Quarterly Report • Sep 26, 2016
Quarterly Report
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Investor Relator Patrizia Pellegrinelli Tel: 035.4232840 - Fax: 035.3844606 e-mail: [email protected]
Registered Office: Piazza Sant'Ambrogio, 16 – 20123 Milan Fully paid up share capital as at 30 June 2016 Euro 10,708,400 Milan Register of Companies no. 314026 Tax and VAT code 10227100152
Website: www.tesmec.com Switchboard: 035.4232911
TABLE OF CONTENTS
| TABLE OF CONTENTS 5 |
|---|
| COMPOSITION OF THE CORPORATE BODIES7 |
| GROUP STRUCTURE9 |
| INTERIM CONSOLIDATED FINANCIAL REPORT 11 |
| 1. Introduction12 |
| 2.Macroeconomic Framework 12 |
| 3.Significant events occurred during the period 13 |
| 4.Activity, reference market and operating performance for the first six months of 201615 |
| 5.Summary of balance sheet figures as at 30 June 2016 21 |
| 6.Management and types of financial risk 23 |
| 7.Atypical and/or unusual and non-recurring transactions with related parties23 |
| 8.Group Employees23 |
| 9.Other information 23 |
| INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 25 |
| Consolidated statement of financial position as at 30 June 2016 and as at 31 December 201526 |
| Consolidated income statement for the half-year ended 30 June 2016 and 201527 |
| Consolidated statement of comprehensive income for the half-year ended 30 June 2016 and 201528 |
| Statement of consolidated cash flows for the half-year ended 30 June 2016 and 201529 |
| Statement of changes in consolidated shareholders' equity for the half-year |
| ended 30 June 2016 and 2015 30 |
| Explanatory notes 31 |
| Certification pursuant to Article 154-bis of Italian Legislative Decree 58/9848 |
| INDEPENDENT AUDITOR'S REPORT 49 |
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
INTERIM CONSOLIDATED FINANCIAL REPORT
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 nine production plants, four in Italy, Grassobbio (Bergamo), Endine Gaiano (Bergamo), Sirone (Lecco) and Monopoli (Bari), one in the USA, in Alvarado (Texas) and one in France, Durtal and as result of the recent acquisitions of Bertel, SGE and CPT, other three new Italian production plants in Fidenza, Padua and Patrica (FS), respectively. The Group also has a global commercial presence through foreign subsidiaries and sales offices in USA, South Africa, Russia, Qatar, Bulgaria, 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:
All types of product are developed according to the ISEQ approach (Innovation, Safety, Efficiency and Quality), in observance of environmental sustainability and energy saving.
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.
The global macroeconomic scenario in the first half of 2016 continues to be characterised by a low growth, persistent unemployment and political uncertainty. The outcome of the consultative referendum of June in Great Britain on the European Union (known as Brexit) and the recent terrorist attacks are partially due to this scenario. Uncertainty and low growth have a direct impact on the lack of growth in consumer spending, highlighted by the persistence of very low levels of inflation and the postponement of investment decisions with increase in levels of equipment obsolescence.
The expansionary monetary policies alone do not seem to be able to start a trend reversal compared to the growth trends that for the Countries of the OECD area recorded a modest average rate of 2% as from 2008, year of the Lehman Brothers crisis. There is a gradual increase in the awareness of the need to combine them with appropriate tax policies.
In this scenario, the impact of the payments for interests on the EBITDA dropped from 7% in 2008 to 2% in 2015 for the companies, and since the Deposit Facility Rate has fallen below zero, the propensity of the banking system to convert liquidity in loans to businesses increased.
In the light of this context, we confirm the validity of the diversification strategy recently implemented by the Tesmec Group with the acquisition of the Marais Group and the entry into the maintenance of railway rolling stock (Railway) and electrical grids (automation) for exploiting the recovery of infrastructure investments in telecommunications, and investments in the rail and electricity segments aimed at improving the levels of safety and efficiency in energy transmission.
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 during the period as well as the completion of the range in the new automation segment of power lines with the following investments:
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 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 value of the transaction is Euro 1.4 million, and Euro 0.9 million was already paid upon acquisition and the remaining part will be paid in subsequent instalments. In 2015, the Business Unit subject-matter of the acquisition recorded revenues of Euro 3.6 million. The transaction was finalised on 30 June 2016 but effective as from 1 July 2016. Given the positive performance of the business unit rented, the acquisition took place in advance compared to the timeframe expected for exercising the option and allowed a lower financial outlay.
The transaction is included in the more general development strategy in the Energy Automation sector, within which the Group recently concluded the acquisition of Bertel S.r.l. as a whole, active in the sector of streamlining systems of Transmission Power Lines (transaction completed and communicated last 3 March) and the acquisition of CPT Engineering S.r.l., company specialised in the design and implementation of monitoring, protection and industrial automation solutions, which offers cutting-edge systems within the technologies of power lines (transaction communicated on 1 April and completed on 20 April 2016).
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:
allocate the profit of the Parent Company, amounting to Euro 7,412 thousand, as follows:
assign a dividend of Euro 0.025 to each outstanding ordinary share;
The Board of Directors decided to:
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.
In the first half of 2016, the demand for rental and service business with a high content for the customer increased confirming the validity of the strategic choice of Tesmec that with the acquisition of the Marais Group and the recent developments in the automation segment is the provider of integrated solutions and complementary services. The passage from the traditional offer of the Group to the new offer required financial investments and technical developments that had an impact in the short-term on major economic indicators. However, the validity of the strategic choices made is confirmed by the collection of new important orders in the railway and automation segment and the opening of new important trade negotiations. The return to traditional levels of profitability of the Group as well as the validity of the strategic choices made will also be linked to targeted cost efficiency initiatives that have already begun in Tesmec USA with the reduction and rationalisation of personnel.
The interim consolidated financial statements of Tesmec have been prepared in accordance with the International Financial Reporting Standards – hereinafter the "IFRS" or the "International Accounting Standards" –, which were endorsed by the European Commission, in effect as at 30 June 2016. The following table shows the major economic and financial indicators of the Group in June 2016 and in June 2015.
| OVERVIEW OF THE FINANCIAL RESULTS | |||||
|---|---|---|---|---|---|
| 30 June 2015 | Key income statement data (Euro in millions) | 30 June 2016 | |||
| 85.1 | Operating Revenues | 74.0 | |||
| 14.2 | EBITDA | 7.4 | |||
| 9.6 | Operating Income | 1.4 | |||
| 6.5 | Group Net Profit | (1.3) | |||
| 31 December 2015 | Key financial position data (Euro in millions) | 30 June 2016 | |||
| 145.8 | Net Invested Capital | 155.9 | |||
| 55.9 | Shareholders' Equity | 51.1 | |||
| 89.9 | Net Financial Indebtedness | 104.8 | |||
| 13.2 | Investments in property, plant and equipment and intangible assets | 11.1 | |||
| 569 | Annual average employees | 646 |
With reference to the above figures, the information relating to the main subsidiary companies with operations during the half-year is shown below:
in rental services and construction of machines for infrastructures in telecommunications, electricity and gas. The Marais Group generated during the first half-year of 2016 revenues totalling Euro 15.7 million.
The comments provided below refer to the comparison of the consolidated income statement figures as at 30 June 2016 with those as at 30 June 2015.
