C.L.N. Group Annual report & accounts year ended december 31, 2010

BOARD OF DIRECTORS, BOARD OF STATUTORY AUDITORS AND INDEPENDENT AUDITORS of C.L.N. S.p.A.

BOARD OF DIRECTORS Chairman Chief Executive Officer Directors

Anna Reinaudo Aurora Magnetto Gabriele Perris Magnetto Vincenzo Perris Vijay Goyal Francois Max Eduard Rumpf Robrecht Himpe Philippe Darmayan Francois Daniel Golay Jean Luc Maurange Raffaella Perris Magnetto Brian Edward Aranha Mario Zibetti

Board of Statutory Auditors Chairman Mario Pia Standing Auditors Vittorino Pizzoni Giovanni Sala Alternate Auditors Alessandra Odorisio Riccardo Ronchi

INDEPENDENT AUDITORS DELOITTE & TOUCHE S.P.A. 

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C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

84

REPORT ON OPERATIONS To the Shareholders: After recording depreciation and taxation in the amount of Euro 89 million and Euro 24 million, respectively, the profit reported by the Group for the year ended December 31, 2010 amounted to Euro 13 million. In order to ensure a more immediate and proper grasp of the operating and financial performance honed by the Group over the last twelve months, a quick glance is given to the economic landscape, with a keen eye steered toward the marketplace in which the Group operates.

The Steel Market After a period of steady and meaningful growth by EU-27 apparent steel consumption over the years from 2003 to 2007, during which consumption hit a decade high of 204 million tons in 2007, the progressive contraction in apparent steel demand, taking shape in fourth-quarter 2008 and continuing throughout 2009, unfurled an all-time low at 118 million tons (-42%) exactly in 2009. In 2010, the welcome improvement echoing across the international plateau led to apparent consumption spiking a net recovery (+19%) in the UE-27 and in the other geographies, such as the USA, harder hit by 2009, resurfacing in the UE-27 to 140 million tons, still far short (-31%) of the rate recorded in 2007. After enduring in 2008 a 1.4% year-on-year downturn from 2007 and a further 8% year-on-year decline in 2009 from 2008, global steel production in 2010 regained vigor and harnessed +15% growth at the world level and +25% growth in the UE-27, with Italy at just under +30% (or +6 million tons). Yet again in the limelight were the steel production absolute values reflected by Asia and, more pointedly, by China, thus edging up BRIC’s share to 60%, with China alone accounting for 45% of global steel production, against an Asian backdrop accounting for 63% of total steel production. Unbridled downsizing of consumption in 2009, particularly marked in the more developed markets, the UE in primis, was undoubtedly prompted by depressed real consumption (-23%) in many bedrock sectors (historically led by the automotive and construction markets), albeit above all in terms of apparent consumption (-35%) by aggressive destocking throughout 2009. 2010 indeed delivered a significant recovery, where apparent consumption (+19%) outpaced real consumption (+3%), which in these terms also set the steel-distribution sector as standout, with 2010 ploughing an improvement over 2009 in the range of some +15%, more significant in the sevenmonth period January/July than in the last four-month period September/December of the year. Also benefiting therefore from positive market trending was the profitability of corporations and enterprises specializing in steel distribution, despite sector-to-sector and product-to-product sharp disconnect, with major adversities encountered by the construction sector and relative protruded products (rods, girders and rolled steel sections). Reconfirmed in 2010 was the structural increase of volatility, with shorter iron metallurgy cycles, characterized by bolt-on price gyrations, the dynamics of which was affected by the thrust waged by key raw materials (primarily iron ore, coking coal and scrap), nurtured by Asia’s insatiable appetite for steel, the region where the international prices of steel products in US$/ton are “formed” and from there arriving in the EU “translated” by the €/US$ conversion rate, yet another unforeseeable variable of our system. 85

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Aggravated by contracting consumption in 2009, the aggressively competitive environment prevailing historically in the steel-distribution service center segment worked against harnessing bolt-on operating profitability, inasmuch as the market placed in evidence certain critical “steps” that, at the end of the day, clawed into the result reported for the year, which remains nonetheless at more than positive values. In a nutshell, the meaningful recovery in sales volume, in lockstep with a clear improvement in marginality, driven through by overhead paring efficiencies, enabled your Group to obtain satisfactory key profitability performance indicators for 2010.

The Automotive Market Looking at the passenger car (“PSC”) market, new registrations at the UE-27 level retreated 5.5% in 2010 to 13.4 million vehicles year-over-year, primarily due to car-scrapping incentives fading out in a number of countries. Moving across the territorial landscape, the more significant declines were averted in Germany (-23.4%), in Italy (-9.2%) and in France (-2.2%), whilst gaining headway were new registrations in Spain (+3.1%) and in the UK (+1.8%). As regards the performances spiked by the major carmaker customers of the CLN Group in Europe, 2010 bears witness to downward curved new registrations being delivered by the Fiat Group (-17.4%) and PSA (-1.8%), whilst seeing their car sales tracking an upward route were Renault (+4.4%) and BMW (+5.7%). Looking at the Light Commercial Vehicles (“LCV”) market in Europe, LCV sector trending (+8.7%) went against the tide followed by the PSC sector: Italy +6.2%, France +11.5%, Germany +16%, Spain +8.8%, and the UK +19.5%. As regards the performances spiked by the major LCV customers of the CLN Group in Europe, the new registrations delivered by all of these reflected significant headway, particularly those delivered by Renault (+20%) and hard on heel those delivered by the Fiat Group (+7.4%) and PSA (+7%). Looking at the South America market, carried forward from the years before was upbeat market trending where the shining spots for sales growth were Brazil up 10.6% and Argentina up 28.8%, whilst the Turkish market grew even more remarkably 37% Showing its mettle, the Automotive Division rose to the challenges posed by the PSC market drawing strength from its customer diversification, its market footprint in certain segments (such as those A/B) hit less harshly by the market downturn, its geographic landscape diversification, and its enhanced array of products and processes; the LCV market improvement generated conversely unquestionable benefits at the level of operating results. The diversification and growth strategies put in place over the last few years, and the production reorganization and reshaping step-actions launched in 2009 and carried forward in 2010 (particularly in Italy and France), enabled the Automotive Division to hike more than satisfactory results notwithstanding the adversities posed by the market of reference.

THE GROUP AT A GLANCE Organized around three distinct business units, the CLN Group specializes in three distinct business segments: Steel Service Centers, Steel Wheel Manufacturing (car, motorbike and industrial/ commercial vehicles), and Press-Forged Manufacturing for automobiles and commercial vehicles. The following chart sets out the CLN Group’s legal and organizational framework at December 31, 2010. 86

Report on operations

CLN SPA (Italy) 97,50%

100%

MW ROMANIA (Romania)

100%

D.R. (France)

100%

MW DEUTSCHLAND (Germany)

100%

100%

100%

100%

10%

50%

69,50%

MAC (Italy)

50% 50%

100%

wagon AUTOMOTIVE (Italy)

25%

TESCO GO (Italy)

9,25%

EMARC (Italy)

100%

MA FRANCE (France) EUROSTAMP (France)

100%

SANREMO RADAELLI (Italy)

UM CORPOR. (France)

100%

MA AUTOMOTIVE DEUTSCHLAND (Germany)

100% 99,35%

in liquidazione MW SCANDINAVIA (Scandinavia)

49%

EMARC (Romania)

100%

Ingenieria de productos metalicos (Spain) MA AUTOMOTIVE SOUTH AFRICA (South Africa) 100%

AR MACHINE CO. (Iran)

MA AUTOMOTIVE ROSSLYN (South Africa)

DMW (PTY) LTD (South Africa)

80%

100%

MW Eurodisk TRADE LLC (Russia)

80%

80%

MW EURODISK LLC (Russia) EXCEL RIM Co. ltd (Japan)

SHL (Poland)

35%

18,99%

MW LUBLIN (Poland)

DELFO POLSKA (Poland) DP metal processing (Poland) PROMA POLAND (Poland)

100%

85,1%

COSKUNOZ MA OTOMOTIV (Turkey)

IMMOBILIERE DE VILLERS (France) IDEST S.A.R.L. (France)

60%

100%

MW POLAND (Poland)

MWPT B.V. (Holland)

60%

100%

100%

55%

IG TOOLING and light engineering (South Africa)

50%

JBM MA AUTOMOTIVE (India)

95%

MA AUTOMOTIVE argentina

EXCEL RIM 82,79% SDN BHD (Malaysia) 50%

MA AUTOMOTIVE BRASIL (Brazil)

PMC AUTOMOTIVE D.O.O. (Serbia)

51%

PRORENA (Italy)

51%

ITLA srl (Italy)

50%

ema polska sp zoo (Poland) 49%

estampacione s rubi s.a.u. (Spain) Galicia auto estampacion, s.a.u. (Spain) de sarollo de tecnicas de emsamblaje, s.l.u. (Spain) DIERTE S.L.U. (Spain)

10%

30%

37,48%

ma tool and die (South Africa) 100%

August LappLe East London (South Africa)

25%

O.M.V. (Italy)

17,85%

ETROMEX (Mexico)

15%

SAN POLO (Italy)

35%

GERVASI POLSKA (Poland)

100%

AVISCALI (Italy)

IM (Italy)

almasider (Croatia) 11,11%

48%

METAL TRANCIATI (Italy)

ORIONE (Italy)

51%

NUOVA SALL (Italy)

MIM Steel Processing Gmbh (Germany)

39%

Cellino (Italy)

COMM SID. del sud (Italy)

4%

C.S.M. (Italy)

LIMA Lavoraz. italiana acciai affini (Italy)

0,01%

IDROENERG (Italy)

0,01%

CVA TRADING (Italy)

0,01%

CHIERI ENERGIA (Italy)

7,50%

aircom us inc (U.S.A.)

100%

RIZZATO nastri acciaio (Italy)

20%

claudlynn investments (South Africa)

80%

canessa slovakia s.r.o. (Slovakia)

20%

IG TOOLING property investments (South Africa)

Rensor property (South Africa)

99,99%

WM (Italy)

100%

98,58%

MW FRANCE (France)

100%

100%

100%

(Italy)

GIANETTI (Italy)

0,01%

Canessa (Italy)

MA

2,50%

100%

100%

100%

100%

MW ITALIA (Italy)

TOPY

5,35% 7,73% 25,91%

cir (Italy)

DELNA (Italy)

LEGEND 5%

Distribution (SSC) Wheels

SIMEST 17,21%

Stamping and assembly Others

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C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

MORE SALIENT EVENTS TAKING SHAPE IN 2010 Of the more salient event taking shape over the last twelve months to December 31, 2010, attention is drawn to the following: January ■ On January 12, 2010, Canessa and Workplace Union Representatives (RSUs) reached an agreement to introduce voluntary mobility for 7 employees at the Osimo production site structurally overmanned. Accrual for the related charges resulting therefrom was recorded in the financial statements for 2009. ■ On January 25, 2010, Canessa informed trade union representatives that manufacturing operations at the Moncalieri production site had ceased and that recourse to the Government Extraordinary Lay-Off Benefit Scheme (CIGS9 had been made for 16 employees working at that site. Introduced at the same time was voluntary mobility. Accrual for the related charges resulting therefrom was recorded in the financial statements for 2009. February ■ On February 11, 2010, Acerbi-Viberti, Margaritelli Group and CLN Group inked a letter of understanding focused around incorporation of Compagnia Italiana Rimorchi (CIR). As incorporated part way November, contributed at the same tome to CIR (held 60% by Margaritelli Group, 20% by CLN and 20% by Acerbi-Viberti) were the business lines engaging in the production of trailers relative to the production sites at Nichelino (Viberti branded trailers), Verona (Cardi branded trailers) and Tocco da Cesauria (Merker branded trailers), whilst, as a result of underwriting its stake in money, CLN will assure future truck wheel and steel supplies; by way of attendant consequence, CIR thus becomes the leading manufacturer of trailers in Italy and ranks among the first 10 sector-manufacturers in Europe. March ■ On March 18, 2010, ICL and Workplace Union Representatives (RSUs) reached an agreement to introduce due to business criticality the Government Extraordinary Lay-Off Benefit Scheme (CIGS) for 64 employees working at that production site. Introduced at the same time for 25 employees was voluntary mobility. Accrual for the related charges resulting therefrom was recorded in the financial statements for 2009. April ■

On April 1, 2010, MAC and Workplace Union Representatives (RSUs) reached an agreement to introduce voluntary mobility for 50 employees working at the Chivasso production site structurally overmanned.

May

■

88

On May 11, 2010, MA acquired formally the South African company August Lapple South Africa Ltd. and its subsidiary ALSA East London in exchange for a purchase price consideration in the amount of Rand 230 million (or some Euro 23 million). The investment is deemed to be particularly strategic insofar as designed toward expanding operations with the Ford customer (T6 Project). With effect from June 2010, those companies are included line-

Report on operations

by-line in the CLN consolidation. Awarded successively to the company was an important order from BMW (F30 Project). ■ On May 20, 2010, MW Italia reached an agreement with the Japanese enterprise Tagasako Tekko relating to the acquisition of a business line of the subsidiary RK Excel CO, based in Japan (Shiga), accomplished through a “rim business” segregation mechanism with related transfer thereof to a newly-incorporated Japanese company. In particular, the business line acquisition concerns the sector dedicated to the production and sale of motorbike rims and comprises also the acquisition of 55% of the stake in Excel Rim sdn, based in Malaysia (Penang), and engaging wholly in the production of motorbike rims. As a consequence, the initially agreed purchase price consideration of Yen 300 million (or Euro 2.7 million) has been renegotiated and reduced to Euro 0.8 million. The shares were transferred part way July 2010 and, with effect therefrom, the Japanese company and the Malaysian company are included line-by-line in the CLN consolidation. ■ On May 27, 2010 Gianetti and Workplace Union Representatives (RSUs) reached an agreement to introduce voluntary mobility for 50 employees at the Ceriano Laghetto production site structurally overmanned. June

■

On June 30, 2010, SHL sold, by way of attendant consequence of the understandings inked by and between CLN and Cellino Group part way December 2009, its Kielce business line specializing in heavy carpentry to SHL Production Sp. Zoo (held 100% by Cellino S.r.l.) in exchange for a purchase price consideration of Euro 7.7 million.

 July

■

On July 27, 2010, the shareholders of Cellino S.r.l., by way of attendant consequence of the understandings inked by and between CLN and Cellino Group part way December 2009, passed resolution, by way of extraordinary shareholders’ resolution, approving the share capital increase reserved to CLN (wholly subscribed and paid-in by the latter) by virtue of which CLN now holds 39% of Cellino S.r.l. In turn, Cellino S.r.l. holds 100% of the following entities: Celmac S.r.l. Intek CM S.r.l., Ocevi CM S.r.l., and SHL Produztion S.p. zoo.

 August ■ In August 2010, MA and Proma Group set up a company, incorporated and operating under the laws of Serbia, known as PMC Automotive d.o.o. (held on a par basis) as a result of an important order being awarded by Fiat Group Automobiles. This involves a green field within the hub created for the suppliers of the Kragujevac production site taken over by the Fiat Group; PMC Automotive will specialize in seating assembly and presswork, roll formed structural components and suspension components.  September ■ On September 22, 2010, MAC and Workplace Union Representatives (RSUs) reached an agreement to introduce voluntary mobility for a further 50 employees working at the Chivasso production site structurally overmanned. ■ In September 2010, MW Italia increased its stake in MWPT BV from 50% to 69.5% and, in consequence, acquiring the controlling interest therein. As if any reminder were needed, 89

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

MWPT BV is the holding incorporated and operating under the laws of the Netherlands that holds the absolute interests in the Russian enterprises MWEurodisk (Kingisepp) and MWEurodisk Trade (St Petersburg). As a consequence, the balance sheet accounts of the three companies referred to above are included in the CLN Group’s line-by-line scope of consolidation with effect from 1st January 2011. The result reported by MWPT Group for 2010 is reflected wholly in the consolidated income statement of the CLN Group using the equity method. Given that the Russian companies started to manufacture passenger car wheels at year-end, and only at year-end, the line-by-line consolidation of their income statement accounts for the period covering September to December would not have been significantly different from what has arisen under equity method.  October ■ Taking backward-looking accounting effect as from January 1, 2010 and legal effect as from October 31, 2010, executed formally under notary deed signed and sealed on October 12, 2010 was merger by incorporation of ICL S.r.l. with and into Canessa S.p.A. ■ Taking backward-looking accounting effect as from January 1, 2010 and legal effect as from November 1, 2010, executed formally under notary deed signed and sealed on October 12, 2010 was merged by incorporation of ITLA RTL S.p.A. with and into Canessa S.p.A.  December ■ On December 14, 2010, Canessa acquired a further 1% stake in the associate ITLA S.r.l., thus stretching out its related interest therein to reach 51%. Given the corporate governance shareholder covenants currently prevailing, this continues to configure as a jointly controlled entity and, as such, the investment in ITLA S.r.l. continues to be classified under Associates also in the consolidated financial statements for 2010 and continues to be accounted for under the equity method. ■ On December 30, 2010, CLN acquired a further 1% stake in the associate Nuova Sall, thus stretching out its related interest therein to reach a 51% controlling interest. In consequence, and only from a balance sheet perspective, Nuova Sall was included line-by-line in the CLN consolidation for 2010.

