Financial Statements
05 Letter to Shareholders
07 Sopaf Group: Key Developments
010 The Sopaf Group in Figures
011 Corporate Governance and Management Sopaf Sopaf
014 Performance of the Sopaf S.p.A. Shares
017 Report in Operations
043 Consolidated Financial Statements
Sopaf S.p.A. Financial Statements 145
Sopaf Table of Contents
This is an English language translation of an original Italian document, provided solely for the convenience of international readers. In the event of any discrepancy between the English language version of the document and the Italian language version, the latter shall prevail. 05 > Letter to Shareholders
To the Shareholders,
The year 2008, which began in the wake of a year that has witnessed the outbreak of the so-called sub-prime mortgage crisis, was marked in particular by the sharp worsening of world economic scenarios, experienced in the months of September and October, and by the virulent escalation of difficulties initially linked to the financial markets but which soon spread to the industrial segment. Following bankruptcy of the US investment bank Lehman Brothers, a sequence of interlinked events led to a shift in the coordinates of world economy. One of the earliest consequences was “a new shake-up” in the US financial sector, immediately followed by collapse of the world stock markets, a loss of trust in the financial system, a squeeze on liquidity and the need for many governments to launch important “anti-crisis” measures, including nationalisation of many banks. In our previous report addressed to shareholders at the meeting held on 28 June 2008, we already highlighted the difficulties that could be glimpsed on the horizon and which did indeed occur. The signs indicating the extent, complexity and radical nature of changes, that were immediately recognised as worthy of note, still constitute important factors to be considered in defining the company’s business enhancement strategies. Against this backdrop, the management of Sopaf has strived to finalise the market repositioning programme that commenced with the merger implemented in 2005, so that the company is able to respond to the changed and adverse market conditions.
As in 2007, your Company was able to anticipate the changes underway and to take suitable measures to safeguard the creation of value, and specifically: • by disposing of investments that were no longer strategic; • by exploiting opportunities created through investment transactions and subsequent placement on the market of financial assets; • by strengthening and, at the same time, streamlining the Group organisational structure through activation of latent synergies between Group companies and strict reduction of operating costs.
In accordance with the above, the main initiatives completed in 2008 were the following: • disposal of the investment held in Management & Capitali; • dissolution of the joint venture undertaken with AIG in the asset management segment, which was followed by refund of the units held in the PWM AIGGIG Multimanager Fund; • assignment of the real estate leasing contracts for the building in which the company has its head office; • disposal of some industrial investments in a newly established private equity fund entitled “Vintage Fund” while maintaining management of said fund, through management delegation awarded to Sopaf Capital Management SGR; • establishment of Adenium Sicav, a SICAV governed by Luxembourg law, of which distribution was commenced in the early months of 2009 by Banca Network Investimenti and which will be managed through delegation assigned to Sopaf Capital Management SGR; • several purchase and sale transactions on the secondary market of units of a real estate fund with complex settlements which generated significant capital gains; • drawing up of a plan for a significant cut in the operating expenses of the Parent Company and subsidiaries alike.
While on one hand these transactions have laid the groundwork for expansion of future business that should increase assets under management, on the other they allowed the Group to generate liquidity, a quintessential condition in the current market climate and an essential element to its endeavour to achieve objectives such as reducing the Parent Company’s net financial position and strengthening the capital of some investments deemed strategic, like Banca Network Investimenti, Sopaf Real Estate Opportunity I (formerly Fondo Tergeste), Essere, China Opportunity and Sopaf Capital Management SGR.
Sopaf
06 Hence the year 2008 closed with Sopaf S.p.A. posting a net profit of EUR 35.2 million. The Parent Company’s shareholders’ equity, including profit for the year, is equal to EUR 139 million and compares to the EUR 131 million recorded as at 31 December 2007. With regard to the Group consolidated financial statements, net profit is equal to EUR 3.6 million, while consolidated shareholders’ equity, including profit for the year, is equal to EUR 146.3 million and compares with the EUR 175 million recorded as at 31 December 2007. The figure posted for the consolidated net financial position is equal to EUR 146.9 million, down on the EUR 151.6 million of December 2007. This change is mainly due to improvement in the Parent Company’s borrowings, partially offset by a simultaneous increase in the borrowings of Fondo Tergeste by approximately EUR 19 million due to acquisition of real estate. This fund will probably be deconsolidated by the end of 2009 following further capital increases subscribed by third parties. This result takes into account a series of adjustments that we deemed advisable to make in order to provide a fairer view of the values that are currently recoverable according to our estimates (alignment of the value of Banca Network Investimenti S.p.A., Fondo Tergeste and Essere S.p.A.).
We cannot conceal our satisfaction at having achieved positive results at both Parent Company and consolidated level even in 2008. This proves that the operating model on which your company is founded, based on investment flexibility and on a capacity for revenue diversification, is still valid despite the changed economic scenario.
> Outlook We believe that the heightened tension characterising the financial markets will persist in the year underway. It is therefore imperative to respond with initiatives that will have a stabilising effect on your Group’s profitability, by expanding recurring revenues and continuing the process to create the resources required to exploit the opportunities that such a volatile market may offer. In order to achieve this objective the main focus must be placed on the management of strategic investments. This will concern the product companies (asset management companies), through increase of assets under management with review of the products and services of offer, as well as the distribution networks, among which we specifically mention Banca Network Investimenti which is expected to complete its turnaround phase by the end of 2009. The other pertinent initiatives that we intend to take include the following: • continued reduction of the bank borrowings through disposal of further non-strategic investments; • continuation of the operating costs reduction plan; • careful assessment of the opportunities that the information asymmetry in such volatile and unstable markets may offer. We firmly believe in the validity of these initiatives that we trust can be implemented despite the difficult market context.
The Board of Directors proposes that the Shareholders’ Meeting resolves to distribute the profit for the year of EUR 35,203,622 as follows: • EUR 1,760,181 to legal reserve; • EUR 2,083,542 as dividend of EUR 0.005 by 416,708,392 ordinary shares; • EUR 31,359,899 to be carried forward.
We thank all the senior managers and consultants for the commitment and professionalism shown in such difficult times and we also express our heartfelt thanks to the Control and Supervisory Bodies for the valuable collaboration provided in all circumstances. Lastly we confirm our commitment to achieving the set targets, necessary to guarantee that your company can continue its growth path.
Giorgio Cirla Giorgio Magnoni Chairman Vice Chairman and Managing Director
Sopaf Sopaf 07 > Mission Sopaf employs a multi-strategy approach. Pursuant to its investment policy Sopaf operates in a wide variety of business areas, seeking out and enhancing the value of high-potential niche opportunities that are often undervalued or overlooked by the market.
> Macroeconomic Overview 2008 was a very difficult year for the financial markets in which events took both financial operators and political institutions by surprise. The crisis, triggered at the end of 2007 by a series of defaults in a marginal financial services segment, because of the US real estate bubble, rapidly extended to almost all the financial institutes becoming a world event and accelerating an abrupt adjustment of the macro imbalances that have been apparent in world economies over the last decade. In 2008 the macroeconomic backdrop was characterised by two completely separate periods. The first half of the year saw monetary policies focus on keeping inflationary pressures, arising mainly from the high prices of raw materials, under control, while the second part of the year saw major financial institutions overwhelmed by the risks of insolvency, forcing governments to intervene with timely measures to nationalise several banks. At the same time, working with their respective Central Banks, they introduced common measures to inject liquidity into the markets, through a drastic reduction of interest rates, and to offer the abundant resources necessary to fund the world financial system. In the last quarter the financial crisis extended to the industrial segment where the main effects are expected to be felt in 2009.
> Sopaf Group: key developments
Given the uncertainty characterising 2008 and the financial markets liquidity crisis, Sopaf continued the careful review of its assets, taking steps to dispose of investments deemed non-strategic and in which the Parent Company was no more than a financial investor with a return on investment that did not justify the cost of maintaining the investment.
The main disposals made during the year concerned the following assets:
• the investment in Management & Capitali for EUR 14.4 million; • the joint venture in asset management with AIG through redemption of the units held in the PWM AIG fund for an amount of EUR 12.5 million; • real estate leasing contracts for EUR 23 million; • some industrial investments for EUR 38.9 million.
The liquidity gained from the aforesaid disposals was mainly used to:
• reduce the Parent Company’s net financial position which has fallen from EUR 188 million as at 31 December 2007 to EUR 130 million as at 31 December 2008 ; • strengthen the capital of investments deemed strategic for Sopaf’s future corporate structure such as BNI (EUR 16 million), Fondo Tergeste (EUR 8 million), Essere (EUR 3 million), Sopaf Capital Management (EUR 1 million) and China Opportunity (EUR 2,7 million); • finalise the contractual agreements relating to BNI such as the acquisition of 45% of Aviva Previdenza (EUR 15.4) and a new shareholders’ loan in favour of Area Life (EUR 1.6 million).
Furthermore, during the year Sopaf continued the corporate streamlining initiated in 2007 through: • final liquidation of a number of vehicles including LM&Partners SCA (liquidation initiated in December 2006); • merger of Private Wealth Management SGR S.p.A. into Sopaf Capital Management SGR S.p.A.
Sopaf
08 > Sopaf Group: Areas of business
> Product companies As at 31 December 2008, Sopaf holds investments in product companies operating in the securities and real estate sectors and managing a number of funds with total assets under management in the region of EUR 550 million. More specifically, Sopaf holds: • 100% of Sopaf Capital Management SGR S.p.A., a hedge funds management company which during the year merged with Private Wealth Management SGR S.p.A. (wholly acquired in the early months of 2008), a company whose portfolio includes a number of hedge funds with total assets of EUR 145 million; • 49% of Polis Fondi Sgr.p.A., an asset management company partially owned by five banks (each with 9.8%) and by Unione Fiduciaria (with 2%). The company currently manages three closed-end real estate funds, Fondo Polis, Fondo Tergeste and Finurbe, with aggregate assets of EUR 355 million. On 8 October 2008, Sopaf S.p.a. finalised the contract for acquisition of 51% of the share capital of Polis Fondi SGR S.p.A. from the aforesaid banks for a total consideration of EUR 9.5 million. The acquisition is currently subordinate to obtaining the necessary authorisations from the Supervisory Authorities relating to: (i) acquisition of the investment and (ii) amendments to the regulations of Fondo Polis concerning the introduction of an Advisory Committee; • 85% of Sopaf Asia S.a.r.l., a management and consulting firm to support the activity of China Opportunity S.A. Sicàr. During 2008, this fund concluded a second fund-raising stage reserved to investors increasing assets under management to approximately EUR 50 million.
> Investment portfolio Sopaf's investment portfolio, which has been further streamlined compared to 2007, is now made up of various listed and unlisted asset classes, differentiated by the type of activity carried out. As at 31 December 2008, the Group's investments were concentrated in the following areas:
> Financial and insurance services
Sopaf holds 44.63% of Banca Network Investimenti S.p.A., a multi-channel bank which as at 31 December 2008 manages approximately EUR 3.8 billion in assets and boasts a network of approximately 800 financial advisors. Within the bank/insurance area, in 2008 Sopaf acquired 45% of Aviva Previdenza, an insurance company operating in the life business, which adds to the 45% held in the capital of Area Life, an Irish company also carrying on life business.
Sopaf also holds a 16% investment in Delta S.p.A. (a banking group operating in the consumer credit business) and a 92% investment in Essere S.p.A. (a company active in the distribution of mortgages, consumer credit, leasing and insurance products).
Lastly Sopaf holds a 4.1% investment in the share capital of Conafi Prestitò, a listed company specializing in salary-backed loans.
> Real estate
In compliance with its business model, which establishes that real estate investments are made through investment funds and special-purpose companies, as at 31 December 2008, Sopaf holds interests in Valore by Avere Asset Management SCA (15%), a real estate investment vehicle specialising in the German market, in Fondo Tergeste (100%), a closed-end real estate investment fund reserved for institutional investors managed by Polis Fondi SGR and, through the company Fives Stars, in Fondo FIP (Fondo Immobili Pubblici), a closed-end real estate fund promoted by the Ministry of Economy and Finance.
Sopaf also holds 15% of Demofonte S.p.A., a company that is managing the disposal of a real estate portfolio acquired from Enel S.p.A.
Lastly Sopaf S.p.A. holds 40% of Sopaf & Partners RE-Investment S.r.l., a company that performs real estate
Sopaf Sopaf investment and disinvestment transactions, including through the assumption and assignment of investments 09 in other companies or entities.
> Industrial investments
Sopaf directly holds a number of industrial investments:
• in listed companies such as Sadi Servizi Industriali S.p.A., which specialises in environmental reclamation and disposal of polluting residues, and IMMSI S.p.A., a holding operating in various business sectors; • in unlisted companies such as:
- Aft/Linkem, a company operating in the telecommunications sector, specifically in the development of wi-max networks for which in 2008 the company was awarded the right to use the wi-max licence in 13 Italian regions; - SunSystem, a company operating in the renewable energy sector, specifically in the production and installation of photovoltaic systems; - Life Science, a company operating in the biomedical sector through some operating investments in radiopharmaceuticals, medical imaging and medical equipment.
> Other financial investments
Sopaf holds a number of interests in investment companies/private equity funds, including:
• Vintage Fund SIF, a fund set up in 2008 to which Sopaf assigned four of the Group’s industrial investments and of which 95% is subscribed by Paul Capital IX LP (a US private equity fund) and the remaining 5% by Sopaf; • China Opportunity Fund, an investment company dedicated to investments in high growth potential Chinese companies; • Infrastructure and Growth Capital Fund, a fund managed by Abraaj Capital, a leading investment company in infrastructural investments in the MENASA region (Middle East, North Africa and South-East Asia), with assets under management for $ 4 billion.
Sopaf
010 > The Sopaf Group in figures
Economic figures (in EUR/thousand) 2008 2007
Operating profit 3,166 28,908 Profit before interest and taxes (7,075) 39,116 Profit before taxes 10,797 35,687 Group net profit 3,637 35,753
Equity and financial figures (in EUR/thousand) 2008 2007
Consolidated shareholders' equity 146,323 174,869 Net financial position (146,885) (151,639) Net invested capital 297,745 333,681
Other indicators 2008 2007
D/E (Net financial position/Shareholders' equity) 1.00 0.87
Employees (at year end)* 92 50
* 2008 also includes the staff of Essere S.p.A., a company integrated on a line-by-line basis as from the second half of 2008
Sopaf Sopaf 011
> Corporate Governance
Sopaf has set up a corporate governance system consistent with best market practices, in terms of transparency and disclosure. On 12 December 2005, Sopaf adopted the Corporate Governance Code for Listed Companies ("Code"), and on 20 July 2006, the Company updated its corporate governance system pursuant to the recommendations provided in the March 2006 version of the Code.
> Shareholders' Meetings
At an ordinary meeting held on 10 November 2006, the shareholders approved regulations governing the formalities and procedures for holding shareholders' meetings.
> Board of Directors
The Board of Directors consists of 11 members and its term of office expires with the Shareholders' Meeting called to approve the financial statements as at 31 December 2009. Non BOARD OF DIRECTORS Executive executive Independent
Chairman Giorgio Cirla 9 Deputy Chairman and CEO Giorgio Magnoni 9 Director Giancarlo Boschetti 9 Director Renato Cassaro 9 9 Director Guidalberto Guidi 9 9 Director Adriano Galliani 9 9 Director Mario Rey 9 9 Director Luca Magnoni 9 Director Giovanni Jody Vender 9 Director Renato Martignoni 9 Director Marco Stella 9
On 14 May 2007, the Board of Directors appointed the Deputy Chairman Giorgio Magnoni to the position of CEO, assigning him the related powers. At the same meeting, the Board Member Luca Magnoni was vested with powers to be exercised with exclusive reference to the investee companies Delta S.p.A. and Essere S.p.A.
The Company's Board of Directors consists of executive and non-executive directors. The number and authority of the non-executive directors are such as to guarantee that their opinion will have significant weight in the decisions taken by the Board.
> Internal Control and Corporate Governance Committee
The Committee members are Renato Cassaro (Chairman), Guidalberto Guidi and Adriano Galliani, all of whom are non-executive and independent directors. The Committee assists the Board of Directors in establishing the guidelines for the internal control system. On 13 May 2008 the Internal Control and Corporate Governance Committee held a meeting to discuss (i) assessment of correct use of the accounting principles and their standardisation for the purposes of drawing
up the consolidated financial statements, (ii) examination of the report on corporate governance and the report to the Board of Directors on the activity performed and on the adequacy of the internal control system, Sopaf
012 (iii) examination of the Report of the Manager in charge of Internal Control and (iv) examination of the Annual Report of the Supervisory Body. On 23 July 2008 the Internal Control and Corporate Governance Committee held a meeting to (i) make informative considerations on Banca Network Investimenti S.p.a., (ii) make informative considerations on Delta S.p.A., (iii) provide information on the performance of investments, (iv) assess the activity of the Manager in charge of Internal Control – Update of the audit plan. Lastly, the Internal Control and Corporate Governance Committee held a meeting on 28 August 2008 to (i) assess the correct use of the accounting principles and their standardisation for the purposes of drawing up the consolidated half-year report as at 30 June 2008 and (ii) examine the half-year report of the Supervisory Body.
> Remuneration Committee
The Remuneration Committee is made up of three non-executive and independent directors: Guidalbero Guidi (Chairman), Renato Cassaro and Mario Rey. The Committee is entrusted with providing consultative input and proposals to the Board of Directors with regard to remuneration of the CEO and of the other directors with specific executive responsibilities and recommendations on the use of stock option plans.
> Board of Statutory Auditors
The Board of Statutory Auditors, which consists of three standing auditors and three alternate auditors, was appointed by the shareholders' meeting held on 10 November 2006. The current Board of Statutory Auditors will remain in office until approval of the financial statements as at 31 December 2008. On 29 August 2008 Giovanni Sala tendered his resignation as Chairman and on the same date Riccardo Ronchi, formerly an alternate auditor, succeeded as standing auditor and took over chairmanship of the Board as he was the most senior auditor in terms of age. Position
Chairman Riccardo Ronchi
Standing auditor Enrico Grosso
Standing auditor David Reali
Alternate auditor Francesco Dori
> Independent auditors
At the shareholders' meeting held on 28 October 2004, Sopaf S.p.A. and its main Italian subsidiaries assigned mandate to Deloitte & Touche S.p.A. to perform annual audit of the Parent Company's financial statements and the consolidated financial statements. At the ordinary meeting held on 4 May 2007, the shareholders voted in favour of extending the term of the aforementioned mandate given to the independent auditors Deloitte & Touche S.p.A. to include the years 2007-2009, pursuant to Article 8, Paragraph 7, Legislative Decree no. 303 of 2006. > Executive responsible for preparation of the corporate accounting documents
At the ordinary meeting held on 10 November 2006, the shareholders approved the amendment of the by-laws to Sopaf Sopaf 013 provide for a new Article 26 which authorises the Board of Directors to appoint, subject to the concurrence of the Board of Statutory Auditors, the executive responsible for the preparation of the company's accounting documents, vesting him with suitable powers and means for exercise of the assigned duties. On 18 June 2007, the Board of Directors appointed Alberto Ciaperoni, the Company's Chief Financial Officer, as the executive in charge of the preparation of the corporate accounting documents up until expiry of the current Board of Directors, after having verified that Mr. Ciaperoni meets the professional requisites established by laws governing the matter. Sopaf’s system of corporate governance also includes:
- procedure for disclosures referred to in Article 150 of the Consolidated Financial Law; - internal control system; - principles of conduct for carrying out transactions between Group companies and with related parties; - guidelines for internal management and communication of confidential information; - general principles for the organisational model required by Legislative Decree n. 231/2001, as approved by the Board of Directors on 27 September 2006 with regard to corporate administrative responsibility for criminal offences committed by executives or subordinates; - the organisational model required by Legislative Decree n. 231/2001 that was approved by the Board of Directors on 13 November 2007; - code of conduct; - investor relations manager.
> Management
Sopaf is managed by a group of seasoned professionals with past experience gained at leading investment banks or important multinational companies. The Group's senior management team includes the following:
Group Management Position Giorgio Magnoni CEO Luca Magnoni Investments: Financial & Insurance Services Aldo Magnoni Investments: Real Estate Stefano Siglienti Head of Investments: Industrial Companies Andrea Gerosa Manager of Investments: Industrial Companies Alberto Ciaperoni Chief Financial Officer Giovanni Nicchiniello General Counsel/Director of Legal & Corporate Affairs Daniele Muneroni Investment Manager, Financial & Insurance Services
Sopaf
014 > Performance of the Sopaf S.p.A. shares
During the year ending 31 December 2008 (market calendar from 2 January 2008 to 30 December 2008) the Sopaf share price went from EUR 0.4539 to EUR 0.1789 (-60.6%), and recorded a weighted average price of EUR 0.3967.
Stock market data (EUR per share) Price as at 2 January 2008 0.4539 Weighted average price for the year 0.3967 Maximum price (21 February 2008) 0.5143 Minimum price (24 October 2008) 0.1645 Price as at 30 December 2008 0.1789 Capitalisation as at 30 December 2008 ( in EUR/million) 75.5 Average daily volumes (in millions of shares) 400.5
Source: Bloomberg
Sopaf share performance (02 January 2008 – 30 December 2008)
Source: Bloomberg
Sopaf Sopaf 015 > Share Structure
As at 31 December 2008 Sopaf S.p.A.'s share capital amounted to EUR 80,100,043.68 and consisted of 421,908,392 ordinary shares without par value. There are also 28,104,600 Sopaf 2005-2011 Ordinary Share Warrants outstanding that give the holders the right to subscribe 56,209,200 ordinary shares at the price of EUR 0.4591 each, until 31 December 2011.
Principal shareholders of Sopaf S.p.A. (figures as at 31 December 2008)
25.005% Acqua Blu S.r.l.* Alfabravo S.r.l.* 35.394% Magnoni Giorgio Parallax Capital Trust Magnoni Ruggero Magnoni Aldo** Immobiliare Nord Ovest S.r.l. 5.732% Eurizon Capital SGR S.p.A. 0.284% Anima SGR S.p.A. Fondaz. Cassa di Risp. di Torino 8.985% Generali Investments France SA 2.125% Market 2.356% 2.884% 3.641% 6.52% 3.12% 3.954%
* Majority shareholder: Magnoni Giorgio. ** Of which 3.819% held through Sanpaolo Fiduciaria S.p.A., a trust company which holds a total of 4.432% of Sopaf's share capital on behalf of third parties.
1 The original exercise price of EUR 0.50 per share was modified following the convertible bond issue. Sopaf
016 > Convertible Bond Issue
On 23 April 2007 the Board of Directors of Sopaf, by virtue of the authority delegated by the extraordinary meeting of shareholders held on 6 May 2003, approved the issue of convertible bonds to be offered under option to shareholders. The Company issued 56,520,463 SOPAF 2007-2012 3.875% convertible bonds with a unit value of EUR 0.88, for a total amount of EUR 49,738,007.44. As at 31 December 2008, at total of 113,686 bonds have been converted.
The bond, listed on Italian stock exchange since 27 August 2007, posted the following performance in 2008.
Stock exchange figures (EUR per bond) Price as at 2 January 2008 0.836 Maximum price 0.836 Minimum price 0.686 Price as at 30 December 2008 0.712
Source: Borsa Italiana
> 2009 Financial Calendar
14 May 2009: Meeting of the Board of Directors for approval of the quarterly report as at 31 March 2009 28 August 2009: Meeting of the Board of Directors for approval of the half-year report as at 30 June 20 12 November 2009: Meeting of the Board of Directors for approval of the quarterly report as at 30 September 2009.
Sopaf Sopaf 017
erations p ort on O p Re 018 > Introduction
The consolidated financial statements and the financial statements of Sopaf S.p.A. as at 31 December 2008 have been prepared in accordance with the international accounting standards (IAS/IFRS). The figures and information for the year are always provided on a comparative basis with those of the previous year.
The income, balance sheet and cash flow statements provided below have been shown in a reclassified form compared to those contained in the subsequent statements in order to highlight some intermediate profit levels and the capital and financial aggregates deemed more significant to understanding the operating performances posted by the Company and by the Group. For these figures which are not prescribed by the EU GAAP, in compliance with the provisions contained in CONSOB Notice no. 6064293 dated 28 July 2006 and in CESR Recommendation dated 3 November 2005 (CESR/o5-178b), a description is provided of the criteria adopted in their preparation accompanied by special notes containing reference to the items included in the obligatory statements.
> Sopaf Group’s performance
The income statement of the Sopaf Group posts an improvement in the gross operating margin, positive by EUR 7 million (negative by EUR 20.4 million in the previous year), which is also the result of a sharp curbing of other operating costs, while the operating profit (loss) is positive by EUR 3.1 million (EUR 28.9 million in the previous year with a contribution of EUR 63.7 million provided by gains from disposal of non- current assets). Profit (loss) accrued on investments valued with the net equity method is negative by EUR 10.2 million (positive result of EUR 10.2 million in the previous year) and mainly includes the pro-rata losses, including impairment write-downs for EUR 12.7 million relating to Banca Network Investimenti and the pro-rata profits of approximately EUR 4.5 million relating to the investments in China Opportunity and Area Life. Hence profit (loss) before financial items is negative by EUR 7.1 million and compares with a corresponding positive result of EUR 39.1 million posted in the previous year. Financial operations posted a positive result of EUR 17.9 million which compares to the EUR 3.4 million in net financial charges of the previous year. Pre-tax profit for the year is equal to EUR 10.8 million (EUR 35.7 million in the previous year). Group net profit, after allocation of EUR 6 million in income taxes, is equal to EUR 3.6 million (compared to the EUR 35.7 million of the previous year) and includes the negative minority interest of EUR 0.3 million (negative by EUR 0.2 million in the previous year). Total shareholders’ equity as at 31 December 2008 is equal to EUR 150.9 million (compared to EUR 182 million as at 31 December 2007), of which EUR 4.5 million in minority interest (EUR 7.2 million as at 31 December 2007); hence Group shareholders’ equity is equal to EUR 146.3 million (against the EUR 174.9 million of 31 December 2007). The reduction in shareholders’ equity is mainly due to the negative adjustments made to the valuation reserve by approximately EUR 31 million, of which the most significant relates to adjustment of the investment in Delta S.p.A. by EUR 16 million. Further details of this adjustment are provided in subsequent paragraphs. Group gross total assets equal to EUR 371.4 million (EUR 396.6 as at 31 December 2007) have decreased mainly due to the negative adjustments made to the fair value of some available-for-sale investments partly offset by the entry of the value of property acquired by Fondo Tergeste and by the positive fair value of some derivative contracts entered into by Sopaf. The Group net financial position has fallen from a value equal to 151.6 as at 31 December 2007 to a value equal to EUR 146.8 million as at 31 December 2008.
Sopaf | Report on | Report Operations Sopaf 019 > Sopaf Group’s Financial/Economic Position
The statements and comments hereunder have been prepared on the basis of the financial statements as at 31 December 2008 to which reference is made.
> Financial position The Sopaf Group's financial position is summarised in the table below:
Values in EUR/thousand 31/12/2008 31/12/2007
Non-current assets 243,403 323,958 Including: Associate investments 116,877 116,117 Available-for-sale assets 98,925 153,683 Working capital 54,342 9,723 Total net invested capital 297,745 333,681 Shareholders' equity 150,860 182,042 Net borrowings (liquidity) 146,885 151,639
Non-current assets mainly consist of investments in associated companies and available-for-sale financial assets. Associate investments have increased mainly due to acquisition of 45% of Aviva Previdenza S.p.A. and to the capital increases of Banca Network Investimenti (including through Petunia S.p.A.) for EUR 15.7 million, China Opportunity SA for EUR 2.8 million, Essere S.p.A. for EUR 3.1 million, Area Life Ltd. for EUR 1.6 million, while they have decreased following redemption of the units of the Pwm AIG fund and due to the pro-rata loss and impairment write-down of Banca Network Investimenti (for a total of EUR 12.8 million). The net decrease in available-for-sale assets by a total of EUR 54.7 million is due above all to the negative adjustments to fair value by EUR 25.5 million (mainly ascribable to the Delta investment by EUR 16 million) and to the disposal of a number of investments.
Working capital is represented by the sum of the value of inventories of EUR 27,000 thousand, trade receivables of EUR 2,392 thousand, other non-financial receivables of EUR 21,157 thousand and non- current assets classified as held for sale of EUR 37,688 thousand, and of non-current liabilities of EUR (944) thousand, liabilities for employment severance indemnities, and various provisions for risks and charges of EUR (1,729) thousand, trade payables to suppliers and consultants of EUR (4762) thousand, and of other current liabilities of EUR (25,879) thousand. An increase of EUR 44,619 thousand has been recorded on 31 December 2007. This increase is mainly attributable to reclassification under current assets of a receivable from the tax authorities of EUR 13.9 million with repayment expected by the end of 2009 and debts contracted for acquisition of a minority interest in LM&Partners Sca. As at 31 December 2008 shareholders’ equity totals EUR 150.8 million, posting a net decrease of EUR 31.2 million, mainly attributable to the change in the valuation reserve by EUR 31,894 thousand and to purchase of treasury shares. More detailed information on the changes in shareholders' equity can be found in the statement of changes in shareholders' equity provided hereunder and in note 19 to the consolidated financial statements.
Sopaf | Report on | Report Operations Sopaf 020 The table below provides a breakdown of net borrowings:
Amounts in EUR/thousand
NET FINANCIAL POSITION 31/12/2008 31/12/2007 delta
A) Cash on Hand 10 11 (1) B) Other cash equivalents 4,411 21,715 (17,304) C) Securities and other financial assets held for trading 32,246 3,017 29,229 D) TOTAL CASH AND CASH EQUIVALENTS (A+B+C) 36,667 24,743 11,924 E) Current loans 3,055 4,282 (1,227) F) Current bank payables (55,370) (27,198) (28,172) G) Current portion of non-current borrowings (11,497) (30,765) 19,268 H) Other current loans (1,432) (2,914) 1,482 I) CURRENT BORROWINGS (F+G+H) (68,299) (60,877) (7,422) J) NET CURRENT BORROWINGS (I-E-D) (28,577) (31,852) 3,275 K) Non-current bank payables (68,412) (57,162) (11,250) L) Bond issues (44,669) (43,390) (1,279) M) Other non-current payables (5,227) (19,235) 14,008 N) NON-CURRENT BORROWINGS (K+L+M) (118,308) (119,787) 1,479 O) NET BORROWINGS (J+N) (146,885) (151,639) 4,754
The overall net financial position is substantially in line with the previous year. An improvement has been recorded in the Parent Company’s net financial position while Fondo Tergeste has posted an increase in borrowings, following the raising of loan for acquisition of real estate. Furthermore, there has been a net positive impact on held-for-trading financial assets which have increased by EUR 29,229 thousand, offset by a reduction in cash and cash equivalents and by a slight increase in short- tem exposure, especially in the credit lines used for current operations, to support new initiatives and to guarantee greater capitalisation of the main group companies.
> Economic performance The Group’s income statement for the year reports a profit of EUR 3,637 thousand. The table below provides a summary of the main items.
Values in EUR/thousand 01/01/2008 01/01/2007 delta 31/12/2008 31/12/2007 Revenues and other income 29,616 6,186 23,430 Operating costs (22,601) (26,564) 3,963 Gross operating margin 7,015 (20,378) 27,393
EBIT (7,075) 39,116 (46,191)
Net financial income and (charges) 17,872 (3,429) 21,301 Tax (5,981) (148) (5,833) Net profit (loss) from disposals (1,446) - (1,446) Net profit (loss) for the year 3,370 35,539 (32,169)
Group net profit (loss) 3,637 35,753 (32,116)
The increase in revenues and other income compared to 2007 is mainly due to the higher management commission income/performance of Group product companies and to capital gains realised with assignment of the leasing contracts of the Forobuonaparte offices.
Sopaf | Report on | Report Operations Sopaf 021 Operating costs equal to EUR 22,601 thousand, down by EUR 3,963 thousand, are made up of personnel costs of EUR 6,780 thousand, costs for purchases of materials and external services of EUR 14,049 thousand, other operating costs of EUR 1,772 thousand, amortisation and depreciation charges of EUR 714 thousand, write-downs to receivables for EUR 1,277 thousand and provisions for future charges of EUR 212 thousand.
2008 EBIT is negative by EUR 7,075 thousand as a result of negative investments valued by the equity method of EUR 10,241 thousand (in 2007 positive by EUR 10,208 thousand).
The balance of financial income/(charges) is positive by EUR 17,872 thousand thanks to income accrued on securities forward contracts, net of the charges for bank borrowings.
> Sopaf S.p.A.’S Performance
The Parent Company closed the year 2008 with a net profit of EUR 35.2 million, posting a considerable increase on the previous year which closed with a net profit of EUR 20.1 million. The year specifically benefited from capital gains from the sale of investments of EUR 34.6 million, capital gains from the assignment of finance lease agreements of EUR 16.6 million, income from derivative transactions of EUR 32.2 million, dividends and other profit-sharing income of EUR 3.3 million.
With regard to the balance sheet items, Sopaf S.p.A. increased its shareholders’ equity, which rose from EUR 131 million as at 31 December 2007 to EUR 139 million as at 31 December 2008, despite the negative adjustment to the fair value as at 31 December 2008 of the numerous investments held, which reduced the valuation reserve from EUR 46.9 to EUR 21.9 million.
> Sopaf S.p.A.'s Financial/Economic Position
The statements and comments provided hereunder have been reclassified with effect from the 2007 and 2008 balance sheet figures.
> Financial position The Parent Company's financial position is summarised in the table below:
In EUR/thousand 31/12/2008 31/12/2007
Non-current assets 248,153 346,757 Including: Associate investments 131,295 168,827 Available-for-sale assets 97,338 129,690 Working capital 20,939 (27,730) Total net invested capital 269,092 319,027 Shareholders' equity 139,074 130,967 Net borrowings (liquidity) 130,018 188,060
Non-current assets mainly consist of investments in subsidiary and associated companies, available-for-sale financial assets and tangible fixed assets.
Sopaf | Report on | Report Operations Sopaf 022 The net decrease in investments and in available-for-sale assets totalling EUR 69,884 thousand is chiefly due to closure of liquidation of the Luxembourg subsidiary LM&Partners Sca (book value of EUR 52.2 million), to write-downs of investments of EUR 18.2 million and to negative fair value adjustments of EUR 25.6 million. During the year the acquisition of 45% of Aviva Previdenza S.p.A. was finalised with a net outlay of EUR 14.9 thousand.
Working capital, positive by EUR 20,939 thousand, is the sum of trade receivables of EUR 976 thousand, other non-financial receivables of EUR 20,152 thousand and non-current assets classified as held for sale of EUR 27,203 thousand, less non-current liabilities of EUR (944) thousand, liabilities for employment severance indemnities, and various provisions for risks and charges of EUR (1,281) thousand, trade payables to suppliers and consultants of EUR (5,547) thousand, and other current liabilities of EUR (19,620) thousand. The change compared to the figure as at 31 December 2007 is mainly attributable by EUR (27.730) thousand to the reclassification from non-current assets to held-for-sale assets of a number of investments following the decision taken by the competent organs and to the reclassification under current assets of a receivable from the tax authorities for an amount of EUR 13,968 thousand given that refund is expected during 2009. As at 31 December 2008 shareholders’ equity totals EUR 139,074 thousand, posting a net increase of EUR 8,107 thousand, attributable to the profit for the year of EUR 35,203 thousand, only partly offset by the negative change of EUR 25,005 thousand in the fair value of the available-for-sale assets of which the balancing entry is the valuation reserve.
More detailed information on the changes in shareholders' equity can be found in the statement of changes in shareholders' equity provided hereunder and in note 16 Shareholders' equity of the financial statements of the Parent Company Sopaf S.p.A.
The table below provides a breakdown of net borrowings:
31 December 31 December Change Net financial position 2008 2007 A) Cash 9 10 (1) B) Other cash and cash equivalents 1,376 9,774 (8,398) C) Securities held for trading 32,246 - 32,246 D) Total liquidity (A+B+C) 33,631 9,784 23,847 E) Current financial receivables 3,055 4,280 (1,225) Due from Group companies 3025 3,008 17 Due from others 30 1,272 (1,242) F) Current bank payables (54,398) (27,031) (27,367) G) Current portion of non-current borrowings (11,497) (30,736) 19,239 H) Other current financial payables (1,432) (24,570) 23,138 Due to Group companies (22) (21,881) 21,859 Due to others (1,410) (2,689) 1,279 I) Current financial borrowings (F+G+H) (67,327) (82,337) 15,010 J) Current financial borrowings, net (I-E-D) (30,641) (68,273) 37,632 K) Non-current bank payables (49,481) (57,162) 7,681 L) Bonds issued (44,669) (43,390) (1,279) M) Other non-current payables (5,227) (19,235) 14,008 Due to Group companies - - - Due to others (5,227) (19,235) 14,008 N) Non-current financial borrowings (K+L+M) (99,377) (119,787) 20,410 O) Net financial borrowings (J+N) (130,018) (188,060) 58,042
Sopaf | Report on | Report Operations Sopaf 023 The improvement in the net financial position is due to a reduction in both short-term exposure, by EUR 37,632 thousand, and in medium-term exposure by EUR 20,410 thousand. This improvement is mainly linked to the finalisation during the year of important financial transactions, chiefly attributable to entry of a positive fair value (for a total of EUR 27.7 million) for two forward contracts on units of a real estate fund which were settled in March 2009.
> Economic performance The Parent Company’s income statement for the year reports a profit of EUR 35,204 thousand, the achievement of which has been furthered by positive disposals of investments and outstanding forward transactions in trading securities, as well as by a prudent policy to contain operating costs.
Values in EUR/thousand 01/01/2008 01/01/2007 31/12/2008 31/12/2007 Profit (loss) from investments 18,819 45,620 Dividends 3,344 4,164 Capital gains (losses) on disposals 33,736 54,856 (Write-downs) write-backs (18,261) (13,400)
Other revenues 23,815 1,592 Personnel and other operating costs (15,241) (17,307) Net financial income (charges) 13,590 (9,057) Taxes (5,779) (772) Net profit (loss) for the period 35,204 20,076
Profit (loss) from investments is positive by EUR 18,819 thousand, continuing the previous year’s positive trend despite the negative performance of the equity/financial market in 2008. A more detailed analysis can be found in note 6 Investments and in note 30 Capital gains/ (capital losses) on disposal of investments in the separate financial statements.
Personnel and other operating costs are equal to EUR 15,241 and are made up of personnel costs of EUR 3,179 thousand, costs for purchases of materials and external services of EUR 8,572 thousand, other operating costs of EUR 1,419 thousand, amortisation and depreciation charges of EUR 583 thousand, write- downs to receivables of EUR 1,277 thousand and provisions for future charges of EUR 212 thousand.
The balance of financial income/(charges) is positive by EUR 13,590 thousand thanks to income from derivative transactions mainly linked to forward purchase and sale of trading securities, net of the charges for bank borrowings which has recorded a decrease on last year. The net effect of income taxes on the income statement is mainly linked to use of prepaid taxes (for EUR 10,243 thousand), to the recognition of prepaid taxes (for EUR 4,951 thousand), to use of deferred taxes (for EUR 357 thousand) and on income tax on production activities (IRAP) for the year (for EUR 845 thousand). With regard to the financial statement format, Sopaf S.p.A. has elected to prepare its income statement by classifying revenues and expenditures according to their nature, in consideration of the specific activity carried out by the Company. The Sopaf Group's consolidated income statement is prepared in a different manner, deemed more in line with the Group's internal reporting structure. The choice of the format for the consolidated financial statements is dictated by the fact that these statements consolidate companies which carry out investment activity as well as companies which are operating in the financial service and real estate businesses.
However, in order to allow for meaningful comparison of the Parent Company's income statement and the consolidated income statement, the former has been reclassified with the format used for the latter and is presented hereunder.
on | Report Operations Sopaf 024
Amounts in EUR/thousand
31/12/2008 31/12/2007
Revenues 5,457 139 Other income 18,358 1,453 Purchase of materials and external services (8,572) (8,585) Personnel costs (3,179) (4,477) Other operating costs (1,419) (3,599)
Gross operating margin 10,645 (15,069) Provisions for risk and write-downs (19,750) (13,400) Depreciation and amortisation expense (583) (647)
Gains/Losses from disposal of non-current assets 33,736 54,856
Operating profit 24,049 25,740
Financial income 38,120 5,042 Financial charges (21,186) (9,935) Net financial income/(charges) 16,934 (4,893) Profit before tax 40,983 20,848 Income taxes (5,780) (772) Net result from operating activities 35,204 20,076 Net result from disposals -- Net result 35,204 20,076
Sopaf | Report on | Report Operations Sopaf 025 > Group Structure
SOPAF S.p.A.
Delta S.p.A. Noventi Ventures II LP Sadi Servizi Industriali S.p.A. Sopaf Capital Management SGR S.p.A. (15.95%) Bologna (2.32%) USA (2.54%) Segrate (100%) Milan Essere S.p.A. (92%) Milan Fondo Tergeste ASM Lomellina Inerti S.r.l. (100%) Milan Essere Protezione S.r.l. (33%) Vigevano Polis Fondi SGR p.A. (100%) (49%) Milan Essere Tutela S.r.l. Demofonte S.r.l. Formula Sport Group (in liquid'n) (100%) (15%) Monza (19%) Milan Bridge Fin Serv. S.r.l. (100%) Petunia S.p.A. * Five Stars S.A. Volare S.p.A. (in receivership) (59.38%) Milan (99.99%) Luxembourg (24.6%) Varese
49,92% Banca Network Investimenti S.p.A. Value Sec. Inv. Sicàr SCA S.F.E.R.A. S.r.l. (14.99%) Milan (2.57%) Luxembourg (48%) Agrate Brianza
Area Life International Assur. Ltd Blue H Technologies BV (45%) Dublin Sopaf Asia S.àr.l. (1.22%) The Netherlands (85%) Luxembourg Green Bit S.p.A. Conafi Prestitò S.p.A. (1.97%) Grugliasco (4.13%) Turin China Opportunity S.A. Sicàr AFT S.p.A. (44.87%) Lux. (**) Aviva Previdenza S.p.A. (24.9%) Milan (45%) Milan Life Science Capital S.p.A. Vintage Fund Sicav (68.19%) Milan (5%)
A.A.A. S.A. (15.31%) France Valore by Avere AM SCA (11.9%) Luxembourg iM3D S.p.A. (17.86%) Turin
Westindustrie S.r.l. Cerma S.A. (22%) Milan (17.9%) France
Li Tech S.p.A. (94%) Monterotondo
Sopaf&Partners RE-Inv S.r.l. (40%) Milan
Sun System S.p.A. (15.94%) Milan
Immsi S.p.A. (1%) Mantova
Nova Fronda S.r.l. (25%) Milan
The Infrastructure&Growth Capital Fund (0.5%) Arab Emirates
IGI Investimenti Quattro (0.95%) Milan
* Sopaf holds 49% of voting rights and 59.38% of equity * Sopaf holds 44.87% of voting rights and 11.33% of equity
Sopaf | Report on | Report Operations Sopaf 026 > Main risks and uncertainties to which Sopaf and the investee companies are exposed
> Risks associated with the general state of the economy The current weakness of world economies and especially of the financial sector in which the Group carries on its core business could have negative repercussions on the activities performed by the Group. The market’s liquidity crisis in particular and the general widespread slowdown of industrial growth could lead to a general deterioration of the Groups assets, and/or in the absence of suitable financial support to the need to dispose of those with low equity value. Furthermore, as the Group adopts an opportunistic approach, there is no guarantee that the strategy of pursuing assets with yields that are on the whole as far removed as possible from market trends can generate the expected results.
> Risks associated with investment activity As part of its core business, the SOPAF Group makes medium-term investments without any certainty of invested capital refund and return. Investments in shareholdings are by their nature characterised by a high level of risk, especially in this period of high financial market volatility. There is no guarantee that the Group will be able to identify and realise valid investment opportunities and to liquidate investments made reaching the profit targets set each time, or achieving said targets within the expected timeframe or in any case within a reasonable time. Hence there is no guarantee as to the profitability of the enterprises in which the Group will invest, as to their increase in value and accordingly as to the return on investment. Furthermore, given that the Group’s economic performance is also linked to the formation and realisation of capital gains on investments in shareholdings and that by their nature these elements are not regular and/or recurring, the trends in economic results over the various years may not prove to be linear and/or lend themselves to meaningful comparison.
> Risks associated with disinvestment activity The Group’s disinvestment strategy could be aversely influenced, or even hindered, by various factors, some of which cannot be foreseen at the time the investments are made. Hence there are no guarantees that the Group will be able to implement its disinvestment strategies according to the expected timeframes, procedures and conditions. Specifically, in market situations such as those currently experienced by world economies, the disinvestment process could require longer timeframes than expected and/or be implemented using procedures that are not fully satisfactory or at conditions that are not remunerative for the Group. Hence there is no guarantee that the Group will achieve the expected gains in view of the risks arising from investments made. Likewise, there is no guarantee that the Group will not incur losses on its own investments, which may even be of substantial entity. If the Parent Company should incur losses from investments made, or even fail to realise gains, the operating costs associated with management and running of the standards operations could have negative effects on the Group’s financial position, financial performance and cash flows.
> Risks associated with financial resource requirements In view of the significant financial crisis underway, the availability of financial resources from outside the Group represents a critical factor in maintaining the growth strategies involving Group investments. Even though the Group intends to increase the incoming cash flows that allow it to cover its operating requirements (which shall also be reduced sharply compared to previous years) there is no guarantee that in the future the Group will be able to negotiate and obtain the funding necessary to expand and support its activities or to refinance expiring loans with procedures, terms and conditions obtained to date. Accordingly, any increases in the economic conditions of new loans and the possible future reduction of the banking system’s credit capacity, could have adverse effects on the Group’s economic and financial position and/or limit its growth capacity.
> Risks from trading financial derivative instruments The Group has entered into trading derivative contracts for forward purchases and sales and asset swaps with underlying security investments. Hence, while it only trades with counterparties with high credit rating, the Sopaf | Report on | Report Operations Sopaf 027 risks associated with these types of transactions mainly concern counterparty solvency and profitability of the underlying assets.
> Risks associated with interest rate fluctuations As the Sopaf Group uses various forms of financing to sustain its investments, significant changes in interest rate levels could lead to considerable increases/decreases in the cost of loans or in the margins arising from financial services. To mitigate the aforesaid risks the Group sometimes makes use of hedging financial instruments and regularly performs a sensitivity analysis of its exposures to assess the advisability of generic/specific hedges. However it is reminded that, despite the use of hedging instruments, sudden fluctuations in interest rates could still have a negative economic effect on the results posted in the Group’s income statement and balance sheet.
> Risks associated with management The Group’s success very much depends on a number of key management figures who have made a decisive contribution to expansion of business. The loss of these figures or the inability to attract, train and hold on to further qualified personnel could diminish the Group’s competitive capacity, condition its growth targets and have adverse effects on the Group’s activities and results. Furthermore, if one or more of the aforesaid key managers should terminate their relationship with the Group, there is the risk that the Group would be unable to replace them with persons capable of ensuring the same contribution in the short term and so the Group could suffer negative repercussions.