The main profit and loss figures for the first six months of 2016 and 2015 are presented in the table below:
| Half-year ended 30 June | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues |
| Revenues from sales and services | 73,986 | 100.0% | 85,131 | 100.0% |
| Cost of raw materials and consumables | (31,062) | -42.0% | (44,038) | -51.7% |
| Cost for services | (15,430) | -20.9% | (13,265) | -15.6% |
| Non-recurring costs for services | - | 0.0% | (494) | -0.6% |
| Payroll costs | (19,770) | -26.7% | (16,143) | -19.0% |
| Other operating (costs)/ revenues, net | (2,937) | -4.0% | (1,989) | -2.3% |
| Gain on a bargain purchase (badwill) | - | 0.0% | 2,633 | 3.1% |
| Amortisation and depreciation | (5,921) | -8.0% | (4,621) | -5.4% |
| Development costs capitalised | 2,560 | 3.5% | 2,478 | 2.9% |
| Portion of losses/(gains) from the valuation of operational Joint Ventures using the equity method |
13 | 0.0% | (67) | -0.1% |
| Total operating costs | (72,547) | -98.1% | (75,506) | -88.7% |
| Operating income | 1,439 | 1.9% | 9,625 | 11.3% |
| Financial expenses | (4,695) | -6.3% | (3,811) | -4.5% |
| Financial income | 2,072 | 2.8% | 3,223 | 3.8% |
| Portion of gains/(losses) from associated companies and non operational Joint Ventures evaluated using the equity method |
(95) | -0.1% | (181) | -0.2% |
| Pre-tax profit | (1,279) | -1.7% | 8,856 | 10.4% |
| Income tax | (31) | 0.0% | (2,362) | -2.8% |
| Net profit for the period | (1,310) | -1.8% | 6,494 | 7.6% |
| Profit / (loss) attributable to non-controlling interests | (14) | 0.0% | 4 | 0.0% |
| Group profit (loss) | (1,296) | -1.8% | 6,490 | 7.6% |
Total revenues as at 30 June 2016 decreased by 13.1%.
This decrease as shown in the table below mainly affected the Group's traditional activity of sale of machinery and spare parts for the Trencher and Stringing segment. Conversely, for service activities, especially of the Trencher segment, there has been a sharp increase that is attributable to the acquisition of the Marais Group in France and to the subsidiary Tesmec USA. In fact, as previously emphasised, the direct sale of machinery slowed down in the first half of 2016 both due to the greater market demand aimed more to lease contracts and rents than to direct investments, both due to the postponement of some important orders that are being awarded and that will be defined during the last months of 2016. The first half of last year was also characterised by the progress in revenues of the order to Abengoa Group (Stringing equipment segment) that generated considerable revenues mainly in the Eurozone.
| Half-year ended 30 June | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Sales of products | 59,640 | 77,574 | |
| Services rendered | 14,572 | 8,481 | |
| 74,212 | 86,055 | ||
| Changes in work in progress | (226) | (924) | |
| Total revenues from sales and services | 73,986 | 85,131 |
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, comparing the first half of 2016 with the first half of 2015, and indicates the growth of the European and US markets, balanced by the downtrends recorded in the European and North and Central America markets. 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.
| Half-year ended 30 June | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Italy | 8,013 | 5,340 | |
| Europe | 15,446 | 36,622 | |
| Middle East | 11,240 | 9,979 | |
| Africa | 14,144 | 7,826 | |
| North and Central America | 12,972 | 18,347 | |
| BRIC and Others | 12,171 | 7,017 | |
| Total revenues | 73,986 | 85,131 |
As noted above, the decline in European sales was influenced by the work order of the Abengoa Group that generated its revenues mainly in the first half of 2015 and is therefore to be considered contingent.
| Half-year ended 30 June | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Stringing equipment | 22,176 | 30.0% | 45,877 | 53.9% | (23,701) |
| Trencher | 49,453 | 66.8% | 38,629 | 45.4% | 10,824 |
| Rail | 2,357 | 3.2% | 625 | 0.7% | 1,732 |
| Total revenues | 73,986 | 100.0% | 85,131 | 100.0% | (11,145) |
In the first six months of 2016, the Group consolidated revenues of Euro 73,986 thousand, marking a decrease of Euro 11,145 thousand compared to Euro 85,131 thousand in the same period of the previous year. In percentage terms, this decrease represents a negative difference of 13.1%, which is split unevenly between the Group's three business areas. More specifically, an increase of +277.1% was recorded for the Rail segment, +28.0% for the Trencher segment and -51.7% for the Stringing equipment segment.
The increase in revenues in the Trencher segment is mainly a result of the contribution of the Marais Group and of the sales in the African continent.
The already mentioned order of the Stringing equipment segment and related to the Abengoa Group that characterised the revenues of the first half of 2015 is the main reason for the decline in the sector during the first six months of 2016. Note, however, that the Energy Automation business, with the consolidation of recent developments in the sector of technologies for power lines, is contributing increasingly to the Group's results.
For the Rail segment, the results are still very low and can, therefore, generate significant fluctuations if analysed on a halfyearly basis. However, important commercial operations in continuous development are confirmed as well as possible new contracts whose potential turnover could lead to the generation of revenues in the coming quarters.
| Half-year ended 30 June | ||||
|---|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | 2016 vs. 2015 | % change |
| Cost of raw materials and consumables | (31,062) | (44,038) | 12,976 | -29.5% |
| Cost for services | (15,430) | (13,265) | (2,165) | 16.3% |
| Non-recurring costs for services | - | (494) | 494 | -100.0% |
| Payroll costs | (19,770) | (16,143) | (3,627) | 22.5% |
| Other operating (costs)/ revenues, net | (2,937) | (1,989) | (948) | 47.7% |
| Gain on a bargain purchase (badwill) | - | 2,633 | (2,633) | 100.0% |
| Development costs capitalised | 2,560 | 2,478 | 82 | 3.3% |
| Portion of losses/(gains) from the valuation of Joint Ventures using the equity method |
13 | (67) | 80 | -119.4% |
| Operating costs net of depreciation and amortisation | (66,626) | (70,885) | 4,259 | -6.0% |
The table shows a decrease in operating costs of Euro 4,259 thousand (-6.0%) in a less than proportional way compared to the decrease in sales (-13.1%). The table shows that this reduction is due to the different mix of the Group's activities with a shift on service activities that resulted in a decrease (-29.5%) in the cost for the purchase of raw materials and consumables against an increase in costs of services by 16.3% and payroll costs by 22.5% resulting from the change in the consolidation area (Marais SARL and Bertel S.r.l.).
The first half of 2015 benefited from a positive net value of non-recurring costs and revenues of Euro 2,139 thousand (consisting of non-recurring costs for services of Euro 494 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 8.8%.
As a result of the decrease in revenues (-13.1%) in a more than proportional way compared to the decrease in operating costs (-6.0%), in terms of margins, EBITDA amounts to Euro 7,360 thousand decreasing by 48.3% compared to what was recorded in the first half of 2015. Without the effect of badwill, the decrease would have been 39.2%.
A restatement of the income statement figures representing the performance of EBITDA is provided below:
| Half-year ended 30 June | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Operating income | 1,439 | 1.9% | 9,625 | 11.3% | (8,186) |
| + Depreciation and amortisation | 5,921 | 8.0% | 4,621 | 5.4% | 1,300 |
| EBITDA (*) | 7,360 | 9.9% | 14,246 | 16.7% | (6,886) |
| + Non-recurring costs | - | 0.0% | 494 | 0.6% | (494) |
| + Badwill | - | 0.0% | (2,633) | -3.1% | 2,633 |
| adj EBITDA (*) | 7,360 | 9.9% | 12,107 | 14.2% | (4,747) |
(*) The 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.
The tables below show the income statement figures relating to EBITDA as at 30 June 2016 compared to those as at 30 June 2015, broken down into three operating segments:
| Half-year ended 30 June | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | 2016 | % of revenues | 2015 | % of revenues | 2016 vs. 2015 |
| Stringing equipment | 2,523 | 11.4% | 8,222 | 17.9% | (5,699) |
| Trencher | 4,713 | 9.5% | 6,225 | 16.1% | (1,512) |
| Rail | 124 | 5.3% | (201) | -32.2% | 325 |
| EBITDA | 7,360 | 9.9% | 14,246 | 16.7% | (6,886) |
(*) The 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.
