 | - | - | - | - | 204 | - | 3 | 16 | 45 |
| Joint Ventures: | ||||||||||
| Condux Tesmec Inc. | 1,298 | - | - | 182 | 45 | 2,964 | - | (1) | 181 | 31 |
| Tesmec Peninsula | - | - | (34) | 109 | 81 | 1,862 | (147) | (28) | 110 | 99 |
| Marais Tunisie Sa | 4 | - | - | - | - | |||||
| Marais Algerie SARL | - | - | - | - | - | 12 | - | - | - | - |
| Subtotal | 1,302 | - | (34) | 291 | 126 | 4,838 | (147) | (29) | 291 | 130 |
| Related parties: | ||||||||||
| Ambrosio S.r.l. | - | - | - | (14) | - | - | - | - | (15) | - |
| CBF S.r.l. | - | - | - | 1 | - | |||||
| Ceresio Tours S.r.l. | - | - | (6) | - | - | - | - | (9) | - | - |
| Dream Immobiliare S.r.l. | - | - | - | (322) | (873) | - | - | - | (350) | (1,031) |
| Studio Bolelli | - | - | - | - | - | - | - | (131) | - | - |
| TTC S.r.l. | - | - | (21) | - | - | - | - | (49) | - | - |
| Fintetis S.r.l. | (30) | - | - | - | - | 25 | - | - | - | - |
| Lame Nautica S.r.l. | - | - | - | - | - | 71 | - | 1 | - | - |
| M.T.S. Officine meccaniche S.p.A. | 3,635 | (1) | 5 | 10 | 2,357 | (5) | 5 | 50 | - | |
| Reggiani Macchine S.p.A. | 193 | (53) | (122) | 243 | - | - | (36) | (82) | 154 | - |
| Comatel | - | - | - | - | - | 202 | - | - | - | - |
| C2D | - | - | - | - | - | - | - | - | (7) | - |
| Subtotal | 3,798 | (54) | (144) | (82) | (873) | 2,655 | (43) | (265) | (168) | (1,031) |
| Total | 5,325 | (54) | (178) | 209 | (747) | 7,697 | (190) | (291) | 139 | (856) |
Year 2016:
| Board of directors | |||||||
|---|---|---|---|---|---|---|---|
| Name and Surname | Role | Fees (in Euro) |
Bonus and other fees (in Euro) |
Total fees (in Euro) |
|||
| Ambrogio Caccia Dominioni | Chairman and Chief Executive Officer |
480,000 | - | 480,000 | |||
| Gianluca Bolelli | Vice Chairman | 76,267 | - | 76,267 | |||
| Sergio Arnoldi | Director | 20,800 | - | 20,800 | |||
| Gioacchino Attanzio | Director | 30,000 | - | 30,000 | |||
| Caterina Caccia Dominioni | Director | 48,533 | - | 48,533 | |||
| Guido Giuseppe Maria Corbetta | Director | 18,410 | - | 18,410 | |||
| Lucia Caccia Dominioni | Director | 20,000 | - | 20,000 | |||
| Paola Durante | Director | 13,478 | - | 13,478 |
| Board of Statutory Auditors | ||||||
|---|---|---|---|---|---|---|
| Name and Surname Role |
Fees (in Euro) |
Bonus and other fees (in Euro) |
Total fees (in Euro) |
|||
| Simone Cavalli | Chairman | 40,640 | - | 40,640 | ||
| Stefano Chirico | Statutory Auditor | 26,468 | - | 26,468 | ||
| Alessandra De Beni | Statutory Auditor | 26,000 | - | 26,000 |
Fees paid to executives with strategic responsibilities in the 2016 financial period amounted to Euro 362 thousand (Euro 600 thousand in the 2016 financial year).
Tesmec S.p.A. won the litigation started by the former French distributor of the Trencher segment, who had sued Tesmec S.p.A. for unjustified termination of the distribution agreement and alleged violation of territorial exclusivity. The Court found the termination of the distribution agreement made by Tesmec well-grounded and hence rejected the main opponent's claim consisting in the request for compensation based both on the loss of goodwill and on the loss in revenue. Otherwise, the Court decided to apply to the termination of the agreement the remedies envisaged therein mainly consisting in the payment of commercial funds (of Euro 30 thousand) and in the recovery of the stock of spare parts at the former distributor (Euro 74 thousand); in addition to paying Eurofor a minimum compensation equal to the margin not achieved by it on a sale of machine in France, also as a result of the contractual notice. Any other claim of the distributor has been rejected.
The former distributor filed an appeal against the judgment. The Court of second instance fixed the first hearing on 12 September 2017, assigning to the other party the deadline of 12 April 2017 by which to file the claim.
In January 2016, as a result of the lodging of the defence documents and documentary evidence, the first hearing of the arbitration started by Tesmec at the China International Economic and Trade Arbitration Commission of Beijing (CIETAC) was held. The subject matter of the arbitration is the collection of the debt due by the Chinese trading company that has not paid the price of important supplies of Stringing equipment material of more than Euro 1.3 million as from 2010. This arbitration follows the first one, started by Tesmec but then abandoned, without excluding further claims, due to procedural loopholes. An amount of 70% of the said debt was allocated in provisions for doubtful accounts.
Tesmec was summoned to appear before the Court of Alabama for a claim for damages following a death claim occurred in August 2013 along the Tennessee River. Tesmec is involved as a provider of a rope to the federal body TVA that was supposed to guard the river during a fishing competition. There appears to be no causal link between the alleged responsibility of Tesmec and the death of the subject. To date, the parties are discussing about the competence of the Court of Alabama. The thesis of the lawyers of Tesmec is that the Federal Court and not the Public Court must be competent on this issue. The Insurance Company is constantly informed of the facts and confirmed that it will also bear the legal costs.
Note that, pursuant to CONSOB Communication no. DEM/6064293 of 28 July 2006, in 2016 the Company did not carry out any atypical and/or unusual operation, as defined by the Communication itself.
They include sureties, guarantees and third-party assets with the Group. For the financial periods as at 31 December 2016 and 2015, they are summarised as follows:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Sureties | 42,844 | 32,671 | |
| Total commitments and risks | 42,844 | 32,671 |
The recorded value concerns sureties provided by Tesmec S.p.A. through primary banking institutions in favour of customers. The increase is mainly due to the orders of the newly set up rail sector.
On the basis of the specific characteristics of the segments in which the Company works, Tesmec did not make any provision for contingent liabilities in the memorandum accounts. Risks and future expenses are reasonably hedged by funds specifically accounted for in the financial statements.
The following table shows the fees charged for the 2016 and 2015 financial periods for auditing services and for services other than audit rendered by the Independent Auditors.
| Independent Auditors that | Accrued amount | |||
|---|---|---|---|---|
| (Euro in thousands) | supplied the service | Receiver | 2016 | 2015 |
| Audit of the financial statements and consolidated financial |
Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
101 | 80 |
| statements | Ernst & Young S.p.A. | Subsidiaries and joint ventures | 93 | 93 |
| Limited half-year auditing | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
28 | 20 |
| Certification services (1) | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
5 | 5 |
| Other services (2) | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
41 | 15 |
| Total | 283 | 213 |
(1) This item refers to activities aimed at the signing of tax returns.
(2) The other services provided to the parent company mainly relate to support for the identification of regulatory intervention areas.
On the date of this report, the Company holds a total of 4,711,879 treasury shares, equal to 4.40% of the Share Capital.
The significant events occurred after the close of the financial period include:
of the administrative and accounting procedures for preparing the consolidated financial statements during the 2016 financial period.
Milan, 10 March 2017
Ambrogio Caccia Dominioni Andrea Bramani
Chief Executive Officer Manager responsible for preparing the Company's financial statements
INDEPENDENT AUDITOR'S REPORT
FINANCIAL STATEMENTS OF TESMEC S.P.A.
| Notes 2016 2015 (in Euro) NON-CURRENT ASSETS Intangible assets 5 6,543,931 6,716,413 Property, plant and equipment 6 10,562,700 30,570,727 Equity investments in subsidiaries 38,408,386 33,047,386 Equity investments in associates 7 1,737,511 3,437,511 Other equity investments 2,808 2,808 Financial receivables and other non-current financial assets 4,200 1,500 Derivative financial instruments 17 2,849 11,114 Deferred tax assets 24 1,991,107 2,523,663 TOTAL NON-CURRENT ASSETS 59,253,492 76,311,122 CURRENT ASSETS Work in progress contracts 8 - 1,882,786 Inventories 9 35,982,658 28,713,160 Trade receivables 10 34,578,218 31,163,711 of which with related parties: 4,977,565 8,856,122 Tax receivables 11 506,293 - Other available-for-sale securities 2,037 22,288 Financial receivables and other current financial assets 12 41,383,641 42,506,310 of which with related parties: 41,351,777 42,465,534 Other current assets 13 728,795 1,681,695 of which with related parties: 8,798 147,949 Derivative financial instruments 17 1,538 - Cash and cash equivalents 14 14,524,408 15,451,270 TOTAL CURRENT ASSETS 127,707,588 121,421,220 TOTAL ASSETS 186,961,080 197,732,342 SHAREHOLDERS' EQUITY Share capital 15 10,708,400 10,708,400 Reserves 15 33,355,302 28,919,337 Net income (loss) for the period 15 1,647,917 7,411,919 TOTAL SHAREHOLDERS' EQUITY 45,711,619 47,039,656 NON–CURRENT LIABILITIES Medium/long-term loans 16 27,919,228 53,893,392 of which with related parties: - 14,743,133 Bond issue 2.2 14,734,545 14,672,260 Derivative financial instruments 17 171,498 288,006 Employee benefit liability 18 2,526,375 2,418,842 Deferred tax liabilities 24 1,640,358 1,727,423 Other non-current liabilities 150,000 - TOTAL NON-CURRENT LIABILITIES 47,142,004 72,999,923 CURRENT LIABILITIES Interest-bearing financial payables (current portion) 19 61,015,343 38,979,924 of which with related parties: 9,893 1,210,888 Derivative financial instruments 17 109,974 14,103 Trade payables 20 25,192,280 30,394,853 of which with related parties: 4,691,442 1,639,669 Advances from customers 2,414,591 1,215,589 Income taxes payable 21 41,988 2,803,808 Provisions for risks and charges 22 350,000 350,000 Other current liabilities 23 4,983,281 3,934,486 of which with related parties: 42,420 260,551 TOTAL CURRENT LIABILITIES 94,107,457 77,692,763 TOTAL LIABILITIES 141,249,461 150,692,686 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 186,961,080 197,732,342 |
31 December | ||
|---|---|---|---|
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (in Euro) | Notes | 2016 | 2015 | |
| Revenues from sales and services | 25 | 78,810,499 | 115,071,242 | |
| of which with related parties: | 12,900,858 | 22,625,121 | ||
| Cost of raw materials and consumables | 26 | (35,687,991) | (64,164,423) | |
| of which with related parties: | (6,271,217) | (1,142,291) | ||
| Cost of services | 27 | (16,846,511) | (17,764,433) | |
| of which with related parties: | (565,264) | (186,297) | ||
| Non-recurring costs for services | 27 | (872,652) | - | |
| Payroll costs | 28 | (18,291,156) | (17,335,078) | |
| Other operating (costs)/revenues, net | 29 | 101,271 | (774,628) | |
| of which with related parties: | 772,899 | (87,785) | ||
| Non-recurring other operating (costs)/revenues, net | 29 | (2,349,967) | - | |
| Amortisation and depreciation | 30 | (4,858,652) | (4,880,611) | |
| Development costs capitalised | 31 | 2,750,807 | 3,000,309 | |
| Total operating costs | (76,054,851) | (101,918,864) | ||
| Operating income | 2,755,648 | 13,152,378 | ||
| Financial expenses | 32 | (5,926,284) | (7,468,640) | |
| of which with related parties: | (872,878) | (1,531,472) | ||
| Financial income | 33 | 5,251,563 | 5,541,120 | |
| of which with related parties: | 1,407,325 | 1,201,805 | ||
| Pre-tax profit | 2,080,927 | 11,224,858 | ||
| Income tax | 24 | (433,010) | (3,812,939) | |
| Net profit for the period | 1,647,917 | 7,411,919 |
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (in Euro) | Notes | 2016 | 2015 | |
| NET PROFIT FOR THE PERIOD | 1,647,917 | 7,411,919 | ||
| Other components of comprehensive income: | ||||
| Other components of comprehensive income that will not be subsequently reclassified to net income/(loss) for the year: |
||||
| Actuarial profit/(loss) on defined benefit plans | 18 | 145,908 | 50,292 | |
| Income tax | (268,479) | (13,830) | ||
| (122,571) | 36,462 | |||
| Total other income/(losses) after tax | (122,571) | 36,462 | ||
| Total comprehensive income (loss) after tax | 1,525,346 | 7,448,381 |
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (in Euro) | Notes | 2016 | 2015 | |
| CASH FLOW FROM OPERATING ACTIVITIES | ||||
| Net profit for the period | 1,647,917 | 7,411,919 | ||
| Adjustments to reconcile net income for the period with the cash flows generated by (used in) operating activities: |
||||
| Amortisation and depreciation | 30 | 4,858,652 | 4,880,611 | |
| Provisions for employee benefit liability | 18 | 207,139 | 20,667 | |
| Provisions for risks and charges / inventory obsolescence / doubtful accounts |
57,000 | 1,198,948 | ||
| Employee benefit payments | 18 | (245,514) | (258,633) | |
| Payments/use of provisions for risks and charges | - | |||
| Net change in deferred tax assets and liabilities | 24 | 497,892 | 44,436 | |
| Change in fair value of financial instruments | 17 | (13,910) | (153,364) | |
| Change in current assets and liabilities: | ||||
| Trade receivables | 10 | (2,215,505) | (4,715,247) | |
| Inventories | 9 | (5,443,712) | (1,449,600) | |
| Trade payables | 20 | (5,202,573) | 3,924,199 | |
| Other current assets and liabilities | (1,116,418) | 2,180,098 | ||
| NET CASH FLOW GENERATED BY OPERATING ACTIVITIES (A) | (6,969,032) | 13,084,034 | ||
| CASH FLOW FROM INVESTING ACTIVITIES | ||||
| Investments in property, plant and equipment | 6 | (997,731) | (403,204) | |
| Investments in intangible assets | 5 | (2,904,430) | (4,079,419) | |
| (Investments) / disposal of financial assets | (2,520,780) | (22,799,345) | ||
| Proceeds from sale of property, plant and equipment and intangible assets |
5-6 | 294,919 | 313,219 | |
| Grassobbio new lease contract effect | 4.1 | 18,929,099 | ||
| NET CASH FLOW USED IN INVESTING ACTIVITIES (B) | 12,801,077 | (26,968,749) | ||
| NET CASH FLOW FROM FINANCING ACTIVITIES | ||||
| Disbursement of medium/long-term loans | 16 | 18,014,250 | 26,576,894 | |
| Repayment of medium/long-term loans | 16 | (17,905,741) | (12,645,103) | |
| Grassobbio new lease contract effect | 4.1 | (16,579,133) | ||
| Net change in short-term financial debt | 19 | 12,594,164 | 4,675,868 | |
| Dividend distribution | 15 | (2,565,838) | (2,403,217) | |
| Purchase of treasury shares | (316,609) | (1,184,446) | ||
| NET CASH FLOW GENERATED BY (USED IN) FINANCING ACTIVITIES (C) |
(6,758,907) | 15,019,996 | ||
| TOTAL CASH FLOW FOR THE PERIOD (D=A+B+C) | (926,862) | 1,135,281 | ||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (E) |
- | - | ||
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (F) |
14 | 15,451,270 | 14,315,989 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (G=D+E+F) |
14,524,408 | 15,451,270 | ||
| Additional information: | ||||
| Interest paid | 3,680,192 | 4,084,722 | ||
| Income tax paid | 3,520,889 | 1,840,848 |
| (in Euro) | Share capital |
Legal reserve | Share premium reserve |
Reserve of Treasury Shares |
Other reserves |
Profit for the period |
Total shareholders' equity |
|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2015 | 10,708,400 | 2,004,543 | 10,915,101 (1,010,891) | 14,284,019 | 6,277,766 | 43,178,938 | |
| Net profit for the period | - | - | - | - | - | 7,411,919 | 7,411,919 |
| Allocation of profit for the period | - | 137,137 | - | 59,715 | 3,677,697 (3,874,549) | - | |
| Dividend distribution | - | - | - | - | - | (2,403,217) | (2,403,217) |
| Purchase of treasury shares | - | - | - | (1,184,446) | - | - | (1,184,446) |
| Distribution for Network Reserve | - | - | - | - | - | - | - |
| Other changes | - | - | - | - | 36,462 | - | 36,462 |
| Balance as at 31 December 2015 | 10,708,400 | 2,141,680 | 10,915,101 (2,135,622) | 17,998,178 | 7,411,919 | 47,039,656 | |
| - | |||||||
| Net profit for the period | - | - | - | - | 1,647,917 | 1,647,917 | |
| Allocation of profit for the period | - | - | - | 111,262 | 4,734,819 (4,846,081) | - | |
| Dividend distribution | - | - | - | - | (2,565,838) | (2,565,838) | |
| Purchase of treasury shares | - | - | - | (316,609) | - | (316,609) | |
| Recognition of deferred taxes for network reserve | - | - | - | - | 29,064 | - | 29,064 |
| Other changes | - | - | - | - | (122,571) | - | (122,571) |
| Balance as at 31 December 2016 | 10,708,400 | 2,141,680 | 10,915,101 (2,340,969) | 22,639,490 | 1,647,917 | 45,711,619 |
The Tesmec S.p.A. parent company (hereinafter "Parent Company", "Tesmec" or "Company") is a legal entity organised in accordance with the legal system of the Italian Republic. The ordinary shares of Tesmec are listed on the MTA STAR Segment of the Milan Stock Exchange as from 1 July 2010. The registered office of the Company is in Milan in Piazza S. Ambrogio no. 16.
The publication of Tesmec's financial statements for the period ended 31 December 2016 was authorised by means of the resolution of the Board of Directors on 10 March 2017.
The financial statements of Tesmec S.p.A. as at 31 December 2016 comprise the statement of financial position, income statement, statement of comprehensive income, cash-flow statement, statement of changes in shareholders' equity and the related explanatory notes. These financial statements are prepared in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and approved by the European Union according to the text published in the Official Journal of the European Communities (OJEC) and in effect as at 31 December 2015. These IFRS principles also include all revised international accounting standards ("IAS") and all of the interpretations of the International Financial Reporting Interpretation Committee ("IFRIC"), previously called Standing Interpretations Committee ("SIC").
The reference accounting standards adopted in the current yearly financial statements are consistent with those used for preparing the yearly financial statements of the Company for the period ended as at 31 December 2015, also prepared according to the international accounting standards, with the exception of the principles and interpretations of new application, explained in note 2.3.
The financial statements and relevant explanatory notes are presented in Euro and all values are rounded to the nearest thousand, unless otherwise indicated.
The Company considered that there are no significant uncertainties on the principle of going-concern, in the light of its economic and financial soundness.