> Risks associated with changes in legislation applicable to the Group Many Group companies carry on business in highly regulated sectors. The activities of the SOPAF Group are subject to Italian legislation and regulations as well as to EU legislation and regulations. No guarantee can be provided that existing legislation and regulations will not undergo future changes, even in terms of interpretation, that would generate an increase in costs, charges or levels of responsibility for the Group and adversely affect the Group’s activities with possible repercussions on assets and/or on the Group’s financial position, financial performance and/or cash flows.
> Information on financial risks
The Company continuously monitors the financial risks associated with its activity and the activities of its subsidiary companies. The risks relating to core business are essentially interest-rate risk and liquidity risk.
> Capital management The Company’s capital management objectives are geared towards safeguarding the Company’s capital and the Group’s business continuation capacity in order to guarantee profitability for shareholders, the interests of stakeholders and observance of covenants, and to maintain an optimum capital structure.
> Foreign-exchange risk The Company primarily does business in the eurozone and is not therefore exposed to foreign-exchange risk.
> Interest-rate risk The Company and its subsidiaries are exposed to interest-rate risk on the portion of borrowings on which floating interest rates apply. When considered necessary, this risk is managed through the use of derivative contracts.
on | Report Operations Sopaf 028 > Credit risk With regard to financial counterparties, the Company and its subsidiaries do not have any major concentrations of credit risk or solvency risk.
> Liquidity risk Given the business operations performed, the liquidity risk to which the Company could be exposed is linked to the difficulty in raising funds to meet commitments. The Company constantly monitors cash and cash equivalents and defines useable credit lines of an appropriate amount with leading banks.
More details on the management of financial risks can be found in the additional information required by IFRS 7 and reported in the explanatory notes.
Sopaf | Report on | Report Operations Sopaf 029
> Information on the investments of Directors, General Managers, Statutory Auditors and executives with strategic responsibilities
The following information is provided pursuant to CONSOB Resolution no. 11971 of 14 May 1999 and subsequent resolutions, with respect to the adoption of rules for the implementation of Legislative Decree n. 58 of 24 February 1998 ("Draghi Decree") regarding issuer regulations.
Surname Position Investee Type of Number of Number of Number of Number of Number of Name Company Shares shares held shares shares sold shares held at warrants at 31/12/2007 acquired 31/12/2008 held at 31/12/2008 (1)
Cirla Giorgio(*) Chairman Sopaf S.p.A. Ordinary 5,000,000 - - 5,000,000 -
Vender Giovanni Jody Director Sopaf S.P.A. Ordinary 600,000 - - 600,000 - (**)
Boschetti Giancarlo Director Sopaf S.p.A. Ordinary 1,000,000 - - 1,000,000 -
Galliani Adriano Director Sopaf S.p.A. Ordinary 3,500,000 30,000 1,000,000 2,530,000 -
Magnoni Luca Director Sopaf S.p.A Ordinary 327,980 102,000 - 429,980 150,000
Martignoni Renato (***) Director Sopaf S.p.A. Ordinary 17,166,868 1,862,179 1,391,141 17,637,906 -
Giorgio Magnoni (****) Deputy Chairman and Sopaf S.p.A Ordinary 24,705,000 - - 24,705,000 16,879,600 CEO
Giorgio Magnoni Deputy Chairman and Sopaf S.p.A Ordinary 109,617,580 2,061,714 3,740,000 107,939,294 (*****) CEO
Giorgio Magnoni Deputy Chairman and Sopaf S.p.A Ordinary 1,050,000 208,250 - 1,258,250 - (******) CEO
Executives with Executives with Sopaf S.p.A Ordinary 70,000 306,959 - 376,959 200,000 strategic responsibilities strategic responsibilities
(*) held by family members through Eos Servizi Fiduciari S.p.A. (**) held through Ven Fin S.p.A.: a company indirectly controlled by Giovanni Jody Vender, Director (***) held through family members and by Coemi Property S.p.A. (****) held through Alfabravo S.r.l..: majority shareholder Giorgio Magnoni (*****) held through: Acqua Blu S.r.l majority shareholder Giorgio Magnoni
(******) held by the wife of Giorgio Magnoni
(1) Conversion of the warrants into Sopaf shares can be exercised at a ratio of 1 warrant to 2 Sopaf shares at a price of 0.459 per share. The period of exercise runs from 18 March 2006 to 31 December 2011.
Sopaf | Report on | Report Operations Sopaf 030
> Reconciliation between the consolidated financial statements and Sopaf S.p.A. Financial Statements
Amounts in EUR/thousand 31 December 2008 31 December 2007
Shareholder’s Result for the Shareholder’s Result for the Equity year Equity year
Parent company shareholders' equity and result 139,074 35,204 130,967 20,076 Book value elimination of consolidated investments: Value of investments in consolidated companies (38,468) - (80,935) - Goodwill from consolidation 2,476 - 2,860 - Pro-quota shareholders' equity from consolidated investments 28,440 - 88,039 - Group share of results of fully consolidated companies - (4,272) 13,517 13,517 Impaired investments written off 14,798 18,068 - - Changes in the scope of consolidation: Winding-up of LM&Partners SCA - (27,105) - - Winding-up of Siskin SA - 121 - - Winding-up of Cutter S.àr.l - 29 - - Disposal of Tenerani S.r.l. - 47 - - Disposal of Eolia S.r.l. - 32 - -
IAS-Group accounting standard adjustments: Fair value adjustment of financial assets 4,643 (3,311) 11,310 - Adjustments for pro-quota results of investments carried by the equity method (1,276) (10,195) 9,266 2,598 Other adjustments (346) (192) (154) (437)
Elimination of effects of transactions between consolidated companies: Net infragroup income (2,674) (2,674) - - Elimination of infragroup dividends: Distributed dividends from investments in associated companies (344) (344) - - Distributed dividends from fully consolidated companies - (1,770) - -
Group share of shareholders' equity and result for the year 146,323 3,637 174,870 35,753 Minority interest share 4,537 (267) 7,173 (214) Consolidated shareholders' equity and result 150,860 3,370 182,042 35,539
Sopaf | Report on | Report Operations Sopaf 031 > Key transactions completed in 2008
> Product companies
On 8 January and 8 February 2008 Sopaf S.p.A. finalised acquisition of minority interests equal to 23.36% in the share capital of PWM Sgr, for a total of EUR 0.8 million.
On 27 March 2008 the Boards of Directors of Sopaf Capital Management SGR S.p.A. (hereinafter SCM) and Private Wealth Management SGR S.p.A. (hereinafter PWM) approved the merger by incorporation of PWM into SCM, which will allow the Group to streamline its hedge equity fund business under a single product company. On 16 December the merger was finalised.
On 25 June the Board of Directors of PWM resolved to reorganise its funds.
On 1 August Sopaf Capital Management SGR commenced operations in the Sopaf Small Cap Europe fund, as on 31 July it received the first subscription of units equal to EUR 10 million from the Parent Company Sopaf S.p.A., in its capacity as fund sponsor. Given financial market trends and the lack of units placed with new institutional investors, during December Sopaf decided to disinvest from the fund recording a loss of EUR 0.6 million.
On 6 August the Vintage Fund assigned a management mandate to Sopaf Capital Management SGR. Management commissions relating to this mandate for the year 2008 total EUR 1.5 million.
On 8 October 2008, Sopaf S.p.A. concluded the contract for acquisition of 51% of the share capital of Polis Fondi SGR p.A. from a number of banks for a total consideration of EUR 9.5 million. The acquisition is currently subordinate to obtaining the necessary authorisations from the Supervisory Authorities relating to: (i) acquisition of the investment and (ii) amendments to the regulations of Fondo Polis concerning the introduction of an Advisory Committee.
> Industrial investment segment
On 30 January 2008 in an extraordinary meeting the shareholders of Coronet S.p.A. resolved the wind-up and liquidation of the company after having deliberated to reduce the share capital from EUR 19 million to EUR 1 million to cover losses realised as at 30 June 2007 and losses recorded in the balance sheet as at 31 December 2007.
On 31 January 2008 3.5 million Immsi shares were purchased for a total of EUR 4.4 million.
On 3 March 2008 the Ministry of Communications officially awarded the tender for allocation of the WiMax licences. The subsidiary of Sopaf, AFT S.p.A., was awarded the user rights in 13 regions which represent over 75% of the resident Italian population for a total investment of EUR 34 million. On 1 April 2008 Sopaf S.p.A. granted a shareholders’ loan to AFT for EUR 18.5 million for acquisition of the WiMax licences. It should be mentioned that the other financing partner, the US group Ramius, paid in the same amount as shareholders’ loan. On 19 June the shareholders’ meeting of AFT resolved to increase the share capital from EUR 4.3 million to EUR 60 million. Sopaf subscribed to the increase by converting the aforementioned shareholders’ loan.
On 12 March Sopaf completed the acquisition of 15.94% of the share capital of Sun System S.p.A. through subscription to a reserved capital increase for a total of EUR 2.5 million. Sun System carries on business in the renewable energy sector and manages the process and physical production of small-medium sized photovoltaic systems (up to 100kw), from the feasibility study to system installation and assignment of the incentive tariff.
During the year Sopaf subscribed to a further capital increase of EUR 0.4 million for Sfera S.r.l., to be used for construction of a photovoltaic plant in Puglia, which entered into production at the end of the year. Sopaf | Report on | Report Operations Sopaf 032
In June 2008 Sopaf subscribed a share capital increase of EUR 1.4 million for the subsidiary Life Science Capital S.p.A. to support new investment initiatives in the biomedical sector. As at 30 June 2008 the company’s shareholders’ equity inclusive of the share premium reserve totals EUR 8.7 million.
On 31 July 2008, as part of the industrial investment rationalisation strategy launched during 2007, the Sopaf Group sold four industrial investments to a newly established fund. The fund’s initial investors were Paul Capital Partners IX, L.P., (a US private equity fund) and Sopaf S.p.A. with an investment equal to 5% of the fund for a total commitment of approximately EUR 2.5 million (of which EUR 2 million already paid in at the end of July 2008). The fund established under foreign law entitled "Vintage Fund" acquired 28.9% of AFT S.p.A. from Sopaf S.p.A. (i.e. half of the investment held directly and indirectly by the Group), 28.4% of Green Bit S.p.A., 26.5% of Sila Holding Industriale S.p.A. and 24.7% of Res Finco AG. These last three investments were held directly and indirectly by the company LM & Partners SCA in liquidazione, wholly owned by Sopaf S.p.A. The sale occurred through a special purpose vehicle held by Sopaf S.p.A., Emery Sarl, which acquired the aforesaid investments and was subsequently sold by Sopaf S.p.A. The sale price of the entire portfolio was equal to EUR 38.9 million and the agreement includes earn-out clauses in favour of Sopaf linked to the values and timeframes of subsequent disinvestments by the fund. Furthermore, the fund will receive additional commitments from investors of EUR 12.5 million to allow further investments in the acquired portfolio.
With regard to disposal of the aforesaid industrial investments, on 1 August, the liquidator of LM & Partners SCA resolved to make a partial distribution of income assigning the sole shareholder Sopaf S.p.A. EUR 22 million in cash.
On 24 July 2008 the Shareholders’ Meeting of Coronet S.p.A. in liquidazione resolved to revoke the state of liquidation and to cover losses by reducing and then re-establishing the share capital. The deadline for subscription to the capital increase expired on 31 August and as Sopaf S.p.A. had decided not to subscribe to this increase, from that date it no longer holds a share in the company’s capital.
In August a non-interest bearing loan was provided to Nova Fronda S.r.l., a company that holds a controlling investment in a company operating in the media sector (production and distribution of documentaries for thematic platforms).
On 10 October 2008 the shareholders’ meeting of Nearco Invest S.à r.l. resolved the voluntary wind-up of the company and the appointment of a liquidator. On 18 December the company was liquidated with the shares of the only asset in the portfolio (7.75% of AFT S.p.A.) being proportionally assigned to the two shareholders RCG International Opportunities Sarl (51%) and Sopaf S.p.A. (49%).
On 15 October 2008 SOPAF S.p.A., Nova Fronda S.r.l. and another investor signed an investment agreement that provides for Sopaf’s subscription of 25% of Nova Fronda S.r.l. through a capital increase reserved to Sopaf, to be released through setoff of the loan of EUR 1.4 million provided in August, September and October 2008 and the related integration for a total of EUR 230 thousand, which was duly paid in by Sopaf in November 2008.
On 16 October 2008 the Board of Directors of Sopaf S.p.A. launched a new disposal project relating to some Group assets no longer considered strategic.
> Financial and insurance services segment
On 11 January 2008 Sopaf S.p.A. and Aviva Italia Holding S.p.A. finalised acquisition of 100% of the share capital of Aviva Previdenza S.p.A. from Finoa S.r.l. Sopaf S.p.A. acquired a 45% stake for a total consideration of EUR 15.4 million.
Sopaf | Report on | Report Operations Sopaf 033 On 17 January 2008, as part of the reorganisation of the investee Beven Finance Sarl, Sopaf S.p.A. acquired from its associate 14,999,970 shares of Management & Capitali S.p.A. A similar transaction for the same number of shares was performed by the Ramius Group on 12 February 2008. On 23 May 2008 the extraordinary shareholders’ meeting of Beven Finance resolved to wind up the company and on 30 September 2008 wind-up was completed.
During the first part of the year, Sopaf S.p.A. finalised a series of purchase and sale transactions involving the Management & Capitali share, through which it realised capital gains of EUR 0.4 million. Pursuant to and for the purposes of Articles 2437 and 2437-bis of the Italian Civil Code and following the amendments to the by-laws approved by the shareholders’ meeting of Management&Capitali S.p.A. on 15 May 2008, on 13 June 2008 Sopaf S.p.A. notified the exercise of its right to withdrawal for a number of shares equal to 19,397,468. On 1 October 2008 Management&Capitali refunded the shareholders who exercised the right, after which the Group recorded a loss of EUR 3 million.
On 28 January 2008 the extraordinary shareholders’ meeting of Banca Bipielle Network S.p.A. resolved to change its corporate name to Banca Network Investimenti S.p.A., which abbreviates to BNI S.p.A. On 29 April 2008 the shareholders’ meeting of BNI resolve to reduce the share capital from EUR 26 million to EUR 16 million to partially cover the residual loss from 2007 and at the same time to pay in a capital increase of EUR 20 million (of which EUR 6 million as share premium reserve). This increase was later subscribed by the current shareholders on 21 August 2008. The Sopaf Group’s outlay for the capital increase was equal to EUR 8.9 million. On 30 December Sopaf and the other BNI shareholders paid into the bank a further total amount of EUR 6.8 million as advance on future capital increase.
On 26 March 2008 and 26 May 2008 Sopaf S.p.A. made capital account payments totalling EUR 1.2 million to the investee Essere S.p.A. to cover losses recorded as at 31 December 2007 and as at 31 March 2008 and EUR 0.55 million to re-establish capital.
On 24 June 2008 the shareholders’ meeting of Essere resolved (i) to cover the losses recorded in the financial statements as at 31 December 2007 and in the balance sheet approved as at 31 March 2008 by using the reserves, share capital and the payment made by Sopaf, (ii) to re-establish the share capital at EUR 600,000 to be offered under option to shareholders in proportion to their respective holdings and (iii) to increase capital from EUR 600,000 to EUR 2,000,000 to be offered under option to shareholders in proportion to their respective holdings, to be placed by 31 December 2008. On 3 August 2008, upon expiry of the deadline for subscription to the re-establishment of share capital, Sopaf held 81.87% of share capital having subscribed part of the shares for which option had not been exercised. On 8 October 2008 Sopaf acquired a further 10.13% of the share capital of Essere from third party investors, increasing its investment from 81.87% to 92%.
31 December 2008 was the deadline for subscription to the capital increase of Essere S.p.A. up to EUR 2 million. For this increase, subscribed by shareholders in proportion to their respective investments, Sopaf paid in EUR 827 thousand on 30 December. Hence at year end Sopaf holds 92% of the share capital of Essere.
With letters dated 22 August and 16 September 2008, Sopaf informed Delta S.p.A. of the exercise of its right of withdrawal for 16,967,900 shares pursuant to Articles 2437, sub-section 1, letter a) and 2497-quater, sub- section 1, letter c), of the Italian Civil Code following the extraordinary meeting of the company’s shareholders held on 6 August 2008, which approved the adoption of a new version of the Articles of Association which amends the corporate purpose to allow the company to perform the activity of bank holding company. With regard to the amendment to the corporate purpose and also in view of the changes in Delta S.p.A.’s financial/equity and management structure, as well as in its ownership structure, Sopaf believed it to be absolutely necessary to protect its own interests by exercising the right of withdrawal and also reserving the right to take all the steps necessary to ensure that the liquidation value is determined as specified in the Italian Civil Code. Sopaf | Report on | Report Operations Sopaf 034 In this last regard, it is necessary to report that during the extraordinary shareholders’ meeting held on 6 August, the directors of Delta S.p.A. did not acknowledge the dissenting shareholders’ right of withdrawal, citing as motivation the fact that they did not deem the amendment to the corporate purpose to be sufficiently significant to give rise to the right. Consequently, upon motion filed by Sopaf, on 30 January 2009 the Court of Bologna appointed an expert to determine the liquidation value of the Delta S.p.A. shares pursuant to Article 2437-ter of the Italian Civil Code. This appointment was however suspended by the Court of Bologna on 20 February 2009 following appeal filed by Delta S.p.A. after which adversarial proceedings were commenced, during which the Court of Bologna will decide on whether to confirm or revoke appointment of the expert. With regard to Delta S.p.A., it is reported that the following judicial procedures involving Sopaf are also pending: (i) a case brought by Sopaf before the Court of Bologna relating to cancellation of the resolution to increase the share capital of Delta S.p.A. passed on 6 August 2007 and related compensation of damages; (ii) a case before the Court of Bologna brought by one of the shareholders of Delta S.p.A. relating to failure to perform the Delta S.p.A. shareholders’ agreements and related compensation of damages, quantified as EUR 15 million. As part of this dispute, Sopaf filed a counterclaim requesting that the plaintiff be sentenced to refund the defendant for the damage incurred in relation to failure to perform the shareholders’ agreement, the amount of which has been quantified as EUR 36 million. As the dispute has just commenced, it is not possible to predict the outcome at this stage.
> Other financial transactions
In March and July 2008 Sopaf S.p.A. entirely subscribed its $10 million commitment in the private equity Infrastructure and Growth Capital Fund managed by Abraaj Capital, leading infrastructural investment company in the MENASA region (Middle East, North Africa and South-East Asia), with $4 billion worth of assets under management. In this regard it is reminded that on 7 August the fund recognised $1.5 million by way of partial refund of the subscription as the fund had collected extraordinary cash from a transaction involving disposal of an investee.
In March 2008 Sopaf formally decided to disinvest from the PWM AIG fund, as it considered its role of co- sponsor to have reached an end. During November 2008 redemption of the units was completed and Sopaf recorded a loss of EUR 562 thousand.
On 6 August 2008 the Board of Directors of China Opportunity SA Sicar ratified the capital increase in progress, subscribed and paid in for a total of EUR 14.8 million. For the Sopaf Group, Cutter Sarl subscribed the capital increase of the class A shares for EUR 151.3 thousand, while the capital increase of the class B shares was subscribed by Sopaf S.p.A. for EUR 2.7 million as the Group company which held the direct investment in the company’s capital, LM & Partners (wholly owned by Sopaf S.p.A.) was under liquidation and, consistent with its mandate, the liquidator assigned the right to subscribe the capital increase to its sole shareholder. At the same meeting the Board of Directors of China Opportunity also resolved to transfer the class B shares held by LM & Partners SCA to Sopaf S.p.A. through a partial distribution of liquidation proceeds, which was formally executed on the same date by the liquidator who assigned 5,000 class B shares to Sopaf S.p.A. for an invested countervalue of EUR 5 million. On 12 September 2008 the shareholders’ meeting of Cutter Sarl resolved to wind up the company with immediate effect, transferring ownership of the class A China Opportunity shares to the sole shareholder Sopaf S.p.A.
On 26 September 2008 Sopaf bought off 20 units of the private equity fund Igi Investimenti Quattro from third party investors, for a subscription commitment of EUR 1 million.
On 30 September 2008 Sopaf S.p.A. concluded an asset swap transaction with a leading foreign banking counterparty. For Sopaf the transaction provides, in exchange for payment of a fixed rate, for recognition of Sopaf | Report on | Report Operations Sopaf 035 the income flows linked to the distribution of dividends/extraordinary income of Fondo Immobili Pubblici on a notional amount totalling EUR 30 million. As this counterparty has not been affected by the recent crises experienced on the financial market, no counterparty risk is considered to be involved.
> Real estate segment
On 27 February 2008 the company Sopaf & Partners RE-Investment S.r.l. was set up with Sopaf S.p.A. holding a 40% investment. The company’s purpose is to perform investment and disinvestment transactions in the real estate segment, including through the acquisition and disposal of investments in other companies or entities. During April, Sopaf S.p.A. provided a shareholders loan to Sopaf & Partners RE-Investment S.r.l., proportional to the stake held in the investee’s share capital, for a total of EUR 1.5 million, to be used to acquire a property/hotel complex in Capri, through establishment of the company Tiberio S.r.l., 20% owned by Sopaf &Partners RE S.r.l. During the year Sopaf S.p.A. provided further funds totalling EUR 3 million to Sopaf & Partners RE to support finalisation of new transactions.
On 28 February 2008 Fondo Tergeste paid Sopaf S.p.A., in its capacity of fund unitholder, income of EUR 1.7 million.
On 10 March 2008 Fondo FIP paid Sopaf S.p.A., in its capacity of fund unitholder, income of EUR 1 million.
On 31 March 2008 Sopaf S.p.A. sold 128 units of Fondo FIP (acquired in October 2007) to third party investors, generating capital gains of EUR 2 million.
In September 2008, Sopaf S.p.A. bought and sold 209 units in the same fund achieving capital gains of EUR 881,000.
On 30 June 2008 Sopaf finalised the assignment of leasing contracts on a property situated in Foro Buonaparte, 24/Via Mercato, 5 Milan to FASC Immobiliare S.r.l., for a consideration of EUR 23.2 million. The transaction generated capital gains in the region of 16 million.
During July and August 2008 Sopaf S.p.A. subscribed new units of the Tergeste real estate fund for EUR 7.5 million. The cash input was used by the fund to finalise a number of real estate transactions, including the acquisition of a property in the centre of Milan for EUR 27 million.
During December 2008 Sopaf signed two forward derivative contracts with different institutional investors, pertaining to units of Fondo FIP for a total contractual obligation of EUR 140 million. The valuation of these contracts, using the fair value of the underlying asset determined from the NAV value of the fund as at 31 December 2008, to which was applied a discount indicative of the liquidity of the instrument on the basis of the track record available to the company and inferred from the trading concluded in 2008, led to the recording in the income statement of net income from fair value valuation equal to approximately 27 million. The transactions were settled with consignment of the securities during 2009.
> Group transactions
On 13 June 2008 the buy back programme approved by the Shareholders’ Meeting of Sopaf S.p.A. on 27 November 2007 was completed. The treasury shares held by the Group total 5,200,000 for a total investment of EUR 2.36 million. On 28 June 2008 the shareholders’ meeting of Sopaf S.p.A resolved to revoke the authorisation to purchase treasury shares approved by the meeting on 27 November 2007 for the remainder of the period of validity. The treasury shares will be held in the portfolio, unless traded, exchanged, transferred or subject to other act of disposition as part of business plans or extraordinary finance transactions for which the shareholders’ meeting approved authorisation for a period of eighteen months, in compliance with the prevailing legal and
regulatory provisions, regulations issued by Borsa Italiana S.p.A. and in observance of applicable EU on | Report Operations Sopaf 036 provisions. In this case, the economic terms of the sale transaction, including valuation of the shares traded, will be determined with the assistance of independent experts, on the basis of the nature and characteristics of the transaction, also taking into account the market performance of the Sopaf S.p.A. shares.
On 18 December 2008 wind-up of the companies Mirror 3 Sarl and LM & Partners SCA was completed. During 2008 the vehicle companies Cutter Sarl, Nearco Sarl, and Beven Finance Sarl were also wound up.
> Group investments as at 31 December 2008
> Main controlling investments of Sopaf S.p.A. as at 31 December 2008
> Essere S.p.A. As at 31 December 2008, Sopaf held 92% of Essere S.p.A., a financial broker set up in November 2004 which distributes mortgages and insurance products. In 2008 the company underwent a radical restructuring process to eliminate inefficiencies caused by a cumbersome structure and by management and administration costs that were not optimal and to improve internal organisation and operating processes.
> Fondo Tergeste As at 31 December 2008 Sopaf S.p.A. holds 100% of the units of the Tergeste real estate mutual investment fund, which changed its name to Sopaf Real Estate Opportunity I on 1 February 2009. It is a hedge fund which invests in real estate development and trading transactions. During the year Sopaf made new cash subscriptions for a total of EUR 8 million to allow new investments and specifically: • in July the Fund acquired a property in via Manzoni, Milan, to be used for office and tertiary space for a total of 2,060 m2. This acquisition was partially financed by a mortgage of EUR 19 million granted by Banca Popolare di Milano; • in July the Fund also subscribed 20% of the share capital of Favonio, a company established to undertake foreign real estate initiatives, for which purpose the Fund granted loans totalling EUR 1,052 thousand. In addition to these new investments, mention is also given to those already existing as at 31 December 2007: • 15% investment in Immobiliare Appia 2005 S.r.l., a company owning a portfolio of real estate units situated in Via Appia Nuova, Roma; • 25.50% investment in Firanegocios S.L., a company incorporated under Spanish law that is completing the building of two prestigious properties in Barcelona, which will be consigned to the promissory purchasers during 2009; • 50% investment in Co.Se. S.r.l., a company that markets some real estate units in Como, through the associate Iside S.r.l.
Following the new investments the Fund’s equity has risen to EUR 18,242 thousand, while total underlying assets have recorded an increase from EUR 16,496 thousand at 31 December 2007 to EUR 38,867 thousand at year end 2008. As at 31 December 2008 the Fund’s equity is divided into 53 units of the amount of EUR 344,190.706.
> Life Science Capital S.p.A. Life Science Capital S.p.A. (former LM LS S.p.A.), which is 68.19% directly owned by Sopaf S.p.A., is a special-purpose investment company used for purchasing investments in companies operating in the healthcare, diagnostics, bio-technology, pharmaceutical, and fitness sectors.
The main investments currently held are: • Advanced Accelerator Applications S.A., an Italian-French company active in radiopharmaceuticals of which Life Science Capital S.p.A. holds 15.2% through an investment of approximately EUR 3.2 million following various capital increases with entry of new shareholders. The company produces radiotracers used in diagnostic exams and has three production plants in France, two in Italy and two Sopaf | Report on | Report Operations Sopaf 037 currently under construction in Italy and Spain. During 2008, the company moved ahead with its European expansion plan, starting up production of a number of plants and commencing studies on new tracers and molecules for therapeutic use. As at 31 December 2008, Advanced Accelerator Applications reported EBITDA of approximately EUR 1.6 million and a turnover of EUR 12 million (in 2007 EUR 1.7 and 7.9 million respectively); • iM3D S.p.A. an up-and-coming firm in the market of medical imaging and diagnostics (computer-aided detection) of which Life Science Capital S.p.A. holds 17.86% of capital following an investment of approximately EUR 1.8 million. The company is developing new imaging technologies to identify, diagnose and monitor tumours. During the year the company commenced the marketing of its first product recording a turnover of EUR 0.5 million.
> Sopaf Asia S.à.r.l. As at 31 December 2008 Sopaf holds 85% of the share capital of Sopaf Asia S.àr.l., 85% of the share capital of Sopaf Asia S.a.r.l., a company that provides advisory services to China Opportunity S.A. Sicàr. The company has representative offices in Shanghai and Hong Kong. In 2008 it reported approximately EUR 0.8 million in management commissions.
> China Opportunity SA Sicàr China Opportunity SA Sicàr, in which as at 31 December 2008 Sopaf S.p.A. holds 11.34% of class B shares and 92.9% of class A shares (shares which guarantee higher economic returns than class B shares), is dedicated to investments in Chinese companies with international growth potential and has capital of EUR 50 million and a specified term of six years. During 2008 the company continued to invest the capital raised from the Group and from third-party investors, and as at 31 December 2008 the principal investments made are: • Myngyang Electric Appliance Co. Ltd, a company active in the production of turbines for wind energy in which China Opportunity invested EUR 11 million for 15.32% of the share capital; • Sino Gas & Energy Limited, a company active in the production and extraction of gas in which China Opportunity invested EUR 3.7 million for 12.6% of the share capital; • Groupe Levillair, a company active in multi-brand catering in which China Opportunity invested EUR 4.5 million for 30% of the share capital; • Back in Time, a company active in mono-brand catering in which China Opportunity invested a further EUR 4.5 million for 30% of the share capital.
> Sopaf Capital Management SGR S.p.A. As at 31 December 2008 Sopaf S.p.A. holds 100% of the share capital of Sopaf Capital Management SGR S.p.A., a hedge fund management company which manages assets totalling EUR 145 million.
> Main associative investments held by Sopaf S.p.A. as at 31 December 2008
> Aft S.p.A. Sopaf holds 24.89% of AFT S.p.A., an Italian leader in the creation of broadband internet connection solutions, using the most innovative wireless technologies. Since 2003 the company has managed a Wi-FI hotspot network. This network currently covers prestigious locations, such as the main Italian airports, hundreds of hotels, motorway service areas, tourist resorts, conference centres and a series of public hotspots (bookshops, businesses, sport centres, etc) located nationwide. Since 2004 it has also designed, created and managed flexible and modular solutions that aim to bring broadband to the geographical areas that have not yet been reached by this service. At present AFT’s telecommunication networks serve approximately 350 municipalities. During 2008 AFT was awarded 13 regional Wi-MAX licences ensuring the coverage of approximately 75% of the Italian population. The price paid for the licences totals EUR 34 million with an average price per MHz per population equal to EUR/cents 1.79. Purchase of the licences and the initial operational groundwork for network implementation was financed by a capital increase totalling EUR 41 million subscribed by Ramius Capital EUR 18.5 million, Sopaf EUR 9.25 million, Vintage Fund EUR 9.25 million and 2G Investimenti EUR 4 million. Sopaf | Report on | Report Operations Sopaf 038 The company is implementing the first networks covered by the Wi Max technology in five pilot areas identified by management (Bari and province, Brescia and province, Lodi and province, Crotone, and Latina). According to its business plan the company aims to achieve 70% coverage of the territory (considering the 13 regions allocated to AFT) serving a population of approximately 32.5 million.
> Area Life International Assurance Ldt A company incorporated under Irish law and 45% owned by Sopaf S.p.A., it operates in the life insurance business and works in synergy with Banca Network for the development of a banking/insurance hub. In 2008 the company posted a positive result of EUR 5.8 million (in 2007 it posted a loss of EUR 3.1 million).
> Aviva Previdenza S.p.A. An Italian insurance company of which Sopaf acquired 45% in 2008, it operates in the life insurance business and like Area Life works in synergy with Banca Network for the development of a banking/insurance hub. In 2008 the company posted a negative result of EUR 3.3 million.
> Banca Network Investimenti S.p.A. As at 31 December 2008 Sopaf holds a total of 44.63% of the share capital of Banca Network S.p.A in terms of economic rights. The bank is a financial product distribution network which boasts approximately 800 financial advisors operating across the country. It is reminded that in 2008 the bank underwent a radical turnaround involving significant operational reorganisation and review of the three-year plan in light of the crisis currently affecting financial markets. During 2008 assets under management increased in terms of new contributions by approximately EUR 280 million, while they decreased in absolute terms compared to the previous year, standing at approximately EUR 3.8 billion due to the depreciation experienced by the main assets under management. In 2008 the company posted a negative result of EUR 15.8 million.
> Five Stars S.A. Five Stars S.A. is a company incorporated under Luxembourg law in which Sopaf holds 99.99% of class A shares. The company is invested by a group of investors through the assignment of warrants entitling the holders to subscribe Class B shares. After having paid a preferential return of 9% of annual earnings to investors, Five Stars pays out 75% of the residual earnings to the warrant holders and 25% to Sopaf S.p.A. The company acquired 450 units of the real estate investment fund, "FIP - Fondo Immobili Pubblici", promoted by the Italian Ministry of Economy and Finance for a total investment of EUR 57 million. In 2008, the company achieved a net profit of EUR 0.3 million (EUR 4.4 million in 2007) down on the previous year owing to the lower flows from dividends and income earned by Fondo FIP.
> Polis Fondi SGR p.A. As at 31 December 2008 Sopaf S.p.A. holds 49% of Polis Fondi Sgr.p.A., an asset management company operating in the real estate segment.
The company currently manages the following funds: • Polis, a closed-end real estate fund for the retail market that was set up in June 2000 and as at 31 December 2008 has net assets of EUR 307 million; • Tergeste, a closed-end real estate hedge fund, set up with transfer of assets from the Sopaf Group in December 2006 and which as at 31 December 2008 has net assets of EUR 18.2 million; • Finurbe I, a closed-end real estate hedge fund, set up on 12 December 2008 and which as at 31 December 2008 has net assets of EUR 7.2 million. Furthermore, with effect from 1 January 2009, the company acquired a new fund, REA, a closed-end hedge fund, set up in 2007, of which Polis took over management from another management company with effect from 2 March 2009, and which as at 31 December 2008 has net assets of EUR 16.3 million. As at 31 December 2008 the total portfolio managed by Polis SGR amounts to EUR 463 million compared to the 369 million of year end 2007 (+18%). In 2008 the company achieved net commissions of EUR 3.8 million (in 2007 EUR 3.7 million) posting a net profit of EUR 0.9 million (in 2007 EUR 0.77). Sopaf | Report on | Report Operations Sopaf 039 > S.F.E.R.A. S.r.l. As at 31 December 2008 Sopaf S.p.A. holds 48% of the share capital of S.F.E.R.A. S.r.l., a company dedicated to the construction of a 3.5 MW photovoltaic plant in the Puglia region for a total investment of approximately EUR 17 million. The plant was completed at the end of the year and production started up in January 2009.
> Sun System S.p.A. During 2008 Sopaf acquired 15.9% of Sun System S.p.A., a company operating throughout the country in the renewable energy sector, constructing photovoltaic plants. The company designs, creates and provides maintenance of plants producing energy from photovoltaic panels, offering tailor-made services and “turnkey” solutions. During 2008, Sun System made over 180 plants with a turnover in the region of EUR 10 million. The company has also obtained the necessary authorisations to construct various ground plants in Southern Italy, part of which will be implemented in 2009.
> Treasury Shares
As at 31 December 2008 the company holds 5,200,000 treasury shares.
> Infragroup and related party disclosures
Pursuant to CONSOB Communications 97001574 of 20 February 1997, 98015375 of 27 February 1998 and DEM 2064231 of 30 September 2002, and to IAS 24 – “Related Party Disclosures” issued by the International Accounting Standards Board (IASB), information on transactions performed during the year with related parties is provided below in the explanatory notes. Transactions between Group companies are regulated at arm’s length conditions and are outlined in detail in Note 47 to the financial statements of Sopaf S.p.A. and in Note 56 to the consolidated financial statements.
> Research and development activity
Considering the Company operates in the financial sector, it does not carry out any specific research and development activity.
> Information on the environmental impact
Considering the Company operates in the financial sector, it does not carry out any specific activities that have an environmental impact.
> Human resources
As at 31 December 2008 the employees of the Sofap Group totalled 92 compared to the 50 reported at year end 2007. The main change concerned the widening of the scope of consolidation with regard to Essere S.p.A., which increased Group employees by 48 resources. The employee breakdown is as follows: 12 executives, 16 middle managers and 64 office workers. With regard to changes in the organisational and management structure, it is reported that the structure of Sopaf Capital Management SGR S.p.A. was upgraded by the introduction of a commercial division which works Group-wide and liaises with the other Group product companies to re-design the range of products and services offered to institutional investors. A risk management team was also acquired which assists the various Group business units with regard to risk management. Furthermore, as part of the function streamlining process, at the end of 2008 Sopaf simplified its organisational chart, modifying the reporting of the business units, which no longer report to the Chief Operating Officer, but directly to the CEO. Training activity focused on updates concerning changes in legislation and regulations affecting Group business and on training paths involving IT tools to support work organisation.
Sopaf | Report on | Report Operations Sopaf 040 > Significant events after year end
On 29 January 2009 an agreement was finalised to govern Sopaf’s withdrawal from Nova Fronda. Exercise of the right of withdrawal pursuant to Article 2347 of the Italian Civil Code, concerns 25% of the share capital of Nova Fronda, equal to a par value of 3,333.33 for a value of EUR 1,500,000. This right was requested following an extraordinary shareholders’ meeting held on 26 January 2009 which approved adoption of a new version of the Articles of Association which provides for a right of approval in the event of transfer of shares.
With regard to Sopaf’s exercise of withdrawal from Delta S.p.A., upon motion filed by Sopaf, on 30 January 2009 the Court of Bologna appointed an expert to determine the liquidation value of the Delta S.p.A. shares pursuant to Article 2437-ter of the Italian Civil Code. This appointment was however suspended by the Court of Bologna on 20 February 2009 following appeal filed by Delta S.p.A. after which adversarial proceedings were commenced, during which the Court of Bologna will decide on whether to confirm or revoke appointment of the expert.
On 10 February 2009 the extraordinary shareholders’ meeting of Sopaf Capital Management SGR approved a number of amendments to the by-laws to extend operating activity to include the setting up and/or management of non-hedge funds.
On 23 February 2009 SOPAF and a leading institutional investor signed a contract for assignment of 225 units of the mutual investment fund “FIP – Fondo Immobili Pubblici” for a total consideration of EUR 30 million.
On 26 February 2009 Sopaf and the other banking partners with which it signed, on 8 October 2008, a contract for acquisition of 51% of the share capital of Polis Fondi SGR p.A. for a total consideration of EUR 9.5 million, finalised an extension of said contract up to 30 June 2009 in which if the condition precedent is not met (approval by the meeting of Fondo Polis unitholders of certain amendments to the fund regulations concerning the introduction of an advisory committee), the sellers may issue joint communication in which they unilaterally waive the aforesaid condition precedent.
On 9 March 2009 Sopaf received from a third party investor a formal letter of offer for acquisition of the investment in Life Science Capital S.p.A. for a total of EUR 7.1 million. The value of this offer, which was accepted by Sopaf on 13 March 2009, confirmed the values entered as at 31 December 2008, classified under held-for-sale financial assets.
On 12 March 2009 the forward purchase and sale contracts recognised in the financial statements as at 31 December 2008 were settled.
On 17 March 2009, following call requested by the Board of Directors of Polis Fondi SGR, an extraordinary shareholders’ meeting of Fondo Polis was held. The meeting did not reach the quorum required for approval of the amendments to the regulations proposed by the management company and so Sopaf is awaiting, as established in the extension granted on 26 February mentioned above, joint notice of waiver of the condition precedent relating to the contract for assignment of 51% of Polis SGR.
> Outlook
Given the difficult economic situation, it is hard to draw up accurate forecasts for 2009. It is very likely that we will continue to be affected by the strong volatility and instability of the financial markets, which will create further uncertainty as to how long it will take to see a clear recovery of the major world economies.
In these conditions the Sopaf Group will place the focus:
1. on all the initiatives that will allow it to complete the turnaround plan for Banca Network Investimenti (in accordance with the new business plan) considering that the bank represents the Sopaf | Report on | Report Operations Sopaf 041 Group’s main strategic asset. This will be achieved in association with the other partners of said bank; 2. on initiatives to enhance its assets (closer management oversight of strategic investments) and on investment transactions that may be achieved by exploiting market opportunities; 3. on the plan to progressively reduce non-strategic assets and to reduce borrowings.
> Further information
> Privacy
The Company has updated the "Personal Data Security Policy Document" required by Law 675/1996 and Article 6 of the Decree of the President of the Republic no. 138 dated 28 July 1999, as modified by Legislative Decree no. 196 dated 30 June 2003.
> Direction and coordination activity
Sopaf S.p.A. currently directs and coordinates the activity of the following companies:
LIFE SCIENCE S.p.A. SOPAF CAPITAL MANAGEMENT SGR S.p.A. ESSERE S.p.A.
The direction and coordination mostly concerns financial transactions and consulting services.
Sopaf | Report on | Report Operations Sopaf 042 > Proposal to the Shareholders’ meeting
The Board of Directors hereby submits for shareholder approval the Report on Operations, the Balance Sheet, the Income Statement, and the Explanatory Notes as at 31 December 2008, as presented by the Board of Directors individually and as a whole.
The Board of Directors proposes that the shareholders’ meeting approves distribution of the profit for the year of EUR 35,203,622 as follows:
- EUR 1,760,181 to legal reserve; - EUR 2,083,542 as dividend of EUR 0.005 for 416,708,392 ordinary shares; - EUR 31,359,899 as retained earnings.