This result is the combined effect of different trends in the three segments:
| Half-year ended 30 June | |||
|---|---|---|---|
| (Euro in thousands) | 2016 | 2015 | |
| Net Financial Income/Expenses | (2,181) | (2,458) | |
| Foreign exchange gains/losses | (453) | 1,832 | |
| Fair value adjustment of derivative instruments | 11 | 38 | |
| Portion of losses/(gains) from the valuation of equity investments using the equity method |
(95) | (181) | |
| Total net financial income/expenses | (2,718) | (769) |
Net financial management decreased compared to the same period in 2015 of Euro 1,949 thousand due, for Euro 2,285 thousand, to the different USD/EUR exchange rate in the two periods of reference that resulted in the recording of net losses totalling Euro 453 thousand (realised for Euro 82 thousand and unrealised for Euro 371 thousand) in the first half of 2016 against net profits of Euro 1,832 thousand in the first half of 2015.
The net cost of borrowing decreased by 13.0% thanks to the benefits on the reduction of cost of short-term funding.
Information is provided below on the Group's main equity indicators as at 30 June 2016 compared to 31 December 2015. In particular, the following table shows the reclassified funding sources and uses from the consolidated balance sheet as at 30 June 2016 and as at 31 December 2015:
| (Euro in thousands) | As at 30 June 2016 | As at 31 December 2015 |
|---|---|---|
| USES | ||
| Net working capital (1) | 70,004 | 63,505 |
| Fixed assets | 87,104 | 83,945 |
| Other long-term assets and liabilities | (1,185) | (1,697) |
| Net invested capital (2) | 155,923 | 145,753 |
| SOURCES | ||
| Net financial indebtedness (3) | 104,828 | 89,876 |
| Shareholders' equity | 51,095 | 55,877 |
| Total sources of funding | 155,923 | 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, financial liabilities, fair value of hedging instruments and other non-current financial assets.
The table below shows a breakdown of "Net Working Capital" as at 30 June 2016 and 31 December 2015:
| (Euro in thousands) | As at 30 June 2016 | As at 31 December 2015 |
|---|---|---|
| Trade receivables | 53,773 | 50,882 |
| Work in progress contracts | 2,281 | 3,864 |
| Inventories | 60,149 | 58,891 |
| Trade payables | (32,699) | (39,049) |
| Other current assets/(liabilities) | (13,500) | (11,083) |
| Net working capital (1) | 70,004 | 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 70,004 thousand, marking an increase of Euro 6,499 thousand (equal to 10.2%) compared to 31 December 2015. This trend shows the effects of increased stock due to low sales for the period in the traditional sector and longer payment times granted to new customers. The cost reduction measures implemented in Tesmec USA (which led to a 40% reduction in personnel especially in the production area) are expected to have a positive effect on the reduction of working capital rebalancing the production levels with sales.
The table below shows a breakdown of "Fixed assets" as at 30 June 2016 and 31 December 2015:
| (Euro in thousands) | As at 30 June 2016 | As at 31 December 2015 |
|---|---|---|
| Intangible assets | 19,260 | 13,827 |
| Property, plant and equipment | 64,147 | 65,352 |
| Equity investments in associates | 3,690 | 4,763 |
| Other equity investments | 7 | 3 |
| Fixed assets | 87,104 | 83,945 |
Total fixed assets recorded an increase of Euro 3,159 thousand due to the decrease in property, plant and equipment of Euro 1,205 thousand thanks to the sale of trenchers from the fleet especially by the American subsidiary offset by the increase in intangible assets of Euro 5,433 thousand.
The increase in property, plant and equipment is due to the change in the consolidation area for a total value of Euro 4,509 thousand related for Euro 823 thousand to the companies acquired during the period (EAM S.r.l. and C.P.T. Engineering S.r.l.) and for Euro 3,686 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 1,147 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.
Details of the breakdown of "Net financial indebtedness" as at 30 June 2016 and 31 December 2015 are as follows:
| (Euro in thousands) | As at 30 June 2016 |
of which with related parties and group |
As at 31 December 2015 |
of which with related parties and group |
|---|---|---|---|---|
| Cash and cash equivalents | (28,815) | (21,204) | ||
| Current financial assets (1) | (7,194) | (6,555) | (11,871) | (11,499) |
| Current financial liabilities | 61,232 | 1,304 | 45,240 | 1,241 |
| Current portion of derivative financial instruments | - | 14 | ||
| Current financial indebtedness (2) | 25,223 | (5,251) | 12,179 | (10,258) |
| Non-current financial liabilities | 79,261 | 14,078 | 77,347 | 14,743 |
| Non-current portion of derivative financial instruments | 344 | 350 | ||
| Non-current financial indebtedness (2) | 79,605 | 14,078 | 77,697 | 14,743 |
| Net financial indebtedness pursuant to CONSOB Communication No. DEM/6064293/2006 |
104,828 | 8,827 | 89,876 | 4,485 |
(1) Current financial assets as at 30 June 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.
In the first six months of 2016, the Group's net financial indebtedness increased compared to the figure at the end of 2015 by Euro 14,952 thousand and improves compared to the figure as at 31 March 2016 of Euro 107,074 thousand. Without considering the notional debt of the building of Grassobbio, recognised due to the application of IAS 17, the net Indebtedness as at 30 June 2016 would have been Euro 87,644 thousand. The change compared to 31 December 2015 is mainly attributable to the trend of sales and to the changes in the consolidation area with the acquisition of 100% of the subsidiary Bertel.
The table below shows the breakdown of the following changes:
increase in current financial indebtedness of Euro 13,044 thousand due to the:
For the management of financial risks, please see the paragraph "Financial risk management policy" contained in the Explanatory Notes to the Annual Consolidated Financial Statements for 2015, where the Group's policies in relation to the management of financial risks are presented.
In compliance with the Consob communications of 20 February 1997, 27 February 1998, 30 September 1998, 30 September 2002 and 27 July 2006, it should be noted that during the first half of the 2016 financial year, no transactions took place with related parties of an atypical or unusual nature, outside of normal company operations or such as to harm the profits, balance sheet or financial results of the Group.
For significant intercompany and related party information, please see the paragraph "Related party transactions" in the Explanatory Notes.
The average number of Group employees in the first half-year of 2016, including the employees of companies that are fully consolidated, is 646 persons compared to 569 in 2015 as a result of the acquisitions made in the period.
On 29 April 2016, the Shareholders' Meeting resolved favourably on the First Section of the Report on Remuneration pursuant to Article 123-ter of Legislative Decree no. 58/98 and authorised also the Board of Directors, for a period of 18 months, to purchase, on the regulated market, ordinary shares of Tesmec until 10% of the share capital of the Company and within the limits of the distributable profits and of the available reserves resulting from the last financial statements duly approved by the Company or the subsidiary company making the purchase. The authorisation also includes the right to dispose of (in whole or in part and also in several times) the shares in the portfolio subsequently, even before having exhausted the maximum amount of shares purchasable and to possibly repurchase the shares to the extent that the treasury shares held by the Company and, if necessary, by the companies controlled by it, do not exceed the limit established by the authorisation. The quantity and the price at which transactions will be made will comply with the operating procedures laid down by the regulations. This authorisation replaces the last authorisation resolved by the Shareholders' Meeting on 30 April 2015 and expiring in October 2016.
In the period between 1 July 2015 and the date of this Report, the Company purchased 1,854,176 treasury shares (1.73% of Share Capital) at an average price of Euro 0.6588 for a total amount net of commissions of Euro 1,221,588 thousand. On the date of this report, the Company holds a total of 4,450,497 treasury shares, equal to 4.16% of the Share Capital.
Among the events subsequent to the end of the half-year, the following are of note:
On 1 August 2016, Tesmec S.p.A. finalised the acquisition from 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.
Established in Milan in 1940, Ampere, right from the start, acted as distributor in Italy of some of the most qualified manufacturing companies of measuring, monitoring and diagnostic instruments. Over the years, it gained extensive experience, gaining the trust of the main national players of the Energy sector.
More specifically, the transaction involved the acquisition of the business unit of Ampere S.r.l. against a price composed of a fixed part and a variable part. The fixed net price amounted to Euro 106 thousand. The variable part (Earn Out) amounted to 1% of net turnover that will be pursued by the business unit in the following 13 months as from the signing date of the sales contract. The payment of the price by Tesmec will be made by using own resources.
