financial statements at 31 december 2013 of socotherm s.p.a. · investments in associates and joint...
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Financial statements at
31 December 2013
of
Socotherm S.p.A.
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STATEMENT OF FINANCIAL POSITION
Fixed Assets 29.577.168 29.153.428Investments in associates and joint ventures 58.151.560 58.151.560Other financial assets 1.548.036 6.048.321Deferred tax assets 3.392.000 2.791.000Other receivables 80.144 79.344Other non current assets 63.171.739 67.070.224- -
Total non current assets 92.748.907 96.223.653- -
Inventories 2.135.856 745.891Trade receivables 12.150.582 3.518.398Other receivables 1.465.688 1.040.133Tax assets 4.195.399 1.689.923Financial assets 969.932 969.932Cash and cash equivalents 1.025.188 3.712.180- -
Total Current Assets 21.942.647 11.676.458
TOTAL ASSETS 114.691.554 107.900.111
ASSETS 31.12.201331.12.2012 restatement
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LIABILITIES
Share Capital 63.605.008 63.605.008Share premium reserve 40.215.596 40.215.595Legal reserve 1.233.259 848.875Treasury stock held (624.470) (624.470)Fair value reserve 19.907.655 19.907.655Retained earnings and other reserves (56.762.419) (64.153.244)Severance Indemnities Reserve (13.003) (30.459)Profit (loss) for the period 2.104.930 7.754.223
Total shareholders' equity 69.666.556 67.523.183- -
Borrowings from other financial institutions 6.579.647 6.901.528Employee benefits 892.248 942.215
Provisions for risks and charges 4.940.000 7.005.000Tax liabilities - 20.989
Total non-current liabilities 12.411.896 14.869.732
Borrowings from banks 2.511.717 -Borrowings from other financial institutions 17.778.196 17.842.178Trade payables 9.527.155 5.003.160Other liabilities 2.302.917 2.068.621Tax payables 493.116 593.237
Current liabilities 32.613.101 25.507.196
TOTAL LIABILITIES 114.691.554 107.900.111
31.12.2012restatement
31.12.2013
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Revenues from sales and services 26.292.045 15.050.105Changes in inventories, works in progress, incr. for internal works (241.901) (145.705)Other revenues and incomes 6.183.700 8.063.496
Net revenues 32.233.844 22.967.896
Raw materials 8.110.406 4.922.911Services 7.584.978 4.709.349Personnel costs 10.283.551 7.242.001Depreciation, amortization and writedowns 2.173.765 (1.873.005)Other expenses 2.886.518 2.950.409
Operating costs 31.039.217 17.951.666
Operating profit 1.194.627 5.016.230
Net financial income (expenses) (246.589) (12.158)Net profit (loss) on exchanges 749.930 72.534
Profit before taxes 1.697.968 5.076.605
Income taxes 406.962 2.677.617
Profit (loss) for the period 2.104.930 7.754.223
31.12.201331.12.2012restatementINCOME STATEMENT
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OTHER COMPONENTS OF COMPREHENSIVE INCOME STATEMENT
COMPREHENSIVE INCOME STATEMENT( Euro )
Net profit 2.104.930 7.754.2230 0
Other comprehensive income to be reclassified to profit or (loss) in subsequent periods:
Reversal of FV measurement - convertible bonds optional component - -
Other comprehensive income not to be reclassified to profit or (loss) in
subsequent periods: Adjustment IAS 17 20.987 5.146 Acruarial Profit (loss) on defined benefit plans 17.456 (66.532)- -
Total comprehensive income statement 38.443 (61.386)
Total net profit/(loss) 2.143.373 7.692.837
31-Dec-13 31-Dec-12
(€uro)
Share capitalShare premium
reserveStatutory reserve
Treasury stock
heldOther reserves TFR reserve
Other non-
distributable
reserves and
undistributed
profits/(losses)
Profit (loss) TOTAL
Balance at 31.12.2011 63.563.168 40.173.757 848.875 (624.470) 19.907.400 36.073 (54.544.785) (9.613.605) 59.746.413
Statutory Reserve - - - - - - -
Dividend - - - - - - - -
Allocation of 2011 result (9.613.605) 9.613.605
Total net profit for 2011 7.754.223 7.754.223
Adjustment IAS 19 (66.532) (66.532)
Capital increase 41.840 41.840 - 83.679
Other components of 2011 result 255 (66.532) 5.146 - 5.401
- - - - 255 (66.532) 5.146 7.754.223 7.693.091
Balance at 31.12.2012 63.605.008 40.215.597 848.875 (624.470) 19.907.655 (30.459) (64.153.244) 7.754.223 67.523.183
allocation of 2012 result - - 384.385 - 7.369.838 (7.754.223) -
Total net profit/(loss) for 2013 - - - - - 2.104.930 2.102.653
Allocation of 2010 result: - - - 20.987
IAS 19 Adjustment - - - - 20.987 20.987
actuarial profit (loss) on defined benefit plan - - - - - 17.456 20.987 - 20.987
Total net profit/(loss) for 2013 - - - - - 17.456 20.987 2.104.930 2.125.917
Balance at 31.12.2013 63.605.008 40.215.597 1.233.260 (624.470) 19.907.655 (13.003) (56.762.419) 2.104.930 69.666.556
Capital reserve Undistributed profits reserve
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FINANCIAL STATEMENT Euro/000
Profit ( loss ) 2.105 7.754
Amortizations 2.055 2.732Write-down of non-current tangible and intangible assets (1.076) (6.454)Allocation to allowance for doubtful trade receivables 863 203Allocation to allowance for doubtful IC receivables ( financial and commercial ) 17 (67)Increases ( decreases ) in future provision for liabilities and charges (2.065) (695)Provision for employee benefits (50) (252)Write-offs - -Net deferred taxation (601) (2.791)Asset and liabilities changes (857) (7.324)Increases ( decreases ) in due to suppliers 4.524 957Increases ( decreases ) in trade receivables (9.487) 7.281Increases ( decreases ) in trade from related parties - -Increases ( decreases ) in inventories (1.390) 236Other operating asset and liabilitites (171) (1.247)Net change in current tax asset and liabilities (2.627) (1.301)
Total cash flow from operations (7.902) 6.358
Investments(Investments)/disinvestments in non-current tangible assets (1.403) (4.846)Sales of equity investments - 634
Total cash flow from investments (1.403) (4.212)
Financing activitiesChange in financial assets - (225)Change in other fianancial assets 4.500 (380)Change in debts for financial leases (801) 3.646Change in short-term financial borrowings from bank 2.512 -Opening of long-term financing - -Change in borrowings from other financial institutions 407 (3.032)Increase in Share Capital - 89
Total cash flow from financing activities 6.618 98
Cash flow for ther period (2.687) 2.243
Starting cash and cash equivalents 3.712 1.469
Final cash and cash equivalents 1.025 3.712
FINANCIAL STATEMENT 2012 restatement2013
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General information
Socotherm S.p.A. is an Italian company with registered office in Adria (RO), Viale Risorgimento no.62, whose shares were listed on the Milan Stock Exchange until 26 July 2011.
The Socotherm Group is one of the leading world operators in the sector of coatings for piping used for the extraction and transport of petroleum, gas and water, with plants in Italy, Argentina, Brazil, Venezuela, and Angola.
The Group offers all types of coating for piping: external and internal anticorrosive, weighting in concrete and thermal insulation. Specifically, the Group is specialised in thermal insulation for the “Deep Water” sector (petroleum extraction from great depth) with technologically advanced and high added-value solutions.
On 31 October 2012, ShawCor Ltd finalized the purchase of the entire capital of Fineglade Ltd, the special purpose vehicle incorporated in 2010 to implement the capital increase and the consequent change of control in Socotherm Spa, as part of the Arrangement with Creditors procedure in which the company was involved.
Fineglade Ltd. now owns 95.8% of Socotherm SpA.
For information relating to the Company that exercises management and coordination, ShawCor Ltd., please refer to the Report on Operations as at 31 December 2013.
General criteria
The financial statements of Socotherm S.p.A. as at 31 December 2013 were prepared in conformity with the international accounting standard IFRS - International Financial Reporting Standards - and relative interpretations issued by the IASB, in effect at the date of approval of the financial statements and adopted according to the procedure mentioned in article 6 of Regulation (EC) no. 1606/2002 of 19 July 2002 of the European Parliament and Council.
IFRS also includes all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretation Committee (IFRIC), previously named as Standards Interpretation Committee (SIC).
The date of first adoption of the IAS/IFRS was 01 January 2005 and the financial statements for the year ended 31 December 2005 were the first prepared in accordance with these standards.-
These financial statements, in Euros, were prepared based on the historical cost convention and on a going concern basis.
Equity investments are evaluated at cost.
Form and content of the financial statements
Current and non-current assets and current and non-current liabilities are separately
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classified in the balance sheet.
The costs and revenues are classified on the basis of the nature thereof, as this exposure provides reliable and more relevant information compared to classification by destination.
The Cash Flow Statement was prepared by applying the indirect method by means of which the result for the period was adjusted by the effects of the transactions of a non-monetary nature, by any deferment of or provision for previous or future operational receipts or payments and by revenue or cost elements connected with the cash flows from investment or financial activities
In the statement of financial position, statement of comprehensive income and cash flow statement no specific items regarding transactions with related parties were included, as the amounts are not material and do not lead to a misrepresentation of the Group's equity and financial situation.
Reference date
The reference financial year of these financial statements is from 1 January to 31 December 2013. The Board of Directors resolved upon the 2013 Consolidated Financial Statements of Socotherm S.p.A. on 13 June 2014.
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Basis of accounting
Classification of the financial instruments
Accounting standard IAS 39 provides for the following types of financial instruments: financial assets recorded at their fair value with changes booked to the income statement, loans and receivables, investments held up to maturity and assets available for sale. Initially all financial assets are recorded at fair value, increased, in the case of assets other than those recorded at fair value with changes booked to the income statement, by the ancillary charges. Subsequent to initial recording, the instruments are valued in relation to their classification, as provided by the aforesaid standard.
The company determines the classification of its financial assets after the initial recording and, where appropriate and permitted, reviews this classification at the end of each financial year.
Financial assets recorded at their fair value with changes booked to the income statement
This category includes the assets held for trading and those designated at the time of the first recording as financial assets recorded at fair value, with changes booked to the income statement.
