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Socotherm Group

Consolidated Financial Statements

as at 31 December 2011

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CONSOLIDATED BALANCE SHEET

Amounts in Euro/000

ASSETS 31.12.2010

Property, plant and equipment 60,546 68,781 Fixed Assets 60,546 68,781 Investments in associates and joint ventures 1,080 1,168 Deferred tax assets 1,730 2,020 Other non current assets 13,829 12,822 Other non current assets 16,639 16,010

Total non current assets 77,185 84,791

Inventories 10,471 10,485 Trade receivables 19,256 22,907 Other receivables 2,900 5,580 Tax assets 2,633 4,660 Financial assets 61 3,200 Cash and cash equivalents 10,055 8,118

Total Current Assets 45,376 54,950

Assets held for sale 22,161 16,100

Total assets 144,723 155,841

31.12.2011

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CONSOLIDATED BALANCE SHEET

Amounts in Euro/000

LIABILITIES 31.12.2010

Share Capital 63,563 63,563Share premium reserve 40,174 40,174Reserve for translation differences (34,669) (34,236)Retained earnings and other reserves (22,580) (169,477)Profit (loss) for the period (11,277) 137,305

Group interest in shareholders' equity 35,211 37,329

Capital stocks and Minority interest reserves (4,454) (408)Net income for the period - Minority interest (2,619) (9,327)

Minority interest in shareholders' equity (7,073) (9,734)

Total shareholders' equity 28,138 27,595

Borrowings from banks 0 5,435Borrowings from other financial institutions 9,898 11,702Borrowings from shareholders 10,614 10,533Employee benefits 1,255 1,598Provisions for risks and charges 14,531 18,853Provision for deferred taxes 513 835Other liabilities 10,741 8,605

Total non-current liabilities 47,552 57,561

Borrowings from banks 6,519 15,218Borrowings from other financial institutions 2,036 2,160Trade payables 17,067 21,678Other liabilities 9,117 7,338Related party liabilities 15,300 6,860Tax payables 2,355 1,484

Total current liabilities 52,392 54,739

Liabilities held for sale 16,640 15,947

Total liabilities and shareholders' equity 144,722 155,841

31.12.2011

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CONSOLIDATED INCOME STATEMENT

Amounts in Euro/000

INCOME STATEMENT 2010

Revenues from sales and services 74,183 40,306Change in inventories, works in progress, increases for internal works (620) (651)Other revenues and incomes 3,490 180,094

Net revenues 77,053 219,749Raw materials 29,993 14,245Services 16,631 17,869Personnel costs 26,140 21,914Depreciation, amortization and writedowns 5,632 24,157Rental costs 3,166 3,291Other expenses 1,252 985

Operating costs 82,813 82,461

Operating profit (5,760) 137,288Net financial income (expenses) (4,975) (4,930)Net profit (loss) on exchanges 1,100 4,223

Profit before taxes (9,635) 136,581Income taxes (3,474) (2,857)

Profit (loss) for the year (13,109) 133,723

Profit (loss) asset held for sale (787) (5,745)


Minority interest in profit (loss) 2,619 9,327

Group interest in profit (loss) (11,277) 137,305

2011

OTHER COMPONENTS OF COMPREHENSIVE INCOME STATEMENT

COMPREHENSIVE INCOME STATEMENT(Amounts in thousand of Euro )


Reserve for translation differences (2,871) (5,819) Other movements 0 (221)

Total other components (2,871) (6,040) Total comprehensive profit (loss) for the year (16,766) 121,938

2011 2010

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(Amounts in thousand of Euro)

Share

capital Share premium reserve Versam. soci Legal reserve

Treasury

shares

Reserve for

tranlation

Retain earnign and

Other reserves

Profit (loss) for

the period Minority Total equity

Balance at 31.12.2009 38.550 15.161 0 848 (624) (31.697) (64.778) (107.542) 345 (149.737)

Allocation of 2009 result: (107.542) 107.542 0

Profit/(loss) for 2010: 137.305 (9.327) 127.978

Increase capital share 25.013 25.013 50.026

Reserve for translation differences (2.539) (2.465) (815) (5.819)

Future increase capital share 5.375 5.375

Other changes (221) (221)

Reclassification (63) 63 0

Income (loss) for the period (2.539) (2.749) 137.305 (10.079) 121.938

Change in the scope of consolidation (8) (8)

Balance at 31.12.2010 63.563 40.174 5.375 848 (624) (34.236) (175.077) 137.305 (9.734) 27.595

Balance at 31.12.2010 63.563 40.174 5.375 848 (624) (34.236) (175.077) 137.305 (9.734) 27.595

Allocation of 2010 result: 137.305 (137.305) 0

Profit/(loss) for 2011: (11.277) (2.619) (13.895)

Capital increase 2.776 2.776

Reserve for translation differences (434) (4.944) 2.503 (2.875)

Future increase capital share 14.532 14.532

Other changes 4 4

Totale other components 14.532 (434) (4.940) 2.503 11.662

Income (loss) for the period (434) (4.944) (11.277) (116) (16.770)

Change in the scope of consolidation 0

Balance at 31.12.2011 63.563 40.174 19.907 848 (624) (34.669) (42.711) (11.277) (7.073) 28.137

35.211 (7.073) 28.138

Changes in Consolidated Shareholders' Equity

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CONSOLIDATED STATEMENT OF CASH FLOWSAmounts in Euro/000

CONSOLIDATED STATEMENT OF CASH FLOWS 2011 2010

Profit ( loss ) (13.895) 127.978

Extraordinary gain 0 (169.636)

Profit/(loss) on assets held for sale 787 5.745

Amortizations tangible asset 5.796 5.550

Write-down of non-current tangible assets 0 4.333

Revaluation of tangible assets (4.874)

Allocation to allowance for doubtful trade receivables 1.008 1.239

Revaluation trade receivables 0 (6.208)

Write-off inventories 126 1.480

Net deferred taxation (716) (1.073)

Increases ( decreases ) in future provision for liabilities and charges (2.696) 9.717

Increases ( decreases ) in benefit (76) (75)

Asset held for sale restatement effect 0 (710)

Asset and liabilities changes(Increases) decreases in due from customers (10.099) 14.095

Increases ( decreases ) in inventories (1.777) 892

Increases ( decreases ) in due to suppliers 13.464 (14.788)

Increases ( decreases ) other payables 7.088 3.945

Net change in current tax asset and liabilities 2.817 (4.158)

Increases ( decreases ) in other long term liabilities 2.027 1.164

(Increases) decreases in other receivables 2.362 309

Total cash flow from operations 1.341 (20.201)

(Investments)/disinvestments in non-current intangible assets (2.238) (2.784)

(Investments)/disinvestments in non-current tangible assets 830 1.302

Acquisition of equity investments 0 70

Sales of equity investments 0 0

Total cash flow from investments (1.408) (1.411)

Change in debts for financial leases (1.927) (1.192)

Change in short-term financial borrowings from bank (4.252) (36.697)

Change in long term finacial receivables 0 (996)

Change in borrowings from other financial institutions 0 16.566

Change in short term finacial receivables 3.139 4.885

Change in short term finacial payables 0 (8.842)

Change in bond 2 (12.515)

Other equity movements (10.893) (12.549)

Total cash flow from financing activities (13.930) (51.339)

Increase capital share 14.532 55.401

Increase capital share third parties 2.776

Cash flow for ther period 3.311 (17.550)

Change in liquid asset IFRS 5 (1.374) (13)

Starting cash and cash equivalents 8.118 25.681

Final cash and cash equivalents 10.055 8.118

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Explanatory Notes to the Consolidated Financial Statements

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, United States, Venezuela, Australia, Angola and China.

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 solutions and high added-value.

On 4 August 2009 the parent Socotherm S.p.A. presented an application for an Arrangement with Creditors, as a result of which, the company’s shares were suspended from being traded for an indeterminate time.

On 17 May 2010 Socotherm signed an investment agreement with a consortium of investors consisting of: (i) 4D Global Energy (ii) Sophia Capital Partner (iii) ShawCor Limited which provides for a capital increase to be effected by these investors, previously approved by the Company and reserved to the investors themselves, against payment of a total subscription price of € 50,026,335 as a result of which the investors would acquire a 95% stake in the share capital.

The capital increase, subject to the issuing of the executive decree of approval by the Vicenza Court, was approved by the company on 25 June 2010, according to the following terms and conditions:

- increase in paid-in capital, excluding partial subscription and excluding the pre-emption right pursuant to Article 2441, paragraphs 5 and 6 of the Italian Civil Code, for a total amount of Euro 50,026,335 by issuing 732,450,000 new ordinary shares with no par value and having the same dividend rights and the same characteristics as the other shares at the date of issue; the new shares represent a total stake in the capital of the company - after implementation of the capital increase - of 95% of subscribed capital, except for dilution effects arising from the payment of capital authorised but not yet subscribed;

- subscription price equal to Euro 0.0683 per share, Euro 0.03415 of which representing the nominal value and Euro 0.03415 the share premium.

The capital increase affects the unit value of outstanding shares. In fact, due to the issue of 732,450,000 new ordinary shares with no par value against an increase in the nominal share capital of the Company, after implementation of the reserved capital increase up to Euro 63,563,167.50, the implicit value of each outstanding share of Euro 1 was reduced by Euro 0.9175575. Consequently, the implicit nominal

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value of each outstanding share after implementation of the reserved capital increase amounts to Euro 0.0824425.

The capital increase became effective on 29 October 2010 with the decree of approval of the restructuring arrangement.

On 4 February 2011, CONSOB - the National Commission for Companies and the Stock Exchange - further to a query presented by Fineglade Limited (95% shareholder of Socotherm S.p.A.) on 15 September 2010, as well as subsequent contacts, determined that "considering that Socotherm’s free float cannot be effectively reconstituted within the term provided by art. 108 paragraph 2 of the Consolidated Finance Act, which [...] will expire on 17 February 2011, Fineglade Limited has the obligation to buy Socotherm shares from anyone who applies therefore ("sell-out"), pursuant to the same legislation and should complete without delay the necessary steps for compliance therewith."

This request was followed up through ongoing contacts between Consob and Fineglade Ltd, in order to determine the offering price at which the majority shareholder should purchase Socotherm shares. On 1 June 2011, Consob, by resolution no. 17807, established in Euro 0.0683 per share the consideration to be paid by Fineglade Limited when fulfilling its obligation to purchase Socotherm S.p.A. shares, pursuant to Article 108, paragraph 2, of Legislative Decree no. N. 58/1998.

The obligation to purchase Socotherm ordinary shares arose when, on 19 November 2010, the relevant threshold that determines the obligation to purchase, was exceeded; on that date the Company filed with the Vicenza Companies Register the statement of successful execution of the capital increase which resulted in Fineglade Limited holding 732,450,000 ordinary shares of Socotherm S.p.A., amounting to 95% of the share capital.

On 23 June 2011, by resolution no. 17835, Consob approved the Prospectus concerning the procedure for Compulsory purchase by Fineglade Limited of 38.453.000 Socotherm S.p.A. ordinary shares, representing 4.99% of the share capital of the Issuer, pursuant to Article 108, paragraphs 1 and 2, of Legislative Decree no. 58/1998.

With reference to the procedure for the compulsory purchase by Fineglade Limited of 38,453,000 Socotherm S.p.A ordinary shares (the "Residual Shares"), representing 4.99% of Socotherm S.p.A share capital, pursuant to Article 108, paragraphs 1 and 2, of Legislative Decree no. 58/1998 (the "Procedure"), the period for submitting the sale applications, which began on 29 June 2011, was completed on 19 July 2011. A total number of sale applications were submitted for 6,468,093 Socotherm S.p.A. ordinary shares, equal to 0.839% of Socotherm S.p.A. share capital (and to 16.821% of the Residual Shares under the Procedure). Therefore, by adding to these shares, the 732,450,000 Socotherm S.p.A. ordinary shares already held by Fineglade Limited before the Procedure and corresponding to 95% of Socotherm S.p.A. share capital, as at the payment date (25 July 2011) Fineglade Limited owned a total of 738,918,093 Socotherm S.p.A. ordinary shares. Therefore, taking also into account the 97,000 treasury shares held by Socotherm S.p.A., corresponding to 0.01% of Socotherm

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S.p.A. share capital, as at the payment date (25 July 2011) Fineglade Limited' total investment amounted to 95.839% of Socotherm S.p.A. share capital.

