management report on the financial statements 2019 …

MANAGEMENT REPORT ON THE FINANCIAL STATEMENTS

2019

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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019

MANAGEMENT REPORT ACCOMPANYING THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019

RENCO GROUP SpA

Registered office in Viale Venezia 53 - 61121 Pesaro (PU)

Share capital € 9,012,500.00 of which € 9,012,500.00 paid-in

Pesaro Companies’ Register No. 13250670158

Tax Code 13250670158

Pesaro Economic and Administrative Index no. 193317

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I N D E X

5 Foreword

8 Methodological Note

8 Situation Of Group Companies And Operating Performance

11 Development of Demand and Trends in the Market the Company Serves

13 Overall Performance of the Main Companies in the Scope of Consolidation

20 Financial Aspects of Operations

22 Alternative Performance Indicators

24 Information Concerning the Environment

25 Information on Personnel

27 Description of the Main Risks and Uncertainties to Which the Group is Exposed

30 Notice As Per Art. 2428 No. 6 Bis

31 Company Objectives and Policies Concerning Financial Risk Management

31 Company Risk Exposure

32 Research And Development Activities

32 Transactions With Subsidiary, Associated, Parent And Partner Companies

33 Treasury Shares And Shares/Stocks In Parent Companies

34 Foreseeable Business Outlook

35 Activities Pursuant To Legislative Decree 231/01

Financial Statement

40 Consolidated financial statements as of 31/12/2018

46 Consolidated cash flow statement

Explanatory notes to the consolidated financial statementsas of 31/12/2018

53 Foreword

53 Activities carried out and significant events regarding the group

53 Preparation criteria

54 Scope and methods of consolidation and significant events during the year

56 Consolidation criteria

57 Measurement criteria

64 Information on financial statement items

64 Balance sheet assets

76 Current assets

83 Balance sheet liabilities

93 Income statement

102 Other information

112 Reasons for exclusion

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Dear Shareholders,

In support of the financial statements for the period ended 31.12.2019, we provide this Management Report

to the consolidated financial statements, prepared pursuant to art. 2428 of the Italian Civil Code, with the

aim of providing a faithful, balanced and comprehensive information framework regarding the situation

of the Group, the performance and results of operations, as well as the activities carried out by the Group

during the year.

FOREWORD

The “Renco Group”, of which Renco Group S.p.A. is the parent company (hereinafter the “Group” or

“RENCO”), is an important Italian company in the industrial plant engineering sector and in the general

contracting area. The Group operates various lines of business, which include the Industrial Plants division,

Infrastructure division, Asset Management division and Services division.

The activities are carried out, in addition to the two Italian companies Renco S.p.A. and Renco Group

S.p.A., also by the following portfolio companies:

NAME CITY OR COUNTRY % OWNERSHIP ACTIVITY CARRIED OUT

RENCO ALGERIA ALGERIA 100.00 Industrial plant engineering, energy sector

ANGORENCO * ANGOLA 100.00 Industrial services

ARMENIA GESTIONI LLC ARMENIA 100.00 Asset management and tourism-hotel activities

ARMPOWER ARMENIA 60.00 Industrial plant engineering, energy sector

HOTEL YEREVAN OJSC ARMENIA 100.00 Asset management and tourism-hotel activities

ITALSEC ARMENIA LLC ARMENIA 90.00 Security services

NUOVO VELODROMO ARMENIA 100.00 Asset management

RENCO ARMENIA VALORE LLC (previously PIAZZA GRANDE LLC)

ARMENIA 100.00 Asset management

RENCO ARMESTATE LTD ARMENIA 100.00 Asset management, Civil and industrial buildings

RENCO POWER CJSC ARMENIA 100.00 Investments in the energy sector

VELOFIRMA LLC ARMENIA 53.70 Asset management and tourism-hotel activities

RENCO CANADA LTD CANADA 100.00 Industrial plant engineering, energy sector

ITALSEC CONGO ARL CONGO 90.00 Security services

RENCO CONGO SARLU CONGO 100.00Civil construction, industrial construction and services

RENCO CONGO VALORE CONGO 100.00 Asset management

RENCO GESTION IMMOBILIERE CONGO 70.00 Asset management and tourism-hotel activities

RENCO TERNA JV GREECE/ALBANIA 50.00 Industrial plant engineering, energy sector

ARENGEST S.R.L. ITALY 100.00 Asset management

CONS. STABILE RENCO LANCIA ITER

ITALY 65.00 Civil construction

RENCO NOT-FOR-PROFIT FOUNDATION

ITALY 100.00Development and financing of projects in favour of children

ITALSEC S.R.L. ITALY 90.00 Security services

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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa


JOINT GREEN S.R.L. ITALY 100.00 Industrial plant engineering, energy sector

REAL ESTATE MANAGEMENT S.R.L.

ITALY 30.00 Asset management and tourism-hotel activities

RENCO ASSET MANAGEMENT S.R.L.

ITALY 100.00 Asset management

RENCO CAPITAL S.R.L. ITALY 99.99 Asset management

RENCO CAPITAL S.R.L. ITALY 100.00 Large-scale distribution

RENCO HEALTH CARE S.R.L. ITALY 90.00Asset management in the health care sector (Old People’s Homes)

RENCO IMMOBILIARE S.R.L. ITALY 100.00 Asset management

RENCO VALORE S.R.L. (previously RENCO REAL ESTATE S.R.L.)

ITALY 100.00Sub-holding with investments in the civil construction, Asset management and hotel sectors

RESIDENCE VISERBA S.R.L. ITALY 100.00 Asset management

TOLFA CARE S.R.L. ITALY 42.54 Health care/Nursing home management

VILLA SOLIGO S.R.L. ITALY 100.00 Asset management and tourism-hotel activities

GEODELTA CORP KAZAKHSTAN 60.00 Design and construction of industrial plants

RENCO KAT LTD KAZAKHSTAN 50.00 Civil and industrial buildings

RENCO PROPERTY LLP KAZAKHSTAN 100.00 Asset management

TRADE MARK ITALY LLP KAZAKHSTAN 50.00 Assets management and food sale activities

RENCO ENERGIES SA MOROCCO 57.63 Industrial plant engineering, energy sector

RENCO MAR MOROCCO 97.00 Civil and industrial buildings

CABO DELGADO PROPERTIES SA MOZAMBIQUE 63.00Development and management of logistic structures and ports

ITALSEC MOZAMBIQUE LDA MOZAMBIQUE 90.00 Security services

MOZESTATE LDA MOZAMBIQUE 100.00 Asset management

NIASSA SANCTUARY LTD MOZAMBIQUE 50.00 Asset management and tourism-hotel activities

PEMBA BULK TERMINAL MOZAMBIQUE 50.40 Port construction and management

REAL MOZ LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities

RENCO ENERGIA LDA MOZAMBIQUE 62.50 Industrial plant engineering, energy sector

RENCO IREM CONSTRUCOES LTD MOZAMBIQUE 31.25 Civil and industrial buildings

RENCO MOZAMBICO LTD MOZAMBIQUE 97.00 Asset management and tourism-hotel activities

RENCO TEK LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities

BAYTREE INVEST.& SERVICE LDA PORTUGAL 100.00Sub-holding with investments in the Asset management and tourism-hotel sector

GRAPEVINE LDA PORTUGAL 50.00 Asset management and tourism-hotel activities

INTERRENKO LTD RUSSIA 100.00 Asset management

RENCO SAKH LLP RUSSIA 100.00 Asset management and tourism-hotel activities

SOUTHERN CROSS LLC RUSSIA 50.00 Asset management and tourism-hotel activities

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BAYTREE LLC *UNITED STATES OF AMERICA

100.00 Asset management and tourism-hotel activities

RENCO TANZANIA CONSTR. LTD *

TANZANIA 99.00 Civil and industrial buildings

*Company in liquidation

From the previous year the following changes occurred in the Group structure:

in June 2019, Renco S.p.A. sold 100% of the shares held in Renco Zanzibar Ltd to companies of the RIU

Group, recording a capital gain net of brokerage costs of 32.8 million Euros, a gain determined taking

into account the value contributed by the subsidiary in the consolidated financial statements. The sales

price was fully received in July 2019. The sale underlines the core business of the Asset Management BU,

which also evaluates and concludes extraordinary transactions, such as acquisitions and disposals, for the

benefit of the Renco Group;

the Group has begun a corporate restructuring process, aimed at rationalising the Group’s corporate

structure, which is why on 4 April 2019, Renco Immobiliare S.r.l. was formed, a vehicle under which

companies holding real estate assets will be allocated. The transaction has a mainly industrial purpose

and is aimed at separating the logistics activities in the energy and ho.re.ca -”Hotellerie, Restaurant, Cafè”-

market relating to the Asset Management Division from the activities of the Services, Infrastructure and

Industrial Plant Divisions. Renco Immobiliare S.r.l. has the same shareholding structure as Renco S.p.A.

and that is why the Renco Group directly owns 99.51% of the company.

The restructuring project also includes the demerger of the know-how acquired in facility management

activities necessary to promote it on the market, not limiting it to captive activities for the Group. To this

end, in July 2019, Renco Asset Management S.r.l. was created, whose share capital is owned in the same

proportions as Renco Immobiliare S.r.l.; on 10 December 2019, the single deed of proportional demerger

of Renco S.p.A. in favour of Renco Immobiliare S.r.l. and Renco Asset Management S.r.l. and that of the

merger of Renco Immobiliare S.r.l. with Renco Real Estate S.r.l. was formalised. The accounting, statutory,

tax and legal effects of the demerger and reverse merger will take effect as from 1 January 2020.

Finally, the name of Renco Real Estate S.r.l. was changed to Renco Valore S.r.l. by a deed dated 24 January

2020.

2019 saw the transformation into a company of the Congolese branch of Renco S.p.A., which took on the

name Renco Congo Sarlu. In turn, following the Group’s corporate restructuring project, Renco Congo

Sarlu transferred the real estate assets, consisting of the Djeno building, the Djeno field and the Pointe

Noire building, to the new company Renco Congo Valore, 100% owned by Renco Valore S.r.l.

During the period, Renco S.p.A. capitalised Renco Power Cjsc, a company incorporated under Armenian

law, for the amount of 37.2 million Euros. In March 2019, the share capital of Renco Power Cjsc was

increased by DRAM 6,083 million, equal to 11 million Euros, through subscription by Simest S.p.A. and

the Venture Capital Fund of 22.37% of the share capital. In compliance with the reference accounting

standards and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by

Simest S.p.A., to be carried out by 30 June 2026, this share capital increase was represented as a payable

to other lenders; Renco Power Cjsc as holding company, which owns 60% of Armpower Cjsc, capitalised

the subsidiary for the amount of USD 29.7 million during the period, up to a total paid-in capital of USD

37.3 million.

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The Group decided to enforce the right of lien provided for in the contract for the sale of the investment in

Hotel Yerevan, concluded during 2018, which became necessary due to the insolvency of the counterparty

that did not meet the payment terms of the last tranche, amounting to 15 million Euros. The sales price of

the Hotel was 20 million Euros, of which 5 million Euros collected at the time the sales contract was signed

and 15 million Euros to be paid by 30 June 2019. Following the conclusion of a settlement agreement in

December 2019, the Group regained 100% ownership of the Armenian company, against the return of the

advance received, except for retention of a penalty of 200 thousand Euros. The effect of the settlement

agreement resulted in a contingent liability of 11.3 million Euros in the consolidated income statement,

deriving from the difference between the contractual value of the settlement and the value of the net

equity of the acquired company.

As part of the activities planned in Mozambique, three new companies have been set up: Mozestate, 99%

owned by Renco Real Estate S.r.l. and 1% by Renco S.p.A., to which the Pemba building and two plots

of land were sold; Cabo Delgado Properties SA, 63% owned by Renco S.p.A., is a vehicle company that

owns 80% of Pemba Bulk Terminal SA.

The latter, owned by Cabo Delgado Properties SA and a Mozambican public company, is investing in the

construction of the commercial port of Pemba for the handling and transport by sea of bulk materials

necessary for the construction of LNG plants in the Afung Peninsula, located in northern Mozambique.

The Pemba Bulk Terminal will follow the management and logistics activities of the port once the

construction is completed.

During the period, the Renco Not-For-Profit Foundation was established, a philanthropic body whose

purpose is to support the communities located in rural areas, where the most disadvantaged sections

of the population live, in the countries where the Group is present, and with a particular focus on Africa.

The work that Renco’s founder and Renco itself have always wanted to promote has been to focus on

high-impact interventions that are recognised for their effectiveness in combating maternal and child

mortality and in children’s education;

Finally, it should be noted that the liquidation of RenTravel S.r.l. was completed during the first half of

2019.

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METHODOLOGICAL NOTE

Unless otherwise specified, all comments and comparisons in the remainder of this report refer to the

economic and financial data for the 2019 financial year compared to the 2018 financial year. All figures in

the report on operations and the related schedules are expressed in thousands of Euros and all comments

in the “Notes to the financial statements” are also expressed in thousands of Euros. All percentage ratios

(margins and deviations) are calculated with regard to values expressed in thousands of Euro.

Figures for the previous year are shown in brackets.

SITUATION OF GROUP COMPANIES AND OPERATING PERFORMANCE

In 2019, the Group exceeded all its economic and financial objectives and recorded growth compared

to 2018.

The Value of Production for 2019, including closing inventory contract production and revenues from ancillary

operations, amounted to 315.2 million Euros (243.3 million Euros), of which 297.8 million Euros to third parties

(233.3 million Euros), recording an annual increase of 33.3% in the value of production to third parties.

The Industrial Plants division contributed 130.8 million Euros to the value of production (98.8 million Euros),

with growth of 32.4%; the Services division contributed 47.7 million Euros (49.2 million Euros), with a decrease

of 3%; the Infrastructure division contributed 58.6 million Euros (36.4 million Euros). The Asset Management

division, which produced 78.1 million Euros (58.9 million Euros) in the year, grew, due to the growth in revenues

from newly established structures and the sale of Renco Zanzibar which alone contributed 35.1 million Euros.

EBITDA amounted to 46.9 million Euros (38.5 million Euros), an increase of 22% compared to 2018, with a

value of production margin of 14.9% compared to 15.8% in the previous year.

The Group’s EBITDA% for works and/or services rendered to third parties alone was 17% compared to 17.2%

in the previous year. The sale of the Gemma Dell’Est Resort in Zanzibar contributed 32.8 million Euros to the

EBITDA generated by the Asset Management division, while the settlement agreement on sales contract of

the Hotel Yerevan had a negative effect on EBITDA of 11.3 million Euros.

Normalized EBITDA (net of extraordinary operations) amounted to 25.7 million Euros (26.9 million Euros) in

line with the results of the previous year.

The operating components of a financial nature express a balance of net financial charges of 9.7 million Euros

(13.1 million Euros in the corresponding period of comparison), a decrease of 3.4 million Euros compared to

2018. Financial charges deriving from the Group’s gross financial debt amounted to 6.6 million Euros.

The adjustments to the value of financial assets are mainly due to the valuation of the Armpower company at

equity, amounting to 2.7 million Euros, and to the write-down of the assets of Renco Food, whose amount was

0.6 million Euros, which is in the process of liquidating the activities of the large-scale distribution division.

The aforementioned operating dynamics generated a pre-tax profit of 24.1 million Euros, up compared to

12.1 million Euros in 2018.

Income taxes for the period amounted to 16 million Euros (6 million Euros), up on 2018. The tax burden

includes 6.8 million Euros in write-downs of tax credits on foreign taxes already paid in previous years and

no longer recoverable.

By means of the following tables, we provide you with a summary of the financial situation and operating

performance of the company during the year, highlighting the factors described above:

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DESCRIPTION 31.12.2019 31.12.2018 CHANGE

Fixed assets 278,316 248,800 29,516

Current assets 563,903 397,635 166,268

Accruals and deferrals 4,132 3,128 1,004

TOTAL ASSETS 846,350 649,564 196,788

Shareholders’ equity: 166,801 160,642 6,159

- of which: profit (loss) for the year 8,088 6,100 1,988

Provisions for risks and future liabilities 16,883 20,919 -4,036

Employee severance indemnities (TFR) 2,886 2,411 475

Short-term payables 400,658 153,734 246,924

Long-term payables 258,209 310,427 -52,218

Accruals and deferrals 915 1,429 -514

TOTAL LIABILITIES 846,350 649,564 196,790

DESCRIPTION 31.12.2019 % ON REVENUES 31.12.2018 % ON REVENUES

Revenues from normal operations 276,282 87.66% 228,744 94.02%

Revenues from ancillary operations

38,893 12.34% 14,538 5.98%

VALUE ADDED 315,175 100.00% 243,282 100.00%

Cost for the purchase of goods and services

191,359 60.72% 144,811 59.52%

Cost of work 61,181 19.41% 56,476 23.21%

Other operating costs 15,670 4.97% 3,534 1.45%

GROSS OPERATING MARGIN (EBITDA) 46,965 14.90% 38,461 15.81%

Depreciation, write-downs and other provisions

13,135 4.17% 13,244 5.44%

OPERATING RESULT 33,830 10.73% 25,217 10.37%

Financial income and charges and value adjustments of financial assets

-9,733 -3.09% -13,137 -5.40%

Financial income and charges -4,741 -1.50% -6,026 -2.48%

Exchange differences -1,710 -0.54% -2,280 -0.94%

Value adjustments to financial assets:

-3,283 -1.04% -4,832 -1.99%

INCOME FROM ORDINARY ACTIVITIES 24,097 7.65% 12,080 4.97%

Income taxes 16,011 5.08% 5,978 2.46%

Profit (loss) for the year 8,088 2.57% 6,100 2.51%

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DEVELOPMENT OF DEMAND AND TRENDS IN THE MARKET THE COMPANY SERVES

2019 was again characterised by high oil price volatility and a still low level of new investments, particularly in

offshore and drilling. On the other hand, there was a significant wave of investment in new developments of gas

liquefaction (LNG - Liquid Natural Gas) plants. In this regard, it should be remembered that the Government of

Mozambique, a country in which we have been present for some time, in May 2019 approved the Rovuma LNG

development plan for the production, liquefaction and marketing of gas from the three fields of the Mamba

complex.

The market is still characterised by significant uncertainty concerning the economic and financial outlook, and

by political instability in various regions of the world, which have had an impact on oil demand and related

price scenarios; the weak signs of recovery in the sector had not yet translated into a decisive acceleration of

investment programs in exploration and production by customers, except for certain opportunities in specific

geographical areas. In this context, investment initiatives in segments that are part of the energy transition

area, such as gas and renewables, represent an exception.

However, in the first few months of 2020, macroeconomic factors returned to the forefront, with fears

fuelled by the spread of COVID-19 which had a negative impact on economic growth expectations and the

performance of global stock markets. The outcome of the OPEC meeting at the beginning of March and Saudi

Arabia’s decision to increase crude oil production, combined with the impact of the Coronavirus epidemic, had

a significant impact on the price of oil, which fell sharply.

Continued low oil prices could have a substantial impact on the future investment decisions of major producers.

Market policies and industrial policy

The breakdown of value of production by geographical area is summarised below:

GEOGRAPHIC AREA 31.12.2019 % 31.12.2018 % CHANGE CHANGE %

Italy 48,568 15.41 35,722 14.68 12,846 26.45

European Union 74,537 23.65 73,332 30.14 1,205 1.62

Russia and former USSR countries 98,031 31.10 55,902 22.98 42,129 42.98

Africa 79,600 25.26 63,928 26.28 15,672 19.69

Middle East 6,572 2.09 7,400 3.04 (828) -12.59

Other 7,867 2.50 7,000 2.88 867 11.02

Total 315,175 100.00 243,284 100.00 71,891 22.81

The table above shows the absolute value and the percentage weight of production by geographical area.

In continuity with the previous year, production in Italy increased, while the Russian area and former USSR

countries became the driving force behind the Group’s production, thanks mainly to the new order in

Armenia for the construction of the gas-fired power plant. Production on the African market continued to

grow, also thanks to the contribution of new works in Mozambique.

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As in the previous year, the value of the Group’s production was balanced across all the main geographical

areas, excluding the Middle East and the remaining areas where the level of production remained stable.

Group order book

The Renco Group’s Order Book, excluding the Assets Management division, amounts to 1,038.6 million

Euros, with a backlog of 563.7 million Euros.

BUSINESS UNIT JOB COUNTRY CLIENTCONTRACT

VALUE YEAR ENDTO BE PRO-

DUCED

INDUSTRIAL PLANTS

YEREVAN PLANT ARMENIA ARMPOWER 159.8 2021 108.4

TAP ITALIA ITALY TAP 79.0 2020 22.1

TAP ALBANIA (Renco share)

ALBANIA TAP 91.7 2020 7.8

ENI CASSIOPEA ITALY ENI 18.3 2021 17.4

TAP GRECIA (Renco share)

GREECE TAP 64.8 2020 3.2

SARIR LIBIA LIBYA EMI FRANCE 53.4 2020 0.2

EVERDRUP COMPRESSOR STATION

DENMARK ENERGYNET 72.0 2022 72.0

INTERNAL TAP ORDERS

ALBANIA/GREECE

RENCO TERNA JV

28.9 2020 1.2

SANNAZZARO TA7 REPLACEMENT

ITALY ENI 4.6 2021 4.6

OTHERS 7.6 1.0

TOTAL INDUSTRIAL PLANT 580.1 238.0

INFRASTRUCTURE

ACCADEMIA GDF ITALY CDP 20.1 2021 11.7

ARMENIAN CIVIL WORKS

ARMENIA ARMPOWER 15.2 2021 10.3

VILLA ALMATY KAZAKHSTAN PRIVATE 12.1 2020 5.3

BUILDING CEC SAIPEM CONGO

CONGO SAIPEM 8.0 2020 0.5

CCS JV FIELD MOZAMBIQUE CCS JV 70.3 2021 64.7

CCS JV TEMPORARY BUILDINGS

MOZAMBIQUE CCS JV 44.9 2021 44.9

OTHERS 14.7 2020 6.6

GROUP BUILDINGS 65.0 62.1

TOTAL INFRASTRUCTURE 250.4 206.1

SERVICES

ENI CONGO PERSONNEL + PSV

CONGO ENI CONGO 78.1 2022 54.8

BAKER HUGES - GE WORLD GE 60.7 2024 51.0

OTHERS 27.4 9.3

TOTAL SERVICES 166.2 115.1

ASSET MANAGEMENT

TCO CAMP MANAGEMENT

KAZAKHSTANTENGIZ-CHEVROIL

41.9 2020 4.5

TOTAL ASSET MANAGEMENT 41.9 4.5

TOTAL PORTFOLIO 1,038.6 563.7

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OVERALL PERFORMANCE OF THE MAIN COMPANIES IN THE SCOPE OF CONSOLIDATION

Below is the performance of the main companies included in the scope of consolidation:

Renco Armestate LLC

Renco Armestate closed the year at 31.12.19 with revenues of 9.9 million Euros (3.4 million Euros in 2018), an

EBITDA of 777 thousand Euros (-115 thousand Euros in 2018) and a net profit of 696 thousand Euros (loss

of 695 thousand Euros in 2018).

During 2019, Renco Armestate began construction work on the 250 MW combined cycle power plant in the

immediate outskirts of the city of Yerevan. This is a project worth approx. USD 200 million which for Renco

Armestate can translate into contracts for civil and electro-instrumental works worth over 70 million Euros

in 25 months.

Moreover, during 2019, new works for a total amount of approximately 3 million Euros were acquired, mainly

regarding Fit Out Work for the new offices of the customer Synopsys (2.3 million) and the design of the

new headquarters of the Armenian bank ACBA (Credit Agricole) for approximately 0.5 million.

Lastly, in connection with the reorganisation of the Group’s real estate activities, Renco Armestate sold

properties and land worth approximately 2.5 million Euros to Renco Armenia Valore (formerly Piazza

Grande).

Armpower CJSC

In August 2016, the Group established Armpower based on the memorandum of understanding signed with

the Government of the Republic of Armenia. The company has the purpose of implementing the project

for the construction of a 250 MW gas-powered combined-cycle power plant near the city of Yerevan, the

capital of Armenia.

In April 2017, Armpower, Renco and the Government of the Republic of Armenia signed a framework

agreement to regulate the relations and commitments of the parties on the project and entrusted Armpower

with the financing, construction and management of the plant for twenty years. Renco S.p.A. was assigned

the role of project finance developer and EPC contractor for the construction of the plant. The investment

amounts to approx. 300 million dollars to be financed by (non-recourse) project financing with a debt/

equity ratio of approx.70:30.

In order to raise the financial resources necessary for the implementation of the investment, Armpower

appointed the International Finance Corporation (IFC) as the arranger bank and co-financier of the

operation.

In August 2017, Renco S.p.A. and Siemens Venture Capital Gmbh signed a collaboration agreement that

envisages the entry of Siemens as Armpower’s equity partner (with a 40% stake), technological partner

for the supply of turbines and operator and maintainer of the plant. The corporate agreements with this

partner provide for substantial joint management of the Company.