As indicated in the Report on Operation, such robustness is confirmed optic perspective from revenue forecasts at the end of 2017, including between 160 and 170 million euro, against which it is reasonable to assume an EBITDA in line with the Group's historical data , and a significant improvement in net debt.
The level of backlog reached at the end of 2016 and the expected path for the first quarter with growth estimated at between 15 and 20% over the previous quarter supports commented expectancy of sales volume growth.
In compliance with the provisions of CONSOB resolution no. 15519 of 27 July 2006, information on the adopted financial statement reporting format compared to what is stated in IAS 1 are indicated below for the statement of financial position, income statement, comprehensive income statement, statement of changes in shareholders' equity as well as the method used for representing the financial flows in the statement of cash-flows compared to those specified in IAS 7.
indirect method, whereby net profit or loss for the year is adjusted by the effects of non-monetary transactions, by any deferral or provision of prior or future operating receipts or payments, and by revenue or cost elements connected with financial flows from investing or financing activities.
It should be noted that, in accordance with the above-mentioned resolution, the amounts of the positions or transactions with related parties and (positive and/or negative) income components resulting from non-current events or operations, i.e. from operations or facts that do not recur with frequency in the usual course of business were reported under specific sub-items, in case of significant amounts, in the statement of financial position, income statement and statement of cash flows.
To better represent the financial statement contents, the bond issue of Euro 15 million and with maturity date 31 December 2021, included in the item "Medium/long-term loans" was reclassified, also for the 2015 financial year, to the item "Bond issue".
The table below summarises the effect of the reclassification made:
| (Euro in thousands) | 31 December 2015 (restated) |
31 December 2015 |
|---|---|---|
| Medium/long-term loan | 53,893 | 62,628 |
| Medium/long-term loan | 53,893 | 62,628 |
| Bond issue | 14,672 | - |
| Total bond issue | 14,672 | - |
| Interest-bearing financial payables (current portion) | 38,980 | 38,917 |
| Interest-bearing financial payables (current portion) | 38,980 | 38,917 |
The financial statements have been prepared in accordance with the historical cost principle, with the exception of the derivative financial instruments and financial assets held for sale stated at fair value.
There are no financial assets held to maturity. Financial transactions are accounted for as of the date they are traded.
The accounting policies adopted in the Financial Statements as at 31 December 2015 were applied in the same way also to all the periods of comparison.
The financial statements are presented in Euro; all values are rounded to the nearest thousand, unless otherwise indicated.
Business combinations are recorded by using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred at fair value at the date of acquisition and the amount of any minority interest in the acquired company. For each business combination, the purchaser must consider any minority interest in the acquired company at fair value or in proportion to the share of the minority interest in the identifiable net assets of the acquired company. Acquisition costs are paid and classified among administrative expenses.
When the Company acquires a business, it must classify or designate the acquired financial assets or the liabilities assumed in accordance with the contract terms, the economic conditions and other relevant conditions existing at the date of acquisition. This includes the verification to establish whether an embedded derivative must be separated from the host contract. If the business combination is carried out in several stages, the purchaser must recalculate the fair value of the previously held equity investment measured at equity and recognise any resulting profit or loss in the income statement.
Each contingent consideration must be recognised by the purchaser at fair value at the date of acquisition. The fair value change in the contingent consideration classified as asset or liability will be recognised in accordance with IAS 39, in the income statement or in the statement of the other components of comprehensive income. If the contingent consideration is classified in the shareholders' equity, its value must not be recalculated until its discharge is recorded as opposed to shareholders' equity. The goodwill is initially measured at cost that arises as surplus between the sum of the paid consideration and the amount recognised for the minority shares compared to identifiable net assets acquired and liabilities undertaken by the Group. If the consideration is lower than the fair value of the net assets of the acquired subsidiary, the difference is recognised in the income statement.
After initial recognition, goodwill is measured at cost, net of any accumulated impairment loss. For impairment loss verification, the goodwill acquired in a business combination must be allocated, from the date of acquisition, to each cash-flow generating unit of the Group that is expected to benefit from the combination, regardless of whether other assets or liabilities of the acquired entity are assigned to such units.
If the goodwill has been allocated to the financial-flow generating unit and the entity disposes of part of the assets of such unit, the goodwill associated to the asset disposed of 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 asset disposed of must be determined on the basis of the values related to the asset disposed of and of the retained part of the financial-flow generating unit.
Intangible assets are recorded in the assets at purchase cost when it is likely that the use of the asset will generate future economic benefits and when the cost of the asset can be measured reliably. Intangible assets acquired by means of business combinations are recorded at fair value at the date of acquisition, if this value can be measured reliably. Intangible assets with definite lives are amortised on a straight-line basis over their estimated useful life and submitted to impairment test whenever there is a possible impairment loss. The residual useful life is reviewed at the end of each financial period or more frequently, if necessary. Changes in the expected estimated useful life or in the ways in which future economic benefits related to the intangible asset are achieved by the Company are recognised by changing the period and/or the method of amortisation and treated as changes in accounting estimates. Amortisation charges of intangible assets with definite lives are recognised in the income statement in the category of cost consistent with the function of the intangible asset.
Intangible assets with indefinite lives are tested annually for impairment losses on an individual basis or in terms of cashgenerating unit.
Profits or losses deriving from the disposal of an intangible asset are measured as the difference between the net income and the book value of the asset and are recognised in the income statement upon disposal.
The estimate of the useful life of intangible assets with definite lives is set below:
| Years | |
|---|---|
| Industrial rights and patents | 5 |
| Development costs | 5 |
| Trademarks | 5 |
| Other intangible assets | 3 - 5 |
Research costs are posted to the income statement when they are borne.
Development costs borne with regard to a particular project concerning the development of new excavating machines, stringing equipment and/or railway machines, of their significant individual components and/or of significant customisations that materialise in new models included in the catalogue, are capitalised only when the Company can show the ability to complete the technical work in order to make it available for use or for sale, its intention to complete the said asset in order to use it or transfer it to third parties, the ways in which it will generate probable future economic benefits, the availability of technical, financial or other type of resources to complete the development, its ability to reliably consider the cost attributable to the asset during its development and the existence of a market for the products and services deriving from the asset or usefulness for internal purposes. Capitalised development costs include only expenses borne that can be directly charged to the development process.
During the period of development, the asset is annually reviewed in order to recognise any impairment loss. After the initial recognition, development costs are measured at cost decreased by any accumulated amortisation or loss. The amortisation of the asset starts when the development is complete and the asset is available for use. It is amortised with reference to the period in which the connected project is expected to generate revenues for the Company, estimated on average over five years. If the projects to which such assets refer are abandoned or the related machines are no longer included in the catalogue, specific impairment indicators are recognised, and therefore the asset is tested for impairment and written down for any impairment loss recognised as previously described for intangible assets with definite lives.
The purchase costs of the rights and trademarks are amortised over a period of time during the useful life of the acquired asset, which was determined in five years.
Property, plant and equipment acquired separately, with the exception of the land and buildings item, are recorded at historical cost, including directly imputable additional costs necessary for putting the asset into operation for the use for which it was acquired. This cost includes the charges for replacing part of the machines and plants when they are borne, if complying with the recognition criteria.
Property, plant and equipment acquired by means of business combinations are recorded at fair value on the date of acquisition.
Maintenance and repair costs, which are not likely to enhance and/or extend the residual life of the assets, are paid during the financial period in which they are borne, otherwise they are capitalised.
Property, plant and equipment are stated net of the related accumulated depreciation and any impairment loss determined as described below. The depreciation is calculated on a straight-line basis according to the estimated useful life of the asset for the company, which is reviewed every year and any change, if necessary, is applied prospectively.
The estimate of the useful life of the main classes of property, plant and equipment is set below:
| Years | |
|---|---|
| Buildings | 40 |
| Plant and machinery | 10 |
| Fixtures and fittings, tools and equipment | 4 |
| Leasehold Trenchers | 5 |
| Other assets | 4 – 5 |
If significant parts of property, plant and equipment have different useful lives, these components are recorded separately. Lands, both without construction and belonging to buildings, are recorded separately and are not depreciated since they have an unlimited useful life.
The Company, based on the considerations made, established that temporarily leased Trencher machines can be depreciated on a pro-rata basis according to actual use. In particular, they are depreciated at an annual 20% rate during the lease period. In the event that these trenchers are not leased temporarily during the reporting period, the depreciation process is suspended. The book value of property, plant and equipment is subject to an impairment test when events or changed circumstances indicate that the book value cannot be recovered. If there is an indication of this type and, in the event that the book value exceeds the estimated realisable value, assets are written down so as to reflect their realisable value. The realisable value of property, plant and equipment is represented by the net sales price and the usage value, whichever is higher.
When defining the usage value, the expected future financial flows are discounted back using a pre-tax discount rate that reflects the current market estimate of the cost of money placed in relation to the timescale and specific risks of the asset. In relation to assets that do not generate fully independent financial flows, the realisable value is determined in relation to the financial-flow generating unit to which the asset belongs. Impairment losses are recorded in the income statement among costs for amortisation, depreciation and write-downs. These impairment losses are reversed if the reasons that generated them no longer exist.
At the time of sale or when there are no future economic benefits, expected from the use of an asset, it is written off from the financial statements and any loss or profit (calculated as the difference between the transfer value and the book value) is posted to the income statement in the year of the aforesaid writing off.
Lease contracts are classified as Financial or Operating Lease at the beginning of the Lease contract.
Financial lease contracts, which substantially transfer to the Group all the risks and benefits deriving from the ownership of the leased asset, are capitalised on the starting date of the lease at fair value of the leased asset or at present value of the lease payments, if lower. Lease payments are prorated between principal and interests in order to obtain the application of a constant interest rate on the residual balance of the debt. Financial expenses are posted directly to the income statement.
Capitalised leased assets are amortised during the period of time of the estimated useful life of the asset or the period of validity of the lease contract, whichever is shorter, if the reasonable certainty that the Company will obtain the ownership of the asset at the end of the contract does not exist.
Lease contracts in which the lessor substantially retains all risks and benefits related to the ownership of the asset are classified as operating leases.
If the Company signs lease contracts that substantially transfer to the customers all the risks and benefits deriving from the ownership of the leased asset, the revenues concerning the transfer of the asset are recognised in the financial statements and are recorded on the starting date of the lease at the fair value of the leased asset or at the present value of the lease payments, if lower. Moreover, a borrowing that corresponds to the present value of the lease payments still due is recorded in the balance sheet. Financial expenses are posted directly to the income statement.
Lease contracts in which the Group substantially retains all risks and benefits related to the ownership of the asset are classified as operating leases.
At the end of each reporting period, the Company considers the possible existence of impairment loss indicators of intangible assets with definite lives, of property, plant and equipment and of financial lease assets. If these indicators exist, an impairment test is carried out.
The recoverable value is determined as the fair value of an asset or financial-flow generating unit net of sales costs and its usage value, whichever is higher, and is determined by single asset, with the exception of the case in which this asset generates financial flows that are not widely independent from those generated by other assets or groups of assets, in which case the Company estimates the recoverable value of the cash-flow generating unit to which the asset belongs.
When determining the usage value, the Company discounts back the present value of future estimated financial flows, by using a pre-tax discount rate that reflects the market evaluations on the time value of money and specific risks of the asset.
In order to estimate the usage value, the future financial flows are derived from the business plans approved by the Board of Directors, which represent the best estimate made by the Group on the economic conditions laid down in the plan period. The projections of the plan cover normally a period of three financial periods; the long-term growth rate used in order to estimate the terminal value of the asset or of the unit is normally lower than the average long-term growth rate of the segment, country or market of reference. Future financial flows are estimated by referring to the current conditions: therefore, estimates do not consider benefits deriving from future restructuring for which the Company has not yet committed itself or future investments for improving or optimising the asset or the unit.
If the book value of an asset or financial-flow generating unit is greater than its recoverable value, this asset was impaired and consequently amortised until its recoverable value is reached.
Impairment losses incurred by operating assets are recognised in the income statement in the categories of cost consistent with the function of the asset that showed the impairment loss. At the end of each reporting period, the Company also considers the possible existence of elements indicating a decrease in impairment losses previously recognised and, if these indicators exist, it estimates the recoverable value again. The value of an asset previously written down can be restored only if there were changes in the estimates used for determining the recoverable value of the asset after the last recognition of an impairment loss. In this case, the book value of the asset is set to the recoverable value, however without the possibility for the value thus increased to exceed the book value that would have been determined, net of amortisation, if no impairment had been recognised in previous years. Each reversal of impairment loss is recognised as an income in the income statement; after recognising a reversal of impairment loss, the amortisation rate of the asset is adjusted in future periods, in order to distribute the changed book value, net of any residual value, on a straight-line basis over the remaining useful life.
Equity investments in subsidiaries, associates and companies subject to joint control (not classified as held for sale) are recorded in accordance with the method of cost, converted in Euro at historical exchange rates if referring to equity investments in foreign companies whose financial statements are drawn up in a currency other than Euro, in accordance with IAS 27. The initial cost is equal to the costs incurred for the purchase or constitution or it is defined by experts in case of acquisitions through contributions.
When there is an indication that the equity investment may have suffered an impairment, its recoverable value is estimated, in accordance with the method specified in IAS 36 "Impairment of Assets", in order to determine the eventual loss to be posted to the income statement.
These assets are measured according to the amortised cost approach by using the effective discount rate method net of any provision for impairment.
The amortised cost is calculated taking into consideration any discount or purchase premium and includes the commissions that are part and parcel of the effective interest rate and of the transaction costs.
Receivables falling due after one year, interest bearing or paying interests lower than the market, are discounted by using interest rates in line with market references.
Financial assets are derecognised from the Company's statement of financial position when:
Inventories are measured at the purchase and/or production cost, whichever lower, calculated by using the weighted average cost method, and the net realisable value. The purchase cost is inclusive of additional expenses; the cost of production includes directly attributable costs and a share of indirect costs, reasonably attributable to the products. The net estimated realisable value consists of the estimated sales prices less the estimated completion costs and the costs estimated to make the sale. Write-down allowances are allocated for materials, finished products, spare parts and other supplies considered obsolete or slow-moving, taking into account their future expected usefulness or their realisable value.
A work order is a contract specifically negotiated for the construction of an asset according to the instructions of the company commissioning the work, which defines in advance the design and specifications.
Work order revenues include the considerations initially agreed with the company commissioning the work, in addition to variations in the commissioned work and to price changes provided for in the contract that can be measured reliably.
When the work order result can be measured reliably, work order revenues and costs are recognised as sales and as costs on the basis of the percentage of completion; the work in progress is calculated by referring to the costs of the work order borne until the end of the reporting period as a percentage of total costs estimated for each work order.
The costs borne in relation to future activities of the work order are excluded from the work order costs when calculating the work in progress and are recorded as inventories.
Total estimated costs for each work order are periodically revised, and when the costs of the work order are expected to be greater than its total revenues, the expected loss is recognised immediately as a cost.
Trade receivables and other current assets are initially recorded at fair value, which generally corresponds to the nominal value and subsequently measured at amortised cost and reduced in case of impairment losses. Moreover, trade receivables are adjusted to their estimated realisable value by entering a special adjustment provision.
Receivables in foreign currency other than the reporting currency are recorded at the exchange rate of the date of operation and subsequently converted to the exchange rate at the end of the financial period. The profit or loss resulting from the conversion is attributed to the income statement.
If the maturity of the trade receivables and of the other current assets does not fall within the normal commercial terms and do not bear interests, a detailed discounting process is applied based on assumptions and estimates.
The Tesmec Company sells a portion of its trade receivables through factoring without recourse. Receivables assigned following factoring operations can be written off from the assets of the balance sheet only if the risks and benefits related to their legal ownership were substantially transferred to the assignee.
They are recorded initially at fair value and subsequently measured according to the amortised cost.
A financial asset (or, if applicable, part of a financial asset or part of a group of similar financial assets) is written off from the financial statements when:
If the Company has transferred the rights to receive financial flows from an asset and has not transferred or retained substantially all the risks and benefits or has not lost control over it, the asset is recognised in the financial statements of the Group to the extent of its residual involvement in the asset itself. The residual involvement that takes the form of a guarantee on the transferred asset is measured at the initial book value of the asset or the maximum value of the consideration that the Company could be obliged to pay, whichever lower.
If the residual involvement takes the form of an option issued and/or purchased on the transferred asset (including the cashsettled options or the like), the measure of the involvement of the Group corresponds to the amount of the transferred asset that the Company may repurchase; however, in case of a put option issued on an asset measured at fair value (including the cash-settled options or with similar provisions), the measure of the residual involvement of the Group is limited to the fair value of the transferred asset or the exercise price of the option, whichever lower.
Cash and short-term deposits include cash on hand as well as on-demand and short-term bank deposits; in this last case, with original maturity of no more than three months. Cash and cash equivalents are booked at nominal value and at the spot exchange rate at the end of the financial period, if in currency, corresponding to the fair value.
Loans are initially stated at fair value of the amount received, net of any related loan acquisition costs.
After initial statement, loans are valued using the amortised cost approach, applying the effective interest rate method.
Any profit or loss is recorded in the income statement when the liability is discharged, in addition to using the amortisation process.
The repurchased treasury shares are recognised at cost and deducted from shareholders' equity. The purchase, sale or cancellation of treasury shares does not give rise to any profit or loss in the income statement. The difference between the acquisition value and the consideration, in case of transfer, is recognised in share premium reserve. The voting rights related to the treasury shares are cancelled as well as the right to receive dividends. In case of exercise of share options during the period, these are met with treasury shares.
Given the granted terms of payment, when a financial operation is configured, payables measured with the amortised cost approach are submitted to the discounting back of the nominal value to be paid, recording the discount as a financial charge. Payables in foreign currency are aligned with the exchange rate at the end of the financial period and profits or losses deriving from the adjustment are posted to the income statement in unrealised exchange profits/losses.
Provisions for risks and charges are made when the Company must face up a current liability (legal or implicit) that is the result of a past event; an outflow of resources is likely to meet this obligation and it is possible to make a reliable estimate of its amount.
When the Company believes that a provision for risks and charges will be partially or totally reimbursed, for example in the case of risks covered by insurance policies, the compensation is recognised separately in the assets only if it is practically certain. In this case, the cost of any provision is stated in the income statement net of the amount recognised for the compensation.
If the discounting back effect of the value of money is significant, provisions are discounted back using a pre-tax discount rate that reflects, if appropriate, the specific risks of the liabilities. When discounting back is carried out, the increase in the provision due to the passage of time is recognised as a financial expense.
The Company makes provisions for product guarantees in relation to the guarantee contractually granted to its customers on the sold machines. These provisions are calculated on the basis of the historical incidence of costs for product guarantee borne in past financial periods, of the period of validity of the granted guarantees and revised annually.
Post employment benefits are defined on the basis of plans, even though not yet formalised, which are classified as "defined contribution" and "defined benefit" in relation to their characteristics.
The Italian legislation (Article 2120 of the Italian Civil Code) establishes that, at the date on which each employee rescinds the employment contract with the company, he/she receives an allowance called TFR (severance indemnity). The calculation of this allowance is based on some items forming the yearly pay of the employee for each year of work (properly revalued) and on the length of the employer-employee relationship. According to the Italian civil law, this allowance is reflected in the financial statements according to a calculation method based on the allowance accrued by each employee at the reporting date, if all employees rescind the employment contract on that date.