Following the conclusion of the above transactions, the Company was delisted as from 27 July 2011.

General criteria

The Socotherm Group's consolidated financial statements as at 31 December 2011 were prepared in conformity with the IFRS international accounting 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 Counsel.

IFRS also includes all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretation Committee (IFRIC), previously named the Standards Interpretation Committee (SIC).

The consolidated financial statements were also prepared in conformity to the ordinances promulgated in implementation of art. 9 of Legislative Decree no. 38 of 2005.

The date of first adoption of the IAS/IFRS accounting standards was 1 January 2005 and the financial statements for the year ended as at 31 December 2005 were the first prepared in accordance with these standards.

These financial statements have been prepared in thousands of Euro.

The analysis of the income statement and balance sheet was carried out, consistent with the provisions of the international IFRS 8 accounting standard relating to operating segments, showing the contribution of the four geographical areas the Group's business separately: E.M.E.A. (Europe, Middle East and Africa), Asia Pacific (China and Australia), Americas (South America and North America) and West Africa (Nigeria and Angola), assumed as “primary sectors” and supplying the core data required per business sector, identified as “secondary sectors”.

Current and non-current assets and current and non-current liabilities are separately 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.

Within the operating result ordinary operations were specifically identified, separately from the income and charges deriving from transactions that do not repeat frequently in the ordinary operations of the business, for example, capital gains and losses from the disposal of equity investments, restructuring costs and other non-recurring income and charges.

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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 Assets and Liabilities, the Comprehensive Income Statement and Statement of Cash Flows, some specific items were added with reference to transactions with related parties, as required by Consob resolution no. 15519 of 27 July 2006, as they were deemed material in amount.

The Parent Company’s consolidated financial statements include the Parent Company’s financial statements and those of the Italian and foreign companies over which the Parent Company directly or indirectly exercises control as an result of it having a majority of the voting rights or else sufficient voting rights to exercise a dominant influence at ordinary shareholders meetings.

Those companies over which the Group is capable of exercising a significant influence, through its participation in decisions on their financial and operating policies are considered as related companies (it is presumed, in general, when the Parent Company directly or indirectly controls at least a fifth of the votes exercisable in the ordinary shareholders meetings).

The results of the companies entering or exiting the scope of the consolidation during the course of 2011 are included in the consolidated income statement commencing from the effective date of acquisition and until the effective date of disposal.

The changes that took place in the scope of the consolidation during the course of 2011 are indicated below:

- the companies Socotherm Infraviab Srl, Socotherm Field Service Srl in liquidation, Ningbo Daxie Socotherm, Socotherm Shashi, Socotherm Latinoamericana, Socotherm Middle-East and APC Socotherm were reclassified as held for sale (or for closure).

The list of the companies included in scope of the consolidation is shown in the appendix to these explanatory notes, with evidence of the companies consolidated on a line-by-line basis, proportional method and the companies accounted for with the net equity method.

Reference date

The consolidated financial statements were prepared on the basis of the financial statements approved by the shareholders/members shareholders' meetings or, in their absence, based on draft financial statements for the year ended 31 December 2011 approved by the Board of Directors. The reference financial year for these consolidated financial statements is from 1

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January to 31 December 2011.

Consolidation principles

The financial statements utilised for the consolidation are suitably reclassified and adjusted for the purpose of standardising them with the Group's accounting standards and measurement criteria that are in line with those of the International Accounting Standards Board (IASB) and related interpretations of the International Reporting Interpretations Committee (IFRIC).

The elements of the assets and liabilities, as well as the income and charges of the consolidated companies are taken line-by-line in the preparation of the consolidated financial statements.

The receivables and payables, income and charges and profits and losses originating from transactions between the consolidated companies are eliminated. The carrying value of the equity investments in the consolidated companies is eliminated against the corresponding fractions of the shareholders' equity of the subsidiaries at the date of acquisition (acquisition method), suitably adjusted to show the fair value of the assets and liabilities acquired.

The difference between the carrying value of the equity investments, which is eliminated, and the corresponding portion of shareholders' equity, which is adopted, is booked to the asset and liability items of the consolidated financial statements. The residue, if negative, is booked to the income statement, or else, when it refers to estimates of unfavourable results, to a provision for liabilities and charges; if positive it is booked to an asset item called "goodwill".

The amount of the capital and reserves of the subsidiaries corresponding to minority interests is booked to a shareholders' equity item called "minority interests"; the portions of the consolidated financial results corresponding to minority interests are booked to the item "profit/loss attributable to minority interests".

The taxes on the undistributed profits of the consolidated companies are not usually recorded as it is presumed that the profits will be permanently reinvested within the Group. Should the company be aware of future dividend distributions the relative provision for deferred taxes is made.

The financial statements of the foreign companies are translated into Euro by applying the exchange rates at the year-end to the balance sheet items and the average exchange rates of the financial year to the income statement items. The difference between the result for the year ended 31 December 2011 which results from the translation to the average exchange rates and that resulting from the translation based on the year end exchange rates and the effects on the assets and liabilities of the changes that occurred in the exchange rates between the start and end of the period ended 31 December 2011 are booked to a shareholders' equity account called " translation reserve".

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The exchange rates applied in the translation of the financial statements not expressed in Euro are shown in the following table (quantity of foreign currency per Euro):

Euro/US Dollar 1.39171 1.29390 1.32680 1.33620Euro/Australian Dollar 1.34816 1.27230 1.44418 1.31360Euro/Malaysian Ringgit 4.25526 4.10550 4.26679 4.09500Euro/Chinese Renminbi Yuan 8.99606 8.15880 8.98051 8.82200Euro/ Pesos Argentino 5.74286 5.56769 5.18560 5.30994Euro/Naira 216.84533 208.16500 200.25200 203.44400

CurrencyPeriod

31.12.201031.12.2011Average Rate Average Rate Closing RateClosing Rate

Summary of accounting standards applied

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 the financial assets are recorded at fair value, increased, in the case of assets other than those recorded at fair value, by the ancillary charges with changes booked to the income statement. Subsequent to the initial recording the instruments are measured in relation to their classification, as provided by International Accounting Standard no. 39.

The Group 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 values it as if

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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.

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 three previous categories. Following the initial recording, the financial assets held for sale are measured 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.

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 for trading except where they are designated as effective hedging instruments.

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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, where 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 represent 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, at every financial year-end the fair value of the financial instruments on hand. This value is obtained by utilising the market prices (mark to market) where the financial instruments held are listed in active markets, or else by obtaining an independent valuation from market counterparties, and/or by using appropriate “pricing models” (mark to model) developed internally in the case of financial instruments for which significant market prices are not available.

The financial assets and liabilities that are liquid or have a due date within twelve months are assumed to have a carrying value that approximates fair value.

Amortised cost

The financial loans and liabilities 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

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transaction costs and commissions that are an integral part of the effective interest rate. The amortised cost of future flows of medium/long-term financial instruments at a floating-rate was calculated by applying the rate determined at the last re-fixing date, supplied by the lending bank, at 31 December 2011.

Business combinations

The acquisition of subsidiaries is booked in accordance with the acquisition method. The cost of the acquisition is determined by the summation of the current values, at the date of acquiring control, of the assets acquired and liabilities assumed or adopted in exchange for control and the identifiable assets, liabilities and contingent liabilities of the company acquired that comply with the conditions for recording according to IFRS3 are shown at their current values at the date of acquisition.

Non-current assets

Tangible assets

Non-current tangible assets are recorded at their acquisition price or production cost including the ancillary charges. The cost of manufacturing in-house production includes the costs of raw materials, materials, energy, direct labour as well as the general production and industrial expenses for the amounts reasonably chargeable. 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 equipment 5% - 12,5% Industrial and commercial equipment 20% Other tangible assets 20% - 25%

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, 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

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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.

Leased assets 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 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 those assets without an identifiable physical substance, under the control of the company and capable of producing future economic benefits.

Non-current tangible 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.

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

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utilisation period not be determinable or there is no contract, their life is established as five financial years.

Goodwill

Goodwill emerges during preparation of the consolidated financial statements when the carrying value of the equity investments is eliminated against the corresponding fractions of shareholders' equity of the subsidiaries.

As previously described, any surplus not attributable to individual elements of the assets of the consolidated companies is booked to the income statement or else, where there are the due prerequisites, recorded in assets under the item "goodwill".

Goodwill, as with the other assets having an indefinite useful life, is not subjected to systematic amortisation, but subjected to an annual impairment test conducted at the Cash Generating Unit level to which corporate management books the goodwill itself. Any write-downs are not subject to subsequent value reinstatement.

In the case of disposal of a subsidiary, the amount of the goodwill attributed thereto is included in the determination of the capital gain or loss on disposal.

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) and from 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

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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 reduces, the carrying value of the asset or of the cash flows generating unit is increased up to the new estimate of the recoverable value and cannot 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

The assets consisting of equity investments in related companies are measured in accordance with the net equity method, that is at an amount equal to the corresponding fraction of the shareholders' equity resulting from the last financial statements of the companies themselves, after having deducted any dividends and made the adjustments required by the consolidated financial statements preparation standards. The gains or losses deriving from the application of the net equity method are recorded in the income statement under the item “income and charges from equity investments”.

The results of the companies classified as destined for sale, any inherent income or revenue and gains or losses deriving from the disposal of such companies are included in the “Net profit/(loss) from the assets sold or destined for sale” account.

Other equity investments are measured at their cost, adjusted for any impairment losses. It is considered that the cost of the equity investments in other companies constitutes a reasonable approximation of their market value.

When the reasons for the write-downs cease to exist, the equity investments measured at their cost are written-up within the limits of the write-downs made, recording the effect in 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.

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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. Included in the “other receivables” category are also the security deposits paid early, which are valued at their carrying value, since the amortised cost criterion is not applied for these instruments as it is not possible to determine the future cash flows.

Other assets and liabilities

This item includes the accruals and deferrals, which are recorded on the 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”.

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

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Treasury shares are recorded at cost and booked as a reduction of the shareholders' equity. All profits and losses from the trading thereof are recorded in an appropriate shareholders' equity reserve.

Non-current assets destined for disposal

Non-current assets or groups of directly connected assets/liabilities, which constitute a combination of generating units of financial flows, the sale of which is highly probable, are respectively recorded to the items “Assets destined for sale” and “Liabilities destined for sale” at the lower of their carrying value and the fair value net of selling costs.

The positive or negative balance of the income and charges (dividends, interest, etc.) as well as the measurements, as determined above, of such assets/liabilities, net of the relative current and deferred taxation, is recorded in the item “Net result of assets sold or destined for sale” of the income statement.

The valuation reserves relative to non-current assets destined for sale, registered as a contra entry of the changes in value relevant for that purpose are shown separately in the comprehensive income statement.

Financial payables

Financial payables are recorded at their fair value, on the basis of the amounts due plus the transaction costs. The initial value booked is subsequently adjusted in order to consider the capital repayments and overall repayments, calculated by utilising 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 occurrence is considered highly probable).

The values recorded at the last fixing before the measurement date are utilised for the determination of the future flows related to variable interest rates.

The amortised cost method is 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 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.

The actuarial valuation is conducted 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

22

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 benefit from the market, is booked to the income statement under “financial charges”.

The accumulated actuarial profits and losses unrecognised at the start of the financial year that exceed 10% of the higher of the present value of the Group's liability for defined benefits and the fair value of the assets of the programme at that date, are amortised over the period of the estimated average working life of the employees participating in the programme.

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 leaving indemnities provision accrued at 31 December 2006 continues to be treated as a Defined Benefit Plan, the actuarial valuation of which, however, excludes the component relative to the future salary increases; the resulting difference from the new calculation must be treated as a “curtailment” in accordance with the definition of international accounting standard IAS 19, par. 109.

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. These provisions are recorded when: (i) an actual legal or implicit obligation deriving from a past event exists; (ii) it is probable that the fulfilment of the obligation will be against payment; (iii) the amount of the obligation can be reliably estimated.