As at 31 December 2015, the business unit subject-matter of the acquisition recorded Revenues of approximately Euro 2.7 million.
The acquisition of the business unit of Ampere S.r.l., highly specialised in commercial activities and after-sales services for the main Italian utilities, aims at completing the offer of Tesmec that is further strengthened, through a vertical integration, in the world of power networks. Moreover, this acquisition allows the Tesmec Group to strengthen its presence in Italy by benefiting from the strong relations that Ampere S.r.l. has with important customers.
The transaction is part of the growth strategy in the sector of technologies for energy transport and confirms the Group's will to invest in the Energy Automation segment.
On 1 August 2016, the company Marais Cote D'Ivoire, 100% owned by Group Marais SA, was set up. The company is based in Abidjan (Ivory Coast) and its purpose is the construction of energy telecommunications networks, sale and rental of Trencher machines.
Globally, there are some trends, such as focus on safety, a greater interest in environmental sustainability and increasing investments in infrastructures for connectivity, which are transversal to different businesses of the Group and on which Tesmec is focusing its interventions in order to ensure its growth in the near future.
In particular, the Group is stepping up its activities in the sector of telecommunication networks and optical fibre, both for FTTH (Fibre to the Home) and long-distance projects, especially in the African continent, Australia and New Zealand, in which the finalisation of important contracts with leading international contractors is expected. Moreover, in the Trencher segment, the provision of services and solutions with high added value will enable an improvement in working capital thanks to the lower inventory impact, in addition to a reduction in the net financial position. Moreover, thanks to the measures of cost efficiency and focusing on the service activity taken for the subsidiary Tesmec USA, an increase in volumes and in margins is expected also in the American market.
With regard to the rail segment, the first important work orders for full maintenance services on the working equipment of the national network and investments for the development of highly efficient vehicles are recorded, in full observance with safety and environmental standards, which should lead to a significant growth of the segment in the coming quarters. In fact, important investments are expected by the main rail operators for the renewal of the existing fleets in order to comply with the new regulations in terms of safety and emissions.
Finally, interesting prospects are also expected in the sector of technologies for intelligent networks, where the Group is implementing an integration strategy to meet the new challenges related to renewable energy sources and to the distributed generation. Finally, the stringing equipment market is characterised by a cyclical trend related to large projects for the construction of power lines for which some important negotiations are currently in progress.
During July and August the total Order Backlog increased of around Euro 20.0 million.
Therefore, based on ongoing negotiations in different business areas, in the second half of 2016 the Group is expected to grow significantly, such as to allow an improvement of all the economic and financial indicators compared to the first half of the year.
Consolidated financial statements
| Notes | 30 June 2016 | 31 December 2015 | |
|---|---|---|---|
| (Euro in thousands) | |||
| NON-CURRENT ASSETS | |||
| Intangible assets | 6 | 19,260 | 13,827 |
| Property, plant and equipment | 7 | 64,147 | 65,352 |
| Equity investments valued using the equity method | 3,690 | 4,763 | |
| Other equity investments | 7 | 3 | |
| Financial receivables and other non-current financial assets | 190 | 473 | |
| Derivative financial instruments | 15 | 3 | 11 |
| Deferred tax assets Non-current trade receivables |
10,278 263 |
8,844 80 |
|
| TOTAL NON-CURRENT ASSETS | 97,838 | 93,353 | |
| CURRENT ASSETS | |||
| Work in progress contracts | 8 | 2,281 | 3,864 |
| Inventories | 9 | ||
| 60,149 | 58,891 | ||
| Trade receivables | 10 | 53,773 | 50,882 |
| of which with related parties: | 10 | 2,748 | 4,050 |
| Tax receivables | 695 | 486 | |
| Other available-for-sale securities | 536 | 22 | |
| Financial receivables and other current financial assets | 11 | 6,658 | 11,849 |
| of which with related parties: | 11 | 6,555 | 11,499 |
| Other current assets | 4,754 | 4,337 | |
| Cash and cash equivalents | 28,815 | 21,204 | |
| TOTAL CURRENT ASSETS | 157,661 | 151,535 | |
| TOTAL ASSETS | 255,499 | 244,888 | |
| SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS |
|||
| Share capital | 12 | 10,708 | 10,708 |
| Reserves / (deficit) | 12 | 40,079 | 36,623 |
| Group net profit / (loss) | 12 | (1,296) | 6,931 |
| TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO PARENT COMPANY SHAREHOLDERS | 49,491 | 54,262 | |
| Minority interest in capital and reserves / (deficit) | 1,618 | 1,385 | |
| Net profit / (loss) for the period attributable to non-controlling interests | (14) | 230 | |
| TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | 1,604 | 1,615 | |
| TOTAL SHAREHOLDERS' EQUITY | 51,095 | 55,877 | |
| NON–CURRENT LIABILITIES | |||
| Medium/long-term loans | 13 | 64,558 | 62,675 |
| of which with related parties: Bond issue |
13 | 14,078 14,703 |
14,743 14,672 |
| Derivative financial instruments | 15 | 344 | 350 |
| Employee benefit liability | 3,418 | 2,847 | |
| Deferred tax liabilities | 8,348 | 8,255 | |
| Other non-current liabilities | 150 | 3 | |
| Non-current trade payables | 3 | - | |
| TOTAL NON-CURRENT LIABILITIES | 91,524 | 88,802 | |
| CURRENT LIABILITIES | |||
| Interest-bearing financial payables (current portion) | 14 | 61,232 | 45,240 |
| of which with related parties: | 14 | 1,304 | 1,241 |
| Derivative financial instruments | 15 | - | 14 |
| Trade payables | 32,699 | 39,049 | |
| of which with related parties: | 161 | 200 | |
| Advances from customers | 1,839 | 1,694 | |
| Income taxes payable | 2,906 | 2,933 | |
| Provisions for risks and charges | 3,531 | 3,392 | |
| Other current liabilities | 10,673 | 7,887 | |
| TOTAL CURRENT LIABILITIES | 112,880 | 100,209 | |
| TOTAL LIABILITIES | 204,404 | 189,011 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 255,499 | 244,888 |
| Half-year ended 30 June | |||||
|---|---|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 | ||
| Revenues from sales and services | 16 | 73,986 | 85,131 | ||
| of which with related parties: | 3,182 | 5,352 | |||
| Cost of raw materials and consumables | (31,062) | (44,038) | |||
| of which with related parties: | (9) | (181) | |||
| Cost for services | (15,430) | (13,265) | |||
| of which with related parties: | (159) | (6) | |||
| Non-recurring costs for services | - | (494) | |||
| Payroll costs | (19,770) | (16,143) | |||
| Other operating (costs)/ revenues, net | (2,937) | (1,989) | |||
| of which with related parties: | 118 | (9) | |||
| Gain on a bargain purchase (badwill) | - | 2,633 | |||
| Amortisation and depreciation | (5,921) | (4,621) | |||
| Development costs capitalised | 2,560 | 2,478 | |||
| Portion of losses/(gains) from the valuation of operational Joint Ventures using the equity method |
13 | (67) | |||
| Total operating costs | 17 | (72,547) | (75,506) | ||
| Operating income | 1,439 | 9,625 | |||
| Financial expenses | (4,695) | (3,811) | |||
| of which with related parties: | (436) | (540) | |||
| Financial income | 2,072 | 3,223 | |||
| of which with related parties: | 67 | 73 | |||
| Portion of gains/(losses) from associated companies and non-operational Joint Ventures evaluated using the equity method |
(95) | (181) | |||