At the beginning of 2018, together with the government of Armenia the lending banks reviewed the

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content of the Framework Agreement signed with the government in 2017 in order to bring it into line with

international standards for similar projects.

For negotiations with the banks the Armenian government involved the gas supplier Gazprom Armenia

and the company ENA, which is committed to purchase electricity.

The negotiations were successfully concluded in March 2018. The text of the Framework Agreement for

the construction of the plant negotiated between the Government of the Republic of Armenia and the

banks was approved by Renco, Siemens and Simest S.p.A. (CDP Group) and on 9 April 2018 the Board of

Directors of IFC (World Bank) approved the investment. In the meantime, at the end of April 2018, pending

the signing of the renegotiated Framework Agreement, Armenia experienced a political crisis caused by

a popular movement of peaceful protest that led to the fall of the current government and the renewal

of the country’s political class. The new government did not take office with full powers until September

2018. Following further negotiation of the Framework Agreement with the new government in office, the

Framework Agreement was then signed with the new government and all other parties involved on 13

November 2018.

Finally, on 15 February 2019, Armpower signed the loan agreements with IFC and the other financial

institutions involved.

On 23 March 2019 Armpower signed the EPC contract with Renco S.p.A. for construction of the plant.

The Financial Close was reached on 14 June 2019; the financial institutions then disbursed the first tranche

of the loan, and on the same date construction work began on the power plant, based on the EPC contract

signed with Renco S.p.A.

Construction work on the power plant is proceeding as planned, reaching an overall progress of 33% of the

total value of the work in the period.

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Renco Power CJSC

Renco Power Cjsc was established by Renco S.p.A. in October 2017 (initial capital of 100,000 Dram

equivalent to USD 209.09).

The company was founded with the aim of financing the Armpower project company for construction

of the Yerevan power plant, involving Simest S.p.A. (CDP Group) as an institutional partner, based on

the conditions provided for in the investment contract signed between Renco and Simest S.p.A. on 27

December 2017.

On 29 November 2018 Renco S.p.A. capitalised Renco Power for 196,200,000 Armenian Drams (equivalent

to € 353,843) and amended its Articles of Association on the basis of the text shared with its partner

Simest S.p.A.

On the same date, Renco Power Cjsc purchased a 60% interest in Armpower Cjsc from Renco S.p.A. at the

price of 196,260,000 Dram.

During 2019, Renco S.p.A. and Simest S.p.A. then completed the capitalisation of Renco Power, on the basis

of agreements signed with financial institutions, subscribing a total of 27,809,849,000 Dram (equivalent

to a total of USD 56,870,000) of which 78.12% owned by Renco S.p.A. and 21.88 owned by Simest S.p.A.

At the end of the year, Renco Power capitalised Armpower Cjsc for the equivalent of USD 37.3 million.

Renco Kat Ltd

The company has been present for over twenty years in Kazakhstan, located in all of the areas of greatest

economic interest in the country and established in the field of civil and industrial construction and the

provision of services.

During 2019, Renco Kat continued construction work on a villa in Almaty, with an impact on value of

production of 4.9 million Euros.

The company is also engaged in managing the 300-seat field for the customer Tengizchevroil (TCO) in

the Atyrau region. The contract was acquired in 2016 and in addition to the construction of the camp,

concluded in 2017, it also has the purpose of managing the same for a period of four years, for a value equal

to a further 37.2 million Euros of production that the company will implement during the course of the four-

year period 2017-2021. Revenues for the period relating to the management of the TCO camp amounted

to 6.9 million Euros.

Renco Kat ended the year at 31.12.2019 with a production value of 16.7 million Euros (7.5 million Euros in

2018) and EBITDA of 2.6 million Euros, a net improvement compared to 2018.

Renco Property Ltd

Renco Property was founded in 2014 as a real estate spin-off of Renco Kat, and in October 2018 it merged

Renco Ak by incorporation, a company that owns the Presidential Plaza of Astana, a building of 31,350 square

metres in the city centre used for management offices leased to prestigious customers like multinational

companies and international institutions. In this manner the Group has decided to concentrate the entire

Kazakhstan property stock in Renco Property with a benefit in terms of costs and unified management.

16


The company closed 2019 with revenues of 18.7 million Euros (16.5 million Euros in 2018), EBITDA of 8.6

million Euros (7 million Euros in 2018) and net profit of 5.9 million Euros (7.6 million Euros in 2018).

Renco Mozambique Lda

This is the Mozambique real estate company of the Group. In 2010, the company was awarded the right

to build a tourist resort on a 32 hectare piece of seafront land in the Mecufi district, located in the north

of Mozambique. The area is an emerging tourist destination in international circuits, with very interesting

potential.

The Diamonds Mequfi Beach Resort has been fully operational from February 2016 and consists of 40 deluxe

rooms and 10 suites. The resort is considered to be an absolute highlight in the country’s tourist offering,

as demonstrated by its affiliation with the prestigious Small Luxury Hotels of the World. This affiliation

represents a strategic change from a commercial point of view, and will ensure access to international

circuits for the luxury segment in future years.

During 2017 the company completed the investment related to the Bay Palace Apart Hotel, a structure

consisting of 12 luxury apartments, built and furnished with European standards. The property is located on

a plot of 10,000 sqm, and enjoys the use of the beach in front of it, overlooking the bay of Pemba, the third

largest bay in the world.

The company closed 2019 with revenues of 1.2 million Euros (0.8 million Euros in 2018).

Real Moz LdA

Real Moz Lda (1% Renco S.p.A. / 99% Renco Real Estate – now Renco Valore) was founded in September

2018. The company was established with the aim of developing potential new business initiatives and

investments in Mozambique, particularly near the Afungi peninsula, where immense natural gas deposits

have been discovered. In anticipation of the huge demand for “accommodation” services that will be

requested by the Oil Companies that are deploying in the area, in July 2019 Real Moz acquired the right of

use on an area of 18 hectares located near the city of Palma. On this plot of land it is developing a project

for the financing, construction and management of a “Men Camp Hotel” with 1500 beds, which can be

extended to 3,500 beds. The location of the land is particularly favourable as it is adjacent to the area where

the gas extraction and liquefaction works will be carried out. The works, which will begin in early 2020,

will be carried out by the subsidiary Rencotek, while management of the camp, once completed, will be

entrusted to Renco Asset Management. Negotiations are underway with potential industrial and financial

partners to which up to 54% of the value of the project is to be sold, either directly or through holding

companies to be set up.

Mozestate LDA

The company was founded in 2019 as part of the Group’s wider restructuring process, with the aim of

managing the office properties in Mozambique belonging to the Renco Group. At the end of the financial

year, Mozestate purchased from Rencotek a 3,100 sqm multifunctional building, located in the city of

17


Pemba , in a strategic position, about 1.5 km away from the city’s International Airport. The building, which

consists of 3 floors and provides office, residential and canteen service space, in compliance with the

highest international standards of quality and safety, was created to support Rencotek Lda’s activities

as well as to be rented to third parties. During 2019, the company concluded the fit-out activities of the

part of the building destined to accommodate qualified third-party companies of high standing, that were

rented, including the National Institute of Petroleum (INP), regulatory body in the oil and gas sector, and

Mozambique Rovuma Venture, a subsidiary of Eni Rovuma Basin Mozambique Branch, confirming the

excellent competitive position of RENCO, considered a reliable partner for both foreign companies and

local authorities of strategic importance.

Rencotek Lda

This is the Mozambican portfolio company established in 2013, wholly owned by Renco S.p.A. and to which

all civil engineering and industrial plants in Mozambique are being handled.

As already mentioned, during 2019 there were important acquisitions in Mozambique by the Renco Group

which resulted in important contracts for Rencotek Lda. Indeed, through a consortium created with two

other companies, the Group was awarded the construction of a 9,500-bed camp in Afungi worth 200 million

Euros (with Renco’s share being 70 million Euros) to serve the Mozambique LNG consortium headed by

the French Total EPC. In addition, the Group was awarded two other contracts for civil works in the Pemba

area, commissioned by Mozambique Rovuma Venture S.p.A., a consortium led by EXXON and ENI. In this

context, Rencotek was contracted to build the camp, with a contract value of USD 18.7 million.

Rencotek was also contracted for the construction of a jetty in Pemba, owned by Pemba Bulk Terminal, and

the camp on the Afungi peninsula, owned by Real Moz LdA.

The company closed 2019 with a value of production of 6.2 million Euros (0.5 million Euros in 2018) and

with a loss of 0.8 million Euros (loss of 1.5 million Euros in 2018).

Pemba Bulk Terminal

During the year, the Oil Companies started work in Mozambique on the construction of gas liquefaction

plants in the Afungi peninsula. It is therefore believed that there will be an imminent huge need for inert

material in the area to support the construction sites. Since there are many quarries in the surroundings

of Pemba, it is considered of interest to build a port (“Jetty”) and a logistics base in Pemba, suitable for

the unloading, storage and loading of inert material, which will then be transported by sea to Afungi. The

development of this activity will be carried out by the Mozambican company Pemba Bulk Terminal SA,

with registered office in Pemba, Rua do Porto nr. 4, registered in the Pemba Register of Legal Entities

under number 101126862. The company is 80% owned by a Mozambican company called CD Properties

Sa and 20% by a Mozambican company called Port of Cabo Delgado. In November 2019, Renco S.p.A.

acquired indirect control of Pemba Bulk Terminal through the acquisition of 63% of CD Properties. The

work, amounting to approximately USD 13.5 million, will begin in the first few months of 2020 and will be

carried out by Rencotek.

18


Renco Energia Lda

This is the Mozambican holding company, established in partnership with a local partner and 62.5%

owned by Renco S.p.A. The partnership with the local partner brings significant strategic competences

to the company, aimed at acquiring and developing new projects. The company’s business purpose is

the performance of industrial plant activities related to Oil & Gas, as well as other activities within the

energy sector. In this regard, Renco Energia Lda’s activity is aimed at providing the Group with all the tools

needed to achieve leadership in the market for the provision of services related to development in Northern

Mozambique.

In 2018, following intense commercial activity over the years, Renco Energia Lda signed a contract with

the ENH Group (Empresa Nacional de Hidrocarbonetos), a Mozambican state-owned company, to develop

a detailed master plan for “City Gas”, which will be built on the Afungi peninsula, near the plants for the

liquefaction of gas from fields off the coast of Mozambique.

On an area of about 18,000 hectares the Mozambican government plans to build a city with residential

areas, business districts, industrial areas and all the infrastructure necessary for a settlement that – according

to government estimates – will exceed 200,000 inhabitants in a few years. As part of this project, the

company will have to prepare the master plan for the area, identifying the ways in which the project will be

implemented (public, private and public-private investments are planned) and assisting ENH in identifying

the funding and implementing parties of the works that will be carried out.

Renco Energia Lda closed the year as at 31.12.2019 with a value of production of 942 thousand Euros (394

thousand Euros in 2018) and a net profit of 37 thousand Euros (164 thousand Euros in 2018).

Renco Congo Sarlu

During the year, the Congolese Branch of Renco S.p.A. was transformed into a Congolese company, called

Renco Congo Sarlu, by means of the “sale” of the entire business of Renco S.p.A. to the Congolese company.

The effective date of the transaction was 1 January 2019 and saw the transfer from Renco S.p.A. of a net

book value of assets and liabilities of 36 million Euros, in addition to the personnel employed, to Renco

Congo Sarlu.

Renco Congo Sarlu, wholly owned by Renco S.p.A. and active in civil construction, industrial plant

engineering and services, closed the year with a value of production of 37.9 million Euros and EBITDA of

1.3 million Euros.

Finally, in relation to the restructuring of the Group’s real estate activities, Renco Congo Sarlu conferred the

Djeno and Pointe Noire buildings on Renco Congo Valore. Subsequently, Renco Congo Valore was sold to

Renco Valore S.r.l.

Renco S.p.A.

Renco S.p.A. is the main company in the Group to which the foreign-owned companies directly refer. Renco

S.p.A. ended 2019 with a Value of Production of 179.3 million Euros (136.7 million Euros in 2018). The increase

in the value of production was substantially in line with expectations and should be credited to the progress

of the TAP Italia order and the EPC Power Plant Yerevan order.

19


Profit for the period amounted to 10.3 million Euros (15.8 million Euros in 2018).

Below are some of the main acquisitions of Renco S.p.A. in 2019:

award of an EPC (Engineering Procurement and Construction) contract for the construction of a 9,500-

bed temporary camp, including utilities and recreational areas, to be built in the Afungi Peninsula,

Mozambique. RENCO is participating in the implementation of the works in consortium with WHBO,

a South African company, and DORCE, a Turkish company. The contract is worth USD 55 million

(Renco S.p.A. share) and will be completed in 24 months. The customer is CCS JV, a consortium of

McDermott, Saipem and Chiyoda. The Joint Venture has completed 29 FEED projects, 24 EPC projects,

and produced 150 million tons of LNG, which represents 40% of the world’s LNG production projects.

award in Italy of a contract worth 3.9 million Euros for the replacement of a turboalternator at the ENI

refinery in Sannazzaro (PV). The project was commissioned by Eni S.p.A. and includes the dismantling of the

old group, engineering, purchase, construction and commissioning of a steam turbine with 1MW alternator.

The Contract also provides for commissioning assistance and functional and performance testing.

Finally, during the period Renco S.p.A. completed the construction of its new business headquarters in

Pesaro, which were inaugurated in September. The new structure on 6 floors for a total of 8,400 square

meters was completed in 14 months, with 300 workstations, 200 parking spaces, 600 metres of balconies,

a canteen seating 130 people, a training room seating 100 people and other services for use by Group

personnel (gym, laundry, shuttle to and from the train station).

20


FINANCIAL ASPECTS OF OPERATIONS

The table below shows the net financial position.

DESCRIPTION 31/12/2019 31/12/2018 CHANGE

a) Short-term assets

Bank deposits 97,826 72,194 25,632

Cash and equivalents on hand 303 283 20

Shares and bonds not classified as fixed assets - 52 (52)

Financial receivables within 12 months: 2,079 1,758 321

Other short-term assets

CASH AND CASH EQUIVALENTS AND SECURITIES IN CURRENT ASSETS 100,208 74,287 25,921

b) Short-term liabilities

Bonds and convertible bonds (within 12 months)

Payables due to banks (within 12 months) 29,442 44,101 (14,659)

Bonds and convertible bonds (within 12 months) 10,000 10,000

Payables due to other lenders (within 12 months) 979 60 919

SHORT-TERM FINANCIAL PAYABLES 40,421 44,161 (3,740)

NET SHORT-TERM FINANCIAL POSITION 59,787 30,126 29,661

c) medium / long-term assets

Financial receivables beyond 12 months: 21,540 20,739 801

Other non-trade receivables 5,178 5,080 98

TOTAL MEDIUM/LONG-TERM ASSETS 26,718 25,819 899

d) Medium/long-term liabilities

Bonds and convertible bonds (beyond 12 months) 34,530 44,368 (9,838)

Payables due to banks (beyond 12 months) 31,395 49,569 (18,174)

Due to other lenders (beyond 12 months) 12,874 1,605 11,269

Other medium/long-term liabilities

TOTAL MEDIUM/LONG-TERM LIABILITIES 78,799 95,542 (16,743)

MEDIUM/LONG-TERM NET FINANCIAL POSITION (52,081) (69,723) 17,642

NET FINANCIAL POSITION 7,706 (39,597) 47,303

With regard to the trend of the Group’s cash flows, reference should be made to the Cash Flow Statement

and the Notes to the Financial Statements.

2019 enabled the Group to achieve a substantial financial improvement. The net financial position recorded

a net improvement of 47.4 million Euros compared to 31 December 2018, since it went from -39.6 million

21


Euros at 31 December 2018 to +7.7 million Euros at 31 December 2019. Liquid funds at the end of 2019

amounted to 97.8 million Euros (72.1 million Euros in 2018).

The cash flow from ordinary operations (52.8 million Euros) and the cash flow from the sale of the Renco

Zanzibar investment (48.9 million Euros) contributed to the improvement of the net financial position. The

liquidity absorbed by investment operations amounted to 53.7 million Euros.

On the other hand, the following table provides a reclassification of the Balance Sheet based on the uses

and sources of liquidity.

USES 31.12.2019 31.12.2018

Immediate liquidities 98,129 72,478

Deferred liquidity 77,945 98,846

Stock availability (net of advances received) (14,648) (9,822)

Total current assets 161,426 161,502

Intangible fixed assets 8,793 3,627

Tangible fixed assets 219,804 213,590

Financial fixed assets 57,445 40,585

Total fixed assets 286,042 257,802

TOTAL USES 447,467 419,304

SOURCES 31.12.2019 31.12.2018

Current liabilities 178,348 136,833

Consolidated liabilities 102,316 121,825

Total minority capital 280,664 258,658

Share capital 9,013 9,013

Reserves and profits (losses) carried forward 149,702 145,530

Profit (loss) for the year 8,088 6,100

Total own capital 166,803 160,643

TOTAL SOURCES 447,467 419,304

Fixed assets

Intangible, tangible and financial fixed assets amounted to 286.8 million Euros.

Shareholders’ equity

2019 closed with a Shareholders’ Equity of 166.8 million Euros.

22


ALTERNATIVE PERFORMANCE INDICATORS

Renco’s management assesses the performance of the Group and its business segments based on certain

indicators that are not included in the OIC accounting principles. In particular, EBITDA is used as the main

indicator of profitability, as it enables the analysis of the Group’s margins, eliminating the effects deriving

from volatility originating from non-recurring items or items unrelated to ordinary operations.

The components of each of these indicators are described below:

Order book: this is the sum of the backlog from the previous period and the orders taken.

EBITDA or Gross Operating Margin: this is given by Production Value - Production Costs + depreciation,

write-downs, provisions and taxes on foreign income not recoverable and not deductible for tax purposes

(therefore reclassified from the item “Other operating costs” to the item “Income taxes”).

The EBITDA is then used in the calculation of the ROI (Return on Investment) and the ICS (Interest Coverage

Ratio).

Net Financial Position: expresses the ability to meet financial obligations, represented by gross financial

debt less cash and cash equivalents and other financial assets.

In accordance with the provisions of art. 2428 par.2 of the Italian Civil Code, the main financial and non-

financial indicators are highlighted.

23


STRUCTURAL RATIOS MEANINGPREVIOUS

YEARCURRENT

YEAR COMMENT

Secondary structural ratio

The ratio measures the ability of the corporate financial structure to cover long-term uses with long-term sources.

1.10 0.97Permanent capital fully finances fixed assets and partly current assets. The Company has a substantially sustainable level of investment.

Shareholders’ equity + Consolidated liabilities

---------------------------

Fixed assets of the year

EQUITY AND FINANCIAL RATIOS MEANING

PREVIOUS YEAR

CURRENT YEAR COMMENT

Total debt ratio

Expresses the degree of equilibrium of financial sources.

1.61 1.68

The Company has a situation of balance between equity and third party resources.

Minority interest means

------------------------

Shareholders’ Equity

LIQUIDITY RATIO MEANINGPREVIOUS

YEARCURRENT

YEAR COMMENT

Availability ratioThe ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term and the sale of inventory.

1.18 0.95

The ability to meet short-term commitments is highlighted.

Current assets

------------------------

Current liabilities

Treasury ratio

The ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term.

1.25 1.04

The Company has a situation of financial equilibrium.

Imm. Liq. + Def. Liq.

------------------------

Current liabilities

PROFITABILITY RATIOS MEANINGPREVIOUS

YEARCURRENT

YEAR COMMENT

Return on investments (R.O.I.) The ratio provides a measurement in

% of the viability of current normal operations and of the self-financing capacity of the company regardless of the financial structure choices.

6.01 7.56

The profitability ratios show an improvement in the company’s profitability compared to the previous year

EBITDA

------------------------

Capital invested in yr.

Return on Equity (R.O.E.)

The ratio provides a measurement in % of the overall viability of company operations and of the ability to remunerate equity.

3.80 4.85

Period result

------------------------


24


FINANCIAL EQUILIBRIUM RATIOS MEANING

PREVIOUS YEAR

CURRENT YEAR COMMENT

Debt/Equity

The ratio measures the degree of equilibrium between third-party resources and equity.

0.2 0.0

Net financial position

The Company has a situation of equilibrium.

------------------------


NFP/EBITDAThe ratio expresses in how many years it would theoretically be able to repay financial debts if it used all of its operating cash flow for this purpose.

1.02 -1.2

The Company is self-financing.


------------------------

EBITDA

Interest Coverage Ratio (ICR)

The ratio measures the degree of coverage that the operating profit can provide to the cost of financial charges.

7.0 12.6

The Company has a good situation.

EBITDA

------------------------

Financial charges

INFORMATION CONCERNING THE ENVIRONMENT

The commitment on the issues of corporate social responsibility and of the territory is now an integral

part of the Group’s principles and conduct, oriented towards technological excellence, maintenance of

high levels of safety, environmental protection and energy efficiency, as well as training, awareness and

involvement of personnel on corporate social responsibility issues.

The Group has always operated in the markets in which it operates, with particular attention to the problems

of pollution and environmental damage. During the year, no damage was caused to the environment for

which Group companies were declared definitively guilty.

Environmental litigation

The Group currently has no civil or criminal litigation with third parties for damage caused to the environment

or environmental crimes.

The Group obtained ISO 14001 certification on 22/12/2000.

During the audit carried out in July 2019 by the certifying body, the Group’s certification for the ISO

14001:2015 standard was renewed, which is now valid until 18 December 2021.

25


INFORMATION ON PERSONNEL

Safety

The Group obtained OHSAS 18001 certification on 19/12/2003.

During the audit carried out in July 2019 by the certifying body, the Group’s certification for the OHSAS

18001:2007 standard was renewed, which is now valid until 11/03/2021.

The activity carried out in this field includes:

training of employees and collaborators;

periodic medical examinations;

organisation and training of intervention teams provided for by the standard;

continuous company monitoring of the HSM;

preparation and dissemination of the documents of Legislative Decree 81/08.

Coordination and supervision of compliance with Health and Safety requirements in construction site

In particular, during the year the following initiatives were undertaken:

28 different health and safety training courses were held and a total of 884 employees were trained. The

main courses held are shown below

Worker training according to the State-Regions Agreement of 21/12/2011

WSRs took the 8-hour refresher course in March 2020.

116-hour H&S Manager Training Course held between April and June 2019

20-hour H&S Officer refresher course in January 2020

Training courses envisaged in accordance with the provisions of Legislative Decree 81/08

Supervisor training

- Supervisor refresher course

- Senior manager refresher course

- Forklift driver refresher course

- First Aid and Firefighting refresher course for emergency management team members

Further training for specific risks was organised mainly for service personnel:

- H2S training

- 3rd category PPE training and escape masks

- E-learning training on working at height

- Seveso directive training

- E-learning first aid training

- The courses were provided both in classrooms and using e-learning systems, adopting the different

methods envisaged by the regulations

Health and Safety supervision of the infrastructure division’s construction sites was made more

effective by appointing dedicated H&S Officers and carrying out periodic inspections and audits by the

headquarters safety department.

The redefinition of safety and emergency procedures for expatriates located in foreign branches is

currently in progress by the subsidiary Italsec.

With regard to the management of the road safety of personnel during working hours, the inclusion of

a canteen in the new premises has significantly reduced the risks of road traffic and potential accidents

on the move.

The provision of a free shuttle for commuting between the station and the workplace can be considered

26


an improvement both in terms of safety (reducing the risk of road accidents) as well as from an

environmental point of view (reducing emissions from private cars).

Also in the area of environmental improvements, the reduction in plastic consumption due to the

replacement of disposable bottles with water dispensers and the delivery of a stainless steel water

bottle to all employees should be noted.

The new headquarters inaugurated in September 2019 unified the various Renco departments previously

situated in different locations, thus improving the infrastructure (offices and systems, updated hardware

and software, personal transport, parking, photovoltaic panels and electric charging stations for cars,

etc.). and the environment (canteen, gym, laundry) for the functioning of its processes.

Inspection and Expediting.

The figure of the Company Physician as Coordinating Physician has been introduced in the group. The

purpose of this position is to coordinate the health monitoring of workers working in foreign offices,

ensuring greater health protection

Following the annual safety meeting, visits to working environments in construction sites were added.

Injuries

During the year, there were:

no accidents involving personnel

2 non-work related accidents (malaria infections)

1 commuting accident

no ascertained occupational diseases

no deaths

Litigation

For disputes pending at 31/12/2019, entrusted to our lawyers, the Group believes that these will not have

significant consequences from the point of view of potential liabilities beyond the provisions indicated in

the paragraph “Provisions for risks and charges” of the Explanatory Notes.