An implicit obligation is defined as an obligation that arises at the time when the company has notified other parties, through consolidated practices, corporate policies or a sufficiently specific public announcement, which it will accept the obligations, so as to give third parties the expectation of a result that the company will honour the obligation. The changes in the estimate of the provisions are reflected in the income statement for the period when the change took place. Provisions are recorded at a value that represents the best estimate of the amount the

23

company would reasonably pay to eliminate the obligation or transfer it to others at the end of the period.

Adequate information on the liabilities evaluated as possible is given in the explanatory notes.

Payables

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. Payables for which payment is expected after twelve months from the 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 are determined on the basis of taxable income of each consolidated company, pursuant to the tax laws currently in force in the individual countries, on the basis of a forecast of the tax charges to be met; they are shown in the “Income taxes” item with an indication of 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.

Advance 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 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. Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities.

Current and deferred taxes are booked directly to the income statement, with the exception of

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those relating to items directly recorded to the shareholders' equity following the accounting criterion.

Amounts denominated in foreign currencies

The monetary assets and liabilities originally expressed in foreign currencies, recorded on the basis of the exchange rates in force at the date on which they arose, are aligned with the exchange rates prevailing at the financial statements date.

Profits and losses deriving from the translation of the monetary assets and liabilities are respectively credited and debited to the income statement.

The monetary elements to be collected or paid with regards to foreign operations for which settlement is not planned, nor is it likely that it will occur in the foreseeable future, are considered in substance as part of net investment; in the consolidated financial statements the exchange rate differences deriving from a monetary element which is part of net investment in a foreign operation are shown in shareholders’ funds.

Goodwill and other adjustments made to report the assets and liabilities of acquired foreign entities at their fair value are shown as assets and liabilities of the foreign companies and are translated at the year-end exchange rate.

Subsequent to the 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 2011.

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.

Consistent with the provisions of IAS 39, the derivative instruments can be accounted for in accordance with the methods established for hedge accounting only when, at the start of the hedging, there was the formal designation and documentation of the hedging relationship itself, it is presumed that the hedging will be highly effective during the full period, the effectiveness can be reliably measured and the hedging itself will be highly effective during the various accounting periods over which it is designated.

Share based payments

In line with the provisions of IFRS2 the Group classifies Stock options in the context of “share based payments” and for those falling into the “equity settled” category, which provides for the physical delivery of the shares, it provides for the determination of the fair value of the option rights issued on

25

the assignment date and their recording as a personnel cost to be spread linearly throughout the vesting period with a contra entry to the appropriate shareholders' equity reserve. This entry is made on the basis of the rights effectively accruing to entitled personnel, taking into account the conditions of use thereof that are not based on the securities’ market value. The fair value is determined using the binomial model.

In accordance with transitional standards, this standard has not been applied to the assignments prior to 7 November 2002.

Earnings per share

The base earnings per share is calculated by dividing the Group’s financial result by the weighted average of shares outstanding during the year, excluding any treasury shares. For the purposes of calculating the diluted profit (loss) per share, the weighted average of shares outstanding is adjusted assuming the conversion of all the potential shares having a dilutive effect.

The net result of the Group is also adjusted to take account of the effects of the conversion, net of taxes.

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 hypotheses 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 elaboration of the projected figures, as well as the determination of an appropriate discount rate require, to a large extent, estimations. It should be noted that the capacity to realise the new Business Plan and therefore the forecasts and cash flows on the basis of which the recoverability of the asset items (specifically intangible and tangible assets and deferred tax assets) is subordinate to the prerequisite of a going concern, regarding which you are referred to the appropriate paragraph.

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.

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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 interpretations in force on 31 December 2011, as approved by the European Union.

The following accounting standards, amendments and interpretations were applied for the first time by the company from 1st January 2011.

The following accounting amendments, improvements and interpretations, effective from 1 January 2011, govern cases and case studies not applicable to the Group at the date of these financial statements, but that may have accounting effects on future transactions or agreements:

Amendments and new standards and interpretations

The accounting standards adopted are consistent with those of the previous year, except for the following new and revised standards and IFRIC interpretations, in force since 1 January 2011:

u IAS 24 disclosures of related party transactions (as revised) in force since 1 January 2011

u IAS 32 Financial Instruments: presentation (as revised) in force since 1 February 2010

u IFRIC 14 Prepayments of a minimum funding requirement (as revised) in force since 1 January 2011

u Improvements to IFRSs (May 2010)

The adoption of standards and interpretations is described below:

Revised IAS 24 - Disclosures of related party transactions

The IASB issued an amendment to IAS 24, which clarifies the definition of related party. The new definition emphasizes the symmetry in the identification of related parties and defines more clearly the circumstances in which key people and management personnel should be considered as related parties. In addition, the amendment includes an exemption from general disclosure requirements on related party transactions for transactions carried out with a Government or with entities controlled by, under joint control or significantly influenced by the same Government as the entity itself. The adoption of these amendments had no impact on the financial position or results of the Group.

Revised IAS 32 Financial Instruments: presentation

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This amendment changes the definition of financial liability for the purposes of classifying rights issues denominated in foreign currency (including a few options and warrants) as equity instruments in cases where these instruments are allocated pro-rata to all existing holders of the same class of an entity's equity instruments (other than derivative instruments), or to purchase a fixed number of the entity's equity instruments for a fixed amount in any currency. This amendment had no impact on the financial position or results of the Group as the Group does not have this type of instrument.

Revised IFRIC 14 – Prepayments of a Minimum Funding Requirement

The amendment removes an unintended consequence that occurs when an entity is subject to minimum funding requirements and makes an early payment to meet these requirements. The amendment permits such an entity to treat an early payment in relation to a minimum funding requirement as an asset. The Group is not subject to minimum funding requirements in Europe. Therefore, this amendment had no impact on the financial position or results of the Group.

Improvements to IFRSs

In May 2010 the IASB issued a third series of improvements to the standards, primarily in order to eliminate existing inconsistencies and clarifying terminology. The adoption of these amendments resulted in changes in the accounting policies but had no impact on the financial position or results of the Group.

u IFRS 3 Business combinations: The options available for measuring non-controlling interests (NCI) were amended. An entity may choose to measure non-controlling interests at fair value or, alternatively, in relation to the proportionate share of the acquirer’s net identifiable assets, only for non-controlling interests where there are present ownership instruments that entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. All other components must be measured at the acquisition date fair value (see Note 5).

u The amendments to IFRS 3 are effective for years beginning on or after 1 July 2011. The Group chose to apply them as from 1 January 2011 and changed its accounting policies accordingly, as the amendments were issued to eliminate the consequences that may arise following the adoption of IFRS 3.

u IFRS 7 Financial Instruments - Additional disclosures: this amendment is aimed at simplifying and improving disclosures by, respectively, reducing the volume of disclosures on collateral held and requiring additional qualitative disclosures to better contextualize those of a quantitative nature. The amendments to disclosure requirements as applied by the Group are reflected in note 16.

u IAS 1 Presentation of Financial Statements: The amendment clarifies that an analysis of each component of other comprehensive income may be included, alternatively, in the statement of changes in equity or in the notes to the financial statements.

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Other amendments of the following principles, resulting from the IFRS improvement process, had no impact on the accounting principles, the financial position and results of the Group:

u IFRS 3 Business Combinations (Contingent consideration resulting from business combinations that occurred prior to the adoption of IFRS 3 (as revised in 2008))

u IFRS 3 Business Combinations (Un-replaced and voluntary replaced share based payment awards)

u IAS 27 Consolidated and separate financial statements

u IAS 34 Interim Financial Reporting

The following interpretations and amendments had no impact on the accounting principles, the financial position and results of the Group:

u IFRIC 13 Customer Loyalty Programmes (measuring the fair value of award credits)

u IFRIC 19 - Extinguishing financial liabilities with equity instruments.

Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the Group

The tables below shows 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 1 Presentation of Financial Statements - Presentation of items in other comprehensive income

The amendment to IAS 1 changes the grouping of items presented in other comprehensive income. Items that could be reclassified (or "recycled") in profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items which will never be reclassified. This amendment only affects presentation and has no impact on the Group's financial position or results. This amendment becomes effective for periods beginning on or after 1 July 2012.

IAS 12 Income Taxes - Recovery of underlying assets

This amendment clarifies the measurement of deferred taxes on investment property measured at fair value. The amendment establishes a rebuttable presumption that deferred taxes related to investment property measured using the fair value model in IAS 40 should be measured on the basis that the carrying amount will be recovered through sale. It also introduces the requirement that the calculation of deferred taxes on non-depreciable assets that are measured using the revaluation model in IAS 16, should always be measured on a sale basis. This amendment is effective for periods beginning on or after 1 January 2012.

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IAS 19 Employee Benefits (Amendment)

The IASB issued a number of amendments to IAS 19. These range from radical changes, such as the removal of the corridor method and the concept of expected returns on plan assets, to simple explanations and terminology. During the current year, the Group voluntarily changed its accounting policies to recognize actuarial gains and losses in other comprehensive income. The Group is currently evaluating the impact of the other amendments. These amendments are effective for periods beginning on or after 1 January 2013.

IAS 27 Separate Financial Statements (as revised in 2011)

Following the introduction of IFRS 10 and IFRS 12, the remaining part of IAS 27 is limited to the accounting for investments in subsidiaries, joint ventures and associates in the separate financial statements. The Group does not present the separate financial statements. These amendments are effective for periods beginning on or after 1 January 2013.

IAS 28 Investments in Associates (as revised in 2011)

Following the issue of IFRS 11 and IFRS 12, IAS 28 has been renamed Investments in associates and joint ventures, and describes the application of the equity method for investments in jointly controlled entities, in addition to associates. These amendments are effective for periods beginning on or after 1 January 2013.

IFRS 7 – Financial instruments: Enhanced disclosures for Transfers of financial assets

The amendments require additional disclosures on financial instruments that are transferred but not derecognised at the reporting date, to enable users of financial statements to understand the relationship between assets that have not been derecognised and the associated liabilities. Moreover, the amendments require information on the continuing involvement in assets that were transferred and derecognised to allow users of the financial statements to evaluate the nature of and risks associated with the entity's continuing involvement in those derecognised assets. These amendments are effective for periods beginning on or after 1 July 2011. These amendments only affect financial statements disclosures and do not impact the Group's financial position or results.

IFRS 10 - Consolidated Financial Statements

The IFRS 10 replaces the section of IAS 27 Consolidated and separate financial statements establishing the requirements for consolidated financial statements. It also includes the issues identified in SIC-12 Consolidation - Special Purpose Entities.

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IFRS 10 establishes a single control model that applies to all companies, including special purpose entities. The changes introduced by IFRS 10, with respect to the requirements provided in IAS 27, will require management to make relevant discretional valuations in order to determine which companies are controlled and, therefore, must be consolidated by the parent. This standard is effective for periods beginning on or after 1 January 2013.

IFRS 11 - Joint Arrangements.

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly controlled entities - Non-monetary contributions by ventures.

IFRS 11 removes the option to account for jointly controlled entities using the proportional consolidation method. Jointly controlled entities that qualify as a joint venture should instead be accounted for using the equity method.

The application of this standard will impact on the Group's financial position. This standard is effective for periods beginning on or after 1 January 2013.

IFRS 12 Disclosure of interests in other entities

IFRS12 includes all disclosure requirements previously included in IAS 27 relating to the consolidated financial statements, and all disclosure requirements in IAS 31 and IAS 28. This disclosure relates to an entity's investments in subsidiaries, joint arrangements, associates and structured entities. The standard also includes additional disclosure requirements. This standard is effective for periods beginning on or after 1 January 2013.

IFRS 13 - Fair value measurement

IFRS 13 sets out a single IFRS framework for measuring fair value. 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 IFRSs, where fair value measurement is required or permitted. The Group is currently evaluating the impact that this standard will have on its financial position and results. This principle is effective for periods beginning on 1 January 2013.

EVALUATION OF THE GOING CONCERN ASSUMPTION

Reference is made to the sections of the financial statements where the Group's operations are described, together with the factors that will realistically influence its future development, performance and situation; the Group's net debt, cash flows, liquidity and loans, the Group's objectives, its policies and capital management processes, the objectives of financial risk management, details of the financial instruments and its exposure to credit and liquidity risks.