The IFRIC of the IASB dealt with the TFR matter, as defined by the Italian legislation, and concluded that, in accordance with IAS 19, it must be calculated according to a method called Projected Unit Credit Method (the so-called PUCM) in which the amount of the liability for the acquired benefits must reflect the expected resignation date and must be discounted back.
The Company's net liability deriving from defined benefit plans is calculated separately for each plan by estimating the amount of the future benefit that the employees acquired in exchange for the work carried out in the current financial period and in prior financial periods; this benefit is discounted back to calculate the present value. As provided by the revised version of IAS 19, actuarial gains and losses are recorded in full in the comprehensive income statement in the period in which they arise. The evaluation of liabilities is made by an independent actuary. The Company has no other defined benefit pension plan.
The Company's liability deriving from defined-contribution plans is limited to the payment of contributions to the State or to an asset or legally separate entity (so-called fund), and is determined on the basis of the contributions due.
Government grants are recognised in the financial statements when there is a reasonable certainty that the company will meet all the conditions for receiving the contributions and that the contributions will be received. When the contributions are related to cost components, they are recognised as revenues, but are allocated systematically across the financial periods in order to be proportionate to the costs that they intend to compensate. If a contribution is related to an asset, the asset and the contribution are recognised for their nominal values and they are gradually discharged to the income statement, on a straightline basis, along the expected useful life of the asset of reference.
If the Company receives a non-monetary contribution, the asset and contribution are recognised at their nominal value and discharged to the income statement, on a straight-line basis, along the expected useful life of the asset of reference. In case of loans or similar forms of assistance supplied by government entities or similar institutions that have an interest rate lower than the current market rate, the effect related to the favourable interest rate is considered as an additional government grant.
The financial instruments are initially recognised at fair value and, after initial recognition, measured in relation to the classification, as required by IAS 39.
For financial assets, this treatment is differentiated among the following categories:
With reference to financial liabilities, only two categories are established:
The methods for determining the fair value with reference to such financial instruments, with accounting or information purposes, are summarised below with reference to the main categories of financial instruments, to which they have been applied:
Derivative financial instruments are used solely with the intent to hedge financial risks relating to exchange-rate changes on commercial transactions in foreign currency and interest rate risks.
In accordance with IAS 39, hedging derivative financial instruments can be recorded according to the methods established for hedge accounting only when:
All derivative financial instruments are measured at fair value. When financial instruments have the characteristics to be recorded in hedge accounting, the following accounting treatments are applied:
Fair value hedge – if a financial derivative is designated as a hedge of the exposure to changes in the present value of a balancesheet asset or liability that may affect the income statement, the profit or loss arising from the future evaluation of the present value of the hedging instrument is recognised in the income statement, as well as the profit or loss on the item being hedged. Cash flow hedge – if a financial derivative is designated as a hedge of the exposure to changes in cash flows of a balance-sheet asset or liability or of a highly probable expected transaction and that may affect the income statement, the effective portion of profits or losses on the financial instrument is recognised in equity; the accumulated profit or loss is reversed from equity and recorded in the income statement in the same period in which the transaction to be hedged is recognised; the profit or loss associated with a hedging, or with an ineffective hedging, are recorded in the income statement when the ineffectiveness is recognised.
If the conditions for the application of hedge accounting do not apply, the effects deriving from the fair value measurement of the derivative financial instrument are booked directly to the income statement.
Revenues and costs are stated on an accrual basis. Revenues and income, presented net of returns, discounts, allowances and premiums, are recorded at fair value insofar as it is possible to reliably determine such value and its economic benefits are likely to be enjoyed.
Revenues from the sale of goods are recognised when all the following conditions are met:
More specifically, with reference to sales with CIF condition, risks and benefits related to the ownership of the asset are transferred to the end customer, and therefore the revenues are recognised, when the asset is handed over at the broadside of the ship.
With regard to any machine completed and not yet shipped to the customer (bill and hold) for reasons that do not depend on the Group, revenues are recognised if the following conditions established by Appendix 1 of IAS 18 have been complied with:
With reference to the sales to the Joint ventures, if the risks and benefits related to the ownership of the asset are transferred to them, the revenue is recorded in the income statement. If, at the reporting date, the Joint venture has not transferred the ownership of the asset to the end customer, the margin achieved with it, following the application of the equity method by the Tesmec Group in the consolidated financial statements, is reversed in relation to the amount of shares held in the capital of the company.
If the trade agreements related to the sales of machines contemplate their on-site testing at the premises of the purchaser as a binding condition for the acceptance of the machine, risks and benefits are transferred, and therefore the revenues are recognised, when the machine has been tested and the purchaser has accepted.
In particular, the Tesmec Company provides services that contemplate an excavation activity carried out by using machines belonging to the company and specialised workers employed by third-party companies. The provision of these services is contractually regulated by agreements with the counterpart that indicate, among other things, the timing for carrying out the excavation and contemplate a price per excavated metre that changes according to different hardness of the soil. Revenues are recognised on the basis of the progress of the excavation to date, as resulting from the states of the work-in-progress recognised and agreed with the counterpart.
Moreover, the Tesmec Company provides after-sales services concerning the machines sold. If these services are requested after the expiry of the guarantee period, the service is contractually regulated by agreements with the counterpart. Revenues are recognised based on the time and components used by the technicians during repair operations.
Financial income and expenses are recognised on an accrual basis on the basis of interests accrued on the net value of the related financial assets and liabilities, by using the effective interest rate.
The fair value of the financial instruments listed on an active market is based on market prices at the end of the reporting period. The fair value of financial instruments that are not listed on an active market is determined by using measurement techniques based on a series of methods and assumptions related to market conditions at the end of the reporting period.
Dividends are recorded when the right of the shareholders to receive the payment arises, coinciding with the time in which they are decided.
Taxes reflect an estimate of the tax burden, determined by applying the laws and regulations in force in the countries where the Tesmec Company carries on its activity. Taxable income for tax purposes differs from the pre-tax profit or loss indicated in the income statement, because it excludes positive and negative components that will be taxable or deductible in other financial periods and excludes items that will never be taxable or deductible. Current tax liabilities are calculated by using the rates in force or substantially approved at the end of the reporting period.
Current tax liabilities are recorded in the current liabilities net of any paid tax advances.
Deferred taxes are calculated on the temporary differences resulting at the end of the reporting period among the tax values used as a reference for assets and liabilities and the values indicated in the financial statements.
Deferred tax assets are recognised for all the temporary deductible differences and for retained tax assets and liabilities, insofar as the existence of appropriate future tax profits that can apply the use of the temporary deductible differences and of the retained tax assets and liabilities is likely.
The value to be stated in the financial statements for deferred tax assets is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient income for tax purposes will be available in the future for this tax credit to be used totally or partially. Deferred tax assets not recognised are reviewed every year at the end of the reporting period and are recognised to the extent that the pre-tax profit is probably sufficient to allow the recovery of these deferred tax assets.
Deferred tax assets and liabilities are measured based on tax rates that are expected to be applied to the financial period in which such assets are sold or such liabilities are discharged, considering the rates in force and those already issued or substantially issued at the end of the reporting period.
Deferred tax assets and liabilities are recognised directly in the income statement, with the exception of those relating to items recognised directly in equity, in which case the related deferred taxes are also accounted for consistently without booking to the income statement.
Deferred tax assets and liabilities are offset, if there is a legal right to offset current tax assets against current tax liabilities, and the deferred taxes refer to the same tax entity and to the same tax authority.
Assets for deferred tax assets and liabilities for deferred tax liabilities are classified as non-current assets and liabilities.
Revenues, costs and assets are recognised net of value added tax with the exception of the case in which:
The net amount of indirect taxes on sales and purchases that can be recovered from or paid to the tax authorities is recorded in the financial statements item other receivables and payables depending on the sign of the balance. VAT related to invoicing to public bodies is paid to the Tax authority when the receivable is collected during suspended VAT, pursuant to Italian Presidential Decree no. 633/72 and subsequent amendments.
The basic earnings per share are calculated by dividing the Group's economic result by the weighted average of the outstanding shares during the period. For the purposes of the calculation of the diluted earnings per share, the weighted average of the outstanding shares is modified by assuming the conversion of all the potential dilutive shares. The net result is also adjusted to take account of the effects, net of tax, of the conversion.
The diluted earnings per share coincide with the basic earnings, since there are no outstanding shares or options other than ordinary shares.
The accounting standards adopted for the preparation of the interim condensed consolidated financial statements are the same as those adopted for the preparation of the consolidated financial statements for the year ended 31 December 2015, with the exception of the adoption as of 1 January 2016 of the new standards, amendments and interpretations. The Group has not adopted in advance any new standard, interpretation or change issued but not yet in force.
The nature and effects of these changes are shown below. Albeit these new standards and amendments were applicable for the first time in 2016, they had no impact on the consolidated financial statements of the Group or on the interim consolidated report on operations of the Group. The nature and impact of each new standard/amendment is listed below:
IAS 19 requires an entity to consider contributions from employees or third parties in the recording of defined benefit plans. When the contributions are related to the provided service, they should be attributed to the periods of service as a negative benefit. This amendment clarifies that, if the amount of contributions does not depend on the number of years of service, the entity is allowed to recognise these contributions as a reduction of the cost of service in the period in which the service is rendered, instead of allocating the contribution to the periods of service. This amendment is effective for annual periods beginning on or after 1 February 2015. This amendment is not relevant to the Group, given that none of the entities that are part of the Group have plans comprising contributions of employees or third parties.
This improvement applies prospectively and clarifies various points related to the definition of performance and service conditions representing vesting conditions, including:
Therefore, these improvements did not affect the accounting standards of the Group, since none of the entities forming part of the Group have plans that require share-based remuneration.
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable). This is consistent with the Group's current accounting policy, and thus this amendment had no impact on the Group's accounting policy.
The amendment applies prospectively and clarifies that:
The Group did not apply the aggregation criteria provided by IFRS 8.12. In the previous periods, the Group presented the reconciliation of the segment's assets with total assets and continues to present it in Explanatory Notes, inasmuch as the reconciliation is provided to the highest decision-making level.
The amendment applies prospectively and clarifies that in IAS 16 and in IAS 38 an asset can be revalued with reference to observable data both by adjusting the gross book value of the asset to the market value and by determining the market value of the book value and adjusting proportionally the gross book value in such a way that the resulting book value is equal to the market value. Moreover, the accumulated amortisation and depreciation is the difference between the gross book value and the book value of the asset. The Group has not recorded any revaluation adjustment during the interim period of reference.
The amendment applies prospectively and clarifies that a management entity (entity providing key management personnel services) is a related party subject to related party disclosures. Moreover, an entity that makes use of a management entity must disclose the costs incurred for management services. This amendment is not relevant for the Group in that it does not receive management services from other entities.
The amendments to IFRS 11 require that a joint operator that records the acquisition of a stake in a joint arrangement, whose assets represent a business, must apply the relevant principles of IFRS 3 regarding the accounting of business combinations. The amendments also clarify that, if joint control is maintained, the interest previously held in a joint operation is not subject to re-measurement at the time of the acquisition of an additional interest in the same joint operation. Moreover, an exclusion from the scope of IFRS 11 was added to clarify that the amendments do not apply when the parties that share control, including the entity that prepares the financial statements, are under the share control of the same last controlling party. The changes apply both to the acquisition of the initial stake in a joint arrangement and to the acquisition of further stakes in the same joint arrangement. The amendments must be applied from years starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group in that during the period there were no acquisitions of interests in a joint operation.
The amendments clarify the principle contained in IAS 16 Property, plant and equipment and IAS 38 Intangible Assets: revenues reflect a model of economic benefits generated by the management of a business (to which the asset belongs), rather than economic benefits that are consumed with the use of the asset. This means that a revenue-based method cannot be used to depreciate property, plant and equipment and could be used only in very limited circumstances for the amortisation of intangible assets. The amendments must be applied from years starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group in that the Group does not use methods based on revenues for the amortisation/depreciation of non-current assets.
These amendments have no impact on the Group in that the Group has no bearer plants.
The amendments will allow entities to use the net equity method to recognise investments in subsidiaries, joint ventures and associates in its separate financial statements. Entities that are already applying the IFRS and decided to change the accounting criteria by passing to the net equity method in their separate financial statements must apply the change retrospectively. In case of first adoption of the IFRS, the entity that decides to use the equity method in its own separate financial statements must apply it from the date of transition to the IFRSs. The amendments take effect for financial periods starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the consolidated financial statements of the Group.
These amendments take effect for financial periods starting 1 January 2016 or later. They include:
Assets or disposal groups are generally held for sale or for distribution to owners. The amendment states that the change from one to another of these methods of disposal should not be considered a new plan to sell, but rather a continuation of the original plan. Therefore, there is no interruption in the application of the requirements of IFRS 5. This amendment must be applied prospectively.
The amendment states that a servicing contract that includes a fee can lead to a continuous involvement in a financial asset. An entity must define the nature of the fee and of the agreement on the basis of the guidance in IFRS 7 on continuous involvement to consider whether a disclosure is requested. The definition of which service contract involves continuous involvement must be made retrospectively. However, the disclosure required must not be presented for the financial years preceding the first-time application of this amendment.
The amendment clarifies that the disclosure requirements on fees do not apply to condensed interim financial statements, unless this disclosure provides a significant updating of the information presented in the last financial statements. This amendment must be applied retrospectively.
The amendment clarifies that the active market (market depth) of high-quality company bonds must be defined by reference to the currency of the bond, rather than the country in which the bond is located. When there is no active market for highquality company bonds in that currency, the rates of the related Italian Government bonds must be used. This amendment must be applied prospectively.
The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments have no impact on the Group.
The amendments to IAS 1 clarify rather than amend significantly some of the already existing requirements of IAS 1
In addition, the amendments clarify the requirements that apply when sub-totals are presented in the statement of profit/(loss) for the year or of other components of the statement of comprehensive income or in the statement of financial position. These amendments take effect for financial periods starting 1 January 2016 or later; early application is permitted. These amendments have no impact on the Group.
The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.
These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.
The following standards have been approved by the European Union but will apply from 2018; therefore, they are not applicable by the company in the financial statements at December 31, 2016.
▪ IFRS 9 "Financial instruments": this standard, approved by the European Union on November 29, 2016, entirely replaces IAS 39 "Financial instruments: recognition and measurement" and introduces two new criteria to recognize and measure financial assets and liabilities. The main changes introduced by IFRS 9 may be summarized as follows: financial assets can be measured either at fair value or at their amortized cost. As a result, the categories "loans and receivables", "available-for-sale financial assets" and "held-to-maturity investments" disappear. Classification within the two categories is carried out on the basis of an entity's business model and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if both of the following requirements are met: the objective of the entity's business model is to hold assets to collect contractual cash flows (and therefore in substance not to earn trading profits) and the characteristics of the cash flows of the asset are solely payments of principal and interest. A financial asset is measured at fair value if it is not measured at amortized cost. The rules to account for derivatives have been simplified, as the embedded derivative and the host financial asset are no longer recognized separately.
All equity instruments - listed or unlisted - must be measured at fair value (IAS 39 established on the other hand that unlisted equity instruments should be valued at cost if fair value could not be reliably measured).
An entity has the option of presenting changes in the fair value of equity instruments that are not held for trading in equity; that option is not permitted for equity instruments that are held for trading. This designation is permitted on initial recognition, may be adopted for each individual instrument and is irrevocable. If an election is made for this option, changes in the fair value of these instruments may never be reclassified from equity to the income statement. Dividends on the other hand continue to be recognized in the income statement.
IFRS 9 does not permit reclassifications between the two categories of financial asset except in the rare case of a change in an entity's business model. In this case, the effects of the reclassification are applied prospectively.
The disclosures required to be made in the notes have been adjusted to the classification and measurements rules introduced by IFRS 9. On November 19, 2013, the IASB issued an amendment to this standard which mainly regards the following:
A partial amendment to the standard was issued in July 2014 on the subject of the valuation of financial instruments, with the introduction of the expected-loss impairment model for loans which replaces the impairment model based on realized losses. The amendment in question is applicable from January 1, 2018.
▪ IFRS 15 "Revenues from contracts with customers": the standard, issued by the IASB on May 28, 2014 and approved by the European Union on October 29, 2016, is the result of efforts to achieve convergence between the IASB and the FASB ("Financial Accounting Standard Board", the body responsible for issuing new accounting standards in the United States) in order to achieve a single revenue recognition model applicable both in terms of IFRS and US GAAP. The new standard will apply to all contracts with customers, including contract work in progress, and will thus replace the current IAS 18 - Revenues and IAS 11 - Long-term contracts and all related interpretations. The essential element of IFRS 15 requires the recognition of revenue to be carried out for an amount that reflects the amount that the Group expects to be entitled to receive in respect of the transfer of goods and/or services. A contract with a customer falls within the scope of the standard if all the following conditions are met:
IFRS 15 also includes the disclosure requirements that are significantly more extensive than the existing standard concerning the nature, amounts, timing and uncertainty of revenues and cash flows arising from contracts with customers.
The provisions of IFRS 15, following the amendments made with the amendment issued on September 11, 2015, will be effective for years beginning on or after January 1, 2018.
During 2016, the company started a preliminary assessment of the effects of IFRS 15 still in the process of being completed.
The following standards and amendments to existing standards are still pending approval by the European Union and are therefore not applicable by the company. The dates indicated reflect the expected effectiveness date and enacted in the standards; this date is however subject to the actual approval by the competent bodies of the European Union:
With reference to IFRS 1, some exemptions are eliminated as provided by specific paragraphs of the standard;
The amendment to IAS 18 provides that, if the parent is a venture capital company, it has the power to measure its shareholdings in associates and joint ventures at fair value with recognition of any changes in the income statement;
The preparation of the financial statements requires the directors to carry out discretionary assessments, estimates and assumptions that affect the values of revenues, costs, assets and liabilities and the indication of contingent liabilities at the end of the reporting period. The final results may differ from said estimates. Estimates are used for recognising:
Deferred tax assets are recognised for all the temporary differences and all retained tax losses, in so far as the existence of adequate taxable future profits for which such losses may be used is likely. Directors are requested a significant discretionary assessment to determine the amount of deferred tax assets that can be recorded. They must estimate the probable time in which it will reveal itself and the amount of taxable future profits as well as a future tax planning strategy.
Provision for severance indemnity is determined by using actuarial evaluations. The actuarial evaluation requires assumptions on discount rates, future increases in salary, turnover and death rates. Since these are long-term plans, such estimates are subject to a significant level of uncertainty.
Development costs are capitalised on the basis of the accounting standard explained below. The directors must make assumptions on future cash flows expected from fixed assets, discount rates to be applied and the periods during which the expected benefits reveal themselves in order to determine the values to be capitalised.