Milan, 30 March 2009 For the Board of Directors
The Chairman Giorgio Cirla
Sopaf | Report on | Report Operations Sopaf 043
Consolidated Financial Statements as at 31.12.2008 044 > Consolidated balance sheet*
CONSOLIDATED BALANCE SHEET (*) Amounts in EUR/thousand
Notes 31/12/2008 31/12/2007
Goodwill 5 2,476 2,860 Intangible assets 6 130 684 Property, plant and equipment 7 2,619 23,541 Investments in associated companies/joint ventures 8 116,877 116,117 Financial assets 9 114,089 157,031 Tax credits 10 4,434 18,208 Imposte anticipate 11 2,778 5,517
Total Non-current assets 243,403 323,958
Inventories 12 27,000 94 Trade receivables and other business assets 13 2,392 876 Other receivables and other assets 14 21,157 14,451 Derivative financial instruments 15 32,246 - Other financial assets 16 3,055 7,298 Cash and cash equivalents 17 4,421 21,727 Total Current assets 90,271 44,446 Assets from discontinued operations 18 37,688 28,208 Total Assets 371,362 396,612
Capital 80,100 80,002 Treasury shares (2,363) (174) Undivided profits 68,586 95,041 Group Shareholders' Equity 19 146,323 174,869 Minority interest 20 4,537 7,173 Total shareholders' equity 150,860 182,042 Bonds 21 44,669 43,390 Payables to banks and other lenders 22 73,105 61,557 Lease payables 23 534 14,840 Other liabilities 24 944 10,612 Pension scheme and Employee severance indemnity liabilities 25 465 350 Deferred tax liabilities 26 236 303 Provisions 27 1,028 1,647
Total Non-current liabilities 120,981 132,699
Bonds - current share 28 754 755 Payables to banks and other lenders 29 66,889 59,099 Lease payables 30 40 1,023 Derivative financial instruments 31 616 11 Trade payables 32 4,762 4,896 Other liabilities 33 21,117 16,087
Total Current liabilities 94,178 81,871 Liabilities from discontinued operations 34 5,343 - Total shareholders equity and liabilities 371,362 396,612
* Pursuant to the CONSOB Resolution no. 15519 of 27 July 2006, the effects of transactions with related parties on the Sopaf Group’s consolidated balance sheet are shown in a special balance sheet statement provided in subsequent pages and are described not only in the comments to the individual financial statement items, but also in note 56.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
045 > Consolidated income statement*
Amounts in EUR/thousand
01/01/2008 01/01/2007 Notes 31/12/2008 31/12/2007
Revenues 35 10,607 4,680 Other income 36 19,009 1,506 Purchases of materials and external services 37 (14,049) (13,446) Personnel costs 38 (6,780) (6,878) Other operating costs 39 (1,772) (6,240)
Gross operating Margin 7,015 (20,378) Provisions for risk and write-downs 40 (1,682) (13,600) Depreciation and Amortisation expense 41 (714) (791)
Gains/Losses from disposal of non-current assets 423 (1,453) 63,677 Operating Profit (Loss) 3,166 28,908 Share of profit/loss on investments carried by the equity method 43 (10,241) 10,208
Profit (Loss) before interest and tax (7,075) 39,116 Financial income 36,634 5,235 Financial charges (18,762) (8,664) Net financial income(charges) 44 17,872 (3,429) Profit (Loss) before tax 10,797 35,687 Current taxes (1,011) (428) Deferred taxes (4,970) 280 Income taxes 45 (5,981) (148) Net result from operating activities 4,816 35,539 Net result from discontinued operations 46 (1,446) - Net result 3,370 35,539 Attributable to: Minority interests 47 (267) (214)
Group result 3,637 35,753
Earnings per share (in Euro) 48 From continuing operations: - Basic 0.0087 0.0848 - Diluted -0.0749 From discontinued operations: - Basic (0.0035) -
- Diluted --
(*) Pursuant to the CONSOB Resolution no. 15519 of 27 July 2006, the effects of transactions with related parties on the Sopaf Group‘s consolidated income statement are shown in a special income statement provided in subsequent pages and are described not only in the comments to the individual financial statement items, but also in note 56.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
046 > Consolidated balance sheet prepared pursuant to Consob Resolution no. 15519 of 27 July 2006
Amounts in EUR/thousand of which related of which Notes 31/12/2008 parties % incidence 31/12/2007 related parties % incidence
Goodwill 5 2,476 - 2,860 Intangible assets 6 130 - 684 Property, plant and equipment 7 2,619 - 23,541 Investments in associated companies/joint ventures 8 116,877 - 116,117 Financial assets 9 114,089 8,848 7.8% 157,031 1,851 1.2% Tax credits 10 4,434 - 18,208 Prepaid taxes 11 2,778 - 5,517
Total Non-current assets 243,403 323,958
Inventories 12 27,000 - 94 - Trade receivables and other business assets 13 2,392 563 23.5% 876 280 32.0% Other receivables and other assets 14 21,157 610 2.9% 14,451 610 4.2% Derivative financial instruments 15 32,246 - - Other financial assets 16 3,055 3,055 100.0% 7,298 3,037 41.6% Cash and cash equivalents 17 4,421 - 21,727 - Total Current assets 90,271 44,446 Assets from discontinued operations 18 37,688 - 28,208 - 0 Total Assets 371,362 396,612
Capital 80,100 - 80,002 - Treasury shares (2,363) - (174) - Undivided profits 68,586 - 95,041 - Group Shareholders' Equity 19 146,323 174,869 Minority interest 20 4,537 - 7,173 - Total shareholders' equity 150,860 182,042 Bonds 21 44,669 - 43,390 - Payables to banks and other lenders 22 73,105 - 61,557 - Lease payables 23 534 - 14,840 - Other liabilities 24 944 - 10,612 - Pension scheme and Employee severance indemnity liabilities 25 465 - 350 - Deferred tax liabilities 26 236 - 303 - Provisions 27 1,028 - 1,647 -
Total Non-current liabilities 120,981 132,699
Bonds - current share 28 754 - 755 Payables to banks and other lenders 29 66,889 22 0.0% 59,099 225 0.4% Lease payables 30 40 - 1,023 - Derivative financial instruments 31 616 - 11 Trade payables 32 4,762 - 4,896 - Other liabilities 33 21,117 4 0.0% 16,087 -
Total Current liabilities 94,178 81,871 Liabilities from discontinued operations 34 5,343 - - - Total shareholders' equity and liabilities 371,362 396,612
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
047
> Consolidated income statement prepared pursuant to Consob Resolution no. 15519 of 27 July 2006
Amounts in EUR/thousand
of which 01/01/2008 related 01/01/2007 of which Notes 31/12/2008 parties % incidence 31/12/2007 related parties % incidence
Revenues 35 10,607 5,137 48% 4,680 Other income 36 19,009 268 1.4% 1,506 275 18.3% Purchases of materials and external services 37 (14,049) - (13,446) (2) 0.0% Personnel costs 38 (6,780) - (6,878) Other operating costs 39 (1,772) - (6,240) Gross operating Margin 7,015 (20,378) Provisions for risk and write-downs 40 (1,682) - (13,600) Depreciation and amortisation expense 41 (714) - (791)
Gains/Losses from disposal of non-current assets 423 (1,453) - 63,677 Operating Profit (Loss) 3,166 28,908 - Share of profit/loss on investments carried by the equity method 43 (10,241) - 10,208
Result before interest and tax (7,075) 39,116 - Financial income 36,634 1,621 4.4% 5,235 4,164 79.5% Financial charges (18,762) - (8,664) Net financial Income(Charges) 44 17,872 (3,429) - Profit (Loss) before tax 10,797 35,687 - Current tax payable (1,011) - (428) Deferred taxes (4,970) - 280 Income taxes 45 (5,981) (148) - Net result from operating activities 4,816 35,539 - Net result from discontinued operations 46 (1,446) - - Net result 3,370 35,539 - Attributable to: Minority interests 47 (267) (214) Group result 3,637 35,753 -
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
048
> Statement of changes in consolidated shareholders’ equity for the year ended 31 December 2008
Amounts in EUR/thousand
Group Treasury Convertible Valuation Undivided Profit/(loss) for shareholders' Minority Capital shares bond reserve reserves profits the year equity Interest Total
Balance as at 1 January 2007 80,000 - - 69,905 (3,690) 10,091 156,306 23,323 179,629
Allocation of retained earnings - - - - 10,091 (10,091) - - - Change in fair value of available-for-sale financial assets - - - 52,505 - - 52,505 3,615 56,120 Deferred tax on fair value revaluation of available-for-sale financial assets - - - (1,201) - - (1,201) (128) (1,329)
Profit (Losses) recognised to shareholders' equity for the year - - - 51,304 10,091 (10,091) 51,304 3,487 54,791 Release to the income statement due to disposal of available-for-sale financial assets - - - (65,167) - 65,167 - - - Net profit (loss) for the year - - - - - (29,414) (29,414) (214) (29,628)
Total Profit (Loss) for the year - - - (65,167) - 35,753 (29,414) (214) (29,628)
Share capital increase from bond conversion 2 - - - - - 2 - 2 Shareholders' equity component of the convertible bond - - 5,562 - - - 5,562 - 5,562 Deferred tax on shareholders' equity component of the convertible bond - - (1,571) - - - (1,571) - (1,571) Purchase of treasury shares - (174) - - - - (174) - (174) Capital gains on acquisition of incremental investment in subsidiaries and other changes - - - - (7,146) - (7,146) - (7,146) Effects of changes in the scope of consolidation during the year ------(19,423) (19,423) Dividends ------
Balance as at 31 December 2007 80,002 (174) 3,991 56,042 (745) 35,753 174,869 7,173 182,042
Allocation of retained earnings - - - - 35,753 (35,753) - - - Change in fair value of available-for-sale financial assets - - - (32,229) - - (32,229) (2,376) (34,605) Deferred tax on fair value revaluation of available-for-sale financial assets - - - 1,450 - - 1,450 - 1,450 Change in fair value of hedges - - - (358) - - (358) - (358)
Profit (Losses) recognised to shareholders' equity for the year - - - (31,137) 35,753 (35,753) (31,137) (2,376) (33,513) Release to the income statement due to disposal of available-for-sale financial assets - - - 1,261 - - 1,261 - - - Net profit (loss) for the year - - - - - 4,898 4,898 (267) 4,631
Total Profit (Loss) for the year - - - 1,261 - 3,637 4,898 (267) 4,631
Share capital increase from bond conversion 98 - - - - - 98 - 98 Purchase of treasury shares - (2,189) - - - - (2,189) - (2,189)
Effects of changes in the scope of consolidation during the year - - - - (216) - (216) 7 (209) Dividends ------Balance as at 31 December 2008 80,100 (2,363) 3,991 26,166 34,792 3,637 146,323 4,537 150,860
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
049 > Consolidated cash flow statement Amounts in EUR/thousand 31.12.2008 31.12.2007 Notes (*)
OPERATING ACTIVITIES Net consolidated result 3,904 35,539 Non-monetary adjustments: - Percentage profit/loss of associated companies 10,510 (10,208) Minority interest result -- Dividends received (1,228) (3,858) Financial charges 18,762 8,664 Financial income (36,634) (5,235) Commission income on investments (4,896) - Exchange (gains)/losses (746) - Current tax payable 1,011 428 Deferred taxes 4,350 (4,023) Depreciation of property, plant and equipment 613 692 Amortisation of intangible assets 101 99 Write-down of available-for-sale financial assets - 13,600 Write-down of discontinued assets 193 - Write-down of loans 1,276 - Provisions for employee severance indemnity 295 345 Capital losses from winding-up of a subsidiary 50 483 - Capital gains from deconsolidation of subsidiary disposals 51 (201) - (Increase)/Decrease in provisions 212 -
Cash flows from operating activities before changes in working capital (1,995) 36,043
(Increase)/Decrease in receivables and other assets 4,078 27,878 (Increase)/Decrease in inventories (27,149) (94) Increase/(Decrease) in trade payables and other liabilities (5,416) (8,364)
Cash generated from operating activities (30,482) 55,463 Interest received (16,211) (6,229) Change in provisions for charges (768) (1,013) Payment of employee severance indemnity (180) (244) Changes in non-current tax credits 90 (368)
NET CASH GENERATED FROM/(ABSORBED BY) OPERATING ACTIVITIES (47,550) 47,609
INVESTMENT ACTIVITIES Interest received 4,709 5,235 Dividends received from associated companies 895 306 Dividends received on financial assets 1,228 3,858 Increases in investments in associated companies (17,581) (83,543) Increases in investments from share capital subscriptions (8,458) (47,358) Increases in investments from grants (12,021) - Decreases from disposal of investments in associated companies 7,101 12,278 Winding-up of investments -40 Goodwill from acquisition of controlling investments - (1,261) Changes in net assets in the scope of consolidation - (5,086) Controlling investment acquisition in Essere S.p.A. 49 (2,721) - Increase in assets net of companies deconsolidated due to winding-up 50 (483) - Increase in assets net of subsidiary disposals 51 201 -
Increases in available-for-sale financial assets (59,003) (43,314) Decreases from disposal and reimbursement of available-for-sale assets 74,432 99,178 Decreases from write-down of available-for-sale assets - -
Changes in current financial assets 2,967 (4,166) Net changes in derivatives 1,304 11
Increases in investments and discontinued financial assets (24,998) - Disposal of investments and discontinued financial assets 51,522 - Cash and cash equivalents of discontinued subsidiaries 52 (2,522) -
Net increases in property, plant and equipment (861) (16,868) Decreases in intangible assets (71) (702) Disposal of financial leases 6,671 - NET CASH GENERATED FROM/(ABSORBED BY) INVESTMENT ACTIVITIES 22,312 (81,392)
FINANCIAL ASSETS Revenues from issue of bond loan - 48,416 Increase (decrease) in payables to banks and other lenders 18,311 (3,021) (Increase)/Decrease in lease payables (735) 11,263
Changes in non-current loans (6,920) (3,395) Purchase of treasury shares (2,189) (174)
NET CASH GENERATED FROM/(ABSORBED BY) FINANCIAL ACTIVITIES 7,933 53,089
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (17,306) 19,306
OPENING BALANCE OF CASH AND CASH EQUIVALENTS 21,727 2,420 CLOSING BALANCE OF CASH AND CASH EQUIVALENTS 4,421 21,727
(*) The consolidated cash flow statement published in the financial statements as at 31 December 2007 shown above has been reclassified in order to allow meaningful comparison with the statement adopted for the year 2008. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
050 EXPLANATORY NOTES
> 1 Form and content of the financial statements and adoption of the IFRS Accounting Standards
The consolidated financial statements as at 31 December 2008 have been prepared by applying the valuation criteria established by the international accounting standards (IFRS – International Financial Reporting Standards) in force as at 31 December 2008. The consolidated financial statements consist of the accounting statements (income statement, balance sheet, cash flow statement and statement of changes in shareholders' equity) accompanied by the explanatory notes. The income statement has been prepared on the basis of the minimum content provided by IAS 1 (Presentation of Financial Statements) with costs classified by their nature, while the balance sheet has been prepared using the format evidencing a breakdown between current and non-current assets and liabilities. The cash flow statement has been prepared according to the indirect method.
> 2 Accounting Standards and preparation criteria
> 2.1 General standards
The 2008 consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union. The abbreviation IFRS is intended to also mean all revised international accounting standards (IAS) and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC).
The financial statements have been drawn up on the basis of the historical cost principle, modified as required to value some financial instruments, as well as on the assumption that the business is a going concern.
The values of items in the consolidated financial statements are expressed in EUR thousands.
> Financial statements The consolidated financial statements consist of the accounting statements (income statement, balance sheet, cash flow statement and statement of changes in shareholders' equity) accompanied by the explanatory notes. The income statement has been prepared in accordance with the minimum content envisaged by IAS 1 – Presentation of Financial Statements.
The income statement has been prepared in the format in which destination of costs is by their nature, in compliance with internal reporting methods of the Group, illustrating the interim results in relation to the operating profits and result before tax. The operating profit is calculated as the difference between net revenues and operating costs (the latter inclusive of non-monetary costs for amortisation, depreciation and write-down of current and non-current assets, net of any reversals) and includes capital gains/losses generated by the disposal of non-current assets.
The balance sheet has been prepared in the format illustrating assets and liabilities as divided between "current" and "non-current". An asset/liability is classed as current when it satisfies one of the following criteria: • it is expected to be realised/settled or sold or utilised in the normal business cycle or is held mainly for trading; or • it is expected to be realised/settled within 12 months of the reporting date.
The cash flow statement has been prepared by applying the indirect method, by which the result before tax is adjusted by the effects of non-monetary transactions, by any deferral or allocation of previous or future cash flows or operating payments and by revenues or cost elements related to cash flows from investment or financial activities.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
051 The statement of Changes in Shareholders' Equity illustrates the changes in shareholders’ equity items with regard to: • allocation of profit for the year of the Parent Company and subsidiaries to minority interests; • totals relating to shareholder transactions; • each profit or loss item net of any tax effect recognised directly to shareholders’ equity or with a corresponding entry in an equity reserve; • changes in the valuation reserve for available-for-sale financial assets and in the cash flow hedge reserve; • effects of any changes in accounting standards.
The figures in these financial statements are compared with those of the previous year which have been prepared using the same criteria. Where necessary, previous year figures have been reclassified in order to provide more meaningful comparison.
Lastly, to comply with the recommendations set forth in CONSOB Resolution no. 15519 of 27 July 2006 (Provisions on financial statement formats), the consolidated financial statements have been supplemented by special income statements and balance sheets, in order to report separately any significant amounts involved in positions or transactions with related parties.
> 2.2 Consolidation criteria and scope
The scope of consolidation includes the Parent Company Sopaf S.p.A. and the companies that it controls and namely those companies over which it has the direct or indirect power to determine financial and operating policies for the purpose of obtaining benefits from their activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control is effectively transferred to the Group until the date on which control is transferred outside of the Group.
The book value of investments is eliminated against the corresponding quota of the shareholders' equity of the investee companies, with individual assets and liabilities being assigned their fair value as at the date control is acquired. Any residual positive difference is booked to the non-current asset item, "Goodwill", while any negative difference is charged to the income statement.
All significant transactions occurring between Group companies, as well as the related balances, are eliminated at the time of consolidation as are any unrealised gains or losses on infragroup transactions.
The portions of shareholders' equity and of profit (loss) for the year attributable to minority shareholders have been identified separately from Group shareholders' equity and profit (loss) for the year. The accounting positions of associated companies and of companies subject to joint control are reported in the consolidated financial statements according to the equity method.
> 2.3 Business combinations and goodwill
As provided by IFRS 3 - Business Combinations, the acquisition of subsidiary companies is booked according to the acquisition method. The cost of the acquisition is thus determined by the sum of the fair value, as at the transaction date, of the assets and liabilities incurred or assumed with reference to the acquired company, and of any financial instruments issued by the Group in exchange for the control of the acquired company, together with any costs directly inherent to the business combination. The acquired company's identifiable assets, liabilities and contingent liabilities which meet the conditions for recognition provided by IFRS 3 are recorded at their fair values as at the acquisition date. The excess of the acquisition cost over the Group's share of the fair value of the identifiable assets, liabilities and contingent liabilities booked represents the goodwill from the acquisition, which is recorded among the assets and initially valued at cost. Should the Group's share of the fair value of the identifiable assets, liabilities and contingent liabilities after the recalculation of the fair value exceed the acquisition cost, the difference is carried directly to the income statement. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
052 The holdings of minority shareholders in the acquired business are initially valued in an amount equal to their quota of the fair value of the assets, liabilities and contingent liabilities booked. In the event of the sale of a subsidiary company, the net book value of the goodwill ascribed to the company is included in determination of the capital gain or capital loss on disposal.
> Acquisitions of incremental interests IFRS3 is not applicable in the case of acquisitions of additional interests in companies after the Group has already secured the controlling interest because the principle applies only to transactions involving the acquiring entity's acquisition of control. In the absence of a specific accounting principle provided by IAS/IFRS, reference is made to IAS 8 which requires the adoption of a reliable accounting treatment which, in this specific case, entails one of the following two alternatives: - allocation of the difference between the acquisition price and the shareholders' equity of the minority shareholders as an increase in the value of the assets (in accordance with the parent company theory); or - allocation of the difference between the acquisition price and the shareholders' equity of the minority shareholders to Group shareholders' equity (in accordance with the economic entity theory). In light of IASB's recent issue of a revised IAS 27 and of the provisions of the ASSIREVI OPI 3 research document "Treatment in consolidated financial statements of the acquisitions of incremental interests after the acquisition of the controlling interest", the Group has treated the acquisitions of incremental interests after the acquisition of the controlling interest as an equity transaction in accordance with the economic entity theory which gives precedence to the Group over the company, placing the emphasis on the Group as a single entity. According to this theory, the consolidated financial statements serve to represent the value of the total resources managed by the Group, and thus, the individual companies of the Group lose their identity, converging into a distinct and larger entity, i.e. the Group. Accordingly, with acquisition of control of the business combination, the Group acquires the aggregate of the related assets and liabilities, even if it does not hold a 100% interest, with the emphasis on the Group as an entity that alone controls the resources available, including those that have been financed by the minority shareholders. From this perspective, the subsequent purchases of minority interests do not have any effects on the invested capital, an expression of the resources controlled overall by the buyer, but they are allocated to the Group's shareholders' equity. Furthermore, in this framework, the valuation reserve attributed to the minority shareholders and created subsequent to the acquisition of control is to be allocated to the Group after acquisition of additional interests.
> 2.4 Investments in subsidiary and associated companies
Investments in subsidiary companies are consolidated on a line-by-line basis. Investments in associated companies are investments in which the Group exercises a significant influence, but not control or joint control. They are valued using the equity method in accordance with international accounting standards. Pursuant to IAS 28, an associated company is a company over which the Group, through its investment, is able to exercise significant influence but not control or joint control with regard to decisions on the company's operating and financial policies. Other non-consolidated subsidiary companies and any associates not valued with the net equity method are valued on the basis of the criteria set out in the paragraph below, "Financial instruments".
>2.5 Financial instruments
These include investments (other than investments in subsidiaries, companies subject to joint control and associated companies) held for trading (known as trading investments) and those held for sale, non-current receivables and loans, trade receivables and other receivables originating from the company and other current financial assets such as cash and cash equivalents. Cash and cash equivalents refer to bank and postal deposits, readily tradable securities which represent temporary cash investments and loans collectible within three months. They also include financial payables, trade payables and other payables and other financial liabilities as well as derivative instruments. Financial assets and liabilities are recognised when the rights and obligations established in the instrument’s contract arise. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
053 Their initial recognition takes into account the transaction costs directly attributable to acquisition and the costs of issue which are included in the initial valuation of all the assets or liabilities that can be defined as financial instruments with the exception of financial instruments at fair value with balancing entry in the income statement. The subsequent valuation depends on the type of instrument.
> Available-for-sale financial assets Investments other than those in associated companies are recorded as non-current assets in the item, "Other financial assets", and, as provided by IAS 39 with reference to available-for-sale financial assets, are carried at fair value, or at cost whenever fair value cannot be reliably determined. The gains and losses from changes in fair value are booked directly to shareholders' equity until the assets are sold or until an impairment loss is recognised. Upon sale of the assets or recognition of an impairment loss, the total gains and losses previously booked to shareholders' equity are carried to the income statement for the period and any loss subsequent to the recording of an impairment is recorded in the income statement. The original value may be reinstated in subsequent years should the premises for the write-down effected no longer apply. In the case of equity instruments the write-up occurs with valuation reserve as balancing entry. The risk arising from any losses exceeding shareholders' equity is recognised in a special reserve to the extent to which the investor company is required to meet legal or implicit obligations with regard to the investee company or to cover its losses. When securities classified as available for sale are sold or suffer impairment, the accumulated changes in fair value are transferred from the valuation reserve to the income statement as gains or losses from financial assets. The fair values of listed investments are based on current offer prices. If the market of a financial asset is not active (for unlisted securities), the Group establishes the fair value using valuation techniques that use variables that can be directly observed on the market. These methods include the use of recent transactions between informed and willing parties, reference to other instruments that are substantially the same and analysis of discounted financial flows adapted to reflect the issuer’s specific situation. At each reporting date, the Group assesses whether there is objective evidence to suggest that a financial asset or group of financial assets has suffered impairment. In the case of equity securities classified as available for sale, in determining whether the securities have suffered impairment, the existence of a significant or prolonged reduction of the security’s fair value below its cost is considered. Definition of the operating procedures by which to verify the presence of an impairment can be found in the note “Main sources of uncertainty in performing balance sheet estimates”.
> Receivables and financial assets held to maturity Receivables and financial assets held to maturity are booked at cost, which is equal to the fair value of the initial price paid. Any transaction costs incurred at the time of acquisition/sale are carried as direct adjustment of the asset/liability's par value (e.g. issue discount and premium, costs incurred for acquisition of loans, etc). Financial income/charges are then redetermined on the basis of the effective interest rate method. The initial recognition value is later adjusted to take account of repayments of principal, write-downs, if any, and amortisation of the difference between the repayment value and the initial recognition value. Amortisation is based on the effective internal interest rate represented by the rate that equalises, upon initial recognition, the current value of the expected cash flows and the initial recognition value ("amortised cost method"). Loans and receivables are included under the item loans and other receivables. Financial assets are regularly subject to assessments to verify whether there is objective evidence to suggest that they have suffered impairment. In valuing receivables specific account is taken of the creditors’ solvency as well as the characteristics of credit risk which is indicative of each debtor’s payment capacity. Any impairments are recognised as cost in the income statement for the period.
When financial assets do not have a fixed maturity, they are valued at acquisition cost. Receivables with maturity exceeding one year, which are non-interest bearing or which accrue interest at lower than market rates, are discounted using market rates.
> Other financial assets Financial assets such as Restricted guarantee deposits and Security deposits, which the Group intends to hold, and is able to hold, until maturity, and which do not meet the requisites for classification as cash and cash Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
054 equivalents are recognised and derecognised in the financial statements on the basis of the trading date. These assets are initially booked at an amount corresponding to their fair value, and thereafter, on the basis of amortised cost, net of any write-downs for impairment.
> Held-for-trading financial assets Assets held for trading, excluding derivative instruments, are carried at fair value with any changes in fair value being recorded in the income statement. This category is mainly made up of trading investments.
> Derivative financial instruments Financial instruments may used for hedging purposes, in order to reduce the exchange risk, interest-rate risk or risk of changes in market prices. Derivative instruments are carried at fair value and changes in fair value are recorded in the income statement when they do not meet the conditions to qualify as hedging instruments due either to the nature of the instrument or to the company’s decision not to perform the effectiveness test. Derivative instruments are classified as hedging instruments when the relationship between the derivative and the object of the hedge is formally documented and the effectiveness of the hedge, subject to regular verification, has been ascertained pursuant to IAS 39, by analysing the level of correlation between the fair value or the financial flows of the hedged item and those of the hedging instrument. In compliance with IAS 39, derivative financial instruments may be recognised according to hedge accounting procedures only when, at the beginning of the hedge, the hedging relationship has been formally designated and documented, the hedge is presumed to be highly effective, the effectiveness can be reliably measured and the hedge proves highly effective during the various accounting periods for which it has been designated. When hedging derivatives hedge the risk of changes in the cash flows of hedged items (cash flow hedge), the effective portion of the changes in the derivatives’ fair value is carried directly to shareholders’ equity, while the ineffective portion is carried directly to the income statement. The amounts recorded directly under shareholders’ equity are reflected in the income statement consistently with the economic effects produced by the hedged item. If on the other hand the derivatives hedge the risk of change in the fair value of the hedged items (fair value hedge), the changes in the derivatives’ fair value are carried directly to the income statement and the hedged instruments are adjusted to reflect the changes in fair value associated with the hedged risk. If the conditions for application of hedge accounting are not met, the effects deriving from fair value valuation of the derivative financial instrument are carried directly to the income statement.
> Derecognition of financial assets and liabilities Financial assets are derecognised in the balance sheet when the right to receive cash flows has come to an end and all the risks and benefits associated with the assets have substantially been transferred or, in the case of an item considered to be unrecoverable, when all the necessary recovery procedures have been completed. Financial liabilities are removed from the balance sheet when the specific contractual obligation has been discharged. Receivables assigned following factoring transactions are derecognised from balance sheet assets only if the related risks and benefits have been substantially transferred to the assignee. Receivables assigned with recourse and those assigned without recourse, which do not meet the aforesaid requisite, continue to be recognised in the company’s balance sheet, even though they have been legally assigned. In this case a financial liability of an equal amount is entered under liabilities against the advance received.
> 2.6 Other intangible assets
Intangible assets acquired or produced internally are entered under assets, in accordance with IAS 38 – Intangible assets, when it is likely that they will generate future economic benefits and when their cost can be reliably calculated. If these assets have a definite life, they are entered at acquisition or production cost, net of amortisation charged on a straight-line basis over their estimated useful life and of any impairment. Software licences purchased are capitalised and entered under intangible fixed assets at the cost incurred for their acquisition and amortised on a straight-line basis over their estimated useful life. The costs associated with the development and the ordinary maintenance of software, that do not meet the aforementioned requisites, and research costs are fully charged to the income statement in the year in which they are incurred. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
055
> 2.7 Tangible assets – Property, plant and equipment
Property, plant and equipment are entered at purchase or production cost, inclusive of accessory charges, and are stated net of accumulated depreciation and any write-downs for impairment. Costs capitalised for improvements made to third-party assets held under lease are attributed to the classes of assets to which they refer and are depreciated over the lesser of their useful life and the residual period of the lease agreement. Gains and losses arising from the assignment or disposal of assets are determined as the difference between the proceeds from the sale and the net book value of the assets and are recognised in the income statement in the year.
> 2.8 Impairment losses
At each reporting date, the book value of intangible and tangible fixed assets is reviewed to determine whether there is any evidence to suggest that these assets have suffered impairment. Where such evidence exists, the recoverable amount of the assets is estimated in order to calculate the extent of the write-down. Whenever it is not possible to estimate the recoverable value of an individual asset, an estimate of the recoverable value of the cash-generating unit to which the asset belongs is used. The recoverable amount is the greater of the fair value, net of sale costs, and the value in use. In determining the value in use, the estimated future cash flows are discounted to their present value by using an interest rate that reflects the current market valuations of the value of money and the specific risks of the assets. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than the asset's book value, the book value is reduced to the recoverable value. Should the reasons for the write-down no longer exist, the book value of the asset (or the cash-generating unit), with the exception of goodwill, will be increased to the new value arising from the estimate of its recoverable value, which may not however exceed the net book value that the asset would have had if the impairment loss had not been recorded. The write-up of value is immediately recorded in the income statement, unless the asset is stated at revalued value, in which case the write-up of value is carried to the revaluation reserve.
> 2.9 Leased assets
Assets acquired through finance lease agreements are entered as tangible fixed assets with entry of a financial liability of the same amount. The liability is gradually reduced by the amounts of principal included in the lease instalments provided by the repayment plan. The value of the asset is depreciated in relation to the lesser of the asset's useful life or the term of the lease agreement. The costs for lease instalments on operating leases are entered on a straight-line basis over the term of the contract.
> 2.10 Inventories
Inventories consist of properties held for sale as part of real estate development activity. Properties under construction and/or renovation are valued at the lower of cost, increased by any expenditure that increase the value of the assets and any financial charges that can be capitalised, and the corresponding estimated realisable value. Properties held for trading purposes are valued at the lower of cost and market value. Market value is inferred from transactions involving properties that are similar in terms of type and location. Acquisition cost is increased by any expenditure that increases the value of the assets up to the time of the sale.
> 2.11 Receivables
Receivables are initially entered at their par value (representative of the fair value of the transaction) and thereafter are valued at amortised cost, net of any write-downs for impairment recorded in the income statement when there is objective evidence that they have experienced a loss in value. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
056 These write-downs are determined as the difference between the book value of the receivables and the current value of the estimated future cash flows, discounted using the effective interest rate. In the case of short-term trade receivables, the impact of discounting is negligible, and the valuation at amortised cost is thus equivalent to par value, net of any write-downs for impairment. Receivables for assignment of investments are included under other receivables.
> 2.12 Cash and cash equivalents
Cash and cash equivalents include cash, amounts in current accounts with banks, demand deposits, and other highly liquid short-term financial investments that may be readily converted into cash and are not subject to any significant risk of change in value. Cash and cash equivalents are carried at fair value, which corresponds to their par value or cost, increased by any accrued interest.
> 2.13 Assets under disposal
Assets under disposal or held for sale or discontinued operations include non-current assets (or disposal groups) and all the consolidated investments entered as assets for which the book value will mainly be recovered through sale rather than on-going use. Assets under disposal or held for sale are valued at their estimated realisable value which is equal to the lower of their net book value and their fair value net of sale costs.
> 2.14 Convertible bonds
The component of convertible bonds that has the characteristics of a liability is entered as a payable net of issue costs. At the date of issue, the fair value of the debt component is determined using the market price of an equivalent non-convertible bond; this amount, which is classified as long-term debt, is adjusted using the amortised cost method until the conversion or reimbursement date. The residual part of the par value of the bond is booked as the conversion option, which is reported as part of shareholders' equity, net of the related issue costs. The value of the conversion option does not undergo any changes in subsequent years. The issue costs are split proportionally between the debt and equity components of the bond at the date when the costs are first reported.
> 2.15 Financial liabilities
Financial liabilities refer to financial payables, including payables for advances on assignment of credits, payables for finance leases, as well as financial liabilities (which include the negative fair value of derivative financial instruments), trade payables and other payables. With the exception of derivative financial instruments, financial payables are stated at amortised cost using the effective interest rate method.
> Payables to banks Interest-bearing bank loans and bank overdrafts are initially entered on the basis of the amounts received, net of any transaction costs, and thereafter are valued at amortised cost, using the effective interest rate method.
> Trade payables and other payables Trade payables and other payables are recorded according to the amortised cost criterion which, considering the characteristics and the maturities of the payables, is generally equal to their par value. Payables relating to acquisition of investments are classified as other payables.
> Non-current financial liabilities These payables are recorded at amortised cost, using the effective interest rate method.
> 2.16 Pension scheme and employment severance indemnity liabilities
According to IAS 19, the employee severance indemnity relating to employees of the Parent Company and the
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf subsidiaries having their registered office in Italy is classifiable as a post-employment benefit of the defined-
057 benefit type. Accordingly, the amounts already accrued must be projected to the future in order to estimate the amount to be disbursed upon termination of the employment relationship, and then discounted using the projected unit credit method in order to achieve a reasonable estimate of the amount of the benefits which the employees have accrued in return for their service in current and previous years. The Group has not adopted the corridor method and therefore actuarial gains and losses are fully recorded as they arise and entered directly in the income statement.
> 2.17 Provisions
The provisions for risks and charges represent costs and charges of a specific nature of which the existence is certain or probable, but the amounts or settlement dates are not known as at the reporting date. The provisions are made against current obligations resulting from past events, which may be legal or contractual obligations or obligations arising from the company's representations or conduct that cause valid expectations on the part of the persons involved (implicit obligations). The provisions are entered at values representing the best estimate of the amount that the company would pay to discharge the obligation; when the amounts of the obligations are significant and the payments dates can be reliably estimated, the provisions are stated at present value, with the charges accrued over time carried to the income statement under the item "Financial income/(charges)".
> 2.18 Liabilities under disposal
Liabilities under disposal include liabilities relating to discontinued liabilities or liabilities relating to non-current assets (or disposal groups) and all the liabilities of the consolidated investments that are held for sale.
> 2.19 Treasury shares Treasury shares are entered as a reduction of shareholders' equity. The original cost of treasury shares and the income/charges from any subsequent sale thereof are entered as changes in shareholders' equity in a special reserve.
> 2.20 Financial income and charges
Interest income and expense, including interest on bond issues, is recorded according to the effective interest rate method. Commissions on trading transactions are classified under financial charges in relation to the entry under financial income/charges of the result of the main trading transaction.
> 2.21 Taxes
The tax provisions for the year include current and deferred taxes.
Current taxes are calculated on taxable income for the year. Taxable income differs from the income reported in the income statement since it excludes revenues (expenses) that are taxable (deductible) in other periods, and it also excludes items that may never be taxable or deductible. The liability for current taxes is calculated by using tax rates in force as the reporting date.
Deferred taxes and prepaid taxes are determined on the basis of all the temporary differences that emerge between the values of balance sheet assets and liabilities and the corresponding values recorded for tax purposes.
Deferred tax liabilities are generally recorded for all taxable temporary differences related to Group companies and to investments in associated companies, except in cases where the Group is able to control the cancellation of such temporary differences and it is probable that the temporary differences will not be cancelled out in the foreseeable future. Deferred tax assets arising from temporary differences and/or from tax losses carried forward are recorded only to the extent that it is probable that future taxable income will be available against which such deductible temporary differences and/or tax losses can be used. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
058 Deferred tax assets and liabilities are not recorded if the temporary differences arise from goodwill or from the initial registration of other assets or liabilities in transactions (and not business combinations) that do not have any influence on income reported in the financial statements or on taxable income. The book value of the deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that future taxable income will be sufficient to allow the total or partial recovery of such assets. Deferred taxes are calculated by considering the tax rates that the Group expects to be in force as at the date on which the asset will be realised or the liability will be discharged. Deferred tax provisions are carried directly to the income statement, with the exception of deferred taxes on items recorded directly in shareholders' equity, in which case the related deferred taxes are also carried to shareholders' equity. Deferred tax assets and deferred tax liabilities are offset whenever there is a legal right to offset current tax assets and current tax liabilities, and when the assets and liabilities refer to tax positions with the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
> 2.22 Dividends
The dividends are recognised in the accounting period in which the distribution is approved.
> Main sources of uncertainty in performing financial statement estimates
> i) Discretionary decisions in the process of applying accounting standards For the purpose of drawing up the financial statements as at 31 December 2008 the company’s management made discretionary choices with regard to the Group’s application of accounting standards with significant effects on the financial statements in relation to representation of the following accounting matters:
> Classification of income/(charges) from held-for-trading financial assets and derivative financial instruments and treatment of the related transaction costs Financial income/(charges) from fair value valuation of held-for-trading financial assets and capital gains/(losses) from their disposal and the fair value valuation of derivative financial instruments are recognised in the income statement with classification under financial income/(charges). In compliance with international accounting standards, the initial recognition of a financial asset or liability must correspond to its fair value plus, in the case of a financial asset or liability not at fair value recorded in the income statement, the transaction costs directly ascribable to acquisition or issue of the financial asset or liability. The transaction costs are costs directly ascribable to the acquisition, issue or disposal of a financial asset. In operations involving financial instruments, it is generally possible to identify various types (in terms of their nature) of considerations paid as commissions recognised against the counterparty’s assumption of all or part of the risk component inherent in the financial asset involved in the transaction. In order to provide the best view of trading transactions, the Company records the transaction costs, which include the fees and commissions paid to intermediaries, consultants, brokers and operators and the contributions withheld by regulatory bodies and by the stock exchanges, under financial charges in relation to the entry under financial income/(charges) of the result of the trading transaction.
In compliance with this method, with regard to derivative financial instruments entered in the financial statements as at 31 December 2008, the initial valuation at fair value of the forward contracts for purchase and sale of the FIP units finalised on 30 December 2008 by Sopaf S.p.A. does not include the commissions totalling EUR 2,998 thousand, of which EUR 1,598 thousand paid to the subsidiary Sopaf Capital Management SGR S.p.A., as given that they are defined by the underlying contracts, they were considered as transactions costs of the related derivative financial instruments and were therefore carried separately to the income statement under financial charges.
> ii) Uncertainties in use of estimates Preparation of the financial statements and accompanying notes requires the use of estimates and assumptions which affect the values of balance-sheet assets and liabilities and the disclosures on potential assets and liabilities at the reporting date. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
059 Estimates and assumptions used are based on experience and on other factors deemed relevant. The results actually posted may therefore differ from these estimates. Estimates and assumptions are regularly reviewed and the effects of any changes made are reflected in the income statement in the period in which review occurs if the review only affects that period, or also in subsequent periods, if the review affects both the current and future years. Within this context it must be noted that the situation caused by the current economic and financial crisis has led to the need to make assumptions on future trends which are characterised by considerable uncertainty. Hence we cannot exclude that the results actually posted next year will differ from estimates and could therefore require adjustments, which may even prove significant, to the book values of the items involved, which at present obviously cannot be estimated or foreseen. The main balance-sheet items affected by this uncertainty are goodwill, receivables, available-for-sale financial assets and deferred tax assets. An outline is provided below of the critical valuation processes and the key assumptions used by management in applying the accounting principles with regard to the future and which may have significant effects on the values recorded in the consolidated financial statements or for which there is the risk that value adjustments may need to be made to the book value of the assets and liabilities in the year after the reporting year.
> Receivables Other receivables and other assets are subject to regular assessment to verify the existence of objective evidence to suggest that they have suffered impairment. In valuing receivables specific account is taken of the creditors’ solvency as well as the characteristics of credit risk which is indicative of each debtor’s payment capacity. Any impairments are recognised as cost in the income statement for the period. This category includes non-current receivables and loans, trade receivables and other receivables originating from the company. The estimate of the bad debt provision is based on the Group’s expected losses, calculated on the basis of past experience for similar receivables, losses and collections.
> Recoverable value of non-current assets (including goodwill) Given the current economic/financial crisis context, for the purposes of drawing up the consolidated financial statements as at 31 December 2008, and specifically in carrying out impairment tests on investments and on tangible and intangible assets, in the various areas of the Group’s activity consideration has been given to forecasts on trends expected in 2009, of which the assumptions and outcome are consistent with those used in formulating the management outlook. Furthermore, for subsequent years of the plan, it will prove necessary to review the original targets in order to make allowance, on a conservative basis, for an economic/financial context that will have undergone radical change due to the current crisis. On the basis of the amended plan figures, requirements have been assessed as has the significance of the outcome of the impairment tests. Non-current assets include tangible and intangible assets (including goodwill), investments and other financial assets. Management regularly reviews the book value of non-current assets held and used and of assets under disposal, when facts and circumstances require such a review. This activity is performed by using an estimate of the cash flows expected from use or sale of the asset and suitable discount rates to calculate its current value. When the book value of a non-current asset suffers an impairment, the Group records a write-down for the excess value between the asset’s book value and the value that may be recovered through its use or sale, determined with reference to the Group’s more recent plans.
Available-for-sale financial assets held in the portfolio are subject to impairment test (assessment of the loss of value arising from impairment of the issuers’ credit rating) upon occurrence of events that suggest that the investment has suffered an impairment. The assessment procedure involves identification of situations in which the issuers’ credit rating has been impaired, identification of the impaired assets and determination of the losses associated with the situations of impairment. These losses correspond to the negative difference between the current market value (or for unlisted instruments, the present value – at current risk-free return rates of similar investments – of the expected cash flows) of the impaired assets and their book value. The activities involved in identifying impairment of available-for-sale assets are performed by the Investment Committee.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
060 On a more general level, to establish if there is evidence of impairment for a capital instrument, in addition to the presence of the events indicated by IAS 39§61, the Directors considered whether or not the following events occurred: • significant changes with adverse effects relating to technology, markets, economic or legal environment concerning the issuer, which indicate that the cost of the investment can no longer be recovered; • a significant or prolonged decline in the investment’s fair value below its cost.
Specifically, the Directors deem that, individually, the following criteria can be considered indicative of the need to verify the existence of an impairment when, either: • the fair value of the security is 30% lower than the book value initially recognised or • when the fair value is 30% lower than cost, the prolonging of situations in which the fair value is lower than the book value (30% lower as referred to above) for a period of time exceeding 12 months.
Trends in the equity market and more in general in market values have caused situations of this kind to arise. The Directors have therefore performed a “fundamental” value analysis, using methods based on valuation models that make as much use as possible of variables observable on the market and have verified whether or nor certain conditions are met by the issuer of investment instrument. The Directors have therefore considered, for each investment, whether or not the following circumstances are present: • the investment’s fair value is considerably lower than the purchase cost or considerably lower than that of similar companies in the same sector; • the company’s management is not considered to be of adequate standing and in any case capable of ensuring a recovery of prices; • a significant decline in the issuer’s profits, operating cash flows or in its net financial position from the purchase date; • a reduction or interruption has been recorded in the distribution of dividends; • the disappearance of an active market for the bonds issued by the issuer; • the occurrence of changes in the regulatory, economic and technological context of the issuer which have or could have a negative impact on its cash flows, financial position and financial performance; • the existence of negative prospects for the market, sector or geographical area in which the issuer operates.
In this regard, the fair value valuation of available-for-sale financial assets as at 31 December 2008 was characterised by a decrease in the fair value of the investment in Delta S.p.A. by EUR 16 million. In order to determine the fair value of Delta S.p.A., Sopaf took into account the valuation provided by two qualified independent experts. For the purpose of verifying the recoverable value, the fair market value was determined, given that no information was available to estimate the value in use, as there were no economic/financial projections for the company on which to base the expected financial flows. This valuation was therefore determined on the basis of the market multiples method of comparable listed companies (stock exchange multiples method) and of the multiples inferred from public information concerning trading performed outside regulated markets and involving shares of sector companies (comparable transactions method). It is also reported that, as only the company’s 2006 and 2007 figures and its interim result as 30 June 2008 are currently available, and as the share capital underwent a considerable increase in 2007 for business expansion, a “normalised” net result was determined, which on one hand mediates the volatility of the results of the financial statements over the various years and on the other takes into account the greater resources to be destined to expanding the business and reducing the financial exposure deriving from the recent capital increase. For the purposes of application of the comparable listed company multiples, taking into account the exceptional downturn in stock exchanges, the investment’s market capitalisation was calculated as the average of the last 24 months from the valuation date. Furthermore, in order to mediate the exceptional stock exchange fluctuations recorded from September 2008, post-Lehman Brothers collapse, the multiples were calculated on the basis of the average market capitalisation of the last two years as from the date of 6 March 2009.
It is specified that, with regard to the recent transaction (January 2009) on Delta’s capital concerning the assignment of 13.29% of the capital held by Banco Popolare for EUR 44 million, this transaction was not taken as reference in determining the value of the shares held by Sopaf as the valuers believe the price to have been affected by the changed strategies of Banco Popolare. Over the last year, Banco Popolare has undertaken various Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
061 initiatives to dispose of non-strategic assets, especially in the consumer credit segment where, in the last two years, it disposed of another two investments that were more significant than the one held in Delta S.p.A., and namely Linea and Ducato, and signed a joint venture agreement with Credit Agricole to promote the consumer credit activities concentrated in Agos. The afore-mentioned assignment occurred between Banco Popolare and the other shareholders of Delta S.p.A., excepting Sopaf. The independent experts identified a reference range for the share held by Sopaf of between EUR 40 million and EUR 120 million. The EUR 40 million valuation refers to an investment value to which a 15% discount has been applied, deriving from the market multiples method, considering the Equity Value on Net Result multiple of listed companies and from comparable transactions, equal to 12.64x and 19.70x respectively. The EUR 120 million valuation refers to an investment value to which a 15% discount has been applied, deriving from the market multiples method, considering the Equity Value on Shareholders’ Equity multiple of listed companies and from comparable transactions, equal to 1.43x and 2.69x respectively. Considering that the income result of financial companies is subject to high volatility, because of a series of internal and external factors, such as the general economic trends in active and passive interest rates and the company’s expansion strategies and taking into account the fact that in our case only a partial view of the 2008 result is available and that there are no future economic projections to reflect the economic potential associated with current expansion strategies, the Directors chose to use a value that mediates the value deriving from application of the shareholders’ equity multiple with that of the income multiple. Hence, for the purposes of valuation of the investment held an average value equal to EUR 80 million was used.
With regard to the investment held in Conafi Prestitò S.p.A., analysis of the recoverability of the investment’s historical cost was carried out with the assistance of an independent external consultant. Without a business plan it was not possible to estimate the investment’s recoverable value through a “fundamental” valuation. However some stress tests were performed (based on information inferred from documentation available to the public, financial statement figures, price/earning margin multiples deriving from available transactions) which confirm the recoverability of the book value of the Conafi Prestitò S.p.A. investment held by Sopaf S.p.A. The analysis carried out led the Directors to consider the stock exchange price to be of little significance as the security in question may be defined as “slim”, i.e. featuring low liquidity following the drastic reduction in volumes that took place in the last part of the year. As at 31 December 2008, the company records a cash surplus of approximately EUR 76 million and therefore even on the assumption that Conafi’s core business value is equal to zero (unrealistic assumption), the value of the share would be equal to the value of the net financial position and accordingly it would be higher than the year-end stock exchange price. Considering the aforesaid elements, the Directors did not deem value adjustments to be necessary.
With regard to the investment in Sadi S.p.A., an impairment test was carried out on recoverability of the investment’s historical cost, estimating the company’s value in use. The current value of the operating cash flows relating to the 2008-2011 business plan, provided by the company, was estimated, as was a terminal value estimated in accordance with the nature of the investments and with the operating segments in which the company carries on business. The main reference parameters used for discounting the flows were an average WACC of 7.11% and a growth rate g=0%. Furthermore, taking a prudential approach, some Group companies whose value currently proves “potential” were not considered. The discount rate was determined autonomously for the various companies/segment of the Sadi group in order to take their various characteristics into account. The outcome of the analysis shows that the company has an economic value which is far removed from the stock market share price, affected by the reduced stocks on the market and the negative stock market trends. Hence the Directors did not deem permanent value adjustments to be necessary.
With regard to the investment in IMMSI, an analysis was carried out on recoverability of the investment’s historical cost. Considering that it is an investment holding, the analysis took the impairment tests that IMMSI had performed on its own main assets into account. Hence, taking into account the company’s capitalisation, which is higher than the investment’s historical cost, the absence of extraordinary elements that could compromise its income capacity, the IMMSI Group’s generation of liquidity, the pro-rata shareholders’ equity/book value ratio, Sopaf’s monitoring of management activities through the presence of two representatives in the boards of directors of IMMSI and Piaggio, the Directors did not deem value adjustments for impairment to be necessary.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
062
> Realisability of deferred tax assets and tax losses carried forward As at 31 December 2008, the Group has deferred tax assets deriving from tax losses that may be carried forward for EUR 1.4 million (tax losses equal to EUR 5.2 million) fully recognised in the financial statements. These prepaid taxes have been recognised, as it is deemed probable that sufficient positive taxable income will be realised to allow use of the amount entered as at 31 December 2008. The management recorded the value of the deferred tax assets up to the value for which it deems recovery to be probable, also taking into account the further deterioration of the assumptions provided for a medium-term time range and the fact that the net deferred tax assets set aside in this way, refer to temporary differences/tax losses that can be recovered within a time range that falls within that of the Group plan. The forecasts are based on taxable income that may be generated with reasonable certainty in light of the 2009 budget, also taking into account some transactions which are currently under negotiation and which the Directors believe will be finalised during next year.
> Potential liabilities The Group is subject to legal and tax lawsuits and considering the inherent uncertainties, it proves difficult to foresee the outlay that these disputes may involve with any degree of certitude. The lawsuits and disputes arise from complex legal matters, which are subject to differing degrees of uncertainty, including the facts and circumstances inherent to each case. The Group ascertains a liability against these disputes when it deems a financial outlay to be probable and when the amount of the ensuing losses can be reasonably estimated. In the event that a financial outlay becomes possible, but the amount cannot be determined, this fact is reported in the explanatory notes.
Specifically, as illustrated in the Report on Operations, with regard to the investment in Delta S.p.A. the following legal proceedings involving Sopaf are pending: • a case brought by Sopaf before the Court of Bologna relating to cancellation of the resolution to increase the share capital of Delta S.p.A. passed on 6 August 2007 and related compensation of damages; • a case before the Court of Bologna brought by one of the shareholders of Delta S.p.A. relating to failure to perform the Delta S.p.A. shareholders’ agreements and related compensation of damages, quantified as EUR 15 million. As part of this dispute, Sopaf filed a counterclaim requesting that the plaintiff be sentenced to refund the defendant for the damage incurred in relation to failure to perform the shareholders’ agreement, the amount of which has been quantified as EUR 36 million. As the dispute has just commenced, it is not possible to predict the outcome at this stage.
> Changes in accounting estimates
Pursuant to IAS 8, these are recognised prospectively in the income statement from the financial year in which they are adopted.
> Adjustment of items of the previous financial statements
With regard to the income statement as at 31 December 2008 shown in these consolidated financial statements, during the year a number of reclassifications were made on the previous year’s statement in order to facilitate legibility. These reclassifications did not however affect the net result or the shareholders’ equity. Specifically, the amount of banking expenses, banking/factoring commissions classified last year under “Other operating costs” have been included in the items “Purchases of materials and external services” and “Financial charges” according to their nature, The corresponding figures for 2007 have not been shown as their amounts are negligible.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
063 > Accounting standards, amendments and interpretations not yet applicable and not adopted in advance by the Group
On 30 November 2006, IASB issued the accounting standard IFRS8 – Operating Segments, to be applied from 1 January 2009 and replacing IAS 14 – Segment Reporting. The new accounting standard requires the company to identify operating segments on the basis of internal reporting that is regularly reviewed by management for the purpose of allocating resources to the various segments and for performance analysis purposes. Adoption of this principle will have no effect on the valuation of items of the financial statements.