Assets held for trading are all those assets acquired for the purpose of sale in the short-term. Derivatives, including those unbundled, are classified as financial instruments held for trading except where they are designated as effective hedging instruments. Profits or losses on the assets held for trading are recorded in the income statement.
Where a contract contains one or more embedded derivatives, the Parent Company assesses whether the derivative must be unbundled from the base contract at the time when it becomes a contracting party. A revaluation check is made only if there are changes in the contractual conditions that significantly alter the cash flows that would otherwise arise.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed on an active market. Following the initial recording, these assets are valued in accordance with the amortised cost criterion using the effective discount rate method, net of any provision for impairment loss. Profits and losses are recorded to the income statement when the loans and receivables are eliminated from an accounting point of view or when the value is impaired, in addition to through amortisation.
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Investments held to maturity
Financial assets that are not derivative instruments and that are characterised by payments on a fixed or determinable maturity date are classified as “investments held to maturity” when the company has the intention and capacity to maintain them in its portfolio until maturity.
Following the initial recording, the financial investments held to maturity are valued with the amortised cost criterion using the effective interest rate method. Profits and losses are recorded to the income statement when the investment is eliminated from an accounting point of view or when the value is impaired, in addition to through amortisation.
Financial assets available for sale
Financial assets available for sale are those financial assets, excluding the derivative instruments, which were designated as such or are not classified in any of the other categories provided by IAS 39. Following the initial recording, the financial assets held for sale are valued at their fair value and the profits and losses are recorded in a separate item of the shareholders' equity. When the assets are eliminated from the accounts, the profits or losses accumulated in the shareholders’ equity are booked to the income statement.
The company carries out, at every financial year-end and whenever the necessity arises (“trigger event”), an impairment test aimed at showing whether the financial asset has suffered an impairment. Accordingly, should an impairment arise, the loss is recorded directly to the income statement under the item “write-downs of equity investments”.
The amount transferred to the income statement is therefore equal to the difference between the carrying value (acquisition cost net of any losses for impairment previously recorded in the income statement) and the current fair value.
Losses for impairment of the value of equity investments, recorded in the income statement, are not thereafter reinstated with an effect on the income statement but to shareholders' equity, including those circumstances when the reasons that led to the recording of the write-down no longer exist.
Financial liabilities recorded at their fair value with changes booked to the income statement
Financial liabilities recorded at their fair value with changes booked to the income statement comprise liabilities held for trading and financial liabilities designated at the time of initial recording to be held at fair value with changes booked to the income statement.
Liabilities held for trading are all those acquired for the purpose of sale in the short-term. Derivatives, including those unbundled, are classified as financial instruments held
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for trading except where they are designated as effective hedging instruments.
Following the initial recording at the fair value, the financial liabilities held for trading continue to be valued at their fair value; the profits and losses on valuation are recorded in a separate item of the shareholders' equity while the liabilities are kept in the portfolio and there is no evidence of impairment.
Financial liabilities at amortised cost
All the financial liabilities are included in this category, with the exception of those valued at fair value with changes booked to the income statement and/or held for trading. Following the initial recording, these liabilities are valued in accordance with the amortised cost criterion using the effective discount rate method, net of any provision for impairment loss.
Fair Value
Fair value is defined as the consideration for which an asset can be exchanged, or a liability can be extinguished, between knowledgeable and willing parties, in a transaction between third parties; it does not represents the amount that an entity would receive or would pay in a compulsory transaction or a liquidation sale.
In this area it is appropriate to make a distinction between “active markets” and “non-active markets”. Active markets are those where the listed prices are promptly available and representative of the prices of effective transactions. In this case the fair value is provided from the listing of the published price. Non-active markets, on the other hand, are markets whose prices may not be representative of effective transactions. In this case the fair value can be determined by obtaining an independent valuation from market counterparties and/or resorting to valuation techniques, for example discounting future cash flows and the options valuation models.
In relation to its functions the company determines the fair value of the financial instruments on hand at every financial year-end. This value is obtained by utilising the market prices (mark to market) where the financial instruments held are listed on active markets, or else by obtaining an independent valuation from market counterparties and/or by using appropriate “valuation models” developed internally.
The methods of determination of the fair value of financial instruments, which were applied for an accounting or informative purpose, are summarised below with reference to the principal categories of financial instruments:
o Listed financial instruments (equity investments): the market value at the reference date was utilised, or a value that determines a price at which a transaction could take place at the balance sheet date.
o Unlisted financial instruments (equity investments): a valuation model was utilised that is based on discounting the future cash flows generated by each discounted equity investment utilising a prudent discount rate, incorporating in
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the capital cost (ke) the various risk factors connected to the business sector. The discount rate used is a nominal after tax rate.
o A prudent estimate mainly arises in the construction of the cost of debt (Kd), determined by considering the company’s financial situation and therefore the difficulties that the company is encountering at the moment in having access to credit.
o Loans and receivables: the determination of the fair value for informative purposes only is in line with the net book value.
Amortised cost
The loans and receivables are valued at amortised cost. Amortised cost is determined by application of the effective interest rate net of any provisions for enduring impairment. The calculation takes account of any premium or discount on the acquisition and includes the transaction costs and commissions that are an integral part of the effective interest rate.
Non-current assets
Tangible assets
Non-current tangible assets are recorded at the acquisition or production cost including ancillary charges. The cost of manufacturing for in-house production includes the costs of raw materials, other materials, energy, direct labour as well as reasonable general production and industrial costs.
Tangible assets are depreciated by reference to their cost, in a systematic and constant manner on the basis of rates considered as appropriate with respect to the useful life of the related assets, defined as the residual useful life.
The following rates were utilised:
Depreciation rates %
Land and buildings 0% - 3%
Plant and machinery 5% - 12.5%
Industrial and commercial equipment 20%
Other non-current tangible assets 20% - 25%
The recoverability of their value is verified in accordance with the criteria provided by IAS 36, illustrated below.
Ordinary maintenance expenses are all debited to the income statement. Maintenance expenses of an incremental nature are attributed to the asset to which they refer and depreciated over the residual useful life.
Should the individual components of an asset be characterised by different useful lives,
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they are recorded separately so as to be depreciated consistent with their life (component approach).
The assets in the course of construction are recorded at cost under “Assets under development” until their construction is completed; the cost is classified in the related item and subject to depreciation from the time of their completion.
Leased Assets
Lease contracts are classified as financial leases when the terms of the contract are such as to substantially transfer all the risks and benefits of ownership to the lessee.
Assets acquired through financial lease agreements are booked in accordance with the financial method provided by international accounting standard IAS 17.
The assets leased are recorded as Group assets at their fair value at the date the contract is entered into and the corresponding liability to the lessor is booked as a payable to other financiers. The payments for lease instalments are divided between the capital amount, applied to reduce the financial liability, and the interest portion is booked to the income statement. Depreciation is calculated on the assets recorded in the financial statements at rates consistent with those of the owned assets.
Grants
Capital grants are recorded when a reasonable certainty exists that all the conditions provided for their receipt are respected and the grant will be disbursed.
They are represented in the financial statements as deferred income and booked to the income statement on the basis of the useful life of the asset to which they refer.
Intangible assets
Intangible assets include identifiable assets without a physical substance which are under the control of the company and capable of producing future economic benefits.
Non-current intangible assets are recorded at their acquisition or production cost including ancillary charges. Assets with a defined useful life are systematically amortised for the period of their anticipated future usefulness.
Research costs are booked to the income statement in the period when they are incurred. Development costs are capitalised and expensed to the income statement by amortisation should they refer to projects directed at the realisation of new production processes and new products, the marketing of which and with margins such as to allow the recovery of the costs incurred, is realistically sure.
Industrial patent rights and utilisation rights to intellectual property are amortised based on their presumed utilisation life, in any case not exceeding that fixed by the licence contracts.
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Concessions, licences, brands and similar rights recorded as assets are amortised based on their anticipated useful life, in any case not exceeding that fixed by the purchase contract; should the utilisation period not be determinable or there is no contract, the life is established as five financial years.
Impairment of the non-financial assets
IAS/IFRS require that the value of non-current tangible and intangible assets be evaluated when there are indicators that lead to the consideration that value impairment could exist. In the case of goodwill, intangible assets with an indefinite useful life or assets not available for use, this evaluation is carried out at least annually.
The recoverability of the recorded values is verified by comparing the carrying value with the higher of the net sale price (when there is an active market) and the usable value of the asset.
The usable value is defined on the basis of discounting the expected cash flows from the utilisation of the asset (and by an aggregation of assets – known as cash generating units) until its disposal at the end of its useful life. The cash generating units were identified consistent with the Group's organizational structure and business, as homogeneous aggregations that generate autonomous incoming cash flows deriving from the continuous utilisation of the assets recorded therein.
The cash flows are determined on the basis of reasonable and documentable assumptions representative of the best estimate of the future economic conditions that will occur during the residual useful life of the asset.
Discounting is carried out at a rate that takes account of the implicit risk of the business sector.
An impairment is recorded if the recoverable value of an asset is less than the carrying value; this loss is recorded in the income statement, except when the asset has previously been revalued by recording a reserve in the shareholders' equity.
When an asset impairment, other than goodwill, ceases to exist or decreases, the carrying value of the asset or of the cash flows generating unit is increased up to the new estimate of the recoverable value; it cannot however exceed the value that would have been determined if no loss for impairment had been recorded.
The reversing of an impairment is booked to the income statement, unless the asset was previously recorded at its revalued value; in this case it is booked to the shareholders' equity reserves.
Equity investments
Equity investments are measured at cost. The value is adjusted if necessary to reflect any loss in the value of individual companies, taking into account the expected development of their activities over the medium term. When such write-downs no
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longer are necessary, the investments are revalued up to the amount of the write-down, with such revaluations passing through the income statement.
Current assets
Inventories of raw materials, semi-finished and finished products
Inventories are valued at the lower of the purchase or manufacturing cost, including ancillary charges, and the presumed realisable value as deduced from market trends. Obsolete and slow-moving stocks are written-down taking into account the possibility of their utilisation and realisation. The cost configuration adopted is weighted average cost. The net realisable value is determined based on the net sale price reduced by both any manufacturing expenses still to be incurred and direct sales expenses.
Work in progress on orders
When the financial result of a job order can be reliably estimated the related revenues are valued on the basis of the contract consideration accrued with reasonable certainty, in proportion to the percentage of completion of the order at the year-end, based on the ratio between the costs incurred for the order up to the financial year-end and the total estimated costs of the order.
When a loss is anticipated on the projects, this is fully allocated in the financial year when it becomes noted.