An impairment loss occurs when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher value between its fair value deducted the selling costs and its value in use. Fair value less selling costs is equal to the amount obtainable from the sale of an asset or cash-generating unit in a free transaction between knowledgeable, willing parties, deducted from writing off costs. The calculation of the value in use is based on a discounted cash flow model. The cash flows are derived from the budget of the next three years and do not include restructuring activities for which the Group has not yet committed to or significant future investments that will increase the results related activity included in the cash generating unit evaluated. The recoverable amount depends significantly on the discount rate used in the discounted cash flow model, as well as the expected cash flows in the future and the growth rate used for extrapolation.
Moreover, estimates are used for recognising provisions for bad debts, product guarantees, provisions for risks and charges, inventory obsolescence, amortisation, depreciation and write-downs of assets, fair value of derivative financial instruments.
Estimates and assumptions are periodically revised and the effects of each change are immediately reflected in the income statement.
Tesmec S.p.A. is exposed in varying degrees to financial risks related to the core business. In particular, the Company is exposed at the same time to the market risk (interest-rate risk and exchange-rate risk), liquidity risk and credit risk.
The management of financial risks (mainly interest-rate risks) is carried out by the Company on the basis of guidelines defined by the Board of Directors. The purpose is to guarantee a liability structure always in equilibrium with the structure of the balance sheet assets, in order to keep a very sound balance sheet structure.
Forms of financing most commonly used are represented by:
The average cost of indebtedness is benchmarked to the trend of the 3-month EURIBOR rates plus a spread that depends on the financial instrument used and on the rating of the Company.
Tesmec S.p.A. uses derivative financial instruments in order to hedge the interest-rate risk and the exchange-rate risk. The Company does not apply the Cash Flow Hedge Accounting with reference to such positions, in that they do not meet the requirements provided in this regard by the IFRS standards.
The trading of derivative instruments with speculative purposes is not contemplated.
Exchange-rate risk sensitivity of Tesmec S.p.A. is managed appropriately taking into consideration the overall exposure: within the general optimisation policy of financial resources, the Company pursues an equilibrium resorting to less expensive forms of financing.
With regard to the market risk for changes in the interest rate, the company's policy is to hedge the exposure related to the portion of medium to long-term indebtedness. Derivative instruments such as Swaps, Collars and Caps are used to manage this risk.
As at 31 December 2016, there were ten positions related to derivative instruments of interest rate swap hedging the risk related to the potential increase in interest bearing financial payables (current portion) due to fluctuating market rates. The notional value of these positions was equal to Euro 23.5 million, with a negative equivalent value of Euro 198 thousand.
As at 31 December 2015, there were eight positions related to derivative instruments of interest rate swap hedging the risk related to the potential increase in interest bearing financial payables (current portion) due to fluctuating market rates. The notional value of these positions was equal to Euro 24 million, with a negative equivalent value of Euro 291 thousand.
The short-term portion of interest bearing financial payables (current portion), which is mainly used to finance working capital requirements, is not subject to interest-rate risk hedging.
The cost of bank borrowing is benchmarked to the EURIBOR/LIBOR rate plus a spread that depends on the type of credit line used and is the same by type of line. The applied margins can be compared to the best market standards. The interest rate risk to which the Company is exposed is mainly originated from existing financial payables.
The main sources of exposure of the Company to the interest-rate risk refer to existing interest bearing financial payables (current portion) and interest bearing financial payables and to the existing derivative instruments. In particular, the potential impacts on the Income Statement of the 2017 financial period (compared to 2016) referable to the interest-rate risk are set below:
The potential changes in fair value of the effective component of existing hedging derivative instruments affect Shareholders' Equity.
The Company estimated the potential impacts on the Income Statement and on Shareholders' Equity of the 2017 financial period (compared to 2016, calculated with reference to the situation existing at the end of the 2015 reporting period, respectively) produced by a simulation of the change in the term structure of the interest rates, by using internal measurement models, based on the general acceptance approach. In particular:
With reference to the situation as at 31 December 2016, a parallel shift of the term structure of interest rates equal to +100 basis points (+1%) would result in an increase in financial expenses accrued in the 2017 financial period of Euro 296 thousand, offset by an increase of Euro 138 thousand in the spread collected for the existing derivatives. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in financial expenses of Euro 56 thousand, offset by a decrease of Euro 34 thousand in the collected spread for the existing derivatives.
With reference to the situation as at 31 December 2015, a parallel shift of the term structure of interest rates equal to +100 basis points (+1%) would result in an increase in financial expenses accrued in the 2016 financial period of Euro 230 thousand, offset by an increase of Euro 94 thousand in the spread collected for the existing derivatives. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in financial expenses of Euro 42 thousand, offset by a decrease of Euro 27 thousand in the collected spread for the existing derivatives.
| Interests | |||||||
|---|---|---|---|---|---|---|---|
| 31 December 2016 | 31 December 2015 | ||||||
| (Euro in thousands) | Residual debt | Impact on the IS +100 bps |
Impact on the IS -30 bps |
Residual debt |
Impact on the IS +100 bps |
Impact on the IS -30 bps |
|
| Borrowings/Bond issue | 104,342* | (296) | 56 | 108,354* | (230) | 42 | |
| Total Loans | 104,342* | (296) | 56 | 108,354* | (230) | 42 | |
| (Euro in thousands) | Notional | Impact on the IS +100 bps |
Impact on the IS -30 bps |
Notional | Impact on the IS +100 bps |
Impact on the IS -30 bps |
|
| Derivative instruments hedging cash flows | 23,490 | 138 | (34) | 23,977 | 94 | (27) | |
| Total Derivative instruments | 23,490 | 138 | (34) | 23,977 | 94 | (27) | |
| Total | (158) | 22 | (136) | 15 |
(*) The residual debt is considered before amortised costs
| Fair value sensitivity of derivatives | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial period ended 31 December 2016 | ||||||||||
| (Euro in thousands) | Notional value |
Net FV |
Net FV +100 bps |
Net FV +100 bps |
Impact on IS +100 bps |
Impact on SE +100 bps |
Net FV -30 bps |
Net FV - 30 bps |
Impact on IS -30 bps |
Impact on SE -30 bps |
| Derivative instruments hedging cash flows |
23,490 | (198) | 107 | 305 | 305 | - | (278) | (80) | (80) | - |
| Total | 23,490 | (198) | 107 | 305 | 305 | - | (278) | (80) | (80) | - |
| Financial period ended 31 December 2015 | ||||||||||
| (Euro in thousands) | Notional value |
Net FV |
Net FV +100 bps |
Net FV +100 bps |
Impact on IS +100 bps |
Impact on SE +100 bps |
Net FV -30 bps |
Net FV - 30 bps |
Impact on IS -30 bps |
Impact on SE -30 bps |
| Derivative instruments hedging cash flows |
23,977 | (291) | (1) | 290 | 290 | - | (378) | (87) | (87) | - |
| Total | 23,977 | (291) | (1) | 290 | 290 | - | (378) | (87) | (87) | - |
With reference to the situation as at 31 December 2016, a parallel shift of the term structure of interest rates of +100 basis points (+1%) would result in an increase in the asset value of the existing hedging derivative instruments of Euro 305 thousand, with an impact on the Income statement of the 2016 financial period. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in the asset value of the existing hedging derivative instruments of around Euro 80 thousand, with an impact only on the Income statement of the 2016 financial period.
With reference to the situation as at 31 December 2015, a parallel shift of the term structure of interest rates of +100 basis points (+1%) would result in an increase in the asset value of the existing hedging derivative instruments of Euro 290 thousand, with an impact on the Income statement of the 2016 financial period. A parallel shift of the term structure of interest rates of -30 basis points (-0.3%) would result in a decrease in the asset value of the existing hedging derivative instruments of around Euro 87 thousand, with an impact only on the Income statement of the 2016 financial period.
The assumptions concerning the extent of changes in market parameters used for the simulation of shocks were formulated on the basis of an analysis of the historical development of such parameters with reference to a time scale of 12 months.
The company has a much parcelled out customer structure being mostly end-consumers. Moreover, most of the contemplated forms of collection include advance payments of the supply or a deposit not less than 30% of the sale.
This structure zeroes the credit risk; the validity of this approach is endorsed by the low amount of receivables at the end of the financial period compared to the amount of annual sales.
There are no significant concentrations of credit risk exposure in relation to individual debtors to be reported. All positions relating to trade receivables, both with reference to the end of the 2016 and 2015 reporting periods, expire before 12 months.
The Company manages the liquidity risk by controlling strictly the elements forming the working capital and in particular trade receivables and payables.
The Company tends to obtain upstream a good cash generation in relation to sales and then use it for paying the suppliers without compromising the short-term balance of the treasury and avoid problems and tensions in current liquidity.
The stratification of existing Liabilities with reference to 2016 and to 2015 financial periods, with regard to financial instruments, by residual maturity, is set out below.
| 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Financial payables/Bonds | Financial | Total | |||||
| Maturity | Capital | Interests | Trade payables | instruments | |||
| (Euro in thousands) | a | b | c | d | a+b+c+d | ||
| Within 12 months | 61,318 | 2,386 | 25,192 | 155 | 89,051 | ||
| Between one and two years | 15,588 | 1,854 | - | 46 | 17,488 | ||
| Between two and three years | 5,053 | 1,227 | - | 7 | 6,287 | ||
| Between three and five years | 22,278 | 2,067 | - | (4) | 24,341 | ||
| Between five and seven years | 105 | - | - | - | 105 | ||
| After more than 7 years | - | - | - | - | - | ||
| Total | 104,342* | 7,534 | 25,192 | 204 | 137,272 |
| 31 December 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Financial payables/Bonds | Financial | ||||||
| Maturity | Capital | Interests | Trade payables | instruments | Total | ||
| (Euro in thousands) | a | b | c | d | a+b+c+d | ||
| Within 12 months | 39,111 | 3,429 | 30,395 | 197 | 73,132 | ||
| Between one and two years | 11,965 | 3,194 | - | 106 | 15,265 | ||
| Between two and three years | 16,991 | 3,539 | - | 16 | 20,546 | ||
| Between three and five years | 13,914 | 3,454 | - | (7) | 17,361 | ||
| Between five and seven years | 17,751 | 2,526 | - | (6) | 20,271 | ||
| After more than 7 years | 8,622 | 1,177 | - | - | 9,799 | ||
| Total | 108,354* | 17,319 | 30,395 | 306 | 156,374 |
(*) The residual debt is considered before amortised costs
The estimate of expected future expenses implicit in loans and of expected future differentials implicit in derivative instruments was determined on the basis of the term structure of interest rates in Euro existing at the reporting dates (31 December 2016 and 31 December 2015).
The Company is exposed to exchange-rate fluctuations of the currencies in which the sales to foreign customers are paid (US Dollars and South African Rand). This risk is expressed if the equivalent value in Euro of revenues decreases following negative exchange-rate fluctuations, thereby preventing the Company from achieving the desired margin. This risk is increased due to the relevant time interval between the moment in which the prices of a shipment are fixed and the moment in which the costs are converted in Euro.
The potential impacts on the Income Statement of the 2017 financial period (compared to 2016) referable to the exchangerate risk are determined by the revaluation/write-down of asset and liability items in foreign currency.
The Company estimated the potential impacts on the income statement of the 2017 financial period (compared to 2016, calculated with reference to the situation existing at the end of the 2015 reporting period, respectively) produced by a shock of the exchange-rate market, by using internal measurement models, based on the general acceptance approach.
| 2016 Exposure in foreign currency (USD) | 2016 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (USD/000) | Liabilities Equity (USD/000) (USD/000) |
Income statement EUR/USD exchange rate +5% (EUR/000) |
Income statement EUR/USD exchange rate -5% (EUR/000) |
|
| Trade receivables | 8,854 | - | 8,854 | (420) | 420 |
| Trade payables | - | 2 | 2 | - | - |
| Total net exposure with regard to equity items |
8,854 | 2 | 8,856 | (420) | 420 |
| Derivative instruments | - | - | - | - | - |
| 2015 Exposure in foreign currency (USD) | 2015 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (USD/000) | Liabilities (USD/000) |
Equity (USD/000) | Income statement EUR/USD exchange rate +5% (EUR/000) |
Income statement EUR/USD exchange rate -5%(EUR/000) |
| Trade receivables | 10,989 | - | 10,989 | (505) | 505 |
| Trade payables | - | 83 | 83 | (4) | 4 |
| Total net exposure with regard to equity items |
10,989 | 83 | 11,072 | (509) | 509 |
| Derivative instruments | - | - | - | - | - |
| 2016 Exposure in foreign currency (ZAR) | 2016 Sensitivity | |||||
|---|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (ZAR/000) | Liabilities (ZAR/000) |
Equity (ZAR/000) | Income statement EUR/ZAR exchange rate +5% (EUR/000) |
Income statement EUR/ZAR exchange rate -5% (EUR/000) |
|
| Trade receivables | 74,885 | - | 74,885 | (259) | 259 | |
| Trade payables | - | - | - | - | - | |
| Total net exposure with regard to equity items |
74,885 | - | 74,885 | (259) | 259 | |
| Derivative instruments | - | - | - | - | - |
| 2015 Exposure in foreign currency (ZAR) | 2015 Sensitivity | |||||
|---|---|---|---|---|---|---|
| Exposure with regard to equity items |
Liabilities Assets (ZAR/000) (ZAR/000) |
Equity (ZAR/000) | Income statement EUR/ZAR exchange rate +5% (EUR/000) |
Income statement EUR/ZAR exchange rate -5% (EUR/000) |
||
| Trade receivables | 63,375 | - | 63,375 | (2,911) | 2,911 | |
| Trade payables | - | - | - | - | - | |
| Total net exposure with regard to equity items |
63,375 | - | 63,375 | (2,911) | 2,911 | |
| Derivative instruments | - | - | - | - | - |
| 2016 Exposure in foreign currency (IDR) | 2016 Sensitivity | ||||
|---|---|---|---|---|---|
| Exposure with regard to equity items |
Assets (IDR/000) | Liabilities Equity (IDR/000) (IDR/000) |
Income statement EUR/IDR exchange rate +5% (EUR/000) |
Income statement EUR/IDR exchange rate - 5% (EUR/000) |
|
| Trade receivables | - | - | - | - | - |
| Trade payables | - | - | - | - | - |
| Total net exposure with regard to equity items |
- | - | - | - | - |
| Derivative instruments | 158,497,466 | - | 158,497,466 | (559) | 559 |
The assumptions concerning the extent of changes in market parameters used for the simulation of shocks were formulated on the basis of an analysis of the historical development of such parameters with reference to a time scale of 30-60-90 days, consistent with the expected duration of exposures.
The following table shows the book values for each class of financial assets and liabilities identified by IAS 39:
| (Euro in thousands) | Loans and receivables/payables |
Guarantee deposits |
Cash and cash equivalents |
Available-for sale financial assets |
Fair value recognised in the income statement |
|---|---|---|---|---|---|
| Financial assets: | |||||
| Derivative financial instruments | - | - | - | - | 3 |
| Total non-current | - | - | - | - | 3 |
| Trade receivables | 34,578 | - | - | - | - |
| Financial receivables from related parties | 41,352 | - | - | - | - |
| Financial receivables from third parties | 32 | - | - | - | - |
| Other available-for-sale securities | - | - | - | 2 | - |
| Cash and cash equivalents | - | - | 14,524 | - | - |
| Total current | 75,962 | - | 14,524 | 2 | - |
| Total | 75,962 | - | 14,524 | 2 | 3 |
| Financial liabilities: | |||||
| Loans | 26,649 | - | - | - | - |
| Non-current portion of finance leases, net | 1,269 | - | - | - | - |
| Bond issue | 14,735 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 171 |
| Total non-current | 42,653 | - | - | - | 171 |
| Loans | 33,959 | - | - | - | - |
| Other financial payables (short-term leases) | 484 | - | - | - | - |
| Other short-term payables | 26,572 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 110 |
| Trade payables | 25,192 | - | - | - | - |
| Total current | 86,208 | - | - | - | 110 |
| Total | 128,861 | - | - | - | 281 |
In relation to financial instruments measured at fair value, the following table shows the classification of such instruments on the basis of the hierarchy of levels required by IFRS 13, which reflects the significance of the inputs used in measuring the fair value. The levels are broken down as follows:
The following table shows the assets and liabilities that are measured at fair value as at 31 December 2016, divided into the three levels defined above:
| Book value as at 31 Level 1 |
Level 2 | Level 3 | |||
|---|---|---|---|---|---|
| (Euro in thousands) | December 2016 | ||||
| Financial assets: | |||||
| Derivative financial instruments | 3 | - | 3 | - | |
| Other available-for-sale securities | 2 | - | - | 2 | |
| Total current | 5 | - | 3 | 2 | |
| Total | 5 | - | 3 | 2 | |
| Financial liabilities: | |||||
| Derivative financial instruments | 171 | - | 171 | - | |
| Total non-current | 171 | - | 171 | - | |
| Derivative financial instruments | 110 | - | 110 | - | |
| Total current | 110 | - | 110 | - | |
| Total | 281 | - | 281 | - |
Among the operations occurred during the 2016 financial period, the following is reported:
production, transmission and distribution of electrical power for a fixed net price of Euro 0.1 million.
This acquisition allows the Tesmec Group to expand the potential customer base of the Energy sector in Italy by benefiting from the strong relations that Ampere S.r.l. has with important customers.
▪ on 29 April 2016, upon approval of the financial statements for 2015, the Shareholders' Meeting of Tesmec S.p.A. resolved to:
The Board of Directors decided to:
As described above, on 21 december 2016, the Board of Directors of Tesmec S.p.A. approved certain transactions with the related party Dream Immobiliare S.r.l. ("Dream") involving the properties situated in Grassobbio (Bergamo) ("Grassobbio Property Complex"), in Padua ("Padua Building") and Patrica (Frosinone) ("Frosinone Building"), in which factories of Tesmec and of its subsidiaries SGE S.r.l. ("SGE") and CPT Engineering S.r.l. ("CPT") are located.
- With regard to the Grassobbio Property Complex, where Tesmec's production plant also has its headquarters, the Company's Board of Directors has considered exercising of the option with respect to Dream to no longer be strategic for Tesmec, thereby allowing said option to expire. This option expires on 31 December 2016 and regards a takeover of the lease contract in place between Dream and Unicredit Leasing S.p.A. for said property complex for Euro 3,500 thousand.
The Board of Directors consequently renegotiated the rent and term of the lease contract with Dream, with respect to the portion of the Grassobbio Property Complex in which Tesmec carries out its activities, agreeing on a reduction in the annual rent of approximately Euro 160 thousand (from about Euro 1,960 thousand to Euro 1,800 thousand) and a new contract term with expiry envisaged for 30 January 2027. Consequently the availability of the property in the production site was also guaranteed.
As a result of these transactions, the Tesmec Group's Net Financial Position at 31 December 2016 will result in improvement for about Euro 16,579 thousand, primarily concerning the adjustment of the financial debt resulting from the renegotiation of the main clauses of the lease contract.
The transactions described above will involve, for Tesmec S.p.A. as at December 31, 2016 an improvement in the net financial position for Euro 16,579 thousand, a reduction of EBITDA for Euro 2,350 thousand and a reduction of net income for Euro 1,612 thousand.