On 6 September 2007, IASB issued a revised version of IAS 1 – Presentation of Financial Statements to be applied from 1 January 2009. The new version requires that all changes generated by transactions with shareholders are presented in a statement of changes in shareholders’ equity. All transactions with third parties (comprehensive income) must instead be recorded in a single statement of comprehensive income or in two separate statements (income statement and comprehensive income statement). In any event, comprehensive income cannot be recorded in the statement of changes in shareholders’ equity. Adoption of this principle will have no effect on the valuation of items of the financial statements.
On 29 March 2007, IASB issued a revised version of IAS 23 – Financial charges to be applied from 1 January 2009. The new version of the standard has removed the option of immediate recognition in the income statement of financial charges incurred on assets for which a certain period of time must pass in order for them to be ready for use or for sale. The standard will be applied prospectively to financial charges relating to capitalised assets as from 1 January 2009.
On 10 January 2008, IASB issued an updated version of IFRS 3 – Business combinations, and amended IAS 27 - Consolidated and separate financial statements. The main changes to IFRS 3 regard elimination of the obligation to value individual assets and liabilities of a subsidiary at fair value at each subsequent acquisition, where subsidiaries are acquired gradually. In such cases goodwill will be calculated as the differential between the value of the investment immediately before acquisition, the transaction price and the net value of assets acquired. In addition, where a company does not acquire 100% of the investee, the minority interest share of shareholders’ equity can be valued either at fair value or using the method previously envisaged in IFRS 3. The revised version of the standard also envisages recognition in the income statement of all costs relating to a business combination and recognition as at the date of acquisition of contingent liabilities. In the amendment to IAS 27, however, IASB has established that changes in the holding that do not constitute a loss of control must be treated as an equity transaction and must therefore have a corresponding entry in shareholders’ equity. In addition, it is established that when a parent company transfers control of an investee but continues to hold an interest in that company, the investment is carried at fair value in the balance sheet and any capital gain or loss from the transfer of control is recognised in the income statement. Lastly, the amendment to IAS 27 requires that all losses attributed to minority interests are allocated to the minority interest shareholders’ equity, even when these amounts exceed their percentage interest in the investee share capital. The new rules must be applied prospectively as from 1 January 2010.
On 17 January 2008, IASB issued an amendment to IFRS 2 – Vesting conditions and cancellations, according to which, for the assessment of share-based payment instruments, only the service and performance conditions can be considered as plan vesting conditions. The amendment must be applied from 1 January 2009. Adoption of this principle will have no effect on the valuation of items of the financial statements.
Lastly it is reminded that the following IFRS interpretations and amendments have been issued which refer to situations and cases present within the Group: • IFRS 5 – Non-current assets held for sale and discontinued operations: the amendment, which must be applied prospectively from 1 January 2010, establishes that if a company is engaged in a disposal plan that leads to loss of control over an investee, all the investee’s assets and liabilities must be reclassified as assets held for sale, even if after disposal the company will still hold an minority interest in the investee. • IAS 1 – Presentation of financial statements (revised in 2007): the amendment, which must be applied prospectively from 1 January 2009, requires assets and liabilities deriving from derivative financial instruments that are not held for trading to be classified in the balance sheet with distinction between Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
064 current and non-current assets and liabilities. Adoption of this principle will have no effect on the valuation of items of the financial statements. • IAS 28 – Investments in associates: the amendment, which must be applied (even only prospectively) from 1 January 2009, establishes that in the case of investments valued by the equity method, any loss of value must not be allocated to the individual assets (and in particular to any goodwill) which make up the investment’s book value, but to the value of the investee as a whole. Hence, where the conditions for a subsequent write-back occur, the write-back must be fully recognised. • IAS 36 – Impairment of assets: the amendment, which must be applied prospectively from 1 January 2009, establishes that additional information must be provided if the company determines the recoverable value of the cash generating unit using the cash flow discounting method. • IAS 39 – Financial instruments: recognition and valuation: the amendment, which must be applied retrospectively from 1 January 2009, provides clarification on how to calculate the new effective rate of return of a financial instrument at the end of a fair value hedging relationship. It also clarifies that the restriction on reclassifying in the category of financial instruments with fair value adjustment of the income statement must not be applied to derivative financial instruments that can no longer qualify as hedging instruments or that instead become hedging instruments. • On 31 July 2008 IASB issued an amendment to IAS 39 – Financial instruments: recognition and valuation which must be applied retrospectively from 1 January 2010. The amendment clarifies application of the principle for definition of the underlying hedged item in specific situations. At the reporting date, the competent EU authorities have not yet concluded the authorisation process required for its application. • Improvement to IAS 28 – Investments in associates, and to IAS 31 – Investments in joint ventures: these amendments, which must be applied from 1 January 2009, establish that additional information must also be provided for investments in associated companies and in joint ventures carried at fair value according to IAS 39. Accordingly amendments were made to IFRS 7 – Financial instruments: additional information and to IAS 32 – Financial instruments: presentation in financial statements. • Improvement to IAS 40 – Investment property: the amendment, which must be applied prospectively from 1 January 2009, establishes that investment property under construction falls within the scope of application of IAS 40, rather than of IAS 16.
At the issue date of these financial statements, the Group is assessing the effects of adoption of these amendments. Furthermore it is reported that amendments have been made to the IFRS with regard to IAS 16, IAS 19, IAS 20, IAS 23 and IAS 38, which govern situations and cases that are not currently present within the Group.
Lastly it should be mentioned that the following interpretations, which govern situations and cases not currently present within the Group, have been issued: • IFRIC 13 – Customer loyalty programmes (applicable from 1 January 2009 and not yet authorised by the European Union); • IFRIC 15 – Agreements for the construction of real estate (applicable from 1 January 2009 and not yet authorised by the European Union); • IFRIC 16 – Hedges of a net investment in a foreign operation, which eliminates the option to apply hedge accounting to exchange rate hedges on differences between the operating currency of the foreign investee and the presentation currency of the consolidated financial statements. The interpretation was issued on 3 July 2008 and must be applied from 1 January 2009. As at the date of these financial statements, the competent EU authorities have not yet completed the authorisation process required for its application. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
065 > 3 Scope of consolidation The consolidated financial statements are drafted on the basis of accounting positions as at 31 December 2008 prepared by the respective consolidated companies, adjusted where necessary to align these with the classification criteria and accounting standards of the Group pursuant to IFRS. The scope of consolidation as at 31 December 2008 is as follows:
Company name % direct % indirect % investment Registered office Country Currency Consolidation method Parent company: Sopaf S.p.A. Direct subsidiaries: Sopaf Capital Management SGR S.p.A. 100.00% 100.00% Milan Italy Euro Full Life Science Capital S.p.A. (*) 68.19% 68.19% Milan Italy Euro Full Sopaf Asia S.àr.l. 85.00% 85.00% Luxembourg Luxembourg Euro Full Essere S.p.A. (*) 92.00% 92.00% Milan Italy Euro Full Tergeste 100.00% 100.00% Milan Italy Euro Full Direct associated companies: Polis Fondi SGR p.A. 49.00% 49.00% Milan Italy Euro Equity method Petunia S.p.A. (**) 59.38% 59.38% Milan Italy Euro Equity method S.F.E.R.A. S.r.l. (*) 48.00% 48.00% Agrate Brianza Italy Euro Equity method Five Stars S.A. 99.99% 99.99% Luxembourg Luxembourg Euro Equity method AFT S.p.A. (*) 24.90% 24.90% Milan Italy Euro Equity method Banca Network Investimenti S.p.A. 14.99% 29.64% 44.63% Milan Italy Euro Equity method Area Life International Assurance Ltd 45.00% 45.00% Dublin Ireland Euro Equity method Aviva Previdenza S.p.A. 45.00% 45.00% Milan Italy Euro Equity method ASM Lomellina Inerti S.r.l. 33.00% 33.00% Vigevano Italy Euro Equity method Sopaf&Partners RE-Investment S.r.l. 40.00% 40.00% Milan Italy Euro Equity method Nova Fronda S.r.l. (*) 25.00% 25.00% Milan Italy Euro Cost Westindustrie S.r.l. 22.00% 22.00% Milan Italy Euro Cost China Opportunity S.A. Sicàr (***) 44.87% 44.87% Luxembourg Luxembourg Euro Equity method Sun System S.p.A. (*) 15.94% 15.94% Milan Italy Euro Cost Direct associated companies: Noventi Ventures II LP 2.32% 2.32% Menlo Parc CA USA Euro Fair value Volare S.p.A. (under spec. manag.) 24.60% 24.60% Vicenza Italy Euro Cost Sadi Servizi Industriali S.p.A. 2.54% 2.54% Segrate Italy Euro Fair value Demofonte S.r.l. 15.00% 15.00% Monza Italy Euro Fair value Delta S.p.A. 15.95% 15.95% Bologna Italy Euro Fair value Conafi Prestitò S.p.A. 4.13% 4.13% Turin Italy Euro Fair value Value Secondary Inv. Sicàr SCA 2.57% 2.57% Luxembourg Luxembourg Euro Fair value Immsi S.p.A. 1.00% 1.00% Mantova Italy Euro Fair value The Infrastructure&Growth Capital Fund 0.50% 0.50% Dubai Arab Emirates Euro Fair value Vintage Fund Sicav 5.00% 5.00% Luxembourg Luxembourg Euro Fair value IGI Investimenti Quattro 0.95% 0.95% Milan Italy Euro Fair value Green Bit S.p.A. 1.97% 1.97% Grugliasco Italy Euro Fair value Blue H Technologies BV 1.22% 1.22% Oosterhout The Netherlands Euro Cost Valore by Avere Asset Management SCA 11.90% 11.90% Luxembourg Luxembourg Euro Fair value Indirect subsidiaries: - through Life Science Capital S.p.A. Li Tech S.p.A. (*) 94.00% 64.10% Monterotondo Italy Euro Full - through Essere S.p.A. Essere Tutela S.r.l. (*) 100.00% 92.00% S.M.Buon Albergo Italy Euro Full Bridge Financial Services S.r.l. (*) 100.00% 92.00% Milan Italy Euro Full Essere Protezione S.r.l. (*) 100.00% 92.00% S.M.Buon Albergo Italy Euro Full Indirect associated companies: - through Petunia S.p.A. Banca Network Investimenti S.p.A. 49.92% 44.63% Milan Italy Euro Equity method - through Fondo Tergeste Firanegocios S.L. 25.50% 25.50% Barcelona Spain Euro Equity method CO.SE. S.r.l. 50.00% 50.00% Milan Italy Euro Equity method Favonio S.r.l. 20.00% 20.00% Milan Italy Euro Cost - through Sopaf&Partners RE-Investment S.r.l. Sprei 1 S.r.l. 100.00% 40.00% Milan Italy Euro Equity method Sprei 2 S.r.l. 100.00% 40.00% Milan Italy Euro Equity method Indirect associated companies: - through Fondo Tergeste Immobiliare Appia 2005 S.r.l. 15.00% 15.00% Milan Italy Euro Fair value - through Life Science Capital S.p.A. Advanced Accelerator Applications S.A. (*) 15.31% 10.44% Saint Genis Poully France Euro Fair value IM3d S.p.A. (*) 17.86% 12.18% Turin Italy Euro Cost Cerma S.A. (*) 17.90% 12.21% Archamps France Euro Cost - through Five Stars S.A. Fondo Immobili Pubblici 3.39% 3.39% Rome Italy Euro Fair value - through Sopaf&Partners RE-Investment S.r.l. Hotel Tiberio S.r.l. 20.00% 8.00% Rome Italy Euro Cost
(*) Investments classed as assets held for sale (**) Sopaf holds 49% of voting rights and 59.38% of equity (***) Sopaf holds 44.87% of voting rights and 11.33% of equity
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
066
The scope of consolidation records the following changes compared to 31 December 2007:
SUBSIDIARY COMPANIES INCLUDED WITHIN THE SCOPE OF Country Business segment CONSOLIDATION Line-by-line consolidation method
Essere S.p.A. Italy Financial services Essere Tutela S.r.l. Italy Financial services Essere Protezione S.r.l. Italy Financial services Bridge Financial Services S.r.l. Italy Financial services
ASSOCIATED COMPANIES INCLUDED WITHIN THE SCOPE OF Country Business segment CONSOLIDATION Equity consolidation method
Favonio S.r.l. Italy Real estate Aviva Previdenza S.p.A. Italy Insurance services Sprei 1 S.r.l. Italy Real estate Sprei 2 S.r.l. Italy Real estate Sopaf&Partners RE S.r.l. Italy Real estate
SUBSIDIARY COMPANIES ELIMINATED FROM THE SCOPE OF Country Business segment CONSOLIDATION Line-by-line consolidation method
PWM SGR S p A (incorporated into Sopaf Capital Italy Asset management Management SGR S.p.A.) Cutter Sarl (liquidated) Luxembourg Investments in shareholdings Eolia SA Luxembourg Investments in shareholdings LM&Partners SCA (liquidated) Luxembourg Investments in shareholdings Siskin SA Luxembourg Investments in shareholdings Tenerani S.r.l. Italy Investments in shareholdings
ASSOCIATED COMPANIES Country Business segment ELIMINATED FROM THE SCOPE OF CONSOLIDATION Equity consolidation method
Beven Finance Sarl (liquidated) Italy Investments in shareholdings Mirror Tre S.a.r.l. (liquidated) Luxembourg Investments in shareholdings Sila S.p.A. Italy Industrial
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
067 > Main criteria adopted for definition of the scope of consolidation and in application of investment valuation principles
The Group’s scope of consolidation includes investments in associated companies where the investor’s holding exceeds 20%, since it is assumed such a percentage gives the investor significant influence, intended as the power to participate in the financial and operating policy decisions of the investee company but not to control them. Investments in associated companies defined as such are valued by the equity method.
The controlling investment in Essere S.p.A. and the related controlling investments in Essere Protezione S.r.l., Bridge Financial Services S.r.l. and Essere Tutela S.r.l. have been classified as assets held for sale in light of the initiatives undertaken by the Parent Company’s management in the last months of 2008 for the purpose of their disposal in 2009 as part of a business combination project with other financial intermediaries.
The controlling investment held in Life Science Capital S.p.A. and the related investments held in Advanced Accelerator Applications SA, Li Tech S.p.A., IM3D S.p.A. and Cerma S.A., as well as the investments in Sun System S.p.A and AFT S.p.A. and the significant investment in Sfera S.r.l., have been classified as assets held for sale in light of the initiatives undertaken by the Parent Company’s management in the last months of 2008 for the purpose of their disposal. In this regard, it is specified that the Group holds 15.94% of Sun System S.p.A., but actually exercises significant influence over the investee through specific shareholders’ agreements which regulate the company’s governance and administration.
The 25% investment held by Sopaf S.p.A. in the share capital of Nova Fronda S.r.l. has been classified among assets held for sale as Sopaf S.r.l. exercised the right to withdraw following the amendments to the by-laws passed by the shareholders’ meeting of Nova Fronda S.r.l. The agreement for definition of withdrawal from the 25% share held in the capital of Nuova Fronda S.r.l. was finalised on 29 January 2009.
With regard to the investment in Five Stars S.A. it is reported that, although the Group holds the majority of share capital (99.9%), the company is not included within the scope of control as on 10 May 2006 the Board of Directors of Five Stars S.A. approved changes to the by-laws which cancelled the conditions precedent according to which warrant holders could not exercise the right to convert the warrants to class B shares. This circumstance (the immediate conversion into class B shares would give the absolute majority of voting rights to warrant holders), together with the existing condition whereby the current shareholder does not assume the majority of business risks linked to the initiative and benefits from the investment only to a lesser extent, were the reasons behind the full deconsolidation of Five Stars S.A. pursuant to IAS 27. In this respect, it is specified that free exercise of the warrants and the mechanism governing the replacement of Directors in practice confirms control of the Board of Directors by the warrant holders in that, should the current Directors make economic/financial decisions contrary to their wishes, this would trigger formal control (i.e. the conversion into shares).
The Group holds 59.4% of Petunia S.p.A. but does not control the company as it owns 49% of class A shares with voting rights and the remainder of the holding in class B shares, which only offer economic benefits without voting rights. The investment was therefore valued by the equity method.
The investments in Favonio S.r.l., Hotel Tiberio S.r.l. and Westindustrie S.r.l. have been maintained at cost as valuation by the equity method is close to cost.
The investment in Blue H Technologies BV has been maintained at cost as it is close to the fair value.
> Key transactions in 2008
The assets and liabilities of Essere S.p.A. and of its subsidiaries have been included within the scope of
consolidation on a line-by-line basis since the second half of 2008 following Sopaf S.p.A.’s participation in 2008 as at 31.12. | Consolidated Financial Statements Sopaf
068 Essere S.p.A.’s share capital transactions, involving in-payments to cover losses and re-establishment of the share capital which increased Sopaf S.p.A.’s interest from 35.77% to 92%. Specifically, during 2008, the Parent Company Sopaf S.p.A. made capital payments of EUR 1,707 thousand to cover losses as at 31 December 2007 and to re-establish capital, of EUR 175 thousand to purchase 6,080 shares and of EUR 1,227 thousand to subscribe to a share capital increase. During 2008 the Group commenced initiatives, which are currently under assessment, directed at disposal of the investment in Essere S.p.A.. The assets and liabilities of the Essere Group have therefore been classified as “Assets under disposal” and “Liabilities under disposal” respectively.
For informative purposes, information is provided below on the net assets deriving from acquisition of control of the investment in the Essere S.p.A. Group as at 31 December 2008 and on consolidated shareholders’ equity as at the date of acquisition of control:
Amounts in EUR/thousand 35.77% 92% Totals investment investment
Non-current assets 2,201 Current assets 3,095 Cash and cash equivalents 388 Total Assets 5,684
Financial liabilities (182) Other liabilities (91) Non-current liabilities (273)
Financial liabilities (1,858) Other liabilities (2,474) Current liabilities (4,332) Total Liabilities (4,605)
Net assets acquired (A) 1,079 993
Consolidated controlling acquisition value: Investment carried by the equity method as at 1 January 2008 277 277 Grants 1,707 1,707 Pro-quota result as at 30 June 2008 (489) (489) Increases subsequent to controlling investments: Acquisitions 175 175 Subscription to share capital increase 1,227 1,227
Write-down of investment (1,547)
Total consolidated acquisition value (B) 1,350
Consolidation difference carried to shareholders' equity (A) - (B) (357)
Cash and cash equivalents associated with the acquisition: Acquired cash and cash equivalents 388 Net cash flow for the acquisition (3,109) Net cash and cash equivalents used (2,721)
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
069 > Transactions to dispose of investments in subsidiaries during 2008
During the year a number of controlling investments were eliminated from the scope of consolidation as a result of the following disposal transactions:
• closure by the liquidator, on 18 December 2008, of the process to liquidate the subsidiary LM&Partners S.c.a. commenced in 2006, with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 52,224 thousand and liabilities worth EUR 602 thousand, with shareholders’ equity equal to EUR 51,622 thousand; • closure, on 9 September 2008, of the process to liquidate the subsidiary Cutter S.a.r.l., with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 1,521 thousand and liabilities worth EUR 511 thousand, with shareholders’ equity equal to EUR 1,010 thousand; • merger by incorporation of the subsidiary PWM Sgr S.p.A. into Sopaf Capital Management Sgr S.p.a., deliberated the Boards of Directors of the two companies on 27 March 2008 for the purpose of allowing the Group to streamline hedge fund management activities under a single product company, and enforced with public deed dated 9 December 2008 with economic/accounting effects from 16 December 2008; • disposal in July 2008 of the controlling investment held in Tenerani S.r.l. and of its subsidiary Eolia S.A. and of the subsidiary Siskin SA as part of a single industrial investment transfer agreement.
In order to provide adequate comparison with the previous year, the information on the income statement and on the balance sheet as at the date of the last full line-by-line consolidation of the controlling investments sold or liquidated during the year and the corresponding consolidated shareholders’ equity have been summarised in the table below:
LM&Partners Cutter S.a.r.l. Siskin SA Tenerani Eolia SA Adjustments to Total SCA (wound (wound up) infragroup Amounts in EUR/thousand up) relations % investment 100.0% 100.0% 100.0% 100.0% 100.0%
Non-current assets 44,947 339 4,088 85 - (10,343) 39,116 Current assets 35,431 - - 10 - (34,738) 703 Cash and cash equivalents 90 25 2 69 48 234 Total Assets 80,468 364 4,090 164 48 (45,081) 40,053 Financial liabilities 1 339 4,191 100 - (4,630) 1 Other liabilities 828 - - - - 828 Non-current liabilities 829 339 4,191 100 - (4,630) 830
Financial liabilities ------Other liabilities 311 3 20 11 6 352 Current liabilities 311 3 20 11 6 - 352 Total Liabilities 1,141 343 4,211 111 6 (4,630) 1,182 Shareholders' equity as at 01/01/2008 79,327 21 (121) 53 42 - 79,322
Revenues and income 290 1,009 - - - 1,298 Costs (928) (5) (20) - (42) (995) Result before tax up to the date of disposal (638) 1,004 (20) - (42) 304
Value of investments (52,221) (50) (1) (100) (74) (52,446) Net surplus of consolidated shareholders' equity 27,105 (29) (122) (47) (32) 26,876
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
070 > 4 Segment reporting
The Sopaf Group’s business operations and related strategies, and the underlying activities related to management control, are organised and defined by line of business, which serves as the basis for the primary segment reporting required by IAS 14. Segmentation of the Group’s business activities by geographical area is not significant as the Group’s business is concentrated in Italy.
This note illustrates the key results in each business segment together with the balance sheet values of the various lines of business and other information as required by reference standards.
The lines of business representing the primary segment, for segment reporting purposes, are as follows:
• Asset management; • Real estate operations; • Financial and insurance services; • Industrial operations and services.
The financial positions by business segment for the period are illustrated in the table below. The activities performed by the Group’s investment holdings are not included in the Group business segments as they are not dedicated to operations identifiable as destined to provide products or services, but provide only group general and administrative services. The income statement and balance sheet figures of the investment holdings are therefore illustrated separately from the business segment figures.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
071 > Consolidated balance sheet
2,476 2,860 98,923 98,923 37,688
115,399 116,877 123,954 116,117 153,682 (220,503) (214,571) 396,612 371,363
- - - - - 322 322 75,658 76,820 75,980 77,142
- - (144,340) - - (143,300) - - - - 0 (143,300) (220,503) - - - -
(144,340) (214,571) Holdings Cancellation Consolidated - -
31 384 - 384 242 493 (948) (948) 4,162 (1,945) (1,945) 32,595 - 32,002 22,845 36,437 56,317
- -
5,686 178,049 181,913 services Services/Industry services Services/Industry Holdings Cancellation Consolidated Financial Financial Segments Segments
-
3,974 78,245 5,175 90,893 4,688 81,470 42,165 37,970
-
2,476 - 6,034 32,303 - 5,392 10,309 - 2,476 - 8,281 3,160 23,687 103,668 (1,977) (20,557) (53,721) (2,945) (12,285) (53,056) (1,977) (20,557) (53,721) (2,945) (12,285) (53,056) 33,405 20,778 37,569 44,432
Asset Asset 31-dic-08 31-dic-07 management Real estate Real management estate Real management
CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE Total Liabilities Total Liabilities Liabilities Segment liabilities Liabilities Liabilities Segment liabilities Total Assets Non-current assets classed as held for sale Goodwill Amounts in EUR/thousand Assets Segment assets Amounts in EUR/thousand Assets Segment assets Investments carried by the equity method Available-for-sale financial assets Goodwill Total Assets Liabilities Total Available-for-sale financial assets Investments carried by the equity method Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
072 > Consolidated Income statement
------
(0) (714) (791) 4,703 4,703 3,166 3,166 7,015
- 10,207 - (10,242) -- 13,313 (3,106) - - (14,945) - (13,600) - - 41 29,617 29,617 41 54 54 - 669 63,678 63,678 669 360 (1,453) 596 6,186 6,186 596 832 - 832 (261) (166) (1,682) (1,682) (12,802) (7,076) (13,254) 39,115 (13,254) 28,908 (12,802) (11,219) (13,757) (20,378) (14,376) (26,565) (12,092) (22,602)
------(0) 74 - 74
(74)
------(115) (2,431) - - 115 17 17 - 12 12 - (389) 26 (10) 168 168 (451) (451) (619) (1,599) (258) - 832 (100) (139) (31) 389 (378) 1,256 (1,599) 1,256 1,088 (1,599) 1,088 1,707 1,707 (1,326) (1,226) 37,068 37,068 (0) 37,519 (0) 37,519
52,456 (13,600)
------
(73)
services Services/Industry Cancellation Holding Consolidated services Services/Industry Cancellation Holding Consolidated Financial Financial Financial Segments Segments - (12,150) ------(10) (2,624) (63) (14,782) (481) (322) 8,066 8,066 (1,512) 6,604 - 6,604 (4,334) 1,982
- - - - - 10,553 ------2 307 - 74 - (21) (74) 115 - (134) (131) (219) (501) (115) 4,104 4,104 1,740 1,740 4,125 8,076 1,112 8,076 1,112 4,125 - 14,670 2,144 (1,512) 1,740 63 2,632 2,632 15,861 5,025 (4,407) 268 - 63 1,740 (16,557) 15,861 6,765 6,323 14,201 14,201 6,323 (73) 1,599 - 616 4,962 - (1,960) (1,826) (3,468) (1,167) (6,572) (4,391) (7,074) (3,058)
17,259 12,299 -
Asset Asset management Real estate management Real estate management Real
31/12/2008 31/12/2007
CONSOLIDATED INCOME STATEMENT INCOME STATEMENT CONSOLIDATED INCOME STATEMENT CONSOLIDATED Pro quota lossesfrom investments Share of profit/loss on investments carried by the equity method the equity by carried of profit/loss investments on Share Pro quota profit from investments frominvestments profit quota Pro method the equity by carried of profit/loss investments on Share - tax before EBIT Earnings Operating profit frominvestments profit quota Pro Pro quota lossesfrom investments - tax before EBIT Earnings Depreciation and amortisation expense amortisation and Depreciation Operating profit Depreciation and amortisation expense amortisation and Depreciation Provisions for risk write-downs and Provisions Provisions for risk write-downs and Provisions EBITDA - margin Gross operating EBITDA Gains fromdisposal of non-current assets EBITDA - margin Gross operating EBITDA Gains fromdisposal of non-current assets Infragroup to other segments other Infragroup to Infragroup to other segments other Infragroup to Infra-segment Infragroup from segments other Operating costs Payable to third parties Infra-segment EUR/thousand in Amounts income other and Revenues Payable to third parties Infra-segment Infragroup from segments other Operating costs Payable to third parties Infra-segment EUR/thousand in Amounts income other and Revenues Payable to third parties Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
073 > Balance sheet – Assets
> Non-current assets
> 5 Goodwill Goodwill is equal to EUR 2,476 thousand and has posted a decrease of EUR 384 thousand on the previous year. This change concerns the goodwill of the investment in Li Tech S.p.A. which, following the disposal plan involving this investment, has been reclassified among assets under disposal.
31.12.2008 31.12.2007 PWM SGR S.p.A. - 1,599 Li Tech S.p.A. - 384 Sopaf Capital Management SGR S.p.A. 2,476 877 2,476 2,860
The value of the goodwill of Pwm Sgr, equal to EUR 384 thousand, has been reclassified under the item goodwill of Sopaf Capital Management sgr S.p.A., following merger of the two asset management companies.
The recoverable value of the goodwill relating to Sopaf Capital Management sgr S.p.A has been subject to impairment test, by determining the value in use understood to be the current value of flows estimated on the basis of the most recent plans available. The main assumptions used to calculate the value in use concern the discount rate, the growth rate, the expected changes in the variables linked to revenues and in the trends in direct costs during the period considered for calculation purposes. The Group’s management has therefore adopted a discount rate that reflects the current market valuations of the cost of money and of the specific risk associated with the company. The growth rates adopted are based on growth forecasts for the sector to which the company belongs. The changes relating to the revenue and direct cost indicators are based on past experience, on future market expectations and on the foreseeable changes in the specific regulatory context. Recoverability of goodwill has therefore been determined on the basis of the Business Plan submitted to the Board of Directors of Sopaf Capital Management Sgr on 4 February 2009, using the following assumptions to calculate the value in use: discount rate (WACC net of the tax effect) equal to 9.85% with beta unlevered equal to 1.1 and market premium equal to 5.2%. The terminal value has been determined as discounting of the cash flow emerging from normalisation of the last year (2012) of the plan. The operating cash flow determined in this way has been discounted using a discount rate that can reflect the weighted opportunity cost of all the sources of capital (weighted average capital cost – WACC), on the basis of a target financial structure. The rate used on investments not at risk was the gross average return of BTP (long-term treasury bonds) with residual life exceeding one year as at 31 December 2008, inferred from the official Banca d’Italia document “Rendistato” and equal to 4.13%. The beta unlevered reflects the debt/equity financial structure taken as reference (with no borrowings) and has been estimated, as has the risk premiums, using comparables from the same sector. The “specific” risk is calculated on the basis of the risk profile inherent in the reference business and in the market in which it operates. The outcome of tests carried out as at 31 December 2008 was positive and therefore no write-down was made. A sensitivity analysis was also performed to assess the recoverability of goodwill also in the event of changes in some significant parameters, such as the risk free rate and the cash flows. Specific analysis was carried out on the effect on the recoverable value of a 1.5% increase in the risk free rate and of a 20% reduction in the cash flows; even in the event of such negative oscillations no impairment emerged.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
074 > 6 Intangible assets Intangible assets are equal to EUR 130 thousand and have posted a decrease of EUR 554 thousand compared to the previous year mainly due to reclassifications in assets held for sale.
Development Patents Concessions, Other Total costs Licences, Trademarks
Values as at 01/01/2008 453 75 156 - 684
Changes in the period:
- changes in the scope of consolidation - (70) (1) - (71) - acquisitions - 3 68 - 71 - disposals ------reclassifications (453) (5) 5 - (453) - amortisation/depreciation - - (101) - (101) - write-downs - - - - -
Total changes (453) (72) (29) - (554)
Values as at 31/12/2008 - 3 127 - 130
In the previous year the item “Development costs” totalled EUR 453 thousand and referred to the investment in Li Tech S.p.A. whose assets were reclassified among assets under disposal following the disposal plan involving this investment. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
075
> 7 Property, plant and equipment This item is equal to EUR 2,619 thousand and has posted a decrease of EUR 20,922 thousand on the figure recorded as at 31 December 2007 mainly due to the assignment of finance lease agreements (for a total net value of EUR 20,984 thousand) concerning the property located in Foro Buonaparte, Milan and its fixtures and fittings. This assignment generated total capital gains of EUR 16,864 thousand in the first half of 2008.
The changes in the item are as follows:
Land Building Leasehold Plant and Equipment Other assets Total improvements machinery
Cost as at 01/01/2008 11,226 7,720 696 1,995 101 2,844 24,529
Changes in the period:
- changes in the scope of consolidation - - - (235) 13994(2) - acquisitions - - 404 - 165 45 614 - increases in assets under finance leases ------disposals (10,837) (7,452) - (1,699) (3) (1,702) (21,693) - reclassifications - - - - 452 (452) - - write-downs ------
Total changes (10,837) (7,452) 404 (1,934) 753 (2,015) (21,081)
Total cost as at 31/12/2008 389 268 1,100 61 854 829 3,501
Provision for amortisation/depreciation as at - (192) (134) (217) (54) (444) (988) 01/01/2008 Changes in the period:
- changes in the scope of consolidation - - (44) 126 54 (70) 66 - acquisitions ------disposals - 265 - 182 - 259 706 - write-downs ------reclassifications - - - - (118) 118 - - amortisation/depreciation - (85) (55) (99) (108) (266) (613)
Total changes - 180 (99) 209 (172) 41 159
Total provisions for amortisation/depreciation as at - (12) (233) (8) (226) (403) (882) 31/12/2008 Values as at 31/12/2008 389 256 867 53 628 426 2,619 of which under finance leases: - historical cost 389 268 - 61 122 - 840 - Depreciation and amortisation expense - (12) - (8) (24) - (44)
The assignments of the finance lease agreements were finalised on 30 June 2008 and concerned:
• 3 agreements on the real estate with an original contractual value of EUR 17,038 thousand, redeemed by the assignee. The overall amount of the assignment was EUR 21,660 thousand which, against a book value of EUR 19,412 thousand and a financial liability of EUR 13,543 thousand, resulted in capital gains of EUR 15,791 thousand;
• 19 agreements on fixtures and fittings for a total original contractual value of EUR 1,703 thousand, taken over by the assignee. The amount of the assignment was EUR 1,505 thousand which, against a book value of EUR 1,444 thousand and a financial liability of EUR 1,012 thousand, resulted in capital gains of EUR 1,073 thousand. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
076
The most significant increases in the year concerned:
• improvements to third party assets made after completion of the renovation works on the property in Foro Buonaparte leased from 1 July 2008; • office furniture and fittings for stipulation of a further finance lease agreement upon completion of the furnishing of the areas to be used as offices; • electronic office equipment following acquisitions made to complete upgrade of the IT systems and data transmission network, also required by full implementation of the complex project to overhaul the offices in Foro Buonaparte 24, for the most part completed in 2008 but continued in 2009 with a series of further improvements decided by management.
> 8 Investments in associated companies and joint ventures This item breaks down as follows:
31/12/2008 31/12/2007 Investments in associated companies Polis Fondi SGR p.A. 8,134 8,053 Beven Finance S.àr.l. - 11,126 Firanegocios S.L. 3,924 3,861 Five Stars S.A. 2,568 4,291 China Opportunity S.A. Sicàr 12,644 7,479 Essere S.p.A. - 277 Mirror Tre S.àr.l. (liquidated) - - CO.SE. S.r.l. 71 113 S.F.E.R.A. S.r.l. - 461 Westindustrie S.r.l. 2 2 PWM AIGGIG Multimanager Fund - 13,582 Petunia S.p.A. 40,264 38,541 Banca Network Investimenti S.p.A. 21,300 19,172 Area Life International Assurance Ltd 13,346 9,129 Favonio S.r.l. 1,054 - Aviva Previdenza S.p.A. 13,415 - Sopaf&Partners RE-Investment S.r.l. 126 - ASM Lomellina Inerti S.r.l. 29 30 116,877 116,117
The changes in investments during the year and a summary of the highlights of the financial statements of associated companies are provided in special schedule attached to these notes (Statement of investments in associated companies and balance sheet and income statement figures of associated companies).
The changes in the item Investments during the year mainly refer to the following events:
• on 6 November 2008 Sopaf S.p.A. made a payment for a future increase in the share capital of the associate Area Life Int.Ass. Limited of EUR 1,607 thousand. Furthermore the investment was increased for pro-rata profit for the year by a total of EUR 2,607 thousand; • on 11 January 2008 Sopaf and Aviva Italia Holding S.p.A. finalised acquisition from Finoa S.r.l. of 100% of the share capital of Aviva Previdenza S.p.A.; Sopaf S.p.A. acquired a 45% share for a total consideration of EUR 15,436 thousand. The dividend for the year 2007, paid to shareholders in 2008, equal to EUR 551 thousand, was recorded as a decrease in the cost of the investment. The investment was also decreased for pro-rata losses for the year totalling EUR 1,470 thousand. It is specified that the contractual clauses include the provision that the price may be subject to adjustment linked to the amount of the written insurance premiums as at 31 December 2010. The effect of this provision was not considered in determining the acquisition costs as at present it is improbable; • on 19 August 2008 Sopaf S.p.A. participated in the share capital increase deliberated by the
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf shareholders’ meeting of Banca Network Investimenti S.p.A. held on 29 April 2008 with a payment of
077 EUR 2,996 thousand. On 30 December 2008 Sopaf S.p.A. made a further payment of EUR 2,248 thousand for a future increase in the share capital. Furthermore, as the “price adjustment” agreements with Banca Popolare parametered to the total assets under management were still in force and after verification that the three-year plan approved by the bank and used for the purpose of performing the impairment test satisfied this clause, the investment was increased at year end by EUR 944 thousand as balancing entry of the liability entered under other liabilities. Valuation of the investment in Banca Network Investimenti S.p.A. as at 31 December 2008 was adjusted for pro-rata losses for the year totalling EUR 7,166 thousand (of which EUR 4,796 thousand through the special purpose vehicle Petunia and EUR 2,370 thousand through the direct investment in BNI held by Sopaf). Furthermore, with regard to the value of the investment, considering the negative results posted by the investee and the reorganisation plan underway, an impairment test was carried out, supported by a survey performed by an external assessor appointed by Petunia S.p.A. Determination of the value in use is based on the recoverable value determined with the cash flows available to the shareholder with the following assumptions:
1. Analysis of the economic value is based on the economic/financial forecasts for the 2009/2011 period prepared on the basis of the three-year business plan, drawn up with the assistance of an advisor and approved on 20 February 2009 by the company’s Board of Directors. According to the basic assumption used in the analysis, the plan provides for an improvement in BNI’s profitability and its consequent return to profit as a result of two main strategic actions: − review of the network incentive and loyalty system, which would lead to a reduction in costs thanks to the introduction of a new bonus system linked to the achievement of set targets and thanks to the extension of the financial advisors’ loyalty period; − obtaining the mandate for management of the SICAV, which would lead to additional revenues in terms of performance and management commissions on the SICAV’s total assets. 2. As the valuation was performed using the Dividend Discount Model, the company’s economic value arises from discounting of a flow of dividends determined by taking the minimum capital restrictions imposed by the Supervisory Authority into account. 3. The main assumptions used to determine the value in use are the following: − a cash flow growth rate beyond the plan period (“g”) of 2%, equal to the scheduled inflation rate; − reference K(e): 10.46%
• The k(e) was in turn determined using the following values: − Sector’s financial structure: absence of borrowings − Risk free rate (BTP 10Y): 3.8% − Sector beta: 0.933 − Equity market risk premium: 5% − Market risk premium: 4.67% − Additional risk :2%
• The outcome of the analysis highlighted the need to record a total impairment of EUR 5,584 thousand, of which EUR 1,691 thousand attributed directly to the investment in Banca Network Investimenti S.p.A. and 3,893 indirectly through write-down of the investment in Petunia S.p.A. Furthermore, as mentioned above, pro-rata losses totalling EUR 7,166 thousand were ascribed (of which 4,796 for Petunia and 2,370 for the direct investment in BNI).
• In order to estimate the recoverable value of the investment entered in the balance sheet the Directors had to use hypotheses, assumptions and estimates. Determination of the economic value is in fact based on the use of future economic and financial projections for the 2009-2011 period. However it must be remembered that, because of the uncertainty associated with the occurrence of any future event, both in terms of whether it will actually take place and when and to what extent it will occur, the variances between the actual values and the forecasts could be significant, even when the events foreseen in the hypothetical assumptions used to draw up the economic and financial projections occur. Hence the company cannot guarantee that an impairment will be experienced in future periods. In fact, various Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
078 factors linked also to developments in the difficult market context could require redetermination of the value of the investment. The circumstances and events that could lead to further verification of impairment will be constantly monitored by the company.
• As required by the reference accounting standards a sensitivity analysis was also performed on the two input assumptions listed above (i.e. the “g” rate and the expected earnings set forth in the plan) and by processing the data for the two alternative scenarios we obtain: − g= -1% (greater impairment for Banca Network Investimenti (also through Petunia S.p.A) equal to a total of EUR 5.8 million) − Expected earnings: -5 % (greater impairment for Banca Network Investimenti (also through Petunia S.pA) equal to a total of EUR 3.2 million).
• As outlined with regard to the changes in the investment in Banca Network Investimenti, Sopaf capitalised the associate Petunia S.p.A. for a total of EUR 10,412 thousand so that Petunia S.p.A. could participate proportionally to its shareholding in the capital increase of Banca Network Investimenti S.p.A. and subsequent payment for a future capital increase. Furthermore, as specified for the changes in Banca Network, Petunia also subjected the investee Banca Network Investimenti S.p.A. to impairment test on the basis of the assumptions outlined in the previous paragraph.
• on 6 August 2008 Sopaf participated in the capital increase deliberated by the Board of Directors of China Opportunity S.A. Sicar subscribing 2,302 class B shares for an outlay of EUR 2,669 thousand and 7,565 class A shares for an outlay of EUR 151 thousand. In December 2008, as Sopaf S.p.A. held the class A shares (with related right to subscribe to the capital increases of class B shares at par value) it subscribed 870 class B shares for a total par value of EUR 16 thousand at the same time increasing the cost of the investment by a further EUR 1,014 thousand, equal to the differential between the nominal subscription value and the last N.A.V. available for the company. The investment was also increased for adjustments for pro-rata profit for the year for a total of EUR 1,315 thousand;
• the investment in Essere S.p.A. underwent various changes during the year: − on 26 March 2008 and 26 May 2008 Sopaf S.p.A. made capital account payments totalling EUR 1.7 million to the investee to cover losses recorded as at 31 December 2007 and as at 31 March 2008 and to re-establish capital; − on 3 August, at the deadline established by the shareholders’ meeting held on 24 June 2008 which had deliberated to re-establish the capital at EUR 600,000 to be offered under option to shareholders in proportion to their respective investments, Sopaf reached 81.87% of the share capital of Essere S.p.A., becoming its controlling shareholder and therefore reclassifying the investment under subsidiary companies; − on 8 October Sopaf S.p.A. acquired a further 10.13% of the share capital of Essere from third party investors for EUR 175 thousand, increasing its investment from 81.87% to 92%.; − on 16 October, the Board of Directors of Sopaf S.p.A. deliberated on a project to enhance the value of the investee which could be finalised through extraordinary transactions on the company’s share capital. The directors therefore decided to reclassify the investment in the category “Assets under disposal”; − lastly, in the last quarter, following resolution passed by the shareholders’ meeting on 24 June 2008 which approved an increase in the share capital of Essere S.p.A. from EUR 600 thousand to EUR 2,000 thousand to be offered under option to shareholders with expiry 31 December 2008, Sopaf paid in a total of EUR 1.2 million.
• during the year Sopaf S.p.A. finalised its disinvestment from the hedge fund of funds PWM AIGGIG Multimanager Fund, managed by the subsidiary Private Wealth Management SGR in partnership with AIG Global Investment Group (asset management company of the US insurance Group AIG). In November 2008 redemption of the units was completed generating capital losses for Sopaf S.p.A. of EUR 562 thousand;
• during the year Sopaf S.p.A. subscribed an increase in the capital of Sfera S.r.l. by EUR 376 thousand.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf At year end this investment was reclassified among “Assets under disposal” as it is destined for sale
079 within the next twelve months. The investment was also decreased for adjustments for pro-rata losses by an amount equal to EUR 75 thousand;
• on 27 February 2008 the company Sopaf & Partners RE-Investment S.r.l. was set up with Sopaf S.p.A. holding an investment of 40% through a EUR 40 million contribution to the share capital. The company’s purpose is to perform investment and disinvestment transactions in the real estate segment, including through the acquisition and disposal of investments in other companies or entities. The investment was also decreased for adjustments for pro-rata losses for the year by an amount equal to EUR 21 thousand;
• in March 2008 Sopaf S.p.A entered the shareholding structure of Sun System S.p.A, having subscribed 15.94% of the share capital through subscription to a reserved share capital increase by an amount equal to EUR 2.5 million. Sun System S.p.A. is a company operating throughout the country in the renewable energy sector, constructing photovoltaic plants. Following the signing of shareholders’ agreements with the other shareholders this investment was classified under investments in associated companies. As at 31 December 2008 the directors decided to reclassify the investment in the category “Assets under disposal” as the investee is currently undergoing an enhancement project that should be completed next year with extraordinary transactions on the company’s share capital.
• The following are also reported: − adjustments for pro-rata profits of the investments in Polis Fondi SGR.p.A. by EUR 425 thousand and in Firanegocios LS by EUR 63 thousand; − adjustments for pro-rata losses for the year referring to investments in Co.Se S.r.l. by EUR 42 thousand, Nearco S.a.r.l. by EUR 24 thousand, ASM Lomellina Inerti S.r.l. by EUR 1 thousand and Beven Finance S.à.r.l. by EUR 74 thousand; − change in the investment in Five Stars S.A. for adjustment for pro-rata profits for the year of EUR 25 thousand and for the decrease in the fair value of the investment held by Five Stars in FIP as at 31 December 2008 on the basis of the fund’s NAV as at 31 December 2008 of EUR 1,748 thousand; − a decrease of EUR 11,052 thousand for closure of the procedure for liquidation of Beven Finance Sarl from which the subsidiary LM&Partners SCA (liquidated) was assigned receivables from Sopaf S.p.A. for EUR 10,694 thousand.
> 9 Financial assets This item totalled EUR 114,089 thousand, recording a decrease of EUR 42,942 thousand.
31/12/2008 31/12/2007
Available-for-sale financial assets 98,925 153,683 Derivative financial instruments - - Bonds 856 792 Loans and receivables 13,809 2,548 Guarantee deposits 499 8 114,089 157,031
The item includes the following categories of financial asset:
> Available-for-sale assets Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
080 This item includes instruments representing the shareholders’ equity of companies recorded as available-for-sale financial assets with breakdown as follows:
31/12/2008 31/12/2007 Coronet S.p.A. -- Advanced Accelerator Applications SA - 14,884 Blue H Technologies BV 160 160 Cerma S.A. - 850 Conafi Prestitò S.p.A. 1,469 4,004 Delta S.p.A. 80,000 96,000 Demofonte S.r.l. 703 703 Ezechiele Ltd. - 46 FIP - Fondo Immobili Pubblici - 19,017 Fondo PWM Global Income Low Volatility - 1,073 Valore by Avere Asset Management SCA 2,400 2,000 HSBC Monétaire - 1,560 IM3D S.p.A. - 1,500 IGI Investimenti Quattro Fondo 312 - Immobiliare Appia 2005 S.r.l. 1,587 1,967 Immsi S.p.A. 2,398 - Management&Capitali S.p.A. - 3,663 Noventi Ventures II LP 281 146 Newman Lowther & Associates call option 322 322 Parc Eolien De S.Riquier - 16 Raffaele Caruso S.p.A. - 101 Sadi Servizi Industriali S.p.A. 1,363 4,946 Tessitura Pontelambro S.p.A. - 344 The Infrastructure&Growth Capital Fund 5,284 - Green Bit S.p.A. 241 - Value Secondary Investments Sicàr SCA 462 381 Vintage Fund Sicav 1,943 - 98,925 153,683
Changes in available-for-sale financial assets during the year are illustrated in a spe cial section (Statement of Available-for-sale Financial Assets).