Information on Group personnel

With reference to employees directly employed by Renco S.p.A., with the exclusion of its branches, the

following information is provided:

as at 31.12.2019, 433 employees were in the workforce at the end of the financial year, including 349

men and 84 women, 279 with open-ended contracts (215 men and 64 women) and 154 with fixed-term

contracts (134 men and 20 women);

average length of service is 7 years;

826 days of training were carried out during the year;

142 employees, collaborators and interns were hired, and 132 people terminated the employment relationship,

with an increase of 10 units (annual average).

27


DESCRIPTION OF THE MAIN RISKS AND UNCERTAINTIES TO WHICH THE GROUP IS EXPOSED

In carrying out its activities, the Group is exposed to risks and uncertainties deriving from external factors

related to the general or specific macroeconomic context of the operating sectors in which it operates, as

well as to the risks deriving from strategic choices and to internal operating risks.

The identification and mitigation of these risks has been systematically carried out, allowing for timely

monitoring and management of the risks occurring.

With reference to risk management, the Group has a centralised risk management function, while delegating

identification, monitoring and mitigation of the same to the functional level, also in order to better measure

the impact of each risk on business continuity, reducing the occurrence and/or limiting the impact according

to the causal factor (controllable or otherwise by the Company).

In the context of business risks, the main risks identified, monitored and managed by the company are the

following:

risks depending on exogenous variables;

risk linked to competitiveness;

risks related to demand/macroeconomic cycle;

risk linked to financial management;

risks associated with the activation of partnerships.

Risks depending on exogenous variables

The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation

of foreign currency exchange rates with which the Group operates, especially as regards the Kazakh

Tenge, Armenian Dram, Rouble and USD. Currency risk derives from future business transactions, assets

and liabilities recorded in the financial statements. The management policy stipulates that the Group will

manage its exposure to currency risk by sometimes hedging its net foreign currency position. The approach

is to cover the expected cash flows in the main currency of the Group’s operations, in Euro.

The Group is exposed to Country risk by operating in “emerging” markets and countries; the continuous

monitoring of local situations of reference and the continuous presence of managerial staff trained in Renco

S.p.A. allows constant monitoring of the situation. In any case, the exposure to this risk can be defined

as limited because it in any case refers to countries in a condition of sufficient political stability since

many years and whose ratings have recorded constant improvements over the years. This diversification of

markets in which the Group operates represents a precise strategy to limit risk.

Risk linked to competitiveness

The Group operates on open, unregulated markets, not protected by any tariff barriers, administered

regimes or public concessions, excluding the photovoltaic business partially linked to the existence of

incentive policies promoted by local governments. The markets are highly competitive in terms of product

and service quality, innovation, price competitiveness, reliability and customer service.

28


On certain markets and services, the Group is faced with very fierce competitors, some of which are large

operators and may have superior resources or cost positions, both due to economies of scale and to more

competitive factor costs, allowing them to be able to implement very aggressive pricing policies.

The success of the Group’s activities will depend on its ability to focus its efforts on specific industrial

sectors, focusing on the solution of technological problems and on customer service, so as to provide a

higher value to the customer in the market niches in which it competes.

Risks related to the evolution of the general economic scenario

The performance of the sector in which the Group operates is related to the general economic situation and

therefore any negative economic or recession periods may result in a consequent reduction in the demand

for the products and services provided.

The Group operates through its subsidiaries in many international markets, such as in particular Africa, the

Middle East, CIS countries as well as in European countries; this widespread geographical presence allows

the Group as a whole to mitigate the effects of the recession, which has mainly affected the countries of

the Eurozone and Italy. Diversification of the markets in which the Group operates and of the products and

services that the Group offers mitigates and decreases its exposure to cyclical trends in certain markets;

nevertheless, it is not possible to exclude that these cyclical trends may have a significant impact on the

business and economic and financial situation of the Group.

29


Risk linked to financial management

The Group has a financial situation characterised by the presence of a controlled current financial

indebtedness, in line with the growth in the volume of activity produced. This determines the presence of a

positive net working capital without any sign of financial difficulties.

In exercising its activity, the Group is exposed to various financial or similar risks (liquidity, exchange rate,

interest and credit).

Regarding the information required by art. 2428 of the Italian Civil Code par. 3 point 6 bis, the following is

specified.

Liquidity risk

As at 31 December 2019, the Group had total bank credit facilities of approximately 238.7 million Euros

(210.9 million Euros in 2018) of which 146.7 million Euros related to unsecured credit, and pursues a policy

of careful liquidity risk management.

At the Group level, the correct and timely planning of short-term cash flows guarantees the ability to meet

future financial commitments, through the availability of funds generated by current assets and through the

use of an adequate amount of committed credit lines.

The bank credit facilities currently granted to the Group and the liquid funds and liquidity generated by

ordinary activities are therefore deemed to be adequate and such as to be able to meet obligations in a

timely manner on the due dates.

Liquidity is managed by the company through the use of short-term or easily disposable assets.

Exchange rate risk

The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation of

foreign currency exchange rates with which the Group operates, especially as regards the Kazakh Tenge,

Armenian Dram, Ruble and USD. The policy adopted by the Group is based on a correct assessment of

foreign exchange risks, deriving from future commercial and financial transactions in currencies other than

the Euro, and is aimed at stabilizing the flows expected in Euros through the use of derivative instruments

and forward contracts.

To this end, USD/Euro exchange rate option contracts have been stipulated to hedge future cash flows

relating to the progress of the Yerevan Power Plant and CCS Camp construction contracts, whose collection

will be in USD.

On the basis of the financial statements for the year ended on 31 December 2019, the Group recorded

losses on exchange rates for a total of 1.7 million Euros (loss of 2.3 million Euros in 2018).

These consist mainly of unrealised exchange rate losses resulting from the conversion of intercompany

trade receivables or payables denominated in foreign currency (transaction risk).

Finally, the Group, through its currency current accounts, hedges against the risk of fluctuations in exchange

rates with certain foreign currencies with a natural hedging approach.

30


Credit risk

The Group’s credit risk is mainly attributable to the amount of trade receivables from its customers, which

mainly include large oil companies, international operators and institutions.

The credit management functions establish the quality of the customer, considering its financial position,

past experience and other factors. In any case, the high standing of the commercial counterparties with

which Renco operates determines a credit risk for customer exposure of limited amount.

Provisions for credit depreciation by Group companies accurately reflect the actual risk on receivables

through the targeted quantification of the provision.

As a result of the current economic situation, the Group has improved its risk on receivables control

through the strengthening of monitoring and reporting procedures, in order to promptly identify potential

countermeasures in the event of identified causes. In order to control the risk on receivables, methods for

monitoring and controlling the former have been defined along with the definition of strategies to reduce

credit exposure, among which is a solvency analysis of customers being acquired and the management of

legal disputes of receivables for services rendered.

Interest rate risk

The interest rate risk refers to the potential effects on the income statement that may result from any

fluctuations in interest rates on Group loans.

The amount of debt of the company at variable rates not hedged by the interest rate risk represents the

main risk element for the negative impact resulting from an increase in market interest rates. The interest

rate risk to which the company is exposed mainly derives from medium/long-term financial payables.

The Renco Group’s policy to manage this risk aims to achieve a properly balanced debt structure in order

to, on the one hand, reduce the amount of financial debt subject to variable rates and, on the other, at the

same time limit the cost of the loan.

With regard to medium and long-term loans, the company has Interest Rate Swaps and Interest Rate Caps

in place at 31 December 2019 with financial counterparties of primary standing for a total of 58.4 million

Euros of notional amount. Such derivative instruments allow for coverage of the risk of increased interest

rates by transforming variable rates into fixed rates.

At 31 December 2019, at Group level, 74% of medium/long-term gross debt with third parties was at a fixed

rate (72% in 2018), while 26% at a variable rate (28% in 2018).

Risk related to the spread of infectious diseases

The global spread of epidemiological or pandemic emergencies affecting the population (i.e. COVID-19),

in addition to a deterioration in the macroeconomic scenario, may lead to slowdowns in the company’s

activities, resulting from measures issued by national and foreign authorities, the unavailability of personnel

and difficulties encountered by customers, with negative impacts on the Company’s results.

The Company immediately took steps to protect the health of its workers; on a regular basis the Board of

Directors assesses the risks in order to establish the actions to be taken.

31


The potential effects of this pandemic on the financial statements cannot be determined at this point

and are not adjustment elements, in line with the recent ESMA Communication. They will in any case be

constantly monitored during the year.

Risks associated with the activation of partnerships.

The increasing complexity of the works implemented and/or conditions of opportunities for sharing risks

make recourse to models for the management of certain investments and projects in partnership with other

operators in the sector in question increasingly frequent. This approach facilitates entry into new countries

and/or sectors but, at the same time, determines potential risks and complexities related to cultural and

organisational integration with partners which, in the worst case scenario, could even lead to a discrepancy

between the vision of the Group and that of the partnership. There are also further problems related to

the exposure to the economic-financial situations of the partners. The management of this type of risk is

guaranteed through an effective assignment of roles and responsibilities within the individual strategic

initiatives, as well as a correct application of the process of defining and subsequently managing contracts

and any shareholders’ agreements.

NOTICE AS PER ART. 2428 NO. 6 BIS

The Group has no investments in significant financial assets.

COMPANY OBJECTIVES AND POLICIES CONCERNING FINANCIAL RISK MANAGEMENT

The Group pursues the objective of containing financial risks also through hedging transactions with

derivatives and by means of a control system managed by the Administrative Department.

The corporate policy for hedging financial risks consists of hedging exchange risks on purchases and

sales through the stipulation of derivative financial instruments without speculative purposes; of hedging

credit risks through the periodic verification of the reliability of customers and insurance programs for

guaranteeing trade receivables.

This includes the stipulation by Group companies of insurance policies with SACE to protect the loans

disbursed (and to be disbursed) to Mozambican subsidiaries.

With reference to debt towards the banking system, fluctuations in interest rates affect the market value of

the Group’s financial assets and liabilities and net financial charges. The Group’s policy is to seek to maintain

a ratio between fixed and variable rate exposure such as to minimise the risk deriving from the fluctuation

in interest rates without renouncing to exploit the particularly favourable economic situation in terms of low

interest rates. In order to maintain this balance, the Group has entered into derivative contracts, typically

interest rate swaps and interest rate caps.

32


COMPANY RISK EXPOSURE

Price risk

Since the Group’s production processes are mainly linked to high value-added services, engineering and

assembly activities, exposure to energy price fluctuations is very limited.

The Group is exposed to changes in the price of basic raw materials (such as oil, minerals, etc.) to an

insignificant extent, given that the product cost component linked to these materials is very limited.

Credit risk

Credit risk derives from liquid funds, derivative financial instruments and deposits with banks and financial

institutions, as well as from customer exposure, which includes outstanding receivables and planned

transactions. Precise policies have been put in place in order to limit the extent of credit exposure to any

bank. Please refer to that stated previously for a detailed description of credit risk management.

Liquidity risk

The Group’s policy is to carefully manage its treasury, through the implementation of income and expense

planning tools. The Group expects to maintain an adequate capacity to meet the financial resources

required for planned investments and to manage operations. Credit lines and liquid funds are adequate

with respect to the Company’s operations and growth forecasts.

Please refer to that stated previously for a detailed description of credit risk management.

RESEARCH AND DEVELOPMENT ACTIVITIES

During the year there was a further development of IT activities following the implementation of Oracle

JDEdwards in the foreign subsidiaries in Mozambique which went live on 1 January 2020, and all the

localisations on the Oracle system adopted in Kazakhstan necessary to meet the requirements of local tax

and accounting regulations were implemented.

In this way, the Group has a homogeneous and single system in the Group’s main companies, i.e. Italian,

Armenian, Kazakh and Mozambican, with improvements in terms of timeliness, accuracy and intelligibility

of data and reporting.

In 2019, the IT department was also involved in the design and implementation of the IT infrastructure of the

company’s new headquarters in accordance with best practices and international benchmarks.

The collaborative research project between the Company and Alma Mater Studiorum - University of

Bologna continued and was extended as a result of increased complexity due to the use of hazardous

gases such as hydrogen sulphide. The experimental apparatus has been completed and all the strict safety

measures have been put in place. The calibration process was performed, demonstrating the repeatability

of the data with the test gas compared to the results obtained with the equipment used in the first part of

the project. The testing phase with hydrogen sulphide has therefore begun.

33


During the year, Renco S.p.A. confirmed the ISO/IEC 27001:2013 certification on information system security,

reaching an international standard of excellence.

TRANSACTIONS WITH SUBSIDIARY, ASSOCIATED, PARENT AND PARTNER COMPANIES

With regard to transactions with related parties and in particular the transactions with associated and

partner companies, please refer to the detailed table included in the specific paragraph of the Explanatory

Notes.

Transactions with associated and partner companies, which do not include any atypical and/or unusual

operations, are regulated at normal market conditions.

TREASURY SHARES AND SHARES/STOCKS IN PARENT COMPANIES

In compliance with points 3) and 4), par. 2, art. 2428 of the Italian Civil Code, we provide an appropriate

summary table of the data relating to treasury shares held by the parent company Renco Group SpA,

highlighting the changes during the year and we inform that the Company did not hold any shares or

stocks of parent companies during the year.

DESCRIPTION

NO. OF SHARES HELD AT THE BEGINNING OF

THE YEAR

NO. OF NEW SHARES SOLD/CANCELLED DURING THE YEAR

NO. OF NEW SHARES SUBSCRIBED DURING

THE YEAR

NOMINAL VALUE OF NEW SHARES SUB-

SCRIBED DURING THE YEAR

SHARES:

- treasury shares 36,050

Total 36,050

With reference to treasury shares recognised as a reduction in equity, it should be noted that these were

purchased in part in 2010 and in part in 2012. As of 31.12.2018 the Parent Company held 36.050 shares equal

to a nominal 360,500 representing 4% of its share capital; the percentage share held respects the legal

constraints set forth by articles 2357 and 2357-bis of the Code.

GROUP RESTRUCTURING

With the aim of reorganising and rationalizing the Group’s structure, on 25 September 2019, the Board

of Directors of Renco S.p.A. approved the single plan for the partial and proportional demerger of Renco

S.p.A. in favour of Renco Immobiliare S.r.l. and Renco Asset Management S.r.l. pursuant to articles 2506 - bis

and 2501 - ter of the Italian Civil Code, and the simultaneous merger of Renco Immobiliare S.r.l. with Renco

Real Estate S.r.l. pursuant to articles 2501 - ter and 2505 of the Italian Civil Code.

34


Apart from the technical aspects, it must be said that this operation completes a restructuring process that

already began in 2015 (when the Group still had companies that carried out the activities of all the divisions,

with a lot of mingling between industrial activity and real estate management).

This operation gives the Group as a whole greater transparency and understanding by external observers

and analysts, keeping industrial activities (Oil & Gas Division, Civil Construction, Services) and Asset

Management activities, which are profoundly different in terms of risk levels, financing requirements and

operational management, completely separate.

The operation, in its single and essentially simultaneous entirety, contemplates:

the partial and proportional demerger of Renco S.p.A. with assignment to Renco Immobiliare S.r.l. of the

business unit comprising the Asset Management Division;

the subsequent (reverse) merger of Renco Immobiliare and Renco Real Estate S.r.l. whose 100% stake

currently owned by Renco S.p.A. will be assigned to Renco Immobiliare as a result of the demerger.

The establishment of Renco Asset Management S.r.l., a consulting firm that possesses the Group’s know-

how in asset management activities and assists all Renco Real Estate subsidiaries, but also third party

customers in the main markets in which the Group operates, in the management of their properties;

The formalisation of the documents took place on 10 December 2019, with effect for accounting, statutory,

fiscal and legal purposes from 1 January 2020.

35


Similarly to the actions undertaken on the Italian companies, the restructuring also involved the Armenian,

Mozambican and Congolese Group companies, in which the properties passed from the industrial companies

to the real estate companies through deeds of sale or conferral, as better illustrated above.

Finally, in 2020 Renco Real Estate S.r.l. will change its name to Renco Valore S.r.l.

In view of the corporate restructuring, it is necessary to provide the Group with a new financial structure.

This is achieved by redistributing the financial debt, towards third parties and intra-group, among the

group’s Italian holding companies (Renco Group S.p.A., Renco S.p.A. and Renco Valore S.r.l.), according

to the characteristics of the capital invested (sources-uses alignment), the characteristic activities carried

out and the investment plan of the individual companies. Below are the objectives to be achieved with the

implementation of the new financial structure:

a) Provide Renco S.p.A. with a leaner financial structure, to facilitate access to unsecured credit instrumental

to the growth of its core business and to short-term debt to meet working capital requirements.

b) Raise financial resources for the investment plan of Renco Valore and Renco S.p.A., giving Renco Valore

a financial structure to a sustainable extent according to the liquidity generated by the characteristic

operations of current income-generating assets.

c) To make the two Sub-Holdings, Renco S.p.A. and Renco Valore S.r.l., financially autonomous in the

pursuit of their industrial objectives.

FORESEEABLE BUSINESS OUTLOOK

2020 is certainly going to be a complex year which, at a global level, will suffer from the effects of the

Coronavirus pandemic, combined with oil price trends strongly influenced by the vertical drop in consumption

and demand for all goods.

From this point of view, however, it is essential to remember that the Renco Group has not worked in the

Oil market for many years now, having directed its activities almost exclusively towards the Gas and Power

Generation markets.

As is well known, the prospects of the gas sector are profoundly different from those of oil; market forecasts

see the sector growing rapidly until at least 2050, with good remuneration for international investors who are

increasingly attentive to the environmental implications of energy production and aware of the significant

environmental value of that produced with the use of gas.

It is precisely thanks to this change of direction implemented by the Renco Group that the fall in oil prices in

April 2020 did not have a significant impact on the Group’s order book.

Added to this is the fact that Oil Companies had, as an immediate reaction to the collapse of the price per

barrel, the suspension and, in some cases, the cancellation of the so-called “tactical” projects, keeping the

decisions on the “strategic” ones unchanged; the Renco Group is currently engaged exclusively on strategic

projects related to gas.

Moreover, the Coronavirus has only had an effect on the timing of completion of certain projects. Indeed,

there were only a few weeks of suspension for the construction sites for the Bergamo Guardia di Finanza

Academy and the Yerevan Power Plant (both resumed at full capacity at the beginning of May 2020) and a

mere slowdown of the construction site for the construction of the 9,500-bed CCS Camp in Mozambique (in

all cases, also with the intense application of Smart Working, design and procurement activities continued

without interruption or impairment of productivity).

On the other hand, the impacts on the activities of Renco Valore are a little more significant.

36


While all that part of the business regarding the medium/long term rental of offices, apartments and commercial

areas has not suffered any contraction due to the Coronavirus pandemic (with the exception of some marginal

discounts granted in the most affected months), it must be said that there has been a more significant impact

on the activity of hotels with a tourist vocation; the Grand Hotel in Yerevan, the Hilton Hotel in Armenia, the

Castri Hotel in Florence and the Mecufi Resort in Mozambique were closed for the months of April and May.

On the contrary, some of the Group’s hotels, more precisely the Hotel Mira in Sakhalin, the Mercure Hotel in

Almata and the Hilton Hotel in Punta Nera (Congo) have been entirely occupied with the “used or not” formula

by Exxon Mobil, the Kazak Federation of Artistic Gymnastics and the French company Total, respectively, in

order to protect their staff by accommodating them in environments considered safe and with a low probability

of infection.

For all the above, the Group’s overall margins are expected to be in line with those of previous years, despite

Covid and the price of oil.

This is an expected result which is also supported by a careful review of overhead costs and in part by the

use of unemployment benefits and of other facilities provided by the Government to support workers and

businesses.

ACTIVITIES PURSUANT TO LEGISLATIVE DECREE 231/01

In 2019, the Supervisory Body monitored the updating of the adopted Model, proceeding with constant

verification of the company’s activities and ascertaining the absence of any violations of and compliance

with the Organisational Model adopted by the subsidiary Renco S.p.A.

Pesaro, 18 May 2020

On behalf of the Board of Directors

The Chairman

Giovanni Gasparini

37


FINANCIAL STATEMENT

40

CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa

CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019(Balances in thousands of Euros)

BALANCE SHEET ASSETS 31/12/2019 31/12/2018

A) Receivables due from shareholders for payments still due

I) Receivables due from shareholders for payments still due 3 -

II) (of which already called) - -

B) Fixed assets

I) Intangible fixed assets

1) Start-up and expansion costs 8 9

2) Development costs 755 -

3) Industrial patents and intellectual property rights 4,006 2,063

4) Concessions, licences, trademarks and similar rights 16 78

5) Goodwill - -

6) Assets under construction and advances 3,516 767

7) Other 492 710

8,793 3,627

II) Tangible fixed assets

1) Land and buildings 201,129 183,629

2) Plants and machinery 5,556 2,667

3) Industrial and commercial equipment 3,029 5,928

4) Other assets 5,982 5,022

5) Assets under construction and advances 4,108 16,344

219,804 213,590

III) Financial fixed assets

1) Equity investments in:

a) Subsidiary companies 24,026 1,596

b) Associated companies 1,348 1,341

d bis) Other companies 53 53

25,427 2,990

2) Receivables

a) from subsidiary companies 275 4,882

1) within 12 months 275 4,882

b) from associated companies 23,619 21,306

1) within 12 months 2,079 567

2) Beyond 12 months 21,540 20,739

c) from parent companies - -

d) From companies subject to the control of parent companies - -

d-bis) from others 91 1,591

1) within 12 months 77 381

2) Beyond 12 months 14 1,210

23,985 27,779

3) Other securities - -

4) Derivative financial asset instruments 306 814

49,718 31,583

Total fixed assets 278,315 248,800

41

Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019

BALANCE SHEET ASSETS 31/12/2019 31/12/2018

C) Current assets

I) Inventories

1) Raw and ancillary materials and consumables 7,601 4,059

2) Products under construction and semi-finished products 22 229

3) Contract work in progress 367,356 206,851

4) Finished products and goods 9,235 8,456

5) Advances 24 843

384,238 220,438

II) Receivables

1) Trade receivables 35,010 50,541

1) within 12 months 35,010 50,541

2) from unconsolidated subsidiary companies 217 7,534


3) from associated companies 3,975 2,877

1) within 12 months 3,975 2,877

4) From parent companies - -

5) From companies subject to the control of parent companies - -

5-bis) Tax receivables 19,199 22,172

1) within 12 months 19,199 21,338

2) Beyond 12 months 0 834

5-ter) Prepaid tax 5,237 7,184

5-quater) from others 17,898 14,360

1) within 12 months 10,172 6,192

2) Beyond 12 months 7,726 8,168

81,536 104,668

III) Financial assets not classified as fixed assets

6) Other securities - 52

- 52

IV) Cash and cash equivalents

1) Bank and post office deposits 97,826 72,194

3) Cash and equivalents in hand 303 283

98,129 72,478

Total Current assets 563,903 397,635

D) Accruals and deferrals 4,132 3,128

Total Assets 846,350 649,564

42


BALANCE SHEET - LIABILITIES 31/12/2019 31/12/2018

A) Shareholders’ equity

I) Share capital 9,013 9,013

II) Share premium reserve 25,988 25,988

III) Revaluation reserves 4,696 4,696

IV) Legal reserve 1,367 1,281

V) Statutory reserves - -

VI) Other reserves 27,593 25,595

VII) Reserve for hedging operations for expected financial flows (1,227) 398

VIII) Retained earnings (accumulated losses) 93,998 86,963

IX) Profit (loss) for the year 8,017 8,755

X) Negative reserve for own shares held in portfolio (3,609) (3,609)

Total Group Shareholders’ equity 165,836 159,080

Minority interest

Minority interests in capital and reserves 896 4,218

Income (Loss) pertaining to minority shareholders 71 (2,655)

Total Minority Shareholders’ equity 967 1,563

Total Consolidated Shareholders’ equity 166,803 160,643

B) Provisions for risks and charges

1) Provision for pensions and similar obligations - -

2) Provisions for taxes, including deferred taxes 13,779 13,457

3) Derivative financial liability instruments 2,030 280

4) Others 1,074 7,183

16,883 20,920

C) Employee severance indemnity 2,886 2,411

D) Payables

1) Bonds 44,530 44,368

1) within 12 months 10,000 -

2) Beyond 12 months 34,530 44,368

2) Convertible bonds - -

3) Payables to shareholders for loans 5,701 6,201

1) within 12 months 5,701 6,201

4) Payables to banks 60,837 93,670

1) within 12 months 29,442 44,101

2) Beyond 12 months 31,395 49,569

5) Payables to other lenders 13,853 1,665

43


BALANCE SHEET - LIABILITIES 31/12/2019 31/12/2018

1) within 12 months 979 60

2) Beyond 12 months 12,874 1,605

6) Advances 398,886 230,260

1) within 12 months 223,227 18,333

2) Beyond 12 months 175,659 211,927

7) Trade payables 98,431 61,483

1) within 12 months 98,431 61,483

8) Payables represented by credit instruments - -

9) Payables to subsidiary companies 54 1,925


10) Payables to associated companies 2,742 2,126

1) within 12 months 2,742 2,126

11) Payables to parent companies - -

11 bis) Payables to companies subject to the control of parent companies - -

12) Tax payables 12,826 6,871

1) within 12 months 11,676 6,871

2) Beyond 12 months 1,150

13) Payables to social security and welfare institutions 1,987 1,759

1) within 12 months 1,987 1,759

14) Other payables 19,014 13,829

1) within 12 months 16,413 10,871

2) Beyond 12 months 2,601 2,958

658,861 464,157

E) Accruals and deferrals 917 1,432

Total Liabilities 846,350 649,564

44


INCOME STATEMENT 31/12/2019 31/12/2018

A) Value of production

1) Revenues from sales and services 98,372 253,639

2) Change in inventories of products currently being manufactured, semi-worked products and finished products