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OPERATING AND FINANCIAL REVIEW Reclassified Consolidated Income Statement 2010

2009

2008

2007

SALES REVENUE (Euro/’000)

1,700,886

1,412,532

2,026,384

1,823,169

Cost of raw materials sold

1,020,478

938,858

1,261,448

1,081,192

60.0

66.5

62.3

59.3

680,408

473,674

764,936

741,977

40.0

33.5

37.7

40.7

178,344

46,226

180,725

177,068

10.5

3.3

8.9

9.7

79,294

75,519

77,553

69,638

4.7

5.3

3.8

3.8

9,982

13,980

19,166

20,484

0.6

1.0

0.9

1.1

89,068

-43,273

84,006

86,946

5.2

-3.1

4.1

4.8

-21,206

-29,693

-42,353

-35,356

Foreign exchange gains/(losses)

-1,868

-3,476

-11,153

-43

Result of investments carried at equity

-6,393

-19,333

-5,402

-2,229

-18,540

436

-2,154

-2,220

41,061

-95,339

22,944

47,099

% sales revenue

2.4

-6.7

1.1

2.6

Income tax expense

-24,124

-4,688

-11,744

-19,558

-59.0

4.9

-51.2

-41.5

16,937

-100,027

11,200

27,541

1.0

-7.1

0.6

1.5

% sales revenue Gross Margin % sales revenue EBITDA % sales revenue Depreciation of plant and equipment % sales revenue Amortization of intangible assets % sales revenue EBIT % sales revenue Financial income/(expenses)

Extraordinary income/(expenses) EBT

% Average tax rate EAT % sales revenue

91

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

The CLN Group Generally speaking, financial year 2010 ended with sales revenue stretching out to reach Euro 1.7 billion, a clear recovery from 2009 (+20%), and with EBITDA at Euro 178 million (up 285.8% from the year before) thus resurfacing to pre-crisis values. Net Sales 2003-2010 2100 2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0

2003

2004

2005

2006

2007

2009

2008

2010

Ebitda & Capex 2003-2010 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

Ebitda Capex

2003

2004

2005

2006

2007

2008

2009

2010

The recovery in volumes stretched across all the Group Divisions; however, also working toward the sales revenue uplift was the differing scope of consolidation that led to including in the consolidation for 2010 the companies specializing in Presswork in South Africa (sales revenue of Euro 92

Report on operations

72 million in 2010) and the Japanese and Malaysian companies acquired by the Wheels Division in September (sales revenue of Euro 9 million in 2010). Working toward to improvement in FY 2010 EBITDA (+Euro 132 million from 2009) was the differing scope of consolidation (consolidation scope delta contribution in terms of EBITDA was Euro 5 million in the review period) and, above all, the impact arising from bolt-on volumes and overhead paring efficiencies, driven through by the reorganization and reshaping step-actions taken by Corporate Management (mainly with regard to the Italian and French production sites) with effect from 1Q2009 and which generated unquestionable economic benefits in financial year 2010. Insofar as steps and measures structural in nature, such benefits will be retained over the foreseeable horizon. And lastly, as if any reminder were needed, flattening FY2009 EBITDA were non-recurring items (steel stock write-down) in the amount of Euro 38 million, the related effects of which no longer affect the accounts for 2010. Analysis of the results by geographic area confirms a marked disconnect between the results delivered by the French and Italian production sites, albeit in clear recovery, and the undoubtedly more vibrant results delivered by the production units based in East Europe (Poland, Romania, and Slovakia), in Germany, in Turkey and in South America. The profitability as yet not satisfactory honed by the production units based in Italy, in unison with consensus expectation leaving no significant headroom for bolt-on volumes in the foreseeable future, led the way to goodwill recognized in prior periods being written down in 2010 by some Euro 10 million, as classified under extraordinary expenses for the year. Also, emerging on first-time consolidation of the Russian companies was a consolidation difference in the amount of some Euro 2.3 million, as written down, for reasons of prudence, and classified under extraordinary items for the year. As referred to above, the steps taken in 2009 to reshape the Group’s organizational framework (and which led to extraordinary expenses of some Euro 17.9 million being incurred the year before) were carried forward in 2010 with the related expenses resulting therefrom (some Euro 6 million) also being reflected and classified as extraordinary items. Looking at equity investment activities, 2010 ends the year reporting net write-downs for an amount totaling Euro 7 million, wholly attributable de facto to the losses reported for 2010 by the Russian companies of the Wheels Division, recognized on a pro-rated basis in the Group income statement. As if any reminder were needed, PSC wheel production saw onset in Russia with effect from August 2010. SSC Division 2010 SALES REVENUE (Euro/’000) EBITDA % sales revenue

2009

Change

477,401

405,596

71,805

13,311

(41,011)

54,322

2.8%

(10.1%)

75.6%

The SSC Division hiked a significant increase at the sales revenue level (+18%) mainly as a result of the recovery in volumes (driven through by apparent demand in 2010 taking a bolder stance from 2009). At the EBITDA level, explaining the year-on-year Euro 54 million increase was the combination of bolt-on volumes and the fact that FY2009 EBITDA was dampened harshly by meaningful (not recurring in nature) inventory write-downs recorded in the wake of destocking (Euro 38 million) and no longer affecting the income statement 2010. In addition thereto, FY2010 benefited from the 93

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

reshaping and reorganization step-actions launched by Corporate Management as from 1Q2009 in respect of certain Italian production sites (Poirino, Moncalieri, Racconigi and Bologna) in order to readjust the structure to the minor volumes demanded by the market and which undoubtedly enabled overhead to be pared. Insofar as reaped from structural operations, those benefits will continue to unfold in the foreseeable future. Wheels Division 2010 SALES REVENUE (Euro/’000)

2009

Change

237,549

204,690

32,859

EBITDA

26,721

6,421

20,300

% sales revenue

11.2%

3.1%

61.8%

2010 also bears witness to the Wheels Division hiking a significant uplift in sales revenue (+16%) driven through: in the amount of Euro 9 million, by the differing scope of consolidation for 2010 (Japan and Malaysia); in the amount of Euro 4 million, by bolt-on truck wheel sales revenue (+23% from FY2009, essentially attributable to superior volumes), and; in terms of the remainder (Euro 20 million), by bolt-on car wheel sales revenue, essentially attributable to raw material price increases transferred to selling prices (PSC volumes instead stepped ahead 3% from FY2009). Emerging immediately from the foregoing is that largely contributing to the powerful stride forward taken by EBITDA in 2010 were the reshaping and reorganization step-actions put in place by Corporate Management in a strategic intent to prune overhead across the Wheels Division production plants, with a keen eye steered toward Italy and France. Automotive Division 2010 SALES REVENUE (Euro/’000) EBITDA % sales revenue

2009

Change

1,116,981

958,386

158,595

138,710

81,023

57,687

12.4%

8.5%

36.3%

Calendar 2010 for the Automotive Division bears witness to volumes and profitability resurfacing from the crippling blow waged the year before by the global economic crisis that swept across all sectors and, in particular, the Automotive sector. Revenue growth (+16.5%) also surprised on the upside for all the companies helmed by the Division aside from operations in Poland, where revenue retreated marginally; of note, the impact arising on first-time consolidation of the operations taken over in South Africa from Comau and August Laepple during the period from end FY2009 to FY2010 onset (some € 72m of consolidated revenue in the period). Carried forward over the last twelve months were the organic streamlining and industrial restructuring programs launched as from 1Q2009 in a strategic intent to align the structures to minor volumes wherever market downturns were deemed to be permanent (mainly in Italy and in France). By way of attendant consequence of resurfaced volumes and the programmed organic streamlining 94

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and industrial restructuring referred to above, which led to a meaningful reduction in overhead, the operating profitability of the Division at the EBITDA level grew significantly stretching out to account for 12.4% of sales revenue (FY2009: 8.5%). Reclassified Consolidated Balance Sheet (Euro/’000)

12.31.2010

12.31.2009

12.31.2008

12.31.2007

Trade receivables, Net

287,773

254,210

269,493

334,154

(Trade payables, Net)

-339,884

-298,390

-362,653

-381,876

Ending inventory

298,698

287,125

460,910

334,404

Other current assets /(liabilities)

-73,773

-60,986

-71,297

-51,186

NET WORKING CAPITAL

172,814

181,959

296,453

235,496

 

 

 

659,423

620,293

646,300

639,590

19,285

35,591

49,759

70,099

 

 

67,879

68,128

59,134

-60,012 -2,601 856,788   409,462   -74,183 -19,448 -5,004

  -68,156 -2,299 835,516   375,942   -59,523 -19,184 -5,046

  -48,835 -13,121 989,690   364,961   -49,979 -26,206 -1,828

-2,140

-4,001

1,417

-

375,950 172,151 447,326 856,788

329,137 218,191 459,574 835,516

398,347 302,978 624,729 989,690

241,700 395,463 525,803 896,468

Property, plant and equipment, Net Intangible assets, Net Investments and Fin. receivables Provisions Deferred tax assets / (liabilities) NET CAPITAL EMPLOYED EQUITY (Cash and cash equivalents) (Investment securities) (Marketable securities) (Net financial receivables, net financial accruals and deferrals) Current financial payables Non-current financial payables NET FINANCIAL INDEBTEDNESS NET CAPITAL EMPLOYED

25,486 -50,549 -23,654 896,468 370,665 -85,094 -26,266 -

Looking at the consolidated balance sheet, the CLN Group endured in 2010 net working capital declines of some Euro 9.1 million; however, encompassed within the figure reported the year before (Euro 182 million) were amounts due from shareholders (Euro 35 million) for capital not paid, as later collected wholly in January. When shown net of those amounts, working capital in effect moved forward Euro 25.8 million year-over-year, a somewhat meager increase compared to the significant increase in FY2010 volumes vis-à-vis FY2009 volumes. Working capital is stated on a net basis, i.e. less impact waged by trade receivables sold without recourse, estimable at December 31, 2010 in an amount totaling Euro 118 million (December 31, 2009: Euro 166 million). Explaining essentially the year-on-year Euro 21 million increase in net capital employed was the scope of consolidation delta (Russia, South Africa, Japan and Malaysia), as set off to some extent by 95

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

depreciation/amortization expense for the year and trimmed provisions for risks (primarily provisions for programmed restructuring used in the review period). Equity grew to Euro 409 million mainly due to the result delivered for the year, benefiting from the increase in the cumulative translation adjustment reserve. Denoting a downward tone on the other hand was net financial indebtedness: cash flow from operations financed wholly the investments and acquisitions put in place during the year, even though the current/non-current breakdown reflects a deterioration. Looking back to July 2007, CLN S.p.A., the parent company, entered into a pool financing agreement (syndicated loan) with Banca Monte dei Paschi di Siena S.p.A. for an amount totaling Euro 135 million; out of this, Euro 74.2 million prevailing at December 31, 2010. The financing is covered by economic-financial covenants based upon the following financial performance indicators: 1. Net Financial Indebtedness/Equity 2. Net Financial Indebtedness/EBITDA 3. EBITDA/Net Finance Expenses As at December 31, 2010, those financial performance indicators or ratios have been observed. Key Performance Indicators EBITDA represents the key operating performance indicator for the CLN Group, whilst the key financial performance indicator is represented by Net Debt (as illustrated in the reclassified consolidated balance sheet and the reclassified income statement presented above). Set forth below are other operating and/or financial performance indicators of relevance. The reasons for the clearly apparent generalized improvement vis-à-vis the financial ratios (ROE, ROI and ROS) reported the year before have been examined and discussed earlier. ROE - Return On Equity (Net Result/Shareholders’ Equity) A measure used as a general indication of a company’s efficiency: in other words, how much profit it is able to generate given the resources provided by its shareholders. F/Y 2010 ROE

F/Y 2009 4.1%

-26.6%

ROI - Return On Investment (EBIT/Net Capital Employed) A measure of a company’s core business profitability, excluding as such non-recurring expenses, to net capital employed. F/Y 2010 ROI

F/Y 2009

10.4%

-5.2%

ROS - Return On Sales (EBIT/Sales Revenue) A measure of the efficiency of sales to produce revenue. F/Y 2010 ROS

96

F/Y 2009 5.2%

-3.1%

Report on operations

Equity/Capital Employed This expresses the ratio of Equity to Capital Employed. F/Y 2010 Equity/Capital Employed

F/Y 2009 48%

45%

Current Ratio A measure of the degree to which Current Assets (trade and financial plus cash and cash equivalents) cover Current Liabilities (trade and financial). F/Y 2010 Current Assets/Current Liabilities

F/Y 2009 0.88

0.95

In determining the Current Ratio, current assets also include, insofar as readily convertible into known amounts of cash, the “securities” classified under “financial fixed assets”. The Current Ratio as at December 31, 2010 was less than 1 hence reflecting a marginal deterioration from the year before; in connection thereto, as placed in evidence below under the heading Liquidity Risk, the Group had undrawn committed facilities available at December 31, 2010 in the amount of Euro 59 million. Furthermore, in 1Q2011, the Group: (i) took out new medium to long-term loans and financing for an amount totaling Euro 40 million, and; (ii) reached a general understanding with regard to the disposal by and before summer of the investment in IPM (selling price consideration approximating Euro 8 million). In view of the foregoing, the Current Ratio, taken on a pro forma basis, would be >1. Equity/Fixed Assets Ratio A measure of the extent to which fixed assets are financed by Equity. F/Y 2010 Equity/ Fixed Assets

54.5%

F/Y 2009 51.8%

In determining the Equity/Fixed Assets ratio, excluded from fixed assets are the “securities”, insofar as readily convertible into known amounts of cash, classified under “financial fixed assets”.

MAIN RISKS AND UNCERTAINTIES FACING THE GROUP Financial risk The CLN Group is exposed to a variety of financial risks arising in the normal course of business, which it monitors on a continuing basis to identify, mitigate and cut out: ■ Credit risk, whether in relation to day-to-day commercial business with customers or funding extended to Group companies; ■ Liquidity risk, with a keen eye steered toward financial resources available and credit market access;

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■

Financial risk (mainly relating to interest rate risk and currency risk), insofar as the CLN Group operates across the international landscape and, as such, may be exposed to interest rate fluctuations and foreign exchange gyrations.