The requests for additional charges presented to the principals are accounted for when it can be reliably presumed that they will be accepted and on condition that their amount can be reasonably estimated.
Work in progress on orders for which the revenue cannot be reliably estimated is booked at cost, applying the completed job order method.
Receivables
Receivables are shown at their expected realisation value, taking into account the degree of debtor solvency for the period remaining of the receivable, outstanding disputes and guarantees exercisable. This value is obtained by a direct write-down of the receivables themselves carried out analytically for the more significant positions and in a lump sum for homogeneous classes of the other positions. The carrying value of the receivables constitutes a reasonable approximation of their fair value, as all the items are of a current character. Fair value was separately calculated for derivative instruments.
Other assets and liabilities
This item respectively includes the accruals and deferrals, which are recorded on the
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basis of the matching and timing concept of the costs and income common to two or more financial years.
The assets that are not expected to be realised within twelve months from the reference date of the financial statements are classified as “Other non-current assets”. This category also includes the security deposits paid early, which are valued at their book value, since the amortised cost criterion is not applied for these instruments as it is not possible to determine the future cash flows.
Cash and cash equivalents
Cash and cash equivalents comprise the cash on hand, bank and postal deposits and the securities having an original maturity of less than 3 months.
Treasury shares
Treasury shares are recorded at cost and booked as a reduction of the shareholders' equity; all the profits and losses from the trading of the latter are recorded to an appropriate shareholders' equity reserve.
Financial payables
Financial payables are recorded at their fair value, on the basis of the amounts payable net of the correlated transaction costs. The initial booked value is subsequently adjusted in order to consider the capital repayments and overall repayments, calculated by utilising the effective interest rate method; this rate exactly discounts the future payments and receipts over the expected life of the financial instrument, including charges and basis points paid (in addition to those not yet incurred, but whose manifestation is considered highly probable).
The values recorded at the last fixing prior to the valuation date are utilised for the determination of the future flows related to variable interest rates.
The amortised cost method was not applied to leases of an operating nature and to payables due to banks not directly related to disbursement of loans, as these are of a current nature.
The financial effects of the amortised cost valuation are booked to the item “Net financial income (charges)”.
Employee benefits
Considering the indications provided by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretation Committee (IFRIC), the staff severance indemnity was considered as a “post-employment benefit” of the “defined plan” type; based on international accounting standard IAS 19 its value is determined actuarially.
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The actuarial valuation of the staff leaving indemnities is undertaken based on the “accrued benefits” method using the “Project Unit Credit Method” (PUM) as provided in paragraphs 64-66 of IAS 19; this methodology is substantiated in valuations that express the average current value of the pension obligations due, based on the service that the worker has provided until the period when the valuation itself is made, projecting, however, the worker’s remuneration.
Through the actuarial valuation the “current service cost” which defines the amount of the rights accrued during the financial year by the employees is booked to the income statement in the item “labour costs”. The “interest cost”, which constitutes the figurative charge that the company would incur by requesting a loan of an amount equal to the staff leaving indemnity from the market, is booked to the income statement under “financial charges”.
Commencing from 1 January 2007 the Finance Law and related implementing decrees have introduced significant changes in the regulation of staff leaving indemnities, amongst which are the worker’s choices in connection with the allocation of their accruing staff leaving indemnities. Specifically, new staff leaving indemnities flows may be directed by the worker to chosen pension forms or else kept in the company (in which case the latter shall pay staff leaving indemnities contributions to an INPS treasury account). The staff leaving indemnities due from 1 January 2007 are treated as a Defined Contribution Plan, both in the case of an option for complementary welfare, and in the case of allocation to the INPS Treasury Fund. The staff severance indemnity (T.F.R.) accrued at 31 December 2006 continues to be treated as a defined benefit plan, whose actuarial valuation, however, does not include the component relating to future salary increases.
Commencing from 1 January 2013, the Company apply the modified IAS 19 which oblige to record the actuarial gains / losses in the comprehensive income statement. This amendment resulted in the need to restate the income statement and the statement of comprehensive income for the year 2012.
Provisions for liabilities and charges
Provisions for liabilities and charges are raised to cover losses or payables of a determined nature that are certain or probable, for which nevertheless the amount or date of occurrence were not determinable at the financial year-end. They are allocated only if an obligation exists at the date of approval of the financial statements and if the estimate of the amount necessary to discharge that obligation is reliably quantifiable.
The allocations reflect the best possible estimates on the basis of the elements available. The changes in the estimate of the provisions are reflected in the income statement for the period when the change took place.
Adequate information on the liabilities evaluated as possible is given in the explanatory notes.
Payables
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Payables are recorded at their book value, corresponding to the presumed repayment value. Fair value was not therefore calculated, as the carrying value constitutes a good approximation. The payables that are not expected to be due within twelve months from the reference date of the financial statements are classified as non-current payables.
Revenue and costs recognition
Revenues and income, costs and charges are recorded net of returns, discounts, allowances and bonuses, as well as the taxes directly connected with the sale of the products. Revenues for sales of products are recognised at the time of transfer of the risks and benefits connected to ownership, which generally coincides with the shipment or delivery of the goods. Revenues from the provision of services relating to the execution of normal business are recognised at the time when the services are provided. Revenues and costs of a financial nature are recognised on an accruals basis, based on the amount financed and the effective interest rate applicable, which represents the rate that discounts the future receipts and payments estimated over the expected life of the financial assets and liabilities, in order to show these at their carrying value.
Dividends are recorded when the shareholders’ right to receive payments is established.
Income taxes
Income taxes for the financial year are determined on the basis of a realistic forecast of the taxes to be paid in application of the prevailing tax legislation, and are shown in the item "Income taxes" with an indication of the current, prepaid and deferred taxes.
Deferred taxes are calculated in relation to some income components, the tax effect of which is deferred to subsequent financial years.
Prepaid tax assets are booked when it is probable that future taxable income will be available against which they can be recovered. The recoverability of the prepaid tax assets is re-examined at every financial year-end, and the portion for which recovery is no longer probable is booked to the income statement. Current and deferred taxes are booked directly to the income statement, with the exception of those relating to items directly recorded to the shareholders' equity following the accounting criterion.
Amounts denominated in foreign currencies
Monetary asset and liabilities originally expressed in foreign currencies, recorded based on prevailing exchange rates at the date when they arose, are aligned to the current exchange rates at the financial year-end.
Profits and losses deriving from the translation of the monetary assets and liabilities are respectively credited and debited to the income statement.
The possible net profit deriving from updating the items in foreign currencies to the year-end exchange rates is included in the formation of the result for the year and,
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during approval of the financial statements and consequent allocation of the result, is recorded, to the extent not absorbed by the possible loss for the year, in a non-distributable reserve until subsequent realisation.
Subsequent to year-end, no substantial changes in the exchange rates occurred such as to generate significant effects on the items denominated in foreign currencies at 31 December 2013.
Derivative instruments
Derivative instruments are current financial assets and liabilities recorded at “fair value”. The accounting method and contra entry varies according to whether or not they are designated as hedging instruments pursuant to the requisites of IAS 39.
In accordance with IAS 39, derivative financial instruments can be recognized in accordance with the procedures established for hedge accounting only when, at the beginning of the hedge, they have been formally designated as such and documentation of the hedging relationship is available. In addition, it is assumed that the hedge is i) highly effective throughout the period, ii) reliably measurable and iii) highly effective throughout the financial reporting periods for which it has been designated.
Use of estimates
The preparation of the IFRS financial statements requires that management make estimates and assumptions that have an effect on the values of the assets and liabilities recorded and the information relating to potential assets and liabilities at the year-end. Nevertheless the uncertainty regarding these hypotheses and estimates could determine results that will, in the future, require a significant adjustment of the carrying value of these assets and/or liabilities. Outlined below are the key assumptions regarding the future and other major sources of uncertainty in the estimates at the date of the financial statements; these could produce significant adjustments in the carrying amounts of the assets and liabilities in the next financial year. The preparation of the prospective figures, as well as the determination of an appropriate discount rate, require, to a significant extent, making estimates. Finally, the valuations that lead to quantification of the provisions for liabilities and charges are subject to estimates, including those relating to legal and tax disputes, the results of which are uncertain at the date of preparation of this document.
The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement.
Adoption of new accounting standards
Evaluation and measurement criteria are based on IFRS standards and relative
21
interpretations in force on 31 December 2013, as approved by the European Union.
The accounting policies adopted are consistent with those of the previous year, except for the following IFRS amendments valid from the 1st of January 2013:
· IFRS 7 Additional disclosures - Offsetting of financial assets and liabilities -
Amendments to IFRS 7
· IFRS 10 – Consolidated Financial Statements
· IAS 27 – Separate Financial Statements
· IFRS 11 Joint Arrangements and IAS 28 (2011) Investments in associates and
joint ventures
· IFRS 12 Disclosures of interests in other entities
· IFRS 13 Fair Value measurement
· IAS 19 (2011) Employee Benefits
· Improvements to IFRS – period 2009-2011:
o IFRS 1 – first time adoption of IAS/IFRS
o IFRS 1 – Financial charges
o IAS 16 – Classification of servicing equipment
o IAS 32 - Tax effect of equity distributions
o IAS 34 - Interim reporting of segment assets
Not all of these standards and modifications have had an impact on the Consolidated Financial Statement of Socotherm Group.
If, any of these standards or modifications have had effects for the Group, the standard or the modification is described below.
The Group has adopted in advance IFRS 10, IFRS 11,IFRS 12, IAS 27 (2011) and IAS 28 (2011); the new accounting standards, different from IFRS 11, which is explained below, have had no significant impact on the Consolidated Financial Statements of Socotherm.
IAS 19 (2011) Employee Benefits In the current year the Group applied IAS 19 (2011) - Employee Benefits which introduces, among other things: (i) the obligation to recognize actuarial gains and losses in other comprehensive income, eliminating the option to adopt the corridor method. Actuarial gains and losses recognized in other comprehensive income are not subsequently recycled through profit or loss; and (ii) the elimination of the separate indication of the cost components relating to defined benefit liabilities, consisting in the expected return on plan assets and the interest cost, and their replacement with the "net interest" aggregate. The Group applied the mentioned principle for annual periods beginning on or after 1 January 2013.
22
This amendment resulted in the need to restate the income statement and the statement of comprehensive income for the year 2012 due to the impact on the result for the year, consisting in higher profit of Euro 66 thousand.