99 (451)

3) Changes in contract work in progress 160,463 (44,443)

4) Increases in fixed assets for in-house works 17,348 19,999

5) Other revenues and income, with separate indication of operating grants

a) Various items 38,745 14,538

b) Operating grants 148 -

Total Value of production 315,175 243,282

B) Cost of production

6) Raw, ancillary and consumable materials and goods for resale 87,029 61,203

7) For services 103,261 76,765

8) For use of third party assets 5,831 4,589

9) Personnel 61,181 56,476

a) Wages and salaries 49,087 46,206

b) Social security contributions 10,088 8,311

c) Severance indemnity 1,711 1,372

d) Pensions and similar commitments - -

e) Other costs 295 588

10) Amortisation/depreciation and write-downs 13,135 11,745

a) Depreciation of intangible fixed assets 729 705

b) Depreciation of tangible fixed assets 9,666 9,323

c) Other write-downs of fixed assets 1,271 248

d) Impairment of receivables including in current assets and cash and cash equivalents 1,469 1,469

11) Changes in inventories of raw, ancillary materials, consumables and goods (4,762) 2,254

12) Provision for risks - 199

13) Other provisions - 1,300

14) Other operating expenses 15,670 3,534

Total cost of production 281,345 218,065

Difference between value and cost of production (A-B) 33,830 25,217 C) Financial income and charges

15) Income from equity investments 418 4

a) From subsidiary companies 418 4

b) From associated companies - -

c) From parent companies - -


e) Others - -

16) Other financial income 1,855 622

a) from receivables recorded as fixed assets - -

1) From subsidiary companies - -

2) From associated companies - -



5) Others - -

45


INCOME STATEMENT 31/12/2019 31/12/2018

b) From securities included under fixed assets not comprising equity investments - -

c) From securities included under current assets not comprising equity investments - -

d) Income other than the above - -

1) From subsidiary companies - 16

2) From associated companies 170 143



5) Others 1,685 463

17) Interest and other financial charges 7,014 6,652

a) from subsidiary companies - -

b) from associated companies - -

c) from parent companies - -


e) Others 7,014 6,652

17 bis) Exchange losses and gains (1,710) (2,280)

Total financial income and expense (6,450) (8,305) D) Value adjustment to financial assets and liabilities

18) Revaluations 109 36

a) Of equity interests 7 36

b) Of financial fixed assets (not comprising equity investments) 101 -

c) Of securities included under current assets (not comprising equity investments) - -

d) Of derivative financial instruments - -

e) Of financial assets for centralised cash management - -

19) Write-downs 3,391 4,868

a) Of equity interests 2,919 4,667

b) Of financial fixed assets 354 101

c) Of securities included under current assets (not comprising equity investments) - 84

d) Of derivative financial instruments 118 16

e) Of financial assets for centralised cash management - -

Total value adjustments to financial assets (3,283) (4,832)

Pre-tax profit/loss (A-B+C+D) 24,098 12,078

20) Income taxes for the year, current, deferred and prepaid a) Current taxes 6,966 5,970

b) Prior year taxation 6,901 2,605

c) Deferred and prepaid taxes 2,547 (1,794)

d) income (expense) from compliance with the tax consolidation / tax transparency regime

403 803

Profit (Loss) for the year 8,088 6,100

Profit (loss) for the year relating to the Group 8,017 8,755

Profit (loss) for the year relating to minority interests 71 (2,655)

The Chairman of the Board of Directors

Giovanni Gasparini

46


CONSOLIDATED CASH FLOW STATEMENTindirect method as of 31/12/2019 (values expressed in thousands of Euros)

31/12/2019 31/12/2018

A. Cash flow from operating activities (indirect method)

Income (loss) for the year 8,088 6,100

Income taxes 16,010 5,979

Interest expense / (interest income) 5,159 6,029

Value adjustments to financial assets 2,885 472

Write-downs for impairment losses 1,271 248

(Gains)/losses from the sale of assets (24,213) (11,640)

1. Profit (loss) before income tax, interest, dividends and capital gains/losses on disposals 9,200 7,188

Adjustments for non-monetary items not offset in net working capital

Allocations to provisions 2,377 9,788

Depreciation of fixed assets 10,395 10,028

Adjustments to the value of derivative financial instruments 69 28

Other upward or downwards adjustments for non-monetary elements 163 (1,639)

2. Cash flow before changes in NWC 13,004 18,205

Changes to net working capital

Decrease/(increase) in inventories 4,660 28,676

Decrease/(increase) in trade receivables 5,480 (14,423)

Increase/(decrease) in trade payables 36,564 (16,185)

Increase/(decrease) in accrued income and prepaid expenses (1,004) 1,206

Increase/(decrease) in accrued liabilities and deferred income (165) (2,338)

Other changes in net working capital (3,096) (4,958)

3. Cash flow after changes in NWC 42,439 (8,022)

Other adjustments

Interest collected/(paid) (4,908) (4,909)

(Income tax paid) (5,770) (7,608)

(Use of provisions) (1,160) (3,540)

4. Financial flow after other adjustments (11,837) (16,056)

Cash flow generated by income management (A) 52,806 1,315

B. Cash flow from investment activities

Tangible fixed assets

(Investments) (19,840) (22,754)

Disposals 797 103

47


31/12/2019 31/12/2018

Intangible fixed assets

(Investments) (5,182) (998)

Disposals 23

Financial fixed assets

(Investments) (28,719) (6,186)

Disposals 1,649 1,028

Total non-current financial assets

(Acquisition of business units, net of cash and cash equivalents) 104 (870)

Sale of business units, net of cash and cash equivalents 48,858 6,828

Cash flow from investment activities (B) (2,311) (22,849)

C. Cash flow from financing activities

Minority interest means

Increase (decrease) in short-term payables to banks (16,642) 5,132

Loans taken out 49,483 10,417

Loans repaid (55,294) (14,667)

Repayment of loans to shareholders (500) (225)

Increase (decrease) in short-term payables to bond holders 162 154

Increase (decrease) in short-term payables to other lenders 19 (466)

Own resources

Dividends paid (166) (19)

Change in reserve for translation differences (1,905) 2,325

Cash flow from financing activities (C) (24,844) 2,651

Increase (decrease) of liquid assets (A ± B ± C) 25,652 (18,883)

Cash and cash equivalents at beginning of year 72,478 91,361

Cash and cash equivalents at end of year 98,129 72,478

As shown in the cash flow statement, prepared using the indirect method, there was an increase in liquidity

of 25,651 thousand Euros during the year. The main changes in the cash flow statement are shown below.

Change in trade receivables, inventories, trade payables - This item includes the cash absorption or cash

generation relating to net working capital, therefore changes in trade receivables, inventories and trade

payables. It should be noted that changes in inventories refer to the item in question and include change

in advances. The change in inventories and advances is directly linked to the life cycle of orders, for the

analysis of which reference should be made to the paragraph “Inventories” of these explanatory notes.

Other changes in net working capital - This item includes the change in all other assets and liabilities

both current and non-current, net of the effects produced in the same by the allocations of non-monetary

charges or income, i.e. the change that had a direct effect on cash absorption or generation.

48


Disbursements for investments in tangible fixed assets and collections for disinvestments in tangible

fixed assets - For detailed information on the cash flow for investments in tangible fixed assets please refer

to the paragraph “Tangible fixed assets” in these explanatory notes.

Disbursements for investments in intangible assets - The cash flow for investments in intangible assets is

related to the investments made in the new Oracle JDE ERP system and to development costs.

Collections for disinvestments in financial fixed assets and Disbursements for financial fixed assets - For

a precise representation of the cash flow for disinvestments and investments in financial fixed assets please

refer to the paragraph “Financial fixed assets” in these explanatory notes.

Increase/(decrease) in payables to banks - This item includes the change in payables due to banks which

during the period underwent a negative change of 22.5 million Euros due to taking out new loans for the

amount of 49.5 million Euros and the repayment of loans for the amount of 55.3 million Euros.

49


Sale of business units, net of cash and cash equivalents - The item contains the effect of the sale of 100%

of Reno Zanzibar (Tanzania). The transaction was completed on the basis of a price of USD 56 million fully

received during 2019. In compliance with OIC 17, the book values of the related assets/liabilities sold are

shown below:

RENCO ZANZIBAR

Fixed assets 15,627 Shareholders’ Equity 14,071

Receivables and Inventories 984 Deferred tax provision -

Liquid funds 377 Payables 2,917

Total Assets 16,988 Total Liabilities 16,988

The Chairman of the Board of Directors

Giovanni Gasparini

EXPLANATORY NOTESTO THE CONSOLIDATED FINANCIAL

STATEMENTS AS OF 31/12/2019

53

Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019

FOREWORD

Dear Shareholders,

These consolidated financial statements, submitted for your examination, show a period profit of 8,088

thousand Euros.

ACTIVITIES CARRIED OUT AND SIGNIFICANT EVENTS REGARDING THE GROUP

The “Renco Group”, of which Renco Group S.p.A. is the parent company, is an important Italian company

in the industrial plant engineering sector and in the general contracting area. The Group operates various

lines of business, which include the Energy Division, Construction division, Asset Management division and

Services division.

PREPARATION CRITERIAThese consolidated financial statements consisting of balance sheet, income statement, cash flow statement

and explanatory notes have been prepared in accordance with Art. 29 of Italian Legislative Decree 127/91

as emerges from these explanatory notes, drawn up in accordance with Art. 38 of the same decree. Where

necessary, the accounting standards issued by the OIC (Italian Accounting Body) have been applied in the

version revised at the end of 2016 and, where lacking, the accounting standards recommended by IASB

and incorporated by CONSOB.

The presentation currency of the financial statements is the Euro. The balances are expressed in thousands

of Euros, unless specifically stated otherwise. It should also be noted that any differences found in certain

tables are due to the rounding of the values expressed in thousands of Euros.

The consolidated financial statements show the figures from the previous year for comparison, indicated in

the following notes in parentheses.

The criteria used in the preparation and valuation of the financial statements as of 31.12.2019 take into

account the Modifications introduced into national law by Legislative Decree 139/2015, which from 2016

implemented Directive 2013/34/EU. As a result of Legislative Decree 139/2015 the OIC national accounting

standards were amended.

With these explanatory notes we highlight the data and disclosures provided by Art. 38 of the same decree,

therefore the Financial Statements consist of the following documents:

Balance Sheet

Income Statement

Cash Flow Statement

Explanatory Notes

In addition to the schedules provided for by law, the statement reconciling the net profit and shareholders’

equity of the consolidating company with the respective values resulting from the consolidated financial

statements is presented.

54

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa

SCOPE AND METHODS OF CONSOLIDATION AND SIGNIFICANT EVENTS DURING THE YEAR

The consolidated financial statements originate from the financial statements of @X005001RENCO GROUP

S.P.A.@X005001End (Parent Company) and of the Companies in which the Parent Company directly or

indirectly holds the controlling interest or exercises control. The financial statements of the Companies

included in the scope of consolidation were consolidated by using the line-by-line method. The list of these

companies is shown in Annex 1.

From the previous year the following changes occurred in the Group structure:

in June, Renco S.p.A. sold 100% of the shares held in Renco Zanzibar Ltd to companies of the RIU

Group, recording a capital gain net of brokerage costs of 32.8 million Euros, a gain determined taking

into account the lower value contributed by the subsidiary in the consolidated financial statements up

to 30.06.2019. The sales price was fully received in July 2019. The sale underlines the core business of

the Asset Management BU, which also evaluates and concludes extraordinary transactions, such as

acquisitions and disposals, for the benefit of the Renco Group;

the Group has begun a corporate restructuring process, aimed at rationalising the Group’s corporate

structure, which is why on 4 April 2019, Renco Immobiliare S.r.l. was formed, a vehicle under which

companies holding real estate assets will be allocated. The transaction has a mainly industrial purpose

and is aimed at separating the real estate and ho.re.ca “Hotellerie, Restaurant, Cafè” activities relating

to the property and asset management business units from the activities of the Services, Infrastructure

and Industrial Plant Divisions. Renco Immobiliare S.r.l. has the same shareholding structure as Renco

S.p.A. and that is why the Renco Group directly owns 99.51% of the company.

The restructuring project also includes the demerger of the know-how acquired in the property and

facility management activities necessary to ensure the possibility of promoting it on the market,

not limiting it to captive activities for the Group. The company created in July 2019 is Renco Asset

Management S.r.l., whose capital is owned in the same proportions as Renco Immobiliare S.r.l.;

On 10 December 2019, the single deed for the proportional demerger of Renco S.p.A. in favour of Renco

Immobiliare S.r.l. and Renco Asset Management S.r.l. and the merger of Renco Immobiliare S.r.l. with

Renco Real Estate S.r.l. was formalised. The accounting, statutory, tax and legal effects of the demerger

and reverse merger will take effect as from 1 January 2020.

Finally, the name of Renco Real Estate S.r.l. was changed to Renco Valore S.r.l. by a deed dated 24

January 2020.

2019 saw the transformation into a company of the Congolese branch of Renco S.p.A., which took on the

name Renco Congo Sarlu. In turn, following the Group’s corporate restructuring project, Renco Congo

Sarlu transferred the real estate assets, consisting of the Djeno building and the Pointe Noire building,

to the new company Renco Congo Valore, 100% owned by Renco Real Estate S.r.l.; the transactions

described had no effect on the Group’s consolidated financial statements;

During the period, Renco S.p.A. capitalised Renco Power Cjsc, a company incorporated under Armenian

law, for the amount of 37.2 million Euros. In March 2019, the share capital of Renco Power Cjsc was

increased by DRAM 6,083 million, equal to 11 million Euros, through subscription by Simest S.p.A. and

the Venture Capital Fund of 22.37% of the share capital. In compliance with the reference accounting

standards and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by

Simest S.p.A., to be carried out by 30 June 2026, this share capital increase was represented as a

payable to other lenders;

55


The Group decided to enforce the right of lien provided for in the contract for the sale of the Hotel

Yerevan, which became necessary due to the insolvency of the counterparty that did not meet the

payment terms of the last tranche, amounting to 15 million Euros. The sales price of the Hotel at the end

of 2018 was 20 million Euros, of which 5 million Euros collected at the time the sales contract was signed

and 15 million Euros to be paid by 30 June 2019. Following the conclusion of a settlement agreement in

December 2019, the Group regained 100% ownership of the Armenian company, which owns the Hotel

Yerevan, against the return of the advance received, except for retention of a penalty of 200 thousand

Euros. The effect of the settlement agreement resulted in a contingent liability of 11.3 million Euros in

the consolidated income statement, recognised in item B 14) “Other operating expenses”, deriving from

the difference between the contractual value of the settlement and the value of the net equity of the

acquired company;

as part of the planned activities in Mozambique, three additional companies were added during the

period: Real Moz LdA, 99% owned by Renco Real Estate S.r.l. and 1% by Renco S.p.A., to which the

Pemba building and two plots of land were sold; Cabo Delgado Properties SA, 63% owned by Renco

S.p.A., is a vehicle company that owns 80% of Pemba Bulk Terminal SA.

Pemba Bulk Terminal SA, owned by Cabo Delgado Properties SA and a Mozambican public company,

is investing in the construction of the commercial port of Pemba for the loading and unloading of

materials necessary for the development of Palma. The same company will follow the management

and logistics activities of the port once the construction is completed;

during the period, the Renco Not-For-Profit Foundation was established, a philanthropic body whose

purpose is to support the communities located in rural areas, where the most disadvantaged sections

of the population live, in the countries where the Group is present, and with a particular focus on Africa.

The work that Renco’s founder and Renco itself have always wanted to promote has been to focus on

high-impact interventions that are recognised for their effectiveness in combating maternal and child

mortality and in children’s education;

Finally, it should be noted that the liquidation of RenTravel S.r.l. was completed during the first half of

2019.

For significant events that occurred during the year, reference should be made to the first part of the

Management Report.

The Companies for which, due to legal or factual reasons, consolidation is irrelevant for the Group, are

excluded from the consolidation. The list is provided in Annex 3 to the explanatory notes.

It should be noted that the Armenian company Velofirma Llc as of 31.12.2019, although 53.7% indirectly

owned through Nuovo Velodromo, is not controlled by the Group on the basis of agreements with the local

partner. Among other things, the agreements provide for the gradual acquisition of the majority by the

local partner and the permanence of the Renco Group with a final shareholding of 20%.

The Companies over which joint control is exercised pursuant to art. 37 of Italian Legislative Decree 127/91

are included in the consolidation in proportion to the shareholding held. A list of these Companies is

provided in Annex 2.

Associated companies, over which the Parent Company exercises either directly or indirectly significant

influence and holds between 20% and 50% of the share capital are valued according to the equity method

or, in the absence of appropriate information for the correct application of this method, to the cost method

net of impairment losses. A list of these Companies is provided in Annex 3.

The other subsidiary companies excluded from consolidation pursuant to Italian Legislative Decree 127/91

are valued according to the cost method, net of impairment losses. These companies are listed in Annex 3,

with an indication of the reasons for their exclusion.

56


The Companies having a shareholding greater than 50% but with shareholders’ agreements that demonstrate

joint control, as defined in paragraph 13 of OIC 17, are recorded under Investments in subsidiaries and valued

using the equity method. Specifically, this is the case of the Armenian company Armpower Cjsc where the

Shareholder Agreement signed with Siemens highlights a joint governance of the company.

For the consolidation, the financial statements of the individual companies were used, already approved by

the Shareholders’ Meetings or prepared by the Boards of Directors for approval, reclassified and adjusted,

in order to standardise them with the accounting standards and presentation policies used by the Group.

CONSOLIDATION CRITERIA

The book value of the equity investment in the consolidated company is eliminated against the corresponding

fraction of shareholders’ equity. The differences resulting from the elimination are attributed to the individual

financial statement items that justify them and, the residual amount, if positive, is recognised in an asset

item called “goodwill”, unless it must be fully or partially charged to the income statement under item

B14. The amount recognised under assets is depreciated in the period provided for by the first paragraph,

point 6, of article 2426. If negative, the difference is recognised, where possible, as a deduction from the

assets recognised for values above their recoverable value and to liabilities recognised at a value lower

than their repayment value. The residual negative difference is recognised under the shareholders’ equity

item “Consolidation reserve” or in the specific “Consolidation provision for future risks and charges”, in

compliance with the criterion of art. 33, paragraph 3 of Italian Legislative Decree 127/91.

The provision is used in subsequent years to reflect the assumptions made for its estimate at the time of

purchase.

The portions of shareholders’ equity pertaining to minority interest are recorded under a specific item of

the balance sheet. The portion of result pertaining to minority interest is highlighted separately on the

income statement.

Equity and economic relations between the Companies included in the scope of consolidation are eliminated.

Gains and losses on transactions between consolidated Companies, not realised on transactions with third

parties are eliminated.

Gains and losses on transactions between group companies and relating to values included in the assets

of one of them at the closing date of the consolidated financial statements are not eliminated since they

are irrelevant for the purposes of a true and correct representation of the equity, financial and operating

position of the group.

Prior to consolidation entries relevant solely for taxes were eliminated and the related deferred taxes

allocated to a fund.

In the case of acquisition or loss of control of investee companies, the related effects of consolidation or

deconsolidation, respectively, are made starting from the date on which the transaction was finalised.

The conversion of the financial statements of foreign subsidiary and associated companies in currencies

other than the Euro was carried out using the spot exchange rate at the balance sheet date for assets and

liabilities while, for income statement items, the average exchange rate for the period was used. The net

effect of the translation of the financial statements of the investee company into the accounting currency

is recognised in the “Reserve for translation differences”.

For the conversion of financial statements expressed in foreign currencies, the rates stated in the table

below were applied:

57


CURRENCY EXCHANGE RATE AS OF 31.12.2018 EXCHANGE RATE AS OF 31.12.2019

AS OF 31.12. 2018 2018 AVERAGE AS OF 31.12. 2019 2019 AVERAGE

Algerian Dinar 135.49 137.65 133.89 133.68

Libyan dinar 1.60 1.61 1.57 1.57

Armenian dram 55530 570.58 538.11 537.88

CFA franc 655.96 655.96 655.96 655.96

Lek 123.53 127.62 122.05 123.02

N. Metical 70.51 71.29 69.59 69.94

Readjustado Kwanza 353.02 297.38 540.04 406.17

Russian Ruble 79.72 74.04 69.96 72.46

Tanzanian shilling 2,630.94 2,686.24 2,582.48 2,581.99

Tenge Kazakhstan 437.52 406.91 429.51 428.79

MEASUREMENT CRITERIA

The criteria used for preparation of the consolidated financial statements as of 31.12.2019 are those used for

the financial statements of the parent company that prepares the consolidated financial statements and

are consistent with those used for the preparation of the previous years’ consolidated financial statements,

particularly with regard to measurements and continuity of said criteria.

In application of the principle of materiality, pursuant to Art. 2423, paragraph 4, of the Italian Civil Code, the

Explanatory Notes do not contain comments to financial statement items, even if specifically provided for

in Art. 2427 of the Italian Civil Code or by other provisions, in cases where the amount of such items and the

related information are irrelevant in providing a true and fair view of the equity and financial position and

operating profit of the Company and the Group.

The recognition and presentation of the financial statement items was performed taking into consideration

the substance of the transaction or contract.

The valuation of item lines was performed according to the general criteria of prudence and competence;

the recording and presentation of items was made taking into account the substance of the transaction or

contract, where compatible with the provisions of the Italian Civil Code and the OIC accounting standards;

More specifically, the following measurement criteria were adopted.


Intangible fixed assets have been recorded at their purchase or internal production cost, inclusive of directly

related accessory charges.

These amounts were stated net of amortisation, calculated systematically with reference to the rates

indicated below and taking their residual use into account.

58


DESCRIPTION RATES OR CRITERIA APPLIED

Start-up and expansion costs 20%

Industrial patents and intellectual property rights 20%

Concessions, licences, trademarks and similar rights 33.33%

Other intangible fixed assets Rates depending on the residual duration of the contract

Special treatment was reserved for investment in the integrated Oracle - JDEdwards management system

implemented by Renco S.p.A. operational from 2017 for which a depreciation rate of 10% was used

considering a very long useful life; a choice corroborated by a market analysis on the main companies of

the international scenario that for decades have been using this ERP system, which in fact turns out to be

one of the most used.

There have been no changes in depreciation rates compared to the previous year.

If an asset suffers lasting impairment independently of the depreciation already entered, the asset will be

written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the assets’

original value will be restored, adjusted to reflect depreciation only.

Development costs incurred for the implementation of new investments are capitalised if technically

feasible investments are implemented from the planned projects, provided that there is the intention to

complete the development project, the resources needed to complete it and the economic costs and

benefits arising from such investments are measurable in a reliable manner. Expenses that are capitalised

include internal and external design costs (including personnel expenses). Capitalised development costs

are considered intangible assets with a finite life and are amortised in relation to the period over which the

economic benefits deriving from them are obtained, generally identified as 5 years, and are adjusted for

any impairment losses that may arise after initial recognition. Other development costs are recognised in

the income statement in the year in which they are incurred.

59



Tangible assets have been recorded in the financial statements at their purchase cost or internal production

cost. This cost is inclusive of related costs, as well as directly attributable costs.

Other costs in the amount that were reasonably related to the asset were also included, incurred during

manufacturing and up to the time from which the asset may be used.

Any financial charges incurred in the acquisition or construction of capitalised assets for which a certain

period of time normally elapses to make the asset ready for use or sale, are capitalised and depreciated

over the life of the class of assets to which they refer. All other financial expenses are recognised in the

income statement during the year to which they refer.

The amounts are stated net of accumulated amortisation, and calculated systematically with reference to

the rates indicated below, in relation to their remaining useful life in consideration of their use, destination,

and the economic-technical useful life of the assets.

DESCRIPTION RATES APPLIED

Buildings 3%

Plant and machinery 10%

Plant and machinery (photovoltaic systems part related to the system) 9%

Industrial and commercial equipment 12.5%

Other assets:

- Furniture and fixtures 12%

- Electronic office machines 20%

- Cars and motorcycles 25%

- Motor vehicles 20%

There have been no changes in depreciation rates compared to the previous year.