Credit risk The theoretical maximum exposure to credit for receivables and other financial assets as at December 31, 2010 is represented by their carrying amount. The CLN Group adopts creditworthiness policies designed toward monitoring the solvency of its customers, and enters into factoring transactions (sales of trade receivables) without recourse, thereby transferring the relative risk. Specific provisions are recorded in respect of bad debt or doubtful accounts. Where applicable, and based on historic data and experience, across-the-board provisions are recorded, for reasons of prudence, in respect of receivables not written down on a detailed basis. Liquidity risk CLN Group policy on liquidity risk is to ensure that sufficient cash and undrawn committed facilities are available to fund ongoing operations and to meet any unforeseen obligations and opportunities. The principal factors impacting the liquidity position of the CLN Group are, on the one hand, the resources generated by or absorbed in operations and, on the other, the resources deployed investing toward strategy and production development, and servicing debt. The levels of cash flows (actual and forecasted), credit lines and liquidity of the Group are monitored on a continuing basis under the control of treasury reports. Of note: as at December 31, 2010, liquidity (including portfolio securities) amounts to Euro 98 million and the credit lines available for short-term financial advances amount to Euro 59 million, whilst the lines available for advances on invoices under usual reserve/factoring with recourse amount to Euro 180 million in total. Currency risk The CLN Group publishes its consolidated financial statements in Euro and conducts business in many foreign currencies across the international landscape. As a result, it is subject to foreign currency risk due to exchange rate movements or fluctuations which will affect the Group’s transaction costs and the translation of the results and underlying net assets of its international operations. All of this may have the effect of either increasing or decreasing the Group’s net profit (loss) and equity. In FY2010, the principal rates of exchange to which the CLN Group was exposed were the following: ■ EUR/Zloty; ■ EUR/Peso (Argentina); ■ EUR/Real; ■ EUR/Leu; ■ EUR/Rand. Interest rate risk The CLN Group regularly puts in place factoring transactions with or without recourse (sales of trade receivables with or without recourse) and, moreover, reverts to other technical forms of funding, whether short-term (hot money, and advances on import/export) or medium to long-term usually at variable rates of interest. Changes in market interest rates affect the level of net financial charges. 98

Report on operations

In accordance with generally accepted bank practices, some medium to long-term loans and financing are covered by covenants requiring certain operating and financial performance indicators or ratios to be observed. Non-observance thereof results in increasing the spread applied by the financer banks and, in consequence, the relative finance expenses. Business risk The CLN Group is exposed to a number of risks relating to the marketplace in which it operates, and principally: Risks associated with steel pricing In particular, a sudden and significant rise in crude or raw material (coils) prices may expose the Group to the risk of not being able to promptly recharge such price mark-up to its end-customers. Looking at the SSC Division, mention is made to the fact that, whilst the price of steel is affected sharply by “global” market dynamics (carbon and iron costs, and steel demand from emerging markets with Asia standout), end-demand for processed steel is affected sharply by “local” market dynamics. Over the last two years, the market in which the SSC Division operates has been (and will be) beleaguered structurally by steel price wild gyrations, erupting, suddenly and violently, on diverse occasions in the one same period thus creating a string of micro-cycles, which lead to building up speculation in purchase decision-taking (formation of demand), whether in terms of distribution or end-users, active primarily in the “general industry” segment, and hence increasing the risk associated with our business activity. Risks associated with automotive market trending Affecting significantly CLN Group operating and financial performance is automotive market trending, particularly European automotive market trending and South American automotive market trending. Those markets are highly competitive in terms of quality of product, innovation and, especially in the last few years, pricing. Also, by way of attendant consequence of shrinking auto demand, major carmakers the world over are struggling with production overcapacity. As you may be aware, the automotive market is subject more than other industrial market segments to risks and uncertainties such as, for example: GDP upturns or downturns; corporate and/or consumer confidence, and; consumer credit interest rate trending, insofar as always affecting demand for durable goods. In addition thereto, the Automotive market is subject historically to elevated cyclicality, the magnitude and duration of which are virtually impossible to predict. To the extent possible, CLN Group policy with regard to this risk is to broaden its customer-base and to heighten geographic diversification finely tuned toward following its carmaker customers in their new business initiatives and stretching out processes and product arrays. Forming part of this are new initiatives recently undertaken by the Group through JV agreements in South Africa, India, Russia and Serbia. Risks associated with sales in international markets A significant portion of the Group’s production activities are conducted and located outside of Italy and the Group expects that revenues from sales outside Italy will account for a continually increasing portion of its total revenues in the foreseeable future. All of this exposes the Group to risks inherent to operating globally, including those related to exposure to local economic and political conditions, import and/or export restrictions, and multiple tax regimes.

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C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Risks associated with market footprint in emerging economies The Group operates across a broad spectrum of emerging economies, whether directly (Brazil and Argentina) or through JV agreements or other cooperation agreements (Turkey, India, Russia and South Africa). The Group’s exposure to the trending followed by those economies has heightened in recent years. Unfavorable economic or political developments in any one of those areas (which may vary from country to country) could have a material adverse effect on the Group’s activities and future prospects, as well as its earnings and financial position. Risks associated with JV agreements The Group currently pursues a policy designed toward seeking out alliance and JV opportunities through which to achieve such objectives as vertical production, customer loyalty and business expansion, capital deployment optimization and risk mitigation, particularly in relation to new-entry in emerging economies. JV agreements also crystallize through minority or par-venture acquisitions. Myriad factors affect achievement of the objectives underlying the relative JV agreements such as, for example: relationships with respective venturers; shared vision of future strategies to be pursued, and compliance with technical, financial and local laws and regulations.

ENVIRONMENTAL REVIEW In conducting business, the CLN Group is committed to protecting the environment and ensuring compliance with applicable eco-friendly laws and regulations. At all points in the manufacturing chain, from the way we treat materials to the way we dispose of waste and the amount of energy we consume, we try to ensure that CLN makes the lightest possible impact on the environment. Having regard to REACH (the Regulation on the Registration, Evaluation, Authorization and Restriction of Chemicals across the European Union territory), introduced in application of and pursuant to Regulation (EC) No. 1907/2006, CLN continued to monitor – throughout 2010 - regulatory evolution through the REACH coordination team created in-house part way 2008. In particular, clear focus was placed on identifying the substances manufactured or imported into the EU that have to be registered in order to eliminate potential supply chain disruption arising as a result of any vital or essential product used in the production cycle not being registered in compliance with the EU’s REACH legislation. And lastly, CLN continued to monitor supplier activities for REACH compliance. Looking at industrial safety and industrial health, the year under review was characterized by perpetuation of works inherent to the Industrial Safety Project launched in 2009 and, not least, by the introduction of new activities designed toward raising the bar of industrial safety. As referred to above, the Industrial Safety Project represents the first step toward creating an Industrial Safety & Health Management System skewed toward: ■ providing a safe and healthy working environment for all staff and assuring the prevention of risks in accordance with applicable laws and regulations; ■ identifying and encouraging the adoption of appropriate protection and prevention measures to minimize accident and injury frequency rates; ■ making available to company management an efficient and effective management system to ensure that any and all problems that might arise are identified, monitored and managed on a continuing basis and that information can be pulled down as and when wanted to ensure that operating and decision-taking responsibilities are adequately supported; 100

Report on operations ■ ■ ■ ■

■

raising the awareness, understanding and support of staff; galvanizing efficiencies and performances to hone improvement on a continuing basis; promoting a safer and healthier working place; setting values that state our principles and standards and express the kind of company we aspire to be, thus providing a framework for the way we relate to colleagues, customers, suppliers and supervisory authorities/agencies and sum up everything we believe to be important and distinctive in the way CLN operates; paring progressively industrial safety and health costs.

RESEARCH AND DEVELOPMENT Capital investment by the Group on research and development activities, as expensed in full in the income statement, was steered toward: ■ applying innovative solutions linked to the use of materials; ■ creating product solutions geared toward increasing safety and reliability; ■ raising the bar of key production processes; ■ responding proactively to customers by anticipating their needs and acting quickly and efficiently to any requests they make.

RELATED PARTY TRANSACTIONS Transactions between Group companies are conducted at fair value based on market conditions. Transactions between CLN S.p.A. and its Subsidiaries and Associates, including therein transactions between those subsidiaries and associate undertakings, are primarily commercial in nature. The following summary table sets forth the commercial and financial transactions entered into with and between the Group companies (all amounts in thousands of Euro):

101

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Commercial receivables 9,550

Commercial payables -

Financial receivables -

4,587

87

3,000

-

400

3

-

-

ALMASIDER

1,263

-

-

-

GERVASI POLSKA

1,204

2

-

-

PRORENA ORTOLANO

2,518

23

-

-

92

-

-

-

667

41

-

-

72

-

-

-

388

-

2,500

-

METALTRANCIATI

7

-

-

-

COMM.SID.DEL.SUD

4

-

-

-

DELNA

3

174

-

-

RUBI

1

-

-

-

AVISCALI

-

-

1,300

-

89

-

-

-

-

-

16

-

3,692

171

-

-

1

-

-

-

Other

117

95

-

-

TOTAL

24,655

596

6,816

-

  JBM – MA LTD ITLA SRL LIMA

IM ITALIA EMARC OMV DMW SOUTH AFRICA

PROMA POLAND ALSA GRUPPO CELLINO CIR

102

Financial payables -

Report on operations

  JBM – MA LTD

Operating revenues 1,334

Operating expenses

Financial revenues

Financial expenses

-

-

-

13,840

264

109

-

108

26

-

-

ALMASIDER

94

-

-

-

GERVASI POLSKA

47

-

-

-

6,405

1,053

-

-

497

-

-

-

EMARC

1,849

128

-

-

OMV

1,015

28

-

-

-

-

28

-

RIZZATO

95

-

-

-

METALTRANCIATI

23

17

-

-

6

-

-

-

23

708

-

-

1

-

101

-

74

-

-

-

5,879

-

-

-

CIR

1

-

-

-

IPM

-

-

285

-

OTHER

35

-

-

-

TOTAL

31,326

2,224

523

-

ITLA SRL LIMA

PRORENA ORTOLANO IM ITALIA

DMW South AFRICA

COMM.SID.DEL.SUD DELNA EMA POLONIA PROMA POLAND GRUPPO CELLINO

Looking at related party transactions outstanding and, more pointedly, transactions with investees in which the CLN Group holds 50% or less of the respective voting powers, attention is drawn to the following: aside from specific cases where control over an investee is exercised jointly with the other party sharing control (at December 31, 2010, joint control exercised over: DMW, MA-JBM, Almasider, Prorena Ortolano S.r.l. and Itla S.r.l.), the CLN Group has no power to govern the financial and operating policies of the investees. In consequence, aside from the jointly controlled investees referred to above, the CLN Group has no power to control the strategic, financial and operating decisions of an investee, particularly in terms of relationships with customers, suppliers, employees and lending institutions.

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SIGNIFICANT POST-BALANCE SHEET EVENTS Summarized below are the more significant events that occurred after the consolidated balance sheet date: ■ In February 2011, MA sealed a letter of understanding with regard to the disposal of its 18.99% stake in Igenieria de Productos Metalicos in exchange for a selling price consideration of Euro 8 million; transfer of the stakeholdings and collection of the selling price consideration should be put in place no later than end July. ■ On March 18, 2011, Canessa and trade union representatives reached an agreement to introduce a mobility scheme for 16 employees working at the Bologna production site structurally overmanned. ■ Also in March 2011, the subsidiaries MAD and Delfo Polska authorized the purchase of two transfer presses, involving an overall outlay estimated at some Euro 20 million. ■ In April 2011, MA and Proma Group reached an understanding designed toward setting up in Italy a Newco (held on a par basis) to which the respective interests in PMC Automotive d.oo will flow; once all the preliminary formalities required by law have reached completion, the Newco will take over the presswork business line of Frigostamp S.p.A. (Bruino). The presswork business line acquisition provides the platform from which to roll out more rapidly well-managed and cost-efficient presswork productions earmarked for Fiat Group Automobiles manufacturing facilities in Serbia. ■ Also in April 2011, MW Italia and Jantsa AS (a Turkish manufacturer of truck wheels) inked a Joint Venture Agreement designed toward setting up in Turkey a NewCo known as “JMW AS” (held on a par basis by the two venturers) specializing in the manufacture and commercialization of auto wheels. The new plant (scheduled to enter into production in 4Q2012) will have a production capacity of some 2 million wheels.

LOOKING AHEAD Despite the spectrum of despondent demand prevailing in a number of markets in which the Group operates. 1Q2011 underpins the resilience of the profitability resurgence taking shape in 2010. Alert to this, financial actuals at March 31, 2011 are absolutely comforting and, when taken as a whole, surpass budget. Examined and discussed below are the trends expected to be tracked by the Group’s key markets. The Steel Market Steel trade associations, such as EUROFER (for steelmakers) and EUROMETAL (for steel distribution), forecast that EU-27 real/apparent steel consumption in 2011 will strike only marginal headway from 2010, albeit with significant disconnect between the economies, posturing the best opportunities of performance in Germany, owing to greater possibilities of export, especially in the Far East, for the mechanics and automotive sectors. Consensus expectation for GDP growth in south Europe and in Italy stands at around +1% with the level of apparent steel consumption verging on 26/27 million tons (as compared to some 25 million tons in 2010), still far short of the levels struck in 2007-1H/2008. With real consumption gaining only marginal headway (+3% in the EU), the improvement in 104

Report on operations

apparent steel demand should be at times somewhat more significant (around +5% in the EU), albeit characterized as always by steep hikes in the purchase prices of coils, which already rallied, in 1Q2011, an increase of just under 200 €/ton (+30% or more). Regrettably, the Italian marketplace continues to remain constrained without denoting any measure of stability in demand, with further turmoil unbridled by 1Q2011 raw material contracts on the 2Q production cost of coils, not always “in line” with the trending followed by demand and international market pricing. Causing uncertainty to rise were exogenous factors beyond our control, such as the earthquake and tsunami that devastated Japan and the “tensions” in the North-African region, the related consequences of which will impact our iron-metallurgy market, both in terms of consumption and prices. Whilst placing in evidence a good first-quarter as regards shipped volumes and actual unit margins, the need for prudence remains fundamental in looking ahead to 2011, a year that will be still dominated by erratic demand not in line with offering capacity and a year in which unrelenting focus must be placed on the spectrum of operating costs in a strategic intent to prune break-even, given that volumes and marginality will remain at times under pressure, due to the structural excess of unconstrained competition in the Italian steel distribution market. The Automotive market Looking at the passenger car (“PSC”) market, EU-27 new-car registrations in 1Q2011 declined 2.3% from 1Q2010 thus confirming the anemic demand that beleaguered the year before, albeit with alarming divergence across the EU landscape. In fact, Germany (+13.9%) staged a turnaround putting an end to the mighty downturn endured in 2010 (primarily pushed through by scrapping incentives fade out) and France (+8.9%) scored a clear recovery in volumes, whilst the UK (-8.7%), Spain (- 27.3%) and Italy (-23,1%) remained caught in the trap of adversities that mired 2010. As regards the performances spiked by the major carmaker customers of the CLN Group in Europe on a comparative basis with the yearearlier period, 1Q2011 bears witness to downward curved new registrations being delivered by the Fiat Group (-19.2%), PSA (-5.4%) and Renault (-7.4%), while BMW (+11.4%) has increased significantly. On the capital expenditure front, following in the wake of the extremely low levels reported in 2009 and that continued into 2010 throughout, major carmakers re-activated important development projects that will also lead to the CLN Group raising significantly its level of capital expenditures in 2011. Looking at the Light Commercial Vehicles (“LCV”) market in Europe, 1Q2011 trending went against the tide (+10.2%) traced out by the PSC market, here again, however, with sharp disconnect between countries: Italy -13,3%; Spain -8.4%; France +8.5%; Germany +24.4%; UK +31%. As regards the performances spiked by the major customers of the CLN Group operating in the European LCV market on a comparative basis with the year-earlier period, 1Q2011 bears witness to good results being delivered by Renault (+9.8%), Fiat Group (+7.5%) and PSA (+10%). Looking at the South American market, the positive trending hiked in recent quarterly periods continued to prevail. As befits the foregoing, consensus expectation sees FY2011 still presenting uncertainties as to the evolution of demand in Europe with significant and clear disconnect between nations / carmakers / models/segments. Against this backdrop, the Automotive Division will continue to pursue its strategies focused around customer diversification, geographic diversification, product positioning by segment and model, building upon the bolt-on efficiencies achieved in 2010 and 2009 and, not least, the stronger, leaner and more robust organization emerging from the programmed restructuring put in place. 1Q2011 actuals in that sense are comforting. 105

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

A further thrust should be waged by the initiatives launched in new markets where the Division was not present (particularly South Africa) and from which, even on the mid horizon, exciting opportunities for bolt-on growth should be created, whilst other internationalization initiatives will be tangibly launched (Serbia). Reaping benefit from greater production volumes and restructuring step-changes, the Wheels Division will see year-on-year positive performance consolidating in Romania, Poland and France, whilst continuing to denote a lackluster tone will be the Italian units, as yet under restructuring and with volumes inadequate to strike economic break-even. Continuing instead to move ahead will be the route to internationalization already tracked out in the past, particularly in Turkey through the JV Agreement inked with Jantsa.