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As already mentioned, the Arrangement with Creditors was completed on 10 February 2011 with the decree of final approval issued by the Vicenza bankruptcy Court. Following that ruling, the judge released the Official Receiver from his duties deeming them fully discharged.

Following the successful outcome of the Arrangement, the Company was able to regain full managerial autonomy and to go back to the market as a fully operational concern.

Despite the obvious difficulties faced in the financial year, due to the global economic situation and the recent outcome of the Arrangement with Creditors, the Company successfully achieved the goals set in the multi-year business plan.

Operating results are still affected by some items related to the Arrangement, and, more generally, the restructuring carried out during the year. The result for the year, net of these charges, is in line with the assumptions set out in the approved business plan.

From a financial standpoint, the Parent Company, following the full implementation of the Arrangement with Creditors and the settlement of the legal dispute with Banca Popolare di Vicenza, has almost no bank debt except for the outstanding financial leases.

During the year, the Company's capital was further strengthened through additional contributions for future capital increase effected by the major shareholder, for an approximate amount of Euro 14.4 million.

At the date of approval of the Financial Statements, the Socotherm Group resolved the liquidity problems of the Parent Company thanks to the cash contributed by the major shareholder; with regard to foreign subsidiaries the situation was as follows:

(i) Socotherm Americas S.A., the Argentinian subsidiary listed on the Buenos Aires Stock Exchange, and sub-holding, inter alia, of the Group companies in North and South America (which in aggregate represent approximately 60% of Group sales), effected a capital increase of approximately USD 43 million. This capital increase was necessary to cover the accumulated losses, which were such as to result in the company's negative equity. The Company now shows a positive equity and its financial position raises no major concerns. The company's business is growing and some large orders are pending.

(ii) In the first days of the year, thanks to the further financial intervention of Fineglade Limited, the U.S. Group company Socotherm Labarge avoided in extremis enforcement actions for the repayment of a loan granted by Reliance Bank amounting to USD 20 million, warding off the forced sale of the company’s assets, already fixed for 1 February 2011. The Company's financial exposure was re-negotiated with the main lending bank and the expected cash flows of future years should ensure adequate coverage. Since July 2011 the company is fully operative again and the outlook for its future activity is very good.

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(iii) Socotherm España SA, against which enforcement actions were initiated by a creditor leading to an auction for the sale of the entire production plant, which was scheduled for 15 March 2011. This auction was suspended and the company is now in liquidation.

For the purpose of monitoring the treasury performance and the company’s capacity to meet its financial commitments in the short-term, the company prepares periodic management reports presenting actual and budgeted performance at least up to December 2012, which shows that the Group has the capacity to continue to operate autonomously.

The Group has prepared a new 2012-2015 Business Plan, approved by the Board of Directors on 3 May 2012, which supports the assumptions of a going concern of Socotherm S.p.A. and of the entire Group.

The company, in fact, considers that, as a result of (i) the positive outcome of the financial restructuring process obtained through the arrangement procedure, (ii) the capital inflow by the Investors and the consequent equity reinforcement of the Company and the Group, as well as the restructuring of debt, the Group will have sufficient working capital for its needs.

The possible failure to implement the main assumptions and strategic objectives identified in the new Business Plan could also lead to negative effects on the going concern basis, the earnings and financial position as well as the company’s and Group's prospects.

The combination of all the above circumstances does not show any specific uncertainties that may raise doubts concerning the capacity of the company and Group to operate on the basis of the prerequisite of a going concern.

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Notes to the Financial Statements

Assets

Non-current assets

1) Fixed assets, plant and machinery

Fixed asset, plant and machinery

31.1

2.20

10

Inve

stm

ents

Dec

reas

es

Prov

isio

ns

reva

luat

ions

Oth

ers

mov

emen

t

Exch

ange

di

ffer

ence

Recl

assi

fica

tion

s

Depr

ecia

tion

s

Chan

ge in

co

nsol

idat

ion

met

hod

31.1

2.20

11

Land and buildings 27,367 1,391 (797) (68) (0) (750) (6,155) 20,987Plant and equipment 41,421 847 (34) 4,874 1,120 (5,046) (3,625) 39,559

Total 68,788 2,238 (830) 4,874 1,052 (0) (5,796) (9,780) 60,546

Given the current context of financial stress, capital expenditures for 2011 are extremely contained and limited.

Impairment test on the values of the non-current tangible and intangible assets

The intangible assets existing at 31 December 2008 referring to capitalised costs incurred during 2009, were completely written down at 31 December 2009 following the decision of the Directors not to bring these projects to a conclusion. This write down continued to be viewed as not recoverable after the valuation based on expected cash flow of the 2012-2015 Business Plan, approved by the Board of Directors on 3 May 2012.

All the intangible assets with an indefinite useful life, including goodwill, must be subject at least annually to impairment tests to check the recoverability of their value. The recoverable value represents the higher of the usable value (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 of the intangible assets subject to the impairment test must be determined for each asset unless both of the following conditions exist:

o the usable value of the intangible asset is not estimated to be close to the fair value net of the sale costs;

o 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 above mentioned accounting standard.

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It is emphasised that the impairment test conducted by the Socotherm Group through the determination of the value in use of the Cash Generating Units (CGU) in accordance with what is described below, includes the intangible fixed assets with an indefinite useful life (goodwill) and the tangible assets where the loss indicators set out in the standard are occurring.

Definition of the Cash Generating Units (CGU)

The estimate of the value in use for the purposes of checking any impairment of the intangible assets, including goodwill, which do not generate cash flows unless with the help of other company assets, requires the preliminary attribution of these assets to relatively autonomous operational units in the managerial framework (from the point of view of independent cash flows generated and from that of internal planning and reporting): these operational units are in fact defined as Cash Generating Units (CGU).

The CGUs identified correspond, according to a geographic criterion, to the subsidiaries through which the Group operates and develops its own business. In particular the company has identified the following CGUs: Socotherm S.p.A., Socofin, Socotherm Services and the companies Socotherm Americas, Socotherm LaBarge, Atlantida Socotherm and Socotherm Brasil.

Estimate of the cash flows for determining the value in use of the CGUs

As stated earlier, on the basis of what is set out in IAS 36, the impairment tests for intangible assets with an indefinite useful life must be performed at least annually and, in any case, every time that there is objective evidence of events occurring which might have reduced the value. The benchmark accounting standards require that the impairment tests are performed by comparing the book value of each CGU with its recoverable value. Where the latter is less than the book value, a value adjustment must be made in the accounts. The recoverable value of the CGU is the greater between its fair value (net of selling costs) and the relative value in use.

The recoverable value of the CGUs of the Group is represented by the value in use, determined on the basis of future cash flows generated by each CGU to which the said goodwill was allocated. These financial flows are estimated by referring to the 2012-2015 four-year plan approved by the Board of Directors on 3 May 2012.

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 used for determining the cash flows and the relative growth rates are particularly complex because of the uncertainties which have characterised, and still characterise, the current and prospective macro-economic scenario and the situation of the financial markets and the real economy.

The usable value 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

35

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 utilised is a nominal rate after taxes.

In particular, as can be observed from the tables below, the Company has used a different discount rate for the two geographic macro-areas in which the Group operates, which takes into accounts the parameters relative to the various benchmark market conditions. The growth factor “g” was prudently considered as zero for both areas.

Details of the discount rate (WACC) used for Socotherm SpA:

Impairment test Socotherm Spa SourceRate rf USA 1.88% Bloomberg - 10-years return from USA Government bonds at 30 December 2011Beta unlevered 1.06 BloombergBeta levered 1.19 Calculations on Bloomberg dataERP 5.72% ERP average (Damodaran on line) of individual AREA1 countries weighted with 2008 revenuesAdditional risk 1.50%Ke 10.19%Tax 27.61% Average tax rates of individual AREA1 countries weighted with 2010 revenuesKd 3.81%Kd*(1-Tax) 2.76%

D/(D+E) 14.46% D/E equal to 0E/(D+E) 85.54% D/E equal to 0

WACC 9.11%

36

Detail of WACC used for CGU2 composed of Socotherm Americas, and its subsidiaries Socotherm Brasil, Socotherm Labarge and Atlantida Socotherm:

Impairment test Socotherm Americas SourceRate rf USA 1.8762% Bloomberg - 10-years return from USA Government bonds at 30 December 2011Beta unlevered 1.06 BloombergBeta levered 1.19 Calculations on Bloomberg dataERP 8.94%Additional risk 1.50%Ke 13.99%Tax 29.58% Argentina tax rateKd 5.52%Kd*(1-Tax) 3.89%

D/(D+E) 14.46% Bloomberg - average comparablesE/(D+E) 85.54% Bloomberg - average comparablesWACC 19.00%

Impairment test Socotherm Brasil SourceRate rf USA 1.8762% Bloomberg - 10-years return from USA Government bonds at 30 December 2011Beta unlevered 1.06 BloombergBeta levered 1.20 Calculations on Bloomberg dataERP 7.63%Additional risk 1.50%Ke 12.50%Tax 25.00% Brasil tax rateKd 4.56%Kd*(1-Tax) 3.42%


ERP average (Damodaran on line) of Argentina

ERP average (Damodaran on line) of Brasil

37

Impairment test Socoven SourceRate rf USA 1.8762% Bloomberg - 10-years return from USA Government bonds at 30 December 2011Beta unlevered 1.06 BloombergBeta levered 1.18 Calculations on Bloomberg dataERP 11.00%Additional risk 1.50%Ke 16.35%Tax 34.00% Venezuela tax rateKd 7.81%Kd*(1-Tax) 5.15%


Impairment test Socotherm Usa SourceRate rf USA 1.8762% Bloomberg - 10-years return from USA Government bonds at 30 December 2011Beta unlevered 1.06 BloombergBeta levered 1.18 Calculations on Bloomberg dataERP 5.00%Additional risk 1.50%Ke 9.27%Tax 35.00% USA tax rateKd 2.81%Kd*(1-Tax) 1.83%


ERP average (Damodaran on line) of Venezuela

ERP average (Damodaran on line) of USA

Following the impairment tests, (positive) value adjustments of Euro 4.9 million were recorded on non-current tangible assets.

Given the company’s current situation, market volatility and uncertainty on the future economic outlook, a “sensitivity” analysis was carried out by assuming the change in the principal parameters utilised in relation to the measurement.

Depreciation and amortisation are in line with the same period last year.

2) Goodwill

Following the aforesaid impairment test made last year, information on which is given in full in the previous paragraphs, the goodwill was already written-down as at 31 December 2009. For information on how the impairment test was carried out, the discount rate used and a sensitivity analysis please refer to the previous paragraph.

38

3) Intangible Non-current Assets

Following the impairment test result, information on which is given in full in the previous comments on the item “Property, plant and equipment”, a complete write-down of the non-current intangible assets was made. This write down also resulted not recoverable after the valuation based on expected cash flow of the 2012-2015 Business Plan, approved by the Board of Directors on 3 May 2012.

For information on how the impairment test was carried out, the discount rate used and a sensitivity analysis please refer to the previous paragraph.

4) Equity investments

Investments

31.1

2.20

10

New

acq

uis

itio

n

Decr

ease

/

Recl

assi

fica

tion

Oth

er m

ovem

ents

Exch

ange

diff

eren

ce

31.1

2.20

11

investments in other companies 1,168 - - - 88- 1,080 Total 1,168 - 0 - 88- 1,080

Movements in equity investments prevalently refer to the investment held by Socotherm Americas in an agricultural company.

5) Deferred tax assets

This item constitutes the receivable for prepaid taxes prevalently generated in the Socotherm Americas S.A.

The significant decrease from the previous year is attributable to the write-down of part of this item given the low probability of its recoverability through short-term cash flows generated by Socotherm Americas. Given the uncertainty associated with the slow recovery of the activity, the company decided to adopt an extremely conservative policy and therefore to reduce the deferred tax assets arising from tax losses for which the tax recoverability may not be reasonably certain in the future.