Below a summary table showing the economic, patrimonial and financial effect of the transaction as at December 31, 2016:
| (In migliaia di Euro) | Grassobbio Property Complex |
|---|---|
| USES | |
| Net working capital | 738 |
| Fixed assets | (18,929) |
| Other long-term assets and liabilities | - |
| Net invested capital | (18,191) |
| SOURCES | |
| Net financial indebtedness | (16,579) |
| Shareholder's equity | (1,612) |
| Total sources of funding | (18,191) |
| (In migliaia di Euro) | Grassobbio Property Complex |
|---|---|
| Loss | (2,350) |
| Income | - |
| EBITDA | (2,350) |
| Tax | 738 |
| Effect on net result | (1,612) |
The accounting effects of these operations on an annual basis will be the rental costs of Euro 1,800 thousand which will be reflected on EBITDA and a decrease in financial expenses of Euro 751 thousand and amortization of Euro 572 thousand. These effects will produce a positive tax effect of Euro 179 thousand on the Company's taxable income, the net result will therefore suffer a worsening of Euro 289 thousand.
For further information please refer to the Information Document on significant transactions with related parties published on December 22, 2016 in the Investor Relations-Governance section on the website www.tesmec.com.
The breakdown of Intangible assets as at 31 December 2016 and as at 31 December 2015 is indicated in the table below:
| 31 December | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||||
| (Euro in thousands) | Historical cost | Accum. amort. | Net value | Historical cost | Accum. amort. | Net value | ||
| Development costs | 29,615 | (23,636) | 5,979 | 26,860 | (20,739) | 6,121 | ||
| Rights and trademarks Assets in progress and |
2,815 | (2,361) | 454 | 2,777 | (2,182) | 595 | ||
| advance payments to suppliers |
111 | - | 111 | - | - | - | ||
| Total intangible assets | 32,541 | (25,997) | 6,544 | 29,637 | (22,921) | 6,716 |
The following table shows the changes in intangible assets for the period ended 31 December 2016:
| (Euro in thousands) | 01/01/2016 | Increases | Decreases | Reclassifications | Amortisation | 31/12/2016 |
|---|---|---|---|---|---|---|
| Development costs | 6,121 | 2,756 | - | - | (2,898) | 5,979 |
| Rights and trademarks | 595 | 38 | - | - | (179) | 454 |
| Assets in progress and advance payments to suppliers |
- | 111 | - | - | - | 111 |
| Total intangible assets | 6,716 | 2,905 | - | - | (3,077) | 6,544 |
As at 31 December 2016, intangible assets net of amortisation totalled Euro 6,544 thousand, up Euro 172 thousand on the previous year.
Increases for the period totalled Euro 2,905 thousand mainly consisting in development costs capitalised (Euro 2,756 thousand) related to the development of new products and equipment that are expected to generate positive cash flows in future financial periods. This amount is related for Euro 1,163 thousand to Trencher and for Euro 1,593 thousand to Stringing Equipment.
The following table shows the changes in intangible assets for the period ended 31 December 2015:
| (Euro in thousands) | 01/01/2015 | Increases | Decreases | Reclassifications | Amortisation | 31/12/2015 |
|---|---|---|---|---|---|---|
| Development costs | 5,605 | 3,356 | - | - | (2,840) | 6,121 |
| Rights and trademarks | 184 | 597 | - | - | (186) | 595 |
| Assets in progress and advance payments to suppliers |
70 | 126 | (196) | - | - | - |
| Total intangible assets | 5,859 | 4,079 | (196) | - | (3,026) | 6,716 |
The breakdown of Property, plant and equipment as at 31 December 2016 and as at 31 December 2015 is indicated in the table below:
| 31 December | |||||||
|---|---|---|---|---|---|---|---|
| 2016 | |||||||
| (Euro in thousands) | Historical cost |
Accum. depr. |
Net value | Historical cost |
Accum. depr. |
Net value | |
| Land | 1,250 | - | 1,250 | 5,266 | - | 5,266 | |
| Buildings | 3,257 | (301) | 2,956 | 21,553 | (3,013) | 18,540 | |
| Plant and machinery | 10,543 | (7,582) | 2,961 | 10,517 | (6,864) | 3,653 | |
| Equipment | 3,697 | (3,101) | 596 | 3,260 | (2,863) | 397 | |
| Other assets | 4,325 | (2,047) | 2,278 | 4,142 | (1,949) | 2,193 | |
| Assets in progress and advance payments to suppliers | 522 | - | 522 | 522 | - | 522 | |
| Total property, plant and equipment | 23,594 | (13,031) | 10,563 | 45,260 | (14,689) | 30,571 |
The following table shows the changes in property, plant and equipment for the period ended 31 December 2016:
| (Euro in thousands) | 01/01/2016 | Increases | Decreases | Reclassifications | Depreciation | 31/12/2016 |
|---|---|---|---|---|---|---|
| Land | 5,266 | - | (4,016) | - | - | 1,250 |
| Buildings | 18,540 | - | (14,913) | - | (669) | 2,958 |
| Plant and machinery | 3,653 | 129 | (77) | - | (745) | 2,960 |
| Equipment | 397 | 502 | (64) | - | (240) | 595 |
| Other assets | 2,193 | 367 | (154) | - | (128) | 2,278 |
| Assets in progress and advance payments to suppliers |
522 | - | - | - | - | 522 |
| Total property, plant and equipment | 30,571 | 998 | (19,224) | - | (1,782) | 10,563 |
As at 31 December 2016, property, plant and equipment totalled Euro 10,563 thousand, down compared to the previous year by Euro 18,226 thousand.
The decrease is due to the new lease contract described in paragraph 4.1 Effects of the New lease contract with related parties of Euro 18,929 thousand. Other assets includes the net value of Trenchers on fleet for Euro 2,215 thousand in 2016 and for 2,136 thousand in 2015.
The following table shows the changes in property, plant and equipment for the period ended 31 December 2015:
| (Euro in thousands) | 01/01/2015 | Increases | Decreases | Reclassifications | Depreciation | 31/12/2015 |
|---|---|---|---|---|---|---|
| Land | 5,266 | - | - | - | - | 5,266 |
| Buildings | 19,197 | 12 | - | - | (669) | 18,540 |
| Plant and machinery | 4,336 | 172 | (42) | - | (813) | 3,653 |
| Equipment | 428 | 187 | - | - | (218) | 397 |
| Other assets | 2,393 | 30 | (75) | - | (155) | 2,193 |
| Assets in progress and advance payments to suppliers |
520 | 2 | - | - | - | 522 |
| Total property, plant and equipment | 32,140 | 403 | (117) | - | (1,855) | 30,571 |
The breakdown of Equity investments in subsidiaries, associates and joint ventures as at 31 December 2016 and 2015 is indicated in the table below:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Subsidiaries: | |||
| Tesmec USA, Inc. | 21,261 | 21,261 | |
| Tesmec Service S.p.A. | 3,596 | 2,096 | |
| Tesmec SA | 361 | 361 | |
| East Trenchers S.r.l. | 145 | 145 | |
| SGE S.r.l. | 410 | 410 | |
| OOO Tesmec RUS | 11 | 11 | |
| Tesmec New Technology (Beijing) LTD | 200 | 200 | |
| Marais Technologies SA | 8,564 | 8,564 | |
| CPT Engineering S.r.l. | 316 | - | |
| Bertel S.r.l. | 3,535 | - | |
| Tesmec Rail S.r.l. | 10 | - | |
| Total equity investments in subsidiaries | 38,408 | 33,047 |
Equity investments in subsidiaries increased all in all of Euro 5,361 thousand as a result of the following operations:
The following table shows the main financial statements items of subsidiaries:
| 31 December | |||||||
|---|---|---|---|---|---|---|---|
| 2016 | |||||||
| (Euro in thousands) | % held | Revenues | Net income | Assets | Liabilities | Shareholders' Equity |
Book value |
| Subsidiaries: | |||||||
| Tesmec USA, Inc. | 100.00% | 16,486 | (4,222) | 62,437 | 36,568 | 25,869 | 21,261 |
| Tesmec France EURL | 100.00% | - | (7) | 3 | 4 | (1) | - |
| Tesmec Balkani EAD | 100.00% | - | (41) | - | - | - | - |
| Tesmec Service SpA | 100.00% | 5,186 | (224) | 7,203 | 6,028 | 1,175 | 3,596 |
| Tesmec SA | 100.00% | 4,445 | 24 | 6,705 | 6,421 | 284 | 361 |
| East Trenchers Srl | 100.00% | - | (23) | 43 | 1 | 42 | 145 |
| SGE Srl | 100.00% | 2,856 | (143) | 5,197 | 4,938 | 259 | 410 |
| OOO Tesmec RUS | 100.00% | 666 | (132) | 436 | 644 | (208) | 11 |
| Tesmec New Technology (Beijing) LTD |
100.00% | 137 | (215) | 147 | 511 | (364) | 200 |
| Marais Technologies SA | 86.79% | - | (466) | 24,116 | 8,404 | 15,712 | 8,564 |
| CPT Engineering S.r.l. | 100.00% | 1,210 | (79) | 3,009 | 2,888 | 121 | 315 |
| Bertel S.r.l. | 100.00% | 526 | (855) | 4,502 | 3,716 | 786 | 3,535 |
|---|---|---|---|---|---|---|---|
| Tesmec Rail S.r.l. | 100.00% | - | - | 17 | 7 | 10 | 10 |
It should be noted that the value of shareholders' equity of the subsidiary Tesmec New Technology (Beijing) Ltd. was strongly influenced by the current start-up phase of the related assets.
The values of the equity investments were tested for impairment. The key assumptions used by Management are estimates of future business plans. The expected earnings flows cover a period of three years subsequent to those of reference of the impairment test and they are based on plans reviewed by Board of Directors on 10 March 2017.
The discount rate used (WACC), defined as the weighted average cost of capital, net of taxes, was differentiated according to the country of reference, the values of which are positioned in a range between 7% and 15%. Cash flows beyond the three years were extrapolated using a growth rate of 1.1%. The results of the impairment test showed that as at 31 December 2016, the recoverable amount of the CGU exceeds the carrying amount. The results underwent also a sensitivity analysis in order to consider the possible effects of changes in the key assumptions underlying the impairment process. This analysis involved a reasonably possible change in the expected growth rate of about +/- 0.25%, the discount rate used of about +/- 2%, and the EBIT value resulting from the Plan of about +/- 10%.
The breakdown of equity investments in associates and joint ventures as at 31 December 2016 and 2015 is indicated in the table below:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Associated companies: | |||
| Locavert SA | 52 | 52 | |
| Bertel | - | 1,700 | |
| Subtotal | 52 | 1,752 | |
| Joint Ventures: | |||
| Condux Tesmec Inc | 956 | 956 | |
| Tesmec Peninsula | 730 | 730 | |
| Subtotal | 1,686 | 1,686 | |
| Total equity investments in associates | 1,738 | 3,438 |
The following table shows the main financial statements items of associated companies and joint ventures:
| 31 December | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2016 | ||||||||
| (Euro in thousands) | % held | Revenues | Net income | Assets | Liabilities | Shareholders' Equity |
Book value | |
| Associated companies: | ||||||||
| Locavert SA | 38.63% | 461 | 8 | 648 | 238 | 410 | 52 | |
| Joint Ventures: | ||||||||
| Condux Tesmec Inc. | 50.00% | 3,981 | 75 | 5,057 | 1,772 | 3,285 | 956 | |
| Tesmec Peninsula | 49.00% | 342 | (145) | 5,015 | 4,795 | 220 | 730 |
At 31 December 2016, values of equity investments in associate companies were impaired as described in the previous paragraph. The results of the impairment test showed that as at 31 December 2016, the recoverable amount of these equity investments exceeds the carrying amount.
Impairment tests and sensitivity analyses were carried out also for equity investments in associates by following the indicated parameters, and the tests carried out did not report any potential impairment.
The following table sets forth the breakdown of work in progress contracts as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Work in progress (Gross) | - | 2,508 | |
| Advances from contractors | - | (625) | |
| Work in progress contracts | - | 1,883 | |
| Advances from contractors (Gross) | - | - | |
| Work in progress (Gross) | - | - | |
| Advances from contractors | - | - |
"Work in progress" refers exclusively to the rail segment where the machinery is produced in accordance with specific customer requirements. "Work in progress" is recognised as an asset if, on the basis of an analysis carried out for each contract, the gross value of work in progress is greater than advances from customers; it is recognised as a liability if the advances are greater than the related work in progress. If the advances are not collected at the reporting date, the corresponding amount is recognised as trade receivables.
The following table sets forth the breakdown of Inventories as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Advances to Suppliers | 1 | 25 | |
| Raw materials and consumables | 17,268 | 15,999 | |
| Work in progress | 6,667 | 4,517 | |
| Finished products and goods for resale | 12,047 | 8,172 | |
| Total Inventories | 35,983 | 28,713 |
The measurement bases of inventories remained unchanged compared to the prior financial period. The item as a whole increased by 25.3% as a result of the decrease in revenues.
In total, inventories increased by 25.3% to Euro 7,270 thousand, despite the reduction in revenues due to the shortages of certain deliveries and the completion of the Indonesian deal.
The changes in the provisions for inventory obsolescence for financial periods ended 31 December 2016 and 2015 are indicated in the table below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 3,033 | 2,340 | |
| Provisions | 57 | 693 | |
| Uses | - | - | |
| Total provisions for inventory obsolescence | 3,090 | 3,033 |
The value of the provisions for inventory obsolescence increased by Euro 57 thousand compared to the prior financial period due to the increase in slow moving material and spare parts.
The adequacy of the provision is assessed on a regular basis to constantly monitor the actual level of inventories recovered through sales.
The table below shows the breakdown of trade receivables as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade receivables from third-party customers | 30,030 | 22,308 | |
| Trade receivables from related parties | 4,548 | 8,856 | |
| Total trade receivables | 34,578 | 31,164 |
For terms and conditions relating to receivables from related parties, refer to note 34.
Trade receivables as at 31 December 2016 amounted to Euro 34,578 thousand up by Euro 3,414 thousand compared to the 2015 financial period.
The balance of trade receivables is shown net of provisions for doubtful accounts. This provision was calculated in an analytical manner by dividing the receivables in classes depending on the level of risk, by Country and customer, and by applying to each class an expected percentage of loss derived from historical experience.
The changes in the provisions for doubtful accounts for the financial periods ended 31 December 2016 and 2015 are indicated in the table below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 1,839 | 1,564 | |
| Provisions | - | 405 | |
| Uses | (5) | (130) | |
| Total provisions for doubtful accounts | 1,834 | 1,839 |
Uses and provisions related to the provisions for doubtful accounts are included in "other operating (costs)/revenues, net" of the income statement.
Tax receivables increased by Euro 506 thousand as a result of the recognition of IRES receivables of Euro 503 thousand and IRAP receivables of Euro 3 thousand.
The following table sets forth the breakdown of financial receivables and other current financial assets as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Financial receivables from related parties | 41,352 | 42,466 | |
| Other current financial assets | 32 | 40 | |
| Total financial receivables and other current financial assets | 41,384 | 42,506 |
The decrease in financial receivables and other current financial assets (Euro 1,122 thousand) is due to the decrease in credit positions relating to specific contracts signed with the related parties on which an interest rate is applied and repayable within 12 months. The main financial receivables and related interest rate applied are set below:
In addition, financial receivables from related parties include the effect described in paragraph 4.1 Effects of transactions with related parties.
For terms and conditions relating to receivables from related parties, refer to note 35.
The following table sets forth the breakdown of other current assets as at 31 December 2016 and as at 31 December 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Accrued income | 2 | - | |
| Prepaid expenses | 458 | 464 | |
| VAT credit | (15) | 364 | |
| Other tax receivables | 15 | 16 | |
| Other receivables | 145 | 602 | |
| Receivables from subsidiaries | 9 | 148 | |
| Advance to suppliers for services | 115 | 88 | |
| Total Other current assets | 729 | 1,682 |
Other current assets is considered receivable and therefore was not subject to value adjustment, the item decreased mainly due to the decrease in the VAT credit.
The following table sets forth the breakdown of the item as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Bank and post office deposits | 14,519 | 15,447 | |
| Cash on hand | 3 | 2 | |
| Other cash | 2 | 2 | |
| Total cash and cash equivalents | 14,524 | 15,451 |
Cash and cash equivalents are invested in short-term bank deposits and they are remunerated at a floating rate related to the Euribor trend. The balance as at 31 December 2016 amounts to Euro 14,524 thousand and decreased of Euro 927 thousand. The stated values can be readily converted into cash and are subject to a non-significant risk of change in value. The book value of cash and cash equivalents is deemed to be aligned to their fair value at the end of the reporting period.
The Company believes that the credit risk related to cash and cash equivalents is limited since it mainly represents deposits divided across domestic and international banking institutions.
The share capital amounts to Euro 10,708 thousand, fully paid up, and comprises 107,084,000 shares with a par value of Euro 0.1 per share.
The following table sets forth the breakdown of Other reserves as at 31 December 2016 and 2015:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Revaluation reserve | 86 | 86 | |
| Extraordinary reserve | 25,294 | 20,559 | |
| Severance indemnity valuation reserve | (366) | (243) | |
| Network Reserve | 754 | 725 | |
| Retained earnings/(losses brought forward) | 2,490 | 2,490 | |
| Bills charged directly to shareholders' equity on operations with entities under common control |
(5,619) | (5,619) | |
| Total other reserves | 22,639 | 17,998 |
The revaluation reserve is a reserve in respect of which tax has been deferred, set up in accordance with Italian Law 72/1983. As at 31 December 2016, extraordinary reserve increased by a total of Euro 4,735 thousand as a result of the decision for the allocation of the 2015 net income.
The Reserve for First Time Adoption is mainly related to the application of the principle of continuity of values within extraordinary operations concluded among companies "under common control" with a subsequent write-off of the higher values recognised in the transaction with the Shareholders' Equity as a balancing entry.
The Shareholders' Equity is therefore divided according to the origin, the possibility of usage, the related distributability and the actual usage in the 3 previous financial periods
| Nature/description | Amount | Possibility of | Amount | Summary of uses in the last 3 periods |
|
|---|---|---|---|---|---|
| (Euro/000) | usage | available | To cover losses |
for other reasons |
|
| Share capital | 10,708 | B | |||
| Equity's reserves: | |||||
| Share premium reserve | 10,915 | A, B, C (*) | 10,915 | - | - |
| Reserve of Treasury Shares | (2,340) | ||||
| Earnings reserves: | |||||
| Legal reserve | 2,142 | B | |||
| Revaluation reserve | 86 | A, B, C | 86 | - | - |
| Extraordinary reserve | 25,294 | A, B, C | 25,294 | - | - |
| Reserve for First Time Adoption | (5,619) | ||||
| Severance indemnity valuation reserve | (366) | ||||
| Network Reserve | 754 | ||||
| Retained earnings/(losses brought forward) | 2,490 | B |
| Profit for the period | 1,648 | |||
|---|---|---|---|---|
| Total | 45,712 | 36,295 | - | - |
(*) Pursuant to Article 2431 of the Italian Civil Code, the whole amount of this reserve is distributable only if the legal reserve has reached the limit established in Article 2430 of the Italian Civil Code. That level is reached as at 31 December 2016.