106

By Order of the Board of Directors Chairman Anna Reinaudo

Report on operations

CONSOLIDATED FINANCIAL STATEMENTS for the year ended December 31, 2010

107

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Consolidated Balance Sheet ASSETS DUE FROM SHAREHOLDERS FOR CAPITAL NOT PAID IN FIXED ASSETS I Intangible assets Incorporation and subsequent expenses R&D costs and advertising expenses Industrial patent and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Intangibles in progress and payments on account Other Consolidation difference Total Intangible assets II Tangible fixed assets (Property, Plant and Equipment) Land and buildings Plant and machinery Production and commercial equipment Other tangible fixed assets Tangibles under constr. and payments on account Total Tangible fixed assets (PPE) III Financial fixed assets Investments: Subsidiaries Associates Parent companies Other enterprises Total Investments Receivables: amounts due from subsidiaries amounts due from associates amounts due from parent companies amounts due from other Total Receivables Investment securities Treasury stock Total Financial fixed assets Total Fixed assets CURRENT ASSETS I Inventories Raw materials, ancillary materials and consumables Work-in-progress and semi-finished goods Contract work-in-progress Finished goods and goods for resale Advances     Total Inventories 108

(Accounts in Euro/’000) 12.31.2010 12.31.2009 35,000

2,624 690 1,074 271 519 4,329 9,778 19,285 236,821 353,327 17,280 6,187 45,808 659,423

632 54,733 12,514 67,879

1,124 4,575 1,078 1,400 338 219 4,455 22,402 35,591   220,702 340,183 19,336 6,906 33,166 620,293

3,000 1,268 4,268 19,448 91,595 770,303

9,677 49,398 9,053 68,128   270 1,220 1,490 19,194 88,812 744,696

158,550 28,969 52,955 53,214 5,010 298,698

147,885 26,991 64,697 45,322 2,230 287,125

Consolidated financial statements

ASSETS (cont’d) Receivables Trade receivables amounts due within next accounting period amounts due after next accounting period Due from subsidiaries amounts due within next accounting period amounts due after next accounting period Due from associates amounts due within next accounting period amounts due after next accounting period Due from parent companies amounts due within next accounting period amounts due after next accounting period Receivable/Recoverable from taxation authorities amounts due within next accounting period amounts due after next accounting period Deferred tax assets amounts due within next accounting period amounts due after next accounting period Due from other enterprises amounts due within next accounting period amounts due after next accounting period Other receivables amounts due within next accounting period amounts due after next accounting period Total Receivables III Financial assets not representing fixed assets Investments Marketable securities Treasury stock Total Financial assets not representing fixed assets IV Cash at bank and on hand Bank and post-office deposits Cash and valuables on hand Total Cash at bank and on hand Total Current assets PREPAID EXPENSES AND ACCRUED INCOME Prepaid expenses and accrued income Total Prepaid expenses and accrued income  TOTAL ASSETS

II

(Accounts in Euro/’000) 12.31.2010 12.31.2009     287,423 233,698 350 88   1,318 341   26,055 17,528 221 3,908     19,703 23,044 1,775 1,775   13,804 8,782 21,709 31,181   877 1,165   45,100 34,743 35 98 418,370 356,351   17 5,004 5,029 5,004 5,046 74,074 109 74,183 796,255

59,423 100 59,523 708,045

4,870 4,870 1,571,428

2,723 2,723 1,490,464

109

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

(Accounts in Euro/’000) 12.31.2010 12.31.2009

EQUITY AND LIABILITIES Equity I Share capital II Share premium reserve III Revaluation reserves IV Legal reserve V Reserve for treasury stock VI Statutory reserves VII Other reserves - Capital account reserve - Consolidation reserve - Cumulative translation adjustment reserve VIII Retained earnings (accumulated deficit) IX Net income (loss) for the year  TOTAL EQUITY attributable to the Group Attributable to minority interest  TOTAL EQUITY RESERVES FOR RISKS AND CHARGES Reserve for severance indemn. and similar obligations Reserve for taxation, including deferred taxation Other  Total Reserves for risks and charges RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES PAYABLES Debentures Convertible debentures Stakeholder financing repayable Banks amounts due within next accounting period amounts due after next accounting period Other financers amounts due within next accounting period amounts due after next accounting period Advances Suppliers amounts due within next accounting period amounts due after next accounting period Payables represented by negotiable instruments Subsidiaries amounts due within next accounting period amounts due after next accounting period Associates amounts due within next accounting period       amounts due after next accounting period 110

  235,000 13,463 3,720 -

235,000 13,463 3,720 -

100,000 7,553 5,060 9,140 13,151 387,087 22,375 409,462

100,000 3,228 -6,090 111,913 -102,773 358,461 17,481 375,942

9,972 39,503 24,162 73,637 24,488

10,400 42,262 31,145 83,807 26,611

12

3,893

272,590 99,914

265,940 155,605

101,917 72,236 65.547

59,304 62,586 75,610

339,884 1,431

280,711 12,472 -

-

221 -

459 -

4,954 -

Consolidated financial statements

Accounts in Euro/’000)  

  EQUITY AND LIABILITIES (cont’d) Parent companies

12.31.2010

12.31.2009

 

amounts due within next accounting period

-

-

amounts due after next accounting period

-

-

137

32

-

-

Other enterprises amounts due within next accounting period amounts due after next accounting period Taxation authorities amounts due within next accounting period amounts due after next accounting period

  29,643

17,707

834

-

17,927

18,350

339

528

27,451

24,112

3,230

201

1,033,551

982,226

-

-

30,290

21,878

30,290

21,878

1,571,428

1,490,464

Provident and social security institutions amounts due within next accounting period amounts due after next accounting period Other payables amounts due within next accounting period amounts due after next accounting period Total Payables ACCRUED EXPENSES AND DEFERRED INCOME Premium on loans issued Other Total Accrued expenses and deferred income TOTAL EQUITY AND LIABILITIES

111

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010



(Accounts in Euro/’000) MEMORANDUM ACCOUNTS

12.31.2010

12.31.2009

GUARANTEES GIVEN Real guarantees   in favor of others

-

-

for other own obligations

-

-

REAL GUARANTEES

-

-

3,847

3,796

3,847

3,796

-

9,850

43,500

51,169

43,500

61,019

Discounted notes at bank and lending institutions

-

-

DISCOUNTED NOTES

-

-

2,153

2,153

-

-

2,153

2,153

2,153

2,153

49,500

66,968

SURETIES TOTAL GUARANTEES GIVEN COMMITMENTS Commitments for purchases Commitments for derivatives TOTAL COMMITMENTS CONTINGENCIES

Endorsements & surety received from unrelated parties Other OTHER CONTINGENCIES     TOTAL CONTINGENCIES TOTAL MEMORANDUM ACCOUNTS

112

Consolidated financial statements

Consolidated income statement (Accounts in Euro/’000)             A) VALUE OF PRODUCTION Revenues from the sale of goods and services Change in work-in-progress, semi-finished goods and finished goods Change in contract work-in-progress Increase in fixed assets for internal work Other revenues and income  Total Value of production B) PRODUCTION COSTS Raw materials, ancillary materials, consumables and goods for resale Service costs Expenses relating to the use of third party assets Personnel: Salaries and wages Social security contributions Employee termination indemnities Severance and similar charges Other personnel expenses Total Personnel expenses Depreciation and write-downs: Amortization of intangible assets Depreciation of tangible fixed assets Write-down of intangible/tang. fixed assets Write-down of receivables and liquid funds Total Depreciation and write-downs Change in raw materials, ancillary materials, consumables and goods for resale Provisions for risks Other provisions Other operating expenses Total Production costs Difference between the value of production and production costs C) FINANCIAL INCOME AND EXPENSES Income from investments: in subsidiaries in associates in parent companies in other enterprises         Total Income from investments

F/Y 2010

F/Y 2009

  1,700,886

1,412,532

665

-41,460

-20,938 172 219,463 1,900,248  

16,897 238 121,027 1,509,234

1,221,624

868,575

190,040 13,427

153,437 14,172

189,720 56,123 6,857 650 23,296 276,646   9,982 79,294 2,398 2,809 94.483

164,082 53,294 6,907 1,393 8,376 234,052

-1,783

166,985

1,326 1,000 14,417 1,811,180

1,289 110 20,207 1,552,507

89,068

-43,273

    385 385

297 426 723

13.980 75.519 458 3.723 93,680

113

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Consolidated Income Statement (cont’d) (Accounts in Euro/’000)      

 

 

F/Y 2010

 

F/Y 2009

Other financial income: - from receivables classified under fixed assets From subsidiaries

-

-

109

-

-

-

74

246

183

246

375

-

1,214

-

-

-

28

51

-

-

1,441

860

Total Income other than that listed above

1,469

911

Total Other financial income

3,241

1,157

From subsidiaries

-

-

From associates

-

-

From parent companies

-

-

From other Group companies

-

-

24,447

31,573

Total Interest and financial charges

24,447

31,573

Foreign exchange gains/(losses)

-1,868

-3,476

-22,688

-33,169

2,529

45

-

-

-

-

2,529

45

From associates From parent companies Other Total Receivables classified under fixed assets - From securities classified under fixed assets, not representing investments - From securities classified under current assets, not representing investments Income other than that listed above Interest and commission from subsidiaries Interest and commission from associates Interest and commission from parent companies Interest and comm. from other, and other income

Interest and other financial charges

Other

 Total Financial income and expenses D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS Revaluations: Investments

     

114

 

Financial fixed assets, not representing investments Securities classified under current assets, not representing investments Total Revaluations

Consolidated financial statements

Consolidated Income Statement (cont’d) (Accounts in Euro/’000)  

F/Y 2010 Write-downs: Investments

F/Y 2009  

9,308

19,378

-

-

-

-

-

-

9,308

19,378

-6,779

-19,333

Gain on disposals

2,084

33,287

Other

2,596

13,258

4,680

46,545

836

1,027

1,354

37

21,030

45,045

23,220

46,109

-18.540

436

41,061

-95,339

Current income tax

28,290

18,476

Deferred income tax assets and liabilities

-4,166

-13,788

Income tax

24,124

4.688

NET INCOME (LOSS) BEFORE MINORITY INTEREST

16,937

-100,027

Minority interest

-3,786

-2,746

13,151

-102,773

Financial fixed assets, not representing investments Securities classified under current assets, not representing investments Financial receivables Total Write-downs  Total Adjustments to the value of financial assets E) EXTRAORDINARY INCOME AND EXPENSES Extraordinary income

Total Extraordinary income Loss on disposals Taxes relative to prior periods Other Total Extraordinary expenses  Total Extraordinary items INCOME BEFORE INCOME TAX

    NET INCOME (LOSS) AFTER MINORITY INTEREST

115

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

116

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 1. core business CLN S.p.A. is a joint stock company duly incorporated and existing under the laws of Italy. CLN S.p.A. and its Subsidiaries (“the Group”) operate in some 15 countries with 3 diverse business lines: Iron & Steel-Metallurgy Service Centers (steel coil premachining and sheet-metal machining in general), Presswork and Steel Wheel Production. As entered into during the normal course of business pursued by the Group companies, related party transactions are primarily commercial in nature. Such transactions are conducted at fair value based on market conditions.

2. FORM AND CONTENT OF THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements for 2010 have been prepared in application of Section III of Italian legislative decree 127/1991 taking into due account the amendments of law and interpretations introduced in under Italian legislative decree no. 6 of January 17, 2003 (the Corporate Governance Reform Act), as subsequently amended and integrated, and, not least, the requirements set forth in the Italian Civil Code. The consolidated financial statements also reflect the accounting principles recommended by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri) and, not least, the interpretations issued by the Italian Accounting Board (Organismo Italiano di Contabilità) and, in compliance therewith or in the absence thereof, the International Accounting Standards issued by the International Accounting Standards Board (I.A.S.B.). These have been applied exercising prudence and on a going concern basis, taking into account the economic function of the asset or liability component considered. The consolidated financial statements are represented by the consolidated balance sheet, the consolidated income statement and these accompanying Notes. As examined and discussed in the Report on Operations, the more significant post-balance sheet events form an integral part of the consolidated financial statements. Included on a line-by-line basis in the consolidated financial statements are the accounts of CLN S.p.A., the parent company, and the accounts of the Italian and foreign companies in which CLN S.p.A. holds directly or indirectly the majority of voting rights. The scope of consolidation is set out as an attachment hereto. Along with their respective business name, registered office, declared strategic intent, share capital and percentage of direct or indirect ownership held therein, the list of Group companies included in the consolidation is set out as an attachment hereto. The financial statements used in the consolidation are drawn out to December 31, 2010, i.e. to the reporting date adopted by the parent. No departures pursuant to Article 2423.4 of the Italian Civil Code, have been taken in the consolidated financial statements. All items included in the consolidated balance sheet and the consolidated income statement are presented on a comparative basis with the year before. 117

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Unless otherwise specified, all amounts reported in the consolidated financial statements and in these Notes are in thousands of Euro. Consolidation principles As drawn out to December 31, 2010, the consolidated financial statements have been prepared from the statutory financial statements of the Group companies included in the consolidation, as drafted by the respective Boards of Directors for approval by the shareholders of the individual companies, and adjusted, where applicable, to conform with Group accounting policies and measurement criteria. The income statements of foreign subsidiaries denominated in foreign currency are converted into Euro at the respective average rate of exchange. Conversely, the related balance sheets thereof are converted into Euro at the respective rate of exchange prevailing at year-end. Exchange differences resulting from the conversion of opening shareholders’ equity at current rates of exchange and at year-end rates of exchange, are taken to consolidated equity reserves. The rates of exchange applied are reported in the Notes under the heading “Other information”. As summarized below, all subsidiary undertakings are included in the consolidation on a line-byline basis: a. The assets, liabilities, revenues and expenses of subsidiaries consolidated on a line-by-line basis are included, regardless of the percentage of ownership, in the consolidated financial statements, after eliminating the book value of the investments held by the parent company, or by other consolidated companies against the related shareholders’ equity. Minority interests in the net equity and the net result for the year of the consolidated subsidiaries are shown separately in the consolidated balance sheet and the consolidated income statement. b. The difference between the purchase consideration paid and the net result for the year of the companies acquired during the year is taken to the consolidated financial statements. Where applicable, any differences are allocated to the assets and liabilities of the company being consolidated. Any residual difference is treated as follows: − if positive, this is recognized on the asset side of the consolidated balance sheet under line account “consolidation difference”, and is amortized on a straight-line basis over the period of expected future benefit attaching thereto; − if negative, this is recognized within consolidated net equity under line account “consolidation reserve”, or, should future losses be forecasted, under line account “consolidation reserve for risks and future charges”. c. Eliminated on consolidation are intragroup receivables, payables, revenues and expenses arising on transactions between consolidated companies which have not been realized with unrelated parties. Also eliminated on consolidation are the following: − capital gains arising from or relating to fixed assets transferred among consolidated companies; − intragroup profits, if significant, arising from transactions between consolidated companies relating to assets transferred that continue to remain as inventory with acquirer; − write-downs or write-backs of investments held for the longer term in consolidated companies, intragroup receivables and intragroup dividends.