The profits of the Uruguayan subsidiary Socotherm Latino Americana S.A. are taxed for “transparency”. This company, carrying out “off-shore trading”, in fact falls within the list of “States and territories considered to enjoy a privileged tax regime” for the purpose of the directives on controlled foreign companies pursuant to art. 127-bis, paragraph 4 of Presidential Decree 917/86. Pursuant to art. 168 of Presidential Decree no. 917 of 22 December 1986, requests for ruling were presented and upheld for Socotherm Middle East FZCO and Socotherm

39

Angola, which also have registered offices in countries belonging to the same list, and therefore the "transparency" tax regime was not applied.

6) Other non-current assets

The other non-current assets of 13.8 million euro are mainly ascribable to Socotherm Americas sub-group in relation to the residual receivables of Socotherm Americas from Group companies which are proportionately consolidated.

Current assets

7) Inventories

Inventories 31.12.2011 31.12.2010 Changes

Raw materials, auxiliaries and consumables 7,864 6,410 1,454 Work in progress 194 1,828 -1,634 Finished products and goods for resale 2,413 2,247 166

Totale 10,471 10,485 -14

The trend of the inventories of work in progress is not linear over time and is strongly influenced by the programming of the individual works by the end customers.

In this specific case, the inventories trend mirrors the rationalisation commenced from the last quarter that impacts on the optimisation of the raw materials and the first signals of recovery of production operations shown by the increase of the work in progress.

This item is also influenced by the assets reclassification of the subsidiaries Socotherm Infraviab, Ningbo Daxie e Socotherm Shashi, whose works in progress and inventories were reclassified as assets held for sale.

40

8) Receivables

Receivables 31.12.2011 31.12.2010 Changes Receivables from customers 22,555 39,429 16,874- (Provision for bad and doubtful debts) 3,299- 16,522- 13,222

Trade receivables 19,256 22,907 3,651- Receivables from pension and social security institution 71 100 28- Receivables from insurance companies 66 66 - Advances / cautions 80 1 79 Receivables from others 2,211 3,714 1,503- Payments on account 473 1,700 1,227-

Other receivables 2,900 5,580 2,679- Total 22,157 28,487 6,331-

The trade receivables relate to normal sales transactions. The decrease in this item compared to last year is Euro 6.3 million and is attributable in large part to the aforementioned reclassification as assets held for sale of subsidiaries that were fully consolidated in 2010. By applying the same consolidation method, in 2011 trade receivables recorded an increase.

The directors consider that the recoverable value of the trade and other receivables approximates their fair value.

Other receivables prevalently refer to the Socotherm Americas S.A. sub-group.

Advances paid to suppliers refer to purchase orders for raw materials, ancillaries and consumables, and spares destined for resale. The decrease from 31 December 2010 relates to the Parent Company for Euro 0.7 million and Socotherm Americas for approximately Euro 0.5 million.

9) Current tax assets

Current tax receivables 31.12.2011 31.12.2010 Changes VAT Receivables 1,199 2,994 1,796- Receivables from tax authorities for direct taxes 797 233 564 Receivables from tax authorities for other taxes 637 1,433 796-

Total 2,633 4,670 2,028-

Receivables from tax authorities for VAT decrease mainly in relation to the Parent Company (about 1.6 million) and as a result of the reclassification as assets held for sale of the subsidiary Socotherm Infraviab for 0.2 million. The 2011 balance therefore refers to the sub-group

41

Socotherm Americas S.A. for Euro 0.6 million and to the Parent Company for another Euro 0.6 million.

The residue refers to withholding and direct taxes, attributable to the Socotherm Americas S.A. sub-group for Euro 1.1 million and the Parent Company for Euro 0.3 million.

10) Financial assets

Securities and financial assets 31.12.2011 31.12.2010 Changes

Other securities Financial receivables 61 3,200 -3,139

Total 61 3,200 -3,139

“Receivables from the sale of equity investments” in 2010 referred to a receivable deriving from the disposal of the equity investment in the related company PPSC Industrial Holdings sdn in Malaysia and a residual receivable of the subsidiary Socotherm Infrenergy.

With regard to the receivable for the sale of PPSC Industrial Holdings sdn, 1.5 million were collected on 11 January 2011; the residual receivable from the sale of Socotherm Infrenergy was collected in early April 2011.

11) Cash and cash equivalents

Liquid balances 31.12.2011 31.12.2010 Changes

Bank deposits and high negotiable securities 10,021 7,946 2,075 Cash and cash equivalents 34 172 -138

Total 10,055 8,118 1,937

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 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 cash and cash equivalents substantially refer to:

42

o Parent Company for Euro 2 million;

o Socotherm Americas sub-group for Euro 8 million.

The increase in liquidity in the Socotherm Americas sub-group is due to two factors: firstly, the increase in turnover of the Brasilian subsidiary and the related increase in liquidity and, secondly, the protectionist legislation in Argentina which in practice prevented the company from making any payments out of the country.

The item “Bank deposits and securities with high negotiability” also includes an escrow current account that became collectable in the first half of 2011.

12) Assets destined for sale

Assets destined for sale 2011 2010 Changes

Non-current assets 15,929 6,894 9,036 Equity investments - 5 (5) Other non-current assets - 3 (3) Inventories 454 6,427 (5,973) Receivables and other assets 4,572 2,415 2,157 Liquidity 1,205 280 925 Receivables - 76 (76)

Total 22,161 16,100 6,061

The previous table shows the breakdown of the reclassified values as Assets destined for sale in accordance with IFRS 5.

The above figures refer to the following companies:

- Socotherm España

- Socopower Srl

- Socotherm Infraviab Srl

- Socotherm Field Services Srl in liquidation

- Ningbo Daxie Socotherm

- Socotherm Shashi

- Apc Socotherm

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- Socotherm Middle East

- Socotherm Latino Americana

It should be noted that the amounts shown for 2010 only refer to Socotherm España and Socopower Srl.

Notes to the Financial Statements

Liabilities and Shareholders’ Funds

Shareholders’ funds

13) Share Capital

The share capital at 31 December 2011 amounted to Euro 63,563,168 (unchanged compared to the previous year) fully subscribed and paid, made up of 771,000,000 shares (unchanged compared to the previous year) without a par 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.

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Net profit Equity

(9.578) 59.746

0 5

-other internal profit 0 (947)

0

(149.070)

(13.816) (2.448)

-intangible assets 82 503

-goodwill 0 0

Other differences 0 3.806

0 231

0 (19.794)

0 0

7.238 143.179

(11.277) 35.211

(2.619) (7.073)

(13.895) 28.138

Reconciliation between stockholder's Equity and net profit of parent company

Balance shown in the parent company financial statement

Elimination of intercompany transactions net of tax effects

CONSOLIDATED FINANCIAL STATEMENTS BALANCES - Group's

Elimination of exchanges losses from subsidiaries as IAS 21

Elimination of consolidation adjustments of sold companies

Elimination of revaluations/depreciations of associated companies

CONSOLIDATED FINANCIAL STATEMENTS BALANCES

CONSOLIDATED FINANCIAL STATEMENTS BALANCES - Minority

Equity investments in consolidated companies

-dividends received by consolidated companies

-profit included in fixed assets

Book value of consolidated investements

Equity and profit of consolidated companies

Awarding differences to assets of consolidated companies and

45

14) Share Premium Reserve

The share premium reserve includes:

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 in favour of Fineglade Limited destined to a share premium, which is Euro 0.03415 for the 732,450,000 shares for a total of Euro 25,013,168.

15) Legal reserve

The legal reserve of the Parent Company represents the part of profits which, in accordance with article 2430 of the Italian Civil Code, cannot be distributed as dividends.

16) Conversion reserve

The conversion reserve is mainly attributable to the conversion into US dollars of balances expressed in the local currency of the South American companies and especially the one in Argentina. Up to 31 December 2001 the currency of this country was tied to the US dollar with a par exchange rate. Because of the economic instability which had been created in this area, the Argentine government decided on 20 December 2001 to abandon the one-for-one exchange rate with the dollar to let the local currency float freely on the markets.

Because of this, from the 2002 accounts, the values usually entered in the books in US currency were translated into local currency with the difference being posted to the net equity reserve.

The conversion reserve was also generated by the differences of conversion into the Euro of the balances expressed in foreign currencies in the consolidated companies.

As set out in IFRS 1, at the time of transition to the main international accounting standards, IAS/IFRS, the maintenance of historic value was chosen.

The conversion reserve at 31 December 2011 was a negative amount of Euro 34.7 million, decreased by Euro 0.1 million compared to the previous period.

The significant appreciation of the US dollar against the Euro that occurred during 2011 negatively influenced the Conversion reserve.

17) Treasury shares in the portfolio

At 31 December 2011 Socotherm held treasury shares for a book value of Euro 0.6 million. In fact the company made the purchase following the authorisation received from the Shareholders Meeting on 26 June 2008, which authorised the Board of Directors to buy treasury shares up to a

46

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.

Ordinary shares exixting at 1 January 2011 770.903.000

Treasury shares held in the portfolio 97.000

Outstanding shares at 1 Januray 2011 771.000.000

Shares issued

Treasury shares sold -

Total outstanding shares at 31 December 2011 771.000.000

18) Future Share Capital Increases

The future capital increase account carries the payments effected in December 2010 and during 2011 by Fineglade Limited aimed at the complete execution of the distribution plan set out in the arrangement with creditors and for the financial recapitalisation of the American subsidiaries.

19) Other reserves and retained earnings

The decrease in this item is mainly due to the allocation of the result for the year ended 31 December 2010

20) Tied reserves

Amongst the items in the shareholders’ funds of the company Socotherm Americas S.A. there is a tied reserve equal to approximately Euro 3.4 million against the revaluation of the tangible fixed assets effected in order to adjust the value of the assets originally expressed in US dollars which, following the drop in the parity of the US dollar/Argentinean peso, had suffered marked depreciation.

21) Minority shareholders’ net equity

The variation which is shown in the item in question refers mainly to the profit for the period, to the conversion reserve.

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Non-current liabilities

22) Financial payables

Financial debts

Curr

ent

Non

cur

rent

Bala

nce

at

31.1

2.20

11

Curr

ent

Non

cur

rent

Bala

nce

at

31.1

2.20

10

Borrowings from bank 6,519 0 6,519 15,218 5,435 20,653Financial leasing 2,036 9,898 11,933 2,160 11,702 13,862Related party liabilities 15,300 10,614 25,913 6,860 10,533 17,394

Total 23,854 20,512 44,366 24,238 27,670 51,909

Following the issue of the decree (executive) approving the restructuring Arrangement with Creditors by the Vicenza Court and execution of the distribution plan that took place in December 2010, the financial liabilities of Socotherm were drastically reduced; during 2011 the Group continued to pursue its financial recovery especially through the shareholders' contributions:

o purchase of a leased plant from a leasing company for Euro 1.3 million;

o repayment of a Socotherm SpA outstanding loan for Euro 0.9 million;

o re-balancing of the subsidiary Socotherm Americas' financial position with full repayment of its exposure to banks.

At 31 December 2011 the financial payables of Socotherm Group are solely those relating to:

o loan granted to Socotherm LaBarge L.L.C. by Reliance Bank, amounting to USD 16 million;

o during 2011 part of the debt of the subsidiary Socotherm Americas S.A., amounting to some USD 10 million, was acquired from a pool of banks by Fineglade; Socotherm S.p.A. subsequently took over these loans, assuming an obligation to its shareholder;

o during 2010 Socotherm USA received from Fineglade Ltd, the investment vehicle of the new shareholders, some Euro 10 million.

o financial lease obligations outstanding.

Amounts due to related parties are analysed separately later in the Notes.

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Net debt 31.12.2011 31.12.2010 Cash and cash equivalents 10,055 8,118 Current financial assets 61 3,200

Current assets 10,116 11,318 Current bank borrowings 6,519 15,218 Other financial payables - short term 2,036 2,160 Due to related parties 15,300 6,860

Current debt 23,854 24,238 Current net debt 13,738 12,920

Non-current borrowings from banks - 5,435 Other financial payables - long term 9,898 11,702 Due to related parties 10,614 10,533

Non-current net debt 20,512 27,670 Net debt 34,250 40,590

23) Employees’ benefits

Employee benefits

31.

12.2

010

Dec

reas

e

Exch

ange

di

ffer

ence

Utili

zati

on

31.