IFRS 11 Joint Arrangements and IAS 28 (2011) Investments in associates and joint ventures. The standards eliminate the option of accounting for jointly controlled entities, joint ventures, using the proportionate consolidation method. Jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method, as applied to associates entities, with summary recognition in the income statement of just the portion of the joint venture's profits (loss) attributable to the joint venture. This standard has been applied in advance in the Group's consolidated financial statements to get in line with the accounting standards adopted by ShawCor ltd, the company that exercises control and coordination.
IFRS 10 Consolidated Financial Statements , IAS 27 (2011) Separate Financial Statements
The IFRS 10 replaces the portion of IAS 27 that governs the accounting of the consolidated financial statements; the document also incorporates the content of SIC 12 and introduces a model of control potentially unrelated with the traditional criteria based on ownership interests, by providing guidance on how to determine if there is control where this is difficult to ascertain. On the basis of the analysis carried out, the introduction of the new standard is not expected to result in any changes in the scope of consolidation.
IFRS 12 Disclosure of interests in other entities
IFRS12 replaces and expands the provisions relating to disclosure of interests in subsidiaries, associates, joint ventures and structured entities previously included in IAS 27 and other standards. The standard will have no impact on the financial position or results of the Group.
IAS 1 Presentation of Financial Statements - Presentation of items of other comprehensive income
The amendment to IAS 1 introduces the grouping of items presented in other comprehensive income. Items that in the future might be reclassified (or "recycled") to profit or loss (for example, net profit on hedges of net investments, translation differences of foreign financial statements, net income on a cash flow hedge and net income / loss from financial assets available for sale) should be presented separately from items that will never be reclassified (for example, actuarial gain / loss on defined benefit plans and the revaluation of land and buildings). This amendment only affected presentation and had no impact on the Group's financial position or results.
IFRS 13 Fair value measurement
23
IFRS 13 does not change the cases where use of fair value is required, but rather it provides a guide on how to measure fair value under IFRS, taking into account "counterparty risk".
The application of IFRS 13 had no significant impact on either i) in the fair value measurements performed by the Group and the disclosures provided in these financial statements or ii) on the financial position or operating results of the Company's financial statements.
IFRS 7 Additional disclosures - Offsetting of financial assets and liabilities - Amendments to IFRS 7
These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The objective is to provide users of financial statements with information about the effect of such rights and arrangements on the entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 - Financial Instruments: Presentation.
The following amendments, improvements and interpretations, effective from 1 January 2013, govern cases and situations not applicable to the Group at the date of these financial statements, but that may have accounting effects on future transactions or agreements:
· IAS 12 - Deferred taxes: recovery of underlying assets: this amendment clarifies the determination of deferred taxes on investment property measured at fair value.
· IFRS 1 Government Loans - Amendments to IFRS 1: these amendments introduce provisions relating to the classification and accounting treatment of public funding. The amendments had no impact on the financial position or results of the Group.
Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the Group
The tables below show the standards that as at the date of the Group consolidated financial statements were already issued but not yet effective. The list refers to standards and interpretations that the Group expects will be reasonably applicable in the future. The Group intends to adopt these standards when they become effective.
IAS 32 Offsetting of financial assets and liabilities - Amendments to IAS 32
The amendments also clarify the application of the offsetting principle in accordance with IAS 32.
IAS 36 – Impairment of Assets
24
The amendments clarify in particular how to measure the recoverable amount of assets, when it is based on fair value less costs of disposal.
IAS 39 - Financial Instruments: Recognition and Measurement
These changes bring some clarification in terms of novation of derivatives and continuation of hedge accounting.
These amendments confirm the continuation of the existing hedging relationship also in case of novation required by laws or regulations.
25
Explanatory notes to items in the financial statements
Statement of financial position: assets
Non-current assets
1) Property, plant and machinery
Land and buildings
During the year, the Company started operations at the Pozzallo site, in accordance with the business plan that envisages a significant production level in the coming years. The increases shown mainly refer to betterments on the Pozzallo site.
Plant and machinery
During the year the company purchased Multikote equipment for the Pozzallo site totalling Euro 748,000. The impairment test, more specifically described in the paragraph below, resulted in the reversal of impairment for about Euro 1.1 million.
Non-current assets in progress and advances
This item covers the most technologically advanced parts of the system, which were purchased after the sale of some foreign sites.
It is noted, furthermore, that the net value of non-current tangible assets includes assets acquired with financial leases recorded according to the IAS 17 (revised) methodology at 31 December 2013, which are detailed in the following table:
At 31 December 2013 the company's assets were not encumbered by any mortgages,
Non-current assets, property, plant and equipment
Net carrying amount Land and buildings 16.159 83 - - - (309) 15.933Plant and equipment 11.320 748 - - 1.076 (1.684) 11.460Industrial and commercial equipment 131 218 (1) - - (63) 285Advaces and tangible assets in progress 1.541 24 - - - - 1.565
Total 29.151 1.073 (1) - 1.076 (2.056) 29.243
Oth
er m
ovem
ents
and
re
clas
sifi
cati
ons
Depr
ecia
tion
31.1
2.20
13
31.1
2.20
12
Addi
tion
s
Decr
ease
Wri
te-o
ffs
Payments within one year
Payments between one and
five years
Plant and equipment 12.026 5.031 676 5.707 6.319 191 2.722 2.913Land and buildings 4.000 7 84 91 3.909 131 3.858 3.989
TOTAL 16.026 5.038 760 5.798 10.228 322 6.580 6.902
LEASED ASSETSAccumulated depreciation 31.12.2012
Depreciation 31-Dec-13
Historical cost 31.12.2013
Total due to leasing company
Minimum leaseAccumulated depreciation 31.12.2013
Residual value 31.12.2013
26
liens or other collateral guarantees in favour of third parties.
2) Intangible assets
Development costs and intangible assets under construction
The expenses incurred for the development of new materials and new coating techniques, both internal and external, of the Pipe Coating Division and District Heating Division had been completely written-down at 31 December 2009 and during the course of the financial year ended on 31 December 2013 further activities were not commenced and no asset construction activities were in progress.
Previous financial years write downs were considered as not recoverable also according to the expected cash flow evaluation based on the already mentioned, new 2014-2016 Business Plan.
During the year, the company capitalized software licenses for Euro 331 thousand.
Impairment test on the values of non-current tangible and intangible assets
Pursuant to IAS 36 and because of the negative results of previous years, the Company carried out an impairment test of the invested capital, with a focus on the residual values recognized as non-current assets. The recoverable value represents the higher of the value in use (present value of the future financial flows that can be generated from the asset being measured) and the related fair value net of the sale costs.
The recoverable value must be determined for each individual asset unless both of the following conditions exist:
• the value in use of the intangible asset is not estimated to be close to the fair value net of the sale costs;
• the asset does not generate incoming financial flows quite independently of those deriving from other assets.
Whenever such conditions occur the impairment test is conducted at Cash Generating Unit (CGU) level as required by the abovementioned accounting standard.
It is specified that the impairment test is conducted by Socotherm through the determination of the value in use of the Cash Generating Units (CGUs) in accordance with that described hereinafter, including both the intangible assets with an indefinite useful life (goodwill, fully written down in the previous financial years) and tangible assets where the loss indicators provided by the standard occur. In fact, in connection with the individual CGUs identified, given the peculiarity of the business, the non-current tangible assets are also considered as an integral part of the CGU, in connection with the measurement of net capital employed.
For the purpose of the determination of the value in use of the non-current intangible assets subject to an impairment test, IAS 36 requires that reference must be made to
27
the cash flows relating to the assets in their current conditions at the date of the test, without distinctions between cash flows referred to assets originally recorded during application of IFRS 3 and those deriving from subsequent changes.
The estimate of the value in use for the purpose of the verification of any impairment loss of intangible assets, including goodwill, which do not generate financial flows if not in conjunction with other corporate assets, requires the preliminary allocation of such assets to relatively autonomous operating units in the operational area (from the viewpoint of independent financial flows generated and those planned and accounted for internally): such operating units are defined precisely as Cash Generating Units (CGUs). The impairment test in the financial statements was conducted by considering a sole CGU, consistent with how the company analyses the results and applies its business plans.
The recoverable value of the Group's CGUs is represented by the value in use, determined by the future financial flows generated by each CGU. These financial flows are estimated based on the 2014-2016 business plan. In formulating the estimates, the Management also considered the current situation of the company, the macroeconomics of the market and peculiarities of the sector in which the individual companies operate. The estimates utilised for the determination of the cash flows and related growth rates are particularly complex due to the uncertainties that characterised and still characterise the current and future macroeconomic situation, and the situation of the financial markets and the economy.
The value in use is determined by discounting the financial flows with a rate that considers the current valuations of the time value of money and the specific risks of the business. The future cash flows were discounted by utilising a prudent estimate of the discount rate, incorporating in the capital cost (ke) the various risk factors connected to the business sector. The discount rate used is a nominal after tax rate.
The discount rate is the so-colled Weighted Average Cost of Capital, WACC, and for the purpose of the Socotherm SpA’s impairtment tests has been assumed at 8.92%.
The value in use was also determined by assuming, for the time horizon beyond the business plan, a perpetuity calculated by normalizing the results shown in the plan and applying a growth rate g, conservatively assumed equal to 0%.
The measurement of the value in use, compared with the carrying amount of net invested capital, showed that the conditions that had led to write-down fixed assets items in previous years, especially plant and machinery, were no longer met.
Accordingly, the Directors, in compliance with the provisions of the relevant accounting standards, reversed previous write-downs amounting to Euro 1.1 million, recognizing the resulting positive effect in the income statement.
Sensitivity tests were carried out on the aforementioned impairment test results, in order to identify how the valuation process may change depending on changes in the rate of return assumed in expected future cash flows, in the growth rate considered for projections beyond the plan period or in the discount rate used to discount the cash
28
flows. This analysis has led the Directors to assess that the carrying value of net invested capital is supported by expected cash flows, which are such as to be able to absorb normal fluctuations in the identified parameters on the basis of sensitivity analysis generally carried out in valuations practices and in the Company's industry.
3) Equity investments
The equity investments at 31 December 2013 totalled Euro 58,152 thousand, Euro 58,147 thousand of which relating to subsidiary companies, and Euro 5 thousand to equity investments in other companies, in line with the previous year.
The following table illustrates the main changes for the financial year:
During the 2013 financial year there were no movements related to equity investments. After comparing the net equity and the results of the analysis carried out on the controlled subsidiaries, the company did not deem it necessary to carry out any write-downs.