118

Notes to the consolidated financial statements

3. MEASUREMENT CRITERIA AND ACCOUNTING POLICIES As required by Article 2426 of the Italian Civil Code, set out below are the measurement criteria and accounting policies adopted in the preparation of the consolidated financial statements for 2010. The measurement criteria and accounting policies are unchanged from the previous year. Intangible Assets Intangible assets are stated at purchase price or production cost. Cost includes accessory expenses, as well as the indirect and direct costs that can be reasonably attributed to the relevant asset. In no case the cost incurred, as defined above, exceeds recoverable amount. Intangible assets, the expected useful benefit of which is limited in time, are amortized systematically each period according to the remaining possibilities of utilizing the related asset. The amortization schedules carry differing terms depending upon the estimated useful benefit expected to be derived from the related asset. The Group considers at each reporting date whether there is any indication that non-current assets are impaired. If the recoverable amount of an asset is less than its carrying amount, an impairment loss is recognized, and the asset is written down to its recoverable amount. An impairment loss recognized in prior periods for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. Should the write-downs result from permanent impairment losses arising as a result of transactions exceptional in nature, or production re-conversion, restructuring or production downsizing, these are classified as extraordinary expenses. Tangible Fixed Assets (Property, Plant and Equipment) Tangible fixed assets are stated at purchase price or production cost, adjusted in some cases as a result of the application of specific monetary revaluation laws or gains arising from the difference between the cost of new acquisitions and purchased net equity, less accumulated depreciation. Tangible fixed assets, the expected useful life of which is limited in time, are depreciated systematically each period on the basis of economic/technical rates determined according to the remaining possibilities of utilizing the related asset. The depreciation rates applied in the year under review are as follows: Prefabricates and industrial buildings Plant and machinery Production and commercial equipment Other tangible fixed assets

3% to 10% 6.7% to 17.5% 5% to 25% 12% to 25%

The assets are depreciated as from the period in which these enter into service. For assets acquired in the financial period, the annual depreciation is taken at half (50%) the regular rate, based on the assumption that the depreciation charge thus taken does not differ significantly from the depreciation charge determined as from the moment in which the asset is made available and ready for use. In the case of a permanent impairment in value, regardless of the depreciation already provided, the asset is written down accordingly; if, in subsequent periods, the reasons for the write-down cease to apply, the original value of the asset is reinstated. Should the write-downs result from permanent im119

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

pairment losses arising as a result of transactions exceptional in nature, or production re-conversion, restructuring or production downsizing, these are classified as extraordinary expenses. Ordinary maintenance costs are charged wholly against the consolidated income statement. Maintenance costs of a betterment nature are attributed to the fixed asset to which they relate, and are depreciated in relation to the remaining possibilities of utilizing that asset. Not encompassed within the value of tangible fixed assets are financial charges incurred in the purchase or construction thereof. Shown separately are payments on account and tangibles under construction, as yet not entered into service at the consolidated balance sheet date. Leasing arrangements are accounted for in the consolidated financial statements under the finance method whereby the capital value of assets, including therein the portion of lease rentals on inception encompassed within “prepaid expenses” in the statutory accounts, is taken to “tangible fixed assets”, whilst lease rentals payable by way of principal are taken to “non-current financial payables”. The lease rentals accounted for in the statutory accounts are replaced by depreciation determined in relation to the useful life expectancy of the assets held under lease, classifying the related interest expense under “financial charges” and the related deferred taxation provisioned. By way of departure from Italian GAAP, and where: (i) permitted by specific monetary revaluation laws, or (ii) deemed to portray more fairly and truly the values of land and buildings, the Group has recorded revaluations (in accordance with the thresholds permitted by law), with the corresponding income statement item being equity reserves. No revalued amounts are in excess of recoverable amount. Financial Fixed Assets Not included in the consolidation are idle subsidiaries (in start-up) insofar as their impact on aggregate assets, liabilities, net financial position and the result reported by the Group is not meaningful. Investments in associates are measured and accounted for under the equity method; the positive (negative) difference between the value determined under the equity method and the carrying amount stated in the prior year accounts, for the portion arising from profits (losses) is taken to a specific income statement line. Also taken into account when accounting for associates under the equity method are the investments held by the latter in subsidiary or associate undertakings. Conversely, investments in other enterprises are carried at cost, as written down to reflect any permanent impairment in value. Receivables are stated at their presumed realizable value. Securities are stated at cost, and are written down to reflect any permanent impairment in value. Inventories Inventories are stated at the lower of purchase or production cost, determined in accordance with the first-in, first-out (FIFO) method of inventory valuation, and presumed realizable value based on market conditions. The valuation of inventory at current cost would not have been significantly different from the FIFO valuation. Manufacturing costs comprise the cost of raw materials, direct costs and the portion of indirect costs that can be attributed to the cost of production. Obsolete and slow-moving inventories are written down on the basis of their possible utilization or saleability. 120

Notes to the consolidated financial statements

Receivables Receivables classified under Current Assets are stated at their nominal value. More pointedly, trade receivables are written down to their presumed realizable value, as required under Article 2426 of the Italian Civil Code, by recording an appropriate allowance for doubtful accounts. The Group enters into factoring and/or securitization transactions involving the sale and securitization of its trade receivables. The Group also securitizes and sells certain trade receivables “with recourse”, whereby the receivables sold remain on the asset side of the consolidated balance sheet, as matched on the other side of the consolidated balance sheet by a financial liability in par amount. In both cases, no receivables are derecognized. Accruals and Prepayments Accruals and prepayments include the portion of revenues and expenses covering two or more periods, in accordance with the matching or accrual basis of accounting. Under this basis, the effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. The matching of costs with revenues is a process in which expenses are recognized in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transaction or other events. Application of the matching concept does not allow the recognition of items in the balance sheet not meeting the definition of assets or liabilities. Dividend Distribution Dividend distribution to the shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are declared at the relevant Shareholders’ Meeting. Reserves for Risks and Charges Reserves for risks and charges are provided to cover certain or probable losses or liabilities for which the exact value and effective date are not determinable at the year-end. The reserves represent the best estimate possible based on the information currently available. Also allocated thereto is the reserve for taxation, including therein deferred taxation. Reserve for Employee Termination Indemnities As accrued by the Italian companies of the Group, the reserve for employee termination indemnities is provided to cover the full liability due to employees in conformity with current legislation, national labor contracts and payroll agreements prevailing in Italy. Law No. 296 enacted on December 27, 2006 (Italian Financial Act 2007) introduced pension reform regulations (establishment of agreed-upon supplementary pension fund) in respect of Termination Indemnity (TFR) allocations maturing after January 1, 2007 By way of attendant consequence thereof: ■ TFR allocations maturing up to December 31, 2006 remain as a book reserve and are left with the company; 121

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010 ■

in accordance with the principle of silent or implied consent envisaged by law, TFR allocations maturing with effect from January 1, 2007 are transferred or directed, as designated by employee, into: a) agreed-upon second-pillar pension funds; or b) left with the company, which transfers the TFR allocations to a TFR pension fund managed by the National Social Insurance Institute (INPS). TFR allocations maturing with effect from January 1, 2007 continue to be classified in the consolidated income statement under “Reserve for sererance indemnities”. At the consolidated balance sheet level, “Reserve for employee termination indemnities” represents the residual balance on the reserve existent at December 31, 2006; classified under “Amounts due to provident and social security institutions” is the liability accrued at December 31 in respect of TFR allocations as yet to be transferred to the pension funds or provident institutes. Payables Payables are stated at their nominal value. Commitments, Guarantees and Contingencies Reported in the memorandum accounts are the effective contingencies, commitments and guarantees outstanding at the consolidated balance sheet date. Revenue Recognition Revenue is accounted for in accordance with the accrual basis of accounting, less returns, trade discounts, rebates and premiums. Revenue from the sale of goods is recognized at the moment that title passes to customer, which generally coincides with shipping or consignment. Revenue from the provision of services is recognized at the moment that the services are rendered. Cost and Expense Recognition Costs and expenses are recognized in accordance with the accrual basis of accounting. Interest Income, Interest Expense, Other Income and Expenses Interest income and interest expense, and, not least, other income and expenses, are recognized and included in the accounts, along with the related accruals and deferrals, in accordance with the accrual basis of accounting. Taxation Income taxes are determined in accordance with the tax laws and regulations prevailing in the differing countries in which the Group companies operate. With effect from fiscal 2004, the Italian Companies of the Group have elected to adhere to the National Tax Consolidation program pursuant to Article 117 through Article 129 of the Italian Tax Code (T.U.I.R). Insofar as the tax consolidating entity, CLN S.p.A. determines a single taxable base for the grouping of companies adhering to the tax consolidation program, thereby benefiting from the possibility to set off. Each and every company adhering to the tax consolidation program contributes in full to the tax consolidating entity its taxable income recording an account payable, for an amount equating the ‘Ires’ corporation tax payable, vis-à-vis the tax consolidating entity; the companies contrib122

Notes to the consolidated financial statements

uting tax losses record an account receivable vis-à-vis the tax consolidating entity, for an amount equating the ‘Ires’ corporation tax effectively offset at the Group level. In addition, deferred tax assets and deferred tax liabilities are determined for the more significant consolidation transactions and all temporary differences between the consolidated assets and the consolidated liabilities and the corresponding amounts for the purposes of taxation shown in the statutory accounts of the consolidated companies. More pointedly, deferred tax assets, classified under “deferred tax assets”, are recognized if, and only if, their future recovery is more likely than not. On the other hand, deferred tax liabilities, classified under “reserve for taxation, including deferred taxation”, are not recognized if it is more unlikely than not that a future liability will arise. In accordance with benchmark accounting standards, a deferred tax asset is recognized for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Dividends from Investees Dividends from investees are recognized under “Income from investments” in the period in which these are collected. Other Information The following table sets out the conversion rates applied in respect of: (Source: Bank of Italy)

Currency

Nation

Peso

Argentina

Real

Conversion rate 12.31.2010

Average 2010

12.31.2009

5.30994

5.185602

5.46185

Brazil

2.2177

2.331427

2.5113

Zloty

Poland

3.975

3.994669

4.1045

New Leu

Romania

4.262

4.212160

4.2363

Indian Rupee

India

59.758

60.587825

67.04

Ruble

Russia

40.82

40.262944

43.154

Rand

South Africa

8.8625

9.698434

10.666

Kuna

Croatia

7.383

7.289055

7.3

Yen

Japan

108.65

116.238565

133.16

Ringgit

Malaysia

4.095

4.266794

4.9326

New Turkish Lira

Turkey

2.0694

1.996545

2.1547

123

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

4. notes to the consolidated financial statements for the year ended December 31, 2010

4.1 FIXED ASSETS Intangible assets As analyzed below, intangible assets as at December 31, 2010 amount to Euro 19,285 thousand. 12.31.2010 Incorporation and subsequent expenses

12.31.2009 -

1,124

2,624

4,575

690

1,078

1,074

1,400

271

338

Other

4,329

4,455

Consolidation difference

9,778

22,402

519

219

19,285

35,591

R&D costs and advertising expenses Industrial patent and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill

Intangibles in progress and payments on account Total

Set forth below is the movement for the year on the historic cost of the differing items of Intangible Assets: Incorpor. R&D Ind. patent Intangibles Licenses Other and costs and and intell. Consol. in progress/ andtrade- Goodwill intangible subsequent advertising property difference payments on marks assets expenses expenses rights account Historic cost at 12.31.2009

Total

14,988

59,270

5,076

6,299

2,038

18,371

38,481

219

144,742

Additions

-

463

134

168

20

1,853

-

280

2,918

Divestments

-

-7,221

-

-2

-

-678

-10,220

-15

-18,136

-

-

3

-112

-

215

-

14

120

5,152

1,392

2

-1,786

756

6,524

-

21

12,061

20,140

53,904

5,215

4,567

2,814

26,285

28,261

519

141,705

Consolidation scope Delta Reclassif./ Other changes Historic cost at 12.31.2010

124

Notes to the consolidated financial statements

Set forth below is the movement for the year on accumulated amortization: Incorpor. R&D Ind. patent Intangibles Licenses Other and costs and and intell. Consol. in progress/ andtrade- Goodwill intangible subsequent advertising property difference payments on marks assets expenses expenses rights account Accumulated amortization at 12.31.2009

Total

13,863

54,695

3,998

4,899

1,700

13,916

16,079

-

109,150

Increase

-

4,436

525

441

88

2,108

2,404

-

10,002

Use

-

-9,197

-

-1

-

-305

-

-

-9,503

-

-

-

-28

-

26

-

-

-2

6,277

1,346

2

-1,818

755

6,211

-

-

12,773

20,140

51,280

4,525

3,493

2,543

21,956

18,483

-

122,420

Consolidation scope Delta Reclassif./ Other changes Accumulated amortization at 12.31.2010

As such, the net book value of the Intangible Assets is analyzed as follows: Incorpor. R&D Ind. patent Intangibles Licenses Other and costs and and intell. Consol. in progress/ andtrade- Goodwill intangible subsequent advertising property difference payments on marks assets expenses expenses rights account Net book value at 12.31.2009 Additions and amortiz.

1,125

4,575

1,078

1,400

338

4,455

22,402

219

35,592

-

-3,973

-391

-273

-68

-255

-2,404

280

-7,084

-

1,976

-

-1

-

-373

-10,220

-15

-8,633

-

-

3

-84

-

189

-

14

122

-1,125

46

-

32

1

313

-

21

-712

-

2,624

690

1,074

271

4,329

9,778

519

19,285

Divestment/Use Consolidation scope Delta Reclassif./ Other changes Net book value at 12.31.2010

Total

Looking at “Consolidation difference”, the following table sets out the items of goodwill determined as the difference between the value of the investee and the pro-rated net equities of the subsidiaries arising on first-time consolidation and not allocated to the assets or liabilities of the entity being consolidated. Goodwill MAC, Delfo Polska and SHL Magnetto Argentina MWPT BV (Russia) TOTAL

12.31.2009

Amortization/ Other changes

Impairment

12.31.2010

21,992

(1,994)

(10,220)

9,778

410 22,402

(410) 2,290 114

(2,290) (12,510)

9,778

125

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Determined according to the remaining possibilities of utilizing the assets, amortization is taken over a 5-year, 10-year or 15-year period starting from the date on which the investment was acquired. Based on the subsidiary’s forecasted earnings, operations and programs envisaged in the foreseeable future, the residual value of the “Consolidation difference” is deemed to be recoverable. Looking at the consolidation difference, Company Management updated over the last twelve months its Business Plan placing in evidence that, for certain presswork Italian sites, no meaningful recovery in volumes or operating profitability can be expected; as a consequence thereof, the impairment analysis carried out underscored the need to write down the residual value of certain items of goodwill recorded in prior years (Euro 10.2 million – classified in the income statement as extraordinary expenses for the year). As a result of first-time consolidation of the Russian companies helmed by the Wheels Division, also arising initially over the course of 2010 was a consolidation difference of Euro 2.3 million. Given the adversities currently beleaguering the local market, Company Management retained it more appropriate, for reasons of prudence, to deal with such difference through the income statement under extraordinary items rather than recognizing it on the asset side of the balance sheet. Tangible fixed assets (PPE) As analyzed below, tangible fixed assets as at December 31, 2010 amount to some Euro 659,423 thousand: 12.31.2010

12.31.2009

Land and buildings

236,821

220,702

Plant and machinery

353,327

340,183

17,280

19,336

6,187

6,906

45,808

33,166

659,423

620,293

Production and commercial equipment Other tangible fixed assets Tangibles in course of construction Total

Set forth below is the analysis by tangible fixed asset class: ■ Land and buildings: encompassed herein are the premises and property from which the Group companies conduct business. ■ Plant and machinery: encompassed herein are the production lines employed in the machining process. ■ Production and commercial equipment: encompassed herein are production process tooling and equipment. ■ Other tangible fixed assets: encompassed herein are electronic and electric machinery, fixtures and fittings.

126

Notes to the consolidated financial statements

Set forth below is the movement for the year on the historic cost of the differing items of Tangible Fixed Assets:

Historic cost at 12.31.2009 Additions Divestments Consolidation scope Delta Reclassification/ other changes Historic cost at 12.31.2010

Tangibles Production & Other under constr. commercial tangible fixed & payments equipment assets on account

Land and buildings

Plant and machinery

324,057

934,118

125,655

31,818

33,166

1,448,814

15,065

19,575

2,563

967

43,322

81,492

-11,913

-26,374

-3,980

-3,381

-19,770

-65,418

35,026

73,949

5,299

2,987

853

118,114

10,598

35,026

4,771

-983

-11,763

37,649

372,833

1,036,294

134,308

31,408

45,808

1,620,651

Total

Set forth below is the movement for the year on accumulated depreciation:

Accumulated depreciation at 12.31.2009 Increase Use Consolidation scope Delta Reclassification/ other changes Accumulated depreciation at 12.31.2010

Tangibles Production & Other under constr. commercial tangible fixed & payments equipment assets on account

Land and buildings

Plant and machinery

103,355

593,935

106,319

24,912

- 

828,521

14,620

56,220

6,986

1,899

-

79,725

-3,884

-15,994

-3,567

-2,898

-

-26,343

14,366

32,819

3,486

2,115

-

52,786

7,555

15,987

3,804

-807

-

26,539

136,012

682,967

117,028

25,221

-

961,228

Total

127

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

As such, the net book value of the items of Tangible Fixed Assets is analyzed as follows:

Net book value at 12.31.2009 Increase/ Depreciation Divestments/Use Consolidation scope Delta Reclassification/ Other changes Net book value at 12.31.2010

Tangibles Production & Other under constr. commercial tangible fixed & payments equipment assets on account

Land and buildings

Plant and machinery

220,702

340,183

19,336

6,906

33,166

620,293

445

-36,645

-4,423

-932

43,322

1,767

-8,029

-10,380

-413

-483

-19,770

-39,075

20,660

41,130

1,813

872

853

65,328

3,043

19,039

967

-176

-11,763

11,110

236,821

353,327

17,280

6,187

45,808

659,423

Total

Additions for the year are rather contained (when compared with the volume capital investments ploughed in previous years) and were put in place primarily for upkeep purposes. Among the more meaningful capital investments for 2010, mention is made to the Atella (Potenza) business line (previously rented) acquired for the SSC Division through a debt recovery procedure. The capital investment came to an amount totaling Euro 10.5 million, of which Euro 7.5 million for land and buildings and Euro 3 million for production lines. Conversely, particularly meaningful in 2010 was the impact (equating, when taken as a whole, Euro 65 million) arising from the changed scope of consolidation which now includes Group MWPT (Russia) and RK Excel Japan/Malaysia for the Wheels Division and the operations based in South Africa for the Presswork Division. Tangibles under construction at December 31, 2010 (Euro 45,808 thousand) mainly relate to: MW Romania tangibles under construction (Euro 5.3 million) relating to car-wheel production revamping; MA Rosslyn tangibles under construction (Euro 11.1 million) relating to the Ford T6 project; MAA tangibles under construction (Euro 9.5 million) relating to new presses, and; WM tangibles under construction (Euro 6.2 million) relating to the new line at the Chivasso production site. Financial fixed assets Financial fixed assets as at December 31, 2010 amount to Euro 91,595 thousand (December 31, 2009: Euro 88,812 thousand) and are composed of the following:

128

Notes to the consolidated financial statements

Equity investments Valued at Subsidiaries Magnetto Automotive Belgique MA Automotive South Africa Claudlynn Investments Rensor Property IG Investments IG Tooling Engineering Aviscali TOTAL Subsidiaries Associates Metaltranciati Gervasi Polska Nuova Sall Aviscali OMV Emarc Romania DELNA Almasider Lima Proma Poland JBM – MA MWPT BV Dorbyl MW Prorena Ortolano Itla S.r.l. Etromex Cellino S.r.l. PMC D.o.o. Comm. Sid. del Sud TOTAL Associates Other enterprises SPL Emarc IPM MIM Gmbh IM CSM AR Machine TGO S.p.A. CIR S.p.A. Aircom Minor other enterprises TOTAL Other enterprises TOTAL

Cost

% ownership

As at 12.31.2009

Acquisitions/ Disposals

Other changes

Write-down/ Adjustment

As at 12.31.2010

-

3,502

(3,502)

-

-

-

LxL (*)

100.00

1,692

-

(1,692)

-

-

Cost Cost Cost LxL (*) Cost

80.00 80.00 80.00 80.00 100.00

44 244 265 3,930 9,677

2 63 (3,437)

(3,930) 14 (5,608)

-

44 244 267 77 632

Equity Equity LxL (*) Equity(**) Equity Cost Equity Equity Equity Cost Equity LxL (*) Equity Equity Equity Cost Equity Equity Equity

48.00 35.00 51.00 100.00 25.00 49.00 31.26 50.00 37.48 35.00 50.00 67.76 48.75 51.00 51.00 17.85 39.00 50.00 30.00

1,807 366 1,510 14 1,837 75 8,953 1,826 1,600 3,728 7,667 1,538 12,581 5,365 350 181 49,398

60 1,419 341 12,314 8 14,142

(79) (1,766) (14) (16) 456 (667) 28 (51) 81 (2,028)

(38) 196 (119) 30 (156) 198 (7.000) (1.000) 1.157 948 (956) (39) (6.779)

1,690 366 1,718 75 10,402 1,654 1,600 4,382 566 13,687 6,735 350 11,358 8 142 54,733

15.00 9.25 18.99 10.00 20.00 4.00 9.75 25.00 20.00 7.5 -

2,066 1,705 2,090 450 1,400 335 492 250 265

3.,500 140 (244)

65 -

-

2,066 1,705 2,090 450 1,400 335 557 250 3,500 140 21

9,053

3,396

65

68,128

14,101

(7,571)

Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost

(*) as at 12.31.2009, carried at equity; included line-by-line in the consolidation at 12.31.2010. (**) majority of the shares acquired in 2010 (ownership 31.12.2009: 33.33%).

12,514 (6,779)

67,879 129

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Further details and information about the more significant acquisitions put in place by the Group in the year ended December 31, 2010 can be found in the Report on Operations. Looking at the subsidiary undertakings not consolidated line-by-line: ■ Magnetto Automotive Belgique saw formal transfer and disposal part way 2010. ■ the South African firms (Claudlynn Investment, Rensor Property and IG Investment) are accounted at cost insofar as the related line-by-line consolidation thereof would be immaterial. Looking at the associate undertakings: ■ as far as MWPT BV and Nuova Sall are concerned, the related controlling interests were acquired formally at year-end and, as such, the entire result pertaining thereto was adjusted prior to including line-by-line the balance sheet accounts, and only the balance sheet accounts, in the consolidation; ■ the remaining write-downs/revaluations of investments in associates stem from the losses/ profits reported by those entities for 2010 and included on a pro-rated basis in the consolidated accounts. Prorena Ortolano S.r.l. and Itla S.r.l., in which a 51% interest is held, have not been included lineby-line in the consolidation due to the governance arrangements extant with the venturer under which joint control is implied. Accordingly, insofar as jointly controlled, Prorena Ortolano S.r.l. and Itla S.r.l. have been accounted for using the equity method. In order to ensure proper and complete disclosure, set forth below are the operating and financial highlights of Prorena Ortolano S.r.l. and Itla S.r.l. at December 31, 2010 (all amounts in €/’000): Prorena Ortolano S.r.l.

Itla S.r.l.

Equity

17,810

7,554

Total assets

59,654

34,959

Sales revenue

78,495

42,460

3,396

2,554

Net result

Financial receivables Financial receivables at December 31, 2010 relate primarily to financial receivables (Euro 3 million) due from Itla S.r.l. in respect of financing arrangements inked in January 2010 with maturity profile December 2012. Investment securities Investment securities at December 31, 2010 relate primarily to Italian Government Securities (Euro 19 million) held by CLN S.p.A., the parent company. Insofar as held for longer-term investment purposes, the securities referred to above are recognized in the consolidated financial statements at cost.

130

Notes to the consolidated financial statements

4.2 CURRENT ASSETS Inventories 12.31.2010 Raw materials, ancillary materials and consumables

12.31.2009

158,550

147,885

Work-in-progress and semi-finished goods

28,969

26,991

Contract work-in-progress

52,955

64,697

Finished goods and goods for resale

53,214

45,322

5,010

2,230

298,698

287,125

Advances Total

Inventories are shown net of the reserve for the write-down of inventories amounting to Euro 16,304 thousand (December 31, 2009: Euro 25,157 thousand) provided to cover raw materials no longer used in current production as well as finished goods, goods for resale and obsolete or slowmoving ancillary materials in inventory, and lastly, to write down the value of inventories to fair value based on market conditions when these reflect impairment. Set out below is the movement for the year on the write-down reserve, the year-end balance of which is deemed to be appropriate in relation to inventory risk: Reserve for the write-down of inventories as at 12.31.09 Provision Use/Other changes Reserve for the write-down of inventories as at 12.31.10

25,157 2,871 (11,724) 16,304

As at December 31, 2010, the reserve for the write-down of inventories has been provided, in the amount of Euro 10.3 million, to cover raw materials, in the amount of Euro 2 million, to cover semi-finished goods and, in the amount of Euro 3.9 million, to cover finished goods. Primarily pushing through the year-on-year decrease in the reserve for the write-down of inventories was the provision recorded in prior periods (December 31, 2009: some Euro 9.5 million) to cover the steel stocks of the SSC Division companies, as released wholly over the last twelve months inasmuch as the FIFO inventory value was lower than presumed realizable value. Contract work-in-progress relates primarily to equipment and die costs incurred by the Automotive Division for new model production start-up. On entering into production, the equipment and dies are billed to customer, whilst the costs, held in suspense in inventory during production, are released to the income statement. The relative margin is spread over five years (presumed average production term) in order to allocate to each period the effective net revenues. Financially, the impact was covered entirely by advances collected from the relative customers, as classified in the accounts under payables.

131

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Receivables Receivables classified under current assets are analyzed as follows: 12.31.2010 Trade receivables

12.31.2009

287,773

233,786

Receivable from subsidiaries

1,318

341

Receivable from associates

26,276

21,436

Receivable/Recoverable from taxation authorities

21,478

24,819

Deferred tax assets

35,513

39,963

877

1,165

45,135

34,841

418,370

356,351

Receivable from other enterprises Other receivables Total

Trade receivables Trade receivables as at December 31, 2010 amount to Euro 287,773 thousand (December 31, 2009: Euro 233,786) and are shown net of write-down reserves in the amount of Euro 11,939 thousand. The trade receivables are stated net of receivables sold or securitized without recourse for an amount totaling Euro 118 million (December 31, 2009: Euro 166 million). Set out below is the movement for the year on the write-down reserve, the year-end balance of which is deemed to be appropriate in relation to the risk for doubtful accounts outstanding: Reserve for the write-down of trade receivables as at 12.31.2009 Provision

14.306 1.017

Use /Other changes

(3.384)

Reserve for the write-down of trade receivables as at 12.31.2010

11.939

Accounts receivable from subsidiaries Accounts receivable from subsidiaries as at December 31, 2010 relate, in the amount of Euro 1.3 million, to financial accounts receivable from the subsidiary Aviscali. Accounts receivable from associates Accounts receivable from associates as at December 31, 2010 amount to some Euro 26,276 thousand (December 31, 2009: Euro 21,436 thousand). The following table sets out the more significant transactions put in place at the consolidated balance sheet date:

132

Notes to the consolidated financial statements

12.31.2010

12.31.2009

Amounts due from associates Gervasi Polska

1,204

1,129

4

-

Proma Poland

89

-

Metaltranciati

7

18

1,263

1,411

72

430

Itla S.r.l.

4,587

4,248

Dorbyl MW

2,888

116

-

3,224

Cellino Group

3,692

-

Prorena Ortolano

2,518

948

3

5

9,549

8,469

400

1,438

26,276

21,436

CDS

Almasider OMV

MWPT

Delna JBM – MA Gruppo Lima Total

Transactions entered into with associates by the CLN Group are primarily commercial in nature. Aside from the following positions, the accounts receivable presented above are commercial in nature: ■ the account receivable from JBM-MA originates primarily from presswork lines transferred over the course of 2008; ■ the accounts receivable from DMW include the Euro 2.5 million financing provided by MW Italia; ■ the accounts receivable from Prorena Ortolano include a receivable in the amount of Euro 1.4 million resulting from adhesion by the associate to the CLN Group national tax consolidation program. The positions vis-à-vis MWPT are closed as a result of the entity being included line-by-line in the consolidation. The positions vis-à-vis Gruppo Lima have been recovered progressively over the course of 2010 as a result of the credit recovery schedule negotiated between the parties; the residual amount due was collected wholly in 1Q2011. Recoverable/Receivable from taxation authorities Amounts recoverable or receivable from taxation authorities are represented primarily by VAT recoverable from Italian taxation authorities (Euro 15,915 thousand) and income tax (Euro 4,108 thousand). Deferred tax assets Information about deferred tax assets, amounting to Euro 35,513 thousand (December 31, 2009: Euro 39,963 thousand) can be found in the Note relating to the “Reserve for taxation, including therein deferred taxation”.

133

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Accounts receivable from other enterprises Accounts receivable from other enterprises as at December 31, 2010 amount to some Euro 877 thousand (December 31, 2009: Euro 1,165 thousand). The following table sets out the more significant transactions put in place at the consolidated balance sheet date: 12.31.2010

12.31.2009

Amounts due from other enterprises IM S.p.A.

92

673

Emarc

667

487

Minor other enterprises

118

5

Total

877

1,165

Other receivables Other receivables as at December 31, 2010 amount to Euro 45,135 thousand (December 31, 2009: Euro 34,841 thousand). These relate, among the other things, to: ■ Amounts due from factoring companies in respect of receivables sold and not yet advanced in the amount of Euro 21.7 million; the more significant of these are: (i) accounts receivable by Wagon Italia from Mediofactoring in the amount of Euro 13.2 million (December 31, 2009: Euro 10.5 million); (ii) accounts receivable by EUV from Banque Palatine in the amount of Euro 4 million (December 31, 2009: nil); (iii) accounts receivable by MW France from Eurofacteur in the amount of Euro 3.3 million (December 31, 2009: Euro 4 million). ■ Advances to suppliers in the amount of Euro 4.7 million; ■ Advances to employees in the amount of Euro 1.5 million; ■ Receivable from provident and social security institutes in the amount of Euro 1.2 million; ■ Other sundry receivables in the amount of Euro 13 million. Cash at bank and on hand Cash at bank and on hand as at December 31, 2010 amount to Euro 74,183 thousand, and are composed of the following: 12.31.2010 Bank and post-office deposits Cash and valuables on hand Total

12.31.2009

74,074

59,423

109

100

74,183

59,523

Cash at bank and on hand reflect a sizeable uplift from December 31, 2009, driven through by bolton cash flow from operating activities.

134

Notes to the consolidated financial statements

4.3 PREPAID EXPENSES AND ACCRUED INCOME

12.31.2010

12.31.2009

Prepaid expenses

3,329

240

Accrued income

1,541

2,483

Total

4,870

2,723

Prepaid expenses and accrued income are recognized in the accounts once these have been assessed and measured pursuant to the requirements of law and, not least, in accordance with the accrual basis of accounting. Encompassed therein are insurance prepaid expenses, administrative consultancy prepaid expenses and lease rental prepaid expenses.

4.4 EQUITY AND LIABILITIES Equity 12.31.2010 Share capital

12.31.2009

235,000

235,000

-

-

13,463

13,463

3,720

3,720

100,000

100,000

- Consolidation reserve

7,553

3,228

- Cumulative translation adjustment

5,060

-6,090

9,140

111,913

13,151

-102,773

387,087

358,461

22,375

17,481

409,462

375,942

Share premium reserve Revaluation reserve Legal reserve Other reserves - Capital account reserve

Retained earnings (accumulated deficit) Profit (loss) for the year Equity attributable to the Group Minority interest Total Equity

As at December 31, 2010, share capital, fully subscribed and paid-in, is represented by 235,000,000 ordinary shares, with a par value of Euro 1.00 each.

135

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Set forth below is the statement reconciling net income and equity as per financial statements of CLN S.p.A., the parent company, as at December 31, 2010 to consolidated net income and consolidated equity for the year then ended (all amounts in thousands of Euro):   As per CLN S.p.A. financial statements Effect of eliminating the carrying amount of investments in consolidated companies Effect of accounting for the net equities and results for the year reported by consolidated subsidiaries Reversal of dividends Reversal of investment write-downs Reversal of intragroup gains Consolidation difference* Other adjustments As reported before minority interest in the consolidated financial statements Minority interest As reported after minority interest in the consolidated financial statements

Net Income

Equity

7,104

368,579 -658,974

63,518

708,680

-47,736

-40,322

11,423

-

485

-32,195

-13,411

37,085

-4,446

26,609

16,937

409,462

-3,786

-22,375

13,151

387,087

(*) Includes differences arising as a result of eliminating the book value of the investment in consolidated companies against the corresponding share of their net equities on first-time consolidation. As placed in evidence earlier under ‘Consolidation principles’, any differences arising are allocated, based upon expert appraisals, to the assets and liabilities of the company to be consolidated. As appropriate, positive differences are classified as goodwill.

The following table sets out the movement for the year on consolidated equity (all amounts in thousands of Euro):

136

Notes to the consolidated financial statements

Balance as at December 31, 2008 Allocation of FY2008 result Dividends Monetary revaluations FOREX differences and other increases/ (decreases) FY2009 result

Share capital

Capital account reserve

Other reserves/ Retained earnings

Result for the year

Equity attributable to Group

Minority interest

Total Equity (Group + Minority)

235,000

-

105,967

9,790

350,757

14,204

364,961

-

-

9,790

(9,790)

-

-

-

-

-

(1,175)

-

(1,175)

-

(1,175)

-

100,000

-

-

100,000

-

100,000

-

-

11,652

-

11,652

531

12,183

-

-

-

(102,773)

(102,773)

2,746

(100,027)

100,000

126,234

(102,773)

358,461

17,481

375,942

-

(102,773)

102,773

-

-

-

Balance as at 235,000 December 31, 2009 Allocation of FY2009 result Dividends

-

-

1,918

-

1,918

(3,329)

(1,411)

FOREX differences and other increases/ (decreases)

-

-

13,557

-

13,557

4,437

17,994

FY2010 result

-

-

-

13,151

13,151

3,786

16,937

Balance as at 235,000 December 31, 2010

100,000

38,936

13,151

387,087

22,375

409,462

FOREX differences arise from translation at the rates of exchange prevailing at year-end 2010 of the opening net equities of the consolidated companies that draw up their accounts in a currency other than the Group’s reporting currency. Primarily pushing through the positive change for 2010 was Polish Zloty, Brazilian Real and South African Rand currency appreciation. Reserves for risks and charges 12.31.2010 Reserve for severance indemnities and similar obligations Reserve for taxation, including therein deferred taxation Reserve for other risks and charges Total

12.31.2009

9,972

10,400

39,503

42,262

24,162

31,145

73,637

83,807

Reserve for severance indemnities and similar obligations The reserve for severance indemnities and similar obligations, amounting to Euro 9,972 thousand, reflects the provisions recorded to cover agents’ indemnities and, not least, the indemnities accrued in favor of employees in accordance with the requirements of law or pursuant to payroll agreements.