12.2

011

Employee termination indemnities 1,528 -334 1,194 Retirement fund and similar obligations 70 -8 61

Total 1,598 -343 1,255

The amount set aside represents the updated valuation of the debt of the Italian and foreign companies to employees in force on the indicated dates, net of advances and settlements made.

The provision decreases in the parent company for termination of employment contracts for Euro 133 thousand, whereas the reclassifications relate to provisions which in 2010 were recorded in the financial statements of companies now classified as held for sale.

The supplementary benefit reserve of customers represents the amount in favour of the sales agents of the parent company’s District Heating division in compliance with current rules of the applicable collective agreement.

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24) Provision for liabilities and charges

Provision for risks and charges

31.1

2.20

10

Prov

isio

ns

Exch

ange

di

ffer

ence

Uti

lizat

ion

31.

12.2

011

Provision for risks and charges 3,945 939 4,884Provision other risks 156 -156Other founds 14,752 -5,106 9,646

Total 18,853 -4,322 14,531

The amount of the provision for liabilities and charges at 31 December 2011 relates mainly to the following potential liabilities:

- accrual of the potential liabilities linked to the Arrangement with Creditors;

- tax provisions;

- potential liabilities related to the Spanish subsidiary;

- 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 decided to set aside a provision during the year;

- disputes with staff in both Italy and South America.

The decrease in the provision is due to the settlements related to SACE and Fortis Bank for which allocations to the provision were made last year.

With regard to proceedings by the Public Prosecutor of Gela there was an administrative inspection by the Guardia di Finanza [financial police], concluding with the issue of a formal Notice of Assessment on 8 April 2009.

On 29 May 2009 the Company presented its memorandum against the above formal Notice of Assessment, disputing the majority of the points raised, considering them not compliant with the general principles of law (loan, contributions to plant and non-deductible costs). On 3 March 2011 a preliminary hearing was held by the Gela Court. At this venue Socotherm S.p.A. presented a plea bargain, which was initially rejected. It is now planning to present a new plea bargain.

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Furthermore, in January 2010, the Vicenza Revenue Office notified the tax assessments relating to the 2004-2007 tax periods, adopting in full the observations contained in the Report on Findings from the Fiscal Police.

The assessments were contested before the first level Tax Commission meeting in a first hearing on 8 November 2010 where Socotherm sustained the irrationality of the loan being subject to taxation and the contributions to the capital account granted by the Ministry of Industry, considering that these amounts were repaid along with the secured creditors.

The Tax Commission requested sight of the accounting records for the aforesaid payment by 10 December 2010 and subsequently met on 12 January 2011. The Commission on 22 June 2011 issued its judgment and dismissed about 85% of the tax assessments alleged by the Revenue Office. On 7 February 2012 the Revenue Office appealed against the Commission's judgment.

The company is part of an action on a dispute with the Greek tax authorities; the first instance ruling of the Volos First Instance Administrative Court was favourable to Socotherm through distinct rulings that were then contested by the Greek State in 2007. Nevertheless, the appeal was rejected, the first instance ruling being confirmed. At procedural level the Greek law permits the possibility of a third instance of judgement through an appeal for annulment of the Appeal Court decisions.

To date the Greek State has not decided whether to proceed to that effect. In view of the favourable ruling and refusal of the appeal the directors do not consider it necessary to make any provision.

25) Non-current tax liabilities

This item includes the deferred taxes payable booked in the accounts of the parent company arising from consolidation adjustments.

The drop compared to the previous period was mainly due to the deferred taxes which were linked to Socotherm Americas and APC Socotherm.

26) Other non-current liabilities

The balance refers solely to the subsidiaries of the Socotherm Americas sub-group and relates mainly to payables of the American companies, the rental of the areas where the factories are placed, to the third party company which holds the remaining capital, to the tax authorities and to a lesser extent to employees.

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Current liabilities

27) Payables

Payables 31.12.2011 31.12.2010 Changes

Trade payables 17,067 21,678 -4,611Trade payables 17,067 21,678 -4,611 Advances 4,412 1,539 2,873 Due to social-secutiry and assistance institutions 1,167 1,086 82 Other payables 3,538 4,714 -1,176 Other payables 9,117 7,338 1,779

Total 26,184 29,016 -2,832

The decrease in trade payables is mainly due to the reclassification of some companies, more specifically the Chinese subsidiaries and Socotherm Infraviab, as liabilities held for sale.

The “advances” item refers to the advances received from customers for orders won and being executed; it is not spread evenly over time and is strongly influenced by the programming of individual works by the final customers. This item refers only to the South American sub-group.

Payables to others are attributable primarily to the Parent Company and subsidiaries of Socotherm Americas sub-group, to the recognition of amounts due to employees and contract staff for wages, holidays not taken and other related costs in addition to accrued liabilities and deferred income.

28) Due to related parties

Due to related parties 31.12.2011 31.12.2010 Changes Due to related parties short term 15,300 6,860 8,439 Due to related parties long term 10,614 10,533 81

Total 25,913 17,394 8,520

The amount outstanding at 31.12.2011 results from:

- short-term portion, amounting to Euro 13 million, of bills of exchange given by Socotherm Spa to the shareholder Fineglade against receivables from Socotherm Americas (which were later included as part of the capital increase in that company), and Euro 2.3 million for amounts due to a minority shareholder outstanding as from 2009.

52

- Long-term portion of the loan granted by Fineglade Ltd in favour of Socotherm USA.

The intercompany transactions cannot be defined as either atypical or as unusual.

29) Current tax liabilities

Current tax liabilities 31.12.2011 31.12.2010 Variazioni VAT payables 579 295 283 Payables for income tax 765 588 177 Other tax related payables 1,011 601 410

Total 2,355 1,484 871

Current tax liabilities mainly comprise payables to local tax authorities for direct and indirect taxes.

The balance is prevalently attributable to:

• The Parent Company for Euro 1 million and includes payables to Italian tax authorities for the payment of direct and indirect taxes

• Socotherm Americas S.A. sub-group for a total of Euro 1.3 million.

30) Liabilities destined for sale

Liabilities destined for sale 2011 2010 Changes

Advances - 5,802 (5,802)Payables and liabilities 16,640 10,145 6,495

Total 16,640 15,947 693

The previous table shows the breakdown of the reclassified values as Liabilities destined for sale in accordance with IFRS 5.

It should be noted that the amounts shown for 2010 refer to Socotherm España and Socopower Srl in liquidation.

During 2011 also the companies Socotherm Middle East, Socotherm Field Services in liquidation, Socotherm Shashi, Ningbo Daxie, Socotherm Latinoamericana, Socotherm Middle-East and APC Socotherm were reclassified as liabilities held for sale.

53

Income Statement

Operating segments

Shown below are the primary and secondary schedules relating to the operating segments, in accordance with IFRS 8.

Socotherm’s primary reporting is by geographic area; the four geographical areas identified can in fact be considered as segments identifiable separately, with homogeneous production characteristics and subject to different risks and benefits from those of the other segments.

The accounting standards, according to which the operating segments are shown in the notes, are consistent with those adopted in the preparation of the consolidated financial statements.

The business segments in which the Group operates were identified as:

E.M.E.: corresponding to Europe and Middle East;

AMERICAS: corresponding to South America and North America;

WEST AFRICA: corresponding to Nigeria and Angola;

ASIA PACIFIC: corresponding to China, South-East Asia and Australia.

The secondary reporting is that relating to the sales by business line, divided into:

On Shore Energy Transportation;

Off Shore Energy Transportation;

Plants;

Other Activities.

Geographical areas

The following tables show the profitability and carrying value of the assets and liabilities allocated to the various geographic areas in which Socotherm operates, respectively for the years 2011 and 2010, and the relative reconciliation with the Group’s income statement.

54

€/0002011 % 2011 % 2011 % 2010 %

NET REVENUES 77.053€ 23.136€ 53.917€

Cost of sales 59.352€ 14.253€ 45.099€

Contrib ution margin 17.701€ 23,0% 8.883€ 38,4% 8.818€ 16,4% -€ #DIV/0!

Overheads 17.828€ 23,1% 9.189€ 8.639€

Gross operating profit 127-€ -0,2% 306-€ -1,3% 179€ 0,3% -€ #DIV/0!

Amm ortisation, depreciation, provision 5.632€ 7,3% 2.353€ 3.279€

Net o perating profit 5.759-€ -7,5% 2.659-€ -11,5% 3.100-€ -5,7% -€ #DIV/0!

Net financ ial incom e (expenses) 4.975-€ Net prof it (loss) on exchange 1.100€ Net prof it (loss) asset held for sale 787-€ Incom e taxes 3.474-€

Pro fit (loss) for period 13.895-€ -18,0%

CONSOLIDATED F INANCIAL STATEMENT E.M.E.A. AMERICAS W EST AFRIC A

€/000

Surplus Agreement with

Creditors

2010 % 2010 2010 % 2010 % 2010 % 2010 %

NET REVENUES 221.178€ 171.835€ 18.770€ 1.162€ 26.030€ 3.381€

Cost of sales 44.548€ 14.372€ 992€ 25.897€ 3.287€

Contribution margin 176.630€ 79,9% 4.398€ 23,4% 170€ 14,6% 133€ 0,5% 94€ 2,8%

Overheads 20.476€ 9,3% 5.853€ 1.261€ 12.624€ 738€

Gross operating profi t 156.154€ 70,6% 1.455-€ -7,8% 1.091-€ -93,9% 12.491-€ -48,0% 644-€ -19,0%

Ammortisation, depreciation, provision 22.435€ 10,1% 19.490€ 106€ 1.932€ 907€

Net operating profit 133.719€ 60,5% 20.945-€ -111,6% 1.197-€ -103,0% 14.423-€ -55,4% 1.551-€ -45,9%

Net financial incom e (expenses) 5.067-€ Net prof it (loss) on exchange 7.056€ Net prof it (loss) asset held for sale 4.838-€ Incom e taxes 2.892-€

Profi t (loss) for period 127.978€ 57,9%

WEST AFRICACONSOLIDATED

F INANCIAL STATEMENT E.M.E.A. ASIA E PACIFICO AMERICAS

Increases in the non-current assets from own production, decrease/(increase) in inventories, work in progress and the other revenues and income are included in the above and subsequent tables relating to the operating segments.

E.M.E.A.

In EMEA the decrease in revenues compared to 2010 amounted to Euro 1.66 million, and was due to the fact that the companies Socotherm España, Socopower and Socotherm Infraviab, having been placed in liquidation or waiting to be sold, were included in assets held for sale. Moreover, these companies were much less active in 2011 than in previous years. The parent company posted an increase in sales of Euro 10.6 million, of which the anti-corrosion coating business (pipe coating division) amounted to about Euro 11.1 million, while the activities of the district heating and engineering divisions were virtually nil.

EBITDA went from 17.3% in 2010 to -3.4% in 2011, mainly due to approximately Euro 5.6 million of extraordinary income that was recorded in 2010, mainly attributable to Socotherm Middle

55

East. It should be noted that in 2011 overhead included Euro 2.2 million of non-recurring costs.

EBIT was -21.5% compared with -76.7% in 2010, the latter reflecting the write-downs and provisions for non-recurring costs that affected all the companies of this region.

Asia Pacific

The companies in this area, APC Socotherm and Chinese Companies, pending their liquidation or sale, were classified in the financial statements as assets held for sale, according to IFRS 5.

Americas

The significant increase in revenues of the Americas area (approximately Euro 28 million) is mainly attributable to Socotherm Americas SA for about Euro 10 million, to Socotherm LaBarge for Euro 3 million and to Socotherm Brasil for approximately Euro 14 million. In Argentina, the significant increase is explained by the fact that activity in this area is closely linked to coating projects commissioned by local governments for the maintenance of their domestic gas networks. 2010 was particularly critical from this point of view, both in Argentina and in Brasil, as state investment in transport-related infrastructure fell sharply, especially in the gas sector, which heavily involved the Tenaris Group, the leading buyer of coating works in the South American area. Socotherm LaBarge’s increase is due to a pick up of projects commissioned by large oil & gas companies that are investing again in the Gulf of Mexico area.

EBITDA in 2011 was 0.1%, compared to -48% of 2010, which was penalized by the effect of the restructuring carried out in Argentina, which was affected by charges related to the reduction of one third of the staff. EBIT was -16.6% compared to -55.4% in 2010. The figure for 2011, is penalized by the impact of the item amortisation, depreciation, write-downs and provisions, which includes about 7 million of provisions.