Equity investments in associates are valued at cost. Equity investments in other companies are valued at cost as considered a reasonable approximation of the market value.
In the chart here below there’s a list including the information required by paragraph 42 of IAS 27 for each subsidiary or associate.
The values of the shareholders' equity and profit/loss of the subsidiaries refer to the
Equity investments
31.1
2.20
12
Incr
ease
s
Decr
ease
s
Rev
alut
atio
ns/
(Wri
te-o
ffs)
31.1
2.20
13
Equity investments in subsidiaries 58.147 - - - 58.147 Equity investments in other companies 5 - - - 5
Total 58.152 - - - 58.152
Equity investments in subsidiaries:
Socotherm Shashi Pipe Coating Ltd - Jingzhou City - Hubei - China - - - - -- - - - -A.P.C. Socotherm pty Ltd - Sydney - Australia 1.410.170 - - - 1.410.170- - - - -Socotherm Americas S.A. - Roche Saenz Pena 846 - Buenos Aires - Argentina 49.284.267 - - - 49.284.267- - - - -Socotherm Latinoamericana S.A. - Pedro Berro 714 - Montevideo - Uruguay - - - - -- - - - -Soco-Ven S.A. - Roche Saenz Pena 846 - Buenos Aires - Argentina - - - - -- - - - -Socotherm Middle East Fzco - Office No.Lb 16606 - Dubai - U.A.E. - - - - -- - - - -Ningbo Daxie Socotherm PPSC - Ningbo Development Zone - Zhenjiang - China 788.263 - - - 788.263- - - - -Socofin Srl Unipersonale - Strada Pelosa , 171 - Vicenza (VI) 6.664.000 - - - 6.664.000- - - - -Socotherm Services Ltd - Unit 1E, Block 71 the Plaza Nangor Road - Dublin - Ireland - - - - -- - - - -- - - - -
Total 58.146.700 - - - 58.146.700
DETAIL OF MOVEMENTS IN EQUITY INVESTMENTSBalance at
31.12.2012Revalutations (write-offs)
Increases DecreasesBalance at
31.12.2013
29
figures of the financial statements for the year ended 31 December 2013.
4) Financial assets
This item mainly refers to the medium and long-term loans granted to Group companies. These transactions are regulated at normal market conditions.
The medium and long-term loans can be detailed as follows:
The total net receivables mainly consist of Euro 1.2 million vis à vis Socotherm Americas S.A. for residual loans that were not applied to capital increases during FY 2013 and Euro 0.4 million vis à vis Socotherm USA for loans disbursed and not yet reimbursed.
All other amounts were written down as per the relevant provision. Here below a chart shows the balances at the end of each financial year:
% ValueValue in financial statement
Euro Euro Euro EuroSunsidiary companies
Socotherm Shashi Pipe Coating Ltd - Jingzhou City - Hubei - China 1.254.001 906.876 (264.977) 50,00% 453.438 0
A.P.C. Socotherm pty Ltd - Sydney - Australia 18.818.621 5.606.129 76.206 100,00% 5.606.129 1.410.170
Socotherm Americas S.A. - Roche Saenz Pena 846 - Buenos Aires - Argentina 43.586.335 10.252.185 7.603.715 91,15% 9.344.867 49.284.267
Socotherm Latinoamericana S.A. - Pedro Berro 714 - Montevideo - Uruguay 181.686 493.493 0 100,00% 493.493 0
Soco-Ven S.A. - Roche Saenz Pena 846 - Buenos Aires - Argentina 1.801.050 5.255.090 216.508 20,00% 1.051.018 0
Socotherm Middle East Fzco - Office No.Lb 16606 - Dubai - U.A.E. 124.946 (43.689.222) (1.553.873) 60,00% (26.213.533) 0
Ningbo Daxie Socotherm PPSC - Ningbo Development Zone - Zhenjiang - China 2.766.196 2.704.089 (53.669) 50,00% 1.352.045 788.263
Socofin Srl Unipersonale - Strada Pelosa , 171 - Vicenza (VI) 100.000 10.453.734 1.047.561 100,00% 10.453.734 6.664.000
Socotherm Services Ltd - Unit 1E, Block 71 the Plaza Nangor Road - Dublin - Ir. 100.000 (2.835.486) 109.180 100,00% (2.835.486) 0
Total 68.832.835 (10.853.112) 7.180.651 (294.297) 58.146.700
Interest held in share capital
Net profit (loss) for the period
Company and head-officeShare Capital Net corporate asset
Apc Socotherm pty Ltd 535 - 535Socotherm Americas S.A. Group 1.185 3.335 (2.150)Socotherm España - 354 (354)Socotherm Gulf of Mexico - 610 (610)Socotherm Usa 363 2.197 (1.834)Socotherm Middle East Fzco 43.579 44.220 (641)Socopower Srl 1 1 -Financial bad debt (44.114) (44.668) 554
Total 1.548 6.048 (4.500)
Financial receivables from subsidiaries 31.12.2013 31.12.2012 Changes
30
The directors consider that the net book values of the trade and other receivables approximate their fair value.
5) Tax assets
Given the new corporate scenario, the greater stability achieved and the ongoing recovery, supported by the mentioned business plan, the Company recognized tax assets for 3.3 million against the tax losses carried forward, which means an increase of Euro 0.7 million compared to 2012. This value corresponds to the amount deemed recoverable according to the business plan, i.e. the taxable income arising from the expected cash flows solely within the specified horizon of the business plan. Accordingly, the company continues not to include the tax benefit of loss carry forwards for a total of Euro 8 million.
6) Other non-current assets
The other non-current assets refer to the security deposits paid in advance.
Current assets
7) Inventories and work in progress
The trend of the level of inventory and work in progress is not linear over time and is strongly influenced by the programming of the works by the end customers.
The valuation of inventory in accordance with the average weighted cost method does not determine significant differences compared to a measurement based on a current values criterion.
The provision for obsolete goods amounted to Euro 984 thousand at 31.12.2013. The decrease compared to 2012 is due to the scrap of the District Heating inventory closed in 2012 and devaluated in the previous years.
31.12.2012
Opening balance 44.537 44.609Other movements (423) 59
Final balance 44.114 44.668
Allowance for doubtful financial receivables from subsidiaries
31.12.2013
Inventories 31.12.2013 31.12.2012 Changes
Raw materials 1.831 102 1.729 Works in progress 26 108 (82) Finished products and goods for resale 279 536 (257)
Total 2.136 746 1.390
31
8) Receivables
Trade receivables from domestic and foreign customers, and trade receivables from subsidiaries and associates refer to ordinary sales transactions; the increase in these items compared to the previous year is mainly attributable to higher turnover compared to the prior year. The amount of item “Receivables from subsidiaries and associates” specifically refers to Euro 5.3 million due from the subsidiary Socotherm Services Ltd (fully written-down), Euro 4.5 million due from the subsidiary Socotherm Angola (fully written-down), Euro 2 million from the subsidiary Socotherm Americas and Euro 0.4 million due from other Group companies.
Movement in the bad debts provision is analysed as follows:
The increase in bad debt provision mainly reflects the reclassification of receivables from Group companies subjected to insolvency proceedings and of the related bad debt provision in addition to impaired receivables mainly relating to prior years supplies to companies which, in the meanwhile, have been involved in insolvency proceedings and for which debt collection has therefore become objectively difficult.
The decrease in the bad debt provision for trade receivables due from group companies reflects the partial collection of receivables, fully written down in prior years, from Socotherm Middle East and the liquidation of the subsidiary Socotherm Field Services Srl, whose receivables and related provision were consequently written off.
Receivables 31.12.2013 31.12.2012 Changes
Receivables from customers 13.705 6.152 7.553Receivables from subsidiaries 12.203 16.446 (4.243)( Trade receivables - Bad debts prov. ) (3.936) (3.349) (587)( Trade receivables IC - Bad debts prov.) (9.821) (15.801) 5.980
Trade receivables 12.151 3.448 8.703
Receivables from pension and social security institutes 33 120 (88)Payments on account 89 54 35Receivables from others 1.344 901 443
Other receivables 1.466 1.075 391
Total 13.616 4.523 9.093
Opening balance 3.349 3.085Increase 844 264Utilizations (258) -
Final balance 3.936 3.349
Allowance for doubtful trade receivables from third parties 31.12.2013 31.12.2012
32
The directors consider that the net book values of the trade and other receivables approximate their fair value.
The information regarding the company’s trade receivables distinguished by item based on the geographic area is provided in the following table.
9) Current tax assets
The sharp increase in tax assets is due to VAT exempt invoicing during the year which resulted in a net VAT receivable at the end of the year.
10) Financial assets
This item refers to cash collaterals to secure performance bonds issued by leading banks in favour of customers for projects carried out in 2011 and expiring in 2015.
11) Cash and cash equivalents
The amounts shown can be promptly converted into cash and subject to an immaterial change in value. It is considered that the carrying value of the cash and cash equivalents
Opening balance 15.801 16.186Increase (5.980) (384)
Final balance 9.821 15.801
Allowance for doubtful trade receivables from subsidiaries 31.12.201231.12.2013
Receivables by geographic area From costumersFrom
subsidiariesFrom related
companiesTotal
AsiaPacific - - - - Americas - 2.382 - 2.382 West Africa - - - - E.M.E.A. 9.769 - - 9.769
Total 9.769 2.382 - 12.151
Current tax receivables 31.12.2013 31.12.2012 Changes
VAT receivables 4.195 1.399 2.796Receivables from tax authorities for withholdings &. other taxes - 291 (291)
Total 4.195 1.690 2.505
Liquid assets 31.12.2013 31.12.2012 Changes
Bank deposits and high negotiable securities 1.019 3.712 (2.692) Cash and cash equivalents 6 1 5
Total 1.025 3.712 (2.687)
33
is aligned with their fair value as at the date of the financial statements.
The credit risk connected to the cash and cash equivalents is to be considered as limited taking into account that the counter parties are banks with a high rating recognised by the leading international agencies.
The decrease in cash and cash equivalents was primarily due to the reimbursement of part of the share capital by the Australian subsidiary for approximately Euro 3 million during the month of December 2012; this was a non recurring event that did not take place again at 31 December 2013.
The trend in cash during 2013 was in line with business performance; there were no significant delays in cash collections, thus avoiding cash imbalances. The company took out debt to finance the recovery of the Pozzallo site in view of the projects for 2014.