Some information is provided below on the main changes in investments classified as “Available-for-sale financial assets”:
• on 30 January 2008 in an extraordinary meeting the shareholders of Coronet S.p.A. resolved the wind- up and liquidation of the company after having deliberated to reduce the share capital from EUR 19 million to EUR 1 million to cover losses realised as at 30 June 2007 and losses recorded in the balance sheet as at 31 December 2007. On 24 July 2008 the shareholders’ meeting of Coronet S.p.A. (then in liquidation) resolved to write-off the share capital to partially cover the losses as at 30 April 2008 and to re-establish the share capital at EUR 2 million with share premium, also revoking the company’s state of liquidation. As Sopaf S.p.A. did not participate in re-establishment of capital by 31 August 2008, it derecognised the investment, which had already been entirely written down;
• as already outlined in the report on operations, on 22 August Sopaf S.p.A. Sopaf informed Delta S.p.A. of the exercise of its right of withdrawal for 16,967,900 shares pursuant to Articles 2437, sub-section 1, letter a) of the Italian Civil Code and, following the company’s denial of the right, a motion was filed to defend its rights before the Court of Bologna, the final outcome of which is not yet known. Hence in order to represent the company’s fair value as at 31 December 2008, the directors of Sopaf considered the appraisal provided by two qualified independent professionals. Assessment of the fair value is based on the market value arising from comparable transactions as no information is available to estimate the
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf value in use (expected financial flows). The valuation method selected is based on application of market
081 multiples of comparable listed companies (stock exchange multiples method) and of multiples inferred from public information concerning trading performed outside regulated markets and involving shares of sector companies (comparable transactions method). It is specified that in determining the value of the shares held by Sopaf, account was not taken of the recent transaction (January 2009) on Delta’s capital concerning the assignment of 13.29% of the capital held by Banco Popolare for EUR 44 million, as the directors agree with the opinion of the valuers and consider the price to have been affected by the changed strategies of Banco Popolare, which over the last year has undertaken various initiatives to dispose of non-strategic assets, especially in the consumer credit segment where, in the last two years, it disposed of another two investments that were more significant than the one held in Delta S.p.A., and namely Linea and Ducato, and signed a joint venture agreement with Credit Agricole to promote the consumer credit activities concentrated in Agos. Hence in view of the above, the investment in Delta S.p.A. was adjusted to a value of EUR 80 million, recording a decrease of EUR 16 million on the previous year. Further details can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”;
• as at 31 December 2008 the market price of Conafi Prestitò S.p.A. was 30% lower than its historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 3,344 thousand;
• on 31 March 2008 Sopaf S.p.A. sold 128 class A units of the closed-end real estate fund FIP- Fondo Immobili Pubblici (investment acquired in 2007) to third party investors, generating capital gains of EUR 1,278 thousand;
• on 29 September Sopaf S.p.A. bought off 20 units of the private equity fund Igi Investimenti Quattro from third party investors with an outlay of EUR 344 thousand and a total subscription commitment of up to EUR 1,000 thousand;
• on 31 January 2008 Sopaf S.p.A. purchased 3,445,585 Immsi S.p.A. shares for EUR 4,479 thousand. As at 31 December 2008 the market value was 30% lower than the historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 2,081 thousand
• with regard to the investment in Management&Capitali S.p.A., during the first part of the year Sopaf purchased 14,999,970 shares from Beven Finance and 2,846,765 shares on the market. On 13 June 2008 Sopaf S.p.A provided notice, pursuant to and for the purposes of Articles 2437 and 2437–bis of the Italian Civil Code and following amendments to the by-laws approved by an extraordinary meeting of the company’s shareholders held on 15 May 2008, of exercise of its right of withdrawal on a number of shares equal to 19,347,468, which allowed Sopaf S.p.A. to be refunded on 1 October 2008 generating a loss of EUR 3,689 thousand;
• between the months of March and July 2008 Sopaf S.p.A. entirely subscribed its $10 million commitment in the private equity Infrastructure and Growth Capital Fund managed by Abraaj Capital, a leading infrastructural investment company in the MENASA region (Middle East, North Africa and South-East Asia), with $4 billion worth of assets under management. On 7 August 2008 the fund paid Sopaf S.p.A. $1.5 million by way of partial refund of the subscription as the fund had collected extraordinary cash from a transaction involving disposal of an investee. As at 31 December 2008 the investment in the fund recorded a negative adjustment to the NAV for the year of EUR 848 thousand
and a positive exchange difference of EUR 748 thousand; 2008 as at 31.12. | Consolidated Financial Statements Sopaf
082
• as at 31 December 2008 Sopaf still holds 2,350,357 Sadi Servizi Industriali S.p.A. shares. The market price as at 31 December 2008 was 30% lower than the historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 2,754 thousand;
• on 31 July 2008, as part of the industrial investment rationalisation strategy launched by Sopaf S.p.A. during 2007, the Sopaf Group sold four industrial investments to a newly established foreign fund entitled “Vintage Fund”. The initial investors were Paul Capital Partners IX, L.P., (a US private equity fund) and Sopaf S.p.A. with an investment equal to 5% of the fund for a total commitment of approximately EUR 2,155 thousand. As at 31 December 2008 the investment in the fund recorded a negative adjustment to NAV for the year of EUR 212 thousand.
The f ollowing changes are also reported:
• increases occurring during the year:
− EUR 141 thousand, for subscription to a further increase in the capital of Noventi Venture II LP made in the year; − EUR 314 thousand, for subscription to a further increase in the capital of Value Sec Inv. Sicar SCA made in the year; − EUR 268 thousand, for subscription to the pro-rata increase in the capital of IM3D S.r.l. made by the subsidiary Life Science Capital S.p.A. in the year; − EUR 400 thousand, for adjustment of the fair value of the investment in Fondo Valore Sa on the basis of its NAV as at 31 December 2008.
• Decreases occurring during the year:
− EUR 49 thousand, for assignment of the investment in Ezechiele Limited; − EUR 289 thousand, for assignment of the investment in Tessitura Pontelambro S.p.A.; − for reclassification of the subsidiary Life Science Capital S.p.A. in the item “Assets under disposal” as part of a project to dispose of a package of non-strategic investments, which in turn holds investments in Advanced Accelerator Applications S.A., entered at year end 2007 for EUR 14,883 thousand, in IM3D S.r.l. entered at year end 2007 for EUR 1,500 thousand and in Cerma S.A. entered at year end 2007 for EUR 850 thousand, which were therefore classified as Assets under disposal; − for losses on fair value valuation relating to Immsi for EUR 2,081 thousand, to Sadi for EUR 3,323 thousand, to Conafi Prestito S.p.A for EUR 2,880 thousand.
> Impairment tests on available-for-sale financial assets As required by the IFRS standards available-for-sale financial assets were subject to impairment test to verify whether there is objective evidence to suggest that the entry value of the assets may not be fully recoverable. The process for detecting impairment involves verification of the presence of impairment indicators and determination of any write-down. The impairment indicators identified by the directors can essentially be divided into two categories: indicators deriving from internal factors pertaining to the company under valuation, and hence of the qualitative kind, and external indicators deriving from the company’s market values (only in the case of listed securities). The presence of an impairment indicator internal to the issuer and of a market price that is lower by over 30% or for a period of more than 12 months than the initial recognition value leads to recording of an impairment. In Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
083 other cases recording of the impairment must also be corroborated by the outcome of specific analysis relating to the security or the investment. The extremely negative performance of the financial markets during 2008 caused various listed securities to show impairment indicators, linked to their respective market prices, When such indicators are found it proves necessary to carry out a “fundamental” valuation of the company. The methods adopted are based on market criteria or on the discounting of expected financial flows, for the purpose of quantifying the impact on valuation of the security, where internal impairment indicators are present, or confirming the relevance of the values inferred from market prices, where impairment indicators arise from financial markets. Even in the case of listed securities for which stock exchanges prices have fallen sharply, it is still deemed necessary to verify any objective evidence of impairment. Share prices can represent the best valuation of fair value in normal and efficient financial market conditions (and in these conditions valuations based on the company’s fundamental values normally tend to converge). However this is not the case in situations of market turmoil or conditioned by strong speculative factors based on short-term trading logics which as such are in conflict with the purposes of the impairment test which must also involve medium-to-long term analysis to detect impairment that is not deemed recoverable within a reasonable period of time. For these reasons, the indicators of impairment deriving from the market prices of individual securities are also considered in terms of their relation to the general performance of the market in which the security is listed and to the company’s assets. In any case they are always linked to a “fundamental” valuation of the security. The analyses performed, described for the investment in Delta S.p.A. and for the listed shares of Conafi Prestitò, Immsi S.p.A. and Sadi S.p.A. in the paragraph “Main sources of uncertainty in performing financial statement estimates” did not lead to the need to perform value adjustments.
> Loans and receivables This item includes loans and receivables with breakdown as follows:
31/12/2008 31/12/2007 Loans to associated companies Nearco S.àr.l. - 22 CO.SE. S.r.l. 4,276 188 Immobiliare Appia 2005 S.r.l. 390 390 S.F.E.R.A. S.r.l. - 15 China Opportunity S.A. Sicàr 4,896 - Sopaf&Partners RE-Investment S.r.l. 3,899 - Res Renergys AG - 1,236 13,461 1,851 Other loans 348 697 Bonds 856 792
Guarantee deposits 499 8 15,164 3,348
In July, Tergeste provided an interest-bearing shareholders’ loans to the investee CO.SE . S.r.l. to be used for new real estate initiatives. The loans due from China Opportunity Sicar equal to EUR 4,896 thousand refer to performance fees accrued by Sopaf as holder of class A shares. These performance fees are recognised as variable commission to be paid with subscription of class B China Opportunity shares on the basis of the respective par value and have been determined as 20% of the increase in China Opportunity’s NAV between the beginning and end of the year.
The Sopaf Re & Partners S.r.l. receivable refers to an interest-bearing loan provided for a total of EUR 4,006 thousand to be used partly for acquisition of a property/hotel complex in Capri, through establishment of the company Tiberio S.r.l., which is 20% owned by Sopaf & Partners Re S.r.l., and partly to support new
transactions. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
084
Bonds includes the convertible bond loan subscribed by Sopaf S.p.A. and issued by the South African company Newman Lowther & Associates Ltd., operating in the financial consulting sector, for EUR 1,000 thousand, repayable in 2011. In the event of conversion to shares, Sopaf S.p.A. will have the right to 30 per cent of the current share capital. The bond should yield a coupon equal to 43% of the distributed dividend. The loan component of the financial instrument is represented here. The Sopaf call option component intrinsic to the instrument stripped from the bond loan, equal to EUR 322 thousand, is classified among available-for-sale financial assets.
> 10 Tax credits This item is equal to EUR 4,434 thousand and has posted a decrease of EUR 13,774 thousand on the previous year. These tax credits include receivables claimed from the tax authorities by the Parent Company Sopaf S.p.A. The item specifically includes IRPEG tax credits for which reimbursement was requested for 1998 and 2001 (totalling EUR 3,516 thousand) and related interest (of EUR 836 thousand), assigned in 2007 to a finance company as part of a factoring transaction without recourse. As the requirements of IAS 39 have not been met in full for the purpose of derecognition of this item, it has been retained in the balance sheet with a corresponding payable towards the factor. Compared to the previous year the item has decreased by EUR 13,684 thousand with regard to the IRPEG credit for the year 1997, (equal to EUR 10,329 thousand) with related interest (equal to EUR 3,355 thousand), assigned to third parties as guarantee of credit lines granted and reclassified under current assets as collection is scheduled in 2009.
> 11 Prepaid taxes The item refers to prepaid taxes of EUR 2,778 thousand (of which EUR 2,119 thousand pertaining to the Parent Company) net of deferred tax liabilities of EUR 1,832 thousand. The item breaks down as follows:
31/12/2008 31/12/2007 Prepaid taxes Provisions for risks and charges and provision for write-dow 910 573 Prepaid tax on retained losses 1,416 7,090 Fair value adjustment of financial assets 1,653 128 Other prepaid taxes 631 692 4,610 8,483 Deferred tax liabilities (1,832) (2,966) 2,778 5,517
Prepaid tax assets are mainly based on the future benefit deriving from use of part of the tax losses carried forward by Sopaf S.p.A. (EUR 1,064 thousand) and by Sopaf Capital Management (EUR 352 thousand).
Prepaid taxes have been recognised considering the probability that future taxable income will be realised against which the amounts entered as at 31 December 2008 can be used. The forecasts are based on the taxable income that can be generated with reasonable certainty in light of the 2009 budget and taking into account a number of transactions currently in the negotiation phase which the directors believe will be finalised during next year.
As at 31 December 2008, the tax losses relating to 2007 carried forward by the Parent Company Sopaf S.p.A. total EUR 3,871 thousand (corresponding to prepaid taxes of EUR 1,064 thousand).
Deferred tax liabilities total EUR 1,832 thousand and mainly include: • EUR 698 thousand for deferred taxes relating to the fair value valuation of available-for-sale financial assets; • EUR 1,134 thousand for deferred taxes relating to the convertible bond issue insofar as, at the time of the bond’s release, the fair value of the debt component was determined using the market price of an Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
085 equivalent non-convertible bond, and accordingly the amount of such deferred taxes represents the tax component relating to the cost items of the bond issue that will be amortised during its life.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
086
> Current Assets
> 12 Inventories This item totals EUR 27,000 thousand and has increased by EUR 26,906 thousand compared to the previous year. As at 31 December 2008 inventories refer entirely to a property acquired by Tergeste and written down by approximately EUR 1.7 million in order to align the cost to the market value inferred from transactions involving properties that are similar in terms of zone and type. The acquisition cost includes the incremental expenses incurred at the time of acquisition. Compared to the previous year the item has decreased by the value of the inventories for work in progress and raw materials and consumables of the subsidiary LI Tech S.p.A., of which the value as at 31 December 2008 equal to EUR 242 thousand, was classified in the item “Assets under disposal” in consideration of the disposal project which includes this investment.
> 13 Trade receivables and other commercial assets This item totals EUR 2,392 thousand and mainly refers to EUR 1,824 thousand in commissions due to Sopaf Capital Management S.p.A. for management activities. The item includes receivables of the Parent Company for services and recovery of expenses from the associated companies AFT S.p.A. for EUR 485 thousand, Polis Fondi S.g.r.p.a. for EUR 5 thousand and Sopaf &Partners RE- Inv. S.r.l. for EUR 10 thousand.
> 14 Other receivables and other assets This item totals EUR 21,157 thousand and has increased by EUR 6,706 thousand. The item breaks down as follows:
31/12/2008 31/12/2007 VAT credits 549 2,391 Tax credits 15,564 2,101 Other credits 4,851 9,742 Prepayments and accrued income 193 217 21,157 14,451
The item tax credits mainly includes the IRPEG credit claimed back and assigned to third parties as guarantee concerning the year 2007 for a total of EUR 13,969 thousand (EUR 10,329 thousand relating to the tax credit and EUR 3,640 thousand to the related interest), reclassified this year from non-current assets to current assets as the refund process has almost been completed.
The item “Other receivables”, equal to EUR 4,851 thousand, has decreased compared to the EUR 4,891 thousand recorded in the previous year and mainly includes: • EUR 580 thousand for receivables due to the Parent Company from the company Coemi Property S.p.A. for partial succession to the loan from Sopaf to the sold company S. Apostoli S.r.l.; • EUR 2,628 thousand for receivables due to the Parent Company from the company Dascal S.p.A. maturing next year following the granting of an extension; • EUR 398 thousand for a receivable due to Sopaf S.p.A., in its capacity as agent, from the principals for costs incurred relating to a project for acquisition of an investment that was not carried through; • EUR 1,083 thousand for receivables acquired from Nova Surgelati S.p.A. (effect of the award in settlement of arbitration between Sopaf and Arena Surgelati) and sundry receivables written-off in full from the special provision.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
087 > 15 Derivative financial instruments As at 31 December 2008 the item totals EUR 32,246 thousand and refers to the fair value as at 31 December 2008 of a number of derivative financial instruments entered into by Sopaf S.p.A. The item breaks down as follows:
31/12/2008 31/12/2007 Forward purchases - FIP units 26,990 - Forward sales - FIP units 713 - Equity Linked Swap - FIP units 4,543 - 32,246 -
The items “Forward purchases FIP units” and “Forward sale FIP units” refer to entry of the fair value of two forward purchase and sale transactions involving units of the FIP fund. Following these transactions, finalised in December 2008, Sopaf S.p.A. entered into two agreements with forward consignment (one purchase agreement for 800 units and one sale agreement for 450 units) with two different institutional investors, involving units of the FIP fund. The agreements were valued on the basis of the FIP fund’s NAV as at 31 December 2008 and considering a discount relating to the instrument’s liquidity. This discount was determined by the directors on the difference between the net asset value and the value of the transactions concluded in 2008 on the basis of the track record available to the company. Valuation of the agreements allowed the company to record income from the fair value valuation of EUR 27.7 million in the income statement. These forward agreements were settled in the first months of 2009.
The item “Equity Linked Swap – FIP units” refers to the fair value of an asset swap transaction concluded on 30 September 2008 and maturing on 7 October 2009 with a leading foreign banking counterparty. For Sopaf S.p.A. the transaction provides, in exchange for payment of a fixed rate, for recognition of the income flows linked to the distribution of dividends/extraordinary financial income of Fondo Immobili Pubblici on an initial notional amount of EUR 30 million. As at 31 December 2008 the company asked an independent surveyor to value the derivative by analysing evolution of the fund’s business plan (disposal of the real estate portfolio) with regard to the expected future cash flows and the estimated growth trend of the real estate market for the next decade. The mark-to-market valuation is positive by EUR 4,543 thousand. Further information can be found in paragraph 55 “Additional information on financial instruments and on risk management policies”. An option has also been provided for the banking counterparty to request closure of the swap as from 2013 with physical consignment of the residual capital units of FIP.
Furthermore, on 31 March 2008, Sopaf entered into an asset swap agreement relating to 128 units of Fondo Immobili Pubblici with a notional value of EUR 19,840 thousand. According to the contractual provisions Sopaf pays a variable rate and receives a portion of the operating income disbursed by the fund. As it is a trading instrument, the agreement has a 7-year duration and also provides Sopaf with a purchase option on 64 units of Fondo Immobili Pubblici to be exercised against the counterparty and provides the counterparty with the option to withdraw from the derivative agreement without paying a penalty. Valuation of all the elements making up the asset swap and the counterparty’s withdrawal option led to the directors to determine the instrument’s value as equal to zero as at 31 December 2008.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
088
> 16 Other current financial assets
These total EUR 3,055 thousand and include:
31/12/2008 31/12/2007 Fixed income securities: BTP 1/2008 - 2.5% rate - 994 CCT 1/2008 - 2,024 Loans: Loan to Demofonte S.r.l. 1,508 3,008 Loans for repayment of Sopaf Small Cap Europe 1,517 - Loan to third parties 30 1,272 Securities held for trading - - 3,055 7,298
Loans include EUR 1,508 thousand for an interest-free loan provided by the Parent Company Sopaf S.p.A. to Demofonte S.r.l. During the year two tranches of EUR 600 thousand and EUR 900 thousand respectively were collected.
The item “Receivables from Sopaf Small Cap Europe” concerns the residual receivable relating to liquidation of the fund of the same name. The receivable reported as at 31 December 2008 was fully collected during January 2009.
The item “Loans to third parties” includes EUR 30 thousand for an interest-bearing loan provided to the company Vector 102, prior to its sale. The item also includes EUR 1,277 thousand for a residual receivable relating to an agreement entered into on 16 February 2005 by LM ETVE S.p.A. (later merged with Sopaf), concerning assignment of the investment in Appaloosa Arbitrage Fund Ltd., for an original amount of EUR 1,815 thousand. As at 31 December 2008 the receivable, inclusive of the interest accrued in the period, was written down following a further request for extension from the debtor.
The item “Securities held for trading” underwent the following changes during the year:
Changes in fair Reclassifications 31/12/2007 Increases Decreases value 31/12/2008 FIP - Fondo Immobili Pubblici - 29,215 (29,215) - -- Sopaf Small Cap Europe - 10,000 (9,302) (698) -- - 39,215 (38,517) (698) - -
In September 2008 Sopaf S.p.A. finalised an agreement to sell 209 units of the FIP fund generating capital gains of EUR 881 thousand.
As previously mentioned, in August 2008 Sopaf Capital Management Sgr S.p.a. commenced operations in the Sopaf Small Cap Europe fund, as it received the first subscription of units equal to EUR 10,000 thousand from the Parent Company Sopaf S.p.A., in its capacity as fund sponsor. Given financial market trends and the lack of units placed with new institutional investors, during December 2008 Sopaf S.p.A. decided to disinvest from the fund recording a loss of EUR 583 thousand.
> 17 Cash and cash equivalents Cash and cash equivalents total EUR 4,421 and include cash held by the Group and bank deposits maturing within three months.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
089 > 18 Assets under disposal These total EUR 37,688 thousand and include:
31/12/2008 31/12/2007 Investments in associated companies: AFT S.p.A. 13,718 7,608 S.F.E.R.A. S.r.l. 762 - Sun System S.p.A. 2,606 - Sila S.p.A. - 4,087 Nearco S.àr.l. - 1,433 Available-for-sale financial assets: Green Bit S.p.A. - 4,900 Cerma S.A. 850 - IM3D S.r.l. 1,768 - Nova Fronda S.r.l. 1,500 - Advanced Accelerator Applications S.A. 7,305 Res Finco AG - 10,180 Assets of discontinued subsidiaries: Essere S.p.A. Group 5,686 - Life Science Capital S.p.A. (formerly LM LS S.p.A.) 2,123 - Li Tech S.p.A. 1,370 - 37,688 28,208
Changes in “Assets under disposal” during the year are reported in the special section (Statement of held-for-sale assets).
As already reported above, the controlling investments in Essere S.p.A., Life Science Capital S.p.A. and Li Tech S.p.A. have been classified under assets held for sale in view of a series of initiatives undertaken by the management of Sopaf for the purpose of their disposal through assignment or business combination agreements with other investors which are expected to be concluded by the end of 2009. The reclassified financial assets include the investments held by Life Science Capital S.p.A. (Advanced Accelerator Applications S.A. for EUR 7,305 thousand, IM3D S.p.A. for EUR 1,768 thousand and Cerma SA for EUR 850 thousand).
A breakdown is provided below of the total net assets under disposal referring to the controlling investments in Essere S.p.A., Life Science Capital S.p.A. and Li Tech S.p.A.: Life Science Essere Group Capital S.p.A. Li Tech S.p.A. Current assets 3,485 2,123 543 Non-current assets 2,201 9,923 827 Assets from discontinued operations 5,686 12,046 1,370
The investments in the associates AFT S.p.A., Sfera S.r.l and Sun System S.p.A. have been classified under assets held for sale in view of the resolution passed by the Board of Directors on 18 October 2008 which approved the plan to dispose of these investment by the end of 2009.
On 15 October 2008 Sopaf S.p.A., Nova Fronda S.r.l. and another investor signed an investment agreement that led to the subscription of 25% of the share capital of Nova Fronda S.r.l. The transaction involved an total outlay of EUR 1,693 thousand. Following Sopaf S.p.A.’s exercise of its right of withdrawal formally notified on 29 January 2009, the investment was reclassified under assets held for sale with write-down of the financial asset by EUR 193 thousand classified in the item “Provisions for risks and write-downs”.
Furthermore, during the year the item decreased by EUR 37,743 thousand, following assignment of a package of investments in associates and available-for-sale financial assets. These assignments specifically concerned the investments in AFT S.p.A. for EUR 13,733 thousand, Sila S.p.A. for EUR 4,087 thousand, Green Bit S.p.A. for EUR 4,859 thousand, ResFinco AG for EUR 13,828 thousand, and the assignment of a financial receivable due from ResFinco AG for EUR 1,236 thousand. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
090 > Balance sheet – Liabilities
> Shareholders’ equity
> 19 Group shareholders’ equity Group shareholders’ equity amounts to EUR 146,323 thousand, posting a decrease of EUR 28,546 thousand compared to 31 December 2007. Group shareholders’ equity breaks down as follows:
31/12/2008 31/12/2007 Capital 80,100 80,002 Legal reserve - - Treasury shares (2,363) (174) Bond capital reserve 3,991 3,991 Cash flow hedge reserve (358) Valuation reserve 26,524 56,042 Retained earnings (losses) 34,792 (745) Profit (loss) for the year 3,637 35,753 Undivided profits 66,223 94,867 146,323 174,869
Details of changes in shareholders’ equity in the year are illustrated in the statement of changes previously attached
> Share capital As at 31 December 2008 the share capital totals EUR 80,100 thousand, corresponding to 421,908,392 ordinary shares without par value. The increase in share capital is linked to the conversion to ordinary shares of 111,583 convertible bonds.
It is also important to mention that the extraordinary shareholders’ meeting of 5 May 2005, called to approve the merger of LM ETVE S.p.A. into Sopaf S.p.A., resolved to allocate 28,104,600 newly-issued Sopaf 2005-2001 warrants to LM ETVE S.p.A. warrant holders, each having the right to subscribe to 2 ordinary Sopaf S.p.A. shares without par value at the price of EUR 0.50 per share, inclusive of share premium. The shareholders consequently resolved to increase the share capital, on a split basis, up to a maximum of EUR 28,104,600, to be used for the Sopaf warrants, with the warrant holders entitled to subscribe a maximum of 56,209,200 Sopaf shares as from 18 March 2008 and up to 31 December 2011. Furthermore, on 23 November 2006, Giorgio Magnoni, Sopaf S.p.A.'s CEO and principal shareholder, sold 7,225,000 of the aforementioned warrants to managers, directors and consultants of the Sopaf Group at the unit price of EUR 0.11 thus extending participation in the Group's results.
> Treasury shares The item “Treasury shares” contains 5,200,000 treasury shares comprising a total investment of EUR 2,363 thousand, of which 4,809,737 were purchased during the first half of 2008, concluding the purchase plan approved by the meeting of the shareholders of Sopaf S.p.A. held on 27 November 2007. The weighted average cost of the transaction was EUR 0.4545 per share. Following conclusion of the buy back programme, on 28 June 2008 the Sopaf S.p.A shareholders’ meeting resolved to cancel the authorisation to purchase treasury shares for the remainder of the validity period. The treasury shares will be held in the portfolio, unless traded, exchanged, transferred or subject to other act of disposition as part of business plans or extraordinary finance transactions for which the shareholders’ meeting approved authorisation for a period of eighteen months, in compliance with the prevailing legal and regulatory provisions, regulations issued by Borsa Italiana S.p.A. and in observance of applicable EU provisions. In this case, the economic terms of the sale transaction, including valuation of the shares traded, will be determined with the assistance of independent experts, on the basis of the nature and characteristics of the transaction, also taking into account the market performance of the Sopaf S.p.A. shares. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
091
> Convertible bond loan conversion option reserve This reserve, amounting to EUR 3,991 thousand, is the value attributed to the conversion option held by bondholders of EUR 5,715 thousand, net of deferred taxes of EUR 1,572 thousand and pro-rata accessory charges for placement of EUR 152 thousand. It should be remembered that, according to international accounting standards, at the time of issue the fair value of the debt component was calculated on the market price of an equivalent non-convertible bond and corresponds to the difference between the discounting of bond loan interest based on the contractual rate and on the market rate. This difference is carried to the income statement using the amortised cost method up to the date of conversion or redemption. On issue of the bond loan, this difference, representing the value attributed to the conversion option, was recognised to shareholders’ equity net of the issue costs. In addition, the issue costs were distributed proportionately among the debt components and shareholders’ equity on the bond loan.
> Cash flow hedge reserve This reserve, negative by EUR 358 thousand, relates to the effective portion of the change in value of the hedging derivative instruments used to adjust the value of interest in the income statement and is reported according to hedge accounting rules.
> Valuation reserve The valuation reserve is related to the adjustment to fair value of the following financial assets represented by investment securities classified as available for sale, net of the related tax effects.
The table below shows the breakdown and changes in the valuation reserve during the year: Amounts in EUR/thousand Increases/Decreases Changes in fair value Reserve released Minority interests Group share to the income share Values as at Decreases Increases Values as at statement due to Deferred taxes 01/01/2008 31/12/2008 financial asset disposals (A+B) (A) (B) Available-for-sale financial assets:
Immsi S.p.A. 0 (1,509) 0 0 0 (1,509) - (1,509) Five Stars S.A. 2,416 (1,748) 0 0 0 668 - 668 Fondo Aster 0 00000 - 0 Beven Finance S.àr.l. (3,928) 0 0 3,928 0 0 - 0 Green Bit S.p.A. 1,684 (0) 0 (1,684) 0 0 - 0 Gabetti S.p.A. (0) 00000 - 0 Immobiliare Appia 2005 S.r.l. 1,716 (681) 0 0 0 1,035 - 1,035 Sadi Servizi Industriali S.p.A. 468 (3,361) 0 (24) 201 (2,716) - (2,716) Fondo PWM Global Income Low Volatility 158 00(218)60(0) - (0) HSBC AM Monétaire (30) 0 0 41 (11) 0 - 0 Advanced Accelerator Applications S.A. 11,311 (7,578) 0 0 242 3,975 1,141 2,834 Tessitura Pontelambro S.p.A. (1) 00100 - 0 Management&Capitali S.p.A. 239 00(330)910 - 0 Conafi Prestitò S.p.A. (336) (2,881) 0 0 (26) (3,243) - (3,243) FIP - Fondo Immobili Pubblici 608 00(838)2300 - 0 Demofonte S.r.l. 508 000183691 - 691 Raffaele Caruso S.p.A. 1 00(1)00 - 0 Res Finco AG (386) 0 0 386 0 0 - 0 The Infrastructure&Growth Capital Fund 0 (848) 0 0 233 (615) - (615) Valore by Avere Asset Management SCA 0 (88) 488 0 (110) 290 - 290 Noventi Ventures II LP 0 (3) 0 0 0 (3) - (3) IGI Investimenti Quattro 0 (23) 0 0 0 (23) - (23) Vintage Fund Sicav SIF 0 (260) 0 0 106 (154) - (154) Value Secondary Investments Sicàr SCA 0 (114) 0 0 31 (83) - (83) Delta S.p.A. 45,131 (16,000) 0 0 220 29,351 - 29,351 59,559 (35,093) 488 1,261 1,450 27,665 1,141 26,524 Cash flow hedges Interest rate hedges 0 (358) 0 0 0 (358) - (358) 59,559 (35,451) 488 1,261 1,450 27,307 1,141 26,166
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
092 > 20 Minority interests The table below provides a breakdown of minority interests shareholders’ equity:
31/12/2008 31/12/2007
Minority interest capital and reserves 4,804 7,387 Profit (Loss) (267) (214) 4,537 7,173
The changes occurring in the year in the various items making up the minority interests shareholders’ equity refer to minority interests in the investments in Life Science Capital S.p.A., PWM SGR S.p.A. (a company merged through incorporation into Sopaf Capital Management SGR S.p.A.), Sopaf Asia Sarl and Li Tech S.p.A.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
093 > Non current liabilities
> 21 Convertible bonds This item represents the “SOPAF 2007-2012 convertible 3.875%” bond issue released in August 2007 and represented by 56,406,777 bonds convertible into ordinary shares of the company at any time throughout the issue’s validity on the basis of a conversion ratio of one share per bond held. During 2007 and 2008 conversion into ordinary shares was requested for 2,103 and 111,583 bonds respectively. If any bonds remain unconverted, these will be redeemed at par value for a unit value of EUR 0.88 each. A 3.875% interest rate is paid per year up to maturity of the bond loan. The convertible bond component which has characteristics of a liability is recognised in the balance sheet as a payable net of issue costs.
On the basis of the above, a breakdown of the bond issue is provided below: Amounts in EUR/thousand
Par value of the bond issue 49,738 Equity component (5,715) Debt component as at the date of issue 44,023 Recognized interest: contractual interest 2,681 Interest rate spread based on market rate 1,589 Bond conversion to shares (101) Interest paid (1,924) Residual placement fees (845) Debt component as at 31 December 2008 45,423 Of which Bond issue - current share 754 Bond issue - non-current share 44,669
> 22 Payables to banks and other lenders
31/12/2008 31/12/2007 Bank borrowing 68,412 57,162 Payables to other lenders 4,693 4,395 73,105 61,557
The item “Bank borrowing” includes the instalments repayable after 12 months of the following loans: • EUR 41,148 thousand as the medium/long-term portion of the syndicated loan to support acquisition of Banca Network Investimenti S.p.A. and Area Life International Assurance Ltd. provided for a total of EUR 54,000 thousand and maturing on 30 September 2012. It is reminded that the syndicated loan is secured by pledge on the shares of Banca Network Investimenti S.p.A. held directly by Sopaf S.p.A., on the shares of Petunia S.p.A. which in turn holds 49.92% of Banca Network Investimenti S.p.A., and on the shares of Area Life held by Sopaf S.p.A.; • EUR 3,908 thousand as the medium/long-term portion of two unsecured loans, with an amortisation plan up to 2012; • EUR 1,424 thousand as the medium-term portion of a loan secured by 22,759 Sun System S.p.A. shares. • EUR 3,000 thousand as an unsecured loan granted by a leading bank to help meet the company’s liquidity requirements; • EUR 18,932 thousand as the medium-term portion of a variable rate mortgage loan maturing in 2010 raised by Fondo Tergeste during the year.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
094 It is reported that the syndicated loan to support the acquisition of Banca Network Investimenti S.p.A. and Area Life is secured by a number of contractual covenants including compliance with pre-established financial parameters, and namely the value of shareholders' equity and the debt/shareholders' equity ratio of both the borrowing company and the company whose shares are pledged. If one or more of the parameters are not respected the company has 30 days from the date of notice from the agent bank to take the necessary steps to provide remedy, with the understanding that the steps have to be completed within 30 days of their adoption. In this regard it is noted that the losses posted in 2007 by Banca Network Investimenti reduced the company’s capitalisation to a level below the benchmark parameter established by the loan, but the capital increase subscribed in August 2008 and the further payment for future capital increase made at the end of 2008 allowed the parameter to be restored. As at 31 December 2008 all the parameters requested have been respected.
The item “Payables to other lenders”, amounting to EUR 4,619 thousand, refers exclusively to amounts due to factoring companies for the assignment of tax credits, as outlined in note 10 Tax credits.
It is reminded that the amortisation plans of the aforesaid loans do not contain instalments with maturities exceeding 5 years.
> 23 Non-current lease payables The item includes EUR 534 thousand for the payable corresponding to the principal maturing after next year on the Parent Company’s finance lease agreements. The decrease compared to the previous year is mainly due, as indicated in the item “Intangible assets” to the assignment of finance lease agreements previously entered into with Locat S.p.A., concerning properties and related furnishings situated in Foro Buonaparte in Milan at the head office of the Parent Company Sopaf S.p.A.
> 24 Other liabilities This item amounts to EUR 944 thousand and refers to the payable to Banco Popolare for adjustment of the price for acquisition of BNI by EUR 944 thousand. In the previous year the item included the residual payable relating to the portion maturing in December 2009, of the debt contracted with the third party shareholders of LM & Partners S.C.A. (liquidation closed on 18 December 2008) and of the former Star Venture 1 (liquidation on 29 June 2007) for the transaction to purchase minority shares in the company executed in December 2007. The residual value of this payable as at 31 December 2008 of EUR 17,608 thousand was classified in the current portion of “Other Liabilities”.
> 25 Pension scheme and employee severance indemnity liabilities
31/12/2008 31/12/2007
Employee severance indemnity 465 350 465 350
The employee severance indemnity, which includes indemnities accrued mainly in favour of office workers, totals EUR 465 thousand and relates to the Parent Company and subsidiaries based in Italy. Pursuant to IAS 19, to value the employee severance indemnity, which qualifies as a defined benefit plan, the 'Projected Unit Credit Method' was adopted as follows: • the future benefits potentially due to each employee in the event of retirement, resignation, death or disability were calculated. These benefits were determined on the basis of the financial assumptions set forth below; • the average current value of the future benefits payable was calculated at each valuation date, applying the discount rate indicated below; • the liability to be recorded in the financial statements in relation to the average current value of the future benefits payable as at the valuation date was calculated.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
095 Financial assumptions: Inflation rate 3.2% Pay increase rate 2.5%/1% Discount rate 4.60%-4.75%
Demographic assumptions: Mortality: RG48 mortality rate table Invalidity: INPS invalidity rate tables Turnover: 3% -4%-10% for all ages Pension age: 65 years (M) and 60 years (F)
> 26 Deferred tax liabilities This item totals EUR 236 thousand and mainly represents the deferred taxes of the company Sopaf Capital Management SGR S.p.A. determined on the basis of the temporary differences emerging between the values of the balance sheet assets and liabilities and the corresponding values recorded for tax purposes.
> 27 Provisions
31/12/2008 31/12/2007 Provisions for risks and charges 1,028 1,647 1,028 1,647
The item includes provisions for future taxes and tax charges of EUR 212 thousand and provisions for charges to cover current obligations for which performance is deemed probable of EUR 816 thousand. The item specifically includes:
• EUR 289 thousand as a provision to cover a letter of patronage issued by Sopaf S.p.A. in favour of a leading bank to secure a receivable (of the same amount) owed to the bank by the investee Formula Sport Group S.r.l. (in liquidation); • EUR 519 thousand as a provision entered against a real estate transaction subject to contractual restrictions linked to finalisation of the transaction; • EUR 211 thousand as provision entered against a payment request issued by the tax authorities in relation to a tax dispute arising with the incorporated company LM Real Estate S.p.A. and concerning the 2004 tax period; the hearing on the merits to examine the petition filed by the company has been set for 7 April 2009 before the Milan Provincial Tax Commission.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
096 > Current liabilities
> 28 Convertible bonds The item totalling EUR 753 thousand refers to the portion of interest expense accrued in favour of bondholders from 11 August 2008 to 31 December 2008, restricted to unconverted bonds, as shown in the table below:
31/12/2008 31/12/2007 Payables to bondholders 753 755 753 755
> 29 Payables to banks and other lenders This item totals EUR 66,889 thousand, recording an increase of EUR 7,790 thousand. The item breaks down as follows:
31/12/2008 31/12/2007 Bank borrowing 66,867 56,185 Loans payable to associated companies 22 225 Payables to other lenders - 2,689 66,889 59,099
The item “bank borrowing”, equal to EUR 66,867 thousand, mainly includes:
• EUR 6,655 thousand for the short-term portion of the syndicated loan for the acquisition of Banca Network Investimenti S.p.A. and Area Life International Assurance Ltd. granted for a total of EUR 54,000 thousand, described in detail in the section on non-current liabilities. • EUR 10,000 thousand for an unsecured loan granted by a leading bank to help meet the Parent Company’s liquidity requirements; • EUR 4,950 thousand for a syndicated loan secured by tax credits claimed back from the tax authorities for a notional value of EUR 10,329 thousand, expected to be refunded by the end of 2009; • EUR 566 thousand for the short-term portion of a loan secured by 22,759 Sun System S.p.A. shares; • EUR 3,320 thousand for the current portion of two loans entered into with a leading bank; • EUR 5,000 thousand for a credit line granted by a leading bank for a duration of 18 months less one day for short-tem liquidity requirements; • EUR 1,518 thousand for a loan expiring in June 2009; • EUR 10,973 thousand for a loan with a leading bank maturing by the end of 2009 secured by pledge on 4,982,148 AFT S.p.A. shares and 580,541 Life Science Capital S.p.A. shares; • EUR 3,045 thousand for an uncommitted loan secured by 1,919,423 Conafi shares and by 3,445,585 Immsi shares; • EUR 9,984 thousand for a number of loans entered into with a leading bank for working capital requirements; • EUR 2,500 thousand for two uncommitted loans to meet cash requirements; • EUR 1,463 thousand for interest accrued up to 31 December 2008 and collectible in 2009. • EUR 972 thousand for the current portion of a variable rate mortgage loan with maturity in 2010 raised by Fondo Tergeste; • EUR 5,921 thousand concerning ordinary current account overdrafts and interest expense.
Payables for bank loans are entered on the basis of the amounts used as at 31 December 2008, net of costs relating to the transaction and valued at amortised cost using the effective interest rate method.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
097 The item “Payables to other lenders”, which stood at EUR 2,689 thousand, exclusively concerned the outstanding payable for a trust loan. The amount, inclusive of the interest due at the final maturity of 6 March 2008, was repaid in February 2008.
The item “Payables to associated companies” includes EUR 22 thousand for a payable towards ASM Lomellina for capital account commitments of Sopaf S.p.A..
> 30 Lease payables These total EUR 40 thousand and break down as follows:
31/12/2008 31/12/2007 Lease payables - Fittings > 12 m 15 226 Lease payables - Building > 12 m 25 797 40 1,023
This item refers to the current portion of lease payables. The decrease compared to the previous year is mainly due to the assignment, referred to in the item “Tangible assets”, of the finance lease agreements previously entered into with Locat S.p.A., concerning properties and related furnishings situated in Foro Buonaparte in Milan at the head office of the Parent Company Sopaf S.p.A.
> 31 Derivative financial instruments These total EUR 616 thousand and break down as follows:
31/12/2008 31/12/2007 Interest Rate Swap 99 - Interest Rate Swap (Hedge accounting) 517 11 616 11
The item “Interest Rate Swap” (Hedge accounting) refers to the fair value as at 31 December 2008 of the three interest rate swaps entered into in February 2008, maturing in June 2012, as interest rate hedges on medium-term financing of EUR 21,250 thousand. The timeframe deemed significant for management of the risk of interest rate change is defined as a minimum of 18 months of residual duration of the transaction.
Hedge accounting is used from the date the derivative contract is entered into up to the date of its discharge or maturity, documenting with special report the risk subject to hedging and the purpose of the hedging relationship and regularly verifying its effectiveness. The cash flow hedge method provided by IAS 39 is specifically used. According to this method the effective portion of the change in value of the derivative is reflected in a shareholders’ equity reserve which is used to adjust the value of the income statement interest subject to hedging.
The Cash Flow Hedge Reserve entered under shareholders’ equity as at 31 December 2008 with regard to these derivative instruments is negative by EUR 358 thousand, net of the related prepaid taxes. Assessment of the effectiveness aims to show the high correlation between the technical/financial characteristics of the hedged liabilities (maturity, amount, etc.) and those of the hedging instrument by carrying out special retrospective and prospective tests. The fair value of the Interest Rate Swap contracts is obtained by using a cash flow model on the basis of the values of the forward curve recorded as at 31 December 2008.
The main characteristics of the IRS derivative instruments are the following:
Fixed rate at maturity
notional value EUR 21.25 million; fixed rate: 3.885% ; maturity: September 2012 2008 as at 31.12. | Consolidated Financial Statements Sopaf
098 notional value EUR 3 million; fixed rate: 3.7% ; maturity: June 2011
Variable rate at maturity 3 month EURIBOR; maturity: September 2012 6 month EURIBOR; maturity: June 2011
> 32 Trade payables This item totals EUR 4,762 thousand, recording a decrease of EUR 134 thousand. It breaks down as follows:
31/12/2008 31/12/2007 Trade payables 4,762 4,896 4,762 4,896
Trade payables mainly refer to payables for the provision of services.
> 33 Other liabilities This item is equal to EUR 21,117 thousand, recording an increase of EUR 5,030 thousand. It breaks down as follows:
31/12/2008 31/12/2007 VAT payables 11 15 Tax payables 1,178 1,003 Social security payables 349 761 Other payables 18,968 13,856 Accrued liabilities and deferred expense 611 452 21,117 16,087
Tax payables mainly refer to taxes to be paid to the tax authorities withheld on wages and salaries and considerations to contract and self-employed consultants paid in December 2008.
Other payables have recorded an increase on the previous year of EUR 5,112 thousand and mainly include:
• EUR 17,608 thousand for the current portion of payables (inclusive of interest accrued) contracted with the third party shareholders of LM & Partners S.C.A. (liquidated) for the transaction to purchase the company’s minority shares. These credits include payables maturing as at 31 December 2008 of EUR 6,589 thousand, paid on 5 January 2009, and receivables maturing as at 31 December 2009 of EUR 11,019 thousand; • EUR 341 thousand for fees payable to the Board of Directors and Board of Statutory Auditors; • EUR 686 thousand due to personnel for considerations accrued as at 31 December 2008 and deferred monthly payments.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
099 > 34 Liabilities under disposal This item is equal to EUR 5,343 thousand and includes liabilities relating to the controlling investments which, as already reported above, have been classified as held-for-sale assets following a series of initiatives undertaken by the management of Sopaf, directed at assignment to a number of investors of a package of industrial investments held by the Group and, with regard to Essere S.p.A., a business combination project with other financial intermediaries..
31/12/2008 31/12/2007 Liabilities of discontinued subsidiaries: Essere S.p.A. Group 4,523 - Life Science Capital S.p.A. (formerly LM LS S.p.A.) 261 - Li Tech S.p.A. 559 - 5,343 -
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
100 > Income statement
The main items are illustrated below.
> 35 Revenues The breakdown of revenues by main types is as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007
Revenues from services 433 - Revenues from commissions 10,174 4,680 Revenues from real estate sales - - 10,607 4,680
Revenues for commissions include EUR 4,264 thousand in management commissions accrued by Sopaf Capital Management SGR S.p.A. and Sopaf Asia S.à.r.l., EUR 5,910 thousand in performance fees paid to Sopaf S.p.A. by China Opportunity as at 31 December 2008. This performance fee is paid to Sopaf as a variable fee that is settled in China Opportunity shares to be subscribed on the basis of the respective par value and has been determined as 20% of the increase in the Net Asset Value of China Opportunity between the beginning and the end of the year.
> 36 Other income The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Income from leases 562 224 Capital gains from disposal of financial leases 16,864 - Contingent assets 721 913 Other income 862 369 19,009 1,506
The item Income from assignment of finance lease agreements refers to the assignment of some properties held under finance lease agreements concerning real estate and related furnishings located in Foro Buonaparte, Milan at the head office of the Parent Company Sopaf SpA, which generated total capital gains of EUR 16,864 thousand.
The item “contingent assets” mainly refers to: • EUR 64 thousand for recovery of extra contributions paid to INPS in the years 2005/2006/2007 with regard to positions of executives who were included in calculation of pensions with the contribution system, which sets a maximum limit for pension contributions; • EUR 76 thousand for reduction of a payable to Omniainvest S.p.A. allocated as at 31 December 2007 by the incorporated company LM Real Estate S.p.A.; • reversal by EUR 92 of the total cost of a 2007 bonus to be paid to an executive with whom an agreement was reached to terminate the employment relationship on 31 December 2008; • adjustments of EUR 85 thousand on payables for leasing instalments recorded as at 31 December 2007.
The item “Other income” specifically refers to rental income due to Sopaf S.p.A. from Polis Fondi SGR S.p.A. for EUR 230 thousand and charge-backs for services provided by the Parent Company to associated companies for EUR 156 thousand.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
101 > 37 Purchases of materials and external services The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Changes in inventories 1,458 - Consulting and services 3,667 2,579 Advisory and placement commission expense 828 1,148 General services and maintenance 652 452 Administrative, organisational and audit services 1,164 1,155 Bank commissions 199 Cost of project-based contracts and strategic consulting 1026 1,259 Legal services 693 1,685 Directors' and Auditors' fees 1,565 3,351 Reimbursement of expenses 425 365 Leases 1,384 472 Rentals 342 321 Insurance 238 223 Utilities 288 317 Purchase of goods and materials - 119 Other operating costs 120 - 14,049 13,446
The item “Consulting and services” mainly encompasses services provided for conclusion of certain transactions (such as establishment of the Vintage Fund, assignment of the lease agreements, transactions on Fondo Immobili Pubblici) for approximately EUR 1,800 thousand and consultation for transactions that were not successfully concluded for approximately EUR 400 thousand, legal and tax consultation for approximately EUR 700 thousand (of which approximately EUR 400 thousand relating to the Parent Company) and communication costs for approximately EUR 150 thousand.