West Africa

This area covers the production carried out in Angola, where in 2011 no activity took place.

Business Lines

The following two tables show the profitability of Socotherm’s business lines, respectively for the 2011 and 2010 financial years, and the reconciliation with the Group’s consolidated income statement.

56

€/0002011 % 2011 % 2011 % 2011 % 2011 %

NET REVENUES 77.053€ 61.763€ 14.360€ 428€ 502€

Cost of sales 59.352€ 45.779€ 12.190€ 659€ 724€

Co ntrib ution m argin 17.701€ 23,0% 15.984€ 25,9% 2.170€ 15,1% 231-€ -54,0% 222-€ -44,2%

Overheads 17.828€ 15.242€ 1.700€ 501€ 385€

Gross o perating profit 127-€ -0,2% 742€ 1,2% 470€ 3,3% 732-€ -171,0% 607-€ -120,9%

Amm ortisat ion, depreciation, provision 5.632€ 4.585€ 1.047€

Net o perating profit 5.759-€ -7,5% 3.843-€ -6,2% 577-€ -4,0% 732-€ -171,0% 607-€ -120,9%

Net financ ial incom e (expenses) 4.975-€ Net prof it (loss) on exc hange 1.100€ Net prof it (loss) as set held for sale 787-€ Incom e taxes 3.474-€

Pro fit (loss) for period 13.895-€ -18,0%

CONSOLIDATED FIN ANC IAL STATEMENT

ON SHORE ENERGY TRASPORTATION

OFF SHORE ENERGY TRASPORTATION PLANT S OTHERS ACTIVITIES

€/000

Surplus Agreem ent with

Creditors

2010 % 2010 2010 % 2010 % 2010 % 2010 %

NET REVENUES 221.178€ 171.835€ 31.691€ 7.684€ 533€ 9.435€

Cost of sales 44.548€ 25.992€ 9.065€ 518€ 8.973€

Contribution margin 176.630€ 79,9% 5.699€ 18,0% 1.381-€ -18,0% 15€ 2,8% 462€ 4,9%

Overheads 20.476€ 16.609€ 1.155€ 832€ 1.880€

Gross operating profit 156.154€ 70,6% 10.910-€ -34,4% 2.536-€ -33,0% 817-€ -153,3% 1.418-€ -15,0%

Amm ortisation, depreciation, provision 22.435€ 20.738€ 1.588€ 109€

Net o perating profit 133.719€ 60,5% 31.648-€ -99,9% 4.124-€ -53,7% 817-€ -153,3% 1.527-€ -16,2%

Net financial incom e (expenses) 5.067-€ Net profit (loss) on exchange 7.056€ Net profit (loss) asset held for sale 4.838-€ Incom e taxes 2.892-€

Pro fit (loss) for period 127.978€ 57,9%

OTHERS ACT IVIT IESCONSOLIDATED

FIN ANC IAL STATEMENTON SHORE ENER GY

TRASPORTATIONOFF SHORE ENERGY

TRASPORTATION PLANTS

On Shore Energy Transportation;

The On-Shore segment recorded overall revenues of Euro 61.7 million in 2011, recording a marked increase compared to Euro 41 million in 2010; the increase is attributable to the reasons already specified in the analysis by geographic area.

The EBITDA went from -16.1% in 2010 to 1.2% in 2011, while the EBIT stood at -19.5% compared to -75.2% in 2010. The improvement was driven by increased revenue and lower write downs compared to 2010.

Off Shore Energy Transportation

Total revenues for the Off-Shore segment in 2011 were Euro 14.4 million, compared to 7.6 million in 2010, due to the recovery of activity in the Gulf of Mexico, where Socotherm LaBarge operates.

EBITDA went from -33% in 2010 to 3.3% in 2011, while EBIT stood at -53.7% compared to -4.0% in 2011, as a result of the increase in turnover.

Plants

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Operations of the Plants segment refer to the engineering divisions of the Parent and Socotherm Americas S.A.. Total revenues were steady at around 0.4 million compared to 2010 when they were 0.5 million. Also this year, this sector’s business was concentrated on research and development and on the supply of spare parts to third parties who had purchased plants from the Group in the past.

EBITDA went from -153% in 2010 to -171% in 2011, equal to EBIT, as there is no depreciation/amortisation in this segment.

Other Activities

The Other Activities mainly refer to production that does not form part of the corporate core business, such as the infrastructure, application of field joints, photovoltaic plant installation and district heating sectors.

Total revenues for 2011 amounted to Euro 0.5 million, relating solely to district heating activities, compared with 5.8 million in 2010, which also included the companies Socotherm Infraviab and Socopower, now reclassified as assets held for sale (IFRS 5). EBITDA stood at -120.9% in 2011, compared to -0.5% in 2010; EBIT was the same compared to -2.4% in 2010. The district heating division was closed in late 2011.

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Total revenue

31) Revenues from sales and services, changes in inventories and increases in non-current assets from own production

The revenues from sales and services relate to the normal business exercised by the companies included in the scope of consolidation; they are accordingly ascribable to the production and marketing of coating of steel piping and construction of plants dedicated to this activity.

The value of production significantly increased compared to 2010 due to the completion of the Arrangement with Creditors and despite the global financial crisis. Revenues, as anticipated in the analysis according to IFRS 8, significantly increased both for the Parent company and the sub-group headed by the Argentine company Socotherm Americas.

32) Other revenues and income

This entry is significantly influenced by the inclusion in 2010 of the extraordinary income arising from the write-off of the unsecured part of debt as part of the Arrangement with Creditors as well as other items of similar nature.

Thanks to the closing of this Arrangement, the Parent Company Socotherm benefited, in terms of revenues, from the portion of unsecured loans waived by the creditors for an amount of Euro 169.6 million.

In 2011, the extraordinary items were substantially related to the release of the provision for liabilities and charges due to excess provision and the successful completion of the restructuring of debt positions vis à vis the leasing companies.

The item “Recovery of various costs” mainly refers to recharges to customers for expenses incurred for their account, for example transport costs, which therefore suffered from the trend of production.

There were no significant compensation requests to insurance companies by the Group during the course of 2011.

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Operating costs

33) Costs for production materials

Production costs 2011 2010 Changes Changes % % on prod.val. 2011

% on prod.val. 2010

Raw materials 27,358 12,719 14,639 115% 35.51% 5.79%Consumable materials 142 136 6 5% 0.18% 0.06%Other purchases 1,603 1,018 586 58% 2.08% 0.46%Change in inventories 890 372 517 139% 1.15% 0.17%

Total 29,993 14,245 15,748 111% 38.93% 6.48%

The incidence of production costs compared to production value increased from 33.3% in 2010 to 38.9% in 2011 due to the production mix.

The Group, through its internal R & D facility, continued the study of its self-formulated and new application techniques, with the objective of significantly reducing the incidence of material costs in the next few years.

34) Costs for services

Shown below for further information on the financial statements is a table based on the allocation of “Services costs”:

Services 2011 2010 Changes Changes % % on prod.val. 2011

% on prod.val. 2010

Outsourcing costs 81 63 18 29% 0.11% 0.03%Utilities 3,474 2,426 1,048 43% 4.51% 1.10%Technical assistance 5 105 -100 -95% 0.01% 0.05%Maintenance 1,132 1,118 14 1% 1.47% 0.51%Transport 1,029 648 381 59% 1.34% 0.29%External consultancies 69 411 -342 -83% 0.09% 0.19%Remuneration of industrial collaborators 312 508 -196 -38% 0.41% 0.23%Other industrial costs 914 2,149 -1,235 -57% 1.19% 0.98%Inustrial services costs 7,017 7,428 -411 -6% 9.11% 3.38%Travel and lodging 451 325 126 39% 0.59% 0.15%Commissions 75 243 -168 -69% 0.10% 0.11%Other marketing services costs 942 430 512 119% 1.22% 0.20%Marketing services costs 1,468 997 470 47% 1.90% 0.45%Directors and Statutory Auditors' fees and expenses 504 1,045 -541 -52% 0.65% 0.48%Banking and insurance services 693 397 295 74% 0.90% 0.18%Legal and administrative services 232 36 196 541% 0.30% 0.02%Administrative and general advices 4,471 5,657 -1,185 -21% 5.80% 2.57%Other general costs 2,245 2,309 -63 -3% 2.91% 1.05%Administrative and general services costs 8,146 9,444 -1,298 -14% 10.57% 4.30%Costs due to Pre-insolvency procedure -3,269 3,269Costs due to Pre-insolvency procedure -3,269 3,269

Total 16,631 14,600 2,031 14% 21.58% 6.64%

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The incidence of the costs for industrial services on production value increased from 17.9% in the 2010 financial year to 10.7% in 2011; the reason is strictly related to the significant increase in revenues. In absolute terms the decrease was due to the rationalization of other industrial costs.

The cost of commercial services increased following the recovery in commercial development activities, which were greatly reduced during the period of the Arrangement with Creditors.

The incidence of the costs for general services went from 21.3% in 2010 to 10.8% in 2011, with a decrease in absolute value of about Euro 2 million, thanks to a general lower recourse to administrative, banking and legal services, mainly related to the Arrangement with Creditors.

The item corporate officers fees includes those paid to directors and statutory auditors of the Italian and foreign companies.

The list of the Parent Company’s directors and statutory auditors fees by name is given in the annex to these financial statements.

35) Personnel costs

Payroll costs 2011 2010 Changes Changes % % on prod.val. 2011

% on prod.val. 2010

Wage and salaries 17,308 15,719 1,589 10% 22.46% 7.15%Social security charges 7,388 4,604 2,784 60% 9.59% 2.10%Employee benefits 599 648 -49 -8% 0.78% 0.29%Other staff costs 845 943 -97 -10% 1.10% 0.43%

Total 26,140 21,914 4,226 19% 33.92% 9.97%

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.

During 2011, personnel costs increased by Euro 4.2 million due to the significant recovery in production which was reflected both in greater use of fixed-term work and night shifts with the related increase in costs.

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36) Amortisation, depreciation and provisions

Amortization, depreciation and provisions 2011 2010 Changes Changes % % on prod.val. 2011

% on prod.val. 2010

Depreciation of tangible assets 5,796 5,617 178 3% 7.52% 2.56%Bad debts 1,008 602 406 67% 1.31% 0.27%Assets write-off -4,874 4,272 -9,146 -214% -6.33% 1.94%Provision for liabilities and charges 3,702 13,666 -9,963 -73% 4.80% 6.22%Amortization, depreciation and provisions 5,632 24,157 -18,525 -77%Non recurring costs -19,233 19,233 -8.75%Non recurring costs -19,233 19,233

Total 5,632 4,924 708 14% 7.31% 2.24%

Amortisation and depreciation reduced compared to the previous year as an effect of the write-downs made in 2008 and 2009, which reduced the historical cost and consequently the impact of the amortisation and depreciation for the financial year.

The write-up of non-current assets results from the impairment tests, for which reference is made to the explanatory notes on the asset items “Property, plant and machinery, non-current intangible assets and goodwill”.

The Provisions for liabilities and charges item refers mainly to the Parent Company’s and South American sub-group’s provisions for liabilities.

37) Industrial leases

The decrease in this item is mainly due to the termination of certain lease agreements.

38) Other operational costs

Other operating costs 2011 2010 Changes Changes % % on prod.val. 2011

% on prod.val. 2010

Ordinary capital loss 107 107 100% 0.14%Other operating costs 1,145 985 160 16% 1.49% 0.45%

Total 1,252 985 266 27% 1.62% 0.45%

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39) Financial income and charges

Financial income and charges 31.12.2011 31.12.2010 ChangesInterest receivable 555 512 43Interest payable and commissions -5,530 -5,443 -88

Total -4,975 -4,930 -45

Despite the sharp decline in financial debt, financial charges are substantially in line with those of the previous period.

The interest payable item also includes the default interest on the unpaid overdue loan instalments.

40) Profits and losses on exchange rates

The Profits and losses on exchange rates item suffered significantly from the trend of the dollar and Argentine pesos. This item was also significantly impacted by the dollar exposure to the shareholder Fineglade Ltd.