Legend:
A: To increase shareholders' equity
B: To cover losses
C: To distribute to shareholders
Following the resolution of 29 April 2016, the Shareholders' Meeting approved the allocation of 2015 profits of Euro 7,412 thousand as follows:
Medium/long-term loans include medium-long term loans from banks, payables towards other providers of finance and payables towards leasing companies for tangible fixed assets recorded in the consolidated financial statements in accordance with the financial leasing accounting method.
The following table shows the breakdown thereof as at 31 December 2016 and as at 31 December 2015, with separate disclosure of the current portion:
| 31 December | |||||
|---|---|---|---|---|---|
| 2016 | of which current portion |
2015 | of which current portion |
||
| (Euro in thousands) | |||||
| Banca Nazionale del Lavoro – loan at floating interest rate with a 2-year pre-amortisation; original value Euro 6 million; drawn down on 1 July 2010 with maturity date 31 May 2018; floating interest rate equivalent to 6-month Euribor rate + spread of 2.25%, half-yearly repayment. |
1,846 | 1,846 | 2,769 | 923 | |
| BNL-BNP Paribas Group - loan in pool; original value Euro 21 million, drawn down on 11 March 2011 Euro 8 million with maturity date 4 March 2016, floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25). On 4 and 5 August 2011, Euro 4 million, on 9 November 2011, Euro 2 million, on 9 February 2012, Euro 2 million, on 31 May 2012, Euro 2 million and on 23 October 2012, another Euro 3 million with maturity date 4 March 2013, floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25) with option to extend repayment in 54 months (in 9 deferred half-yearly instalments) last instalment expiring on 4 September 2017, 6-month Euribor rate + spread of 1.90% (+/- 0.25), half yearly repayment. |
1,922 | 1,922 | 6,093 | 4,169 | |
| Simest UGF - loan for a total of Euro 1.9 thousand and drawn down the first tranche of Euro 580 thousand on 28 March 2013 with maturity date 14 February 2020, special annual interest rate of 0.4994% and second tranche of Euro 397 thousand to be used as from 14 March 2014 with maturity date 14 February 2020, special annual interest rate of 0.4994%, two months of prepayment and half-yearly repayment. |
990 | 283 | 1,273 | 283 | |
| Cariparma - loan of Euro 1.5 million, drawn down on 21 October 2013 with maturity date 21 October 2017, floating interest rate equivalent to 3-month Euribor rate + spread of 3%, quarterly repayment. |
389 | 389 | 767 | 378 |
| Banca Popolare dell'Emilia Romagna – unsecured loan; |
||||
|---|---|---|---|---|
| original value Euro 3 million; drawn down on 20 November | ||||
| 2013 with maturity date 7 November 2016; floating interest | - | - | 1,031 | 1,031 |
| rate equivalent to 3 -month Euribor rate + spread of 3.5%, |
||||
| quarterly repayment. | ||||
| Banco di Desio - unsecured loan of Euro 1.5 million, drawn |
||||
| down on 10 December 2013 with maturity date 10 | ||||
| December 2016, floating interest rate equivalent to 3 - |
- | - | 518 | 518 |
| month Euribor rate + spread of 4%, amended on 11 November 2015 in Euribor 6 -month + 2%, one month of |
||||
| prepayment and monthly repayment. | ||||
| Veneto Banca - unsecured loan of Euro 2.5 million, drawn |
||||
| down on 23 December 2013 with maturity date 31 December 2018, floating interest rate equivalent to 6 - |
234 | 117 | 1,546 | 506 |
| month Euribor rate + spread of 1.30%, half -year repayment. |
||||
| BCC Chiro - loan of Euro 3.5 million 70% backed by Sace |
||||
| guarantee, drawn down on 27 March 2014 with maturity | ||||
| date 27 March 2022, floating interest rate equivalent to 6 - |
2,570 | 2,570 | 3,036 | 465 |
| month Euribor rate + spread of 3.95, one year of | ||||
| prepayment and half -year repayment. |
||||
| Sondrio - loan of Euro 1 million, drawn down on 4 August |
||||
| 2014 with maturity date 31 August 2017, floating interest | ||||
| rate equivalent to 1 -month Euribor rate + spread of 3.5%, |
231 | 231 | 568 | 337 |
| monthly repayment. | ||||
| Banca Popolare di Bergamo - loan of Euro 1.5 million, drawn |
||||
| down on 9 October 2014 with maturity date 9 October | ||||
| 2016, floating interest rate equivalent to 3 -months Euribor |
- | - | 630 | 630 |
| rate + spread of 2.25%, monthly repayment. | ||||
| Banca Carige S.p.A. - loan of Euro 2 million, drawn down on |
||||
| 27 March 2015 with maturity date 31 December 2018, | ||||
| floating interest rate equivalent to 3 -month Euribor rate + |
1,153 | 571 | 1,714 | 561 |
| spread of 1.75%, 6 months of prepayment and half -year |
||||
| repayment. | ||||
| Cariparma - loan of Euro 4 million, drawn down on 26 |
||||
| March 2015 with maturity date 26 March 2020, floating | ||||
| interest rate equivalent to 6 -month Euribor rate + spread of |
3,072 | 3,072 | 3,949 | 877 |
| 2.50%, six months of prepayment and half -year repayment. |
||||
| Monte dei Paschi di Siena - loan of Euro 5 million, drawn |
||||
| down on 11 August 2015 with maturity date 30 September | ||||
| 2020, floating interest rate equivalent to 6 -months Euribor rate + spread of 1.90%, six months of prepayment and |
4,139 | 1,104 | 4,965 | 826 |
| quarterly repayment. | ||||
| Veneto Banca - loan of Euro 2 million, drawn down on 28 |
||||
| September 2015 with maturity date 30 September 2019, | ||||
| floating interest rate equivalent to 6 -month Euribor rate + |
1,376 | 495 | 1,866 | 484 |
| spread of 1.3%, monthly repayment. | ||||
| Banca di Desio - loan of Euro 1.8 million, drawn down on 27 |
||||
| October 2015 with maturity date 10 May 2020, fixed | ||||
| interest rate of 1.85%, seven months of prepayment and | 1,538 | 440 | 1,790 | 252 |
| monthly repayment. | ||||
| Credito Valtellinese - loan of Euro 3 million, drawn down on |
||||
| 15 December 2015 with maturity date 5 January 2019, | ||||
| floating interest rate equivalent to 3 -month Euribor rate + |
2,074 | 986 | 2,963 | 889 |
| spread of 1.65%, one month of prepayment and monthly | ||||
| repayment. | ||||
| Banca Popolare dell'Emilia Romagna - loan of Euro 5 million, |
||||
| drawn down on 18 December 2015 with maturity date 18 | ||||
| March 2021, floating interest rate equivalent to 3 -month |
4,239 | 967 | 4,950 | 711 |
| Euribor rate + spread of 1.85%, 3 months of prepayment | ||||
| and quarterly repayment. | ||||
| Banca Popolare di Milano - loan of Euro 5 million, drawn |
||||
| down on 08 April 2016 with maturity date 30 April 2021, | ||||
| floating interest rate equivalent to 3 -months Euribor rate + |
4,347 | 4,347 | - | - |
| spread of 1.80%, monthly repayment. |
| Banco Popolare - loan of Euro 2.750 million, drawn down on 29 April 2016 with maturity date 15 December 2020, floating interest rate equivalent to 6-month Euribor rate + spread of 1.70%, 2 months of prepayment and half-year repayment. |
2,741 | 685 | - | - |
|---|---|---|---|---|
| Banca del Mezzogiorno - loan of Euro 5 million, drawn down on 23 June 2016 with maturity date 30 June 2021, floating interest rate equivalent to 6-month Euribor rate + spread of 2%, monthly repayment. |
4,491 | 4,491 | - | - |
| Banca Popolare di Milano - loan of Euro 4 million, drawn down on 06 July 2016 with maturity date 31 July 2017, floating interest rate equivalent to 3-months Euribor rate + spread of 0.80%, monthly repayment. |
3,110 | 3,110 | - | - |
| Banco di Desio e Brianza - loan of Euro 700 thousand, drawn down on 19 July 2016 with maturity date 10 January 2018, floating interest rate equivalent to 6-month Euribor rate + spread of 1%, one month of prepayment and monthly repayment. |
535 | 494 | - | - |
| Unipol Banca - loan of Euro 2 million, drawn down on 27 October 2016 with maturity date 31 October 2019, floating interest rate equivalent to 3-months Euribor rate + spread of 1.90%, monthly repayment |
1,878 | 651 | - | - |
| Banca Popolare di Bergamo - loan of Euro 2 million, drawn down on 11 November 2016 with maturity date 11 May 2019, floating interest rate equivalent to 3-months Euribor rate + spread of 1.75%, monthly repayment |
1,927 | 788 | - | - |
| Total Interest-bearing financial payables | 44,802 | 29,559 | 40,428 | 13,840 |
| Less current portion | (29,559) | (13,840) | ||
| Non-current portion of interest-bearing financial payables | 15,243 | 26,588 | ||
| Loan due to Simest | 11,406 | 11,406 | ||
| Total medium-long term loans | 26,649 | 37,994 | ||
| Non-current portion of finance leases | 1,753 | 484 | 17,714 | 1,814 |
| Less current portion | (484) | (1,814) | ||
| Non-current portion of finance leases, net | 1,269 | 15,900 | ||
| Total current portion | 30,043 | 15,654 | ||
| Medium/long-term loans | 27,918 | 53,894 |
ICCREA-BCC, BNL, Cariparma and Banca del Mezzogiorno loan contracts contain financial covenant clauses. In particular, they require that parameters, calculated on the basis of the financial statements of the Group, have to be met; they are verified on a semi-annual and annual basis.
In general, covenants are based on the observance of the following relations:
Based on the results of the financial statements of the Company and of the Tesmec Group, some expected covenants on medium to long-term loans have not been observed.
Following the failure to comply with certain covenants of a financial nature, some medium and long-term loans have been fully reclassified as short term, according to the requirements of International Accounting Standards, for a total counter value of EUR 12,273. The Group has promptly initiated with the relevant credit institutions procedures for obtaining waivers for the year 2016 in relation to the said non-compliance with the covenants. At present, the Group believes that the waiver will be granted in the necessary technical due times. Such a consideration is supported both from the first few positive banks feedback and from the 2017 budget which forecasts revenues of between 160 and 170 million euro, against which it is reasonable to assume an EBITDA of around 15%, in line with the Group historical data, and a significant improvement in Net Financial Debt.
Note that during 2016 new medium to long term loans were opened for a value of Euro 18,014 thousand against a total value of the same lines repaid of Euro 17,905 thousand.
In addition, payables to other lenders have benefited from the positive effects of the related party transaction described in paragraph 4.1 Effects of the Transaction with Related Parties.
The average cost of indebtedness is benchmarked to the trend of the 3-month Euribor rates plus a spread applied depending also on the type of the financial instrument used
The table below shows the figures relevant to the outstanding loans of the Company as at 31 December 2016, by indicating the portion due within one year, within 5 years and after more than 5 years:
| Description | Maturity | Interest rate | Residual value as at 31 December 2016 |
Portion within 12 months |
Portion within 5 years |
Portion after more than 5 years |
|---|---|---|---|---|---|---|
| Banca Nazionale del Lavoro | 31-May-18 | floating interest rate equivalent to 6-month Euribor rate + spread of 2.25% |
1,846 | 1,846 | - | - |
| Banca Nazionale del Lavoro Banca Nazionale del Lavoro |
04-Mar-16 04-Sep-17 |
floating interest rate equivalent to 6-month Euribor rate + spread of 2% (+/- 0.25) floating interest rate equivalent to 6-month |
1,922 | 1,922 | - | - |
| Euribor rate + spread of 1.90% (+/- 0.25) | ||||||
| Simest UGF Cariparma |
04-Feb-20 21-Oct-17 |
special annual interest rate of 0.4994% floating interest rate equivalent to 3-months Euribor rate + spread 3% |
990 389 |
283 389 |
707 - |
- |
| Veneto Banca | 31-Dec-18 | floating interest rate equivalent to 6-months Euribor rate + spread 1.3%. |
234 | 117 | 117 | - |
| BCC Chiro | 27-Mar-22 | floating interest rate equivalent to 6-months Euribor rate + spread 3.95% |
2,570 | 2,570 | (242) | 242 |
| Sondrio | 31-Aug-17 | floating interest rate equivalent to 1-month Euribor + spread 3.5% |
231 | 231 | - | - |
| Banca Carige S.p.A. | 31-Dec-18 | floating interest rate equivalent to 3-months Euribor rate + spread 1.75%. |
1,153 | 571 | 582 | - |
| Cariparma | 26-Mar-20 | floating interest rate equivalent to 6-months Euribor rate + spread 2.50%. |
3,072 | 3,072 | - | - |
| Monte dei Paschi di Siena | 30-Sep-20 | floating interest rate equivalent to 6-months Euribor rate + spread 1.90%. |
4,139 | 1,104 | 3,035 | - |
| Veneto Banca | 30-Sep-19 | floating interest rate equivalent to 6-months Euribor rate + spread 1.3%. |
1,376 | 495 | 881 | - |
| Banca di Desio | 10-May-20 | fixed interest rate 1.85% | 1,538 | 440 | 1,098 | - |
| Credito Valtellinese | 05-Jan-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.65% |
2,074 | 986 | 1,088 | - |
| Banca Popolare dell'Emilia Romagna |
18-Mar-21 | floating interest rate equivalent to 3-months Euribor rate + spread 1.85%. |
4,239 | 967 | 3,272 | - |
| Banca Popolare di Milano | 30-Apr-21 | floating interest rate equivalent to 3-months Euribor rate + spread 1.80%. |
4,347 | 4,347 | - | - |
| Banco Popolare | 15-Dec-20 | floating interest rate equivalent to 6-months Euribor rate + spread 1.70%. |
2,741 | 685 | 2,056 | - |
| Banca del Mezzogiorno | 30-Jun-21 | floating interest rate equivalent to 6-months Euribor rate + spread 2%. |
4,491 | 4,491 | - | - |
| Banca Popolare di Milano | 31-Jul-17 | floating interest rate equivalent to 3-months Euribor rate + spread 0.80%. |
3,110 | 3,110 | - | - |
| Banco di Desio e Brianza | 10-Jan-18 | floating interest rate equivalent to 6-months Euribor rate + spread 1%. |
535 | 494 | 41 | - |
| Unipol Banca | 31-Oct-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.90%. |
1,878 | 651 | 1,227 | - |
| Banca Popolare di Bergamo |
11-May-19 | floating interest rate equivalent to 3-months Euribor rate + spread 1.75%. |
1,927 | 788 | 1,139 | - |
| Total | 44,802 | 29,559 | 15,001 | 242 |
As required by CONSOB Communication of 28 July 2006 and in compliance with CESR Recommendation of 10 February 2005 "Recommendations for the consistent implementation of the European Commission's Regulation on Prospectuses", the Company's net financial indebtedness is as follows:
| 31 December | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | of which with related parties and group |
2015 | of which with related parties and group |
|
| Cash and cash equivalents | (14,526) | (15,451) | |||
| Current financial assets (1) | (41,384) | (41,352) | (42,529) | (42,464) | |
| Current financial liabilities | 61,015 | 10 | 38,918 | 1,211 | |
| Current portion of derivative financial instruments | 108 | 14 | |||
| Current financial indebtedness (2) | 5,213 | (41,342) | (19,048) | (41,253) | |
| Non-current financial liabilities | 42,654 | - | 68,628 | 14,743 | |
| Non-current portion of derivative financial instruments | 171 | 288 | |||
| Non-current financial indebtedness (2) | 42,825 | - | 68,916 | 14,743 | |
| Net financial indebtedness pursuant to CONSOB Communication No. DEM/6064293/2006 |
48,038 | (41,342) | 49,868 | (11,258) |
(1) Current financial assets as at 31 December 2016 and 31 December 2015 include the market value of shares and warrants, which are therefore considered cash and cash equivalents.
(2) Current and non-current financial indebtedness is not identified as an accounting element by the IFRS. The valuation criteria applied by the Company may not necessarily be the same as those adopted by other groups and therefore the balance obtained by the Company may not necessarily be comparable therewith.
Net indebtedness stood at Euro 48,039 thousand as at 31 December 2016 from Euro 49,868 thousand as at 31 December 2015 and decreased by Euro 16,579 thousand thanks to the effects of the new lease contract described in paragraph 5.3 Effects of the New lease contract with related parties. The reduction is partially offset by current financial requirements.
During the 2016 financial period, the indebtedness decreased compared to 2015 by Euro 1,830 thousand, due to the combined effect of the following changes:
This table shows the comparison between the book value and the fair value of the financial instruments as at 31 December 2016:
| (Euro in thousands) | Book value | Fair value |
|---|---|---|
| Financial liabilities: | ||
| Loans | 75,343 | 81,077 |
| Non-current portion of finance leases, net | 1,753 | 1,855 |
| Total | 77,096 | 82,932 |
(1) The item includes the value of short-term loans to third parties of Euro 4,400 thousand classified in item "Interest-bearing financial payables (current portion)".
The Company signed some contracts related to derivative financial instruments whose contractual characteristics and related fair value as at 31 December 2016 and 2015 are shown in the table below:
| Counterparts | Type | Debt interest rate (fixed) | Credit interest rate (variable) |
Start date | Maturity date |
Notional principal |
Fair Value (Euro/000) as at 31 December |
|
|---|---|---|---|---|---|---|---|---|
| (Euro) | 2016 | 2015 | ||||||
| BNL | IRS | 1.15% 1st year; 1.65% | 3-month Euribor |
01/01/2011 | 31/05/2018 | 1,846,154 | (65) | (128) |
| 2nd year; 2% 3rd year; | ||||||||
| 2.60% five following years | ||||||||
| BNL | IRS | Fixed interest rate 2.57% | 3-month Euribor |
05/09/2011 | 04/03/2016 | - | - | (14) |
| BNL | IRS | Fixed interest rate 1.49% | 3-month Euribor |
04/03/2012 | 04/09/2017 | 1,506,844 | (19) | (58) |
| BNL | IRS | Fixed interest rate 0.8% | 3-month Euribor |
04/03/2013 | 04/09/2017 | 1,382,044 | (10) | (29) |
| Veneto Banca | IRS | Fixed interest rate 1.09% | 6-month Euribor |
31/12/2013 | 31/12/2018 | 1,064,634 | (16) | (28) |
| Cariparma | IRS | Fixed interest rate 0.34% | 6-month Euribor |
07/05/2015 | 26/03/2020 | 3,555,556 | (30) | (26) |
| Iccrea | CAP | Interest rate for the period 0.75% | 6-month Euribor |
27/09/2015 | 27/09/2020 | 2,357,143 | 3 | 11 |
| Emilia Romagna | CAP | Interest rate for the period 0.50% | 3-month Euribor |
07/05/2014 | 07/11/2016 | - | - | - |
| Cariparma | CAP | Interest rate for the period 0.75% | 3-month Euribor |
21/01/2014 | 23/10/2017 | 585,469 | - | - |
| Monte dei Paschi di Siena |
CAP | Interest rate for the period 0.61% | 6-month Euribor |
31/12/2016 | 30/09/2020 | 4,166,667 | (44) | (19) |
| Banco Popolare | IRS | Fixed interest rate 0.06% | 6-month Euribor |
03/10/2016 | 15/12/2020 | 2,750,000 | (10) | - |
| Banca Popolare di Milano |
IRS | Fixed interest rate 0.12% | 3-month Euribor |
31/01/2017 | 30/04/2021 | 4,275,556 | (7) | - |
| HSBC | FLEXIBLE | - | - | 18/04/2017 | 29/05/2017 | 1,411,836 | (15) | - |
| HSBC | FLEXIBLE | - | - | 02/03/2017 | 18/04/2017 | 3,204,723 | (36) | - |
| HSBC | FLEXIBLE | - | - | 31/03/2017 | 10/05/2017 | 1,416,612 | (15) | - |
| HSBC | FLEXIBLE | - | - | 01/07/2017 | 29/08/2017 | 590,031 | 1 | - |
| HSBC | FLEXIBLE | - | - | 05/06/2017 | 03/07/2017 | 1,338,732 | (6) | - |
| HSBC | FLEXIBLE | - | - | 05/05/2017 | 01/06/2017 | 1,145,813 | (4) | - |
| HSBC | FLEXIBLE | - | - | 30/06/2017 | 27/07/2017 | 591,214 | (3) | - |
| HSBC | FLEXIBLE | - | - | 31/05/2017 | 03/07/2017 | 505,310 | (2) | - |
| HSBC | FLEXIBLE | - | - | 01/07/2017 | 29/08/2017 | 501,097 | 1 | - |
| Assets for derivative instruments within the financial period | 2 | 11 | ||||||
| Assets for derivative instruments beyond the financial period | 3 | - | ||||||
| Liabilities for derivative instruments within the financial period | (110) | (14) | ||||||
| Liabilities for derivative instruments beyond the financial period | (172) | (288) |
Tesmec S.p.A. uses derivative financial instruments in order to hedge the interest-rate risk and the exchange-rate risk. The transactions for interest-rate risk hedging are mainly related to medium-term loans. The exchange-rate hedging transactions are limited to the amounts of the Indonesian commissions in the tending industry.