The item “Administration services” mainly encompasses organisational and corporate consultation for approximately EUR 200 thousand, outsourced services for the asset management companies for approximately EUR 300 thousand, audit costs for approximately EUR 500 thousand and administration services for approximately EUR 100 thousand.
> 38 Personnel costs The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007
Wages and salaries 5,385 5,158 Social security costs 1,100 1,375 Employee severance indemnity 295 345 6,780 6,878
The cost of personnel at 31 December 2008 is in line with the previous year.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
102 > 39 Other operating costs The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Taxes 994 1,614 Other operating expenses 433 963 Contingent liabilities 345 3,073 1,772 6,240
> 40 Provisions for risks and write-downs The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Provisions for charges 212 - Write-down of loans 1,277 - Write-down of investments 193 13,600 1,682 13,600
The item refers to the write-down for impairment of the receivable of EUR 1,277 thousand due from Elkbridge S.A. as illustrated in Note 16. The amount of the impairment was calculated in accordance with the rules applicable to loans and receivables entered at amortised cost which provide that the loss is measured as the difference between the asset’s book value and the current value of estimated future financial flows discounted at the effective interest rate of the financial instrument. The item “Write-downs of investments” refers to Sopaf S.p.A.’s 25% investment in the capital of Nova Fronda S.r.l. which has been classified among “Assets under disposal” as a result of Sopaf S.p.A.’s exercise of the right to withdrawal following the by-law amendments deliberated by the shareholders’ meeting of Nova Fronda S.r.l..
> 41 Depreciation and amortisation expense The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Amortisation of intangible assets 101 99 Depreciation of property, plant and equipment 613 692 714 791
> 42 Gains/losses from disposal of non-current assets In order to more reliably measure the actual performance of normal business operations, the Operating Profit item gives a separate indication of the net result of cost and revenue components deriving from the disposal of non-current assets. The item “Gains/losses from disposal of non-current assets” includes: capital gains/losses from disposal of investments in subsidiaries; capital gains/losses from disposal of available-for-sale investments included under other non-current financial assets. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
103 The breakdown of this item is illustrated in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Capital gains from disposal or winding-up of controlling investments: Emery S.àr.l. 2,769 - Eolia S.r.l. 74 - Tenerani S.p.A. 55 - Siskin SA 141 - LM IS S.àr.l. (wound up) - 883 3,039 883 Capital gains from disposal of available-for-sale financial assets: Management&Capitali S.p.A. - 47 Green Bit S.p.A. 50 - Omniapartecipazioni S.p.A./IMMSI S.p.A. - 53,166 Fondo Aster - 17,149 Sadi Servizi Industriali S.p.A. 31 8 Raffaele Caruso S.p.A. 1- FIP - Fondo Immobili Pubblici 1,982 - 2,064 70,370
Capital gains/losses from securities trading: - 172
Capital losses from disposal or winding-up of controlling investments: Tenerani S.r.l. (40) - LM&Partners S.C.A. (wound up) (464) - Cutter S.a.r.l. (wound up) (19) - Star Venture I S.c.p.A. (wound up) - (437) (523) (437) Capital losses from disposal or winding-up of associated companies: AFT S.p.A. (685) - Mirror Tre S.àr.l. (wound up) (30) - Nearco Invest S.àr.l. (91) - PWM AIGGIG Multimanager Fund (1,167) - (1,973) - Capital losses and related charges from available-for- sale financial asset disposals: Management&Capitali S.p.A. (3,956) - Ezechiele Lda (44) - Tessitura Pontelambro S.p.A. (59) - Sadi Servizi Industriali S.p.A. (1) - Fondo Aster - (6,599) Omniapartecipazioni S.p.A. - (711) Gabetti S.p.A. - (2) (4,060) (7,312)
Gains/(Losses) from non-current asset disposals (1,453) 63,677
The capital gains from assignment of the investment in Emery Sarl relates to assignment of the special purpose vehicle through which the Sopaf Group assigned the investments in AFT S.p.A., Green Bit S.p.A., Sila Holding Industriale S.p.A. and Res Finco AG to the Vintage Fund.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
104
> 43 Portion of profit (loss) of investments carried by the equity method The item includes: • the pro-rata profit (loss) of the net result of companies carried by the equity method, including any impairment; • write-downs (write-ups) of investments carried by the equity method; • capital gains (losses) generated by disposal of investments carried by the equity method; • capital gains (losses) corresponding to the net economic result for the year of investments that have been deconsolidated on a line-by-line basis as, following disposal of interests held, control over the investment has been transferred outside the Group; • write-downs for impairment of investee companies in excess of the book value, to the extent corresponding to actual obligations to settle losses and with balancing entry in the provisions for risks.
The item breaks down as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Gains pro quota Polis Fondi SGR p.A. 425 376 Delta S.p.A. - 368 Five Stars S.A. 25 976 Sopaf Capital Management SGR S.p.A. - 18 China Opportunity S.A. Sicàr 1,315 2,151 PWM AIGGIG Multimanager Fund - 604 Firanegocios S.L. 63 14 Telma S.r.l. - 38 Veicoli Telma - 45 Area Life International Assurance Ltd 2,608 744 4,436 5,334 Losses pro quota Essere S.p.A. (489) (562) Cose S.r.l. (42) (10) Nearco S.àr.l. (24) (21) AFT S.p.A. - (51) S.F.E.R.A. S.r.l. (75) (30) Beven Finance S.àr.l. (74) (23) Petunia S.p.A. (8,688) (1,371) Sopaf&Partners RE-Investment S.r.l. (21) - ASM Lomellina Inerti S.r.l. (1) - Banca Network Investimenti S.p.A. (4,061) (668) Aviva Previdenza S.p.A. (1,470) - (14,945) (2,736) Capital gains/(losses) from disposals Telma S.r.l. - 8,067 AFT S.p.A. - (349) PWM AIGGIG Multimanager Fund - (21) Sila S.p.A. 268 - Veicoli Telma - (89) 268 7,609 Gains/(Losses) pro quota (10,241) 10,207
The item “Capital gains/losses from disposals” refers to the capital gain deriving from disposal of the investment in Sila S.p.A. recorded at the same time as the transaction for disposal of the investment in Siskin Sa as part of Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
105 the implementation phases of the transactions to transfer a package of industrial investments to the Vintage Fund. The losses recorded by Banca Network Investimenti S.p.A. and Petunia S.p.A. include the pro-rata loss for the year of EUR 2,370 thousand and EUR 4,796 thousand respectively and the write-downs following impairment test, as outlined in the paragraph on “Investments in associated companies and joint ventures”, of EUR 1,691 thousand and EUR 3,893 thousand respectively.
> 44 Net financial income/charges The item breaks down as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Interest income 1,150 1,362 Dividends 224 3,858 Income from derivatives 32,438 - Income from investments 1,886 - Capital gains from securities and other financial as 140 5 Exchange gains 796 10 Financial income 36,634 5,235 Exchange losses (12) (10) Interest expense on bond loan (3,314) - Capital losses from derivatives (245) - Derivative commissions (2,152) - Capital losses on securities and other financial ass (631) (3) Interest expense (12,408) (8,651) Financial charges (18,762) (8,664) Net financial income/(charges) 17,872 (3,429)
The item “Interest income” mainly refers to interest accrued on bank current accounts of EUR 332 thousand, interest accrued on non-current loans of EUR 678 thousand and interest income on securities of EUR 36 thousand.
The item “Income from derivative financial instruments” refers to EUR 27,703 thousand for fair value valuation as at 31 December 2008 of two forward contracts for the purchase and sale of 800 and 450 units respectively of the FIP fund, EUR 4,552 thousand for mark-to-market valuation of the equity swap concluded with a leading foreign bank counterparty which provides for Sopaf S.p.A., in exchange for payment of a fixed rate, for recognition of the income flows linked to the distribution of dividends/extraordinary financial income of Fondo Immobili Pubblici. Further information can be found in note 15 Derivative financial instruments and in paragraph 55 Additional information on financial instruments and risk management policies.
The item “interest expense” mainly includes: • EUR 309 thousand for interest due as at 31 December 2008 on used uncommitted lines of credit; • EUR 10,246 thousand for interest accrued on loans granted by various banks with related accessory costs amortised as accrued; • EUR 542 thousand for interest accrued on finance lease agreements; • EUR 693 thousand for interest on payables to the former shareholders of LM & Partners SCA (liquidated) relating to acquisition of their respective shares.
The item “Commissions for derivative financial instruments” includes commissions paid to a third party considered as transaction costs, upon finalisation of the forward purchase and sales contracts on FIP fund units and recorded on an accrual basis at the time the related service is completed. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
106 > 45 Income taxes The item breaks down as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 - IRES (129) (400) - IRAP (942) (28) Past years' taxes 60 0 Total current taxes (1,011) (428) Deferred tax liabilities 218 854 Prepaid taxes (5,188) (574) Total deferred taxes (4,970) 280 Total income taxes (5,981) (148)
> 46 Net profit (loss) from assets under disposal The net profit (loss) from assets under disposal includes the net profit (loss) of subsidiaries under disposal and breaks down as follows:
31/12/2008 31/12/2007 Net income from discontinued operations Essere S.p.A. Group (911) - Life Science Capital S.p.A. (formerly LM LS S.p.A.) (228) - Li Tech S.p.A. (307) - (1,446) -
It is specified that the net profit (loss) of the Essere S.p.A. Group refers to a half year, as control of the Essere Group was acquired as from the second half of 2008.
> 47 Profit (loss) attributable to minority interest Minority interests record a loss of EUR 267 thousand, with breakdown as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Loss pro quota in associated companies (267) (214) (267) (214)
> 48 Basic and diluted earnings per share As provided by IAS 33, Sopaf S.p.A. reports the basic earnings per share as net profit (loss) for the year attributable to the Parent Company divided by the weighted average number of shares outstanding in the year, net of treasury shares and the diluted earnings determined by adjusting the net profit attributable to holders of ordinary capital instruments of the Parent Company Sopaf S.p.A. to take account of the effects of all the potential ordinary shares with dilution effect. Specifically the basic and diluted earnings per share are determined as follows:
Basic earnings per share: Basic earnings per share are determined by dividing the economic result attributable to the holders of ordinary capital instruments of the Parent Company by the weighted average of the ordinary shares outstanding during the year, net of treasury shares.
Diluted earnings per share: As provided by IAS 33, diluted earnings per share should take into account the effects of all the potential ordinary shares with dilution effect. The Company issued warrants and a convertible bond loan. The Company did not calculate the diluted earnings per share as the exercise of the warrants exceed the market value of the Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
107 shares (out of the money) and hence it would generate an anti-dilution effect that should not be indicated. Furthermore, the convertible bond loan was not considered as the interest recorded in the year relating to the potential ordinary shares would have an anti-dilution effect (increase of earnings per share) compared to the basic earnings per share.
Basic earnings per share for the year 2008 compared with the previous year and reconciliation of the weighted average number of shares outstanding are provided below:
31/12/2008 31/12/2007 Basic earnings per share (No. of ordinary shares in thousands) N° of shares - opening balance 421,797 421,795 Weighted average of bonds converted to shares during the year 87 2 Treasury shares - opening balance (390) - Weighted average of treasury shares purchased during the year (4,127) (15) Weighted average of treasury shares sold during the year - - Weighted average of shares outstanding - closing balance 417,367 421,782
Amounts in EUR/thousand Share of net profit 3,637 35,753
Amounts in EUR Basic earnings per share 0.0087 0.0848
Furthermore, as required by IAS 33, the basic earnings per share relating to assets held for sale is provided below: 31/12/2008 31/12/2007 Basic earnings per share of discontinued assets (No. of ordinary shares in thousands) N° of shares - opening balance 421,797 421,795 Weighted average of bonds converted to shares during the year 87 2 Treasury shares - opening balance (390) - Weighted average of treasury shares purchased during the year (4,127) (15) Weighted average of treasury shares sold during the year - - Weighted average of shares outstanding - closing balance 417,367 421,782
Amounts in EUR/thousand Net profit (loss) from discontinued assets (1,446) -
Amounts in EUR
Net profit (loss) from basic earnings per share on discontinued assets (0.0035) -
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
108 > 49 Acquisitions of incremental interests in the investment Essere S.p.A.
During 2008 the Parent Company Sopaf S.p.A. made capital payments of EUR 1,707 thousand to cover losses as at 31 December 2007 and to re-establish capital, of EUR 175 thousand to purchase 6,080 shares and of EUR 1,227 thousand to subscribe to a share capital increase. Hence, as at 30 December 2008 with subscription, proportional to its interest, to the increase in the share capital of Essere S.p.A. up to EUR 2 million, Sopaf holds 92% of the share capital of Essere S.p.A. The investment in Essere S.p.A. underwent the following specific changes during the year: • on 26 March 2008 and 26 May 2008 Sopaf S.p.A. made capital account payments totalling EUR 1.7 million to the investee to cover losses recorded as at 31 December 2007 and as at 31 March 2008 and to re-establish capital; • on 3 August, at the deadline established by the shareholders’ meeting held on 24 June 2008 which had deliberated to re-establish the capital at EUR 600,000 to be offered under option to shareholders in proportion to their respective investments, Sopaf reached 81.87% of the share capital of Essere S.p.A., becoming its controlling shareholder and therefore reclassifying the investment under subsidiary companies; • on 8 October Sopaf S.p.A. acquired a further 10.13% of the share capital of Essere from third party investors for EUR 175 thousand, increasing its investment from 81.87% to 92%.; • on 16 October and 12 November, the Board of Directors of Sopaf S.p.A. deliberated on a project to enhance the value of the investee which could be finalised through extraordinary transactions on the company’s share capital. The directors therefore decided to reclassify the investment in the category “Assets under disposal”; • lastly, in the last quarter, following resolution passed by the shareholders’ meeting on 24 June 2008 which approved an increase in the share capital of Essere S.p.A. from EUR 600,000 to EUR 2,000,000 to be offered under option to shareholders with expiry 31 December 2008, Sopaf paid in a total of EUR 1.2 million.
The net financial outlay of the Sopaf Group for these transactions totalled EUR 2,721 thousand, equal to the difference between the payments made for acquisition and the net cash and cash equivalents acquired:
Amounts in EUR/thousand 35.77% 92% Totals investment investment
Non-current assets 2,201 Current assets 3,095 Cash and cash equivalents 388 Total Assets 5,684
Financial liabilities (182) Other liabilities (91) Non-current liabilities (273)
Financial liabilities (1,858) Other liabilities (2,474) Current liabilities (4,332) Total Liabilities (4,605) Net assets acquired (A) 1,079 993
Consolidated controlling investments value: Investment carried by the equity method as at 1 January 2008 277 277 Grants 1,707 1,707 Pro-quota result as at 30 June 2008 (489) (489) Increases subsequent to controlling investments: Acquisitions 175 175 Subscription to share capital increase 1,227 1,227
Write-down of investment (1,547)
Total consolidated acquisition value (B) 1,350
Consolidation difference carried to shareholders' equity (A) - (B) (357)
Cash and cash equivalents associated with the acquisition: Acquired cash and cash equivalents 388 Net cash flow for the acquisition (3,109) Net cash and cash equivalents used (2,721)
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
109 > 50 Closure of liquidation of the subsidiary companies LM&Partners SCA and Cutter Sàrl through assignment of the net assets to Sopaf S.p.A.
During 2008 the procedure for liquidation of the subsidiaries LM&Partners SCA and Cutter S.a.r.l. was concluded and they were therefore eliminated from the scope of consolidation.
The following is reported on closure of liquidation of these subsidiaries: • liquidation of LM&Partners SCA was concluded on 18 December 2008 with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 52,224 thousand and liabilities worth EUR 602 thousand, with shareholders’ equity equal to EUR 51,622 thousand; • liquidation of Cutter S.a.r.l. was concluded with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 1,521 thousand and liabilities worth EUR 511 thousand, with shareholders’ equity equal to EUR 1,010 thousand.
The financial and economic effects of closure of liquidation of LM&Partners SCA and of Cutter Sàrl are set forth below:
Values at the date Values as at Capital losses of allocation 01/01/2008 Non-current assets 2,179 38,796 Current assets 390 693 Current assets from infragroup relations 49,504 40,888 Cash and cash equivalents 151 90 Total Assets 52,224 80,467
Financial liabilities - - Other liabilities 534 829 Non-current liabilities 534 829 Financial liabilities - - Other liabilities 68 312 Current liabilities 68 312 Total Liabilities 602 1,141
Net assets 51,622 79,326 Controlling investment in LM&Partners SCA (24,981) (52,221) Net capital gains from allocation (a) 26,641 26,641 Net consolidated capital gains as at 01/01/2008 (b) 27,105 (27,105) Net consolidated capital losses (1) = (a-b) (464)
Values at the date Values as at Capital losses of allocation 01/01/2008
Non-current assets 1,505 339
Current assets 1 - Cash and cash equivalents 15 25 Total Assets 1,521 364
Financial liabilities - 339 Other liabilities - - Non-current liabilities - 339
Financial liabilities - - Other liabilities 511 3 Current liabilities 511 3 Total Liabilities 511 343 Net assets 1,010 21
Controlling investment in Cutter S.àr.l. (50) (50) Net capital gains from allocation 960 Consolidation adjustments (1,008) Net capital losses from allocation (a) (48) (48) Net consolidated capital gains as at 01/01/2008 (b) (29) 29 Net consolidated capital losses (2) = (a-b) (19)
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf Net consolidated capital losses at year-end from winding-up of subsidiaries (1) + (2) (483)
110 > 51 Disposal of investments in subsidiary companies During the year some controlling investments were eliminated from the scope of consolidation as a result of the disposal in July 2008 of the controlling investments in Tenerani S.r.l. and of its subsidiary Eolia S.A. (owned by Tenerani S.r.l.) and of the subsidiary Siskin SA as part of a unitary agreement for the transfer of industrial investments. The effects on the income statement and on the balance sheet at the date of the last line-by-line consolidation of the controlling investments sold during the year and of the corresponding consolidated shareholders’ equity are summarised below:
Siskin SA Tenerani Eolia SA Total
% investment 100.0% 100.0% 100.0%
Investment - 74 - 74 Prepaid taxes - 11 - Current assets - 10 - 10 Cash and cash equivalents 2 69 48 119 Total operating assets 2 164 48 214 Assets from discontinued operations 4,088 - - 4,088 Total Assets 4,093 242 97 4,432 Financial liabilities 4,191 100 - 4,291 Other liabilities - - - - Non-current liabilities 4,191 100 - 4,291
Financial liabilities - - - - Trade payables and other short-term liabilities - 11 6 17 Other liabilities 20 - - 20 Current liabilities 20 - - 20 Total Liabilities 4,211 100 - 4,311 Shareholders' equity as at 01/01/2008 (121) 53 42 (26)
Value of investments (1) (100) (74) (175) Net consolidated capital gains (122) (47) (32) (201)
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
111 > 52 Transactions for disposal of investments in subsidiary companies
The controlling investments in Life Science Capital S.p.A. and Li Tech S.p.A. were classified under held-for- sale assets, following a series of initiatives undertaken by the management of Sopaf for the purpose of their disposal through assignment or business combination agreements with other investors which are expected to be concluded by the end of 2009. Total net assets under disposal referring to the controlling investments in Life Science Capital S.p.A. and Li Tech S.p.A. are set forth below: Amounts in EUR/thousand Life Science Li Tech S.p.A. Total Capital S.p.A.
Goodwill - 384 384 Intangible assets - 419 419 Property, plant and equipment 1 8 9 Prepaid taxes - 15 15 Inventories - 243 243 Other receivables and other assets 72 217 289 Cash and cash equivalents 2,050 84 2,134 Total Assets 2,123 1,370 3,493 Financial liabilities - - - Provisions for risks and charges - 63 63 Other liabilities - - - Non-current liabilities - 63 63
Financial liabilities - 65 65 Trade payables and other short-term liabilities 261 121 382 Provision for deferred taxes - 242 242 Other liabilities - 68 68 Current liabilities 261 496 757 Total Liabilities 261 559 820
Increase in discontinued assets (2,123) (1,370) (3,493) Increase in discontinued liabilities 261 559 (820)
Cash and cash equivalents directly attributable to the subsidiaries under disposal are as follows:
Amounts in EUR/thousand
Discontinued direct subsidiaries: Li Tech S.p.A. 84 Life Science Capital S.p.A. 2,050 Essere S.p.A. Group 388 Cash and cash equivalents 2,522 Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
112 > 53 Consolidated net financial position According to the provisions of CONSOB Notice dated 28 July 2006 and in compliance with CESR Recommendations dated 10 February 2005 “Recommendations for standardised implementation of the European Commission regulations on prospectuses”, it is reported that the net position of the Sopaf Group as at 31 December 2008 is negative by EUR 146,885 thousand, as shown in the following table:
Amounts in EUR/thousand
NET FINANCIAL POSITION 31/12/2008 31/12/2007
A) Cash on Hand 10 11 B) Other cash equivalents 4,411 21,715 C) Securities and other financial assets held for trading 32,246 3,017 D) TOTAL CASH AND CASH EQUIVALENTS (A+B+C) 36,667 24,743 E) Current loans 3,055 4,282 F) Current bank payables (55,370) (27,198) G) Current portion of non-current borrowings (11,497) (30,765) H) Other current loans (1,432) (2,914) I) CURRENT BORROWINGS (F+G+H) (68,299) (60,877) J) NET CURRENT BORROWINGS (I-E-D) (28,577) (31,852) K) Non-current bank payables (68,412) (57,162) L) Bond issues (44,669) (43,390) M) Other non-current payables (5,227) (19,235) N) NON-CURRENT BORROWINGS (K+L+M) (118,308) (119,787)
O) NET BORROWINGS (J+N) (146,885) (151,639)
The overall net financial position is essentially in line with the previous year. The net financial position of the Parent Company has posted an improvement of approximately EUR 40 million, while Fondo Tergeste has recorded an increase in borrowings by approximately EUR 19 million contracted for acquisition of a property. Furthermore a positive impact has been recorded on held-for-trading financial assets which have increased by EUR 29,229 thousand, offset by a reduction in cash and cash equivalents and by a slight increase in short-term exposure, especially in the credit lines used for current operations, to support new initiatives and to guarantee greater capitalisation to the Group’s main companies. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
113 > 54 Commitments and guarantees As at 31 December 2008 the guarantees issued and outstanding were as follows:
• EUR 9,112 thousand for sureties and guarantees issued in favour of third parties, referring to: − EUR 312 thousand for a bank guarantee issued in favour of third parties at the time of disposal in past periods of Codis S.p.A.; − EUR 289 thousand for a letter of patronage issued in favour of a leading bank on behalf of the company Formula Sport Group S.r.l. (in liquidation); − EUR 723 thousand for a bank guarantee issued to secure property lease agreements of Sopaf S.p.A. and of the subsidiaries Essere S.p.A. and Sopaf Capital Management SGR S.p.A.; − EUR 8,500 thousand for a bank guarantee relating to business lease agreements; − EUR 204 thousand for a guarantee to secure instalments for rental agreements.
• investee company securities given as guarantee to banks for short/medium-term financing including: − 2,350,357 Sadi S.p.A shares for a par value of EUR 1,222 thousand; − 12,145,430 Area Life shares for a par value of EUR 12,125 thousand; − 4,503,598 BNI S.p.A. shares for a par value of EUR 3,904 thousand; − 29,690,000 Petunia S.p.A. shares for a value of EUR 29,690 thousand; − 1,919,423 Conafi Prestitò S.p.A. shares for a value of EUR 3,516 thousand; − 3,445,585 Immsi S.p.A. shares for a value of EUR 1,792 thousand; − 22,759 Sun System S.p.A. shares for a value of EUR 23 thousand; − 4,982,148 A.F.T S.p.A. shares for a value of EUR 2,491 thousand; − 580,541 Life Science Capital S.p.A. shares for a value of EUR 581 thousand; − 2,250 Demofonte S.r.l. units for a value of EUR 2 thousand.
• EUR 3,969 thousand for guarantees issued to banks for assignment of receivables from the tax authorities claimed back in previous years.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
114
> 55 Additional information on financial instruments and risk management policies
With regard to the additional information on financial instruments and related risks required by IFRS 7 to illustrate the impact of financial instruments on the extent of related risk exposure, details are provided below on the policies and measures adopted by the company to manage financial risk exposure.
> 55.1 Classes of financial instruments
> Categories of financial assets and liabilities
The additional information required by IFRS 7 to assess the relevance of financial instruments with regard to the financial and economic position of the Sopaf Group is provided below and set out separately for the two years under comparison:
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS
Fair value financial instruments held Assets held to Loans and Available-for-sale Balance sheet Notes to the Financial assets as at 31 December 2008 for trading maturity receivables financial assets values balance sheet
Other financial assets: Investments - - - 99,779 99,779 9 Other financial assets - - 5,274 - 5,274 9 Loans (portion beyond 12 months) - - 188 - 188 9 Loans to related parties (portion beyond 12 months) - - 8,848 - 8,848 9
Loans: Loans to customers - - 1,829 - 1,829 13 Loans to related parties - - 1,173 - 1,173 13 Other loans - - 5,107 - 5,107 14
Other loans/current assets: Factoring loans - - 4,373 - 4,373 10
Current financial assets: Loans (portion within 12 months) - - - - (0) 16 Loans to related parties (portion within12 months) - 3,055 - 3,055 16 Securities - - - - - Hedges - - - - - Non-hedging derivatives 32,246 - - - 32,246 15
Cash and cash equivalents Bank and postal deposits - - 4,421 - 4,421 17 TOTAL FINANCIAL ASSETS 32,246 - 34,268 99,779 166,293
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
115
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS
Fair value financial instruments held Assets held to Loans and Available-for-sale Balance sheet Explanatory Financial assets as at 31 December 2007 for trading maturity receivables financial assets values notes
Other financial assets: Investments - - - 154,489 154,489 9 Other financial assets - - 669 - 669 9 Loans (portion beyond 12 months) - - - - 22 9 Loans to related parties (portion beyond 12 months) - - 1,851 - 1,851 9
Loans: Loans to customers - - 596 - 596 13/14 Loans to related parties - - 280 - 280 13/14 Other loans - - 9,286 - 9,286 13/14 Other loans to related parties - - 610 - 610 13/14
Other loans/current assets: Factoring loans - - 4,373 - 4,373 10
Current financial assets: Loans (portion within 12 months) - - 7,298 - 7,298 16 Securities - - - - - Hedges - - - - - Non-hedging derivatives - - - - -
Cash and cash equivalents Bank and postal deposits - - 21,727 - 21,727 17 TOTAL FINANCIAL ASSETS - - 46,690 154,489 201,201
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS
Fair value financial instruments held Liabilities at Balance sheet Financial liabilities as at 31 December 2008 for trading amortised cost values Explanatory notes
Non-current payables and financial liabilities: Bond loan - 44,669 - - 44,669 21 Bank payables - 73,105 - - 73,105 22 Lease payables - 534 - - 534 23 Other financial liabilities - - - - -
Current liabilities: Bond loan - 754 - - 754 28 Bank payables - 66,867 - - 66,867 29 Trade payables - 4,762 - - 4,762 32 Lease payables - 40 - - 40 30 Other payables - 20,047 - - 20,047 33 Loans from related parties - 26 - - 26 29/33
Other financial liabilities: Payables to factoring companies - - - - - Other financial liabilities - - - - - Hedges 616 - - - 616 31 Non-hedging derivatives - - - - - Financial payables to related parties - - - - - TOTAL FINANCIAL LIABILITIES 616 210,804 - - 211,420
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
116
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS
Fair value financial instruments held Liabilities at Balance sheet Explanatory Financial liabilities as at 31 December 2007 for trading amortised cost values notes
Non-current payables and financial liabilities: Bond loan - 43,390 - - 43,390 21 Bank payables - 61,557 - - 61,557 22 Lease payables - 14,840 - - 14,840 23 Other financial liabilities - 10,612 - - 10,612 24
Current liabilities: Bond loan - 755 - - 755 28 Bank payables - 58,874 - - 58,874 29 Trade payables - 4,896 - - 4,896 32 Lease payables - 1,023 - - 1,023 30 Other payables - 4,915 - - 4,915 33 Financial payables to related parties - 225 - - 225 29
Other financial liabilities: Payables to factoring companies - - - - - Other financial liabilities - - - - - Hedges 11 - - - 11 31 Non-hedging derivatives - - - - - Financial payables to related parties - - - - - TOTAL FINANCIAL LIABILITIES 11 201,086 - - 201,097
Separate information is provided below on the various categories of financial assets and liabilities established by IAS 39 of the Essere S.p.A. Group, Li Tech S.p.A. and Life Science Capital S.p.A. which during 2008 were considered as investments under disposal: Amounts in EUR/thousand
IAS 39 CLASSIFICATIONS
Fair value financial Financial assets as at 31 December 2008 of instruments held Assets held to Loans and Available-for-sale Balance sheet Explanatory discontinued subsidiaries for trading maturity receivables financial assets values notes
Other financial assets: Other financial assets - - - 9,923 9,923 18 Other financial assets - - 31 - 31 18
Loans: Loans to customers - - 968 - 968 18 Other loans - - 601 - 601 18
Cash and cash equivalents Bank and postal deposits - - 2,522 - 2,522 18
TOTAL DISCONTINUED FINANCIAL ASSETS - - 4,122 9,923 14,045
IAS 39 CLASSIFICATIONS
Fair value financial Financial liabilities as at 31 December 2008 of instruments held Liabilities at Balance sheet Explanatory discontinued subsidiaries for trading amortised cost values notes
Non-current payables and financial liabilities: Bank payables - 836 - - 836 34
Current liabilities: Bank payables - 865 - - 865 34 Trade payables - 1,531 - - 1,531 34 Lease payables - 403 - - 403 34 Other payables - 846 - - 846 34 TOTAL DISCONTINUED FINANCIAL LIABILITIES - 4,481 - - 4,481
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
117 Separate information is provided below on the financial liabilities as required by IAS 7 within the various categories established by IAS 39 with current and non-current maturity for both the previous and current year.
Amounts in EUR/thousand 31/12/2008 31/12/2007
Non-current financial liabilities Convertible bond liabilities (44,669) (43,390) Secured bank loans (61,495) (47,162) Unsecured bank loans (6,917) (10,000) Lease payables (534) (14,840) Other liabilities - (10,612) (113,615) (126,004) Current financial liabilities Convertible bond liabilities (754) (755) Secured bank loans (35,456) (42,645) Unsecured bank loans (27,339) (10,908) Bank payables for overdrafts (4,072) (5,524) Factoring advances (4,693) (4,395) Lease payables (40) (1,023) Loans from related parties (22) - Non-hedging derivatives (616) (11) Trade payables (3,164) (4,896) Payables to related parties (1,599) - Other liabilities (19,169) (11,979) (96,924) (82,136) (210,539) (208,140)
> Financial income and charges recorded according to IAS 39
Net financial income and charges from financial assets and liabilities divided into the categories established by IAS 39 are reported below, with specification for each one of the nature of said income and charges: Amounts in EUR/thousand
From other From changes From equity From capital income/charg Exchange Net Explanatory IAS 39 classifications as at 31 December 2008 From interest in fair value reserve losses/gains es gains/losses profit/loss notes
Financial instruments held for trading - 32,438 - (105) (2,152) - 30,181 44 Liabilities at amortised cost (15,722) - - - - - (15,722) 44 Financial instruments held to maturity ------Loans and receivables 1,150 - - - - 784 1,934 44 Available-for-sale financial instruments - - - (631) 2,110 - 1,479
TOTAL IAS 39 CLASSIFICATIONS (14,572) 32,438 - (736) (42) 784 17,872
Amounts in EUR/thousand
From other From changes From equity From capital income/charg Exchange Net Explanatory IAS 39 classifications as at 31 December 2007 From interest in fair value reserve losses/gains es gains/losses profit/loss notes
Financial instruments held for trading - - - 2 - - 2
Liabilities at amortised cost (8,651) - - - - - (8,651) 44
Financial instruments held to maturity ------
Loans and receivables 1,362 - - - - - 1,362 44
Available-for-sale financial instruments - - - - 3,858 - 3,858
TOTAL IAS 39 CLASSIFICATIONS (7,289) - - 2 3,858 - (3,429) Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
118
Furthermore, the gains and losses deriving from fair value valuations previously carried directly to shareholders’ equity and which have been carried to the income statement following assignment or entry of impairment of available-for-sale financial assets are also reported below. These gains were carried to the income statement under the item “Gains/losses from disposal of non-current assets”:
Amounts in EUR/thousand
From equity IAS 39 classifications as at 31 December 200 reserve
Financial instruments held for trading -
Liabilities at amortised cost -
Financial instruments held to maturity -
Loans and receivables -
Available-for-sale financial instruments (1,261)
Total capital gains/losses (1,261)
Amounts in EUR/thousand
From equity IAS 39 classifications as at 31 December 200 reserve
Financial instruments held for trading -
Liabilities at amortised cost -
Financial instruments held to maturity -
Loans and receivables -
Available-for-sale financial instruments 65,167 Total capital gains/losses 65,167
> Fair value of financial assets and liabilities and calculation criteria
The fair value of financial assets and liabilities is calculated as follows: • The fair value of financial assets and liabilities with standard terms and conditions and listed on an active market, is measured with reference to the prices published in the active market; • The fair value of other financial assets and liabilities (excluding derivative instruments) is measured using commonly accepted valuation techniques based on discounted cash flow analysis models using, as variables, the observable prices deriving from recent market transactions and from broker prices for similar instruments; • The fair value of derivative instruments, if listed on an active market, is calculated on the basis of market prices; if these prices are not published, other valuation techniques are used according to the type of instrument.
Specific distinction can be made between: • interest rate swaps (IRS): to determine the fair value of IRS the discounted cash flow analysis method is used; • structured swaps: the instrument is broken down into a plain component and an optional component of which the values are defined separately and summed (“building block”).
It is specified that the book value of financial assets and liabilities, excepting investments, available-for-sale financial assets and derivative instruments, approximates their fair value.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
119
> 55.2 Capital management The capital management objectives of the Parent Company Sopaf S.p.A. are geared towards safeguarding the Group’s capacity to continue to guarantee profitability for shareholders, the interests of stakeholders and the observance of covenants, as well as to maintain an optimum capital structure. The Parent Company Sopaf S.p.A. holds 5,200,000 treasury shares for a total investment of EUR 2,363 thousand, of which 4,809,737 purchased in the first half of 2008, to conclude the purchase plan deliberated by the shareholders’ meeting of Sopaf S.p.A. held on 27 November 2007. The weighted average cost of the transaction was equal to EUR 0.4545 per share. On 28 June 2008 the Sopaf S.p.A. shareholders’ meeting resolved to cancel the authorisation to purchase treasury shares for the remainder of the validity period. The treasury shares will be held in portfolio, unless traded, exchanged, transferred or subject to other act of disposition as part of business plans or extraordinary finance transactions for which the shareholders’ meeting approved authorisation for a period of eighteen months, in compliance with the prevailing legal and regulatory provisions, regulations issued by Borsa Italiana S.p.A. and in observance of applicable EU provisions. In this case, the economic terms of the sale transaction, including valuation of the shares traded, will be determined with the assistance of independent experts, on the basis of the nature and characteristics of the transaction, also taking into account the market performance of the Sopaf S.p.A. shares.
> 55.3 Risk management policies The Parent Company’s Finance Department is responsible for all the activities concerning financial risk management and is the only body qualified to monitor risks and define the related hedging policies. The main sources of risk and the admissible hedging strategies are set forth below.
> Interest rate risk
The interest rate risk management policy adopted by the Group aims to: • reduce the impact that a change in the interest rate curve could have on corporate cash flows; • minimise the overall cost to be incurred for hedging, executing the transactions more efficiently and effectively to achieve better contractual terms.
The Sopaf Group aims to limit this risk by arranging interest rate swaps. The definition stage of the management strategy refers to identification of the desired risk protection profile (total, partial or zero hedging) and possible management strategies applicable in the corporate context (static or dynamic management). By associating propensity to risk with the potential economic impact of the risk in question, the Finance Department defines an initial draft strategy. This strategy is then assessed by verifying expected future interest rate trends formulated by leading bank and financial broker counterparties with whom the Sopaf Group operates on a regular basis. The interest rate risk management methods do not involve daily observation of the markets, but rather a periodic analysis of the positions based on specific needs. This type of management therefore allows for existing hedges to be reduced or increased in order to partially benefit from any favourable changes in interest rates.
Hedges may be generic to cover group debt exposure or specific to cover certain loans. Whether they qualify as “hedge transactions” pursuant to IAS 39 is decided on a case-by-case basis and approved by the Finance Department. Counterparties are leading banks and financial brokers with a minimum rating of investment grade (BBB, S&P), without prejudice to exceptions formally authorised by the Board of Directors.
Hedge effectiveness is verified through special tests performed: • at the start of the hedge and at the closing date for the production of financial statements/management reports – prospective testing; • at the date of every report and at the closing date of the hedge – retrospective testing.
> Liquidity risk
Liquidity risk represents the likelihood of the company encountering difficulties in meetings its financial liability
commitments. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
120 This may derive from: • insufficient available financial resources, own funds or indebtedness to meet financial obligations according to established terms and deadlines in the event of sudden cancellation of its uncommitted lines of credit; • the likelihood of the company needing to settle its financial liabilities sooner than expected.
The general aim of liquidity risk monitoring is linked to the availability and management of sources of liquidity used to provide secure, stable and economic coverage of current and future commitments of the company. The activity is geared towards prudent management of liquidity risk, and therefore it is preferable to maintain an appropriate mix of liquid funds and/or financial assets and availability of usable funds through sufficient lines of credit diversified across several banks and with a short/medium-term timescale.
The planning instruments used to estimate liquidity needs are: • annual capital planning: drafted by the Finance Department which, based on corporate strategies, prepares an annual budget submitted to the Board of Directors at the start of the year; • monthly planning document: drafted by the controller using 3-month rolling forecasts, the document is updated weekly based on documentation prepared by the Accounting Department (Treasury report).
The reports produced aim to support the Group at the planning stage of investment/disinvestment strategies, which represents its core business.
> Credit risk
The Group manages credit risk through a commercial counterparty screening procedure that involves analysis of the counterparty’s economic and financial position, performed when determining the limit of the initial credit line and through continuous monitoring of observance of payment conditions. Where necessary, the credit limit previously assigned is adjusted.
The Group does not have particularly risky loan positions with commercial parties and in general all credit positions are adequate to the credit line provided.
> Exchange risk
Sopaf Group business is concentrated mainly in the Eurozone. Where investments are in currencies other than the Euro, the Group makes a case-by-case assessment as to whether existing uncertainties are sufficient to warrant the activation of specific exchange risk hedges.
> 55.4 Credit risk Credit risk represents the Group’s exposure to potential losses arising from the failed performance of obligations undertaken by both commercial and financial counterparties. This risk mainly derives from factors of a typically economic/financial nature, that is from the possibility of counterparty default, and from factors of a more strictly technical/commercial or administrative/legal nature.
> Exposure to credit risk
As at year end 2007 and 2008, the Group’s exposure to credit risk was as follows. Values in EUR/thousand Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
121
Credit risk exposure 31/12/2008 31/12/2007 Loans to third parties 6,402 3,313 Loans to related parties 11,927 4,317 Trade receivables from third parties 1,419 596 Trade receivables from related parties 1,326 891 Other loans 4,649 9,288 Cash and cash equivalents 4,421 21,727 30,144 40,132
Furthermore, at year end 2008 the exposure of subsidiaries under disposal to credit risk was as follows.
Amounts in EUR/thousand Credit risk exposure 31/12/2008
Trade receivables from third parties 944 Other receivables 499 Cash and cash equivalents 2,522
3,965
> Receivables and bad debt provision
Changes in the bad debt provision for the Group’s trade and sundry receivables is summarised in the table below:
Other receivables Amounts in EUR/thousand 31/12/2008 31/12/2007
Balance as at 1 January (135) (135) Provisions/Impairment for the year (1,277) - Utilisation for the year 135 -
(1,277) (135)
Changes in the bad debt provision for the trade and sundry receivables of the subsidiaries under disposal is summarised in the table below: Amounts in EUR/thousand 31/12/2008
Balance as at 1 January (44) Provisions/Impairment for the year - Utilisation for the year 44
-
With regard to the valuation criteria for loans and receivables, it is specified that these financial assets are subject to impairment if and only if there is objective evidence to suggest a reduction in value as a result of one or more events that have occurred after initial recognition of the asset and if that event (or events) has an impact on the asset’s estimated future financial flows. Impairment estimates must not include the expected losses deriving from future events, regardless of the likelihood that they will occur. If the presence of impairment is ascertained, the company will assess each receivable that is individually significant, or will consider receivables on the whole. The company calculates the impairment on the basis of rules that differ according to the different accounting procedures used for the receivables. Specifically the procedure for calculating the extent of the impairment Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
122 applicable to loans and receivables entered at amortised cost provides that the impairment loss on loans and receivables or held-to-maturity investments is measured as the difference between the asset’s book value and the current value of estimated future financial flows discounted at the financial instrument’s original effective interest rate. In accounting terms, the asset’s value must be reduced directly or indirectly through allocation to a liability provision. The amount of the adjustment is entered in the income statement for the year.
During the year an impairment write-down of EUR 1,277 thousand was entered on loans against an estimated impairment on a residual loan relating to an agreement entered into on 16 February 2005 by LM ETVE S.p.A. (later merged into Sopaf), concerning assignment of the investment in Appaloosa Arbitrage Fund Ltd. shares, for an original value of EUR 1,815 thousand. The value of this loan, entered at amortised cost, was reduced on the basis of an expected loss measured as the difference between the asset’s book value and the current value of estimated future financial flows discounted at the financial instrument’s effective interest rate. The table below provides a breakdown of third party trade receivables outstanding as at 31 December 2008 and 2007 for trade receivables that are not yet due (line “To fall due”) and past due with indication of the past due period (lines “0-180 days”, and “180-360 days” and “Over 360 days”).
Amounts in EUR/thousand 31/12/2008 31/12/2007
Par value Write-downs Par value Write-downs
Maturity 1,419 - 750 - 0-180 days - - 126 - 180-360 days - - - - Beyond 360 days - - - - 1,419 - 876 -
The table below provides a breakdown of third party trade receivables outstanding as at 31 December 2008 of subsidiaries under disposal not yet due (line “To fall due”) and past due with indication of the past due period (lines “0-180 days”, and “180-360 days”:
Amounts in EUR/thousand 31/12/2008
Par value Write-downs
Maturity 774 - 0-180 days 214 (44) 180-360 days - - Beyond 360 days - -
988 (44)
A breakdown is also provided of the other financial assets for which the maximum exposure to credit risk is represented by the book value.
The item non-current loans and receivables breaks down as follows:
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
123
31/12/2008 31/12/2007 Loans to associated companies Nearco S.àr.l. - 22 CO.SE. S.r.l. 4,276 188 Immobiliare Appia 2005 S.r.l. 390 390 S.F.E.R.A. S.r.l. - 15 China Opportunity S.A. Sicàr 4,896 - Sopaf&Partners RE-Investment S.r.l. 3,899 - Res Renergys AG - 1,236 13,461 1,851 Other loans 348 697 Bonds 856 792 Guarantee deposits 499 8 15,164 3,348
Loans to the companies CO.SE. S.r.l. and Immobiliare Appia S.r.l. represent the shareholders’ loans assigned by Sopaf to Fondo Tergeste following contribution of the corresponding investments to the fund.
The receivable of EUR 4,896 thousand from China Opportunity refers to the performance fees accrued by the Parent Company Sopaf S.p.A. as at 31 December 2008. These performance fees are recognised as variable commission to be paid in class B China Opportunity shares and have been determined as 20% of the increase in China Opportunity’s NAV between the beginning and end of the year. The Sopaf Re & Partners S.r.l. receivable refers to an interest-bearing loan provided for a total of EUR 4,006 thousand to be used partly for acquisition of a property/hotel complex in Capri, through establishment of the company Tiberio S.r.l., which is 20% owned by Sopaf & Partners Re S.r.l., and partly to support finalisation of new transactions.
Bonds includes the convertible bond loan subscribed by Sopaf S.p.A. and issued by the South African company Newman Lowther & Associates Ltd., operating in the financial consulting sector, for EUR 1,000 thousand, repayable in 2011.
Current loans as at 31 December 2008 mainly include:
• EUR 1,517 thousand for a receivable from Sopaf Small Cap Europe referring to the residual receivable for liquidation of the fund of the same name. The receivable was fully collected during January 2009; • EUR 1,508 thousand for an interest-free loan provided by the Parent Company Sopaf S.p.A. to Demofonte S.r.l. During the year two tranches of EUR 600 thousand and EUR 900 thousand respectively were collected. • EUR 30 thousand for an interest-bearing loan to third parties.
As already reported, current loans include EUR 1,277 thousand for a residual loan relating to an agreement entered into on 16 February 2005 by LM ETVE S.p.A. (later merged into Sopaf), concerning assignment of the investment in Appaloosa Arbitrage Fund Ltd. shares, for an original value of EUR 1,815 thousand. As at 31 December 2008 the loan, inclusive of interest accrued, was entirely written-down, as indicated above. Current loans also include: • EUR 580 thousand for receivables due from Coemi Property S.p.A. for partial succession to the loan from Sopaf to the sold company S. Apostoli S.r.l.; • EUR 2,628 thousand for receivables due from the company Dascal S.p.A., of which EUR 2,629 thousand for assignment of investments; • EUR 398 thousand for a receivable due, in Sopaf’s capacity as agent, from the principals for costs incurred relating to a project for acquisition of an investment that was not carried through; • EUR 1,083 thousand for receivables acquired from Nova Surgelati S.p.A. (effect of the award in settlement of arbitration between Sopaf and Arena Surgelati) and sundry receivables written-off in full from the special provision.
2008 as at 31.12. | Consolidated Financial Statements Sopaf
124 Receivables factored without recourse total EUR 4.3 million included in the item non-current tax credits. The item specifically includes IRPEG tax credits for which reimbursement was requested for 1998 and 2001 (totalling EUR 3,516 thousand) and related interest (of EUR 836 thousand), assigned in 2007 to a finance company as part of a without recourse factoring transaction. As the requirements of IAS 39 are not met in full for the purpose of derecognition of this item, it has been retained in the balance sheet with a corresponding payable to the factor. Advances have been obtained from the assignee for these receivables and have been entered under the item payables to factor for EUR 4,619 thousand.
> Derivative financial instruments
In selecting counterparties with which to enter into financial hedging contracts (derivative instruments) the Group applies only to those that have a high credit standing.