Statement of Financial Position: Shareholders’ equity and liabilities
Shareholders' equity
The shareholders' equity amounted to Euro 69,647 thousand.
12) Share Capital
The share capital at 31 December 2013 amounted to Euro 63,605,008 fully subscribed and paid, made up of 772,225,173 shares without a nominal value.
Each share has the right to a proportional part of the profits which have been approved for distribution and the shareholders' equity resulting from a liquidation. Each ordinary share has the right to vote without any limitation.
13) Share Premium Reserve
The share premium reserve is mainly composed of:
o the greater value realised from the public issue which took place on 11 December 2002, as well as payments made for exercising option rights;
o the portion of the share capital increase, with subscription reserved to Fineglade Limited, allocated to the share premium and amounting to Euro 0.03415 for 732,450,000 shares for a total of Euro 25,013,168;
o the portion of the share capital increase, with subscription reserved to the minority shareholders, allocated to the share premium and amounting to Euro 0.03415 for 1,225,173 shares for a total of Euro 41,840.
Reserve Value Availability DistributabilityShare Premium Reserve 40.215.597 40.215.597Statutory Reserve 1.233.260 1.233.260Treasury Stock Held (624.470)
34
14) Statutory reserve
Socotherm S.p.A. legal reserve represents the part of profits that, in accordance with the provisions of art. 2430 of the Italian Civil Code, cannot be distributed as dividends.
15) Treasury shares in the portfolio
At 31 December 2013 Socotherm held treasury shares for a book value of Euro 624 thousand. The company made the purchase based on the authorisation received from the Shareholders' Meeting on 26 June 2008, which authorised the Board of Directors to buy treasury shares up to a maximum of 10% of the share capital, in compliance with legal regulations, at a price of not less than Euro 4.0 per share and not more than Euro 25.0 per share.
Treasury shares are directly deducted from equity.
16) Future Share Capital Increases
The "future share capital increase" account includes contributions made in prior years by Fineglade Limited, the main shareholder.
17) Other reserves and retained earnings
On 24 April 2013 the Shareholders' Meeting approved the financial statements for the year ended 31 December 2012 and resolved to allocate the profit for the year, amounting to Euro 7,688 thousand, to the statutory reserve for a 5% share (Euro 384) and to other reserves and retained earnings for the residual portion.
In accordance with IAS 19 (2011), the company recorded a reserve for actuarial Employee Benefits equal to Euro 30 thousand as of December 31, 2013.
Ordinary shares exixting at 1 January 2013 772.128.173
Treasury shares held in the portfolio 97.000
Outstanding shares at 1 Januray 2013 772.225.173
Issued shares -
Treasury shares sold -
Total outstanding shares at 31 December 2013 772.225.173
35
Liabilities
18) Financial payables
The increase in bank borrowings is related to the partial use of the Euro 10 million credit line opened in 2012 with JP Morgan Milan Branch. The Company also has credit lines in place relating to performance bonds, better detailed in Note 23.
Payables to Group companies decreased after closing the position in question.
Payables to related parties mainly refer to amounts due to the Fineglade Ltd for funds received in relation to the capital increases carried out in South America in 2011 and for the remaining portion to a minority shareholder. The increase is related to new loans received by the shareholder Fineglade Ltd.
At 31 December 2013, the financial payables of Socotherm S.p.A. mainly related to leases, as the company acquired a photovoltaic plant and an industrial warehouse through financial leases. In December 2012, the Company entered into a finance lease contract for an industrial area located in Adria (Ro) for a total amount of Euro 4 million and an 18-year term. Another significant contract has been in place since 2011, with a 15-year term, concerning the photovoltaic plant installed in our production site in Pozzallo, Sicily. The average term of the other finance lease contracts is 3-4 years; the effective average rate on these contracts is between 3% and 6%.
The interest rate is fixed at the date of stipulation of the contracts, which are all repayable through a fixed constant instalments plan.
There were no contracts in place denominated in currencies other than the Euro.
Financial payables
Shor
t te
rm
Long
ter
m
Bala
nce
at
31.1
2.20
13
Shor
t te
rm
Long
ter
m
Bala
nce
at
31.1
2.20
12
Due to banks 2.512 - 2.512 - - - Due to group companies - - - 1.991 - 1.991 Due to related parties 17.456 - 17.456 15.050 - 15.050 Financial leases 322 6.580 6.902 801 6.902 7.703
Total 20.290 6.580 26.870 17.842 6.902 24.744
36
The net financial position worsened following the above mentioned changes, which are summarized below:
o Decrease in liquidity as a result of investments and maintenance works carried out at the Pozzallo site;
o Decrease in financial receivables from group companies;
o Increase in bank borrowings and in borrowings from the majority shareholder in order to support operations and capital expenditures.
19) Employee benefits (TFR)
This item of Euro 892 thousand refers to the leaving indemnities and other benefits accrued in favour of employees before the coming into force of the obligation to pay these benefits to the INPS Treasury Fund or to private funds.
20) Provision for liabilities and charges
Net debt 31.12.2013 31.12.2012
Cash and cash equivalents 1.025 3.712Current financial assets 970 970Current assets 1.995 4.682Current bank borrowings 2.512 -Due to leasing companies 322 801Due to group companies - 1.991Other financial payables - short term 17.456 15.050Current debt 20.290 17.842Current net debt 18.295 13.160Non-current financial assets (1.548) (6.179)Non-current borrowings from banks - -Due to leasing companies - long term 6.580 6.902Non-current net debt 5.032 722
Net debt 23.326 13.882
Provision for liabilities and charges
31.
12.2
012
Prov
isio
ns
Uti
lizat
ions
Oth
er m
ovem
ents
31-D
ec-1
3
Provision for liabilities and charges 7.005 331 (2.143) (253) 4.940
Total 7.005 331 (2.143) (253) 4.940
37
At 31 December 2013 the provision for liabilities and charges amounted to Euro 4,940 thousand and was prevalently intended to meet the following contingent liabilities:
o Taxes relating to the Malaysian company PPSC IH; a request for ruling was in fact presented to exclude the company's income from the CFC scope as it was generated by operational companies. The ruling was initially unfavourable but the company decided to appeal against this decision, winning in December 2010 at the Tax Commission of Rome; nevertheless, given the uncertainties of the appeal outcome obtained before a Court other the original Court where the action was initiated, the Directors prudentially decided not to cancel the related provision.
o Disputes related to labour law issues.
o Lawsuit brought by a minority shareholder in respect of alleged breaches by the Company. With regard to this litigation at present both the outcome and the amount are uncertain. Conservatively, the Directors have decided to keep the provision created in previous years.
o Allocation of an incentive plan for a number of managers and employees.
During the year, some provions were cancelled, namely because (i) BBVA requested the reimbursement of the sum paid to the Spanish Ministery of Economy under the guarantee in favour of Socotherm Espana and counter-guaranteed by Socotherm SpA and (ii) a portion of the bonuses to employees related to 2012 have been paid.
With reference to the procedure in progress with the Gela Republic Prosecutor's Office and corresponding process of assessment by the Vicenza Revenue Office it is noted that:
o The administrative audit by the Fiscal Police was concluded with the issue of the Official Tax Report on 8 April 2009.
o On 29 May 2009 the company presented its defensive brief against the aforesaid Official Tax Report on Findings, contesting the greater part of the recoveries indicated, considered as not conforming to the general principles of the legal system (loan, plant grants and non-deductible costs).
o Furthermore, in January 2010, the Vicenza Revenue Office notified the tax assessments relating to the 2004-2007 tax periods, adopting in full the observations of the Fiscal Police contained in the Formal Notice of Assessment.
o The assessments were challenged before the first instance Tax Commission, meeting in an initial hearing on 8 November 2010, when Socotherm sustained the unreasonableness of the recovery for taxation of the loans and plant grants supplied by the Ministry of Production, even considering that the said amounts were allocated to the provisions for the payment in full of the preferential creditors.
o The Tax Commission requested sight of the accounting for the aforesaid payment by 10 December 2010 and subsequently met on 10 January 2011. The
38
Commission on 22 June 2011 issued its judgment and dismissed about 85% of the tax assessments alleged by the Revenue Office.
o On 7 February 2012 the Revenue Office appealed against the Commission's decision. The Company filed its pleadings and counter-arguments and to date the date for the second instance proceedings has not yet been set.
o On 30 September 2013, the Regional Tax Commission, partially revising the judgment of the first instance court, dismissed the appeal filed by the Revenue Office and upheld the interlocutory appeal by the taxpayer, cancelling the notices of assessment.
21) Payables
At 31 December 2013, trade payables were higher than in the previous year also due to the trend in production. Payables to subsidiaries increased in relation to the lease agreement for buildings between the Company and the subsidiary Socofin S.r.l. Unipersonale.
All the payable are related to the EMEA area.
22) Current tax liabilities Current tax liabilities include payables to local Italian tax authorities for direct and indirect taxes and employee contributions.
23) Financial instruments, commitments and risks
There are no outstanding derivative contracts.
The guarantees issued in favour of the company are shown below:
Payables 31.12.2013 31.12.2012 Changes
Trade payables to suppliers 4.175 1.055 3.120 Due to subsidiary and related companies 5.353 3.948 1.404 Trade payables 9.527 5.003 4.524
Due to social-security institutions 455 308 147 Payables to employee for salary and wages 568 349 220 Other payables to third parties 1.279 1.412 (133) Other payables 2.303 2.069 234
Total 11.830 7.072 4.758
39
As already mentioned, the three performance bonds issued by Cassa di Risparmio del Veneto (Intesa Sanpaolo Group) are secured by cash collateral for the same amount.
Carive - Performance Bond 590.000 28-feb-15 Ilva SpaJPMorgan - Bond Subsea7 2.036.552 31-mar-15 Subsea7JPMorgan - Controgaranzia Enel 125.000 30-giu-14 Enel Energia SpaCariveneto - Performance Bond 224.333 31-ago-15 Petrofac InternationalCariveneto - Performance Bond 155.732 14-mag-15 Corinth Pipe WorksBNL - Gurantee in favor of Saipem 141.000 Indet. Saipem SpaUtilities' garantee 3.615 AIM Vicenza
Total 3.276.233
GuaranteesGuaranteed
amountDue date Provided to
40
Income Statement
Net revenues
24) Revenues from sales and change in work in progress
The revenues from sales and services relate to the normal business of Socotherm S.p.A. and therefore refer to the coating of steel pipes, supply of spare parts for the construction of plants dedicated to this activity and the sale of several raw materials. The increase in revenue compared to 2012 was Euro 11.2 million, which was due to increased coating activity at the Adria site and the restart of production at the Pozzallo site with the Kizomba Phase II project. The increase was mainly recorded in the third quarter of 2013 as a result of completion of the two main jobs of the year, the aforementioned Kizomba Phase II project in Pozzallo and the Litchenjili project in Adria.