The Company does not account for these financial instruments according to the methods established for hedge accounting since they do not meet all the requirements provided on this matter by the international accounting standards. Therefore, the changes in fair value of the financial instruments are attributed to the income statement during the financial period under review.
The financial management of the Company does not envisage the trading of derivative instruments with speculative purposes.
The Company has no defined benefit pension plans in the strict sense. However, the severance indemnity fund required by Article 2120 of the Italian Civil Code, in terms of recognition in the financial statements, falls under this type and as such was accounted for, as shown in the applied accounting policies.
The following table shows the changes for the period ended 31 December 2016 and 31 December 2015 of employee benefits:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Present value of the liability at the beginning of the period | 2,419 | 2,707 | |
| Financial expense | 48 | 43 | |
| New entries | 159 | - | |
| Service Cost | - | (22) | |
| Benefits paid | (246) | (259) | |
| Financial loss (profit) | 180 | (90) | |
| Demographic loss (profit) | (34) | 40 | |
| Present value of the liability at the end of the period | 2,526 | 2,419 |
With the adoption of the IFRS, the severance indemnity is considered a defined-benefit liability to be accounted for in accordance with IAS 19 and, as a result, the relevant liability is measured based on actuarial techniques. The main assumptions used in determining the present value of the severance indemnity are shown below:
Economic and financial technical bases
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Annual discount rate | 2.00% | 2.00% | |
| Inflation rate | 1.50% | 1.50% | |
| Expected turnover rate of employees | 3.00% | 3.00% | |
| Advance rate | 2.00% | 2.00% |
The sensitivity analyses are shown below by using an annual discount rate of +0.5% and -0.5% compared to the annual discount rate used on the valuation date.
| Discount rate | |||
|---|---|---|---|
| (Euro in thousands) | 0.50% | -0.50% | |
| Effect on the aggregate current cost of the service and of the financial expenses | 60 | 36 | |
| Reported value for liabilities with respect to defined benefit plans | 2,396 | 2,668 |
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Mortality | 2004 ISTAT tables | 2004 ISTAT tables | |
| Disability | INPS tables | INPS tables | |
| Retirement age | 67 N/F | 67 N/F |
Frequency of turnover and advances on severance indemnity
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Advance frequency % | 0.95% | 0.97% | |
| Turnover frequency % | 22.35% | 10.24% |
The average number of employees by category, expressed in terms of full-time employees is shown in the following table:
| Financial period ended 31 December | |||
|---|---|---|---|
| (average no. of employees) | 2016 | 2015 | |
| Managers | 7 | 5 | |
| Executives, employees and equated | 156 | 149 | |
| Workers | 152 | 153 | |
| Total | 315 | 307 |
The average number of employees as at 31 December 2016 is substantially in line with the previous financial period.
The following table sets forth the breakdown of Interest bearing financial payables (current portion) for the 2016 and 2015 financial periods:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Advances from banks against invoices and bills receivables | 24,615 | 15,187 | |
| Other financial payables (short-term leases) | 484 | 603 | |
| Financial payables due from affiliated companies | 10 | 1,211 | |
| Payables due to factoring companies | 1,947 | 4,789 | |
| Short-term loans to third parties | 4,400 | 3,350 | |
| Current portion of medium/long-term loans | 29,559 | 13,840 | |
| Total interest-bearing financial payables (current portion) | 61,015 | 38,980 |
The current portion of interest-bearing loans and borrowings increased of Euro 15,719 thousand following what was described in paragraph 16.
The breakdown of Trade payables as at 31 December 2016 and as at 31 December 2015, respectively, is indicated in the table below:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Trade payables due to third-parties | 20,501 | 28,756 | |
| Trade payables due to related parties | 4,691 | 1,639 | |
| Total trade payables | 25,192 | 30,395 |
Trade payables as at 31 December 2016 decreased by Euro 5,203 thousand compared to 31 December 2015 as a result of a lower volume of purchases due to a decreased volume of revenues.
This figure includes payables related to the normal course of business of the Company, in particular the purchase of raw materials and outsourced works.
Note also that there are no payables with maturity exceeding five years at the above dates.
The balance of Euro 42 thousand as at 31 December 2016 and Euro 2,804 thousand as at 31 December 2015 represents the amount payable for current income taxes for the period, which are broken down as follows:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Current IRES tax liabilities | - | 2,494 | |
| Current IRAP tax liabilities | 42 | 310 | |
| Total income taxes payable | 42 | 2,804 |
The item includes the net payable due by the Company for the payment of direct income taxes.
The company opted for the domestic tax consolidation system provided by Article 117 et sequitur of the Consolidated Act on Income Tax with the subsidiary Tesmec Service S.r.l. for the 2015/2017 three-year period and with the subsidiaries East Trenchers S.r.l. and SGE S.r.l. for the 2014/2016 three-year period.
Consequently, the investees Tesmec Service S.r.l, East Trenchers S.r.l. and SGE S.r.l. were included in the tax consolidation for the 2016 financial year.
Specific consolidation agreements were signed with each subsidiary opting for the domestic tax consolidation system, which regulate the timing and the methods for exchanging the information required to carry out the tax consolidation, the timing and methods for transferring resources among companies resulting from group taxation, as well as the methods for recognising the tax benefit to the companies that transferred, as part of the group taxation, tax losses, surpluses of non-deductible interest expenses and excess deduction to aid economic growth (A.C.E.).
These financial statements were affected by this institute in the following items:
▪ "Other current liabilities" of the statement of financial position, which includes the payable reported to the subsidiaries in connection with the recognition of the tax benefit deriving from the transfer of the tax losses and nondeductible interest expenses pursuant to Article 96 T.U.I.R. to the tax consolidation:
| Euro | 16,802 |
|---|---|
| Euro | 23,592 |
| Euro | 2,026 |
| Euro | 42,420 |
The taxable income referring to the tax consolidation consists, in summary, of the following:
| Financial period ended 31 December | ||
|---|---|---|
| (Euro in thousands) | 2016 | |
| Taxable income of consolidating company Tesmec S.p.A. | A | 154 |
| Taxable income of consolidating company Tesmec Service s.r.l. | B | (61) |
| Taxable income of consolidating company East Trenchers S.r.l. | C | (7) |
| Taxable income of consolidating company SGE S.r.l. | D | (86) |
| Total consolidated taxable income | E=A+B+C+D | - |
| I.RE.S. - 27.5 % tax rate | F=E*27.5% | - |
| Previous year IRES surplus | G | - |
| Advances paid | H | - |
| Current IRES tax liabilities | I=F+G+H | - |
Provisions for risks and charges mainly refers to the product guarantee fund. The calculation is based on a historical, statistical and technical analysis of the interventions under guarantee carried out on sales in prior financial periods and includes both the cost of labour and that for spare parts used.
Changes in the Provisions for risks and charges as at 31 December 2016 and 2015 are indicated below:
| Financial period ended 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Value as at 1 January | 350 | 250 | |
| Provisions | - | 100 | |
| Uses | - | - | |
| Value as at 31 December | 350 | 350 |
The following table sets forth the breakdown of Other current liabilities as at 31 December 2016 and 2015:
| Financial period ended 31 December | ||
|---|---|---|
| (Euro in thousands) | 2016 | 2015 |
| Due to social security | 1,870 | 1,290 |
| Due to INAIL (National Insurance Institute for Industrial Accidents) | 170 | 158 |
| Due to trade funds | 165 | 160 |
| Due to employees and collaborators | 2,529 | 2,057 |
| Due to others | 159 | 7 |
| Payables due to related parties | 42 | 261 |
| Accrued expenses and liabilities | 48 | 1 |
| Total other current liabilities | 4,983 | 3,934 |
Other current liabilities increase compared to previous year in proportion to the increase in labour costs.
The following table sets forth the breakdown of deferred taxes as at 31 December 2016 and 2015:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 2015 |
|||
| Deferred tax assets | 1,991 | 2,524 | ||
| Deferred tax liabilities | 1,640 | 1,727 |
The breakdown of net deferred taxes as at 31 December 2016 and 2015 is shown in the following table by type by listing the items that present underlying temporary differences.
| 31 December 31 December |
Financial period ended 31 December |
|||||
|---|---|---|---|---|---|---|
| Statement of financial position |
Shareholders' equity | Income statement | ||||
| (Euro in thousands) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Deferred tax assets | ||||||
| Reversals of intangible assets | 55 | 86 | - | - | (31) | 17 |
| Obsolescence fund | 862 | 952 | - | - | (90) | 218 |
| Unrealised exchange-rate losses | 470 | 736 | - | - | (266) | 362 |
| Tax effect on UCC gain reversals | 241 | 334 | - | - | (93) | (58) |
| Other temporary differences | 363 | 416 | - | - | (53) | 95 |
| Total deferred tax assets | 1,991 | 2,524 | - | - | (533) | 634 |
| Deferred tax liabilities | ||||||
| Unrealised exchange-rate gains | (1,448) | (1,457) | - | - | 9 | (677) |
| Profits allocated to network reserve | (199) | (228) | 29 | - | - | - |
| Other temporary differences | 7 | (42) | 23 | (13) | 26 | (2) |
| Total deferred tax liabilities | (1,640) | (1,727) | 52 | (13) | 35 | (679) |
| Effect on Shareholders' Equity | ||||||
| Net balance deferred wealth taxes | 351 | 797 | ||||
| Represented in the income statement as follows: | ||||||
| Deferred tax assets | (533) | 634 | ||||
| Deferred tax liabilities | 35 | (679) | ||||
| Deferred tax liabilities, net | (498) | (45) |
Deferred tax assets and liabilities as at 31 December 2016 were adjusted due to the reduction of the IRES tax rate from 27.5% to 24% laid down by Italian Law 208 28/12/2015 effective as from the 2017 financial year. This operation led to the recognition in the income statement of charges for lower deferred tax assets of Euro 301 thousand and of income for lower deferred tax liabilities of Euro 202 thousand, with an overall negative effect of Euro 99 thousand.
Deferred tax assets and liabilities already recognised in "Network Reserve" and in "Severance indemnity valuation reserve" were also adjusted.
Profit before taxes and the allocation for income taxes for the financial periods as at 31 December 2016 and 2015 are summarised below:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Pre-tax profits | 2,081 | 11,225 | ||
| Current taxation | 312 | 3,768 | ||
| Income due to tax credits | (377) | - | ||
| Deferred tax liabilities/assets | 498 | 45 | ||
| Total taxes | 433 | 3,813 |
The reconciliation between the nominal tax rate established by the Italian legislation and the effective tax rate resulting from the financial statements is set below:
| Financial period ended 31 December | |||||
|---|---|---|---|---|---|
| 2016 | |||||
| (Euro in thousands) | IRES | IRAP | |||
| Profit before tax | A | 2,081 | 2,081 | ||
| Difference in taxable income between IRES and IRAP | B | 1,768 | |||
| C=A+B | 2,081 | 3,849 | |||
| Nominal rate (%) | D | 27.5% | 3.9% | ||
| Theoretical taxes | E=C*D | 572 | 150 | ||
| Tax effect on permanent differences | F | (80) | 2 | ||
| Tax effect on temporary differences | G | (405) | - | ||
| Tax effect on the re-absorption of temporary differences | H | (44) | (7) | ||
| Current taxation posted to the income statement | I=E+F+G+H | 43 | 145 | ||
| Deferred tax liabilities | L | (34) | - | ||
| Deferred tax assets | M | 527 | 5 | ||
| Taxes related to prior financial periods | N | 97 | 27 | ||
| Aggregate tax posted to the income statement | O=I+L+M+N | 633 | 177 | ||
| Income due to tax credits | P | (377) | - | ||
| Tax posted to the income statement | Q=O+P | 256 | 177 |
In the 2016 and 2015 financial periods, revenues from sales and services amounted to Euro 78,810 thousand and Euro 115,071 thousand with a decrease of 31.5%. The breakdown is set below:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Sales of products | 77,479 | 112,151 | ||
| Services rendered | 1,392 | 384 | ||
| Total revenues from sales and services | 78,871 | 112,535 | ||
| Changes in work in progress | (61) | 2,536 | ||
| Total revenues from sales and services | 78,810 | 115,071 |
Revenues from product sales refer to transfer of stringing machines and equipment, trenchers and rail.
For the financial periods as at 31 December 2016 and 2015, cost of raw materials and consumables amount to Euro 35,688 thousand and Euro 64,164 thousand, respectively. The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Cost for the purchase of raw materials and consumables | 42,931 | 63,013 | ||
| Change in inventories | (7,243) | 1,151 | ||
| Total cost of raw materials and consumables | 35,688 | 64,164 |
Cost of raw materials and consumables decreases more than proportionally with the decrease in sales volumes due to the different margins of the sectors affected by the decline in revenues.
The table below shows the breakdown of recurring and non-recurring costs for services that amounted in 2016 and in 2015 to Euro 17,719 thousand and Euro 17,764 thousand, respectively.
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Transport, customs and incidental expenses | 2,307 | 2,858 | ||
| Outsourced work service | 2,418 | 2,952 | ||
| External production services | 4,731 | 2,789 | ||
| Services for legal, tax, technical and other consultancy | 765 | 1,046 | ||
| Banking services | 543 | 1,012 | ||
| Insurance | 295 | 249 | ||
| Energy, water, gas, telephone expenses and postage | 775 | 847 | ||
| Board and lodging expenses and travelling allowance | 636 | 773 | ||
| Directors' and Auditors' fees | 801 | 1,190 | ||
| Advertising and other selling expenses | 845 | 397 | ||
| Maintenance services | 336 | 364 | ||
| Commissions and additional expenses | 2,503 | 2,539 |
| Other general expenses | 764 | 748 |
|---|---|---|
| Total costs for services | 17,719 | 17,764 |
The item is substantially in line with the previous financial period, however, non-recurring costs for the year 2016 include Euro 873 thousand.
During the financial periods ended 31 December 2016 and 2015, payroll costs amounted to Euro 18,291 thousand and Euro 17,335 thousand, respectively, up by 5.5%, mainly for the adjustment plans of the technical departments in line with the increased complexity of the offer of the Company.
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Wages and salaries | 13,625 | 12,655 | ||
| Social security charges | 3,759 | 3,783 | ||
| Employee severance indemnity | 807 | 746 | ||
| Other personnel costs | 100 | 151 | ||
| Total payroll costs | 18,291 | 17,335 |
The average composition of staff is given in Note 18.
During the financial periods ended 31 December 2016 and 31 December 2015, other recurring and non-recurring net operating (costs)/revenues amounted to Euro 2,249 thousand and Euro 775 thousand, respectively. The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Provisions for risks and other net provisions | - | 505 | ||
| Write-down of equity investments | - | 68 | ||
| Rents | 370 | 377 | ||
| Hiring | 523 | 487 | ||
| Other lease and rental expenses | 25 | 350 | ||
| Sundry taxes | 145 | 132 | ||
| Other revenues | (1,167) | (1,164) | ||
| Losses | 2,353 | 20 | ||
| Total other operating (costs)/revenues, net | 2,249 | 775 |
The item Other operating (costs)/revenues, net increased by Euro 1,474 thousand compared to the prior financial period in that it contains the loss of Euro 2,350 thousand described in paragraph 4.1 Effects of the New lease contract with related parties.
During the financial periods ended 31 December 2016 and 2015, depreciation and amortisation amounted to Euro 4,859 thousand and Euro 4,881 thousand, respectively.
The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Amortisation of intangible assets | 3,077 | 3,026 | ||
| Depreciation of property, plant and equipment | 1,782 | 1,855 | ||
| Total amortisation and depreciation | 4,859 | 4,881 |
Development costs capitalised for the financial periods ended 31 December 2016 and 31 December 2015 amounted to Euro 2,751 thousand and Euro 3,000 thousand, respectively.
During the financial period, the increase in the item is related to the development of projects for the launch of new models and new functions requested by the markets in which the company operates.
The percentage incidence on revenues of development costs capitalised increased from 2.6% for the 2015 financial period to 3.5% for the 2016 financial period.
During the financial periods ended 31 December 2016 and 2015, financial expenses amounted to Euro 5,926 thousand and Euro 7,469 thousand, respectively, with a decrease of Euro 1,543 thousand. The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Interests payable for factoring and billing discounts | 160 | 320 | ||
| Interests payable on interest-bearing loans and borrowings | 2,454 | 2,370 | ||
| Interests payable on advance loans on exports | 99 | 160 | ||
| Other sundry financial expenses | 368 | 623 | ||
| Financial expenses on lease contracts | 929 | 1,125 | ||
| Realised foreign exchange losses | 708 | 346 | ||
| Unrealised foreign exchange losses | 1,073 | 1,975 | ||
| Fair value adjustment of derivative instruments | 135 | 50 | ||
| Losses on the sale of equity investments | - | 500 | ||
| Total financial expenses | 5,926 | 7,469 |
Financial expenses increased by Euro 1,543 thousand as a result of:
During the financial periods ended 31 December 2016 and 2015, financial income amounted to Euro 5,252 thousand and Euro 5,541 thousand, respectively.