> Cash and cash equivalents
Group cash and cash equivalents stand at EUR 4,421 thousand (EUR 21,727 thousand as at 31 December 2007) and consist of bank deposits and readily available funds. Cash and cash equivalents of subsidiaries under disposal as at 31 December 2008 stand at EUR 2,522 and consist of bank deposits and readily available funds. In selecting counterparties for management of temporary surpluses of financial resources and for entering into financial hedging contracts (derivative instruments) the Group applies only to those that have a high credit standing. In this respect it is reported that as at 31 December there are no significant exposures to risks associated with any further deterioration of the global financial scenario.
> Guarantees provided and received
As at 31 December 2008 no guarantees have been received by the Group to secure loans to third parties. Guarantees have instead been issued to third parties for EUR 9,291 thousand (323 thousand as at 31 December 2007) mainly to secure commercial lease agreements. With regard to guarantees provided, there is no evidence of significant exposure to risks for future liabilities.
> 55.5 Market risk The risks assumed by the Group as a result of fluctuations of market variables can be identified as the risk of fluctuation of the interest rate curve. An illustration is provided of the actual exposure to this source of risk as at 31 December 2008 and of the possible impact on the balance sheet of plausible changes in the risk factor.
> Interest rate risk
The Group is exposed to interest rate risk for its variable rate, medium/long-term debt obligations.
The Group is especially exposed to interest rate fluctuations with regard to the amount of financial charges involved in borrowings. The main interest rate to which the Group is exposed is EURIBOR.
The table below identifies the book value of the positions subject to interest rate risk:
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
125
Amounts in EUR/thousand 31/12/2008 31/12/2007
Floating rate liabilities Non-current bank loans (68,412) (61,557) Lease payables - (14,840) Current bank loans (35,456) (59,076) Unsecured bank loans (27,339) - Bank payables for overdrafts (4,072) - Lease payables (574) - Loans from related parties - - (135,853) (135,473) Fixed rate liabilities Non-current convertible bond liabilities (45,423) (43,390) Current convertible bond liabilities - (755) Factoring advances (4,693) - Other non-current liabilities - (10,612) Other current liabilities (17,692) (10,013) (67,808) (64,770) (203,661) (200,243)
The terms and contractual positions of the bank loan contracts are shown in the table below:
Amounts in EUR/thousand 31/12/2008 31/12/2007 Currency Spread terms Initial par value Book value Initial par value Book value
Floating rate bank loans: Bank loans with maturity within 1 year Euro 0.9 bps - 1.25 bps 23,045 (23,211) 10,000 (9,999) Bank loans with maturity within 1 year Euro 1.25 bps - 2 bps 26,452 (24,958) 30,452 (30,573) Bank loans with maturity within 2 years Euro 1.25 bps - 2 bps 22,000 (21,978) 3,000 (3,000) Bank loans with maturity within 3 years Euro 1.25 bps - 2 bps 7,750 (7,427) 11,250 (11,210) Bank loans with maturity beyond 3 years Euro 0.9 bps - 1.25 bps 2,000 (2,012) - - Bank loans with maturity beyond 3 years Euro 1.25 bps - 2 bps 31,500 (31,539) 31,500 (31,350) Bank loans with maturity beyond 3 years Euro Over 2 bps 22,500 (17,203) 22,500 (22,074)
Current account overdrafts Euro 6,951 (6,951) 1,280 (1,280) Promissory notes Euro - - 2,689 (2,689)
Bank loans of discontinued subsidiaries Euro 2 bps 800 (800) - - Current account overdrafts of discontinued subsidiaries Euro 902 (902) - - Total bank payables 143,900 (136,981) 112,671 (112,175)
The exposure to risk of changes in the interest rate as at 31 December 2008 on total financial borrowings, considering the interest rate risk hedging policy in place, may be summarised in the table below:
Amounts in EUR/thousand
31/12/2008 31/12/2007
Floating rate liabilities
With derivatives (50,265) 37% 25% (56,424) 42% 28% Without derivatives (85,588) 63% 42% (79,050) 58% 39% (135,853) 100% 67% (135,473) 100% 68%
Fixed rate liabilities
With derivatives - 0% 0% - 0% 0% Without derivatives (67,808) 100% 33% (64,770) 100% 32% (67,808) 100% 33% (64,770) 100% 32%
Total gross borrowing (203,661) (200,243)
As indicated in the tables provided above, exposure to the risk of changes in the interest rate as at 31 December 2008 may be quantified as approximately 42% of the Group’s total gross exposure (58% as at 31 December 2007); the residual 33% at fixed rate (32% as at 31 December 2007), derives from the combination of payables originally at pre-set fixed rate and derivatives placed to hedge bank loans and the bond payable with fixed rate.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
126 The interest rate mainly originates from variable rate financial payables and from indexing of finance lease agreements that expose the Group to a cash flow risk. Risk management aims to limit oscillation of the financial charges that affect the economic result, containing the risk of a potential interest rate rise.
The interest rate risk hedging policy is based on the following guidelines. The Group enters into derivatives of which the main objective is to reduce oscillations in the volatility of financial charges. These are hedging transactions that partly qualify as such pursuant to IAS 39, and partly according to an economic hedge prospective, and in both cases aim to mitigate the effect of changes in the EURIBOR rate on financial charges, while maintaining part of the benefits associated with any rate reductions. The objective is achieved through a suitable combination of fixed and variable rates in the composition of debt, after hedging.
Following this approach the Group pursues its objectives through derivative contracts entered into with third party counterparties for the purpose of predetermining or limiting the change in cash flows due to market changes in the aforesaid interest rates, with regard to medium/long-term payables. The minimum term of 18 months of residual duration of a transaction is deemed to be an appropriate timeframe for managing the risk of interest rate change. Hedge accounting is used from the date the derivative contract is entered into up to the date of its discharge or maturity, documenting with special report the risk subject to hedging and the purpose of the hedging relationship and regularly verifying its effectiveness. The cash flow hedge method provided by IAS 39 is specifically used. According to this method the effective portion of the change in value of the derivative is reflected in a shareholders’ equity reserve which is used to adjust the value of the income statement interest subject to hedging, when required. Assessment of the effectiveness aims to show the high correlation between the technical/financial characteristics of the hedged liabilities (maturity, amount, etc.) and those of the hedging instrument by carrying out special prospective tests.
The fair value of the Interest Rate Swaps is obtained by discounting the cash flows determined as differential of the fixed and variable rates established in the contract. The fair value of the Interest Rate Swaps is obtained through mark-to-market valuation recorded as at 31 December 2008.
The main characteristics of the IRS derivative instruments are the following:
Fixed rate at maturity − notional value EUR 21.25 million; fixed rate: 3.885% ; maturity: September 2012 − notional value EUR 3 million; fixed rate: 3.7% ; maturity: June 2011
Variable rate at maturity − 3 month EURIBOR; maturity: September 2012 − 6 month EURIBOR; maturity: June 2011
> Sensitivity analysis – interest rate risk Financial instruments exposed to interest rate risk were subject to sensitivity analysis at the reporting date. The assumptions on which the model is based are set forth below.
> Financial liabilities For short and medium/long-term payables, finance leases and other current financial liabilities the amount of the financial charges was redetermined by applying a symmetric variation of the estimated interest rate curve as at 31 December 2008 of +/- 100 basis points and +/- 50 basis points. Analysis was performed by assuming that the other variables are constant and was performed for 2007 using the same assumptions. The table below provides indication of the impact on the income statement of the sensitivity analysis of financial liabilities: Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
127
Amounts in EUR/thousand 31/12/2008 31/12/2007 Increase by 100 Decrease by 100 Increase by 100 Decrease by 100 bps bps bps bps
Change in cash flow (1 year) Floating rate loans (1,282) 1,282 (1,219) 1,219 Lease payables (6) 6 - 159 159 Floating rate credit facilities - - - -
Net cash flow sensitivity (1,288) 1,288 (1,378) 1,378
31/12/2008 31/12/2007 Increase by 50 Decrease by 50 Increase by 50 Decrease by 50 bps bps bps bps
Change in cash flow (1 year) Floating rate loans (641) 641 (610) 610 Lease payables (3) 3 (79) 79 Floating rate credit facilities - - - -
Net cash flow sensitivity (644) 644 (689) 689
> Derivative financial instruments – Interest Rate Swaps For Interest Rate Swaps the fair value valuation calculated on the basis of forward rates implicit in the interest rate curve applicable at the reporting date was changed by applying a parallel and symmetric shift of 100 bps to the interest rate curve applicable at the reporting date. The impact on the income statement and on shareholders’ equity was calculated on the basis of the effectiveness of the IRS recorded during the year. In determining the aforesaid impacts account was taken of the consequent effect on unwinding of the cash flow hedge reserve to the income statement.
The table below summarises the change in Profit (loss) for the year and in Shareholders’ Equity following the sensitivity analysis performed gross of the consequent tax effects:
Amounts in EUR/thousand
Floating Diff. +100 31/12/2008 Book value Par value Fixed rate rate 31/12 Diff. 31/12 +100 bps -100 bps bps Diff. -100 bps
Interest rate swaps (517) (517) 21,250 3.885% 2.928% 0.957% 3.93% 1.93% 0.04% -1.96% Interest rate swaps (99) (99) 3,000 3.700% 3.000% 0.700% 4.00% 2.00% 0.30% -1.70%
(616) (616) Effect on income statement 61 (1,432) Effect on shareholders' equity 18 (467) The Group expects to be able to appropriately withstand the interest rate risk reflected in the value of the financial liabilities deemed compatible with the expected proceeds from its financial assets.
> 55.6 Analysis of forward transactions and derivative instruments With regard to derivative instruments relating to the risk of market oscillation of underlying assets, the Group has implemented transactions in derivatives that do not qualify as hedges pursuant to IAS 39 but which comply with corporate risk policies. The result accrued for these transactions and their prospective value have been included under financial income and charges in relation to transactions of a financial nature.
> Derivative instruments outstanding as at 31 December 2008
The table below provides the following information: • the derivative contracts outstanding at the reporting date, analysed by maturity; • the balance sheet value of these contracts, represented by their fair value; • the portion of the fair value referred to in the previous point carried to the income statement from the contract date gross of the related tax effect. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
128
Amounts in EUR/thousand
of which of which income shareholders' 6 months Beyond 3 31/12/2008 statement equity Book value or less 6-12 months 1-2 years 2-3 years years
Interest rate swaps (516) - (516) (516) (440) (309) (216) (64) - Interest rate swaps (99) (99) - (99) (52) (9) - - - Equity linked swap - FIP units 4,543 4,543 - 4,543 4,357 4,172 3,379 2,586 5,930 Forward - FIP unit sales 713 713 - 713 718 - - - - Forward - FIP unit purchases 26,990 26,990 - 26,990 28,419 - - - - 31,631 32,147 (516) 31,631 33,002 3,854 3,163 2,522 5,930 The Interest Rate Swaps partly qualify as hedging pursuant to IAS 39 of the financial flows (cash flow hedge). The risk of change in the fair value of these derivatives has been reported and analysed in the previous note on the interest rate risk.
With regard to the other derivative financial instruments that do not qualify as hedging pursuant to IAS 39, it is specified that these instruments comply with corporate risk policies and the result accrued and the fair value have been included under financial income and charges.
The non-hedging financial instruments outstanding as at 31 December 2008 are the following:
> Derivative instrument – Equity linked Swap FIP As at 31 December 2008 an “Equity linked Swap” transaction is outstanding for a value of EUR 4,543 thousand, and refers to the fair value of an asset swap entered into by Sopaf with an important financial counterparty of which the notional value is made up of 209 units of Fondo Immobili Pubblici equal to EUR 30 million. The contract provides for the payment by Sopaf S.p.A. of a fixed rate of 5.5% in exchange for a variable rate equal to the income distributed by the fund increased by 50% of the extraordinary capital gains paid to subscribers for disposal of the fund’s real estate assets. This instrument, which is a trading derivative, matures on 7 October 2019 and provides an option to accelerate closure of the contract at the end of the fifth year if certain conditions are met. The fair value valuation of the components of this derivative instrument has been determined on the estimate of the discounted future cash flows deriving from implementation of the business plan. This valuation was carried to the income statement for EUR 4,543 thousand gross of accessory charges for commissions of EUR 752 thousand.
> Sensitivity analysis: Analysis of this derivative’s sensitivity at the reporting date can be adequately determined with reference to the change in the real estate asset’s predominant variable represented by the annual expected change in real estate prices. By processing the data relating to three alternative extreme scenarios we obtain: • Stable price scenario (annual increase equal to 0% for the 2009-2018 period) the swap’s mark-to-market falls to EUR 4,288 thousand (lower that the mark-to-market as at 31 December 2008 by EUR 255 thousand); • Stable price scenario (annual increase equal to 4% for the 2009-2018 period) the swap’s mark-to-market rises to EUR 5,704 thousand (higher than the mark-to-market as at 31 December 2008 by EUR 1,161 thousand); • Falling price scenario (annual decrease equal to 1% for the 2009-2018 period) the swap’s mark-to- market falls to EUR 3,940 thousand (lower than the mark-to-market as at 31 December 2008 by EUR 603 thousand).
> Derivative instrument – Forward purchase and sale of FIP units The item relating to the forward transactions to purchase units of the FIP fund total EUR 26,990 thousand and refers to a forward purchase contract entered into on 30 December 2008 by Sopaf S.p.A. concerning 800 class A units of the closed-end real estate investment fund reserved to institutional investors entitled “FIP – Fondo Immobili Pubblici” managed by Investire Immobiliare Sgr S.p.A. for a total consideration of EUR 80 million. At the same time Sopaf S.p.A. entered into a forward sale contract concerning 450 units of the same fund for a total price of EUR 60 million, of which the fair value as at 31 December 2008 is positive by EUR 713 thousand. Both these transactions were finalised in March. The total fair value valuation as at 31 December 2008 of these two forward contracts is positive by EUR 27,703 thousand. Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
129 The fair value valuation of the forward purchase and sale transactions was performed on the basis of a valuation method that considered market expectations, i.e. how the market would price the financial asset in question, the risk factors and the yield factors inherent in the financial asset and the time factor, therefore requiring discounting of the financial flows, of the positions underlying the forward commitments established by the forward contracts. The market risk relating to these forward contracts is predefined considering that the forward transactions were finalised in March 2009.
> Derivative instrument – Asset Swap FIP Furthermore, on 31 March 2008 Sopaf entered into an asset swap agreement on 128 units of the Fondo Immobili Pubblici with a notional value of EUR 19,840 thousand. According to contractual provisions, Sopaf pays a variable rate and receives a portion of the operating income distributed by the fund. This trading instrument has a 7-year duration and also provides Sopaf S.p.A. with a purchase option on 64 units of Fondo Immobili Pubblici and the counterparty with an option to withdraw from the agreement without paying a penalty. The valuation of all components of this derivative gives a zero value as at 31 December 2008.
> 55.7 Liquidity risk The liquidity risk is the risk that the company may have difficulty meeting future obligations associated with financial liabilities if financial resources are not sufficient to meet the obligations within the established terms and due dates. The Group's aim is to achieve a balance between maintaining its bank credit rating and exploiting flexibility through the use of overdraft facilities, short-term hot-money facilities and medium-term loans. With regard to the maturities of cash flows relating to the Group's financial exposure and considering the nature of its cash flow cycle, for liquidity risk purposes, the repayment plans for medium-term secured borrowings, including medium- term financing obtained for investment acquisition projects, are deemed to be of particular importance.
Risk analysis performed aims to quantify, on the basis of contractual maturities, the cash flows deriving from repayment of non-current financial liabilities held by the Group as at 31 December 2008 as they are considered significant for the purpose of liquidity risk.
In order to provide a view of the liquidity risk on the Group’s financial exposure arising from cash flows scheduled for repayment of financial borrowings and other non-current liabilities, the cash flows relating to the payment plan for annual periods are provided below.
The details provided below represent the worst case scenario, which shows: • the future nominal outgoing cash flows, for both principal and interest, with regard to financial liabilities (excluding trade payables) and interest rate derivative contracts; • financial assets are not considered; • assumes that banks loans mature on demand, if they are uncommitted credit lines, and if this is not the case the expiry date is established on the basis of the first maturity at which repayment may be
demanded.
In this regard it is specified that cash flows relating to payments scheduled on non-current financial liabilities have been quantified by calculating the net present value of future flows generated by the financial instrument, taking the principal repayment plan defined in the contract into account. Future interest rates were estimated on the basis of the annual IRS yield curves implicit in the EURIBOR curve as at 31 December 2008.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
130 The tables below summarise the analysis performed comparing the situations as at 31 December 2007 and as at 31 December 2008: Amounts in EUR/thousand Contractual 12 months 31/12/2007 value or less 2 years 3 years 4 years 5 years beyond 5 years
Convertible bond liabilities (58,630) 49,738 (1,933) (1,927) (1,927) (1,927) (50,916) - Bank loans (124,977) 111,391 (58,856) (27,801) (13,874) (13,239) (11,207) - Factoring payables for credit facilities granted (4,395) 4,373 - - - - - (4,395) Bank payables for overdrafts (1,281) 1,281 (1,281) - - - - - Payables to related parties (19,031) 19,031 (12,880) (6,152) - - - - Lease payables (14,741) 19,084 (1,583) (1,584) (1,585) (2,853) (7,137) - Other liabilities (21,801) 23,602 (10,765) (11,036) - - - - Derivatives with negative fair value: Trading derivatives ------Hedges ------(244,856) 228,499 (86,015) (48,500) (17,387) (18,019) (69,260) (5,676)
Contractual 12 months 31/12/2008 value or less 2 years 3 years 4 years 5 years beyond 5 years
Convertible bond liabilities (56,698) 49,738 (1,927) (1,927) (1,927) (50,916) - - Bank loans (139,534) 136,622 (67,384) (40,086) (17,387) (14,676) - - Unsecured bank loans (17,997) 23,602 (17,997) - - - - - Factoring payables for credit facilities granted (4,693) 4,373 - - - - (4,693) - Bank payables for overdrafts (2,572) 2,572 (2,572) - - - - - Lease payables (731) 567 (53) (53) (52) (52) (521) - Other liabilities (17,997) 23,602 (17,997) - - - - -
Derivatives with negative fair value: Trading derivatives ------Hedges (616) - (811) (216) (64) - - -
Financial liabilities of discontinued subsidiaries Bank loans (1,720) 1,701 (1,720) - - - - - Lease payables (446) 403 (223) (130) (93) - - -
(243,003) 243,181 (110,684) (42,412) (19,524) (65,644) (5,214) -
The difference between the book values and the total financial flows is mainly attributable to calculation of the interest for the contractual duration of the payables due to banks. Furthermore, on loans valued with the amortised cost method, the interest calculation method provides for use of the nominal rate rather than the effective rate of return.
In this context the Group expects to meet its financial commitments through appropriate management of its standard activity, by disposing of assets, renegotiating current loans, raising new loans and finalising opportunistic transactions that allow the generation of positive cash flows.
> 55.8 Default risk and debt covenants This risk concerns the possibility that the loan contracts or the regulations of the bond issue, to which Sopaf S.p.A. is party, contain provisions that entitle counterparties, whether they be banks or bondholders, to ask the debtor, upon occurrence of certain events, to execute immediate repayment of the sums provided, thus generating a liquidity risk. Sopaf S.p.A. still has an outstanding bond issue with a total par value of EUR 45.5 million. In this respect it is specified that Sopaf S.p.A. has an outstanding syndicated loan for a total residual debt of EUR 47.8 million, which was raised to support acquisition of the investments in Banca Network Investimenti S.p.A. and Area Life. This syndicated loan is secured by a number of covenants such as compliance with pre- established financial parameters (shareholders’ equity and borrowings/shareholders’ equity ratio) to be calculated twice yearly. These parameters are linked to the capitalisation and borrowings of the Sopaf Group and of the investees whose shares have been pledged. It is specified that on 21 August 2008 the share capital of Banca Network Investimenti S.p.A. was increased from EUR 16 million to EUR 30 million plus a share premium reserve equal to EUR 6 million. Furthermore on 30 December 2008 a payment to future capital increase was made which allowed the Group to restore compliance with the financial parameter related to the bank’s shareholders’ equity. At present the Group is not aware of the existence of any default position or of the breach of any of the aforesaid
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf covenants.
131 Furthermore, the regulations governing the convertible bond issue, released by the Group during 2007, in accordance with market practices, contains a series of standard clauses of which the breach would oblige the issuer to execute early redemption of the bonds issued. These include cross default/cross acceleration clauses which give rise to the obligation of immediate redemption of the bonds upon occurrence of serious defaults on other loan contracts, with regard to a considerable portion of the total debt. They also include clauses which entitle the bondholders to request early refund of the amount due through early termination of the relationship with the principal debtor in all cases in which the latter defaults with regard to one or more obligations undertaken pursuant to the bond issue regulations, is cancelled from listing on the electronic equity market, is declared insolvent and/or is subject to insolvency procedures, has breached the law or regulations with a significant adverse effect on the performance of its activities and has commenced a liquidation procedure or other procedure with similar effects.
> 56 Infragroup and related party disclosures Pursuant to CONSOB Communications 97001574 of 20 February 1997, 98015375 of 27 February 1998 and DEM 2064231 of 30 September 2002, and to IAS 24 – “Related Party Disclosures” issued by the International Accounting Standards Board (IASB), details are provided below of transactions in the period with related parties.
The Group's relations with the Parent Company and its subsidiaries and with associated companies are governed by normal market conditions.
> Transactions with related parties
The tables below provide a summary of financial and economic transactions with associated companies and parent company subsidiaries. Existing relations mainly refer to the granting of loans and to the provision of administrative and general services.
> Costs/Revenues ratio with related parties
The summary table below illustrates the balances as at 31 December 2008 from related party transactions identified pursuant to IAS 24.
Revenues Other income Financial income Balance of Revenues / Counterparty (Costs) Amounts in EUR/thousand
AFT S.p.A. 295 29 - 324 Banca Network Investimenti S.p.A. - 1 - 1 China Opportunity S.A. Sicàr 4,842 - - 4,842 Conafi Prestitò S.p.A. - - 67 67 FIP - Fondo Immobili Pubblici - - 1,006 1,006 Five Stars S.A. - - 1 1
Immsi S.p.A. - - 103 103 Polis Fondi SGR p.A. - 230 344 574 Sadi Servizi Industriali S.p.A. - - 30 30 Sopaf&Partners RE-Investment S.r.l. - 8 46 54 Tessitura Pontelambro S.p.A. - - 24 24 Total Group companies 5,137 268 1,621 7,026 Total balance sheet items 10,607 19,009 36,634 % incidence on balance sheet items 48.43% 1.41% 4.42%
Administrative and general services are provided under normal market conditions. Loans are granted at market conditions except for certain interest-free loans granted to a number of subsidiaries.
> Debt/Credit ratios with related parties
The summary table below illustrates the balances as at 31 December 2008 from related party transactions identified pursuant to IAS 24.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
132
Trade Other (Payables to Balance of Financial receivables and Other financial (Other current receivables and banks and receivables assets other business assets liabilities) other assets other lenders) (payables) assets Counterparty Amounts in EUR/thousand
AFT S.p.A. - 485 - - - - 485 ASM Lomellina Inerti S.r.l. - - - - (22) - (22) China Opportunity S.A. Sicàr 4,842 - - - - - 4,842 Demofonte S.r.l. - - - 1,508 - - 1,508 Five Stars S.A. - - 30 - - - 30 Polis Fondi SGR p.A. - 5 - - - (4) 1 Sopaf&Partners RE-Investment S.r.l. 4,006 10 - - - - 4,016 Sopaf Small Cap Europe - - - 1,517 - - 1,517 Total Group companies 8,848 500 30 3,025 (22) (4) 12,377 Total balance sheet items 114,089 2,392 21,157 3,055 (66,889) (21,117) % incidence on balance sheet items 7.76% 20.90% 0.14% 99.02% 0.03% 0.02%
The most significant transactions, completed in the period between Sopaf S.p.A. and other Group companies, as summarised in the above tables, are described below.
For payables/receivables: Interest-bearing loan granted in several instalments to Sopaf & Partners Re-Investment S.r.l. for EUR 4,006 thousand repayable by 1 October 2010; Receivable of EUR 4,842 thousand from the associate China Opportunity for performance fees due to Sopaf S.p.A. awaiting capitalisation following use in the share capital increase; Interest-free loan to Demofonte S.r.l. for EUR 1,508 thousand for repayment by 31 December 2009; Residual credit of EUR 1,517 thousand for liquidation of the Sopaf Small Cap fund; fully collected in January 2009.
For costs/revenues: EUR 4,896 thousand for performance fees due to Sopaf S.p.A. from the associate China Opportunity S.A. Sicar as already indicated in the receivables/payables section.
> Transactions with other related parties
A summary table is provided below on transactions with other related parties, companies attributable to one of the Directors:
Amounts in EUR/thousand
Trade Other Balance of receivables and Other financial receivables and receivables other business assets other assets (payables) assets Counterparty Vector 102 S.r.l. - - 30 30 Catabo S.r.l. 63 - -63 Coemi - 580 - 580 Total other related parties 63 580 30 673 Total balance sheet items 2,392 21,157 3,055 % incidence on balance sheet items 2.63% 2.74% 0.98%
The receivable due from Catabo S.r.l. refers to the consideration for assignment from Sopaf S.p.A. to Catabo S.r.l. of a fraction of a real estate lease agreement partially offset by invoices issued by Catabo S.r.l. to Sopaf S.p.A. for services provided. The receivable due from Coemi Property S.p.A. refers to succession to the loan from Sopaf to the sold company S.Apostoli S.r.l. The receivable will be collected during 2009.
> 57 Significant non-recurring events and transactions Pursuant to the CONSOB Notice of 28 July 2007, during the year as at 31 December 2008 the Group did not implement any significant non-recurring transactions.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
133 > 58 Atypical and/or unusual transactions Pursuant to the CONSOB Notice of 28 July 2007, during the year as at 31 December 2008 the Sopaf Group did not implement any atypical and/or unusual transactions, as defined in said Notice, according to which atypical and/or unusual transactions are those which due to their significance/relevance, nature of the counterparties, subject of the transaction, transfer price calculation procedures and timing of the event (close to the end of the financial year) could give rise to doubts regarding the accuracy/completeness of disclosures provided in the financial statements, conflicts of interest, the safeguarding of equity and the protection of minority shareholders.
> 59 Subsequent events On 29 January 2009 an agreement was finalised to govern (i) Sopaf S.p.A.’s withdrawal from Nova Fronda and (ii) the assignment of 1% of Ovo S.r.l.
Exercise of the right of withdrawal pursuant to Article 2347 of the Italian Civil Code, concerns 25% of the share capital of Nova Fronda, equal to a par value of 3,333.33 for a value of EUR 1,500,000. This right was requested following an extraordinary shareholders’ meeting held on 26 January 2009 which approved adoption of a new version of the Articles of Association which provides for a right of approval in the event of transfer of shares.
With regard to Sopaf S.p.A.’s exercise of withdrawal from Delta S.p.A., upon motion filed by Sopaf S.p.A., on 30 January 2009 the Court of Bologna appointed an expert to determine the liquidation value of the Delta S.p.A. shares pursuant to Article 2437-ter of the Italian Civil Code. This appointment was however suspended by the Court of Bologna on 20 February 2009 following appeal filed by Delta S.p.A. after which adversarial proceedings were commenced, during which the Court of Bologna will decide on whether to confirm or revoke appointment of the expert.
On 10 February 2009 the extraordinary shareholders’ meeting of Sopaf Capital Management SGR approved a number of amendments to the by-laws to extend operating activity to include the setting up and/or management of non-hedge funds. On 23 February 2009 Sopaf S.p.A. and a leading institutional investor signed a contract for assignment of 225 units of the mutual investment fund “FIP – Fondo Immobili Pubblici” for a total consideration of EUR 30 million.
On 26 February 2009 Sopaf S.p.A. and the other banking partners with which it signed, on 8 October 2008, a contract for acquisition of 51% of the share capital of Polis Fondi SGR p.A. for a total consideration of EUR 9.5 million, finalised an extension of said contract up to 30 June 2009 in which if the condition precedent is not met (approval by the meeting of Fondo Polis unitholders of certain amendments to the fund regulations concerning the introduction of an advisory committee), the sellers may issue joint communication in which they unilaterally waive the aforesaid condition precedent.
On 9 March 2009 Sopaf received from a third party investor a formal letter of offer for acquisition of the investment in Life Science Capital S.p.A. for a total of EUR 7.1 million. The offer was accepted by Sopaf on 13
March 2009.
On 12 March 2009 Sopaf S.p.A. finalised the purchase and sale contracts relating to the FIP units subscribed in December 2008 and the contract described above dated 23 February 2009. At the time this report is drawn up the Group holds a total of 125 units.
On 17 March 2009, following call requested by the Board of Directors of Polis Fondi SGR, an extraordinary shareholders’ meeting of Fondo Polis was held. The meeting did not reach the quorum required for approval of the amendments to the regulations proposed by the management company and so Sopaf is awaiting, as established in the extension granted on 26 February mentioned above, joint notice from the sellers of waiver of the condition precedent relating to the contract for assignment of 51% of Polis SGR.pa.
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
134
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
135
Exhibits to the notes financial statements
Sopaf | Consolidated Financial Statements as at 31.12. 2008 > Statementofinvestmentsinassoci 136
Amounts in EUR/thousand
Opening balance Changes in the period
Share capital Reclassificati Reimburseme Reclassificati Values as at increases/ Gains pro Distribution of Losses pro on from Values as at nt from Acquisitions Grants Disposals on to assets 31/12/2007 (reimbursement quota dividends quota assets held 31/12/2008 liquidation Fair value Other held for sale ) for sale Company name % held adjustments changes
Associated companies
Polis Fondi SGR p.A. 49.00% 8,053 - - - - - 425 (344) - - - - - 8,134 Essere S.p.A. 92.00% 277 - - - 3,109 - - - (489) - - - (2,896) - CO.SE. S.r.l. 50.00% 113 ------(42) - - - - 71 Five Stars S.A. 99.99% 4,291 - - - - - 25 - (1,748) - - - 2,568 China Opportunity S.A. Sicàr (**) 44.28% 7,479 - - - 3,850 - 1,315 ------12,644 S.F.E.R.A. S.r.l. 48.00% 461 - - - 376 - - - (75) - - - (762) - Beven Finance S.àr.l. 50.00% 11,126 (11,052) ------(74) - - - - - Petunia S.p.A. (***) 59.38% 38,541 - - 10,411 - - - - (8,688) - - - - 40,264 ated companiesandjointventures Westindustrie S.r.l. 22.00% 2 ------2 PWM AIGGIG Multimanager Fund 42.54% 13,582 - - - - (13,582) ------Firanegocios S.L. 25.50% 3,861 - - - - - 63 ------3,924 ASM Lomellina Inerti S.r.l. 33.00% 30 ------(1) - - - - 29 Area Life International Assurance Ltd 45.00% 9,129 - - 1,610 - - 2,607 ------13,346 Aviva Previdenza S.p.A. 45.00% - - 15,436 - - - - (551) (1,470) - - - - 13,415 Sopaf&Partners RE-Investment S.r.l. 40.00% - - 40 - - - - - (21) - 107 - - 126 Nearco S.àr.l. 49.00% - (1,409) ------(24) - - - - - Sun System S.p.A. 15.94% - - 2,606 ------(2,606) - Favonio S.r.l. 20.00% - 1,054 ------1,054 Banca Network Investimenti S.p.A. (*) 14.99% 19,172 - - - 5,245 - - - (4,061) - 944 - - 21,300
116,117 (12,461) 19,136 12,021 12,580 (13,582) 4,435 (895) (14,945) (1,748) 1,051 -(6,264) 116,877 (*) Sopaf S.p.a. has a total investment of 44.63% in Banca Network Investimenti S.p.A., also through Petunia S.p.A. (**) Sopaf holds 44.87% of voting rights and 11.33% of equity (***) Sopaf holds 49% of voting rights and 59.38% of equity 137 > Statement of available for sale financial assets
------281 160 462 312 703 322 241
2,400 31/12/2008 Values as at
------(4) (32)
Fair value value Fair adjustments
------(2)
400 (16,000) (3,323) 80,000 1,363 (380) 1,587 (114)
(2,081) 2,398 (848) (212) 5,284 1,943 (2,880) 1,469 ------
ns Other changes
------
from assets assets from heldfor sale Write-dow
(193)
Reclassification ------
sale
for held assets
241
Reclassification as ------inChanges period the
Capital (850) (14,883)
(1,500)
(1,768)
reimbursements ------
(119) (973) (17) ------
582
increases Disposals Share capital (344) (101) (49) (16) (19,017) (20,482) (259) (1,073) (1,560) (42,901) (1,109) (19,001) 241 (193) (2) (25,474) 98,925
------314 ------268 ------2
------141 ------361 ------345 - - -
scope of
consolidation Acquisitions 4,479 7,105 2,155 1,693
16,818
33,099 Changes in the the in Changes
------16 47 703 160 146 850 344 381 101 322 1,500 1,967 4,945 1,073 1,560 3,664 4,004
14,883 19,017 153,684 31/12/2007
at as Values
% held 1.00% 2.54% 1.22% 0.57% 0.01% 2.32% 0.96% 2.00% 2.57% 0.90% 0.30% 0.50% 4.13% 0.99% 5.00% 1.97% 30.00% 15.31% 15.00% 17.86% 15.00% 40.00% 17.90% 19.90% 25.00% 15.95% 96,000
Tessitura Pontelambro S.p.A. Management&Capitali S.p.A. FIP - Fondo Immobili PubbliciFIP - Fondo Immobili Newman Lowther & AssociatesNewman Ltd call option Demofonte S.r.l. IM3D S.r.l. Fondo PWM Global Income Low Volatility Ezechiele Ltd Vintage Fund Sicav FrondaS.r.l. Nova Immsi S.p.A. The Infrastructure&GrowthCapital Fund Coronet S.p.A. Parc Eolien De S.Riquier De Parc Eolien Value Secondary Investments Sicàr SCA Advanced AcceleratorAdvanced Applications S.A. Conafi PrestitòS.p.A. S.p.A.Green Bit Cerma S.A. Cerma Raffaele Caruso S.p.A. Immobiliare Appia 2005 S.r.l. Delta S.p.A. HSBC AM Monétaire Noventi Ventures II LP IGI Investimenti QuattroIGIInvestimenti Fondo Sadi Servizi Sadi Servizi Industriali S.p.A. Valore by Avere Asset Management SCA ManagementAsset SCA Avere Valore by 11.90% 2,000 Blue H Technologies BV EUR/thousand in Amounts name Company
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
Sopaf | Consolidated Financial Statements as at 31.12. 2008 > 138
Statement ofdiscontinuedassets
Amounts in EUR/thousand
Changes in the period Reclassification Changes in the Reclassification as available-for- Values as at scope of Share capital Reclassificationas assets held sale Fair value Values as at Company name % held 31/12/2007 consolidation Acquisitionsincreases Disposals from loans for sale Write-downsassets/associatedadjustments 31/12/2008
Investments: AFT S.p.A. 24,90% 7.608 - - 19.843 (13.733) - - - - - 13.718 Nearco S.àr.l. 49,00% 1.433 ------(1.433) - - Advanced Accelerator Applications S.A. 15,31% ------14.883 - - (7.578) 7.305 IM3D S.r.l. 17,86% ------1.768 - - - 1.768 Cerma S.A. 17,90% ------850 - - - 850 Green Bit S.p.A. 1,97% 4.900 - 200 - (4.859) - - - (241) - - Sila S.p.A. 27,50% 4.087 - - - (4.087) ------S.F.E.R.A. S.r.l. 48,00% ------762 - - - 762 Sun System S.p.A. 15,94% ------2.606 - - - 2.606 Nova Fronda S.r.l. 25,00% - - - - - 1.500 - - - 1.500 Res Finco AG 10.180 - - 3.262 (13.828) - - - - 386 -
Loans: Res Finco AG - - - (1.236) 1.236 - - - - -
Subsidiary assets Essere S.p.A. Group 92,00% ------5.686 - - - 5.686 Life Science Capital S.p.A. (formerly LMA LS68,19% S.p. ------2.123 - - - 2.123 Li Tech S.p.A. ------1.370 - - - 1.370
28.208 - 200 23.105 (37.743) 1.236 31.548 0 (1.674) (7.192) 37.688 139
> Statement of investments in associated companies and joint ventures
(2) 247 868 697 (53) (14) (155) 5,794 26,137 (3,256) Result (15,812) (14,631) before tax (2) 247 697 (53)
Costs
0(14) 9 (164) 5(14,636) Economic figures NA NA 662 25,475 5,475 (4,607) 49,582 (65,394) 68,714 (71,970) 29,260 (23,466)
Revenues and income
2
48 (22)
s Equity Equity s
Shareholder’
0 22 90 69,626 149 78,332 8,016 4,490 1,989 9,077 87,927 15,350 14,219 1,586 41,660 18,613 Total 269,324 35,329 394,733 13,540 332,632 2,180 Liabilities Liabilities
2 90 149 Current liabilities
57 14,162 NA NA 209 1,780 6,196 1,820 4,466 24 35,640 233,684 57,064 30,863 40,755 905 369,258 25,475 326,241 6,391
liabilities Non-current figures Equity
0 24 8,064 4,468 78,481 15,805 60,273 11,066 69,716 304,653 408,273 103,277 344,178 Total Assets
assets 103,277 Current 19 5
NA NA 869 10,197
assets
% investment Non-current
25,000 50.0% 4,445 23 70,010 100.0% 59,854 419 22,500 33.0% 10,000 22.0% 100,000 40.0% 7,979 85 9,100,000 45.0% 357,677 50,596 6,799,000 25.5% 5,200,000 49.0% 1,431,180 44.9% 59,954 18,527 21,445,000 45.0% 318,869 25,309 30,044,018 44.6% 48,836 255,817 50,000,000 59.4% 69,453 263
(amounts in EUR) Share capital capital Share
Luxembourg Luxembourg Milan (IT) Milan Vigevano (IT) Vigevano Agrate Brianza(IT) 1,110,000 48.0% 15,350 455 Spain Luxembourg Milan (IT) Milan Milan (IT) Milan Milan(IT) Milan (IT) Milan Registered office
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf ounts in EUR/thousand EUR/thousand in ounts (**) Sopaf S.p.A. has a direct investment of 14.99% and a total investment of 44.63%, also through Petunia S.p.A. Petunia through also of 44.63%, investment a total and of 14.99% investment direct a has S.p.A. Sopaf (**) company Inoperative (***) Notes: (*) Sopaf holds44.87% ofvotingrights and 11.33% of equity Banca Network Investimenti S.p.A. (**) S.p.A. Investimenti Network Banca (IT) Milan Westindustrie S.r.l. (***) S.r.l. Westindustrie Aviva Previdenza S.p.A. Previdenza Aviva Firanegocios S.L. Firanegocios S.r.l. RE-Investment Sopaf&Partners S.r.l. Inerti Lomellina ASM Milan Area Life International Assurance Ltd Ireland China Opportunity S.A. Sicàr (*) Sicàr S.A. Opportunity China S.F.E.R.A.S.r.l. Five Stars S.A. Stars Five CO.SE. S.r.l. CO.SE. Polis Fondi SGR p.A. SGR Fondi Polis Petunia S.p.A. Am
140
> Appendix Information pursuant to Article 149-duodecies of CONSOB Issuers Regulations
The table below, drawn up pursuant to Article 149-duodecies of CONSOB Issuers Regulations, shows the considerations paid in the year 2008 for audit services and for services other than audit provided by the independent auditors and by their network companies.
Fees agreed for Service provider Notes Receiver Amounts in EUR/thousand 2008
Audit Deloitte & Touche S.p.A. Parent Company Sopaf S.p.A. 253 Deloitte & Touche S.p.A. Subsidiaries 151 Deloitte Network Subsidiaries 45
Certification services Deloitte & Touche S.p.A. (1) Parent Company Sopaf S.p.A. 5 Deloitte & Touche S.p.A. (1) Subsidiaries 2 Deloitte Network Subsidiaries -
Other services Deloitte & Touche S.p.A. Parent Company Sopaf S.p.A. - Deloitte & Touche S.p.A. Subsidiaries - Deloitte Network Subsidiaries -
Total 456
(1) Signing of tax returns Unico and 770
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
141
> Certification of the consolidated financial statements pursuant to Article 81-ter of CONSOB Regulation no. 11971 of 14 May 1999, as amended
The undersigned, Giorgio Magnoni as Deputy Chairman and CEO, and Alberto Ciaperoni as the Executive responsible for the preparation of corporate accounting documents of Sopaf S.p.A., hereby certify, also taking into account the provisions of Article 154-bis, subsections 3 and 4, Italian Legislative Decree no. 58 of 24 February 1998:
• the adequacy in relation to the characteristics of the company and
• the effective application of the administrative and accounting procedures for preparation of the financial statements during 2008.
It is also certified that: a) the consolidated financial statements as at 31 December 2008:
i. were prepared in compliance with the International Accounting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union and with provisions issued in enactment of Article 9, Italian Legislative Decree no. 38/2005 and, to the best of the signatories’ knowledge, can provide a true and fair view of the financial position, financial performance and cash flows of the issuer;
ii. are consistent with the entries in the accounting books and records;
iii. can provide a true and fair view of the financial position, financial performance and cash flows of the issuer and of all the companies included in consolidation. b) the report on operations includes a reliable analysis of the management performance and result, as well as of the position of the issuer and of all the companies included in consolidation, and a description of the main risks and uncertainties to which they are exposed.