The revenue performance confirmed the market's regained confidence. The level of revenues, on the one hand, confirms the main customer's loyalty (Tenaris-Dalmine), and on the other hand, the return of a number of customers with whom Socotherm had done business in the past (Project Material, Butting).
With regard to the change in inventories of products in progress, semi-finished and finished products, works in progress on orders and increases in non-current assets from internal production, please refer to the analysis of the relative items in the statement of financial position.
Revenues from sales and services were entirely generated in the EMEA region. (Europe, Middle East, Africa).
25) Other revenues and income
Revenues from sale and services 31-Dec-13 31-Dec-12 Changes
Pipe coatings 22.512 12.113 10.400Revenues from sales materials 3.410 2.790 620Revenues from services 370 148 222
Total 26.292 15.050 11.242
Other revenues 31-Dec-13 31-Dec-12 Changes
Recovery of various costs 102 94 8Gains 5.684 7.390 (1.706)Insurance reimbursements 10 75 (65)
Royalties 100 135 (36)
Other revenues and income 288 369 (81)
Total 6.184 8.063 (1.880)
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This item includes non recurring gains from the release of provisions for liabilities and charges due to higher provisions made in previous years, the write-off of Socotherm Middle East bank debt with UniCredit SpA, which was secured by Socotherm SpA, and the final closure of two finance leases on equipment.
Operating costs
26) Costs for production materials
The impact of raw materials on sales and services revenues (net of the change in inventory) went from 32.72% in 2012 to 30.84% in 2013. This change was primarily attributable to higher revenues, which allowed production efficiency, as well as a difference mix of coating applications.
27) Costs for services
For better information on the financial statements, the table below shows the “Costs for services” broken down by their respective use.
The increase in all items classified as industrial services was determined by higher production activity during the year compared to the prior year.
As regards costs for commercial services, there was an increase compared to the
Production costs 31-Dec-13 31-Dec-12 Changes Variazioni %
Raw materials 8.320 3.850 4.470 116%Consumable materials 391 217 174 81%Other purchases 410 147 263 179%Change in inventories (1.010) 709 (1.719) -242%
Total 8.110 4.923 3.187 65%
Services 31-Dec-13 31-Dec-12 Changes Variazioni %
Outsourcing costs 227 53 174 331,3%Utilities 1.143 747 396 53,1%Maintenance 1.231 212 1.019 481,1%Transport 483 124 359 289,2%Remuneration of industrial collaborators 64 212 (148) (69,9%)Other industrial costs 196 148 49 33,0%Inustrial services costs 3.343 1.494 1.849 123,7%
Travel and lodging 699 391 309 100,0%Commissions (1) 0 (1) (362,4%)Advertising 24 69 (46) (65,8%)Other marketing services costs 41 9 32 377,4%Marketing services costs 763 469 294 62,8%
Directors and Statutory Auditors' fees and expenses 64 154 (90) (58,5%)Banking and insurance services 269 364 (95) (26,1%)Legal and administrative services 2.176 1.505 672 44,6%
Other general costs 969 724 246 33,9%Administrative and general services costs 3.479 2.746 732 26,7%
Total 7.585 4.709 2.876 61,1%
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previous year mainly due to higher costs incurred for travel and subsistence in Pozzallo.
The costs for administrative and general services increased slightly over the previous year. This is due to some opposing factors: lower cost of corporate bodies, lower impact of banking and insurance services, higher administrative and legal costs. The last mentioned item increased compared to 2012 mainly due to extra costs for non-recurring transactions, such as legal expenses for an ongoing arbitration procedure, administrative expense for the arrangement with creditors in Spain and various consulting services for outstanding lawsuits.
28) Personnel costs
Personnel costs comprise the entire expense for employees, including therein the merit increases, changes of category, cost of living increases and the provisions provided by the law and collective category contracts.
Labour costs in 2013 amounted to Euro 10,284 thousand, up by Euro 3,042 thousand compared to 2012, as a result of increased turnover for the year and the reopening of the Pozzallo site.
The total number of employees at 31 December 2013 was 140 compared to 130 at 31 December 2012.
The headcount classified in accordance with the movement per category is shown in the schedule below:
Personnel costs increased from the previous year in absolute terms, which resulted in a slight increase also as a percentage of net revenues, from 31.8% in 2012 to 31.9% in 2013.
Payroll costs 31-Dec-13 31-Dec-12 Changes
Wage and salaries 5.469 5.093 376Social security charges 2.137 2.075 62Employee benefits 37 73 (37)Other staff costs 2.641 - 2.641
Total 10.284 7.242 3.042
Personnel 31.12.2013 31.12.2012 Changes
Managers 5 3 2 White collars 69 56 13 Blue collars 66 71 (5)
Total 140 130 10
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29) Amortisation, depreciation and provisions
Depreciation and amortization decreased compared to the previous year due to different allocations of reversals/write-downs arising from impairment.
The write-down on receivables refers only to trade receivables and was carried out after evaluation of their reasonable realizable value. The provisions for liabilities and charges mainly relate to tax risks and disputes with staff.
The item "Write-downs/Reversal of write-downs of non-current assets and inventories" refers to assets being written up as a result of the impairment test, as previously amply described.
30) Other operating costs
Other operating costs are substantially in line with those of last year.
31) Net financial income and charges
Interest income mainly derives from loans granted in the financial year to some subsidiaries in relation to the Group’s centralised financial management.
32) Foreign exchange gains and losses
Amortization, depreciation and provisions 31-Dec-13 31-Dec-12 Changes
Depreciation of tangible assets 2.055 2.732 (677)Bad debts 863 283 580Assets write-off (1.076) (6.454) 5.378Provision for liabilities and charges 331 1.565 (1.234)
Total 2.174 (1.873) 4.047
Other operating costs 31-Dec-13 31-Dec-12 Changes
Rents 1.890 2.105 (215)Other operating costs 784 589 195Operating leases 212 255 (43)
Total 2.886 2.949 (63)
Financial income and charges 31-Dec-13 31-Dec-12 Changes
Interest receivable 285 130 155 Of which:
Interest receivable from subsidiaries 175 112 62 Other interest receivable 110 18 93 Interest payable and commissions (531) (142) (389)
Total (247) (12) (234)
44
The item “Foreign exchange gains and losses” was affected by the performance of the exchange rate against the U.S. dollar and Argentine Peso This item impacted significantly on the dollar exposure to Fineglade Ltd.
33) Write-down of equity investments
There were no write-downs or write-backs on equity investments.
34) Net income (charges) from equity investments
No dividends were received from or declared by the subsidiaries.
35) Income taxes for the year
The taxes booked in the Statement of Financial Position and the Income Statement are those that were estimated by accrual on the result for the year.
Income taxes were positive as a result of the recognition of deferred tax assets for Euro 0.6 million, which were considered as recoverable based on the 2014-2016 business plan, and the recognition of proceeds from the tax consolidation for Euro 0.4 million.
A reconciliation between the effective and theoretical tax rates was not carried out as the company incurred in a tax loss.
45
36) Other information
Remuneration of the independent Auditor
Audit fee for the financial statements and tax declaration of Socotherm S.p.A. for financial year 2013
47
Periodic checks provided for by art. 155, paragraph 1 letter a) of the Consolidated Law for 2013
5,5
Coordination and control of the data consolidation process and audit of the consolidated financial statements for 2013
19
The above amounts are in thousands and net of VAT, inflation adjustments and out-of-pocket expenses.
During the 2013 financial year, ShawCor Ltd., the controlling company of Fineglade Ltd., main shareholder of Socotherm SpA, requested an audit on September 30, 2013 financial statement of the company. The mentioned audit is not included in the scope of the work of the engagement letter signed between the company and the audit firm. Therefore, it has been agreed an additional fee equal to Euro 25 thousand.
A part this additional activity, there were no fees for advisory services performed by the Company appointed as independent auditor or for the provision of services other than the financial audit.
Remuneration payable to the directors and statutory auditors: As in 2012, the Directors did not receive any remuneration for their office. Details of the remuneration to the members of the Board of Statutory Auditors and the Supervisory Body are shown in the following table.
Pierlugi De Biasi – Chairman of the Statutory Auditors: Euro 26.000 Massimo Agostini – Statutory Auditor: Euro 17.000 Gianfranco Antonio Vento – Statutory Auditor: Euro 17.000
Gianluigi LaBricciosa – Supervisory Body: Euro 14.000 Gianni Golinelli – Supervisory Body: Euro 8.000
Related party and intragroup transactions
Pursuant to Consob Resolution no.15519 of 27 July 2006 and consistent with the relative policies adopted by the Group, the existing significant equity and financial relationships with related parties are shown below; this exposure is such as to meet also the
46
disclosure required by IAS 24.
During the course of 2013, Socotherm S.p.A. carried out commercial and financial transactions with the shareholders and/or their subsidiaries. This refers to relationships existing in connection with normal operations, regulated by contractual conditions established by the parties in line with ordinary market practices. The values are shown in the following table:
Management and types of financial risks
As the company operates in all the world’s markets, its business is exposed to various types of financial risks, including amongst these exchange rate risk, credit risk, liquidity risk, interest rate risk and price risk.
At 31 December 2013 there were no derivative instruments, while financial instruments, other than derivatives, were used, such as financial leasing, hires, sight deposits and payables and receivables deriving from normal operating activities.
Listed below in greater detail are the financial risks to which the company is exposed and the methods with which they are managed. All the values presented in the subsequent analysis, in accordance with the provisions of the IFRS 7 international accounting standard, do not include the values relating to equity investments in associates and jointly controlled companies, payables to the personnel, welfare entities,
Trade Fin. Trade Other Fin. Comm. Fin. Comm. Other Fin.