The breakdown of the item is as follows:
| Financial period ended 31 December | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | ||
| Interests from banks | 5 | 10 | ||
| Realised foreign exchange gains | 897 | 992 | ||
| Unrealised foreign exchange gains | 2,550 | 3,098 | ||
| Fair value adjustment of derivative instruments | 149 | 203 | ||
| Sundry income | 1,651 | 1,238 | ||
| Total financial income | 5,252 | 5,541 |
Financial income decreased by Euro 289 thousand mainly due to:
The following table gives details of economic and equity transactions with related parties. The companies listed below have been identified as related parties as they are linked directly or indirectly to the current shareholders:
| 31 December | 31 December | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | ||||||||||||
| (Euro in thousands) | Trade receivables |
Current financial receivables |
Other current assets |
Current financial payables |
Trade payables |
Other current liabilities |
Trade receivables |
Current financial receivables |
Other current assets |
Non current financial payables |
Current financial payables |
Trade payables |
Other current liabilities |
| Subsidiaries: | |||||||||||||
| Tesmec USA Inc. | 537 | 23,391 | 1 | - | 3,608 | - | 1,525 | 24,493 | - | - | - | 21 | - |
| Tesmec Service S.r.l. | 270 | 944 | - | - | 23 | 17 | 75 | 5,098 | - | - | - | 1,425 | 250 |
| East Trencher S.r.l. | - | - | - | 10 | - | 2 | 1 | 7 | - | - | - | - | 11 |
| Tesmec SA | 2,346 | 2,834 | 8 | - | 34 | - | 3,738 | 1,680 | 5 | - | - | - | - |
| Tesmec RUS | 325 | 280 | - | - | - | - | 223 | 136 | - | - | - | 1 | - |
| SGE S.r.l. | 70 | 3,511 | - | - | - | 23 | 178 | 433 | 143 | - | - | - | - |
| Tesmec New Technology (Beijing) |
192 | - | - | - | - | - | 161 | - | - | - | - | - | - |
| Group Marais SAS | 276 | - | - | - | 874 | - | 7 | - | - | - | - | - | - |
| Marais Laying Tech. Ltd. NZ | 144 | - | - | - | - | - | - | - | - | - | - | - | - |
| Bertel S.r.l. | 39 | 2,784 | - | - | - | - | - | - | - | - | - | - | - |
| CPT Engineering S.r.l. | 26 | 836 | - | - | - | - | - | - | - | - | - | - | - |
| Subtotal | 4,225 | 34,580 | 9 | 10 | 4,539 | 42 | 5,908 | 31,847 | 148 | - | - | 1,447 | 261 |
| Associates: | |||||||||||||
| Locavert S.A. | 78 | - | - | - | - | - | 12 | - | - | - | - | - | - |
| Bertel S.r.l. | - | - | - | - | - | - | 25 | 2,524 | - | - | - | - | - |
| Subtotal | 78 | - | - | - | - | - | 37 | 2,524 | - | - | - | - | - |
| Joint Ventures: | |||||||||||||
| Condux Tesmec Inc. | 206 | 332 | - | - | - | - | 576 | 2,307 | - | - | - | 1 | - |
| Tesmec Peninsula | 39 | 3,508 | - | - | 34 | - | 44 | 4,690 | - | - | - | 7 | - |
| Marais Algerie SARL | - | - | - | - | - | - | 9 | - | - | - | - | - | - |
| Subtotal | 245 | 3,840 | - | - | 34 | - | 629 | 6,997 | - | - | - | 8 | - |
| Related parties: | |||||||||||||
| Ambrosio S.r.l. | - | - | - | - | 4 | - | - | - | - | - | - | - | - |
| Ceresio Tours S.r.l. | - | - | - | - | 1 | - | - | - | - | - | - | - | - |
| Dream Immobiliare S.r.l. | - | 2,932 | - | - | 211 | - | - | 1,096 | - | 14,743 | 1,211 | 52 | - |
| TTC S.r.l. | - | - | - | - | - | - | - | - | - | - | - | 42 | - |
| Fintetis S.r.l. | - | - | - | - | - | - | 30 | - | - | - | - | - | - |
| Lame Nautica S.r.l. | - | - | - | - | - | - | 1 | - | - | - | - | - | - |
| M.T.S. Officine meccaniche S.p.A. | 308 | - | - | - | - | - | 2,170 | - | - | - | - | - | - |
| Reggiani Macchine S.p.A. | 122 | - | - | - | (112) | - | 52 | - | - | - | - | 77 | - |
| Comatel | - | - | - | - | - | - | 29 | - | - | - | - | - | - |
| C2D | - | - | - | - | 14 | - | - | - | - | - | - | 13 | - |
| Subtotal | 430 | 2,932 | - | - | 118 | - | 2,282 | 1,096 | - | 14,743 | 1,211 | 184 | - |
| Total | 4,978 | 41,352 | 9 | 10 | 4,691 | 42 | 8,856 | 42,464 | 148 | 14,743 | 1,211 | 1,639 | 261 |
| Financial period ended 31 December | Financial period ended 31 December | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | |||||||||
| (Euro in thousands) | Revenues | Cost of raw materials |
Cost of services |
Other operating (costs)/revenues, net |
Financial income and expenses |
Revenues | Cost of raw materials |
Cost of services |
Other operating (costs)/revenues, net |
Financial income and expenses |
| Subsidiaries: | ||||||||||
| Tesmec USA, Inc. | 2,520 | (5,011) | (128) | 90 | 638 | 6,673 | (135) | 133 | 314 | 610 |
| Tesmec Service S.r.l. | 446 | (87) | 38 | 207 | 169 | 6 | (800) | (16) | (734) | 171 |
| Tesmec Balkani E.A.D. | - | - | - | - | - | - | - | - | - | 1 |
| East Trencher S.r.l. | - | - | - | 3 | - | 34 | - | - | 2 | 1 |
| Tesmec SA | 3,648 | (58) | (113) | 17 | 249 | 7,895 | (17) | - | 16 | 212 |
| Tesmec RUS | 404 | - | (24) | 1 | 17 | 83 | - | (14) | - | 4 |
| SGE S.r.l. | - | - | 3 | 170 | 62 | - | - | 2 | 165 | 27 |
| Tesmec New Technology (Beijing) | 58 | - | (88) | - | - | 162 | - | - | - | - |
| Group Marais SAS | 331 | (856) | (77) | 49 | 5 | 84 | - | - | 3 | - |
| Marais Laying Tech. Ltd. NZ | 144 | - | - | - | - | - | - | - | - | - |
| Marais Tunisie SA | 4 | - | - | - | - | - | - | - | - | - |
| Bertel S.r.l. | 26 | (206) | - | 19 | 128 | - | - | - | - | - |
| CPT Engineering S.r.l. | - | - | 2 | 8 | 14 | - | - | - | - | - |
| Subtotal | 7,581 | (6,218) | (387) | 564 | 1,282 | 14,937 | (952) | 105 | (234) | 1,026 |
| Associates: | ||||||||||
| Locavert S.A. | 224 | - | - | - | - | 66 | - | - | - | - |
| Bertel S.p.A. | - | - | - | - | - | 138 | - | 3 | 16 | 45 |
| Subtotal | 224 | - | - | - | - | 204 | - | 3 | 16 | 45 |
| Joint Ventures: | ||||||||||
| Condux Tesmec Inc. | 1,298 | - | - | 181 | 45 | 2,964 | - | (1) | 181 | 31 |
| Tesmec Peninsula | - | - | (34) | 109 | 81 | 1,862 | (147) | (28) | 110 | 99 |
| Marais Algerie SARL | - | - | - | - | - | 12 | - | - | - | - |
| Subtotal | 1,298 | - | (34) | 290 | 126 | 4,838 | (147) | (29) | 291 | 130 |
| Related parties: | ||||||||||
| Ambrosio S.r.l. | - | - | - | (14) | - | - | - | - | (15) | - |
| Ceresio Tours S.r.l. | - | - | (6) | - | - | - | - | (9) | - | - |
| Dream Immobiliare S.r.l. | - | - | - | (322) | (873) | - | - | - | (350) | (1,031) |
| Studio Bolelli | - | - | - | - | - | - | - | (131) | - | - |
| TTC S.r.l. | - | - | (21) | - | - | - | - | (49) | - | - |
| Fintetis S.r.l. | (30) | - | - | - | - | 25 | - | - | - | - |
| Lame Nautica S.r.l. | - | - | - | - | - | 71 | - | 1 | - | - |
| M.T.S. Officine meccaniche S.p.A. | 3,634 | - | 5 | 10 | - | 2,357 | (5) | 5 | 50 | - |
| Reggiani Macchine S.p.A. | 193 | (53) | (122) | 243 | - | - | (36) | (82) | 154 | - |
| CBF S.r.l. | - | - | - | 1 | - | - | - | - | - | - |
| Comatel | - | - | - | - | - | 193 | - | - | - | - |
| C2D | - | - | - | - | - | - | - | - | - | (500) |
| Subtotal | 3,797 | (53) | (144) | (82) | (873) | 2,646 | (41) | (265) | (161) | (1,531) |
| Total | 12,900 | (6,271) | (565) | 772 | 535 | 22,625 | (1,140) | (186) | (88) | (330) |
35.Fees paid to Directors, Auditors, Operating Manager and executives with strategic responsibilities
Year 2016:
| Board of Directors | ||||||||
|---|---|---|---|---|---|---|---|---|
| Name and Surname | Role | Fees (in Euro) |
Bonus and other fees (in Euro) |
Total fees (in Euro) |
||||
| Ambrogio Caccia Dominioni | Chairman and Chief Executive Officer |
480,000 | - | 480,000 | ||||
| Gianluca Bolelli | Vice Chairman | 76,267 | - | 76,267 | ||||
| Sergio Arnoldi | Director | 20,800 | - | 20,800 | ||||
| Gioacchino Attanzio | Director | 30,000 | - | 30,000 | ||||
| Caterina Caccia Dominioni | Director | 48,533 | - | 48,533 | ||||
| Guido Giuseppe Maria Corbetta | Director | 18,410 | - | 18,410 | ||||
| Lucia Caccia Dominioni | Director | 20,000 | - | 20,000 | ||||
| Paola Durante | Director | 13,478 | - | 13,478 |
| Board of Statutory Auditors | |||||||
|---|---|---|---|---|---|---|---|
| Name and Surname | Role | Fees (in Euro) |
Bonus and other fees (in Euro) |
Total fees (in Euro) |
|||
| Simone Cavalli | Chairman | 40,640 | - | 40,640 | |||
| Stefano Chirico | Statutory Auditor | 26,468 | - | 26,468 | |||
| Alessandra De Beni | Statutory Auditor | 26,000 | - | 26,000 |
Fees paid to executives with strategic responsibilities in the 2016 financial period amounted to Euro 362 thousand (Euro 363 thousand in the 2014 financial year).
Pursuant to Article 149 duodecies of the CONSOB Issuer Regulation (Resolution no. 11971/1999 and subsequent amendments), the following table shows the considerations accrued in the financial statements ended 31 December 2016 and 2015 for audit services and for other services rendered to the Company by Reconta Ernst & Young and by the entities belonging to the Ernst & Young network.
| Independent Auditors that | Accrued amount | ||||
|---|---|---|---|---|---|
| supplied the service (Euro in thousands) |
Receiver | 2016 | 2015 | ||
| Audit of the financial statements and consolidated financial statements |
Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
101 | 80 | |
| Limited half-year auditing | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
28 | 20 | |
| Certification services (2) | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
5 | 5 | |
| Other services (2) | Ernst & Young S.p.A. | Tesmec S.p.A. Parent Company |
45 | 15 | |
| Total | 179 | 120 |
(1) This item refers to activities aimed at the signing of tax returns.
(2) The other services provided to the parent company mainly relate to support for the identification of regulatory intervention areas..
Note that, pursuant to CONSOB Communication no. DEM/6064293 of 28 July 2006, in 2016 the Company did not carry out any atypical and/or unusual operation, as defined by the Communication itself.
They include sureties, guarantees and third-party assets with the Company. For the financial periods as at 31 December 2016 and 2015, they are summarised as follows:
| 31 December | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Sureties | 30,337 | 30,790 | |
| Total commitments and risks | 30,337 | 30,790 |
The recorded value concerns sureties provided by Tesmec S.p.A. through primary banking institutions in favour of customers. The increase is mainly due to the orders of the newly set up rail sector.
On the basis of the specific characteristics of the segments in which the Company works, Tesmec did not make any provision for contingent liabilities in the memorandum accounts. Risks and future expenses are reasonably hedged by funds specifically accounted for in the financial statements.
On the date of this report, the Company holds a total of 4,711,879 treasury shares, equal to 4.40% of the Share Capital.
The significant events occurred after the close of the financial period include:
of the administrative and accounting procedures for preparing the financial statements during the 2016 financial period.
Milan, 10 March 2017
Ambrogio Caccia Dominioni Andrea Bramani
Chief Executive Officer Manager responsible for preparing the Company's financial statements
Dear Shareholders,
During the financial period ended 31 December 2016, the Board of Statutory Auditors of Tesmec S.p.A. carried out the supervision activities required by law in accordance with the principles of conduct of the Board of Statutory Auditors recommended by the Italian Accounting Profession Council (CNDCEC), by attending the meetings of the company's Bodies, carrying out periodic audits and meeting the managers of the Independent Auditors Reconta Ernst & Young S.p.A. (the "Independent Auditors"), the members of the Control and Risk Committee, the members of the Supervisory Body set up pursuant to Italian Legislative Decree 231/2001, the key representatives of the different business functions and the Manager responsible for preparing the Company's financial statements for an exchange of information on activities and programs.
Pursuant to Article 153 of Italian Legislative Decree 58/1998 (the "Consolidated Law on Finance (T.U.F.)") and of Article 2429, paragraph 3 of the Italian Civil Code, taking also into account the instructions given by CONSOB with communication no. DEM/1025564 of 6 April 2001, and subsequent amendments and supplements, we report the following:
compliance with procedures designed to ensure that they are concluded at market conditions and conforming to the normal management of the company. In this regard, we also supervised the compliance with the principles indicated in the CONSOB Regulation containing provisions on related party transactions adopted with resolution no. 17221 of 12 March 2010, as subsequently amended (the "OPC Regulation"), of the subsequent Procedure for Related Party Transactions, adopted by the Board of Directors on 11 November 2010 and updated on 14 March 2014, as well as on its application;
and by the Group of certain financial parameters on medium-long term loans and the related Directors' assessments);
Board of Directors during the meeting of 23 February 2010. As described in the section of the Report of Board of Directors, the Group adheres to the Code of Conduct for listed companies approved in March 2006 (as amended in March 2010, December 2011, July 2014 and July 2015) by the Committee for the Corporate Governance Committee and promoted by Borsa Italian S.p.A. with additions and amendments related to the characteristics of the Group. Adherence to the rules laid down by the said code has been verified by us and has been the subject of the Report on Corporate Governance and Ownership Structure attached to the budget and subject to the same terms of advertising planned for the financial statement;
Considering all the above, we find no reasons not to approve - to the extent of our authority - the financial statements as at 31 December 2016, or to make observations on the proposal of appropriation of the profit for the year, including the proposal for dividend distribution, contained in the report on management performance prepared by the Board of Directors.
Grassobbio, 31 March 2017
The Board of Statutory Auditors Simone Cavalli - Chairman Alessandra De Beni - Statutory Auditor Stefano Chirico - Statutory Auditor
This report has been translated into the English language solely for the convenience of the international readers.
INDEPENDENT AUDITOR'S REPORT
ENCLOSURES
List of investments held as at 31 December 2016 by Tesmec S.p.A. and statement of changes during the financial period. The following is the list of investments held as at 31 December 2016, which includes, under Article 126 of CONSOB Regulation 11971/99, the investments held in companies with unlisted shares or in limited liability companies, in more than 10% of the capital.
| 31 December 2015 | Increases | Decreases | Other | 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | Quantity | % | Value | Quantity | Cost | Quantity | Cost | Write down/ Reval uation |
Quantity | % | Value |
| Subsidiaries consolidated | |||||||||||
| Tesmec USA Inc. | 10,450,000 | 67.00% (1) | 21,261,434 | - | - | - | - | - | 10,450,000 | 67.00% (1) | 21,261,434 |
| Tesmec Service | 100,000 | 100.00% | 2,095,882 | - | 1,500,000 | - | - | - | 100,000 | 100.00% | 3,595,882 |
| OOO Tesmec Rus | 10,590 | 100.00% | 10,590 | - | - | - | - | - | 10,590 | 100.00% | 10,590 |
| Tesmec SA (Pty) | 100 | 100.00% | 360,816 | - | - | - | - | - | 100 | 100.00% | 360,816 |
| Tesmec Balkani | 5,000 | 100.00% | - | - | - | - | - | - | 5,000 | 100.00% | - |
| East Trenchers S.r.l. | 100,000 | 100.00% | 145,000 | - | - | - | - | - | 100,000 | 100.00% | 145,000 |
| SGE S.r.l. | 10,000 | 100.00% | 410,000 | - | - | - | - | - | 10,000 | 100.00% | 410,000 |
| Tesmec France | 3,000 | 100.00% | - | - | - | - | - | - | 3,000 | 100.00% | - |
| Tesmec New Tech. | 200,000 | 100.00% | 200,000 | - | - | - | - | - | 200,000 | 100.00% | 200,000 |
| Marais Tech. | 328,566 | 52.83% (2) | 8,563,664 | - | - | - | - | - | 328,566 | 52.83% (1) | 8,563,664 |
| CPT Engineering | - | - | - | 315,600 | 315,600 | - | - | - | 315,600 | 100.00% | 315,600 |
| Bertel S.r.l. | - | - | - | 200,000 | 3,535,400 | - | - | - | 200,000 | 100.00% | 3,535,400 |
| Tesmec Rail S.r.l. | - | - | - | 10,000 | 10,000 | - | - | - | 10,000 | 100.00% | 10,000 |
| Total | 33,047,386 | 5,361,000 | - | - | 38,408,386 | ||||||
| Associates consolidated under the equity method | |||||||||||
| Tesmec Peninsula | 346,125 | 49.00% | 729,748 | - | - | - | - | - | 346,125 | 49.00% | 729,748 |
| Bertel S.p.A. | 200,000 | 40.00% | 1,700,000 | - | - | 200,000 | 1,700,000 | - | - | - | - |
| Locavert S.A. | 20,525 | 38.63% | 52,000 | - | - | - | - | - | 20,525 | 38.63% | 52,000 |
| Condux Tesmec Inc. | 250 | 50.00% | 955,763 | - | - | - | - | - | 250 | 50.00% | 955,763 |
| Total | 3,437,511 | 1,700,000 | 1,737,511 |
(1) The remaining 33% is held by Simest S.p.A. Since Tesmec has an obligation to buy it back from Simest S.p.A., from an accounting point of view the shareholding of the Parent Company in Tesmec USA, Inc. is fully consolidated on a 100% basis.
(2) The remaining 47.17% is held by Simest S.p.A. for 33.96% and by C2D SAS for 13.21%. Since Tesmec has an obligation to buy it back from Simest S.p.A., from an accounting point of view the shareholding of the Parent Company in Marais Technologies SAS is consolidated on an 86.79% basis.
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