| Pre-tax profit | (1,279) | 8,856 | |||
| Income tax | (31) | (2,362) | |||
| Net profit for the period | (1,310) | 6,494 | |||
| Profit / (loss) attributable to non-controlling interests | (14) | 4 | |||
| Group profit (loss) | (1,296) | 6,490 | |||
| Basic and diluted earnings per share | (0.012) | 0.0606 |
| Notes | 2016 | 2015 |
|---|---|---|
| (1,310) | 6,494 | |
| 12 | (623) | 2,732 |
| (251) | 84 | |
| 69 | (23) | |
| 12 | (182) | 61 |
| (805) | 2,793 | |
| (2,115) | 9,287 | |
| (2,101) | 9,283 | |
| (14) | 4 | |
| Half-year ended 30 June |
| Half-year ended 30 June | |||
|---|---|---|---|
| (Euro in thousands) | Notes | 2016 | 2015 |
| CASH FLOW FROM OPERATING ACTIVITIES | |||
| Net profit for the period | (1,310) | 6,494 | |
| Adjustments to reconcile net income for the period with the cash flows generated by (used in) operating activities: |
|||
| Amortisation and depreciation | 6-7 | 5,921 | 4,621 |
| Provisions for employee benefit liability | 131 | 33 | |
| Provisions for risks and charges / inventory obsolescence / doubtful accounts |
391 | 902 | |
| Gain on a bargain purchase (badwill) | (2,633) | ||
| Employee benefit payments | 189 | (165) | |
| Payments of provisions for risks and charges | 63 | (479) | |
| Net change in deferred tax assets and liabilities | (1,321) | (532) | |
| Change in fair value of financial instruments | 15 | (12) | 41 |
| Change in current assets and liabilities: | |||
| Trade receivables | 10 | (2,894) | (12,879) |
| Inventories | 9 | (367) | (2,438) |
| Trade payables | (6,262) | 7,670 | |
| Other current assets and liabilities | 2,145 | 1,812 | |
| NET CASH FLOW GENERATED BY OPERATING ACTIVITIES (A) | (3,326) | 2,447 | |
| CASH FLOW FROM INVESTING ACTIVITIES | |||
| Investments in property, plant and equipment | 7 | (7,095) | (3,002) |
| Investments in intangible assets | 6 | (3,927) | (3,120) |
| (Investments) / disposal of financial assets | 5,938 | 473 | |
| Change in the consolidation area | 5.1 | (6,510) | 315 |
| Proceeds from sale of property, plant and equipment and intangible | 6-7 | 6,965 | 2,821 |
| assets | |||
| NET CASH FLOW USED IN INVESTING ACTIVITIES (B) | (4,629) | (2,513) | |
| NET CASH FLOW FROM FINANCING ACTIVITIES | |||
| Disbursement of medium/long-term loans | 16 | 13,169 | 6,370 |
| Repayment of medium/long-term loans | 16 | (11,808) | (8,703) |
| Change in the consolidation area | 930 | ||
| Net change in short-term financial debt | 14 | 15,996 | 2,002 |
| Purchase of treasury shares | 12 | (193) | (157) |
| Other changes | 12 | 92 | 48 |
| Dividend distribution | 12 | (2,566) | (2,403) |
| NET CASH FLOW GENERATED BY (USED IN) FINANCING ACTIVITIES (C) | 15,620 | (2,843) | |
| TOTAL CASH FLOW FOR THE PERIOD (D=A+B+C) | 7,665 | (2,909) | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (E) |
(54) | 213 | |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (F) |
21,204 | 18,665 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (G=D+E+F) |
28,815 | 15,969 | |
| Additional information: | |||
| Interest paid | 2,822 | 1,757 | |
| Income tax paid | 1,018 | 1,343 |
| (Euro in thousands) | Share capital |
Legal reserve |
Share premium reserve |
Reserve of Treasury Shares |
Translation reserve |
Other reserves |
Profit 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 | - | - | - | - | - | - | 6,490 | 6,490 | 4 | 6,494 |
| Other profits / (losses) | - | - | - | - | 2,732 | 61 | - | 2,793 | - | 2,793 |
| Total comprehensive income / (loss) | - | - | - | - | - | - | - | 9,283 | 4 | 9,287 |
| Allocation of profit for the period | - | 137 | - | 60 | - | 2,309 (2,506) | - | - | - | |
| Dividend distribution | - | - | - | - | - | - | (2,403) | (2,403) | - | (2,403) |
| Change in the consolidation area | - | - | - | - | - | 25 | - | 25 | (25) | - |
| Other changes | - | - | - | (157) | - | (38) | - | (195) | (195) | |
| Balance as at 30 June 2015 | 10,708 | 2,141 | 10,915 | (1,107) | 4,846 | 20,881 | 6,490 | 54,874 | (12) | 54,862 |
| (Euro in thousands) | Share capital |
Legal reserve |
Share premium reserve |
Reserve of Treasury Shares |
Translation reserve |
Other reserves |
Profit 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 2016 | 10,708 | 2,141 | 10,915 | (2,136) | 5,731 | 19,972 | 6,931 | 54,262 | 1,615 | 55,877 |
| Profit for the period | - | - | - | - | - | - | (1,296) | (1,296) | (14) | (1,310) |
| Other profits / (losses) | - | - | - | - | (630) | (182) | - | (812) | 7 | (805) |
| Total comprehensive income / (loss) | - | - | - | - | - | - | - | (2,108) | (7) | (2,115) |
| Allocation of profit for the period | - | - | - | 111 | - | 4,254 (4,365) | - | - | - | |
| Dividend distribution | - | - | - | - | - | - | (2,566) | (2,566) | - | (2,566) |
| Change in the consolidation area | - | - | - | - | - | 96 | - | 96 | (4) | 92 |
| Purchase of treasury shares | - | - | - | (193) | - | - | - | (193) | (193) | |
| Balance as at 30 June 2016 | 10,708 | 2,141 | 10,915 | (2,218) | 5,101 | 24,140 (1,296) | 49,491 | 1,604 | 51,095 |
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 since 1 July 2010. The registered office of the Tesmec Group (hereinafter "Group" or "Tesmec Group") is in Milan, Piazza S. Ambrogio 16.
The interim consolidated financial statements as at 30 June 2016 were prepared in condensed form in accordance with International Financial Reporting Standards (IFRS), by using the methods for preparing interim financial reports provided by IAS 34 Interim financial reporting.
The accounting standards adopted in preparing the interim consolidated financial statements as at 30 June 2016 are those adopted for preparing the consolidated financial statements as at 31 December 2015 in compliance with IFRS.
More precisely, the consolidated statement of financial position, income statement, comprehensive income statement, statement of changes in shareholders' equity and statement of cash flows are drawn up in extended form and are in the same format adopted for the consolidated financial statements as at 31 December 2015. The explanatory notes to the financial statements indicated below are in condensed form and therefore do not include all the information required for annual financial statements. In particular, as provided by IAS 34, in order to avoid repeating already disclosed information, the notes refer exclusively to items of the consolidated statement of financial position, the consolidated income statement, the consolidated statement of comprehensive income, the statement of changes in consolidated shareholders' equity and the statement of consolidated cash flows whose breakdown or change, with regard to amount, type or unusual nature, are significant to understanding the economic and financial situation of the Group as at 30 June 2016.
Since the interim condensed consolidated financial statements do not disclose all the information required in preparing the consolidated annual financial statements, it must be read together with the consolidated financial statements as at 31 December 2015.
The consolidated financial statements as at 30 June 2016 comprise the consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income, statement of changes in consolidated shareholders' equity, statement of consolidated cash flows and related explanatory notes. Comparative figures are disclosed as required by IAS 34 (31 December 2015 for the statement of financial position and the first half-year of 2015 for the consolidated income statement, consolidated comprehensive income statement, statement of changes in shareholders' equity and cash flow).
The interim consolidated financial statements are presented in Euro and all values are rounded to the nearest thousand, unless otherwise indicated.
The issue of the interim consolidated financial statements of the Tesmec Group for the period ended 30 June 2016 was authorised by the Board of Directors on 8 September 2016.