41) Income taxes

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.

The amount allocated in the financial statements prevalently refers to Socotherm Americas and the Parent Company.

42) Net result from assets sold or destined for sale

The following table shows the breakdown of the reclassified values as “Assets destined for sale” in accordance with IFRS 5.

It should be noted that the amounts shown for 2010 refer to Socotherm España and Socopower Srl. In 2011, besides the two companies already included in 2010, the following companies were reclassified in this item: Socotherm Infraviab, Socotherm LatinoAmericana, Socotherm Field Services in liquidation, Socotherm Middle-East, APC Socotherm, Ningbo Daxie and Socotherm Shashi.

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Financial effect of assets and liabilities destined for sale

2011 2010 Changes

Revenues 2,460 12,366 (9,906) Costs for materials, services and personnel (2,838) (12,349) 9,511 Amortisation and depreciation (1,073) (950) (122) Provisions and write-downs (10) - (10) Other charges and income 601 (2,399) 3,000 Taxes and minority's result 73 (34) 107

Profit/(loss) (787) (3,367) 2,580Devaluation (2,378) 2,378

Totale (787) (5,745) 4,958

2011 2010

Financial effect of assets and liabilities sold - -Financial effect of assets and liabilities destined for sale

(787) (5,745)

Total (787) (5,745)

Related party and infragroup transactions

The Parent Company reduced purchases and sales with its consolidated subsidiary companies during 2011. The transfer of technical assets, the sales of products and the provision of services between the various companies of the Group has taken place, as usual, at normal market prices.

With regard to transactions with related parties, reference is made to the related note.

64

Management and types of financial risks

The company, being operational in all the world’s markets, its business is exposed to various typologies of financial risks, including amongst these exchange rate risk, credit risk, liquidity risk, interest rate risk and price risk.

At 31 December 2011 there were no derivative instruments, while financial instruments, other than derivatives, are utilised, for example financial leasing, hires, sight deposits and payables and receivables deriving from the 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 related companies and jointly controlled companies, payables to the personnel, welfare entities, revenue office, and employee benefits. Finally, transactions with payments based on shares are excluded.

Currency risk

65

Information of a qualitative nature

In general the Group is exposed to currency risk that arises from a twofold source of risk. In the first place with regard to trading activities, the Group companies may be holding trade receivables or payables in currencies other than the accounting currency of the entity holding them. A change in the exchange rate may involve the realisation or the ascertainment of positive and negative exchange rate differences. Nevertheless there are procedures that provide for costs of a given contract or project to be kept in the same currency as the corresponding revenues. The second risk factor derives from the effects of the translation into Euro of the financial statements of the Group’s subsidiaries located in countries that do not belong to the European Monetary Union.

Information of a quantitative nature

Breakdown by currency of denomination of the assets and liabilities

USD Dollars Pesos ArgentinoRenmimbi

RMBAUD Dollars Real Brasilian

Bolivar Venezuelan

Kwanza Angola

31-dec-11 31-dec-11 31-dec-11 31-dec-11 31-dec-11 31-dec-11 31-dec-11

Total 20,654 4,563 - 5,328 4,241 5,331 1,346

Deferred tax assets - 738 - 52 881 55 -Other current tax assets 12,593 408 - 477 178 477 -Trade receivables 6,102 (1,054) - 2,463 1,309 2,463 25Current tax assets - 210 - 399 1,054 399 13Other receivables 104 473 - 415 16 415 1,307Cash and cash equivalents 1,855 3,787 - 1,522 802 1,522 1

Total 7,962 2,733 - 988 1,611 997 8,634Non current financial debts 5,024 - - 170 - 180 -Borrowings from banks - short term 985 148 - 90 - 90 -Trade payables 1,683 2,349 - 548 1,611 548 8,634Related parties liabilities - - - - - - -Other payables - short term 270 236 - 179 - 179 -

(thousand €)

Currency

Shown below are the impacts on the result as at 31 December 2011 assuming a hypothetical change of +/-10% in the exchange rates.

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10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10%

Total 18.776 22.949 4.148 5.070 - - 4.843 2.653 3.855 4.712 4.846 5.923 1.223 1.495

Deferred tax assets - - 671 820 - - 48 58 801 979 50 61 - -

Other current tax assets 11.448 13.993 371 453 - - 433 - 162 198 433 530 - -

Trade receivables 5.547 6.780 (958) (1.171) - - 2.239 - 1.190 1.454 2.239 2.737 23 28

Current tax assets - - 191 233 - - 362 443 959 1.172 362 443 11 14

Other receivables 95 116 430 526 - - 377 461 14 17 377 461 1.188 1.452

Cash and cash equivalents 1.686 2.061 3.443 4.208 - - 1.384 1.691 729 891 1.384 1.691 1 1

Total 7.238 8.847 2.484 3.037 - - 898 1.097 1.465 1.790 906 1.108 7.849 9.593

Non current financial debts 4.567 5.582 - - - - 155 189 - - 163 200 - -

Borrowings from banks - short term 896 1.095 134 164 - - 82 100 - - 82 100 - -

Trade payables 1.530 1.870 2.135 2.610 - - 498 609 1.465 1.790 498 609 7.849 9.593

Related parties liabilities - - - - - - - - - - - - - -

Other payables - short term 245 300 215 263 - - 163 199 - - 163 199 - -

Currency

(thousand €)

USD Dollars Pesos Argentino Renmimbi RMB AUD Dollars Real Brasilian Bolivar Venezuela Kwanza Angolana

Credit risk


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 credit risk is mostly attributable to trade receivables. Given the specific industry in which the Group operates, it comprises different businesses with non homogeneous characteristics; with regard to to trade receivables, in fact, Socotherm is exposed to multinational companies and the Public Administration as well as small to medium size 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 risk does not exist, as at 31 December 2011 we held no derivative financial instruments.

In order to minimize credit risk, however, procedures and actions are in place aimed at limiting the effect of any defaults by customers.


The following table shows an aging analysis of trade receivables past due and the maximum exposure to credit risk.

67

31.Dec.2010 31.Dec.2011 31.Dec.2010Hystorical value Devaluation Net value

Trade receivables not yet overdue 15,496 -3 15,493 8,934 15,493 8,934 overdue less 90 days 1,141 0 1,141 3,251 1,141 3,251overdue from 90 to 120 days 356 0 356 490 356 490 overdue from 120 to 180 days 716 0 716 148 716 148 overdue lfrom 180 to 360 days 843 -142 701 189 701 189 overdue from 1 to 2 years 186 -67 119 1,052 119 1,052overdue more than 2 years 3,816 -3,086 730 8,845 730 8,845

Total 22,554 -3,299 19,256 22,907 19,256 22,907

Trade receivables Book value Fair value

31.Dec.2011

31.Dec.2011 31.Dec.2010Financial assets other assets and receivables - - receivables from sale of investement 61 3,200 trade receivables - - trade receivables 22,554 39,429 receivables from others - - from social institution 71 100 from assurance 66 66 from guarantee deposit 80 1 from others 2,211 3,714 advance 473 1,700 other asset - - non current advance 13,829 13,605 guarantee deposit lt - -

Total 39,345 61,814

31.Dec.2011 31.Dec.2010Issued gurantees 7,162 7,162

Total credit risk 46,506 68,976

Receivables (without devaluation)Receivables and financial assets

68

The following table shows an analysis of trade receivables individually written-down.

Carrying value gross of write-down

Write-down Book value Fair value

trade receivables written off 100% 1,259 1,259- - - trade receivables written off 90% 1,206 1,099- 107 107 trade receivables written off 80% 243 194- 49 49 trade receivables written off 75% 318 239- 80 80 trade receivables written off 70% 520 381- 139 139 trade receivables written off 60% 1 1- 0 0 trade receivables written off 50% 214 107- 107 107 trade receivables written off 35% 33 13- 20 20 trade receivables written off 5% 45 7- 38 38 trade receivables written off 1% - - - - not devaluated 18,717 - 18,717 18,717

Total 22,555 3,299- 19,256 19,256

devaluated trade receivables

31.Dec.2011

Liquidity risk


Liquidity risk is defined as the possibility that the Group cannot meet its payment commitments due to the inability to raise new funds (funding liquidity risk), the inability to sell assets on the market (asset liquidity risk) or being forced to bear very high costs to meet its commitments. Exposure to this risk is primarily represented by existing loan transactions and short-term trade payables. Loans are mainly medium to long-term (loans and leasing) with bank counterparties.


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 included in connection with this standard, since they are not representative of real debt, but are destined for a reduction of the amortisation portion.

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within one year more than one year within one year more than one

year trade payables 17,067 10,614 21,678 10,533 financial liabilities 18,653 15,099 24,238 17,137 other liabilities 9,117 10,741 7,338 9,755

Total 44,837 36,454 53,255 37,425

Maturity of financial liabilities31.Dec.2011 31.Dec.2010

Market risks

The market risk arises from the effects of interest rate changes and from the risk of changes in the prices of raw materials.

Interest rate risk


The interest rate risk arises from the possibility that an adverse change in the relative interest rate curve could influence, depending on the type of exposure, future cash flows or the fair values of the financial instruments. The rate risk is therefore represented by the uncertainty associated with interest rate performance.

At 30 December 2011, there were no derivative financing contracts for hedging interest rates. Notwithstanding the risk management policies, potential fluctuations in interest rates could reflect on the cost of existing loans and have a negative impact on the economic and financial results of the company.


In the following tables, in observance of the international accounting standard IFRS 7, there is shown the breakdown of debt between fixed and variable rates and a sensitivity analysis representing the impact which a change in interest rates on the date of the account would have on the values in the financial statements. The assumptions at the base of the sensitivity calculation analysis are the following:

• initial parallel shift of the rate curve of ± 50 basis points;

• all other risk variables remain unchanged.

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The significant reduction of variable rate bank debt compared to 31 December 2010 is mainly due to the repayment of the bank debt held by Socotherm Americas.

Financial debts 31.Dec.2011 31.Dec.2010

Fix interest rate 6,424 9,357Variable interest rate 0 17,093

TOTAL 6,424 26,450

- 50 bps Base + 50 bps - 50 bps Base + 50 bpsFinancial debts - - - 2,077 2,162 2,248

TOTALE NETTO 0 0 0 2,077 2,162 2,248

IMPACT ON INCOME STATEMENT31.12.2011 31.12.2010

The interest base rate (12.65%) was calculated as the weighted average of the variable rates on the various loans, now negative, granted to the Group and is high in that this takes into consideration some loans granted to Socotherm Argentina, a consolidated company with its registered office in a market with high interest rates.

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 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 met 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.

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Classes of financial instruments

In agreement with paragraph 21 of the quoted IFRS 7, set out below is the list of the positive and negative financial instruments with an indication of the valuation method

(thousand €)

Financial instruments valued at fair value

Financial instruments valued at amortized

cost

Financial instruments valued at cost

Balance value at 31.12.2011

Fair value at 31.12.2011

ASSETSOther credit - - 2,900 2,900 2,900 Current financial assets - - 61 61 61 Cash and cash equivalents - - 10,055 10,055 10,055

LIABILITIES Current financial debts - - 3,353 3,353 3,353 Other non-current debts - 10,741 - 10,741 10,741 Non-current financial debts - 15,099 - 15,099 15,099

TYPOLOGY OF FINANCIAL INSTRUMENTS

CRITERIA APPLIED FOR THE VALUATION OF THE FINANCIAL INSTRUMENTS IN THE BALANCE31.Dec.2011

Fair Value hierarchy in accordance with IFRS 7

IFRS 7 requires the classification of financial instruments at fair value to be determined based on the quality of sources of the inputs used in the measurement of fair value. As at 31 December 2010 the Group had no financial instruments measured at fair value.

For completeness, we present the fair value hierarchy required in case of measurement of financial instruments at fair value:

o Level 1: determination of fair value based on quoted prices in active markets for identical assets or liabilities;

o Level 2: determination of fair value based on inputs other than quoted prices included in "Level 1" but that are observable either directly or indirectly on the market.

o Level 3: determination of fair value based on measurement models whose inputs are not based on observable market data (unobservable inputs).

socotherm group consolidated financial statements as at …€¦ · investments in associates and...

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