For photovoltaic systems, being complex systems and following the accounting principle OIC 16, the

cost was broken down according to the nature of the related components (component approach) with a

different useful life. Therefore, starting from 2016, the part relating to photovoltaic systems was reclassified

from “Land and buildings” to “Plant and machinery”.

If an asset suffers lasting impairment independently of the depreciation already entered, the asset will be

written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the assets’

original value will be restored, adjusted to reflect depreciation only.


Financial assets consisting of investments in unconsolidated subsidiaries and associated companies have

been valued according to the equity method, adjusted for the intercompany profits/losses, including

ancillary charges, or, in the absence of appropriate information for the correct application of this method, to

the cost method; the recording value in the financial statement is determined on the basis of the purchase

or subscription price or the value attributed to the assets.

60


Investments that are expected to be sold within one year are classified as current assets under financial

assets other than fixed assets.

Investments in other non-subsidiary and/or associated companies were recorded at their acquisition cost,

adjusted on the basis of the losses recorded by investee companies and therefore exposed to a value less

than their acquisition cost.

Receivables posted under financial fixed assets are recognised in the financial statements according to the

amortised cost criterion,

taking into account the time factor and estimated realisable value. This criterion is applied for receivables

recognised from 1 January 2016, as permitted by OIC 15.

The amortised cost criterion is not applied when the effective interest rate is not significantly different

from the market interest rate or when the effects of applying this criterion are irrelevant compared to the

criterion adopted.

Inventories, securities and financial assets

Inventories, securities and financial assets not held as fixed assets are stated at the lesser purchase cost,

including any directly attributable expenses and the estimated realisable value based on market conditions.

Raw materials, ancillary materials and finished products have been recorded using the specific cost method

because they are not interchangeable and are correlated to the specific nature of the materials used in the

job orders.

Products in progress have been recorded according to the expenses incurred during the year.

Work in progress (projects of duration within the year) are recognised based on the costs incurred during

the year or on the completed contract criterion: the project revenues and margin are recognised only when

the contract is completed, i.e. when the works are completed and delivered.

Works in progress (projects of duration beyond the year) are recognised according to percentage

completion or interim payment certificate criterion: project costs, revenues and margins are recognised

according to effective progress of production activities. For the application of this criterion the cost to cost

method is adopted.

Any reasonably estimated losses on projects have been fully charged to the income statement in the year

in which they become known.

Receivables

Receivables are recognised in the financial statements according to the amortised cost criterion, taking into

account the time factor and estimated realisable value.

In the initial recognition of receivables with the amortised cost criterion, the time factor is complied with

by comparing the effective interest rate with the market interest rates. If the effective interest rate is

significantly different from the market interest rate, the latter is used to discount future cash flows deriving

from the receivable in order to determine its initial recognition value.

At the end of the financial year, the value of receivables measured at amortised cost is equal to the present

value of future cash flows discounted at the effective interest rate. In the event that the contractual rate is

a fixed rate, the effective interest rate determined at the time of initial recognition is not recalculated. If, on

61


the other hand, it is a floating rate based on market rates, then the future financial flows are periodically

recalculated to reflect changes in market interest rates, recalculating the effective interest rate.

The discounting of receivables was not made for receivables due within less than 12 months.

With reference to the receivables recognised in the financial statements prior to the financial year starting

from 1 January 2016, these are recognised at their presumed realisable value since, as envisaged by the

accounting standard OIC 15, it was decided not to apply the criterion of amortised cost and discounting.

The nominal value of receivables is adjusted to their estimated realisable value by means of a specific

allowance for doubtful accounts, taking into account the existence of indicators of a permanent loss. The

receivables originally collectible by the end of the year and subsequently turned into long-term receivables

have been listed under financial fixed assets in the balance sheet.

These are taken off the balance sheet when contractual rights on cash flows resulting from the receivable

are extinguished or if all risks related to the liquidated receivable have been transferred.

Securities

Securities held as fixed assets expected to remain in the Group’s portfolio until their maturity are recorded

at acquisition cost. The book value takes into account the directly chargeable related costs.

62


Liquid funds

The item consists of liquid availability of cash in both national and in foreign currency, stamps and cash

holdings resulting from the accounts held by the company with credit institutions, all expressed at nominal

value, specially converted into the national currency if it concerns accounts in foreign currency.

Accruals and deferrals

Accruals and deferrals were determined on an effective accruals basis.

With regard to accrued expenses and deferred income, steps were taken to verify the retention of the

original registration; necessary changes were made where appropriate.

Treasury shares

Treasury shares held by the parent company in its financial statements are also recognised in the

consolidated financial statements as treasury shares of the group and follow the accounting treatment

envisaged by OIC 28.

Derivative financial instruments

Derivative financial instruments, even if incorporated into other financial instruments, were initially

recognised when the related rights and obligations were acquired; their measurement was made at fair

value both at the initial recognition date and at each financial statements closing date. The changes in fair

value compared to the previous year were recognised in the income statement; in the case of instruments

that hedge the risk of changes in the expected cash flows of another financial instrument or of a planned

transaction and in line with the requirements of OIC 32, the changes were recognised in a positive reserve

in shareholders’ equity.

Derivative financial instruments with a positive fair value were recognised in balance sheet assets. Their

classification in fixed assets or current assets depends on the nature of the instrument itself:

a derivative financial instrument hedging cash flows or the fair value of an asset follows the classification,

under current assets or fixed assets, of the asset hedged;

a derivative financial instrument hedging the cash flows and the fair value of a liability, an irrevocable

commitment or a highly probable planned transaction is classified under current assets;

a non-hedging derivative financial instrument is classified under current assets within 12 months.

Changes in the fair value of the effective component of derivative financial instruments hedging financial

assets were recognised in the reserve for hedging operations for expected financial flows.

Derivative financial instruments with negative fair value were recognised in the financial statements under

provisions for risks and charges.

63


Provisions for risks and charges

These were allocated to cover known or likely losses or liabilities of a determined or probable nature, the

timing and amount of which cannot be determined at year end.

The value of these provisions is determined on the basis of the general criteria of prudence and the pro

tempore principle, and no generic provisions for risks are set up without economic justification.

Potential liabilities are stated in the financial statements and recorded in the reserves since they are believed

to be probable and the amount of the related charge can be reasonably estimated.

Employee severance indemnities (TFR)

The employee severance indemnity reflects the actual liability of the Company for each employee,

determined in accordance with existing legislation and art. 2120 of the Italian Civil Code and the collective

bargaining agreements and company agreements.

This liability is subject to revaluation using indices.

The provision reflects the total of the individual indemnities accrued in favour of the employees until 31

December 2006, net of any advances paid out, and is equal to that which would have to be paid to the

employees in the event of the termination of the employment contract as of that date.

The provision does not include indemnities matured as from 01 January 2007, destined to additional

pension forms in accordance with legislative decree no. 252 dated 05 December 2005 (namely transferred

to the INPS treasury fund).

Payables

These are recognised according to the amortised cost criterion, taking into account the time factor.

In the initial recognition of payables with the amortised cost criterion, the time factor is complied with by

comparing the effective interest rate with the market interest rates.

At the end of the financial year, the value of payables measured at amortised cost is equal to the present

value of future cash flows discounted at the effective interest rate.

The discounting of payables was not carried out for payables due within less than 12 months {and/or if the

effects are insignificant compared to the discounted value}.

With reference to the payables recognised in the financial statements prior to the financial year starting

from 1 January 2016, these are recognised at their nominal value since, as envisaged by the accounting

standard OIC 19, it was decided not to apply the criterion of amortised cost and discounting.

Translation of foreign currency balances

Receivables and payables originally in foreign currency are converted into Euro at the exchange rates

in force on the day on which they arose. The exchange differences arising from foreign currency debt

payments and the collection of receivables are recorded in the income statement.

As regards receivables in foreign currency existing at the year-end, these were converted into Euros at

64


the exchange rate of the closing date of the financial statements; gains and losses on foreign exchange

identified as such were disclosed in the financial statements under the item C.17-bis “Exchange gains/

losses”.

Property acquired and/or held through leasing contracts (so-called Leases)

Properties held under leasing, through which all the risks and benefits of ownership are substantially

transferred to the Group, are presented as Group assets and classified under property, while the

corresponding liability towards the lessor is shown under financial payables; the cost of the leasing fee

is decomposed into its components of financial charges, charged to the income statement, and capital

repayment, recognised as a reduction of the financial payable. The value of the leased asset is determined

on the basis of the fair value of the asset itself.

Capitalised leased assets are depreciated over the estimated useful life of the asset.

Accounting of revenues and costs

Revenues and income are recorded net of returns, discounts, allowances, as well as the taxes directly

associated with the sale of products and the provision of services.

65


Specifically:

revenues from services are recognised on the basis of the service itself and in accordance with the

relevant contracts. Revenues related to contract work in progress are recorded in proportion to the

progress of the work;

income from the sale of goods is recognised when ownership passes, which normally coincides with the

time of shipment or delivery of the goods;

revenues from increases in fixed assets for internal works are recognised on the basis of the cost

incurred for the construction of the fixed asset;

costs are accounted on an accruals basis;

financial income and expenses are recognised on an accruals basis.

Income taxes

Taxes are allocated on the basis of the pro tempore principle; they therefore represent:

the allocations for taxes paid or to be paid for the year, determined in accordance with current rates

and legislation in force in the individual countries;

the sum total of deferred taxes or prepaid taxes relating to timing differences which have arisen or been

cancelled during the year;

The amount of the deferred and prepaid taxes is also subject to recalculation in the event of changes in the

tax rates originally considered.

66


I N F O R M A T I O N O N F I N A N C I A L S T A T E M E N T I T E M S

The following is an analysis of the financial statement items, in compliance with the contents of art. 2427 of

the Italian Civil Code. Figures for the previous year are shown in brackets.

BALANCE SHEET ASSETS


The item consists of the following.

BALANCE SHEET ITEMS 31.12.2018ACQUISI-

TIONS

RECLAS-SIFICA-

TIONS

TRAN-SLATION

DIFFE-RENCES

AMORTISA-TION AND

DEPRECIA-TION

CHANGE IN THE SCOPE OF CONSO-

LIDATION 31.12.2019

Start-up and expansion costs 9 2 - - (3) - 8

Development costs - 756 - - - - 756

Industrial patent and intellectual property rights

2,063 1,593 844 (2) (492) - 4,006

Concessions, licences, trademarks and similar rights

78 40 (81) - (6) (14) 16

Fixed assets under construction and advances

767 3,514 (787) 22 - 3,516

Other intangible fixed assets 710 8 24 (23) (227) - 492

Total 3,627 5,912 - (3) (729) (14) 8,794

Intangible assets also include the accounting results of the foreign permanent establishments.

Start-up and expansion costs

“Start-up and expansion costs”, equal to 8 thousand Euros, decreased during the year by 1 thousand Euros

due to the amortisation for the period.

Development costs

Capitalisation of development costs amounted to 756 thousand Euros and concerned the activities incurred

by Renco Power for finalisation of the investment in Armpower, whose financial closing with the lending

banks was achieved in June 2019.

67


Patents and intellectual property rights

The net balance amounts to 4,006 thousand Euros (2,063 thousand Euros), and includes the rights to use

third-party software. The increase of 2,437 thousand Euros in the year just ended mainly relates to the costs

incurred for implementation of the JDE Oracle (“Oracle”) management system in the Armenian and Kazake

businesses, on which the country-specific localisations required to comply with local regulations were also

developed.

The investment in Oracle of previous years made within the scope of improvement of the administrative

structure in Group companies and to make the systems adopted in the main companies homogeneous,

and required, in addition to the use of external consultants, the use of internal resources dedicated to the

project.

Based on the option granted by the OICs, this category of intangible assets is depreciated on a straight-line

basis over a period of 5 years, with the exception of the Oracle JDE ERP system which was depreciated over

a period of 10 years, for the reasons indicated above.

Amortisation for the period amounted to 492 thousand Euros.

Concessions, licences, trademarks and similar rights

The item, equal to 16 thousand Euros, recorded a decrease of 62 thousand Euros due to a reclassification

of 81 thousand Euros and the amortisation recognised in the year of 14 thousand Euros. Capitalisations for

the period amounted to 40 thousand Euros.


Investments in progress and advances amounted to 3,516 thousand Euros and refer to the costs of

implementing the Oracle management system in Mozambique (355 thousand Euros), with full adoption

from 1 January 2020; to costs for development projects relating to investments (3,161 thousand Euros) in

Mozambique (2,919 thousand Euros), in Armenia (130 thousand Euros), and in Italy (112 thousand Euros).

The reclassification of 787 thousand Euros relates to the costs incurred in 2018 in the Armenian and Kazakh

companies for implementation of the Oracle management system, which, in line with the go live of 1 January

2019, were reflected in the item “Industrial patent rights and intellectual property rights”.

Other intangible fixed assets

The net balance amounts to 492 thousand Euros (710 thousand Euros), and consists of capitalisation of

the ancillary charges for the bond issue in 2015 of the Parent Company Renco Group S.p.A. for the amount

of 68 thousand Euros (177 Euros), capitalisation of the transaction and procedural costs for the medium-

long term bank loans prior to 2016 of Renco S.p.A amounting to 183 thousand Euros (279 thousand Euros)

and the ancillary charges for the purchase of surface rights for the photovoltaic fields by Joint Green,

amounting to 234 thousand Euros. The decrease in the item is due to the depreciation for the period.

68




BALANCE SHEET ITEMS LAND AND BUILDINGS

PLANT AND MACHINERY

INDUSTRIAL AND COMMERCIAL

EQUIPMENTOTHER AS-

SETS

ASSETS UNDER CONSTRUCTION AND ADVANCES TOTAL

Balance as of 31.12.2018 183,629 2,667 5,928 5,022 16,344 213,590

Acquisitions for the year 14,333 631 1,397 3,906 893 21,161

Change in the scope of consolidation

(4,259) - (1,696) 198 - (5,757)

Reclassifications 13,152 3,589 (1,807) (1,782) (13,152) -

Disposals/decreases for the year

- (68) (0) (439) - (507)

Amortisation/Depreciation in the year

(6,521) (1,276) (836) (1,033) - (9,666)

Write-downs (1,271) - - - - (1,271)

Translation differences 2,067 12 44 109 22 2,255

Balance as of 31.12.2019 201,129 5,556 3,029 5,982 4,108 219,804

Land and buildings

These amount to 201,129 thousand Euros (183,629 thousand Euros as of 31 December 2018).

The increase deriving from the acquisitions for the year amounts to 14.3 million Euros and consists of:

8.2 million Euros for the work carried out by Renco Capital to complete the new headquarters in Pesaro,

plus 13.1 million Euros reclassified from “Construction in progress and advances” to “Land and buildings”;

2.3 million Euros for the renovation works of the Armenian Park Residence building, necessary to

accommodate the significant number of personnel involved in the work of the Yerevan Power Plant

order, and renovation works of the Italian Embassy;

1.9 million Euros for improvements to facilities in Kazakhstan, where the Group has 3 owned hotels and

59 thousand square metres of residential/office space;

1 million Euros in Rencotek partly related to fit out work carried out on the Pemba Building, necessary

to accommodate the new tenants;

0.9 million Euros for the extraordinary maintenance of the various Group structures aimed at maintaining

production activities.

The decrease of 4.3 million Euros in “Change in the scope of consolidation” during the year is the net effect

of the deconsolidation of 13.8 million Euros of the Zanzibar resort, following the sale during the period,

and the consolidation of Hotel Yerevan, for the amount of 9.5 million Euros. The two operations have been

described in previous paragraphs to which reference is made.

69


The write-down of 1.3 million Euros relates to the value of a property in Congo that does not generate

income because it is a property used for charitable purposes.

The depreciation for the period amounts to 6.5 million Euros (5.6 million Euros in 2018).

This item also includes the building area of Residence Viserba S.r.l., reclassified under “Land and buildings”

in 2018. On the basis of the information available to date and the valuations made by the directors, there

are no problems relating to the recoverability of the amounts recorded considering the importance of the

investment which, despite the slowdowns, continues to be considered strategic by the Group.

In accordance with the OIC Accounting Standard No. 16, the value of the land on which the buildings exist

has been spun off and recognised separately.

Plant and machinery

These amount to 5,556 thousand Euros (2,667 thousand Euros in 2018).

The depreciation for the period amounts to 1.3 million Euros (0.3 million Euros in 2018).

The increases for the period equal to 631 thousand Euros are due to the purchase of machinery used to

carry out the orders or for the functionality of the structures. In particular, 243 thousand Euros refer to

Renco Armestate, a company used for the construction of the Yerevan Power Plant, 256 thousand Euros to

Rencotek, 86 thousand Euros to Renco Congo Sarlu, 38 thousand Euros to Villa Soligo S.r.l. and 8 thousand

Euros to JV Renco Terna.

70


In Rencotek the value refers to the concrete plant built at Afungi, intended to serve the Group’s investment

activities as well as third party customers involved in the development of the area.

In addition, following the Oracle implementation activities, which involved a review of the chart of accounts

of the companies involved, an amount of 3.6 million Euros was reclassified from “Industrial and commercial

equipment” and from “Other assets”, 2.4 million Euros of which to Renco Congo Sarlu, 0.7 million Euros to

Renco Kat and 0.6 million Euros to Rencotek.

Industrial and commercial equipment


The increases, equal to 1,397 thousand Euros, are due to the purchase of equipment for the implementation

of the operational contracts under implementation by the Group. In particular, 776 thousand Euros of the

increases refer to Renco S.p.A. for leased assets, 102 thousand Euros to Renco Congo Sarlu, 188 thousand

Euros to Renco Zanzibar, 92 thousand Euros to Renco Property, 77 thousand Euros and 161 thousand Euros

to other Group companies.

The reclassifications following that indicated in the previous paragraph amount to 1,807 thousand Euros.

The decrease of 1,696 thousand Euros refers to the deconsolidation of the Zanzibar resort, the effects of

which were described above.

The depreciation for the period amounts to 836 thousand Euros (1,402 thousand Euros in 2018).

Other assets


The increase of 3,906 thousand Euro is attributable to the purchase of cars and trucks in Rencotek (1,335

thousand Euros), in Renco Armestate (722 thousand Euros) and in Renco S.p.A. (643 thousand Euros); to

the purchase of technical office equipment in Renco S.p.A. (302 thousand Euros) and in Rencotek (291

thousand Euros), and to other assets for a value of 613 thousand Euros.

The increase of 198 thousand Euros is due to the combined effect of the decrease of 115 thousand Euro,

relating to the deconsolidation of Renco Zanzibar and the increase of 312 thousand Euros relating to the

consolidation of Hotel Yerevan. The effects of both operations have been described above.

The depreciation for the period amounts to 1 million Euros (2 million Euros in 2018).



The increase in the item “Assets under construction” is due in part to the capitalisation of internal costs for

the implementation of investment initiatives still in progress and partly to the costs related to investment

initiatives completed during the year. In this second case the amounts were subsequently reclassified to

the asset item in question. The reclassification amounts to 13.1 million Euros and relates to the new Pesaro

headquarters, which were completed in 2019.

71




DESCRIPTION 31.12.2018 INCREASES DECREASES 31.12.2019

Equity investments in:

b) Subsidiary companies 1,596 25,085 (2,655) 24,026

b) Associated companies 1,341 7 - 1,348

d) other companies 53 - - 53

Receivables from:

a) Subsidiary companies 4,882 1,191 (5,799) 275

b) Associated companies 21,306 2,721 (408) 23,619

d) other companies 1,591 84 (1,584) 91

Derivative asset instruments 814 306 (814) 306

Total 31,583 29,396 (11,260) 49,718

Equity investments

The changes which took place in equity investments are the consequence of the following:

DESCRIPTIONEQUITY INVESTMENTS IN SUBSIDIARY COMPANIES

INVESTMENTS IN ASSO-CIATED COMPANIES

EQUITY INVESTMENTS IN OTHER COMPANIES

Balance as of 31.12.2018 1,596 1,341 53

Increases during the year 25,048 - -

Translation differences 37 - -

Change in the scope of consolidation (6) - -

Decreases during the year (10) - -

Revaluations during the year - 7 -

Write-downs during the year (2,639) - -

Balance as of 31.12.2019 24,026 1,348 53

Subsidiary companies that are not consolidated

The following information relating to the equity investments held directly or indirectly for subsidiary and

associated companies, is provided below (art. 2427, first paragraph, point 5 of the Italian Civil Code).

Changes in investments in non-consolidated subsidiaries are shown in the table below:

72


DESCRIPTION 31/12/2018 INCREASES DECREASESEXCHANGE

EFFECTOTHER

ADJUSTMENTS 31/12/2019

CONSORZIO RENCO-LANCIA-ITER

65 - - - - 65

RENCO FOOD S.R.L. - - - - - -

TRADEMARK ITALY LLP 0 - - - - -

REAL MOZ LTD 4 - - - (4) -

ARMPOWER 1,514 25,041 - 38 (2,639) 23,955

ITALSEC MOZAMBICO 2 - - - (2) -

PEMBA BULK TERMINAL - 1 - - - 1

SALINELLA EOLICO - 5 - - - 5

REN TRAVEL 10 - (10) - - -

TOTAL 1,596 25,047 (10) 38 (2,645) 24,026

During the 2019 financial year, the share capital of the subsidiary Armpower Cjsc was increased by a total

of 25 million Euros in order to equip it with the means necessary for the construction of the Yerevan power

plant.

The other adjustments to Armpower, amounting to -2.6 million Euros, derive from the valuation of the

company, presented using the equity method as a result of the shareholders’ agreements, as described in

greater detail in the paragraph “Preparation criteria”, to which reference should be made.

NAMEREGISTERED

OFFICESHARE

CAPITAL

SHAREHOLDERS’ EQUITY AS OF

31.12.2019

PROFIT (LOSS) AS OF

31/12/2019%

OWNERSHIP BOOK VALUE

CONSORZIO RENCO-LANCIA-ITER (1)

ITALY 100 100 - 71.0% 65

RENCO FOUNDATION (1) ITALY 104 78 (26) 100.0% -

SALINELLA EOLICO (1) ITALY 10 10 - 50.0% 5

RENCO FOOD S.R.L. (2) ITALY 100 (239) (339) 100.0% -

PEMBA BULK TERMINAL (2)

MOZAMBIQUE 1 1 - 80.0% 1

ARMPOWER (2) ARMENIA 44,800 39,925 (1,362) 60.0% 23,955

Total 24,026

(1) Measured with the cost method(2) Measured with the equity method

The investment in Renco Food, which is not consolidated, was valued at cost and a provision to cover losses

was recognised as a provision for risks and charges. The provision of 239 thousand Euros (4,732 thousand

Euros) was set aside due to the accumulated losses and the substantial interruption of the subsidiary’s

business, which is in the process of disposing of the business units managed by the subsidiaries involved

in distribution.

73


Associated companies

Changes in investments in associated companies are shown in the table below:

DESCRIPTION 31/12/2018 INCREASES DECREASESEXCHANGE

EFFECTOTHER

ADJUSTMENTS 31/12/2019

RENCO IREM COSTRUCOES - - - - - -

RENCO NIGERIA 8 - - - - 8

RENCO QATAR 43 - - - - 43

REAL ESTATE MANAGEMENT 9 - - - - 9

DARIN CONSTRUCTION 642 - - - - 642

TOLFA CARE 638 - - - 7 646

TRADEMARK ITALY LLP - - - - 0 0

NIASSA SANCTUARY - - - - - -

VELOFIRMA - - - - - -

TOTAL 1,341 - - - 8 1,348

The other Tolfa Care adjustments, amounting to a positive 7 thousand Euros, derive from the valuation of

the company using the equity method.

NAMEREGISTERED

OFFICESHARE

CAPITAL

SHAREHOLDERS’ EQUITY AS OF

31.12.2019

PROFIT (LOSS) AS OF

31/12/2019% OWNER-

SHIPBOOK

VALUE

DARIN CONSTRUCTION (1) (4) KAZAKHSTAN 44 (2,502) 616 25.0% 642

REAL ESTATE MANAGEMENT (1) (3) ITALY 10 918 496 30.0% 9

RENCO IREM COSTRUCOES (2) MOZAMBIQUE 203 (187) (40) 31.3% -

RENCO NIGERIA (1) AFRICA na na na 49.0% 8

TRADEMARK ITALY LLP (1) KAZAKHSTAN 0 na na 50.0% 0

RENCO QATAR (1) QATAR 52 4,195 383 49.0% 43

TOLFA CARE (2) ITALY 813 1,507 77 47.6% 646

VELOFIRMA (1) (3) ARMENIA 7 (4,751) (735) 58.1% -

Total 1,348

(1) Measured with the cost method(2) Measured with the equity method.(3) Values as of 31.12.2018(4) Values as of 31.12.2016

It should be noted that, should it be impossible to obtain the information necessary for application of the

equity measurement method required by Article 36 of Legislative Decree 127/91, the cost method was used.