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 rates for the | End-of-period exchange rate | ||||
|---|---|---|---|---|---|
| half-year ended 30 June | as at 30 June | ||||
| 2016 | 2015 | 2016 | 2015 | ||
| US Dollar | 1.116 | 1.116 | 1.110 | 1.119 | |
| Bulgarian Lev | 1.956 | 1.956 | 1.956 | 1.956 | |
| Russian Rouble | 78.412 | 64.602 | 71.520 | 62.355 | |
| South African Rand | 17.204 | 13.299 | 16.446 | 13.642 | |
| Renmimbi | 7.272 | 6.941 | 7.376 | 6.937 | |
| Qatar Riyal | 4.061 | 4.062 | 4.041 | 4.073 | |
| Algerian Dinar | 121.215 | 106.761 | 122.497 | 110.698 | |
| Tunisian Dinar | 2.290 | 2.163 | 2.447 | 2.175 | |
| Australian Dollar | 1.522 | 1.426 | 1.493 | 1.455 | |
| New Zealand Dollar | 1.648 | 1.506 | 1.562 | 1.655 | |
| 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 2018, 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 |
As at 30 June 2016, the area of consolidation changed with respect to that as at 31 December 2015:
on 22 May 2016, the subsidiary Marais Group sold the 40% share held in JV Marais Algerie SARL at the price of Euro 40 thousand, consolidated in the financial statements using the equity method.
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 have no significant impact on the consolidated financial statements of the Group or on the interim condensed consolidated financial statements 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 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 breakdown and changes in "Intangible assets" as at 30 June 2016 and as at 31 December 2015 are shown in the table below:
| (Euro in thousands) | 01/01/2016 | Increases due to purchases |
Change in the consolidation area |
Decreases | Amortisation | Exchange rate differences |
30/06/2016 |
|---|---|---|---|---|---|---|---|
| Development costs | 11,612 | 2,925 | 2,852 | - | (2,616) | (60) | 14,713 |
| Rights and trademarks | 2,215 | 36 | 410 | - | (326) | (1) | 2,334 |
| Assets in progress and advance payments to suppliers |
- | 966 | 1,247 | - | - | - | 2,213 |
| Total intangible assets | 13,827 | 3,927 | 4,509 | - | (2,942) | (61) | 19,260 |
As at 30 June 2016, intangible assets totalled Euro 19,260 thousand, up Euro 5,433 thousand on the previous year due to:
The breakdown and changes in "Property, plant and equipment" as at 30 June 2016 and as at 31 December 2015 are shown in the table below:
| (Euro in thousands) | 01/01/2016 | Increases due to purchases |
Change in the consolidation area |
Decreases | Reclassifications | Depreciations | Exchange rate differences |
30/06/2016 |
|---|---|---|---|---|---|---|---|---|
| Land | 5,815 | - | 189 | - | - | (4) | (4) | 5,996 |
| Buildings | 24,613 | 95 | 856 | - | 2,599 | (550) | (117) | 27,496 |
| Plant and machinery | 7,898 | 50 | 54 | (11) | (2,599) | (551) | (32) | 4,809 |
| Equipment | 1,267 | 261 | 100 | (15) | - | (221) | 2 | 1,394 |
| Other assets | 25,219 | 6,375 | 802 | (6,939) | - | (1,653) | (206) | 23,598 |
| Assets in progress and advance payments to suppliers |
540 | 314 | - | - | - | - | - | 854 |
| Total property, plant and equipment |
65,352 | 7,095 | 2,001 | (6,965) | - | (2,979) | (357) | 64,147 |
As at 30 June 2016, property, plant and equipment totalled Euro 64,147 thousand, down compared to the previous year by Euro 1,205 thousand.
The decrease is due to the sale of trenchers from the fleet especially by the American subsidiary partially offset by the increase resulting from the change in consolidation area of Euro 2,001 thousand relating to the companies acquired during the period (EAM S.r.l. and C.P.T. Engineering S.r.l.).
The following table sets forth the breakdown of Work in progress contracts as at 30 June 2016 and as at 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Work in progress (Gross) | 2,281 | 9,158 |
| Advances from contractors | - | (5,294) |
| Work in progress contracts | 2,281 | 3,864 |
"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 provides a breakdown of the item Inventories as at 30 June 2016 compared to 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Raw materials and consumables | 33,802 | 32,886 |
| Work in progress | 12,222 | 9,824 |
| Finished products and goods for resale | 14,001 | 16,134 |
| Advances to suppliers for assets | 124 | 47 |
| Total Inventories | 60,149 | 58,891 |
Inventories compared to 31 December 2015 increased by Euro 1,258 thousand mainly due to low sales for the period in the traditional sector.
The following table sets forth the breakdown of Trade Receivables as at 30 June 2016 and as at 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Trade receivables from third-party customers | 51,025 | 46,832 |
| Trade receivables from associates, related parties and joint ventures | 2,748 | 4,050 |
| Total trade receivables | 53,773 | 50,882 |
The increase in trade receivables (5.7%) reflects the trend of sales for the half-year concentrated in June, in particular. The balance of Trade Receivables due from related parties fell by Euro 1,302 thousand mainly due to deconsolidation of the Joint Venture Marais Algerie Sarl; the latter, amounting to Euro 1,092 thousand, was reclassified to trade receivables from thirdparties.
Referring to the situation of Abengoa Group, which is going through a phase of restructuring, please note that the Group has already collected more than 90% of the order of last year and the remaining credit is covered by guarantees.
The following table provides a breakdown of financial receivables and other current financial assets as at 30 June 2016 and as at 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Financial receivables due from associates, related parties and joint ventures | 6,555 | 11,499 |
| Financial receivables from third parties | 41 | 285 |
| Other current financial assets | 62 | 65 |
| Total financial receivables and other current financial assets | 6,658 | 11,849 |
The decrease in current financial assets from Euro 11,849 thousand to Euro 6,658 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. described in paragraph 5.
The share capital amounts to Euro 10,708 thousand, fully paid in, and is comprised of 107,084,000 shares with a par value of Euro 0.1 each.
The following table provides a breakdown of Other reserves as at 30 June and as at 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Revaluation reserve | 86 | 86 |
| Extraordinary reserve | 25,294 | 20,559 |
| Change in the consolidation area | 96 | (900) |
| Severance indemnity valuation reserve | (461) | (278) |
| Network Reserve | 794 | 794 |
| Retained earnings/(losses brought forward) | (1,669) | (289) |
| Total other reserves | 24,140 | 19,972 |
The revaluation reserve is a reserve in respect of which tax has been deferred, set up in accordance with Italian Law No. 72/1983.
The value of translation differences has a negative impact on Shareholders' Equity of Euro 630 thousand as at 30 June 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:
During the first six months of 2016, medium-long term loans (including the bond issue) increased from Euro 77,471 thousand to Euro 79,868 thousand mainly due to (i) the signing of new medium/long-term loans totalling Euro 13,107 thousand and to the (ii) reclassification in the current financial indebtedness relating to the short-term portion of loans and financial leases (Euro 15,899 thousand as at 30 June 2016 compared to Euro 16,953 thousand as at 31 December 2015).
The following table provides details of this item as at 30 June and as at 31 December 2015:
| (Euro in thousands) | 30 June 2016 | 31 December 2015 |
|---|---|---|
| Advances from banks against invoices and bills receivables | 30,802 | 18,403 |
| Other financial payables (short-term leases) | 2,516 | 2,455 |
| Payables due to factoring companies | 3,490 | 4,822 |
| Current account overdrafts | 3,043 | 22 |
| Short-term loans to third parties | 853 | 3,806 |
| Current portion of medium/long-term loans | 20,502 | 15,695 |
| Other short-term financial payables | 26 | 37 |
| Total interest-bearing financial payables (current portion) | 61,232 | 45,240 |
The increase in the current portion of medium/long-term loans refers to the reclassification of the short-term portion of the loans described in the previous paragraph.