137

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Reserve for taxation The reserve for taxation as at December 31, 202010 reflects the deferred tax payable by the individual companies (Euro 38,113 thousand) and the reserve for fiscal risk (Euro 1,390 thousand). The reserve for deferred taxation, less deferred tax assets (classified separately on the asset side of the consolidated balance sheet), is composed of the following: 12.31.2010 Reserve for deferred taxation Deferred tax assets Total Deferred tax analysis

12.31.2009

38,113

42,262

(35,513)

(39,963)

2,600

2,299

12.31.2010

12.31.2009

Accelerated depreciation

7,898

5,840

LIFO/FIFO difference

4,110

3,006

Accounting for leases (IAS 17)

11,809

15,318

Fixed asset revaluations (*) and other minor items

14,296

18,098

38,113

42,262

3,935

6,607

17,524

17,131

14,054

16,225

(B)

35,513

39,963

(A)-(B)

2,600

2,299

Total Deferred tax liabilities

(A)

Taxed reserves Statutory depreciation in excess of fiscal threshold and other changes Tax benefit on unused tax losses Total Deferred tax assets TOTAL (*) Mac, Delfo Polska and SHL.

The following table sets out the amount of temporary differences, the related effective and theoretical deferred tax asset/(deferred tax liability) and planned timeline for the reversing thereof:

138

Notes to the consolidated financial statements

  Taxed reserves Unused tax losses Statutory depreciation in excess of fiscal threshold and other changes Total Deferred tax assets Accelerated depreciation LIFO/FIFO difference Accounting for leases (IAS 17) Fixed asset revaluations and other minor items Total Deferred tax liabilities

Amount of Reversing Reversing Reversing Reversing Reversing Theoretical Allow- Carrying temporary within within within within after DTA/DTL ance amount differences 1 year 2 years 3 years 4 years 4 years 29,765

8,190

-4,255

3,935

2,238

962

264

220

252

187,441

54,562

-40,508

14,054

1,165

-

5,726

1,275

5,888

85,724

18,934

-1,410

17,524

10,400

1,668

1,437

1,084

2,935

302,930

81,686

-46,173

35,513

13,804

2,630

7,427

2,579

9,074

34,538

8,098

-199

7,898

1,269

1,317

796

608

3,908

12,917

4,110

-

4,110

4,034

10

10

10

47

32,757

11,809

-

11,809

1,007

1,007

654

526

8,615

50,563

14,967

-671

14,296

2,795

568

-196

440

10,689

130,775

38,983

-870

38,113

9,105

2,902

1,264

1,584

23,258

As may be denoted from the table presented above, deferred tax assets on unused tax losses at December 31, 2010 have been recognized in the amount of Euro 14 million. Taken as a whole, the unused tax losses carried forward by the companies included line-by-line in the consolidation amount to Euro 187 million (mainly generated by the Italian, French or South African companies of the Group); the theoretical tax benefit on those losses would equate an amount totaling Euro 54.5 million, of which, as mentioned earlier, Euro 14 million, and only Euro 14 million, effectively recognized. The Euro 40.5 million difference (“allowance”) represents the portion of tax benefit not recognized, for reasons of prudence, in the consolidated accounts at December 31, 2010. Other reserves The reserves for other risks and charges as at December 31, 2010 amount to Euro 24,162 thousand (December 31, 2009: Euro 31,145 thousand) and represent the provisions accrued by the individual companies mainly in respect of business reorganization and restructuring, contractual risk, commercial risk and litigation risk. In particular, the movement for the year unfolds from: ■ provisioning the restructuring reserves in the amount of Euro 6.5 million (December 31, 2010: Euro 13.3 million) in respect of steps and measures put in place to contend with production declines wherever deemed to be permanent in nature; ■ provisioning the reserves for fiscal risk in the amount of Euro 8 million; ■ provisioning the reserves for labor disputes in the amount of Euro 2.7 million; ■ provisioning the reserves for product warranty and general commercial risk in the amount of Euro 3 million. Primarily pushing through the year-on-year decrease in the other reserves was use of the restructuring reserves set aside in 2009.

139

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Reserve for employee termination indemnities The reserve for employee termination indemnities (“TFR”) as at December 31, 2010 amounts to Euro 24,488 thousand (December 31, 2009: Euro 26,611 thousand). This reserve reflects the full liability due by the Italian companies to employees up to December 31, 2006, as payable upon employment termination or, where applicable, advanced to employees in accordance with the requirements of law. Balance as at December 31, 2009

26,611

Provision

6,857

Use /Other increases

(8,980)

Balance as at December 31, 2010

24,488

The movement for the year is analyzed as follows: ■ the balance on “Provision” comprises the portion of pre-existent TFR allocations revalued and determined in accordance with the provisions of law and, not least, the TFR allocations which, in application of pension reform laws, have been invested, as designated by the individual employee, in second-pillar pension funds or transferred to a pension fund managed by the National Social Insurance Institute (INPS); ■ the balance on “Use / Other increases/(decreases)” relates to the following: termination indemnities (TFR) paid upon termination of employment; termination indemnities (TFR), if any, advanced, and; termination indemnities (TFR) transferred to a pension managed by the National Social Insurance Institute (INPS) or invested in other second-pillar pension schemes designated by the individual employee. Payables Accounts payable as at December 31, 2010 amount to Euro 1,033,511 thousand. Set forth below is the breakdown of accounts payable: 12.31.2010 Stakeholder funding repayable

12.31.2009 12

3,893

Banks

372,504

421,545

Other financers

174,153

121,890

Advances

65,547

75,610

Suppliers

339,884

293,183

1,431

-

-

221

Associates

459

4,954

Other enterprises

137

32

Taxes

30,477

17,707

Provident and social security istitutions

18,266

18,878

Other payables

30,681

24,313

1,033,551

982,226

Negotiable instruments Subsidiaries

Total

140

Notes to the consolidated financial statements

Banks and Other Financers Set forth in the table below are bank borrowings and amounts due to other financers as at December 31, 2010:

 

Within 12 months

Total  

A/C overdrafts 11,388 Current bank borrowings 95,752 Self-liquidating 87,138 Non-current bank 178,226 borrowings BANK BORROWINGS 372,504 Due to other financers 27,606 Leasing 90,390 Factoring (with recourse) 56,157 DUE TO OTHER 174,153 FINANCERS

Falling due in 2012

Falling due in 2013

Falling due in 2014

Falling due in 2015 and beyond -

Residual lines available

11,388 95,752 87,138

-

-

-

27,658 31,386 122,696

78,312

55,394

34,041

3,221

7,258

-

272,590

55,394

34,041

3,221

7,258

181,740

20,026 25,734 56,157

1,011 17,659 -

1,058 13,626 -

4,125 11,232 -

1,386 22,139 -

56,993

101,917

18,670

14,684

15,357

23,525

56,993

Looking back to the year ending December 31, 2009, bank borrowings and amounts due to other financers were as follows: Total   90,728

Within 1 year 90,728

107,733

107,733

-

-

-

56,950

223,084

67,479

62,121

88,361

5,123

-

421,545

265,940

62,121

88,361

5,123

256,007

 

 

 

 

 

 

4,079

1,918

1,713

443

5

-

Leasing

90,197

29,772

17,101

33,177

10,148

-

Factoring (with recourse) DUE TO OTHER FINANCERS

27,614

27,614

-

-

-

28,243

121,890

59,304

18,814

33,620

10,153

28,243

  A/C overdrafts Current bank borrowings Non-current bank borrowings BANK BORROWINGS   Due to other financers

From 1 to 2 years -

From 2 to 5 years -

Beyond 5 years -

Residual lines available 199,057

“A/C overdrafts” mainly relate to advances on invoices; “current bank borrowings” mainly relate to advances on import and hot money lines. “Non-current bank borrowings” include the Euro 135 million pool financing (syndicated loan) entered into with Banca Monte dei Paschi di Siena S.p.A. in July 2007; as at December 31, 2010, the residual balance thereon equates some Euro 74.2 million. The financing is covered by economic-financial performance covenants (ratios) determined on the basis of the data included in the consolidated financial statements of the CLN Group; as at December 31, 2010, those financial performance indicators or ratios have been complied with. 141

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Further details and information about the year-on-year decrease in financial debt can be found in the Report on Operations. Advances Advances mainly relate to customer prepayments toward specifically ordered tooling and equipment earmarked for resale upon completion and underlying-product series-production launch. Collecting the more significant amounts were the subsidiaries MA Tool and Die (Euro 19.1 million – tooling and equipment realized for the customer Ford and Volkswagen), MA France (Euro 15.6 million – tooling and equipment realized for the customer PSA), Eurostamp (Euro 15.6 million – tooling and equipment realized for the customer Renault), MAD (Euro 3.5 million – tooling and equipment realized for the customers Daimler and BMW), and Presswork Division’s South American subsidiaries (totaling Euro 5.9 million – tooling and equipment realized for the customer PSA). Suppliers Supplier payables, less trade discounts, as at December 31, 2010 amount to Euro 339,884 thousand (December 31, 2009: Euro 293,183 thousand). Subsidiaries Accounts payable to subsidiaries as at December 31, 2010 amount to Euro 459 thousand (December 31, 2009: Euro 4,954 thousand). The following table sets out the more significant transactions put in place at the consolidated balance sheet date: 12.31.2010

12.31.2009

Due to associates Nuova Sall

-

595

174

108

-

4.200

170

-

Prorena Ortolano

23

-

Itla

87

-

Other

5

51

Total

459

4,954

Delna MWPT BV Cellino Group

Nuova Sall and MWPT BV are included in the CLN consolidation on a line-by-line basis with effect from FY2010.

142

Notes to the consolidated financial statements

Other enterprises Accounts payable to other enterprises as at December 31, 2010 amount to Euro 137 thousand (December 31, 2009: Euro 32 thousand). 12.31.2010

12.31.2009

Due to other enterprises Emarc

41

32

Other

96

-

Total

137

32

Taxes Tax payables as at December 31, 2010 amount to Euro 30,477 thousand and are composed of the following: 12.31.2010 Income tax payable

12.31.2009

13,275

2,605

Withholding tax payable

1,897

3,410

‘Irap’ regional tax payable

1,391

2,210

Other taxes payable, including VAT payable

13,914

9,482

Total

30,477

17,707

Provident and social security institutions This account, the balance of which at December 31, 2010 amounts to Euro 18,266 thousand, represents amounts payable to provident and social security institutions, which, for the Italian operating companies, are represented primarily by payables to the National Social Insurance Institute (INPS), the National Insurance Institute for Industrial Accidents (INAIL), and second-pillar pension schemes designated by employees. Other payables Other payables, amounting to Euro 30,681 thousand as at December 31, 2010, include primarily amounts due to employees (vacation earned as yet to be settled, etc.), as analyzed in the table below: 12.31.2010

12.31.2009

Due to employees

19,389

16,294

Other

11,292

8,019

Total

30,681

24,313

143

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

4.5 ACCRUED EXPENSES AND DEFERRED INCOME 12.31.2010

12.31.2009

Accrued expenses

5,529

11,796

Deferred income

24,761

10,082

Total

30,290

21,878

Deferred income reflects primarily (Euro 12.3 million) among the other things the accounting policy for contract work, whereby the margin is spread over five years in order to allocate to each period the effective net revenues; also encompassed therein is deferred income relating to the capital contributions received by certain Presswork Division companies (Euro 2.5 million). Accrued expenses include primarily accruals for payroll remuneration and charges. 4.6 MEMORANDUM ACCOUNTS The memorandum accounts are presented at the foot of the consolidated balance sheet to which reference should be made. Sureties have been given in the amount of Euro 1.8 million and Euro 2 million to unrelated customers and Simest, respectively. Commitments for derivatives relate to the following: Interest Rate Swap agreements entered into by the subsidiaries MA and MAC (notional amount totaling Euro 25 million at December 31, 2010; fair value at December 31, 2010 show a loss of Euro 0.2 million) in a design to swap into fixed interest rates the floating rates attached to certain medium-term loans and financing, and foreign currency purchases (corresponding value: Euro 18.5 million) forward agreements entered into by Delfo Polska in a design to mitigate exposure to foreign exchange risk arising from steel supplies denominated in Euro. 5 NOTES TO THE CONSOLIDATED INCOME STATEMENT ACCOUNTS FOR THE YEAR ENDED December 31, 2010 Before turning to analyze the individual consolidated income statement accounts, it should be noted that the results of operations are examined and discussed, as required by Article 2428.1 of the Italian Civil Code, in the Report of Operations. In view of the detailed disclosure and Notes to the Consolidated Balance Sheet accounts presented earlier, only the more significant consolidated income statement lines are analyzed below. 5.1 Revenues Revenues from sales In the year to December 31, 2010, the CLN Group captured sales revenue in the amount of Euro 1,700,886 thousand. The Group reaches across differing business lines and operates in disparate geographic regions. Set out below is the breakdown of revenues by business line: 144

Notes to the consolidated financial statements

F/Y 2010 Revenues from the sale of steel Revenues from the sale of pressed parts Revenues from the sale of wheels Total

F/Y 2009

346,782

246,949

1,119,008

960,806

235,096

204,777

1,700,886

1,412,532

Set out below is the breakdown of revenues by geographic region: F/Y 2010

F/Y 2009

Italy

521,943

386,948

EU-27 member States (excluding Italy)

813,467

883,792

Rest of the world

365,476

141,792

1,700,886

1,412,532

Total

Looking at FY2010 sales revenue hiked across the EU-27 landscape (excluding Italy), sales revenue from France came to Euro 262 million; sales revenue from Germany came to Euro 122 million; sales revenue from Spain came to Euro 44 million, and sales revenue from the UK came to Euro 19 million. Looking at FY2010 sales hiked across the rest of the world, sales revenue from Argentina came to Euro 66 million; sales revenue from Brazil came to Euro 110 million, and; sales revenue from South Africa came to Euro 71 million. Further information about sales revenue growth can be found in the Report on Operations. Other revenues and income Other revenues and income as at December 31, 2010 amount to Euro 219,463 thousand (December 31, 2009: Euro 121,027 thousand): F/Y 2010 Scrap and rejects sold

F/Y 2009

102,488

56,512

583

354

1,696

446

Tooling, equipment and other

114,696

63,715

Total

219,463

121,027

Fixed asset disposals Rental income

On the one hand, the year-on-year steep uplift in revenues from scrap sales stems from bolt-on volumes machined and, in part, from the upward route tracked by the average price of scrap over the last twelve months. The year-on-year increase in revenues from the sale of tooling and equipment arises from or relates to certain meaningful dies and forged parts realized by the Presswork Division’s French, German and South American subsidiaries and billed to customers.

145

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

5.2 production costs Raw materials, ancillary materials, consumables and goods for resale purchased. The balance on this account line, Euro 1,221,624 thousand, is detailed as follows (all amounts in thousands of Euro): F/Y 2010 Raw materials

F/Y 2009

1,099,688

707,958

Ancillary materials and consumables

23,891

94,833

Goods for commercialization

78,071

40,316

Other purchases

19,974

25,468

1,221,624

868,575

Total

Driving through the year-on-year meaningful increase in raw material purchasing costs were bolton volumes purchased (as opposed to the bearish destocking policy followed the year before) and, not least, from average steel prices in 2010 that soared from the year before. Service costs As analyzed below, service costs for fiscal 2010 amount to Euro 190,040 thousand: F/Y 2010

F/Y 2009

Freight

43,775

32,753

Maintenance

24,995

19,012

Energy and other utilities

30,046

24,248

Legal, advisory and auditing

6,477

7,819

Insurance

2,863

3,387

Technical consultancy

3,857

3,612

Fees to directors

4,012

2,598

704

608

3,007

2,837

591

332

69,713

56,231

190,040

153,437

Fees to statutory auditors Postage, telephone and fax Advertising and promotion Machining outsourced and other service costs Total

Mainly explaining the Euro 37 million year-on-year increase are bolt-on volumes machined and shipped and, by way of attendant consequence, bolt-on service costs in terms of freight, energy and other utilities, and machining outsourced. Bolt-on use of the production lines led to bolt-on maintenance costs. Expenses relating to the use of third party assets As analyzed below, expenses relating to the use of third party assets for fiscal 2010 amount to Euro 13,427 thousand:

146

Notes to the consolidated financial statements

F/Y 2010 Hire, lease and rental expense

F/Y 2009

10,532

13,050

Other

2,895

1,122

Total

13,427

14,172

Personnel expenses F/Y 2010 Salaries and wages Social security contributions Employee termination indemnities Reserve for severance indemnities and similar obligations Other personnel expenses Total

F/Y 2009

189,720

164,082

56,123

53,294

6,857

6,907

650

1,393

23,296

8,376

276,646

234,052

The average number of employees in 2010 is reported below on a comparative basis with the year before: F/Y 2010 Managers and supervisors

F/Y 2009 216

227

Clerks

2.120

1,789

Workers

6.418

5,358

Total

8.754

7,374

Temporary labor as at December 31, 2010 equates 1.089 units (246 at 31, December 2009). With reference to the closing balance number, as at 31 December the overall headcount was 8.508 units (7.988 as at December 2009). This overall increase (both average and closing figures) is due particularly to the perimeter variation with admission in 2010 of MWPT Group (Russia), South Africa operations and Japan and Malaysia (overall impact of about 1.017 units). Depreciation and write-downs The information by the four sub-headings required is presented in the consolidated income statement. Other operating expenses Other operating expenses, amounting to some Euro 14,417 thousand, are detailed as follows: F/Y 2010 Taxes and duties (other than income taxes)

F/Y 2009

10,304

7,762

322

97

Other

3,791

12,348

Total

14,417

20,207

Scholarships and membership fees

147

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

5.3 FINANCIAL INCOME AND EXPENSES Income from investments Encompassed within “Income from investments” are the dividend payouts received by the Group from subsidiaries not consolidated. Other financial income F/Y 2010 Interest income-banks

F/Y 2009 98

61

375

246

Other

2,768

850

Total

3,241

1,157

From securities classified under fixed assets

Interest expense and other financial charges F/Y 2010 Interest expense-banks

F/Y 2009 9,133

10,879

Other commission and interest expense

15,314

20,694

Total

24,447

31,573

Explaining the year-on-year improvement in net financial charges is the level of average financial indebtedness for FY2010, which was sizeably lower than the like-for-like average figure for FY2009 and the like-for-like year-end figure for FY2010. Particularly impacting the latter was the consolidation, with regard only to the balance sheet for the month of December, of the Russian operations of the Wheels Division (impact on debt at December in the amount of Euro 36 million negative). Adjustments to the value of financial assets Revaluations and Write-downs of investments comprise the portion of the net result of the companies accounted for under the equity method.