CONSOLIDATED SUBSIDIARY COMPANIESApc Socotherm pty Ltd 21.715 - 21.715 534.689 9.886 - - Provision for bad debt APC - - (19.210) (534.689) - -
Socotherm (Shashi) Pipe Coating Ltd 110.940 105.562 - - -
Socotherm Americas S.A. Group 586.781 6.141.203 - - 2.077.892 1.548.036 1.220.883 -
Socotherm Americas S.A. 201.269 3.334.692 364.426 1.184.860 1.156.155 -
Socotherm Americas S.A. - dividends 1.176.208 - - - -Socoven moratoria 49.809 - - - -Socotherm LaBarge 195.888 609.584 1.222.765 - 16.925 -Socotherm USA 49.769 2.196.927 - 363.176 - -Socotherm Brasil S.A. 130.341 490701 - - -
- Provision for bad debt Brasil - - -Atlantida Socotherm S.A. 9.514 - - 47.803 - - Provision for bad debt Atlantida - - -
Socotherm West Africa - - - - - Provision for bad debt SWA - - - -Socotherm Nigeria - - - -
- Provision for bad debt SCN - - - -
Socotherm Angola 4.654.702 4.520.263 - - - - Provision for bad debt SCA (4.654.702) (4.520.263) - - -
Socobras - - - -
Socotherm PPSC Ningbo (Daxie) Pipe Coating Ltd - - - -Socotherm Infraviab Srl 242.113 - - - - - - -
- Provision for bad debt SIV (209.708) - - - -
Socotherm Services Ltd 5.461.549 - - - - -
- Provision for bad debt SSE (5.461.549) - 5.281.576 - - -Socofin Srl Unipersonale 572.385 3.256.009 - (5.281.576) - - -
Socotherm España 761 354.284 - 975.450 5.316.740 - - Provision for bad debt SCE (761) (354.284) - - - -Socotherm Field Services Srl 2.936.629 - - - - -
- Provision for bad debt SFS (2.936.629) - - - - -
Socotherm Middle East Fzco 2.505.518 44.219.885 681.203 1.991.082 - 43.579.061 - -
- Provision for bad debt SME (2.505.518) (44.181.767) - (43.579.061) - -Socopower Srl 32.189 1.101 - - -
- Provision for bad debt SCP (32.189) (1.101) - - - -
Shawcor Group - - - 946.557 -
- Provision for bad debt SIE - - -Socotherm Latino Americana - - - - - Provision for bad debt SLA - - - -
Fineglade Ltd 12.782.077 - - - 15.188.372 -- - - -
Minority shareholder 2.267.944 - - - 2.267.944 -- - -
Total 667.190 6.751.706 3.937.212 16.276.038 1.991.082 2.185.959 2.523.486 7.494.066 17.456.316
31.12.2013Receivables Liabilities
SOCOTHERM SPA
Receivables31.12.2012
Liabilities
47
revenue office, and employee benefits. Finally, transactions with share-based payments are excluded.
Exchange rate risk
Qualitative information
In general the company is exposed to exchange rate risk, which relates to commercial activities in relation to the different geographic distribution of its production activities. As the company may find itself holding trade receivables or payables denominated in currencies other than the euro, sudden fluctuations of the exchange rates could have a negative impact on the financial results of the company.
Quantitative information
Breakdown by currency of denomination of the assets and liabilities
The impacts on profit(loss) as at 31 December 2013, assuming a hypothetical change of +/-10% in the exchange rates are shown below.
(thousand €)
Trade Receivables Receivables from subsidiary and related companiesOverdrafts OverdraftsFinancial payables Borrowings from banks
Total 2.964
-
2.473
491
Currency
USD Dollars
31-Dec-13
(thousand €)
10% -10%
Trade Receivables Receivables from subsidiary and related companies 2.248 2.748Overdrafts Overdrafts 446 545Financial payables Borrowings from banks - -
Total 2.694 3.293
Currency
USD Dollars
48
Credit risk
Qualitative information
The credit risk is defined as the risk that one of the parties of the financial instrument determines a financial loss to the counterparty for default on an obligation. Socotherm’s exposure to the credit risk refers mainly to trade receivables, to which Socotherm is exposed both from multinational companies and the Public Administration, and small to medium customers. On the basis of this indication, it is possible to go on to the riskiness of the receivables, specifically the first two types are characterised by a high credit rating (even if by differing deferred payment timings), while small to medium customers have quite a high degree of riskiness. The investment transactions, such as any investments in derivative instruments, are entirely conducted with bank counter parties of high standing.
The counterparty/substitution risk on the exposures in derivative instruments is a particular case of the credit risk: in this case the risk is connected to the gains positions with respect to which there is the possibility of not receiving the positive cash flows from the counterparty in the case of a default thereof. This potential risks, in the case of Socotherm, does not exist as during the financial year and following admission to the arrangement with creditors procedure, the company ended every derivative relationship.
Quantitative information
An analysis is shown in the following tables of the ageing of overdue trade receivables and the maximum credit risk exposure.
(thousand €)
Book value31.12.2012
Gross amount Write-off Net amount Net amount
Trade receivables
Not expired 9.632 - 9.632 1.217 9.632 1.157Due within 3 months 614 - 614 663 614 663Due between 3 and 6 months 741 - 741 183 741 183Due between 6 months and 1 year 908 - 908 199 908 199Due between 1 and 2 years 218 - 218 249 218 249Due after 2 years 13.795 (13.757) 38 937 38 937
Total 25.908 (13.757) 12.151 3.448 12.151 3.388
Fair value
Analisys of outstanding trade receivables
Book value
31.12.2013 31.12.201231.12.2013
49
The directors consider that the net book values of the trade and other receivables approximate their fair value.
An analysis is shown in the following tables of the trade receivables written-down individually.
Liquidity risk
Qualitative information
The liquidity risk is defined as the possibility that the company is unable to meet its payment commitments due to inability to raise new funds (funding liquidity risk), the inability to sell assets on the market (asset liquidity risk), or else it is obliged to incur
(thousand €)
31-Dec-13 31-Dec-12
Investments Financial assets
Non current financial assets 50.734 51.158 Trade receivables
Receivables from costumers 13.705 6.152 Receivables from subsidiary and related companies 12.203 16.446
Receivables from others Receivables from insurance companies 33 120 Payments on account 89 54 Receivables from others 1.344 901
Other activities Cautions 80 79
Total 78.188 74.910
Guarantees 3.276 4.747
Total credit risk 81.465 79.657
Maximum credit risk ( gross value )Receivables and financial assets
(thousand €)
Carrying value gross of write-
downWrite-down Carrying value Fair value
Carrying value gross of write-
downWrite-down Carrying value Fair value
3 receivables written-down by 100% 2.946 (2.946) - - 322 2.265 (2.265) -
82 receivables written-down by 90% 536 (482) 54 - 1.368 1.062 (956) 106
1 receivable written-down by 80% 5 (4) 1 - 24 24 (19) 5
2 receivables written-down by 75% 648 (486) 162 - 503 - - -
5 receivables written-down by 50% 8 (4) 4 - 195 835 (418) 418
5 receivables written-down by 50% 56 (14) 42 - 195 176 (70) 106
Receivables not written-down 9.506 - 9.506 - 5.974 2.205 - 2.205
Total 13.705 (3.936) 9.769 - 9.287 6.670 (3.799) 2.870
31-Dec-12
Analysis of trade receivables written-down individually
31-Dec-13
(thousand €)
Carrying value gross of write-
downWrite-off Carrying value Fair value
Carrying value gross of write-
downWrite-off Carrying value Fair value
Receivables written down at 100% 9.821 (9.821) (0) - 13.143 15.801 (15.801) -Receivables not written-down 2.382 - 2.382 - 585 514 - 514
Total 12.203 (9.821) 2.382 2.382 16.915 16.315 (15.801) 514
Analysis of trade receivables written-down individually
31-Dec-13 31-Dec-12
50
very high costs to meet its commitments. Socotherm S.p.A. exposure to this risk is represented above all by leasing transactions and short-term trade payables.
With reference to the principal loans granted to the company by the banks in the previous financial years, these no longer exist as they were partially paid and partially waived as an effect of the approval of the “arrangement with creditors” procedure and subsequent distribution plan.
Quantitative information
The company’s exposure to the liquidity risk, represented by an analysis of the maturities in accordance with the provisions of IFRS 7, is indicated in the following table. The instalments of operational leases are not represented, as they are not covered by this standard, since they are not representative of real debt but rather reduce accumulated depreciation.
The analysis of the maturities shown here was carried out using the undiscounted cash flows (including interest and principal) and the amounts were inserted taking into account the first date when payment can be requested.
The financial payables after 1 year only consist of payables to leasing companies.
Market risks
The company’s market risk derives from the effects of changes in price or other market risk factors on the value of equity investments held in the available for sale portfolio and the risk of a change in commodity prices.
As at 31 December 2013, the company was not exposed to the interest rate risk deriving from the eventuality that an adverse change in the interest rate curve would influence, according to the type of exposure, the future cash flows or the fair values of financial instruments.
At 31 December 2013, there were no derivative contracts in place to hedge interest rates and loan agreements in place with subsidiaries were at fixed rate.
Commodities price fluctuation risk
The price risk is defined as the risk that the fair value or future cash flows of the financial instruments fluctuate due to changes in the market prices. The Group mainly uses raw
(thousand €)
WITHIN 1 YEAR OVER 1 YEAR WITHIN 1 YEAR OVER 1 YEAR
Trade payables 9.527 - 5.003 - Financial debts 17.778 6.580 17.842 6.902 Other payables 2.303 - 2.069 -
Total 29.608 6.580 24.914 6.902
Maturity of financial liabilities
31-Dec-13 31-Dec-12
51
materials (polyolefins and epoxy powders) the price of which is linked to the price of oil in dynamic terms, though not in terms of percentage fluctuations. Socotherm is partly exposed to the price risk because it purchases various raw materials such as plastic products and iron derivatives. The risk is dealt with and optimised thanks to a centralised purchasing policy and the practice of using several suppliers operating in different parts of the world for every type of raw material.
In 2013 raw material prices were above those recorded in 2012. With the continuing increase in the price of oil and of oil products it is expected that the costs of raw materials will continue to rise, with consequent negative effects on the company’s financial situation.
Management of operating risks: insurance coverage
The Group takes advantage of the ShawCor Group's insurance plan aimed at minimising the negative financial impacts caused by accidents. The inclusion in the ShawCor plan has led to improved coverage, both qualitatively and in terms of liability limits, and to significant savings in terms of insurance premiums.
The plan was prepared with the support of a leading international broker.
In addition to policies of a general nature such as third party liability, the all-risks policy covering damage suffered by the company’s assets and the directors’ third party liability policy, the company has taken out specific policies for its pipe coating business such as third party liability policy for products and a transport policy.