The following table shows a summary of the financial instruments, other than cash and cash equivalents, owned by the Group as at 30 June 2016:
| (Euro in thousands) | Loans and receivables/ financial liabilities measured at amortised cost |
Guarantee deposits |
Cash and cash equivalents |
Available-for sale financial assets |
Fair value recognised in the income statement |
|---|---|---|---|---|---|
| Financial assets: | |||||
| Financial receivables | 190 | - | - | - | - |
| Trade receivables | 263 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 3 |
| Total non-current | 453 | - | - | - | 3 |
| Trade receivables | 53,773 | - | - | - | - |
| Financial receivables from related parties | 6,555 | - | - | - | - |
| Financial receivables from third parties | 103 | - | - | - | - |
| Other available-for-sale securities | - | - | - | 536 | - |
| Cash and cash equivalents | - | - | 28,815 | - | - |
| Total current | 60,431 | - | 28,815 | 536 | - |
| Total | 60,884 | - | 28,815 | 536 | 3 |
| Financial liabilities: | |||||
| Loans | 48,659 | - | - | - | - |
| Bond issue | 14,703 | ||||
| Non-current portion of finance leases, net | 15,899 | - | - | - | - |
| Derivative financial instruments | - | - | - | - | 344 |
|---|---|---|---|---|---|
| Trade payables | 3 | ||||
| Total non-current | 79,264 | - | - | - | 344 |
| Loans | 21,355 | - | - | - | - |
| Other financial payables (short-term leases) | 2,516 | - | - | - | - |
| Other short-term financial payables | 37,361 | - | - | - | - |
| Trade payables | 32,699 | - | - | - | - |
| Total current | 93,931 | - | - | - | - |
| Total | 173,195 | - | - | - | 344 |
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.
The Tesmec 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 due to changes in the interest rate, the Group'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 30 June 2016, there were six 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 15.5 million, with a negative equivalent value of Euro 301 thousand. Moreover, there were four positions related to derivative instruments of Cap interest rate; the notional value of these positions was equal to Euro 7.8 million, with a negative net equivalent value of Euro 40 thousand.
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:
i) selling trenchers produced in Italy in Middle-East Countries;
ii) selling stringing machines produced in Italy in the USA where purchases are in Euro, and sales in US dollars.
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.
In the first six months of 2016, the Group did not sign any forward cover contracts of the Euro/USD exchange rate.
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 also linked to the country risk.
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 medium-long term loans.
Some existing medium/long-term loans contain certain financial covenant clauses in relation to the financial statements of the Group and to the financial statements of Tesmec USA; they are verified on an annual basis Only the "BNL Pool 2011-2017" loan is required to be verified on a semi-annual basis, which is carried out on results for the period duly re-measured on an annual basis On the basis of the half-year results and related re-measuring, it was necessary to reclassify in the short-term the residual position amounting to Euro 0.5 million.
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.
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 30 June 2016, divided into the three levels defined above:
| (Euro in thousands) | Book value as at 30 June 2016 |
Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Financial assets: | ||||
| Derivative financial instruments | 3 | - | 3 | - |
| Total non-current | 3 | - | 3 | - |
| Other available-for-sale securities | 536 | - | - | 536 |
| Total current | 536 | - | - | 536 |
| Total | 539 | - | 3 | 536 |
| Financial liabilities: | ||||
| Derivative financial instruments | 344 | - | 344 | - |
| Total non-current | 344 | - | 344 | - |
| Total | 344 | - | 344 | - |
The table below shows the breakdown of Revenues from sales and services as at 30 June 2016 and as at 30 June 2015:
| Half-year ended 30 June | ||
|---|---|---|
| (Euro in thousands) | 2016 | 2015 |
| Sales of products | 59,640 | 77,574 |
| Services rendered | 14,572 | 8,481 |
| 74,212 | 86,055 | |
| Changes in work in progress | (226) | (924) |
| Total revenues from sales and services | 73,986 | 85,131 |
In the first six months of 2016, the Group consolidated revenues of Euro 73,986 thousand, marking a decrease of Euro 11,145 thousand compared to Euro 85,131 thousand in the same period of the previous year. In percentage terms, this increase represents a negative difference of 13.1%, which is split unevenly between the Group's three business areas. More specifically, an increase of +277.1% was recorded for the Rail segment, +28.0% for the Trencher segment and -51.7% for the Stringing equipment segment.
The increase in revenues in the Trencher segment is mainly a result of the contribution of the Marais Group and of the sales in the African continent.
The already mentioned order of the Stringing equipment segment and related to the Abengoa Group that characterised the revenues of the first half of 2015 is the main reason for the decline in the sector during the first six months of 2016. Note, however, that the Energy Automation business, with the consolidation of recent developments in the sector of technologies for power lines, is contributing increasingly to the Group's results.
For the Rail segment, the results are still very low and can, therefore, generate significant fluctuations if analysed on a halfyearly basis. However, important commercial operations in continuous development are confirmed as well as possible new contracts whose potential turnover could lead to the generation of revenues.
The item operating costs amounted to Euro 72,547 thousand, a decrease of 3.9% compared to the previous year, a more than proportional increase with respect to the decrease in revenues (13.1%).
In the first six months of the previous financial year, they included non-recurring costs and revenues of Euro 2,139 thousand (consisting of non-recurring costs for services of Euro 494 thousand and Badwill of Euro 2,633 thousand) deriving from the acquisition of the Marais Group on 8 April 2015.
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:
The tables below show the income statement figures as at 30 June 2016 compared to those at 30 June 2015, broken down into three operating segments:
| Half-year ended 30 June | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | ||||||||
| (Euro in thousands) | Stringing equipment |
Trencher | Rail | Consolidated | Stringing equipment |
Trencher | Rail | Consolidated | |
| Revenues from sales and services |
22,176 | 49,453 | 2,357 | 73,986 | 45,877 | 38,629 | 625 | 85,131 | |
| Operating costs net of depreciation and amortisation |
(19,653) | (44,740) | (2,233) | (66,626) | (37,655) | (32,404) | (826) | (70,885) | |
| EBITDA | 2,523 | 4,713 | 124 | 7,360 | 8,222 | 6,225 | (201) | 14,246 | |
| Amortisation and depreciation |
(1,525) | (3,433) | (963) | (5,921) | (1,077) | (2,879) | (665) | (4,621) | |
| Total operating costs | (21,178) | (48,173) | (3,196) | (72,547) | (38,732) | (35,283) | (1,491 ) |
(75,506) | |
| Operating income | 998 | 1,280 | (839) | 1,439 | 7,145 | 3,346 | (866) | 9,625 | |
| Net financial income/(expenses) |
(2,718) | (769) | |||||||
| Pre-tax profit | (1,279) | 8,856 | |||||||
| Income tax | (31) | (2,362) | |||||||
| Net profit for the period | (1,310) | 6,494 | |||||||
| Profit / (loss) attributable to non-controlling interests |
(14) | 4 | |||||||
| Group profit (loss) | (1,296) | 6,490 |
(*) The 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.
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 is managed at Group level and are not allocated to the individual operating segments.