In this case, the value of the booking in the financial statements is determined on the basis of the purchase

or subscription price.

74


The cost as described above is reduced in the event that impairment is ascertained; should the reasons for

the adjustment cease to exist, the value of the investment shall be reset within the limit of the acquisition

cost.

In compliance with Art. 2426 paragraph 2 of the Italian Civil Code, the recording of the following investments

at a higher value than the corresponding share of equity is justified as specified below.

Darin Construction

Darin Construction is a vehicle company for the development of a real estate operation in the centre of

Almaty, the economic capital of Kazakhstan, consisting of a multifunctional complex. The complex was

completed in 2018 and is spread over 11 floors above ground and 3 floors underground for a total gross

area of 51 thousand square metres divided into two blocks. The first block is dedicated to a 4-star hotel

affiliated with the Accor brand, which went into operation in 2018 and occupies a total area of 8,287 square

metres. The second block, dedicated to the executive and commercial part, contains a shopping centre,

apartments, executive offices, a sky restaurant on the top floor and underground car parks on which the

company is carrying out fit-out work as the spaces are rented. The percentage occupancy of the office part

in April 2020 was 78%.

The investment will be fully operational in 2020/2021, years in which the first economic returns of the

investment are expected.

75


The higher recognition value of the investment is mainly justified by the higher value of the fixed assets

owned by the investee company. Once the investments are fully operational, it is expected that the company

will develop cash flows that will rebalance its economic and financial situation. To date, the company is still

in the advanced start-up phase of the management and rental of the property, therefore the directors

consider the impact in the consolidated financial statements of the failure to adjust the equity investment

to shareholders’ equity to be insignificant, given its insignificance in the current operations of the Group.

Velofirma

Velofirma is a vehicle company for the development of an important buildable lot near the historical centre

of the capital of Armenia, Yerevan. The company that owns the lot completed the first development phase

in 2015 with the inauguration of the Yerevan City Center hotel associated with the Double Tree by Hilton

chain. The higher recognition value of the investment is mainly justified by the higher value of the fixed

assets owned by the investee company. Once the investments are fully operational, it is expected that the

company will develop cash flows that will rebalance its economic and financial situation.

Note also that the company Velofirma is not consolidated since the Group, based on the shareholders’

agreements with the other shareholders, does not control said investee company. Furthermore, the

agreements provide for the gradual acquisition of the majority by the local partners and the permanence

of the Renco Group with a 20% interest.

For the Renco Nigeria companies, at the date of preparation of this document no definitive data were

available. However, based on the information in their possession, the directors consider that the impact on

the consolidated financial statements of the failure to adjust the equity investment to shareholders’ equity

is insignificant in view of its irrelevance in the current operations of the Group.

Other companies

Changes in investments in other companies are shown in the table below:

DESCRIPTION 31/12/2018INCREA-

SESDECREA-

SES

EXCHAN-GE EF-

FECT

OTHER ADJUSTMEN-

TS 31/12/2019

CEDECORP SA-CAMERUN 23 - - - - 23

PROM INVEST ENGIN ATYRAU 0 - - - - 0

CONAI INVESTMENT 0 - - - - 0

JSC Astanaenergoservic 30 - - - - 30

TOTAL 53 - - - 53

76


Receivables

DESCRIPTION RECEIVABLES FROM SUB-

SIDIARY COMPANIESRECEIVABLES FROM AS-

SOCIATED COMPANIESRECEIVABLES FROM

OTHERS

Balance as of 31.12.2018 4,882 21,306 1,591

Increases during the year 1,191 2,721 84

Decreases during the year (5,799) (408) (1,584)

Balance as of 31.12.2019 275 23,619 91

Receivables from non-consolidated subsidiaries, amounting to 275 thousand Euros (4,882 thousand Euros

as at 31 December 2018), consist of receivables from the subsidiary Renco Food S.r.l. for the amount of 275

thousand Euros (4,701 thousand Euros as at 31 December 2018). The Group has set aside a provision to

cover losses of 275 thousand Euros, for which reference should be made to the section “Unconsolidated

subsidiary companies” for further information.

The increase of 1,191 thousand Euros is due to the disbursements for the period, 660 thousand Euros to

Renco Food and 531 thousand Euros to Armpower. The decrease of 5,799 thousand Euros is due to the

reimbursements received from Armpower, amounting to 713 thousand Euros, to the coverage of previous

losses of the investee company Renco Food by waiving the receivable of 4,732 thousand Euros and to the

write-down of the financial receivable from Renco Food during the period of 354 thousand Euros.

Receivables from associated companies, equal to 23,619 thousand Euros (21,306 thousand Euros) consist of:

receivables from the associate company Velofirma claimed by the company Renco Valore S.r.l. for

6,510 thousand Euros (6,311 thousand Euros as of 31 December 2018), which increased only due to

the exchange rate effect; the directors consider the receivable to be fully recoverable by virtue of the

investments made and the new initiatives relating to the investee company, already described in the

paragraph relating to equity investments;

receivables from the associated company Real Estate Management S.r.l. amounting to 1,744 thousand

Euros (1,644 thousand Euros as of 31 December 2018) claimed by Renco Real Estate S.r.l. The

administrators consider this position to be completely recoverable due to the expected cash flows of

the Hotel Palazzo Castri 1874 in Florence;

receivables from the associated company Darin Construction amounting to 13,286 thousand Euros

(12,783 thousand Euros as of 31 December 2018) claimed by Renco Valore S.r.l. The Group owns 25%

of Darin Construction and the financial loan was disbursed in order to finance the pertinent portion of

the real estate development transaction, as better described in the paragraph “Associated companies”

of these notes, whose cash generation will also be used for the repayment of loans received from

shareholders;

receivables due from the associate companies Trade Mark Italy LLP, amounting to 1,155 thousand Euros,

and Niassa Sanctuary LTD, amounting to 111 thousand Euros, disbursed during the period to support the

start-up phase of the companies;

receivables due from the company Renco Irem Construcoes amounting to 813 thousand Euros (568

thousand Euros as at 31 December 2018), of which 359 thousand Euros to Rencotek and 454 thousand

Euros to Renco S.p.A.

Changes in the item “Receivables from associated companies” are as follows:

77


BALANCE SHEET ITEMS 31.12.2018

NEW DISBUR-

SEMENTSREPAY-MENTS

EXCHAN-GE EF-

FECTWRITE-

DOWNSOTHER

CHANGES

CHANGE IN THE SCOPE OF CONSO-

LIDATION 31.12.2019

Due from parent companies

4,882 1,186 (686) 5 (354) (4,745) (14) 275

Due from associated companies

21,306 2,415 (408) 205 - 101 - 23,619

Due from others 1,591 84 - - - (1,210) (375) 90

Total 27,779 3,686 (1,094) 210 (354) (5,854) (389) 23,984

Receivables from others, equal to 91 thousand Euros (1,592 thousand Euros 31 December 2018), consist of

security deposits.

The decrease in this item of 1,584 thousand Euros is due to repayments received during the period,

amounting to 479 thousand Euros, and to the closure of the receivable subject to seizure at the request

of a supplier, amounting to 1,105 thousand Euros. The position was closed by using the provision for legal

disputes, which had been set aside in the previous period for a similar amount.

The breakdown of receivables as of 31.12.2019 by geographic area, is shown in the following table (Article

2427, first paragraph, no. 6, of the Italian Civil Code).

BALANCE SHEET ITEMS ITALY EUROPEAFRICA AND

MIDDLE EASTREST OF THE

WORLD TOTAL

Due from parent companies 275 - - - 275

Due from associated companies 1,744 - 7,435 14,441 23,619

Due from others 21 24 9 36 90

Total 2,039 24 7,444 14,477 23,985

Other securities and derivative asset instruments

DESCRIPTION OTHER SECURITIESDERIVATIVE ASSET

INSTRUMENTS

Balance as of 31.12.2018 - 814

Increases during the year - 306

Decreases during the year - (814)

Balance as of 31.12.2019 306

The item derivative asset instruments, amounting to 306 thousand Euros, represents the valuation of

derivatives as of 31 December 2019. For a more detailed description of derivative instruments, please refer

to the appropriate section of these explanatory notes.

78


CURRENT ASSETS

Inventories

BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES

Inventories:

1) Raw and ancillary materials and consumables 4,059 7,601 3,542

2) Products under construction and semi-finished products 229 22 (207)

3) Contract work in progress 206,851 367,356 160,505

4) Finished products and goods 8,456 9,235 779

5) Advances 843 24 (819)

Total 220,438 384,238 163,800

The measurement criteria adopted are consistent with those used in the previous year, as described in the

initial part of these explanatory notes.

As for the work in progress of a multi-year duration, it should be noted that as outlined in the first part

of the explanatory notes, they are measured according to their percentage of completion. The progress

payments and advances received from clients are recorded under liabilities in the balance sheet under item

6 of class D; advances for work to be performed amounted to 24 thousand Euros (843 thousand Euros).

On the acquisition of contracts, the Group undertakes to release both bank guarantees that insurance

guarantees for clients for the completion of said contracts; the extent of the commitments undertaken by

the Group is shown in the “Off balance sheet commitments, guarantees and contingencies”, paragraph of

these explanatory notes.

The increase in inventories is mainly due to progress in the production of job orders already acquired during

the previous financial year and in part to the acquisition of new job orders. A significant contribution to the

change in inventories is given by the progress of activities on the TAP Greece and Albania job orders for

which work has exceeded 90% completion.

The order portfolio as of 31 December 2019 with reference to work in progress of the Infrastructure and

Industrial Plant Divisions amounts to 1,038.6 million Euros of which 563.7 million Euros to be produced.

Finished products and goods for sale include a building located in Rome with a value of 5,900 thousand

Euros (5,900 thousand Euros as of 31 December 2018), used as a residential building, purchased for resale

by Renco Real Estate S.r.l. in May 2015; the property was granted to third parties on the basis of a rent to

buy contract. The asset is recorded at its estimated realisable value, corresponding to the amount agreed

in the rent-to-buy contract in the event the purchase option is exercised.

With regard to the progress of job orders in progress and the related valuation of inventories, it should

be noted that the national and international situation created by the pandemic could have consequences;

according to the reference standards, Covid-19 has been correctly considered by the Group as a “non-

adjusting event” and, consequently, the related potential effects will be recognised in the 2020 financial

statements. The directors constantly monitor developments in the situation and it should be noted that the

Coronavirus had limited effects only on the timing of completion of certain projects, as better specified in

the section “Foreseeable business outlook” in the Management Report, to which reference should be made.

79


Receivables

The balance of consolidated receivables included under current assets, after eliminating intercompany

values, are divided up as follows according to due dates.


Receivables

1) Trade receivables 50,541 35,010 (15,531)

2) to subsidiary companies 7,534 217 (7,317)

3) to associated companies 2,877 3,975 1,098

5-bis) Tax receivables 22,172 19,199 (2,973)

5-ter) Prepaid taxes 7,184 5,237 (1,947)

5-quater) Others 14,360 17,898 3,538

Total 104,668 81,536 (23,132)

The balance is divided up according to due dates (Article 2427-bis, point 6 of the Italian Civil Code).

BALANCE SHEET ITEMS WITHIN 12 MONTHS BEYOND 12 MONTHS BEYOND 5 YEARS TOTAL

Receivables

1) Trade receivables 35,010 - - 35,010

2) to subsidiary companies 217 - - 217

3) to associated companies 3,975 - - 3,975

5-bis) Tax receivables 19,199 - - 19,199

5-ter) Prepaid taxes 5,237 - - 5,237

5-quater) Others 10,172 7,487 239 17,898

Total 73,810 7,487 239 81,536

Receivables are broken down as follows, according to the geographical areas of operation of the debtor

(art. 2427, paragraph 6 of the Italian Civil Code).

DESCRIPTION 31.12.2018 31.12.2019

Italy 25,332 13,192

European Union 22,551 25,987

Russia and former USSR countries 11,710 19,965

Africa 16,633 20,423

Middle East 26,949 1,697

Other 1,493 271

Total 104,668 81,536

Finally, a detail of the most significant receivable items is provided.

80


Trade receivables

The item “Trade receivables” amounting to 35,010 million Euros (50,541 million Euros) is shown net of the

bad debt provision amounting to 2,341 thousand Euros (2,005 thousand Euros), which decreased in the

course of 2019 by the amount of 1,135 thousand Euros and increased by 1,471 thousand Euros compared to

the previous year.

The change in trade receivables is attributable to the closure of the receivable from the purchaser of the

Hotel Yerevan Ojsc, which came about as a result of enforcement of the right of lien by the Renco Group. The

receivable amounted to 15 million Euros and the enforcement action was necessary due to the insolvency

of the counterparty which did not comply with the payment terms.

It is also pointed out that in the first months of 2020, despite the situation resulting from the Covid-19

pandemic, collection of receivables from customers has not had any problems.

The adjustment of the presumed nominal loan value has been obtained by means of a specific provision for

credit depreciation, that has been affected as follows during the year:

DESCRIPTION 31.12.2018 USE PROVISIONSTRANSLATION DIFFERENCES

CHANGE IN THE SCOPE OF CON-

SOLIDATION 31.12.2019

Provision for credit depreciation of current receivables

2,005 (456) 1,469 2 (679) 2,341

The provision, set up on 31 December 2019, is deemed appropriate to cover both specific situations, which

have already seen write-offs in the current period, as well as implicit risks implicit in uncollectable in bonis

receivables.

Receivables from subsidiary companies that are not consolidated

The item “Receivables from subsidiary companies that are not consolidated”, equal to 217 thousand Euros

(7,534 thousand Euros as of 31 December 2017), consist of trade receivables and include 144 thousand

Euros (7,490 thousand Euros) in receivables from the subsidiary Armpower and 73 thousand Euros (43

thousand Euros) in receivables from the subsidiary Renco Food; both receivables are owed to Renco SpA.

Receivables from associated companies

The item “Receivables from associated companies”, equal to 3,975 thousand Euros (2,877 thousand Euros

as of 31 December 2018), consists exclusively of receivables of a commercial nature and specifically:

receivables from the associated company Velofirma of 950 thousand Euros (917 thousand Euros as

of 31 December 2018) claimed by the subsidiary Renco Armestate for the amount of 895 thousand

Euros (858 thousand Euros as of 31.12.2018), by Renco S.p.A. for the amount of 52 thousand Euros (55

thousand Euros as of 31.12.2018) and by Italsec Armenia for the amount of 4 thousand Euros;

receivables from the associated company Renco Nigeria amounting to 1,096 thousand Euros (1,293

81


thousand Euros the previous year). During the year, Renco received from the associated company 975

thousand Euros and turnover of 778 thousand Euros;

receivables from the associated company Tolfa Care S.r.l. amounting to 40 thousand Euros (49

thousand Euros the previous year) claimed by Renco Health Care S.r.l.;

receivables from the associated company Darin Construction for the amount of 1,123 thousand Euros

(204 thousand Euros previous year), of which 541 thousand Euros from Renco Valore S.r.l. and 582

thousand Euros from Renco Kat;

receivables from the associated company Real Estate Management S.r.l. of 18 thousand Euros (304

thousand Euros last year) due to Renco Valore S.r.l. for 305 thousand Euros and Renco SpA for 7

thousand Euros;

receivables from the associated company Renco Irem Costrucoes Lda for 41 thousand Euros (65

thousand Euros) due to Renco SpA for 39 thousand Euros and Rencotek Lda for 1 thousand Euros;

receivables from the associated company Trademark Italy for 706 thousand Euros, due to Renco SpA

for 513 thousand Euros, Renco Kat for 66 thousand Euros and Renco Property for 127 thousand Euros.

82


Tax receivables

The item “tax receivables” amounting to 19.2 million Euros (22.2 million Euros at 31.12.2018) is made up as

follows.


Tax receivables

Foreign tax receivables 7,005 908 (6,097)

Corporate tax receivables 3,863 1,983 (1,880)

VAT receivables 10,493 14,468 3,975

Other tax receivables 811 1,840 1,029

Total 22,172 19,199 (2,973)

The item foreign tax receivables is solely attributable to Renco Group S.p.A. and refers to taxes paid abroad

through the operational branches of the subsidiary. The decrease in the year is attributable to the effect of

the transformation of the Congolese branch of Renco S.p.A. into a Congolese company, Renco Congo Sarlu,

which became necessary in compliance with local legislation. The transaction resulted in the loss of the tax

receivable with an impact on the income statement of 5.7 million Euros.

The item tax receivables includes the amount of 173 thousand Euros relating to IRES advances in excess

of the amount to be paid as the balance for the 2019 financial year on the income taxed for transparency

relating to the subsidiaries falling under the “CFC” regulations referred to in art. 167 of the Income Tax

Consolidation Act.

Receivables for prepaid taxes

Receivables for prepaid taxes of 5,237 thousand Euros (7,184 thousand Euros as of 31 December 2018)

refer to temporary differences deductible also on tax losses carried forward, for a description of which

reference should be made to the appropriate paragraph in the last part of these Explanatory Notes. They

are considered to be recoverable with reasonable certainty through future taxable profits.

BALANCE SHEET ITEMS 31.12.2018 PROVISIONS USES

TRANSLATION DIFFERENCES

OTHER CHANGES 31.12.2019

Receivables for prepaid taxes

7,184 172 (1,349) 317 (1,088) 5,237

Receivables from others

The item “receivables from others” amounting to 17,898 thousand Euros (14,360 thousand Euros at 31

December 2018) is made up as follows.

83



Receivables from others

Advances to suppliers 1,437 3,241 1,804

Receivables from employees 1,211 1,667 456

Deposits 168 319 151

Receivables for sale of equity investments 5,080 5,178 98

Receivables for rent-to-buy 3,106 2,731 (375)

Loan receivables 1,399 1,420 21

Receivables from social security institutions 8 25 17

Receivables from Terna 1,192 3,013 1,821

Other receivables 759 304 (455)

Total 14,360 17,898 3,538

The receivables for disposals of equity investments, equal to 5,178 thousand Euros (5,080 thousand Euros),

consist of receivables deriving from the sale of 50% of the Kazakh investee company Renco Kat, which took

place during 2015; compared to the previous year, the aforementioned receivables did not change and the

only differences refer to exchange differences. According to the contractual agreements, the receivable will

be collected by bank transfers equal to a determined percentage of the profits distributed to the buyer as

shareholders of Renco Kat for a number of years such as to allow total payment of the selling price. As a

result of Renco Kat’s development plans and the agreements in place, the directors do not currently have

any critical issues with regard to the recoverability of these receivables.

Receivables for rent-to-buy of 2.7 million Euros (3.1 million Euros) are recorded under Renco Real Estate

and relate to the amendment made to the rent-to-buy contract in 2016. Amendment which provides for

a further down payment by the buyer for the part of consideration agreed for the sale of the property,

assuming the amount of 3.7 million Euros. Since this is an external assumption with the consent of the bank

but not constituting a release, already in 2016 the amount of 3.7 million Euros was recognised among other

receivables and other payables, an amount that was reduced to 2.7 million Euros over the years;

Receivables from Terna of 3 million Euros (1.2 million Euros) relate to the trade receivable from the Renco

Terna JV. The company is consolidated using the proportional method and the trade receivable still

outstanding after the consolidation elimination entry was reclassified among receivables from others.

Loan receivables of 1.4 million Euros are recorded in Grapevine and relate to receivables from minority

shareholders.

Financial assets not classified as fixed assets


Financial assets not classified as fixed assets

Other securities 52 - (52)

Total 52 - (52)

84


As of 31 December 2018, the Group held shares in Banca Monte dei Paschi di Siena S.p.A., amounting to 52

thousand Euros, which during the period were donated to the Renco Not-For-Profit Foundation.

Liquid funds


Liquid funds

Bank and post office deposits 72,194 97,826 25,632

Cash and equivalents in hand 283 303 20

Total 72,477 98,129 25,652

The balance represents liquid funds in existence as of the end of the year.

Accrued income and deferred expenses

These represent the connecting items for the accounting period reckoned on an accruals basis. The

composition of the caption is analysed as follows.


Accrued income 140 176 36

- Bank interest income 6 19 13

GSE contribution 134 157 23

Prepaid expenses 2,988 3,956 968

- Rents and leases 378 191 (187)

- Insurance 257 147 (110)

- Bank commissions and factoring 30 38 8

- Derivatives 94 85 (9)

- Software licences 273 160 (113)

- Surety charges 194 1,729 1,535

- Villa Molaroni lease fees 252 192 (60)

- others 1,510 1,414 (96)

Total 3,128 4,132 1,004

These represent income and expense whose pertinence is advanced or deferred with respect to the cash

and/or documental manifestation and are irrespective of the date of payment or collection of the related

income and expense spanning two or more accounting periods which can be spread over time.

85


BALANCE SHEET LIABILITIES

Shareholders’ equity

Shareholders’ equity pertaining to the Group

BALANCE SHEET ITEMS 31.12.2018 INCREASES DECREASES 31.12.2019

Group shareholders’ equity

Share capital 9,013 - - 9,013

Share premium reserve 25,988 - - 25,988

Revaluation reserve 4,696 - - 4,696

Legal reserve 1,281 86 - 1,367

Other reserves 25,595 3,099 (1,101) 27,593

Cash flow hedge accounting reserve 398 388 (2,013) (1,227)

Profit (loss) carried forward and other reserves

86,963 7,035 - 93,998

Reserve for the purchase of own shares (3,609) - - (3,609)

Group profit/(loss) for the year 8,755 8,017 (8,755) 8,017

Total 159,078 17,561 (10,806) 165,834

The item Other Reserves is broken down as follows


Other reserves

Extraordinary or optional reserve 20,198 1,487 - 21,685

Payments towards capital 25,026 15 - 25,041

Conversion reserves from foreign consolidation

(23,942) - (1,063) (25,005)

Consolidation reserve 4,313 1,597 (38) 5,872

Total 25,595 3,099 (1,101) 27,593

The translation reserve from foreign consolidation includes the effect of consolidation of foreign subsidiary

companies, with financial statements in currencies other than the Euro, and is determined according to the

consolidation criteria indicated above.

At the balance sheet date, there were 901,250 ordinary shares outstanding with a nominal value of 10

Euros each.

86


Shareholders’ equity pertaining to minority interest


Minority interest

Capital and reserves 4,218 896 (3,322)

Profit (loss) for the year (2,655) 71 2,726

Total 1,563 967 (596)

The statement of changes in shareholders ‘equity and the statement of reconciliation between the net

profit and the shareholders’ equity of the consolidating company and the respective values resulting from

the consolidated financial statements are shown in Annexes 3 and 4 to these Explanatory Notes.

Provision for risks and charges


Provisions for risks and charges

2) Provisions for taxes, including deferred taxes 13,457 2,485 (2,162) 13,779

3) Derivative financial liability instruments 280 1,841 (91) 2,030

4) Others 7,183 280 (6,389) 1,074

Total 20,920 4,606 (8,642) 16,883

The provision for taxes, equal to 13,779 thousand Euros (13,457 thousand Euros), includes 13,779 thousand

Euros (12,847 thousand Euros) for the temporary differences recorded in Group companies as well as

the tax effects deriving from the consolidation entries; all described in detail in the specific paragraph

“deferred/prepaid tax” of these Explanatory Notes.

Changes to this provision are as follows:

BALANCE SHEET ITEMS 31.12.2018PROVI-SIONS USES

TRANSLA-TION DIF-

FERENCESOTHER

CHANGES 31.12.2019

Provisions for taxes, including deferred

Provision for tax disputes 610 - (610) - - -

Deferred tax provision 12,847 1,404 (1,552) 28 1,053 13,779

Total 13,457 1,404 (2,162) 28 1,053 13,779

87


The changes during the year were the following:

use of the tax provision for the amount of 610 thousand Euros for settlement of the dispute for the years

2013 and 2014 with the tax authorities;

change of a total of 932 thousand Euros in the provision for deferred taxes. In the section of this

explanatory note on the exposure of the effects of deferred taxes, details related to deferred tax liabilities

are provided.

Other reserves for risks and charges

The balance amounts to 7,183 thousand Euros (1,377 thousand Euros) and is made up as follows:

BALANCE SHEET ITEMS 31.12.2018USE FOR THE

YEARPROVISION FOR

THE YEAR 31.12.2019

Other provisions

Provision for legal disputes 1,105 (1,105) - -

Provision for warranties on plant orders 1,300 (551) - 749

Provision to cover losses on equity investments

4,778 (4,733) 280 325

Total 7,183 (6,839) 280 1,074

Provision for legal disputes

The provision for legal disputes was used during the year to close the credit position with a Congolese

customer, which was cancelled following the closure of the dispute.