148

Notes to the consolidated financial statements

5.4 extraordinary income and expenses Extraordinary income F/Y 2010

F/Y 2009

Gain on disposals

2,084

33,287

Out-of-period income

1,894

4,202

Other

702

9,056

Total

4,680

46,545

The gain on disposals recognized in FY2010 mainly relates to gains arising on the disposal of tooling and equipment to unrelated parties. Looking back to FY2009, the gain on disposals mainly related to: ■ Euro 16.8 million gain arising on sale of the mutual investment fund units held and classified by CLN under financial fixed assets; ■ Euro 13 million gain arising on disposal by Gianetti S.p.A. of the building at Rho; ■ Euro 3.3 million gain arising on disposal of the building at Aprilia previously held by MA and CLN Sud. Extraordinary expenses F/Y 2010

F/Y 2009

Loss on disposals

836

1,027

1,354

37

Other

21,030

45,045

Total

23,220

46,109

Taxes relative to prior periods

Other extraordinary expenses recognized in FY2010 mainly include: ■

business reorganization and restructuring expenses in the amount of Euro 5.3 million. Provision was made for those expenses as a result of the programs launched by Company Management to streamline production at the production sites (mainly Italian production sites) where production declines were deemed to be permanent in nature. More pointedly, the provision related to the following: in the amount of Euro 2 million, to the Automotive Division; in the amount of Euro 1.4 million, to the Wheels Division, and; in the amount of Euro 1.9 million to the SSC Division. ■ Items of goodwill (consolidation differences) written down in the amount of Euro 12.5 million to reflect permanent impairment losses, of which Euro 10.2 million relating to the Italian production sites of the Presswork Division and Euro 2.3 million relating to the Russian production site of the Wheels Division. Looking back to FY2009, other extraordinary expenses included: ■ business reorganization and restructuring expenses in the amount Euro 17.9 million. Provision was made for those expenses as a result of the programs launched by Company Manager to streamline production at the sites where production declines were deemed to be permanent in nature. More pointedly, the provision related to the following: in the amount of Euro 10 million, to the Automo149

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

tive Division (Euro 6.7 million for the French production sites and Euro 3.3 million for the Italian production sites); in the amount of Euro 4.3 million, to the Wheels Division (Euro 1.2 million for the French production site, and the remainder for the Italian production sites), and in the amount of Euro 3.6 million, to the SSC Division (entirely attributable to the Italian production sites). ■ Intangible assets and items of property, plant and equipment written down in the amount of Euro 15.7 million to reflect permanent impairment losses. The write-downs related to the production site at Fontanellato (Euro 6.7 million), the production site at Bologna (Euro 2.5 million), the production site at Racconigi (Euro 0.7 million), the production site at Rivoli (Euro 0.9 million) and the production site at Brescia (Euro 4.9 million). ■ Provisions for fiscal risk in respect of the South American companies (Euro 5 million)..

5.5 INCOME TAXES As analyzed in the table below, the balance on this account is represented by current and deferred income taxes, net. Current income taxes relate to ‘Ires’ corporation tax or equivalent taxes for the foreign companies and, for the Italian companies only, to ‘Irap’ regional tax on manufacturing activities. (Accounts in Euro/’000): F/Y 2010 ‘Ires’ and other corporation taxes

F/Y 2009

25,368

17,493

2,922

983

Total Current taxes

28,290

18,476

Deferred tax assets

(4,166)

(13,788)

Total Income taxes

24,124

4,688

‘Irap’

When excluding the ‘Irap’ regional tax charge, the tax rate 2010 for the Group was 51% and, as such, very high. Impacting harshly the tax rate was the write-down of investments (Euro 6.7 million, not tax deductible, related fiscal impact estimated to stand around Euro 2 million) and the fact that no provision had been made for deferred tax assets on losses for the year originating from the Italian and French subsidiaries (tax asset estimated to stand around Euro 6 million), given that it was probable that the temporary difference would not reverse in the foreseeable future.

5.6 audit fees (art. 2427 c.c) Audit fees for the audit of the consolidated financial statements for FY 2010 amounted to Euro 34,000 (*). (*) Excluding the amounts paid for the audit of the statutory financial statements of the subsidiaries of the group.

150

By Order of the Board of Directors Chairman Anna Reinaudo

151

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

152

CONSOLIDATED CASH FLOW STATEMENT (Accounts in Euro/’000) 12.31.2010 A)

Cash and cash equivalents at beginning of the year

(459,574)

(624,729)

Operating income

89,068

(43,692)

Depreciation and amortization

89,276

89,499

302

(10,822)

Taxation

(24,124)

(4,688)

Change in reserves for risks and future charges

(19,331)

(648)

Cash flow generated by (used in) operations before change in working capital

135,191

29,649

Change in working capital

(14,214)

153,148

Cash flow generated by (used in) operations

120,978

182,797

Capital investments toward intangible assets and items of property, plant and equipment

(61,060)

(30,400)

-

71,044

(1,865)

(31,455)

(62,925)

9,189

58,053

191,986

(22,688)

(29,692)

Adjustments to the value of financial assets

(6,779)

(19,333)

Extraordinary income/(expenses)

(5,950)

(3,732)

Cumulative translation adjustment

12,135

(3,476)

Dividends

(1,411)

(1,175)

Capital contribution

35,000

65,000

489

9,374

Change in deferred taxation

B)

C)

12.31.2009

Disposals for FY2009 Change in financial activities D)

Cash flow generated by (used in) investing activities

E)

Free Cash Flow Financial income/(expenses)

Other changes in capital F)

Cash flow generated by (used in) funding activities

10,796

16,966

G)

Net change in monetary funds

68,850

208,952

(56,600)

(43,797)

(447,326)

(459,574)

Change in the scope of consolidation H)

Cash and cash equivalents at end of the year

The breakdown of Cash and Cash Equivalents at end of the year can be found in the Report on Operations. Also encompassed within the change in the scope of consolidation for FY2010 is the impact on Group net financial indebtedness arising on the acquisition of Group MWPT, RK Excel Japan/ Malaysia and the South African operations of the Presswork Division. Looking back to FY1009, the change in the scope of consolidation arose from the acquisition of Group ICL, Wagon and WM. 153

154

COMPANIES CONSOLIDATED LINE-BY-LINE Registered office

Business

Share capital

Parent company

% parent ownership Note 1

Caselette (Turin, Italy)

Sheet steelwork and trading

Euro

235,000,000

Canessa S.p.A

Fontanellato (Parma, Italy)

Sheet steelwork and trading

Euro

27,300,000

100.00

Canessa Slovakia s.r.o.

Kosice Slovakia

Sheet steelwork and trading

Euro

10,000,000

100.00

MW Italia S.p.A.

Rivoli (Turin, Italy)

Production and sale of steel wheels

Euro

40,000,000

97.50

Ceriano Gianetti Ruote S.p.A. Laghetto (Milan, Italy)

Production and sale of steel wheels

Euro

11,615,676

97.50

CLN S.p.A. Subsidiaries

MW France S.A.

Tergnier (France)

Production and sale of steel wheels

Euro

15,191,155

97.50

MW Romania S.A.

Dragasani (Romania)

Production and sale of steel wheels

New Leu

29,323,712

96.10

MW Deutschland GmbH

Pluderhausen (Germany)

Sale of steel wheels

Euro

100,000

97.50

D.R. S.a.r.l.

Pontcharra (France)

Sale of steel wheels

Euro

50,000

97.50

Sanremo Radaelli S.r.l.

Brivio (Lecco, Italy)

Production and sale of motorbike steel/ aluminum wheel rims

Euro

88,000

97.50

MWPT BV

Amsterdam (Netherlands)

Holding company

Euro

20,000

67.76

MW Eurodisk LLC

Kingisepp (Russia)

Production and sale of steel wheels

Ruble

344,684,877

67.76

Sale of steel wheels

Ruble

216,627,000

67.76

MW Eurodisk Trade Kingisepp LLC (Russia)

155

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

Registered office

Business

Share capital

% parent ownership

Subsidiaries MW Poland S.P. zo.o.

Warsaw (Poland)

Production and trading of steel wheels Production and sale Excel Rim Co. LTD Tokio (Japan) of motorbike steel/ aluminium wheel rims Production and sale Penang of motorbike steel/ Excel Rim Sdn Bhd (Malaysia) aluminum wheel rims MW Lublin S.P. Lublin Production and z.o.o. (Poland) trading of steel wheels Melfi MA S.p.A. (Potenza, Holding company Italy) Wagon Automotive Fiano (Turin, Sheet steelwork and S.r.l. Italy) assemblies

Zloty

50,000

97.50

Yen

10,000,000

82.97

MYR

10,800,802

45.63

Zloty

45,888,000

97.50

Euro

100,000,000

100.00

Euro

1,000,000

100.00

Chiasso (Italy) Villers la Montagne (France) Aulnay sous Bois (France)

Sheet steelwork and assemblies

Euro

5,000,000

100.00

Sheet steel presswork, and assemblies

Euro

10,249,995

100.00

Sheet steel presswork and assemblies

Euro

15,000,000

100.00

MA Automotive Deutschland GmbH

Treuen (Germany)

Sheet steel presswork and assemblies

Euro

10,000,000

100.00

UM Corporation S.a.s

Biache Saint Vaast (France)

Sheet steel presswork and assemblies

Euro

7,000,000

60.00

8,000

100.00

2,400,000

100.00

26,741,757

82.79

5,850,000

60.00

29,510,000

100.00

Wm S.r.l. Eurostamp S.a.s. MA France S.a.s.

IDEST S.a.r.l. MA Automotive Argentina S.A.

Administration, Aulnay sous commercial and other Euro Bois (France) services Buenos Aires Sheet steel presswork Pesos (Argentina) and assemblies

MA Automotive do Porto Real Brasil L.t.d.a. (Brazil)

Sheet steel presswork and assemblies

Reais

Coskunoz MA Otomotiv A.S.

Bursa (Turkey)

Sheet steel presswork and assemblies

New Turkish Lira

Immobilière de Viller

Villers la Montagne (France)

Real estate management

Euro

156

List of significant equity investments

Registered office

Business

Share capital

% parent ownership

DP Metal Tychy Processing Sp. Z.o.o. (Poland)

Sheet steelwork and trading

Zloty

50,000

100,00

Zaklady Wyrobow Kielce Metalowych S.H.L. (Poland) S.A.

Real estate management

Zloty

27,000,000

99,34

Delfo Polska S.A.

Tychy (Poland)

Sheet steel presswork and assemblies

Zloty

500,000

100,00

M.A.C. S.p.A.

Chivasso Sheet steel presswork (Turin, Italy) and assemblies

Euro

21,939,974

100,00

Nuova Sall S.p.A.

Turin (Italy)

Die production

Euro

1,500,000

51,00

MA Automotive South Africa (Pty) Ltd. IG Tooling and light engineering (Pty) Ltd.

Uitenhage (South Africa) Alberton (South Africa) Rosslyn (South Africa) Uitenhage (South Africa)

Holding company

Rand

1,001,004

100,00

Sheet steel presswork and assemblies

Rand

4,000

80,00

Sheet steel presswork and assemblies

Rand

1,578,947

100,00

Die production

Rand

301

100,00

MA Automotive Rosslyn (Oty) Ltd MA Tool and DIe (Pty) Ltd

Note 1: Aggregate direct and indirect percentage of ownership (excluding percentage held through associate undertakings)

157

C.L.N. S.p.A. and its Subsidiaries -the CLN Group - Annual Report & Accounts 2010

LIST OF COMPANIES CARRIED AT EQUITY

Company

Share capital

Registered office

% Group ownership

ITLA S.r.l.

Oggiono (Lecco, Italy)

Euro

2,500,000

51.00

LIMA S.p.A.

Milan (Italy)

Euro

1,560,000

37.48

Metaltranciati S.r.l.

Ozzano dell’Emilia (Bologna, Italy)

Euro

566,800

48.00

ALMASIDER d.o.o

Kumrovec (Croatia)

Kuna

29,320,000

50.00

Aviscali S.r.l.

Turin (Italy)

Euro

30,000

100.00

O.M.V. S.p.A.

Lesmo (Milan, Italy)

Euro

2,500,000

25.00

Gervasi Polska

Kielce (Poland)

Zloty

4,000,000

35.00

Commerciale Siderurgica del Sud

Flumeri (Avellino, Italy)

Euro

1,000,000

30.00

JBM – MA Automotive Private Limited

Pune (India)

Rupee

608,992,000

50.00

Dorbyl MW

Port Elizabeth (South Africa)

Rand

4,000

48.75

Delna S.p.A.

Brivio (Lecco, Italy)

Euro

2,000,000

31.26

Prorena Ortolano S.r.l.

Civate (Lecco, Italy)

Euro

1,272,532

51.00

Cellino S.r.l.

Grugliasco (Turin, Italy)

Euro

245,902

39.00

158

List of significant equity investments

LIST OF COMPANIES CARRIED AT COST

Company

Registered office

Share capital

% Group ownership

90,000

49.00

Emarc S.r.l.

Dragasani (Romania)

Nuovo Leu

Proma Poland

Tychy (Poland)

Zloty

15,500,000

35.00

Ema Polska Sp. Zoo

Kielce (Poland)

Zloty

50,000

49.00

IM S.p.A.

Turin (Italy)

Euro

364,000

20.00

MIM G.m.b.h.

Treuen (Germany)

Euro

450,000

10.00

Etromex SA

San Pedro – Nuovo Leon (Mexico) Pesos

32,500,000

17.85

CSM S.p.A.

Rome (Italy)

Euro

520,000

4.00

A.R. Machine

Teheran (Iran)

Rials

24,444,450

9.75

Rensor Property (Pty) Ltd.

Alberton (South Africa)

Rand

1,000

80.00

IG Tooling Property Investments (Pty) Alberton (South Africa) Ltd.

Rand

6,000

80.00

Claudlynn InAlberton (South Africa) vestments (Pty) Ltd.

Rand

1,000

80.00

TESCO GO S.p.A.

Turin (Italy)

Euro

780,000

25.00

E.M.A.R.C S.p.A.

Vinovo (Italy)

Euro

11,500,000

9.25

S.Polo Lamiere S.p.A.

S.Polo di Torrile (Parma, Italy)

Euro

600,000

15.00

Euro

10,529,796

18.99

Ingnegneria de ProVitoria Gasteiz (Spain) ductos Metalicos SA

159

160

Sede legale e direzione generale C.L.N. S.p.A. C.so Susa 13/15 10040 Casellette (TO) Tel. 011 9782111 Fax 011 9688972 www.gruppocln.com

Stampa Musumeci S.p.A. Quart (Valle d’Aosta)