The following table shows the consolidated statement of financial position by business segment as at 30 June and as at 31 December 2015:
| As at 30 June 2016 | As at 31 December 2015 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Euro in thousands) | Stringing equipment |
Trencher | Rail | Not allocated | Consolidated | Stringing equipment Trencher |
Rail | Not allocated | Consolidated | |
| Intangible assets | 10,484 | 3,719 | 5,057 | - | 19,260 | 4,537 | 3,664 | 5,626 | - | 13,827 |
| Property, plant and equipment | 12,589 | 51,435 | 123 | - | 64,147 | 11,456 | 53,792 | 104 | - | 65,352 |
| Financial assets | 3,125 | 682 | - | 83 | 3,890 | 4,187 | 692 | 371 | - | 5,250 |
| Other non-current assets | 915 | 3,211 | 101 | 6,314 | 10,541 | 146 | 2,775 | 78 | 5,925 | 8,924 |
| Total non-current assets | 27,113 | 59,047 | 5,281 | 6,397 | 97,838 | 20,326 | 60,923 | 6,179 | 5,925 | 93,353 |
| Work in progress contracts | - | - | 2,281 | - | 2,281 | - | - | 3,864 | - | 3,864 |
| Inventories | 14,302 | 45,513 | 334 | - | 60,149 | 12,580 | 45,865 | 446 | - | 58,891 |
| Trade receivables | 11,408 | 42,211 | 154 | - | 53,773 | 13,247 | 36,874 | 761 | 0 | 50,882 |
| Other current assets | 1,613 | 3,527 | 298 | 7,205 | 12,643 | 826 | 3,244 | 309 | 12,315 | 16,694 |
| Cash and cash equivalents | - | - | - | 28,815 | 28,815 | - | - | - | 21,204 | 21,204 |
| Total current assets | 27,323 | 91,251 | 3,067 | 36,020 | 157,661 | 26,653 | 85,983 | 5,380 | 33,519 | 151,535 |
| Total assets | 54,436 | 150,298 | 8,348 | 42,417 | 255,499 | 46,979 | 146,906 | 11,559 | 39,444 | 244,888 |
| Shareholders' equity attributable to Parent Company Shareholders |
- | - | - | 49,491 | 49,491 | - | - | - | 54,262 | 54,262 |
| Shareholders' equity attributable to non-controlling interests |
- | - | - | 1,604 | 1,604 | - | - | - | 1,615 | 1,615 |
| Non-current liabilities | 1,112 | 8,422 | 450 | 81,540 | 91,524 | 35 | 9,086 | 372 | 79,309 | 88,802 |
| Current financial liabilities | - | - | - | 61,232 | 61,232 | - | - | - | 45,254 | 45,254 |
| Trade payables | 10,588 | 20,777 | 1,334 | - | 32,699 | 15,820 | 22,248 | 981 | - | 39,049 |
| Other current liabilities | 1,380 | 8,293 | 324 | 8,952 | 18,949 | 531 | 6,135 | 277 | 8,963 | 15,906 |
| Total current liabilities | 11,968 | 29,070 | 1,658 | 70,184 | 112,880 | 16,351 | 28,383 | 1,258 | 54,217 | 100,209 |
| Total liabilities | 13,080 | 37,492 | 2,108 | 151,724 | 204,404 | 16,386 | 37,469 | 1,630 | 133,526 | 189,011 |
| Total shareholders' equity and liabilities |
13,080 | 37,492 | 2,108 | 202,819 | 255,499 | 16,386 | 37,469 | 1,630 | 189,403 | 244,888 |
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:
| Half-year ended 30 June 2016 | Half-year ended 30 June 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. | 67 | - | - | - | - | 26 | - | - | - | - |
| Bertel S.p.A. | - | - | - | - | - | 78 | - | 2 | 4 | 16 |
| SEP Moselle | - | - | - | - | - | 23 | - | - | - | - |
| Subtotal | 67 | - | - | - | - | 127 | - | 2 | 4 | 16 |
| Joint Ventures: | ||||||||||
| Condux Tesmec Inc. | 1,117 | - | - | 89 | 26 | 2,039 | - | - | 91 | 6 |
| Tesmec Peninsula | - | - | - | 54 | 41 | 2,182 | (147) | (28) | 54 | 51 |
| Marais Tunisie | - | - | - | - | - | - | (27) | - | - | - |
| Subtotal | 1,117 | - | - | 143 | 67 | 4,221 | (174) | (28) | 145 | 57 |
| Related parties: | ||||||||||
| Ambrosio S.r.l. | - | - | - | (7) | - | - | - | - | (7) | - |
| TTC S.r.l. | - | - | (21) | - | - | - | - | (32) | - | - |
| CBF S.r.l. | - | - | - | 1 | - | - | - | - | - | - |
| Ceresio Tours S.r.l. | - | - | (3) | - | - | - | - | (5) | - | - |
| Dream Immobiliare S.r.l. | - | - | - | (167) | (436) | - | - | - | (195) | (540) |
| CONAI | - | (1) | - | - | - | - | - | - | - | - |
| Lame Nautica S.r.l. | - | - | - | - | - | 1 | - | - | - | - |
| M.T.S. Officine meccaniche S.p.A. | 1,965 | - | 2 | 5 | - | 969 | - | 2 | 45 | - |
| Reggiani Macchine S.p.A. | 33 | (8) | (137) | 143 | - | - | (7) | 55 | 7 | - |
| Finetis SARL | - | - | - | - | - | 25 | - | - | - | - |
| COMATEL | - | - | - | - | - | 9 | - | - | - | - |
| C2D | - | - | - | - | - | - | - | - | (8) | - |
| Subtotal | 1,998 | (9) | (159) | (25) | (436) | 1,004 | (7) | 20 | (158) | (540) |
| Total | 3,182 | (9) | (159) | 118 | (369) | 5,352 | (181) | (6) | (9) | (467) |
| 30 June 2016 | 31 December 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. | 12 | - | - | - | - | 12 | - | - | - | - |
| Bertel S.p.A. | - | - | - | - | - | 25 | 2,524 | - | - | - |
| SEP Moselle | - | 35 | - | - | - | - | 32 | - | - | - |
| SEP Cergy | - | - | - | - | - | - | 46 | - | - | - |
| SEP Semofor 77 | - | - | - | 24 | - | - | - | - | 20 | - |
| SEP Laison | - | 6 | - | 10 | - | - | - | - | 10 | - |
| SEP College | - | - | - | - | - | - | 6 | - | - | - |
| Subtotal | 12 | 41 | - | 34 | - | 37 | 2,608 | - | 30 | - |
| Joint Ventures: | ||||||||||
| Condux Tesmec Inc. | 714 | 855 | - | - | - | 576 | 2,307 | - | - | 1 |
| Tesmec Peninsula | 39 | 3,765 | - | - | - | 44 | 4,690 | - | - | 7 |
| Marais Tunisie | - | 2 | - | - | - | - | 2 | - | - | - |
| Marais Lucas | - | 794 | - | - | - | - | 794 | - | - | - |
| Marais Algerie SARL | - | - | - | - | - | 1,102 | - | - | - | - |
| Subtotal | 753 | 5,416 | - | - | - | 1,722 | 7,793 | - | - | 8 |
| Related parties: | ||||||||||
| Ambrosio S.r.l. | - | - | - | - | 4 | - | - | - | - | - |
| TTC S.r.l. | - | - | - | - | - | - | - | - | - | 42 |
| Ceresio Tours S.r.l. | - | - | - | - | 1 | - | - | - | - | - |
| Dream Immobiliare S.r.l. | - | 1,096 | 14,078 | 1,270 | 141 | - | 1,096 | 14,743 | 1,211 | 52 |
| Eurofidi S.p.A. | - | 2 | - | - | - | - | 2 | - | - | - |
| CONAI | - | - | - | - | 1 | - | - | - | - | 1 |
| Lame Nautica S.r.l. | - | - | - | - | - | 1 | - | - | - | - |
| M.T.S. Officine meccaniche S.p.A. | 1,949 | - | - | - | - | 2,170 | - | - | - | - |
| Reggiani Macchine S.p.A. | 4 | - | - | - | - | 52 | - | - | - | 77 |
| Fintetis S.r.l. | 30 | - | - | - | - | 30 | - | - | - | - |
| COMATEL | - | - | - | - | - | 38 | - | - | - | - |
| C2D | - | - | - | - | 14 | - | - | - | - | 20 |
| Subtotal | 1,983 | 1,098 | 14,078 | 1,270 | 161 | 2,291 | 1,098 | 14,743 | 1,211 | 192 |
| Total | 2,748 | 6,555 | 14,078 | 1,304 | 161 | 4,050 | 11,499 | 14,743 | 1,241 | 200 |
of the administrative and accounting procedures for preparing the Interim Condensed Consolidated Financial Statements as at 30 June 2016.
Grassobbio, 8 September 2016
Ambrogio Caccia Dominioni Andrea Bramani
Chief Executive Officer Manager responsible for preparing the Company's financial statements
INDEPENDENT AUDITOR'S REPORT
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