Provision for warranties on plant orders

The warranty fund takes into account updated contractual practices for orders for industrial plants. It

represents an estimate of the costs to be incurred for service under warranty between the issue of the

Preliminary Acceptance Certificate (“PAC”) and the Final Acceptance Certificate (“FAC”). The PAC is the

moment in which the ownership of the plant passes to the customer and the warranty period commences

(established on a contractual basis which usually lasts 24 months), and the FAC is issued at the end of the

warranty period. The provision is calculated on the basis of the historical incidence of warranty costs for

similar job orders. This provision was used for the amount of 551 thousand Euros to cover the costs incurred

during the warranty period.

Provision to cover losses on equity investments

The change during the year refers to the use of 4,733 thousand Euros to cover the loss of Renco Food, and to

allocations for a total of 280 thousand Euros relating to the value of the negative shareholders’ equity of Renco

Food (239 thousand Euros), Renco Irem Construcoes (58 thousand Euros) and Niassa Sanctuary (28 thousand

Euros). Additional information about the position of Renco Food is provided in the section of these Notes

entitled “Subsidiary companies that are not consolidated” and “Receivables” under Financial fixed assets.

88


Employee severance indemnity

DESCRIPTION OPENING BALANCE

TFR PAID DURING THE

YEAR PROVISIONS

CHANGE IN THE SCOPE OF

CONSOLIDA-TION

OTHER CHAN-GES (+/-)

CLOSING BA-LANCE

Employee severance indemnity

2,412 (155) 628 - - 2,885

The provision allocated represents the amount effectively payable by the Group as of 31.12.2019 to its

employees in the workforce as of that date, net of any advances paid.

Payables

The breakdown and changes in the individual items are shown in the table below (Article 2427, paragraph

4 of the Italian Civil Code).


Payables

1) Bonds 44,368 44,530 162

3) Payables to shareholders for loans 6,201 5,701 (500)

4) Payables to banks 93,670 60,837 (32,833)

5) Payables to other lenders 1,665 13,853 12,188

6) Advances 230,260 398,886 168,626

7) Trade payables 61,483 98,431 36,948

9) Payables to subsidiary companies that are not consolidated

1,925 54 (1,871)

10) Payables to associated companies 2,126 2,742 616

12) Tax payables 6,871 12,826 5,955

13) Payables to social security and welfare institutions 1,759 1,987 228

14) Other payables 13,833 19,020 5,187

Total 464,161 658,867 194,706

The tables relating to the breakdown of payables by due date and by geographical areas, respectively,

based on the combined provisions of art. 2427, point 6 of the Italian Civil Code are provided below.

89


BALANCE SHEET ITEMS WITHIN

12 MONTHSBEYOND

12 MONTHSBEYOND 5 YEARS TOTAL

Payables

1) Bonds 10,000 34,530 - 44,530

3) Payables to shareholders for loans 5,701 - - 5,701

4) Payables to banks 29,442 20,906 10,489 60,837

5) Payables to other lenders 979 999 11,875 13,853

6) Advances 223,227 175,659 - 398,886

7) Trade payables 98,431 - - 98,431

9) Payables to subsidiary companies that are not consolidated

54 - - 54

10) Payables to associated companies 2,742 - - 2,742

12) Tax payables 11,676 1,150 - 12,826

13) Payables to social security and welfare institutions

1,987 - - 1,987

14) Other payables 16,419 2,362 239 19,020

Total 400,658 235,606 22,603 658,867

DESCRIPTION 31.12.2018 31.12.2019

Italy 238,226 258,408

European Union 147,663 187,272

Russia and former USSR countries 21,106 123,789

Africa 50,400 88,348

Middle East 4,702 463

Other 2,063 586

Total 464,160 658,866

Bonds

The item “bonds” refers to the following bond issues:

bond issued on 13 August 2015 by the parent company Renco Group S.p.A. for the nominal amount of 10

million Euros consisting of 100 bonds of 100,000 Euros each and maturing on 13 August 2020, admitted

to trading on the professional segment ExtraMOT PRO, interest rate 5%;

bond issued on 23 November 2017 by the parent company Renco Group S.p.A. for the nominal amount

of 35 million Euros consisting of 350 bonds of 100,000 Euros each and maturing on 23 November 2023,

admitted to trading on the professional segment ExtraMOT PRO, interest rate 4.75%.

It should be noted that the regulations of the bond issues contain the following financial covenants that

must be respected at group level. At the closing date of the financial year the envisaged covenants were

respected.

90


FINANCIAL EQUILIBRIUM RATIOS COVENANT CONSOLIDATED RESULT

NFP/Equity ≤ 1.5 0.0


------------------------


NFP/EBITDA ≤ 3.5 0.1


------------------------

EBITDA

Interest Coverage Ratio (ICS) ≥ 4.5 8.4

EBITDA

------------------------

Financial charges

Payables to shareholders for loans

Amounts due to shareholders for loans consist of the conversion in 2009 of the total coupon on bonds

matured in favour of the shareholders of the Parent Company Renco Group S.p.A. at 31 December 2008

and not yet paid by the company. The loan expiring on 31 December 2014 has been extended from time to

time until 21 December 2020. As a result of new guarantees given by the Parent Company to the subsidiary

Renco SpA, the shareholder loans were supplemented by a subordination clause valid until 31 December

2020. During the year, 500 thousand Euros were reimbursed.

Payables to banks

The balance of payables to banks as of 31.12.2019 equal to 60.8 million Euros (93.7 million Euros), inclusive

of loans, represents the effective liability in terms of principal, interest and related charges accrued and due.

During the year, the Group took out new loans of 23.5 million Euros (10.4 million Euros as of 31 December

2017), of which 7.6 million Euros related to loans obtained for the new Group headquarters in Pesaro, 7 million

Euros for a medium/long-term loan and 8.9 million Euros in the form of a credit line contracted by Renco

Kat. The average weighted duration of the new loans acquires is 73 months. Some of the loans granted to

the Company envisage the observance of covenants which, as of the balance sheet date, were observed.

It should be noted that during the previous and current year, the subsidiary and consolidated Renco Capital

S.r.l. obtained the following loans for the construction of the new headquarters:

Floating rate loan of 1 million Euros maturing on 30 June 2025, indexed to the 6-month Euribor interest

rate and with a spread of 1.85% and fully disbursed in the previous year;

Floating rate loan of 2 million Euros maturing on 30 June 2022, indexed to the 6-month Euribor interest

rate and with a spread of 1.75% and fully disbursed in the previous year;

Mortgage loan up to 12 million Euros with maturity on 30 June 2032, indexed to the 6-month Euribor

interest rate and a spread of 2.3%. The amount disbursed as of 31 December 2018 amounted to 5.16

million Euros. During the current year the remaining part was disbursed.

91


As of 31.12.2019, there were no payables for loans in foreign currency.

The balance of payables to banks beyond 12 months totalling 31.4 million Euros is broken down as follows:

5.5 million Euros (6.3 million Euros) is represented by a mortgage credit line granted to the subsidiary

Residence Viserba S.r.l. in view of the start of construction work for the area located in Viserba (Rimini);

1.3 million Euros (1.7 million Euros) is represented by the residual payable with maturity beyond 12

months of the loans to Joint Green S.r.l.;


months of the loans to Renco S.p.A.


months of the loans to Renco Capital S.r.l.

The balance of bank borrowings due beyond five years, which amounted to 10.5 million Euros, represents

the outstanding balance of the loan owed to Renco Capital S.r.l. (7.9 million Euros) and Residence Viserba

S.r.l. (2.6 million Euros).

The company is currently in line with the payment of overdue instalments.

Payables to other lenders

The item “Payables to other lenders” amounting to 13.9 million Euros (1.7 million Euros at 31.12.2018) comprises:

payables of 1.9 million Euros (1 million Euros at 31.12.2018) to leasing companies. The payable of the

previous year referred exclusively to the leasing contract in the name of Renco Capital S.r.l. of a property

located in Pesaro for which there is a residual amount of 907 thousand Euros as at 31.12.2019. During the

current year, Renco S.p.A. contracted new leases for equipment and cranes for work in Mozambique for

a total value of 1.3 million Euros.

payables to the previous shareholders of Villa Soligo S.r.l. of 0.7 million Euros (position in the name of

Villa Soligo S.r.l. and already present before the acquisition). The amount was paid in 2020.

payables of 11 million Euros to Simest. During the year, a share capital increase in Renco Power Cjsc was

carried out by Simest S.p.A. and the Venture Capital Fund through the subscription of a shareholding

corresponding to 22.37% of the share capital. In compliance with the reference accounting standards

and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by Simest and

FVC, to be carried out by 30 June 2026, this share capital increase was represented as a payable to

other lenders.

Advance payments

The balance of the item “Advance payments” includes advances already collected from customers when

ordering, advances received from customers on job orders in progress and advances relating to the rent-

to-buy contract. Specifically, advances amount to 2.9 million Euros (6.5 million Euros), advances on job

orders in progress amount to 388 million Euros (219 million Euros), advances to others relating to the rent-

to-buy contract stipulated in 2015 amount to 5.8 million Euros (5.8 million Euros). The increase in the item

“Advance payments” is linked in particular to the invoicing of advance payments on job orders in progress.

The amount of foreign currency advances is USD 137.5 million, LYD 10.5 million and AMD 933 million.

92


Trade payables

“Trade payables” amounting to 98,431 thousand Euros (61,483 thousand Euros as of 31.12.2018) are

recognised net of commercial discounts; cash discounts, on the other hand, are recognised at the time

of payment. The nominal value of these payables has been adjusted, at the time of returns or allowances

(invoicing adjustments), to an extent corresponding to the amount agreed with the counterpart.

Payables to subsidiary companies that are not consolidated

Payables to subsidiary companies that are not consolidated, equal to 54 thousand Euros (1,925 thousand

Euros as of 31.12.2018). The balance of the previous year included 1.5 million Euros owed by Renco Power

CJSC to the non-consolidated subsidiary Armpower CJSC for unpaid share capital resolved in December.

Renco Power made the payment during 2019.

93


Payables due to associated companies

The item payables to associated companies of 2,742 thousand Euros (2,126 thousand Euros as of 31.12.2018)

includes short-term positions that are frequently transacted with Group companies. In particular, these are

payables to the associated companies Real Estate Management S.r.l. for 15 thousand Euros (9 thousand

Euros as of 31.12.2018), Renco Qatar for 2,523 thousand Euros (2,065 thousand Euros as of 31.12.2018) and

to the company Renco Irem Costrucoes for 161 thousand Euros.

Tax payables

The item “Tax payables” amounting to 12,826 thousand Euros (6,781 thousand Euros as of 31.12.2018) includes

only those payables representing certain taxes of known amount, as tax liabilities which are probable or

uncertain in amount or due date and deferred taxes are entered under item B.2 in the liabilities (Provisions

for taxes).

In particular, tax payables include:


Tax payables

Payables for withholding taxes 1,065 1,598 533

Corporate tax liabilities 1,877 2,877 1,000

Disputes tax payables 1,407 1,747 340

Payables for VAT 1,436 6,492 5,056

Other tax payables 1,086 112 (974)

Total 6,871 12,826 5,955

Other payables

The balance of “Other payables” includes the following items:


Payables to others

Payables to employees 5,394 5,617 223

Payables for rent-to-buy 2,958 2,584 (374)

Payables for the purchase of equity investments 1,077 5,194 4,117

Dividends payable 500 500 -

Payables to factoring companies 3,130 4,920 1,790

Other sundry payables 774 205 (569)

Total 13,833 19,020 5,187

94


Amounts due to employees represent the payable for wages and salaries and holidays accrued by

employees.

The item “Payables for rent-to-buy” refers to the rent-to-buy contract stipulated in 2015 and

relates to the property in question included in the inventories. In this regard, it should be noted that in

2016 a deed amending the rent-to-buy contract was signed. With the amendment to the contract, the

buyer paid a further advance for the portion of the consideration agreed for the sale of the property,

taking over the amount of 3,729 thousand Euros of the remaining portion of the mortgage loan taken out

with MPS bank. Since this is an external transaction with the bank’s consent but not in full discharge of its

obligations, the increase in advances paid and the cancellation of the loan payable to the bank were offset

by the recognition of the amount of 3,729 thousand Euros under other receivables and payables (amounts

reduced in 2019 as a result of the payment of loan instalments due during the year). In fact, in the event

of default by the buyer, the bank could request performance directly from Renco Real Estate S.r.l. as it is

obliged to do so on a subsidiary basis.

“Payables for the purchase of equity investments” of the previous year refer to the purchase of the equity

investment in Villa Soligo, whose debt due beyond one year has been appropriately discounted at a rate

of 4.41%. The payable increased during the year by 4.8 million Euros in relation to the repurchase of the

investment in Hotel Yerevan by Renco S.p.A., the balance of which was paid at the beginning of 2020.

Accrued liabilities and deferred income

These represent the connecting items for the accounting period reckoned on an accruals basis, and are

comprised as follows:


Accrued expenses 1,000 725 (275)

- Interest expense and commissions 613 380 (233)

- Bond interest 345 345 -

- Derivatives 24 - (24)

- Others 18 - (18)

Deferred income 432 192 (240)

- Revenues from asset management 150 - (150)

- Others 282 192 (90)

Total 1,432 917 (515)

These represent income and expense whose pertinence is advanced or deferred with respect to the cash

and/or documental manifestation and are irrespective of the date of payment or collection of the related

income and expense spanning two or more accounting periods which can be spread over time.

95


INCOME STATEMENT

Value of production

Indication is made of the composition of the value of production, as well as the changes in the individual

items, with respect to the previous year:

ITEM 31.12.2018 31.12.2019 CHANGE CHANGE %

Sales of goods and services 253,639 98,372 (155,267) (61.22)

Changes in inventories of work in progress, (451) 99 550 na

Change in contract work in progress (44,443) 160,463 204,906 na

Increases for in-house works 19,999 17,348 (2,651) (13.26)

Other revenues and income 14,538 38,893 24,355 na

Total 243,282 315,175 71,893 29.55

Revenues by category of activity

Below we provide the breakdown of value of production by production division.

ITEM 31.12.2018 31.12.2019 CHANGE CHANGE %

Services division 49,155 47,704 (1,451) (2.95)

Infrastructure Division 36,447 58,566 22,119 60.69

Asset Management Division 58,902 78,090 19,188 32.58

Industrial Plant Division 98,778 130,815 32,037 32.43

Total 243,282 315,175 71,893 29.55

The Renco Group achieved a “Value of Production” of 315,175 thousand Euros in 2018 (243,282 thousand

Euros in the same period of 2018) with an increase of 71,893 thousand Euros (+29.5%).

The increase in the value of production was supported by the contribution of all Group Divisions: the

Infrastructure Division with an increase of 22.1 million Euros, the Asset Management Division with an

increase of 19 million Euros and the Industrial Plant Division with an increase of 32 million Euros.

For a complete analysis of the business performance, please refer to the Management Report.

Revenues by geographic area

Below we provide the breakdown of value of production by geographical area.

96


GEOGRAPHIC AREA 31.12.2018 31.12.2019 CHANGE CHANGE %

Italy 35,722 48,568 12,846 35.96

European Union 73,332 74,537 1,205 1.64

Russia and former USSR countries 55,901 98,031 42,130 75.37

Africa 63,927 79,600 15,673 24.52

Middle East 7,400 6,572 (828) (11.18)

Other 7,000 7,867 867 12.38

Total 243,282 315,175 71,893 29.55

The table above shows the absolute value and the percentage weight of production by geographical area.

For a more in-depth analysis of the foreseeable evolution of operations and on the industrial and commercial

strategies, reference should be made to the Management Report.

Other revenues and income

The balance of “Other revenues and income” includes the following items:

ITEM 31.12.2018 31.12.2019 CHANGE

Other revenues and income

Capital gains from disposal of assets 13,272 35,586 22,314

Income from insurance 33 48 15

Use/Release of provisions 381 - (381)

Revenues for contributions 478 676 198

Income from staff secondment 115 275 160

Other sundry revenues 259 2,308 2,049

Total 14,538 38,893 24,355

The item “Capital gains from asset disposals” mainly consists of the capital gain from the sale of the

Zanzibarian company Renco Zanzibar during the period, which owns the Gemma dell’Est resort. The sale

was completed on 30 June 2019 on the basis of a price of USD 56 million, fully collected during 2019. The

transaction generated a capital gain of 35.1 million Euros at the consolidated level.

Cost of production

Indication is made of the composition of the production costs, as well as the changes in the individual items,

with respect to the previous year:

97



Cost of production

Raw, ancillary and consumable materials 61,203 87,029 25,826

Services 76,765 103,261 26,496

Use of third party assets 4,589 5,831 1,242

Wages and salaries 46,206 49,087 2,881

Social security contributions 8,311 10,088 1,777

Employee severance indemnity 1,372 1,711 339

Other personnel costs 588 295 (293)

Amortisation/depreciation of intangible fixed assets 705 729 24

Amortisation/depreciation of tangible fixed assets 9,323 9,666 343

Other amounts written off fixed assets 248 1,271 1,023

Write-down of receivables included in current assets 1,469 1,469 -

Change in raw material inventories 2,254 (4,762) (7,016)

Provision for risks 199 - (199)

Other provisions 1,300 - (1,300)

Other operating expenses 3,534 15,670 12,136

Total 218,066 281,435 63,279

Costs of raw materials

The item “Costs of raw materials” includes the following items:

ITEM 31.12.2018 31.12.2019 CHANGE

Raw, ancillary and consumable materials

Raw materials 54,911 77,625 22,714

Production components and materials 2,396 1,190 (1,206)

Capital goods valued less than €516 50 458 408

Miscellaneous tools and equipment (repair parts, spare parts, building materials, etc.)

359 3,686 3,327

Fuel 1,048 2,166 1,118

Stationery and printed matter 923 323 (600)

Working clothes 285 423 138

Customs clearance materials 1,189 1,189 1

Other costs for raw materials 43 (32) (75)

Total 61,203 87,029 25,825

The item “Raw, ancillary and consumable materials and goods”, equal to 87 million Euros, consists of 70

million Euros of costs incurred by Renco S.p.A. The increase in raw material purchase costs is attributable

to the greater incidence of procurement activity recorded in 2019 by the Company.

98


Service costs

“Costs for Services” includes the following items:

ITEM 31.12.2018 31.12.2019 CHANGE

Services

Works performed by third parties and general services 40,860 61,976 21,116

Project collaborations 9,802 10,270 468

Transport costs 2,316 2,903 587

Property maintenance and repair 201 153 (48)

Motor vehicle maintenance and repair 510 228 (282)

Cleaning costs 228 327 99

Lighting 1,317 1,237 (80)

Other utilities 691 593 (98)

Postal and telephone charges 977 1,088 111

Security expenses 1,216 754 (462)

Technical and commercial consulting 4,063 5,748 1,685

Legal, administrative and tax consulting 1,832 2,253 421

Insurance 837 1,193 356

Travel expenses 3,885 4,262 377

Reimbursement of expenses 73 16 (57)

Other maintenance and repair 193 318 125

Advertising and promotional expenses 655 543 (112)

Personnel refresher courses 416 345 (71)

Software licenses and production licenses 1,242 1,356 114

Remuneration of corporate bodies 399 282 (117)

Company canteen 500 824 324

Health services 1,181 1,731 550

Bank commission 2,554 3,348 794

Other costs for services 818 1,515 697

Total 76,765 103,261 26,496

The amount for the financial year mainly includes 23 million Euros relating to the TAP Greece and TAP

Albania contracts of the Renco Terna Joint Venture and 71.4 million Euros relating to contract costs of

Renco SpA and 11.2 million Euros relating to costs incurred by Reno Congo Sarlu.

Costs for use of third party assets

The balance of “Costs for use of third party assets” includes the following items:

99


ITEM 31.12.2018 31.12.2019 CHANGE

Use of third party assets

Rental of premises and offices 2,705 2,984 279

Rental of vehicles and equipment 1,752 2,771 1,020

Other lease and rental expenses 133 76 (57)

Total 4,589 5,831 1,241

The amount mainly consists of rents for offices and warehouses and rental costs, of which 3.3 million Euros

for Renco S.p.A. and 1.4 million Euros incurred by the Renco Terna JV.

Personnel costs

“Personnel costs”, which totalled 61.2 million Euros (56.5 million Euros), mainly includes the personnel costs

of Renco S.p.A. (26.2 million Euros) and Renco Congo Sarlu (19.2 million Euros).

Below is the average number of employees of companies included in the consolidation with the line-by-line

method broken-down according to category.

DESCRIPTION 31.12.2018 31.12.2019 CHANGE AVERAGE NUMBER

Executives and Managers 59 72 13 66

Ordinary employees 706 651 (55) 679

Workers 2,467 2,569 102 2,518

Other 47 68 21 58

Total 3,279 3,360 81 3,320

Other operating expenses

The balance of “Other operating expenses” includes the following items:

ITEM 31.12.2018 31.12.2019 CHANGE

Other operating expenses

Miscellaneous taxes 2,277 1,929 (347)

Membership fees 64 93 29

Rounding down 3 9 6

Administrative sanctions 159 616 457

Losses on receivables not covered by a specific provision

459 253 (207)

Capital losses on disposal of assets 25 25 (0)

Other sundry expenses 548 12,746 12,198

Total 3,534 15,670 12,135

100


The item “Other taxes” is mainly made up of 0.5 million Euros for the land occupation tax paid by the

company Renco Kat relating to the TCO field (whose construction was completed at the end of 2017), 0.8

million Euros for the non-deductible VAT of Baytree LLC on intercompany invoicing with Renco Zanzibar

and 0.4 million Euros for the taxes on real estate of the various Group companies.

The sub-item “Other sundry expenses “ amounts to 12.7 million Euros and contains the total charge of 11.3

million Euros deriving from the repurchase of 100% ownership of the Armenian company, which owns the

Hotel Yerevan.

Financial income and expenses

The item consists of the following:


Financial income and charges

Income from equity investments due from subsidiary companies

4 418 418

Income other than the above 622 1,855 1,233

(Interest and other financial expenses) (6,652) (7,014) (362)

Exchange gains (losses) (2,280) (1,710) 570

Total (8,306) (6,451) 1,859

101


The item Interest and other financial charges equal to 7,014 thousand Euros includes interest of 5,597

thousand Euros of interest charges on the financial payable.

With regard to foreign exchange losses of 1.7 million Euros (exchange losses of 2.3 million Euros as of 31

December 2018), it should be noted that these include both the monetary changes on the items closed

during the year as well as “Unrealised exchange gains and losses” since they relate to transactions not yet

closed at the end of the period.

The economic result relating to realised and unrealised exchange differences reflects the trend of the

foreign exchange market that characterised 2019. In fact, with regard to the average exchange rates for the

period there was a consolidation of the Euro against the Kazakh Tenge which again this year negatively

impacted the exposure in these currencies of Group companies present in these markets.

“Exchange gains (losses)” can be broken down as follows:


Exchange gains 8,640 9,104 (464)

Exchange losses (11,909) (8,569) (3,340)

Unrealised exchange gains 1,670 1,811 (141)

Unrealised exchange losses (681) (4,056) 3,375

Total (2,280) (1,710) (570)

Value adjustments to financial assets and liabilities

The item consists of the following:


Revaluations 36 108 72

Of equity investments 36 7 (29)

Of financial fixed assets - 101 101

Write-downs (4,868) (3,391) 1,477

Of equity investments (4,667) (2,919) 1,748

Of financial fixed assets (101) (354) (253)

Of securities recorded as current assets (84) - 84

Of derivative financial instruments (16) (118) (102)

Total (4,832) (3,283) 3,098

For a note on the write-down of equity investments, reference should be made to the section on equity

investments in subsidiaries and associated companies.

102


Income taxes for the period


Income tax for the year

Current taxes 5,970 6,966 996

Taxes relating to previous years 2,605 6,901 4,296

Deferred/(prepaid) taxes (1,794) 2,547 4,341

Expenses (Income) from adhering to the tax consolidation

(803) (403) 400

Total 5,978 16,011 10,033

The item Income taxes amounts to a total of 16,011 thousand Euros (5,978 thousand Euros), with a tax rate

of 66% (49% in the previous period). The tax rate for the year was influenced by income and losses from

equity investments benefiting from the PEX (Participation Exemption), as well as losses on receivables

for taxes paid abroad of 5,751 thousand Euros arising from the transformation of the Congolese branch of

Renco S.p.A. into a Congolese company, which in fact cancelled the tax entity for which the receivables

were recognised. The tax rate normalized by this effect is 43%.

Deferred/prepaid taxation

Deferred taxation is stated by the allocation to the tax provision, amounting to 13.8 million Euros (12.8

million Euros in the previous year). Deferred taxes are calculated in accordance with the overall allocation

approach, taking into account the cumulative sum of all the timing differences on the average rates expected

as of such time as these timing differences shall reverse.

Prepaid taxes have been recorded since reasonable certainty exists regarding the occurrence – in the years

in which the deductible timing differences will reverse, against which prepaid taxes have been recorded – of

taxable income no lower than the total of the differences which will be cancelled.

The main timing differences which led to the reporting of deferred and prepaid taxes are indicated in the

following table together with the related effects.

YEAR 31/12/2018 YEAR 31/12/2019

VALUE OF TEMPORARY

DIFFERENCES TAX EFFECTVALUE OF TEMPORARY

DIFFERENCES TAX EFFECT

Prepaid taxes

Unrealised exchange losses 45 11 364 87

Real estate lease instalments referring to land

94 27 107 31

Real estate depreciation referring to land 196 56 196 56

Maintenance costs 41 10 21 5

Entertainment expenses

Provisions for risks and charges 2,552 706 897 244

103


Prepaid taxes foreign financial statements 19,759 3,952 16,562 3,312

ACE 9 2 10 2

Prepaid taxes on reserve for expected derivative flows

280 67 1,927 463

Tax losses that can be carried forward 392 94 436 105

Provision for credit depreciation 1,444 347 1,444 347

Other 26 6 7 2

Elimination of intercompany margins (*) 6,832 1,906 2,089 583

Total deferred tax assets 24,838 7,184 21,971 5,237

Deferred taxes 0 0 0 0

Unrealised exchange gains 2,393 574 1,308 314

Reserve to cover cash flows 806 193 306 73

PO issue costs 632 152 470 113

Villa Soligo property greater value 538 150 538 150

Leasing accounting (equity method) (*) 1,673 467 1,637 457

Deferred taxes foreign financial statements 8,307 1,661 14,918 2,984

Eliminations of intercompany margins (*) 2,892 694 2,806 673

Other consolidation entries (*) 0 0 911 219

Recognition of greater values 35,057 8,955 34,297 8,796

Recognition of Renco Kat greater value (*) 8,369 1,674 7,823 1,565

Recognition of Res. Viserba greater value (*)

22,043 6,150 22,043 6,150

Recognition of Renco Property greater value (*)

2,090 418 1,954 391

Recognition of Villa Soligo greater value (*) 2,555 713 2,477 691

Total deferred taxes 50,284 12,847 56,281 13,779

Net deferred tax liabilities (assets) 25,447 5,663 34,309 8,542

(*) These tax effects derive from the consolidation entries

OTHER INFORMATION

Disclosure on the fair value of derivative financial instruments

It should be noted that the Group decided to conclude derivative contracts to hedge the interest rate risk,

connected with part of the bank loans.

The detailed information required by Article 2427 bis, paragraph 1, no.1 of the Italian Civil Code is presented

as follows.

104


DESCRIPTION

FAIR VALUE

31/12/20182018 TAX

EFFECT

FAIR VALUE

31/12/20192019 TAX

EFFECT

CHANGE IN INCOME

STATE-MENT

CHANGE IN SE NATURE

NOTIONAL IN THOU-

SANDS

INTEREST RATE SWAP

(170) 41 (102) - (102) 129

Derivative hedging on the risk of oscillating interest rates

25,000

CAP 8 - 1 - 7 -


10,000

IRS PLAIN VANILLA

(43) 10 (31) 7 - 9


1,445

IRS PLAIN VANILLA

(43) 10 (31) 7 - 9


1,445

INTEREST RATE SWAP

(24) 6 (112) 27 - (67)


8,500

INTEREST RATE SWAP

- - (106) 25 - (80)


12,000

FLEXIBLE USD/EURO FORWARD CONTRACT

- - (117) 28 - (89)

Derivative hedging on exchange rates for future transactions

9,550 USD

USD/EURO FORWARD CONTRACT

- - (1,530) 367 - (1,163)


163,600 USD

USD/EURO EXCHANGE OPTIONS

- - 306 (73) 232


37,785 USD

EURO/USD EXCHANGE OPTIONS

806 (193) - - - (613)


39,075 USD

Total 535 (126) (1,723) 389 (95) (1,632)

As at 31.12.2109, the Group had the following financial derivative instruments of the “Cash flow hedge” type

to hedge financing transactions or expected cash flows from contracts in USD and for which the following

hedging relationship is present:

notional 25,000 thousand Euro IRS maturing on 11/10/2021 with the frequency of half-yearly payment

to hedge the loan for the same amount. The fair value of the derivative of 102 thousand Euros was

recognised in the “Reserve for hedging operations for expected financial flows” net of deferred

105


taxation and offset in item B 3) “Derivative financial liability instruments” for the amount of 102

thousand Euros;

notional 10,000 thousand Euro interest rate cap maturing on 31/12/2021 with the frequency of quarterly

payment to hedge a loan for the same amount. The fair value of the derivative of 1 thousand Euros was

entered under item B III) 4) “Derivative financial asset instruments”;

notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment to

hedge the loan for the same amount. The fair value of the derivative of 31 thousand Euros was recognised

in the “Reserve for hedging operations for expected financial flows” net of deferred taxation and offset

in item B 3) “Derivative financial liability instruments”;

notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment to

hedge the loan for the same amount. The fair value of the derivative of 31 thousand Euros was recognised

in the “Reserve for hedging operations for expected financial flows” net of deferred taxation and offset

in item B 3) “Derivative financial liability instruments”;

notional 8,500 thousand Euro IRS maturing on 30/06/2025 with the frequency of half-yearly payment

to hedge the loan for the same amount. The fair value of the derivative of 112 thousand Euros was

recognised in the “Reserve for hedging operations for expected financial flows” net of deferred taxation

and offset in item B III) 4) “Derivative financial asset instruments”;

Flexible forward contracts on USD/Euro exchange rates, notional value of USD 9,550 thousand expiring

on 29 January 2020, to hedge the cash flow in USD that the Group will collect for the construction

contract for the CCS field in Mozambique. The fair value of the derivative of 117 thousand Euros was


and offset in item B 3) “Derivative financial liability instruments”;

Forward contracts on USD/Euro exchange rates, notional value of USD 163,600 thousand expiring on

30/07/2021, to hedge the cash flow in USD that the Group will collect for the construction contract

for the Yerevan Power Plant in Armenia. The fair value of the derivatives of 1,530 thousand Euros was


and offset in item B 3) “Derivative financial liability instruments”;

Options on Euro/USD exchange rates, notional value of USD 39,075 thousand last expiring on 15/10/2021

and six-monthly settlement, to hedge the cash flow in USD that the Group will collect for the construction

contract for the CCS field in Mozambique. The fair value of the derivatives of 306 thousand Euros was


and offset in item B III) 4) “Derivative financial asset instruments”

Related party transaction disclosure

(Ref. Art. 38, first paragraph, lett. o-quinquies), Italian Legislative Decree No. 127/1991)

Transactions with related parties at normal market conditions were put in place. These transactions relate

to business activities carried out for long-standing clients, which have produced profitability in line with

corporate income parameters.

The table below summarises both commercial and financial transactions with related parties broken down

by category.

106


COMPANY REVENUES COSTS

FINANCE INCOME

(EXPENSES)TRADE RE-CEIVABLES

TRADE PAYABLES

ADVANCE PAYMENTS

FINANCIAL RECEI-

VABLESFINANCIAL PAYABLES

Unconsolidated subsidiaries 177 6 217 54 83,041 275 -

ARMPOWER 177 - - 144 3 83,041 - -

RENCO FOOD - - - 73 16 - 275 -

CONSORZIO RENCO LANCIA ITER

- 6 - - 31 - - -

SALINELLA - - - - 4 - - -

Associated companies 1,845 4,125 158 3,975 2,742 1,781 23,619

DARIN CONSTRUCTION

275 - 158 1,123 40 - 13,286 -

VELOFIRMA 426 - - 950 1 - 6,511 -

REAL ESTATE MANAGEMENT

245 - - 18 15 - 1,744 -

TRADEMARK - - - 705 - - 1,155 -

NIASSA SANCTUARY

1 - - 1 1 - 111 -

RENCO IREM COSTRUCOES

1 - - 40 161 1,781 813 -

RENCO NIGERIA 778 - - 1,097 1 - - -

TOLFA CARE S.R.L.

119 - - 40 - - - -

RENCO QATAR - 4,125 - - 2,523 - - -

Other related parties 775 283 207 5,701

ISCO S.R.L. - 775 - 283 207 - - -

SHARE HOLDERS - - - - - - - 5,701

TOTAL 1,845 4,900 158 4,258 2,949 23,619 5,701

Information on significant events subsequent to the end of the financial year

Pursuant to Article 2427 no. 22 quater) of the Italian Civil Code, the following should be noted:

Starting from the end of February, the COVID 19 novel virus was declared to be on the increase, with an

epidemic that quickly spread to many countries worldwide, defined by the World Health Organization as a

“pandemic situation”.

At the date of issue of this report, Italy is one of the countries most affected. This has led to significant

pressure on the country’s health system and consequent enactment by the government authorities of a

series of measures aimed at containing the risk of further expansion of the virus among the Italian population.

The Renco Group Board of Directors does not believe that the COVID-19 emergency is likely to have any

107


effect on the regular and ordinary performance of the company’s activities, despite the mitigating actions

already promptly implemented by the Group and aimed primarily at preserving production continuity while

ensuring full protection of workers’ health and safety. In this regard, it considered that the trend of the

emergency accompanied by uncertainties related to further developments in terms of impact on public

health and, consequently, on the productive, economic and social fabric of the country does not, as things

stand, allow any approximation of quantification of the effects on the 2020 performance of the company.

The impact of the COVID-19 emergency will be constantly monitored by the Directors in its evolution and

considered in the Group’s accounting estimates during 2020, including those relating to the recoverability

of the value of assets recognised in the financial statements.

Moreover, the Board of Directors believes that what is happening does not change the medium/long-term

outlook, also in terms of confirming the existence of the going concern assumption.

Off balance sheet commitments, guarantees and contingencies

Below is the total amount of commitments, guarantees and potential liabilities not shown in the balance

sheet, with indication of the nature of the collateral provided; the existing commitments on retirement

and similar commitments, as well as the commitments entered into with subsidiary companies, associated

companies, parent companies and companies subject to the control of the latter are indicated separately:

108


DESCRIPTION 31.12.2018 31.12.2019 CHANGES

Memorandum accounts of third-party risks 92,247 160,725 68,478

Memorandum accounts of commitments undertaken 185 173 (12)

Total 92,432 160,898 68,466

The following section provides information on the composition and nature of commitments and other

memorandum accounts, knowledge of which is useful for assessing the financial position of the company,

with specific indication of those relating to subsidiary companies, associated companies, parent companies

and partner companies.

The total amount of sureties issued by the Group at 31 December 2019 was 160.7 million Euros (92.2 million

Euros in 2018). The detail of sureties is provided below:

147.8 million Euros (79.3 million Euros in 2018), guarantees issued by Renco S.p.A. to clients, against the

commitments assumed by Group companies for the proper execution of acquisitions. The item consists

of performance bonds of 75.3 million Euros (42.1 million Euros in 2018), advance payment bonds of 40.9

million Euros (29.2 million Euros in 2018), retention bonds and stand by letters of 15.4 million Euros (4.3

million Euros in 2018) and other guarantees of 16.1 million Euros (3.8 million Euros in 2018);

12.9 million Euros relate to the insurance guarantee issued by Residence Viserba S.r.l. to the city of Rimini

to guarantee the subsequent free transfer to the latter of the urbanisation works in the Viserba area.

With reference to the commitments taken, it should be noted that 173 thousand Euros refer to the

commitment taken by the subsidiary Joint Green Srl, with the acquisition of the fixed-term (22 years) rights

on the Fossombrone area, to pay an annual instalment until the expiry of the right of the same.

Disclosure regarding off balance sheet agreements

(Ref. Art. 38, first paragraph, letter o-sexies), Italian Legislative Decree No. 127/1991)

The Group has no agreements in place not resulting from the Balance Sheet.

Information on the fees due to the independent auditor

(Ref. Art. 38, first paragraph, lett. o-septies), Italian Legislative Decree No. 127/1991)

In accordance with the law, please note the fees for the year for services provided by the statutory

independent auditing firm and entities belonging to its network to the Group:

fees due for the statutory audit of the consolidated accounts: 167 thousand Euros.

Other information

In accordance with the law, please note the total fees due to the directors, the members of the Board

of Auditors of the parent company including those due for the performance of these tasks also in other

businesses included in the consolidation.

109


POSITION RENCO GROUP S.P.A. RENCO S.P.A REMUNERATION

Directors 145 78 223

Board of Statutory Auditors 17 70 87

Supervisory body 18 - 18

Total 180 148 327

These consolidated financial statements, comprising the balance sheet, income statement and explanatory

notes, provide a true and fair view of the equity and financial situation as well as the economic result,

and are consistent with the underlying accounting records of the parent company, and the information

provided by the companies included in the consolidation.

Attachments to the consolidated financial statements:

list of companies included in the consolidation using the line-by-line method in accordance with Art. 26

of Italian Legislative Decree 127/91;

list of companies included in the consolidation using the proportional method in accordance with Art.

37 of Italian Legislative Decree 127/91

list of other equity investments in subsidiary and associated companies not consolidated;

list of other equity investments;

reconciliation table between the financial statements of the parent company and the consolidated

financial statements;

statement of changes in consolidated shareholders’ equity accounts.

Pesaro 20.05.2020

On behalf of the Board of Directors

The Chairman

Giovanni Gasparini

110


A T T A C H M E N T 1 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 9

List of companies included in consolidation using the line-by-line method in accordance with Art. 26 of Italian Legislative Decree 127/91 as of 31/12/2019

COMPANY NAME

REGISTERED OFFICE CURRENCY

SHARE CAPITAL

SHAREHOL-DERS SHARE PROP. SHARE CONS.

RENCO S.P.A. ITALY EUROS 60,000,000RENCO GROUP S.P.A.

99.51% 99.51%

RENCO VALORE S.R.L. (previously RENCO REAL ESTATE S.R.L.)

ITALY EUROS 100,000 RENCO S.P.A. 100.00% 99.51%

RENCO HEALTH CARE S.R.L.


JOINT GREEN S.R.L.


RENCO CAPITAL S.R.L.

ITALY EUROS 100,000RENCO GROUP S.P.A.

99.99% 99.99%

RESIDENCE VISERBA S.R.L.

ITALY EUROS 1,425,420 RENCO S.P.A. 100.00% 99.51%

ARENGEST S.R.L.

ITALY EUROS 10,000RENCO REAL ESTATE S.R.L.

100.00% 99.51%

ITALSEC S.R.L. ITALY EUROS 100,000 RENCO S.P.A. 90.00% 89.56%

RENCO ASSET MANAGEMENT S.R.L.


99.51% 99.51%

RENCO IMMOBILIARE S.R.L.


99.51% 99.51%

VILLA SOLIGO S.R.L.


100.00% 99.51%

RENCO ARMESTATE LTD

ARMENIA DRAM 500,992,000 RENCO S.P.A. 100.00% 99.51%

ARMENIA GESTIONE

ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.

100.00% 99.51%

RENCO ARMENIA VALORE LLC (previously PIAZZA GRANDE LLC)

ARMENIA DRAM 500,000,000RENCO REAL ESTATE S.R.L.

100.00% 99.51%

NUOVO VELODROMO

ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.

100.00% 99.51%

ITALSEC ARMENIA

ARMENIA DRAM 100,000 ITALSEC S.R.L. 100.00% 89.56%

111


COMPANY NAME


SHARE CAPITAL


RENCO POWER CJSC

ARMENIA DRAM 100,000 RENCO S.P.A. 100.00% 99.51%

HOTEL YEREVAN OJSC

ARMENIA DRAM 510,000,000 RENCO S.P.A. 100.00% 99.51%

RENCO-KAT S.R.L.

KAZAKHSTANTENGE KAZAKHSTAN

74,600,000 RENCO S.P.A. 50.00% 49.76%

RENCO PROPERTY LLP


74,600,000 RENCO S.P.A. 100.00% 99.51%

GEODELTA CORP


100,000 RENCO S.P.A. 60.00% 59.71%

INTERRENKO LTD.

RUSSIA RUSSIAN RUBLE 134,500 RENCO S.P.A. 100.00% 99.51%

SOUTHERN CROSS LLC

RUSSIA RUSSIAN RUBLE 37,256,408 GRAPEVINE 100.00% 49.76%

RENCO SAKH LLP

RUSSIA RUSSIAN RUBLE 233,278,000RENCO REAL ESTATE S.P.A.

100.00% 99.51%

BAYTREE PORTUGAL EUROS 5,000 RENCO S.P.A. 100.00% 99.51%

GRAPEVINE PORTUGAL EUROS 5,000 BAYTREE 50.00% 49.76%

RENCO TANZANIA LTD

TANZANIA SHILLING 20,000,000 RENCO S.P.A. 99.00% 98.52%

ITALSEC MOZAMBICO

MOZAMBIQUE METICAL 250,000 ITALSEC S.R.L. 62.50% 55.97%

REAL MOZ LDA MOZAMBIQUE METICAL 250,000

RENCO REAL ESTATE S.R.L.

99.00% 98.51%

RENCO S.P.A. 1.00% 1.00%

RENCO MOZAMBICO LTP

MOZAMBIQUE METICAL 250,000


94.50% 96.53%

RENCO S.P.A. 2.50% 96.53%

RENCOTEK LDA MOZAMBIQUE METICAL

10,000,000 RENCO S.P.A. 99.00% 99.51%


1.00% 99.51%

RENCO ENERGIA LDA

MOZAMBIQUE METICAL 250,000 RENCO S.P.A. 62.50% 62.19%

MOZESTATE LDA

MOZAMBIQUE METICAL 250,000


99.00% 98.51%

RENCO GROUP S.P.A.

1.00% 1.00%

CAPO DELGADO PROPERTIES SA

MOZAMBIQUE METICAL 100,000 RENCO S.P.A. 63.00% 62.69%

RENCO GESTION IMMOBILIERE

CONGOAFRICAN FRANC

10,000,000RENCO REAL ESTATE S.R.L.

70.00% 69.66%

RENCO CONGO SARLU

CONGOAFRICAN FRANC

10,000,000 RENCO S.P.A. 100.00% 99.51%

RENCO CONGO VALORE

CONGOAFRICAN FRANC


100.00% 99.51%

112


COMPANY NAME


SHARE CAPITAL


ITALSEC CONGO

CONGOAFRICAN FRANC

10,000,000 ITALSEC S.R.L. 100.00% 89.56%

ANGORENCO LDA

ANGOLAREADJUSTADO KWANZA

750,000RENCO GROUP S.P.A.

1.00% 99.52%

RENCO S.P.A. 99.00% 99.52%

RENCO MAR MOROCCOMOROCCAN DIRHAM

1,000,000 RENCO S.P.A. 97.00% 96.53%

RENCO ENERGIES SA

MOROCCOMOROCCAN DIRHAM

300,000 RENCO MAR 59.70% 57.63%

RENCO ALGERIA

ALGERIAALGERIAN DINAR

1,000,000 RENCO S.P.A. 100.00% 99.51%

BAYTREE LLCUNITED STATES OF AMERICA

US DOLLAR 12,482 BAYTREE 100.00% 99.51%

RENCO CANADA

CANADACANADIAN DOLLAR

100 RENCO S.P.A. 100.00% 99.51%

List of companies included in consolidation using the net equity method in accordance with Art. 26 of

Italian Legislative Decree 127/91 as of 31/12/2019

COMPANY NAME


SHARE CAPITAL


ARMPOWER CJSC

ARMENIA DRAM 24,156,540,000RENCO POWER CJSC

60.00% 59.71%

RENCO FOOD S.R.L.


Chairman of the Board of Directors:

Giovanni Gasparini

113



List of companies included in consolidation using the proportional method in accordance with Art. 37 of Italian Legislative Decree 127/91 as of 31/12/2019

COMPANY NAME

REGISTERED OFFICE SHARE CAPITAL SHAREHOLDERS SHARE PROP. SHARE CONS.

Currency Amount % %

TERNA GREECE JV

GREECE EUROS 0 RENCO S.P.A. 50.000 50.000

114



List of other equity investments in subsidiary companies (not consolidated) and associated companies

COMPANY NAMEREGISTERED OFFICE CURRENCY SHARE CAPITAL SHAREHOLDERS

SHARE PROP.

SHARE CONS.

VELOFIRMA (1) ARMENIA DRAM 4,100,000NUOVO VELODROMO

58.00% 57.72%

CONSORZIO STABILE RENCO LANCIA GAMMA (2)


RENCO FOUNDATION (2)


TOLFA CARE S.R.L. ITALY EUROS 825,000RENCO HEALTH CARE S.R.L.

47.50% 42.54%

REAL ESTATE MANAGEMENT S.R.L.


30.00% 29.85%

SALINELLA EOLICO S.R.L.


RENCO QATAR QATAR RYAL QATAR 200,000 RENCO S.P.A. 49.00% 48.76%

DARIN CONSTRUCTION



25.00% 24.88%

RENCO NIGERIA NIGERIANIGERIAN NAIRA

15,977 RENCO S.P.A. 49.00% 48.76%

NIASSA SANCTUARY LTD

MOZAMBIQUE METICAL 100,000 REAL MOZ 50.00% 49.76%

PEMBA BULK TERMINAL (2)

MOZAMBIQUE METICAL 100,000CAPO DELGADO PROPERTIES SA

80.00%

TRADEMARK ITALY LLP


240,500

RENCO S.P.A. 50.00% 49.76%

RENCO IREM CONSTRUCOES LDA

MOZAMBIQUE METICAL 10,000,000 RENCO S.P.A. 31.25% 31.10%

REASONS FOR EXCLUSION

Company exempt from consolidation since not controlled based on contractual agreements

Company excluded since insignificant

Chairman of the Board of Directors:

Giovanni Gasparini

115



Figures are given in thousands of Euros

Statement reconciling the net result and shareholders’ equity of the consolidating company with the respective values resulting from the consolidated financial statements

The group consolidated shareholders’ equity and consolidated economic results as of 31/12/2019 are

reconciled with those of the parent company as follows:

SHAREHOLDERS’

EQUITY RESULT

Shareholders’ equity and period result as recorded in the financial year of the parent company

80,905 1,436

Effect of adjustments made in application of the accounting standards 50 41

a) Adoption of IAS 17 (70) (26)

b) Valuation of non-consolidated associated and subsidiary companies using the equity method

120 67

Elimination of the book value of consolidated investments: 93,045 9,529

a) Net effect of elimination of the book value of the consolidated shareholdings with the relative shareholders’ equity and results

32,355 3,867

b) Reversal of write-downs/revaluations of equity investments 35,231 3,805

c) Reversal of intercompany dividends, investee companies - (21,282)

d) Value of net capital gains attributions at the acquisition date of investee companies net of the related tax effect

25,459 (602)

e) Elimination of capital gains from disposal of equity net of the related tax effect - 23,742

Other consolidation entries net of the related tax effect (7,199) (2,918)

a) Elimination of intercompany profits net of the related tax effect (5,288) 9

b) Other consolidation entries net of the related tax effect (1,911) (2,927)

Consolidated shareholders’ equity and period result 166,801 8,088

Chairman of the Board of Directors

Giovanni Gasparini

116



Amounts are shown in Euros.

Consolidated group statement of changes in shareholders’ equity

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Balance as of 31.12.2017 9,013 25,988 4,802 1,168 18,058 25,026 (3,609) (591) 5,910 (25,728) 87,544 707 148,288 4,124 152,412

Allocation of net income for the year

- - - 113 2,140 - - - - - (1,546) (707) - - -

Dividends paid - - - - - - - - - - - - - (19) (19)

Fair value measurement of reserve to hedge expected financial flows

- - - - - - - 986 - - - - 986 5 991

Other changes - - (106) - - - - 3 (1,597) 1,786 965 - 1,051 108 1,159

Result for the current year

- - - - - - - - - - - 8,755 8,755 (2,655) 6,100

Balance as of 31.12.2018 9,013 25,988 4,696 1,281 20,198 25,026 (3,609) 398 4,313 (23,942) 86,963 8,755 159,080 1,563 160,643

Allocation of net income for the year

- - - 86 1,635 - - - - - 7,034 (8,755) - - 148

Dividends paid - - - - (148) - - - - - - - (148) (19) (167)

Fair value measurement of reserve to hedge expected financial flows

- - - - - - - (1,625) - - - - (1,625) (8) (1,633)

Other changes - - - - - 15 - - 1,559 (1,063) - - 361 (640) (278)

Result for the current year

- - - - - - - - - - - 8,017 8,017 71 8,088

Balance as of 31.12.2019 9,013 25,988 4,696 1,367 21,685 25,041 (3,609) (1,227) 5,872 (25,005) 93,997 8,017 165,833 967 166,801

Chairman of the Board of Directors

Giovanni Gasparini

117


118


119


Management Report accompanying the consolidated

financial statements as of 31/12/2018

Concept design and layout by

Studio grafico Agostini, Rome

Published in July 2020

© Renco Group S.p.A.

management report on the financial statements 2019 …

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