Milan, 30 March 2009
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
142 > Report of the Independent Auditors on the Consolidated Financial Statements
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf 143
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf 144
Sopaf | Consolidated Financial Statements as at 31.12. 2008 as at 31.12. | Consolidated Financial Statements Sopaf
145
Sopaf S.p.A. Financial Statements as at 31.12.2008 146 > Balance Sheet (*) Amounts in EUR
Notes 31/12/2008 31/12/2007
Intangible assets 4 113,802 156,545 Property, plant and equipment 5 2,295,655 23,157,038 Investments 6 131,294,748 168,827,306 Financial assets 7 107,933,253 131,315,513 Tax credits 8 4,396,576 18,076,091 Prepaid taxes 9 2,118,988 5,224,435
Total non-current assets 248,153,022 346,756,928
Trade receivables and other business assets 10 976,075 780,878 Other receivables and other assets 11 20,152,842 13,408,879 Derivative financial instruments 12 32,246,390 - Other financial assets 13 3,054,879 4,280,015 Cash and cash equivalents 14 1,384,908 9,783,972 Total current assets 57,815,094 28,253,744 Non-current assets classed as held for sale 15 27,203,191 5,422,698 Total Assets 333,171,307 380,433,370
Share capital 80,100,044 80,001,851 Other reserves 3,991,117 29,851,390 Treasury shares (2,363,435) (173,848) Merger deficit - (23,110,447) Valuation reserve 21,980,572 46,985,789 Retained earnings (losses) 162,483 (22,663,007) Profit (loss) for the year 35,203,622 20,075,664 Total shareholders' equity 16 139,074,403 130,967,392 Bonds 17 44,669,146 43,389,715 Payables to banks and other lenders 18 54,173,437 61,557,237 Lease payables 19 533,959 14,839,758 Other liabilities 20 944,192 16,763,368 Pension scheme and Employee severance indemnity liabilities 21 261,933 170,252 Provisions 22 1,019,435 807,500
Total non-current liabilities 101,602,102 137,527,830
Bonds - current share 23 753,579 755,070 Payables to banks and other lenders 24 65,917,628 80,547,797 Lease payables 25 40,419 1,023,276 Derivative financial instruments 26 616,141 10,967 Trade payables 27 5,547,211 2,642,862 Other liabilities 28 19,619,824 26,958,176
Total current liabilities 92,494,802 111,938,148 Liabilities on assets held for sale - - l Statements as at 31.12. 2008 l as at 31.12. Statements Total shareholders' equity and liabilities 333,171,307 380,433,370
(*) Pursuant to CONSOB Resolution no. 15519 of 27 July 2006, the effects of transactions with related parties on Sopaf S.p.A.’s balance sheet are shown in a special balance sheet schedule provided in subsequent pages and are described not only in the comments to the individual financial statement items, but also in note 47.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 147 > Income Statement (*)
Amounts in EUR
Notes 31/12/2008 31/12/2007
Dividends and other income from investments 29 3,343,700 4,164,186 Capital gains (losses) on disposal of investments 30 33,736,273 54,856,181 (Write-down) reversals of investments 31 (18,261,034) (13,400,000) Other operating income 32 23,815,224 1,591,851 Purchase of materials and external services 33 (8,571,820) (8,584,609) Personnel costs 34 (3,179,046) (4,477,191) Other operating costs 35 (1,419,115) (3,598,771) Depreciation and amortisation expense 36 (582,552) (646,992) Provisions for future charges 37 (211,935) - Write-down of loans 38 (1,276,989) - Gains/Losses from disposal of non-current assets 39 --
Operating profit 27,392,706 29,904,655
Financial income 34,776,431 878,226 Financial charges (21,185,952) (9,935,364) Net financial income/(charges) 40 13,590,479 (9,057,138) Result before tax 40,983,185 20,847,517 Income taxes 41 (5,779,563) (771,853) Net result from operating activities 35,203,622 20,075,664 Net result from disposals --
Net result 35,203,622 20,075,664
Earnings per share (in Euro) 42 - Basic 0.0843 0.0476 - Diluted 0.0794 0.0423
(*) Pursuant to CONSOB Resolution no. 15519 of 27 July 2006, the effects of transactions with related parties on Sopaf S.p.A.’s income statement are shown in a special income statement schedule provided in subsequent pages and are described not only in the comments to the individual financial statement items, but also in note 47.
l Statements as at 31.12. 2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 148 > Cash Flow Statement (*) Amounts in EUR
31/12/2008 31/12/2007 Notes (**) OPERATING ACTIVITIES Net result for the period 35,203,622 20,075,664 Non-monetary adjustments for: Current tax payable 845,005 - Deferred taxes 2,011,353 1,106,757 Depreciation of property, plant and equipment 484,262 555,975 Amortisation of intangible assets 98,290 91,015 Dividends received (3,343,700) (4,164,186) Financial income (34,776,431) (878,226) Financial charges 21,185,952 9,935,364 Commission income on investments (4,895,633) - Exchange (gains)/losses (746,453) (18) Provisions for risks and charges 211,935 - Provisions for employee severance indemnity 149,860 253,757 Write-down of loans 1,276,989 - Capital gains from winding-up of a subsidiary 43 (26,641,029) - (Write-down) reversals of investments 18,261,034 13,400,000 Cash flows from operating activities before changes in working capital 9,325,056 40,376,102 (Increase)/Decrease in trade receivables (1,209,197) (516,718) (Increase)/Decrease in trade payables 2,904,349 1,105,981
Cash generated from operating activities 11,020,208 40,965,366
Net change in provisions for risks and charges - 518,500 Payment of employee severance indemnity (58,179) (211,499) Change in other current assets 6,940,659 5,820,251 Change in other non-current liabilities 8,167,771 (24,592,726) Change in other current liabilities (1,096,690) 4,396,308 Change in current tax liabilities (845,005) - Changes in non-current tax credits (5,107) (237,129) Interest received (18,474,299) (8,256,218) NET CASH GENERATED FROM OPERATING ACTIVITIES 5,649,358 18,402,854 INVESTMENT ACTIVITIES Interest received 2,587,958 879,315 Dividends received from subsidiaries and associated companies 2,113,980 305,760 Dividends received on financial assets 1,229,720 3,858,426 Equity investments: Acquisitions (43,267,070) (100,779,641) From mergers - (28,290,093) Recapitalisation of subsidiaries (11,243,930) - Decreases in equity investments due to: Mergers by incorporation - 77,390,873 Capital payments and reimbursements 22,211,836 10,410,752 Classification as assets held for sale -- Increases in available-for-sale assets (31,333,000) - Other investments (property, plant, equipment, intangible and other financial assets) (831,321) (23,685,400) Disposal of financial leases 6,670,935 - Increases in assets held for sale (8,222,636) - Income from the disposal of: Investments 13,998,679 12,656,982 Other non-current assets (property, plant, equipment, intangible and other) 167,539 27,273 Net assets allocated on winding up of a subsidiary 43 2,118,604 - Changes in financial assets from derivatives 692,548 - Changes in financial assets 35,812,640 (75,457,718) Net cash absorbed by investment activities (A) (7,293,519) (122,683,472) Changes due to merger by incorporation of subsidiaries: Decrease in investments due to merger of subsidiaries - (62,597,256) Changes in assets - 108,194,184 Changes in liabilities - (78,145,577) Change in fair value reserve for available-for-sale financial assets - (991,768) Deficit attributed to available-for-sale financial assets - 10,429,731 Merger deficits (B) - (23,110,687) NET CASH ABSORBED BY INVESTMENT ACTIVITIES (A) + (B) (7,293,519) (145,794,159)
FINANCIAL ASSETS
Revenues from issue of bond loan - 48,415,195 Increase (decrease) in payables to banks and other lenders (4,565,316) 88,377,132 Changes in shareholders' equity (0) 331,658 Purchase of treasury shares (2,189,587) (173,848) l Statements as at 31.12. 2008 l as at 31.12. Statements NET CASH GENERATED FROM/(ABSORBED BY) FINANCIAL ACTIVITIES (6,754,904) 136,950,137 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (8,399,064) 9,558,832 OPENING BALANCE OF CASH AND CASH EQUIVALENTS 9,783,973 225,141 CLOSING BALANCE OF CASH AND CASH EQUIVALENTS 1,384,909 9,783,973 (*) Pursuant to CONSOB Resolution no. 15519 of 27 July 2006, the effects of transactions with related parties on Sopaf S.p.A.‘s consolidated cash flow statement are shown in a special cash flow statement schedule provided in subsequent pages and are described not only in the comments to the individual financial statement items, but also in note 47. (**) The cash flow statement published in the financial statements as at 31 December 2007 shown above has been reclassified in
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf order to allow meaningful comparison with the statement adopted for the year 2008. 149 > Balance Sheet prepared pursuant to Consob Resolution No. 15519 of 27 July 2006
Amounts in EUR of which related of which related % Notes 31/12/2008 parties % incidence 31/12/2007 parties incidence
Intangible assets 4 113,802 - 156,545 - Property, plant and equipment 5 2,295,655 - 23,157,038 - Investments 6 131,294,748 - 168,827,306 - Financial assets 7 107,933,253 8,901,327 8.2% 131,315,513 137,050 0% Tax credits 8 4,396,576 - 18,076,091 - Prepaid taxes 9 2,118,988 - 5,224,435 -
Total non-current assets 248,153,022 346,756,928
Trade receivables and other business assets 10 976,075 973,347 99.7% 780,878 675,491 87% Other receivables and other assets 11 20,152,842 610,290 3.0% 13,408,879 950,484 7% Derivative financial instruments 12 32,246,390 - - Other financial assets 13 3,054,879 3,054,866 100.0% 4,280,015 3,037,138 71% Cash and cash equivalents 14 1,384,908 - 9,783,972 - Total current assets 57,815,094 28,253,744 Non-current assets classed as held for sale 15 27,203,191 - 5,422,698 - Total Assets 333,171,307 380,433,370
Share capital 80,100,044 80,001,851 Other reserves 3,991,117 29,851,390 Treasury shares (2,363,435) (173,848) Merger deficit - (23,110,447) Valuation reserve 21,980,572 46,985,789 Retained earnings (losses) 162,483 (22,663,007) Profit (loss) for the year 35,203,622 20,075,664 Total shareholders' equity 16 139,074,403 130,967,392 Bonds 17 44,669,146 - 43,389,715 - Payables to banks and other lenders 18 54,173,437 - 61,557,237 - Lease payables 19 533,959 - 14,839,758 - Other liabilities 20 944,192 - 16,763,368 6,151,545 37% Pension scheme and Employee severance indemnity liabilities 21 261,933 - 170,252 - Provisions 22 1,019,435 - 807,500 -
Total non-current liabilities 101,602,102 137,527,830
Bonds - current share 23 753,579 - 755,070 - Payables to banks and other lenders 24 65,917,628 22,275 0.0% 80,547,797 21,880,484 27% Lease payables 25 40,419 - 1,023,276 - Derivative financial instruments 26 616,141 - 10,967 - Trade payables 27 5,547,211 1,598,603 28.8% 2,642,862 - Other liabilities 28 19,619,824 3,688 0.0% 26,958,176 12,879,545 48%
Total current liabilities 92,494,802 111,938,148 Liabilities on assets held for sale - - Total shareholders' equity and liabilities 333,171,307 380,433,370
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 150 > Income Statement prepared pursuant to Consob Resolution No. 15519 of 27 July 2006
Amounts in EUR
Note of which related of which related % s 31/12/2008 parties % incidence 31/12/2007 parties incidence
Dividends and other income from investments 29 3,343,700 3,343,700 100.0% 4,164,186 4,164,186 1 Capital gains (losses) on disposal of investments 30 33,736,273 - 54,856,181 - (Write-down) reversals of investments 31 (18,261,034) - (13,400,000) - Other operating income 32 23,815,224 6,290,185 26.4% 1,591,851 654,766 41% Purchase of materials and external services 33 (8,571,820) - (8,584,609) (6,913) 0% Personnel costs 34 (3,179,046) - (4,477,191) - Other operating costs 35 (1,419,115) - (3,598,771) (45,006) 1% Depreciation and amortisation expense 36 (582,552) - (646,992) - Provisions for future charges 37 (211,935) - - - Write-down of loans 38 (1,276,989) - - - Gains/(Losses) from disposal of non-current assets - -- 39 - Operating profit 27,392,706 29,904,655
Financial income 34,776,431 46,936 0.1% 878,226 - Financial charges (21,185,952) (3,326,174) 15.7% (9,935,364) (2,263,054) 23% Net financial income/(charges) 40 13,590,479 (9,057,138) Result before tax 40,983,185 20,847,517 Income taxes 41 (5,779,563) - (771,853) - Net result from operating activities 35,203,622 20,075,664 Net result from disposals - - - - Net result 35,203,622 20,075,664
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 151 > Cash Flow Statement prepared pursuant to Consob Resolution No. 15519 of 27 July 2006 Amounts in EUR
31/12/2008 31/12/2007 Notes of which related parties (*) of which related parties
OPERATING ACTIVITIES Net result for the period 35,203,622 20,075,664 Non-monetary adjustments for: Current tax payable 845,005 - Deferred taxes 2,011,353 1,106,757 Depreciation of property, plant and equipment 484,262 555,975 Amortisation of intangible assets 98,290 91,015 Dividends received (3,343,700) (4,164,186) Financial income (34,776,431) (878,226) Financial charges 21,185,952 9,935,364 Commission income on investments (4,895,633) (4,895,633) - Exchange (gains)/losses (746,453) (18) Provisions for risks and charges 211,935 - Provisions for employee severance indemnity 149,860 253,757 Write-down of loans 1,276,989 - Capital gains from winding-up of a subsidiary 43 (26,641,029) - (Write-down) reversals of investments 18,261,034 13,400,000 Cash flows from operating activities before changes in working capital 9,325,056 40,376,102 (Increase)/Decrease in trade receivables (1,209,197) 42,337 (516,718) 1,327,328 (Increase)/Decrease in trade payables 2,904,349 1,598,603 1,105,981 (109,282)
Cash generated from operating activities 11,020,208 1,640,940 40,965,366 1,218,046
Net change in provisions for risks and charges - 518,500 Payment of employee severance indemnity (58,179) (211,499) Change in other current assets 6,940,659 5,820,251 Change in other non-current liabilities 8,167,771 (6,151,545) (24,592,726) (25,931,335) Change in other current liabilities (1,096,692) (12,875,858) 4,396,308 4,748,865 Change in current tax liabilities (845,005) - Changes in non-current tax credits (5,107) (237,129) Interest received (18,474,299) (8,256,218) NET CASH GENERATED FROM OPERATING ACTIVITIES 5,649,356 (17,386,463) 18,402,854 (19,964,424) INVESTMENT ACTIVITIES
Interest received 2,587,958 879,315 Dividends received from subsidiaries and associated companies 2,113,980 305,760 Dividends received on financial assets 1,229,720 3,858,426 Equity investments: Acquisitions (43,267,070) (100,779,641) From mergers - (28,290,093) Recapitalisation of subsidiaries (11,243,930) - Decreases in equity investments due to: Mergers by incorporation - 77,390,873 Capital payments and reimbursements 22,211,836 10,410,752 Classification as assets held for sale -- Increases in assets held for sale (31,333,000) - Other investments (property, plant, equipment, intangible and other financial assets) (831,321) (23,685,400) Disposal of financial leases 6,670,935 - Increases in assets held for sale (8,222,636) - Income from the disposal of: Investments 13,998,679 12,656,982 Other non-current assets (property, plant, equipment, intangible and other) 167,539 27,273 Net assets allocated on winding up of a subsidiary 43 2,118,604 - Changes in financial assets from derivatives 692,548 - Changes in financial assets 35,812,640 (8,782,005) (75,457,718) 4,920,822
Net cash absorbed by investment activities (A) (7,293,519) (8,782,005) (122,683,472) 4,920,822
Changes due to merger by incorporation of subsidiaries: Decrease in investments due to merger of subsidiaries - (62,597,256) Changes in assets - 108,194,184 Changes in liabilities - (78,145,577) Change in fair value reserve for available-for-sale financial assets - (991,768) Deficit attributed to available-for-sale financial assets - 10,429,731 Merger deficits (B) - (23,110,687) NET CASH ABSORBED BY INVESTMENT ACTIVITIES (A) + (B) (7,293,519) (8,782,005) (145,794,159) 4,920,822
FINANCIAL ACTIVITIES
Revenues from issue of bond loan - 48,415,195 Increase (decrease) in payables to banks and other lenders (4,565,316) (21,858,209) 88,377,132 855,081 Changes in shareholders' equity - 331,658 2008 l as at 31.12. Statements Purchase of treasury shares (2,189,587) (173,848)
NET CASH GENERATED FROM/(ABSORBED BY) FINANCIAL ACTIVITIES (6,754,903) (21,858,209) 136,950,137 855,081
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (8,399,066) (48,026,677) 9,558,832 (14,188,521)
OPENING BALANCE OF CASH AND CASH EQUIVALENTS 9,783,974 225,141 CLOSING BALANCE OF CASH AND CASH EQUIVALENTS 1,384,908 9,783,974
(*) The cash flow statement published in the financial statements as at 31 December 2007 shown above has been reclassified in order to allow meaningful comparison with the statement adopted for the year 2008. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 152 > Statement of changes in Shareholders' equity as at 31 December 2008 and as at 31 December 2007
Amounts in EUR
Treasury Undivided Profit/(loss) for Shareholder’s Capital Other reserves shares Merger deficit Valuation reserve profit/(loss) the year Equity
Balance as at 1 January 2007 80,000,000 21,038,651 - - 4,424,835 (24,460,994) 1,797,987 82,800,479
Increases in fair value of financial assets due to mergers - - - - 52,450,423 - - 52,450,423 Change in fair value of available-for-sale financial assets - - - - 46,928,666 - - 46,928,666 Deferred tax on fair value revaluation of available-for-sale financial assets - - - - (855,670) - - (855,670) Allocation to undivided profits from infragroup transactions - 4,490,029 - - (4,490,029) - - - Allocation of retained earnings - - - - - 1,797,987 (1,797,987) -
Profit (Losses) recognised to shareholders' equity for the year - 4,490,029 - - 94,033,390 1,797,987 (1,797,987) 98,523,419
Release to the income statement due to disposal of available-for-sale financial assets - - - - (51,472,436) - - (51,472,436) Net profit (loss) for the year ------20,075,664 20,075,664
Total Profit (Loss) for the year - - - - (51,472,436) - 20,075,664 (31,396,772)
Bond loan conversion 1,851 ------1,851 Purchase of treasury shares - - (173,848) - - - - (173,848) Merger surplus from capital gains on acquisition of incremental investment in subsidiaries - - - (25,903,290) - - - (25,903,290) Changes due to merger by incorporation of subsidiaries - - - 2,792,843 - - - 2,792,843 Capital reserve from shareholders' equity component of the convertible bond - 5,464,165 - - - - - 5,464,165 Deferred tax on shareholders' equity component of the convertible bond - (1,473,098) - - - - - (1,473,098) Retained capital gains from transactions with companies under joint control - 331,643 - - - - - 331,643 Dividends ------
Balance as at 31 December 2007 80,001,851 29,851,390 (173,848) (23,110,447) 46,985,789 (22,663,007) 20,075,664 130,967,392
Change in fair value of available-for-sale financial assets - - - - (24,681,970) - - (24,681,970) Deferred tax on fair value revaluation of available-for-sale financial assets - - - - 1,094,094 - - 1,094,094 Increase in fair value of hedges - - - - (358,055) - - (358,055) Utilisation of reserve due to infragroup transactions - (4,819,297) - 4,819,297 - - - - Utilisation of reserve due to share capital decrease - (4,329,185) - 1,579,359 - 2,749,826 - - Utilisation of reserve due to merger surplus - (16,711,791) - 16,711,791 - - - - Allocation of retained earnings - - - - - 20,075,664 (20,075,664) -
Profit (Losses) recognised to shareholders' equity for the year - (25,860,273) - 23,110,447 (23,945,931) 22,825,490 (20,075,664) (23,945,931) Release to the income statement due to disposal of available-for-sale financial assets - - - - (1,059,286) - - (1,059,286) Net profit (loss) for the year ------35,203,622 35,203,622
Total Profit (Loss) for the year - - - - (1,059,286) - 35,203,622 34,144,336
Bond loan conversion 98,193 ------98,193 Purchase of treasury shares - - (2,189,587) - - - - (2,189,587) Dividends ------Balance as at 31 December 2008 80,100,044 3,991,117 (2,363,435) (0) 21,980,572 162,483 35,203,622 139,074,403
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 153 EXPLANATORY NOTES
> General Information
Sopaf S.p.A. is a joint-stock company established in Italy at the Milan Register of Companies and is registered in the list held by the Italian Exchange Office pursuant to Article 113 of Italian Legislative Decree 385/93, Consolidated Banking Law. It is the Group Parent Company and holds, directly or indirectly through other sub-holding companies, percentage investments in the share capital of companies in the business segments in which the Sopaf Group operates. The address of its registered office is Foro Buonaparte, 24 – Milan. The main activities of the company and its subsidiaries are outlined in the descriptive section preceding the Report on Operations of the consolidated financial statements. These financial statements have been drawn up in euro. In its capacity as Parent Company, Sopaf S.p.A. has also drawn up the consolidated financial statements of the Sopaf Group as at 31 December 2008.
> Form and content of the financial statements and adoption of the international accounting standards
The separate financial statements as at 31 December 2008 have been prepared by applying the valuation criteria established by the international accounting standards (IFRS – International Financial Reporting Standards) in force as at 31 December 2008. The separate financial statements consist of the accounting statements (income statement, balance sheet, cash flow statement and statement of changes in shareholders' equity) accompanied by the explanatory notes. The income statement has been prepared on the basis of the minimum content provided by IAS 1 - Presentation of Financial Statements - with costs classified by their nature, while the balance sheet has been prepared using the format evidencing a breakdown between current and non-current assets and liabilities. The cash flow statement has been prepared according to the indirect method.
The 2008 separate financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union. The abbreviation IFRS is intended to also mean all revised international accounting standards (IAS) and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC).
The accounting formats and the disclosures contained in these financial statements have been drawn up in compliance with IAS 1, as provided by CONSOB Notice no. DEM 6064313 dated 28 July 2006.
The financial statements and explanatory notes also provide the additional information prescribed with regard to financial statement formats and disclosures by CONSOB Resolution no. 15519 and no. 15520 of CONSOB Notice no.6064293 issued on 27 and 28 July 2006.
The figures of these financial statements are compared with those of the previous year which have been drawn up and re-stated using the same criteria, taking into account the content of the previous paragraph.
The financial statements consist of the mandatory summary schedules (income statement, balance sheet, cash flow statement and statement of changes in shareholders' equity) accompanied by the explanatory notes. 2008 l as at 31.12. Statements
The income statement has been prepared on the basis of the minimum content provided by IAS 1 (Presentation of Financial Statements) with costs classified by their nature, while the balance sheet has been prepared using the format evidencing a breakdown between current and non-current assets and liabilities. The cash flow statement has been prepared according to the indirect method.
Financia S.p.A. | Sopaf Sopaf 154 > Summary of main accounting standards and valuation criteria
> General Standards
The 2008 financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union, as well as with the provisions issued in implementation of Article 9 of Italian Legislative Decree no. 38/2005. The abbreviation IFRS is intended to also mean all revised international accounting standards (IAS) and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC).
Point 43 of these Explanatory Notes provides the information required by IAS 1 and by IFRS 7, which requests a separate description of the objectives, policies and procedures implemented by management for the various types of financial risks (exchange, liquidity, interest rate and credit risk) to which the company is exposed, including a sensitivity analysis for the various types of risk and information on the concentration and average, minimum and maximum exposures of the various types of risk during the reporting period, if the exposure existing at year end is not sufficiently representative.
The main accounting standards are outlined below. These standards have been applied in a consistent manner for all the periods presented. In drawing up the financial statements the directors are required to make a number of estimates and, in certain cases, to use assumptions when applying the accounting standards.
The criterion generally adopted for recognition of assets and liabilities is that of historical cost, with the exception of financial instruments for which the fair value is adopted, pursuant to IAS 39.
Information is provided below of accounting formats adopted compared to those indicated by IAS 1 and on the most important accounting standards and related valuation criteria adopted in drawing up these financial statements.
> Financial statements
The income statement has been prepared using the format in which costs are classified by their nature, illustrating the interim results relating to the operating profit and result before tax. In order to facilitate measurement of the performance of normal operations, separate indication is provided of significant cost and revenue components arising from events or transactions that, given their nature or the considerable value involved, are to be considered as non-recurring. These transactions can be considered to fall under the definition of significant non-recurring events contained in CONSOB Notice no. 6064293 dated 28 July 2006, which instead differs from the definition of “atypical and/or unusual transactions” contained in the same CONSOB Notice dated 28 July 2006, according to which atypical and/or unusual transactions are those which due to their significance/relevance, nature of the counterparties, subject of the transaction, transfer price calculation procedures and timing of the event (close to the end of the financial year) could give rise to doubts in terms of the accuracy/completeness of disclosures provided in the financial statements, conflicts of interest, the safeguarding of equity and the protection of minority shareholders.
The balance sheet has been prepared using the format illustrating assets and liabilities as divided between current and non-current. An asset/liability is classed as current when it satisfies one of the following criteria: • current assets are represented by cash or cash equivalents, by assets that are expected to be realised, sold l Statements as at 31.12. 2008 l as at 31.12. Statements or consumed in the normal performance of the company’s business cycle, held-for-trading assets, or assets expected to be realised within twelve months from the year end date; • current liabilities are those that are expected to be discharged in the normal performance of the company’s business cycle or within twelve months from the reporting date, held-for-trading liabilities or those that do not have an unconditional right to deferment of their discharge over twelve months. All other liabilities must be classified as non-current.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 155 The cash flow statement has been prepared by applying the indirect method, by which the operating result is adjusted by the effects of non-monetary transactions, by any deferral or allocation of previous or future cash flows or operating payments and by revenue or cost elements related to cash flows from investment or financial activities. Income and charges relating to medium/long-term financing transactions and related hedging instruments, as well as dividends paid, are included under financing activities.
The figures in these financial statements are compared with those of the previous year which have been prepared using the same criteria. Where necessary, previous year figures have been reclassified in order to provide more meaningful comparison.
Lastly, to comply with the recommendations set forth in CONSOB Resolution no. 15519 of 27 July 2006 "Provisions on financial statement formats", the financial statements have been supplemented by special income statement and balance sheet schedules, in order to report separately any significant amounts involved in positions or transactions with related parties.
> Other intangible assets
Intangible assets acquired or produced internally are entered under assets, in accordance with IAS 38 – Intangible assets, when it is likely that they will generate future economic benefits and when their cost can be reliably calculated. If these assets have a definite life, they are entered at acquisition or production cost, net of amortisation charged on a straight-line basis over their estimated useful life and of any impairment.
Software licences purchased are capitalised and entered under intangible fixed assets at the cost incurred for their acquisition and amortised on a straight-line basis over their estimated useful life. These intangible assets are amortised on a straight-line basis, throughout the period of their estimated useful life. Costs associated with the development and ordinary maintenance of software, that do not meet the aforementioned requisites, and research costs are fully charged to the income statement in the year in which they are incurred.
> Intangible assets – Property, plant and equipment
Property, plant and equipment are entered at purchase or production cost, inclusive of accessory charges, and are stated net of accumulated depreciation and of any write-downs for impairment. Costs incurred after acquisition are capitalised only if they increase the future benefits inherent in the assets to which they refer. These fixed assets are depreciated each year on a straight-line basis according to the technical/economic rates determined in relation to the residual possibility of use of the assets. Depreciation is determined, on a straight-line basis, on the cost of the assets net of the related residual values (if significant) of their estimated residual life applying the following percentage rates: Buildings 2 %
Furniture and equipment: 12% Plant: 6.67 % Office machinery: 20% Cars: 25%
Recoverability of their value is verified according to the criteria provided by IAS 36 outlined in the paragraph below “Impairment losses”. Costs incurred for improvements to third-party assets held under operating lease are capitalised and stated in the balance sheet under the classes of assets to which they refer and are depreciated over the lesser of their useful life 2008 l as at 31.12. Statements and the residual period of the lease agreement. Gains and losses arising from the assignment or disposal of assets are determined as the difference between the proceeds from the sale and the net book value of the assets and are recognised in the income statement for the year.
Financia S.p.A. | Sopaf Sopaf 156 > Leased assets
Assets acquired through finance lease agreements are entered as tangible fixed assets with entry of a financial payable of the same amount. The payable is gradually reduced by the amounts of principal included in the lease instalments provided by the repayment plan. The value of the asset is depreciated in relation to the lesser of the asset's useful life and the term of the lease agreement. The costs for lease instalments on operating leases are entered on a straight-line basis over the term of the contract.
> Investments in subsidiary and associated companies and in joint ventures
Investments in subsidiary and associated companies and joint ventures are valued with the cost method, reduced by any impairment pursuant to IAS 36. In the event of impairment the cost is carried to the income statement. The original value is restored in following years should the reasons for write-down no longer exist.
> Other investments
Other investments, that differ from those in subsidiary and associated companies and joint ventures, are entered under non-current assets at the item “Other non-current financial assets” and are valued, in compliance with the provisions of IAS 39 for available-for-sale financial assets, at fair value or, alternatively, at cost if the fair value cannot be reliably determined. Gains and losses from changes in fair value are booked directly to shareholders' equity until the assets are sold or until an impairment loss is recognised. Upon sale of the assets or recognition of an impairment loss, the total gains and losses previously booked to shareholders' equity are carried to the income statement for the period and any loss subsequent to the recording of an impairment is recorded in the income statement. The original value may be restored in subsequent years should the reasons for the write-down no longer exist. The risk arising from any losses exceeding shareholders' equity is recognised in a special reserve to the extent to which the investor company is required to meet legal or implicit obligations with regard to the investee company or to cover its losses.
> Financial instruments
These include investments (other than investments in subsidiaries, companies subject to joint control and associated companies) held for trading (known as trading investments) and those held for sale, non-current receivables and loans, trade receivables and other receivables originating from the company and other current financial assets such as cash and cash equivalents. Cash and cash equivalents refer to bank and postal deposits, readily tradable securities which represent temporary cash investments and loans collectible within three months. They also include financial payables, trade payables and other payables and other financial liabilities as well as derivative instruments. Financial assets and liabilities are recognised when the rights and obligations established in the instrument’s contract arise.
> Available-for-sale financial assets Investments other than those in associated companies are recorded as non-current assets in the item, "Other financial assets", and, as provided by IAS 39 with reference to available-for-sale financial assets, are carried at fair value, or at cost whenever the fair value cannot be reliably determined. l Statements as at 31.12. 2008 l as at 31.12. Statements Gains and losses from changes in fair value are booked directly to shareholders' equity until the assets are sold or until an impairment loss is recognised. Upon sale of the assets or recognition of an impairment loss, the total gains and losses previously booked to shareholders' equity are carried to the income statement for the period and any loss subsequent to the recording of an impairment is recorded in the income statement. The original value may be reinstated in subsequent years should the reasons for the write-down effected no longer exist. In the case of equity instruments the write-up occurs with valuation reserve as balancing entry. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 157 The risk arising from any losses exceeding shareholders' equity is recognised in a special reserve to the extent to which the investor company is required to meet legal or implicit obligations with regard to the investee company or to cover its losses. When securities classified as available for sale are sold or suffer impairment, the accumulated changes in fair value are transferred from the valuation reserve to the income statement as gains or losses from financial assets. The fair values of listed investments are based on current offer prices. If the market of a financial asset is not active (for unlisted securities), the Group establishes the fair value using valuation techniques that use variables that can be directly observed on the market. These methods include the use of recent transactions between informed and willing parties, reference to other instruments that are substantially the same and analysis of discounted financial flows adapted to reflect the issuer’s specific situation. At each reporting date, the Group assesses whether there is objective evidence to suggest that a financial asset or group of financial assets has suffered impairment. In the case of equity securities classified as available for sale, in determining whether the securities have suffered impairment, the existence of a significant or prolonged reduction of the security’s fair value below its cost is considered. Definition of the operating procedures by which to verify the presence of an impairment can be found in the note “Main sources of uncertainty in performing balance sheet estimates”.
> Receivables and financial assets held to maturity Receivables and financial assets held to maturity are booked at cost, which is equal to the fair value of the initial price paid. Any transaction costs incurred at the time of acquisition/sale are carried as direct adjustment of the asset/liability's par value (e.g. issue discount and premium, costs incurred for acquisition of loans, etc). Financial income/charges are then redetermined on the basis of the effective interest rate method. The initial recognition value is later adjusted to take account of repayments of principal, write-downs, if any, and amortisation of the difference between the repayment value and the initial recognition value. Amortisation is based on the effective internal interest rate represented by the rate that equalises, upon initial recognition, the current value of the expected cash flows and the initial recognition value ("amortised cost method"). Loans and receivables are included under the item loans and other receivables. Financial assets are regularly subject to assessments to verify whether there is objective evidence to suggest that they have suffered impairment. In valuing receivables specific account is taken of the creditors’ solvency as well as the characteristics of credit risk which is indicative of each debtor’s payment capacity. Any impairments are recognised as cost in the income statement for the period. When financial assets do not have a fixed maturity, they are valued at acquisition cost. Receivables with maturity exceeding one year, which are non-interest bearing or which accrue interest at lower than market rates, are discounted using market rates.
> Other financial assets Financial assets such as Restricted guarantee deposits and Security deposits, which the Group intends to hold, and is able to hold, until maturity, and which do not meet the requisites for classification as cash and cash
equivalents are recognised and derecognised in the financial statements on the basis of their trading date. These assets are initially booked at an amount corresponding to their fair value, and thereafter, on the basis of amortised cost, net of any write-downs for impairment.
> Held-for-trading financial assets Assets held for trading, excluding derivative instruments, are carried at fair value with any changes in fair value being recorded in the income statement. This category is mainly made up of trading investments.
> Derivative financial instruments 2008 l as at 31.12. Statements Financial instruments may used for hedging purposes, in order to reduce the exchange risk, interest rate risk or risk of changes in market prices. Derivative instruments are carried at fair value and changes in fair value are recorded in the income statement when they do not meet the conditions to qualify as hedging instruments due either to the nature of the instrument or to the company’s decision not to perform the effectiveness test. Derivative instruments are classified as hedging instruments when the relationship between the derivative and the object of the hedge is formally documented and the effectiveness of the hedge, subject to regular verification, Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 158 has been ascertained pursuant to IAS 39, by analysing the level of correlation between the fair value or the financial flows of the hedged item and those of the hedging instrument. In compliance with IAS 39, derivative financial instruments may be recognised according to hedge accounting procedures only when, at the beginning of the hedge, the hedging relationship has been formally designated and documented, the hedge is presumed to be highly effective, the effectiveness can be reliably measured and the hedge proves highly effective during the various accounting periods for which it has been designated. When hedging derivatives hedge the risk of changes in the cash flows of hedged items (cash flow hedge), the effective portion of the changes in the derivatives’ fair value is carried directly to shareholders’ equity, while the ineffective portion is carried directly to the income statement. The amounts recorded directly under shareholders’ equity are reflected in the income statement consistently with the economic effects produced by the hedged item. If on the other hand the derivatives hedge the risk of change in the fair value of the hedged items (fair value hedge), the changes in the derivatives’ fair value are carried directly to the income statement and the hedged instruments are adjusted to reflect the changes in fair value associated with the hedged risk. If the conditions for application of hedge accounting are not met, the effects deriving from fair value valuation of the derivative financial instrument are carried directly to the income statement.
> Derecognition of financial assets and liabilities Financial assets are derecognised in the balance sheet when the right to receive cash flows has terminated and all the risks and benefits associated with the assets have substantially been transferred or, in the case of an item considered to be unrecoverable, when all the necessary recovery procedures have been completed. Financial liabilities are removed from the balance sheet when the specific contractual obligation has been discharged. Receivables assigned following factoring transactions are derecognised from balance sheet assets only if the related risks and benefits have been substantially transferred to the assignee. Receivables assigned with recourse and those assigned without recourse, which do not meet the aforesaid requisite, continue to be recognised in the company’s balance sheet, even though they have been legally assigned. In this case a financial liability of an equal amount is entered under liabilities against the advance received.
> Non-current available-for-sale assets
Non-current available-for-sale assets are valued at the lesser of their previous net book value and their market value net of sale costs. Non-current assets are classified as held for sale when their book value is expected to be recovered through a disposal transaction rather than through their use in the company’s business activity. This condition is met only when the sale is considered highly probable and the asset is available for immediate sale in its current state. To this end the management must be committed to the sale, which should be concluded within 12 months from the date of classification of the item.
> Impairment losses
At each reporting date, the book value of intangible and tangible fixed assets, investments in subsidiary and associated companies and financial assets is reviewed to determine whether there is any evidence to suggest that these assets have suffered impairment. Where such evidence exists, the recoverable amount of the assets is estimated in order to calculate the extent of the write-down. Whenever it is not possible to estimate the recoverable value of an individual asset, an estimate of the recoverable value of the cash-generating unit to which the asset belongs is used. Definite life intangible assets, including goodwill, are verified annually whenever there is indication of a possible impairment in order to determine whether impairment has occurred. The recoverable amount is the greater of the fair value, net of sale costs, and the value in use. In determining the l Statements as at 31.12. 2008 l as at 31.12. Statements value in use, the estimated future cash flows are discounted to their present value by using an interest rate that reflects the current market valuations of the value of money and the specific risks of the assets. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than the asset's book value, the book value is reduced to the recoverable value. An impairment is immediately recorded in the income statement, unless the asset is represented by land or buildings other than the real estate investments recognised at revalued values, in which case the impairment is carried to the respective revaluation reserve. Should the reasons for the write-down no longer exist, the book value of the asset (or the cash-generating unit), with the exception of goodwill, will be increased to the new value arising from the estimate of its recoverable Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 159 value, which may not however exceed the net book value that the asset would have had if the impairment loss had not been recorded. The write-up of value is immediately recorded in the income statement, unless the asset is stated at revalued value, in which case the write-up of value is carried to the revaluation reserve.
> Receivables
> Trade receivables and other receivables Receivables are initially entered at their par value (representative of the fair value of the transaction) and thereafter are valued at amortised cost, net of any write-downs for impairment recorded in the income statement when there is objective evidence that they have experienced a loss in value. These write-downs are determined as the difference between the book value of the receivables and the current value of the estimated future cash flows, discounted using the effective interest rate. In the case of short-term trade receivables, the impact of discounting is negligible, and the valuation at amortised cost is thus equivalent to par value, net of any write-downs for impairment. Receivables for assignment of investments are included under other receivables.
> Cash and cash equivalents
Cash and cash equivalents include cash, amounts in current accounts held with banks, demand deposits, and other highly liquid short-term financial investments that may be readily converted into cash and are not subject to any significant risk of change in value. Cash and cash equivalents are carried at fair value, which corresponds to their par value or cost, increased by any accrued interest.
> Assets under disposal
Assets under disposal or held for sale include non-current assets (or disposal groups) and all the consolidated investments entered as assets for which the book value will mainly be recovered through sale rather than on- going use. Assets under disposal or held for sale are valued at their estimated realisable value which is equal to the lower of their net book value and their fair value net of sale costs.
> Convertible bonds
The component of convertible bonds that has the characteristics of a liability is entered as a payable net of issue costs. At the date of issue, the fair value of the debt component is determined using the market price of an equivalent non-convertible bond; this amount, which is classified as a long-term payable, is adjusted using the amortised cost method until the conversion or reimbursement date. The residual part of the par value of the bond is booked as the conversion option, which is reported as part of shareholders' equity, net of the related issue costs. The value of the conversion option does not undergo any changes in subsequent years. The issue costs are split proportionally between the debt and equity components of the bond at the date when the costs are first reported.
> Financial liabilities
Financial liabilities refer to financial payables, including payables for advances on assignment of credits, payables for finance leases, as well as financial liabilities (which include the negative fair value of derivative financial instruments), trade payables and other payables. l Statements as at 31.12. 2008 l as at 31.12. Statements With the exception of derivative financial instruments, financial payables are stated at amortised cost using the effective interest rate method.
> Payables to banks Interest-bearing bank loans and bank overdrafts are initially entered on the basis of the amounts received, net of any transaction costs, and thereafter are valued at amortised cost, using the effective interest rate method.
Financia S.p.A. | Sopaf Sopaf 160 > Trade payables and other payables Trade payables and other payables are recorded according to the amortised cost criterion which, considering the characteristics and the maturities of the payables, is generally equal to their par value. Payables relating to acquisition of investments are classified as other payables.
> Non-current financial liabilities These payables are recorded at amortised cost, using the effective interest rate method.
> Pension scheme and employment severance indemnity liabilities
According to IAS 19, the employee severance indemnity relating to employees of the Parent Company and the subsidiaries having their registered office in Italy is classifiable as a post-employment benefit of the defined- benefit type. Accordingly, the amounts already accrued must be projected to the future in order to estimate the amount to be disbursed upon termination of the employment relationship, and then discounted using the projected unit credit method in order to achieve a reasonable estimate of the amount of the benefits which the employees have accrued in return for their service in current and previous years. The Group has not adopted the corridor method and therefore actuarial gains and losses are fully recorded as they arise and entered directly in the income statement.
> Provisions
Allocations to the provisions for risks and charges are entered against a current legal or implicit obligation, arising from a past event, that the company will probably be requested to fulfil and which may be reasonably estimated. Allocations are made on the basis of the best estimate of the costs required to fulfil the obligation at the year-end/half-year date and are discounted when the effect is significant. Changes in the estimate are reflected in the income statement in the period in which the change occurs.
> Treasury shares
Treasury shares are entered as a reduction of shareholders' equity. The original cost of treasury shares and the income/charges from any subsequent sale thereof are entered as changes in shareholders' equity in a special reserve.
> Dividends received
Dividends are recognised in the income statement at the time in which their distribution is approved and only if they derive from distribution of profits subsequent to acquisition of the investee. If instead they derive from distribution of reserves of the investee established prior to acquisition, they are entered as a reduction of the cost of the investment.
> Recognition of revenues
Revenues from sales and services are recorded upon effective transfer of the relevant risks and benefits deriving from assignment of ownership or at the time the service is performed respectively.
> Financial income and charges l Statements as at 31.12. 2008 l as at 31.12. Statements Interest income and expense, including interest on bond issues, is recorded according to the effective interest rate method. Commissions on trading transactions are classified under financial charges in relation to the entry under financial income/charges of the result of the main trading transaction.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 161 > Taxes
The income tax burden for the year is determined on the basis of legislation in force. Income taxes are recognised in the income statement, with the exception of those relating to items directly debited or credited to shareholders’ equity, in which cases the tax effect is carried directly to shareholders’ equity. The tax provisions for the year include current and deferred taxes. Current taxes are calculated on taxable income for the year. Taxable income differs from the income reported in the income statement since it excludes revenues (expenses) that are taxable (deductible) in other periods, and it also excludes items that may never be taxable or deductible. The liability for current taxes is calculated by using tax rates in force as the reporting date. Deferred taxes and prepaid taxes are calculated on the basis of all the temporary differences that emerge between the values of balance sheet assets and liabilities and the corresponding values recorded for tax purposes. Prepaid taxes, arising from temporary differences and/or from tax losses carried forward are recorded only to the extent that it is probable that future taxable income will be available against which such deductible temporary differences and/or tax losses can be used. These assets and liabilities are not recorded if the temporary differences arise from goodwill or from the initial recognition of other assets or liabilities in transactions (and not business combinations) that do not have any influence on income reported in the financial statements or on taxable income. The book value of the deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that future taxable income will be sufficient to allow the total or partial recovery of such assets. Deferred taxes are calculated by considering the tax rates that the Group expects to be in force as at the date on which the asset will be realised or the liability will be discharged. Deferred taxes are carried directly to the income statement, with the exception of deferred taxes on items recorded directly in shareholders' equity, in which case the related deferred taxes are also carried to shareholders' equity. Deferred tax assets and deferred tax liabilities are offset whenever there is a legal right to offset current tax assets and current tax liabilities, and when the assets and liabilities refer to tax positions with the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
> Earnings per share
Earnings per share is determined through the ratio of Sopaf’s net profit to the weighted average number of shares outstanding in the period, excluding treasury shares. Diluted earnings per share is determined by taking into account the number of outstanding shares, excluding treasury shares in the portfolio, and the potential effect attributable to holders of ordinary capital instruments of the Parent Company Sopaf S.p.A. to take into account the effects of all the potential ordinary shares with dilution effect.
> Option for national tax consolidation
Sopaf and the companies Sopaf Capital Management Sgr and PWM Sgr (now merged into Sopaf Capital Management Sgr) opted for national tax consolidation as governed by Articles 117-129 of the Consolidated Income Tax Law, introduced into tax legislation by Italian Legislative Decree no. 344/2003. It consists of an optional regime, by virtue of which the total net income or the tax loss of each subsidiary adhering to tax consolidation – together with the withholdings incurred, the deductions and the tax credits – are transferred to the parent company, for which a single taxable income or a single tax loss that can be carried forward (resulting from the sum of its own income/losses and those of the participating subsidiaries) and consequently a single tax debt/credit are calculated. Through this option the Group companies that adhered to the national tax consolidation determine their own tax burden and the corresponding taxable income is transferred to the Parent Company. If the investees post a negative taxable income, the tax losses are transferred to the Parent Company. 2008 l as at 31.12. Statements > Main sources of uncertainty in performing financial statement estimates
> i) Discretionary decisions in the process of applying accounting standards
For the purpose of drawing up the financial statements as at 31 December 2008 the company’s management made discretionary choices with regard to the Group’s application of accounting standards with significant
effects on the financial statements in relation to representation of the following accounting matters: Financia S.p.A. | Sopaf Sopaf 162 > Classification of income/(charges) from held-for-trading financial assets and derivative financial instruments and treatment of the related transaction costs Financial income/(charges) from fair value valuation of held-for-trading financial assets and capital gains/(losses) from their disposal and the fair value valuation of derivative financial instruments are recognised in the income statement with classification under financial income/(charges). In compliance with international accounting standards, the initial recognition of a financial asset or liability must correspond to its fair value plus, in the case of a financial asset or liability not at fair value recorded in the income statement, the transaction costs directly ascribable to acquisition or issue of the financial asset or liability. The transaction costs are costs directly ascribable to the acquisition, issue or disposal of a financial asset. In operations involving financial instruments, it is generally possible to identify various types (in terms of their nature) of considerations paid as commissions for the counterparty’s assumption of all or part of the risk component inherent in the financial asset involved in the transaction. In order to provide the best view of trading transactions, the Company records the transaction costs, which include the fees and commissions paid to intermediaries, consultants, brokers and operators and the contributions withheld by regulatory bodies and by stock exchanges, under financial charges in correlation to the entry under financial income/(charges) of the result of the trading transaction.
In compliance with this method, with regard to derivative financial instruments entered in the financial statements as at 31 December 2008, the initial valuation at fair value of the forward contracts for purchase and sale of the FIP units finalised on 30 December 2008 by Sopaf S.p.A. does not include the commissions totalling EUR 2,998 thousand, of which EUR 1,598 thousand paid to the subsidiary Sopaf Capital Management SGR S.p.A., as given that they are defined by the underlying contracts, they were considered as transactions costs of the related derivative financial instruments and were therefore carried separately to the income statement under financial charges.
> ii) Uncertainties in use of estimates Preparation of the financial statements and accompanying notes requires the use of estimates and assumptions which affect the values of balance-sheet assets and liabilities and the disclosures on potential assets and liabilities at the reporting date. Estimates and assumptions used are based on experience and on other factors deemed relevant. The results actually posted may therefore differ from these estimates. Estimates and assumptions are regularly reviewed and the effects of any changes made are reflected in the income statement in the period in which review occurs if the review only affects that period, or also in subsequent periods, if the review affects both the current and future years. Within this context it must be noted that the situation caused by the current economic and financial crisis has led to the need to make assumptions on future trends which are characterised by considerable uncertainty. Hence we cannot exclude that the results actually posted next year will differ from estimates and could therefore require adjustments, which may even prove significant, to the book values of the items involved, which at present obviously cannot be estimated or foreseen. The main balance-sheet items affected by this uncertainty are goodwill, receivables, available-for-sale financial assets and deferred tax assets. An outline is provided below of the critical valuation processes and the key assumptions used by management in applying the accounting principles with regard to the future and which may have significant effects on the values recorded in the consolidated financial statements or for which there is the risk that value adjustments may need to be made to the book value of the assets and liabilities in the year after the reporting year.
> Receivables Other receivables and other assets are subject to regular assessment to verify the existence of objective evidence l Statements as at 31.12. 2008 l as at 31.12. Statements to suggest that they have suffered impairment. In valuing receivables specific account is taken of the creditors’ solvency as well as the characteristics of credit risk which is indicative of each debtor’s payment capacity. Any impairments are recognised as cost in the income statement for the period. This category includes non-current receivables and loans, trade receivables and other receivables originating from the company. The estimate of the bad debt provision is based on the company’s expected losses, calculated on the basis of past experience for similar receivables, losses and collections.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 163 > Recoverable value of non-current assets (including goodwill) Given the current economic/financial crisis context, for the purposes of drawing up the separate financial statements as at 31 December 2008, and specifically in carrying out impairment tests on investments and on tangible and intangible assets, in the various areas of the company’s activity consideration has been given to forecasts on trends expected in 2009, of which the assumptions and outcome are consistent with those used in formulating the management outlook. Furthermore, for subsequent years of the plan, it will prove necessary to review the original targets in order to make allowance, on a conservative basis, for an economic/financial context that will have undergone radical change due to the current crisis. On the basis of the amended plan figures, requirements have been assessed as has the significance of the outcome of the impairment tests. Non-current assets include tangible and intangible assets (including goodwill), investments and other financial assets. Management regularly reviews the book value of non-current assets held and used and of assets under disposal, when facts and circumstances require such a review. This activity is performed by using an estimate of the cash flows expected from use or sale of the asset and suitable discount rates to calculate its current value. When the book value of a non-current asset suffers an impairment, the company records a write-down for the excess value between the asset’s book value and the value that may be recovered through its use or sale, determined with reference to the company’s more recent plans. Available-for-sale financial assets held in the portfolio are subject to impairment test (assessment of the loss of value arising from impairment of the issuers’ credit rating) upon occurrence of events that suggest that the investment has suffered an impairment. The assessment procedure involves identification of situations in which the issuers’ credit rating has been impaired, identification of the impaired assets and determination of the losses associated with the situations of impairment. These losses correspond to the negative difference between the current market value (or for unlisted instruments, the present value – at current risk-free return rates of similar investments – of the expected cash flows) of the impaired assets and their book value. The activities involved in identifying impairment of available-for-sale assets are performed by the Investment Committee, which takes the assessments of the administration function into account.
On a more general level, to establish if there is evidence of impairment for a capital instrument, in addition to the presence of the events indicated by IAS 39§61, the Directors considered whether or not the following events occurred: • significant changes with adverse effects relating to technology, markets, economic or legal environment concerning the issuer, which indicate that the cost of the investment can no longer be recovered; • a significant or prolonged decline in the investment’s fair value below its cost.
Specifically, the Directors deem that, individually, the following criteria can be considered indicative of the need to verify the existence of an impairment when, either: • the fair value of the security is 30% lower than the book value initially recognised or • when the fair value is 30% lower than cost, the prolonging of situations in which the fair value is lower than the book value (30% lower as referred to above) for a period of time exceeding 12 months.
Trends in the equity market and more in general in market values have caused situations of this kind to arise. The Directors have therefore performed a “fundamental” value analysis, using methods based on valuation models that make as much use as possible of variables observable on the market and have verified whether or nor certain conditions are met by the issuer of investment instrument. The Directors have therefore considered, for each investment, whether or not the following circumstances are present: • the investment’s fair value is considerably lower than the purchase cost or considerably lower than that of similar companies in the same sector; l Statements as at 31.12. 2008 l as at 31.12. Statements • the company’s management is not considered to be of adequate standing and in any case capable of ensuring a recovery of prices; • a significant decline in the issuer’s profits, operating cash flows or in its net financial position from the purchase date; • a reduction or interruption has been recorded in the distribution of dividends; • the disappearance of an active market for the bonds issued by the issuer; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 164 • the occurrence of changes in the regulatory, economic and technological context of the issuer which have or could have a negative impact on its cash flows, financial position and financial performance; • the existence of negative prospects for the market, sector or geographical area in which the issuer operates.
In this regard, the fair value valuation of available-for-sale financial assets as at 31 December 2008 was characterised by a decrease in the fair value of the investment in Delta S.p.A. by EUR 16 million. In order to determine the fair value of Delta S.p.A., Sopaf took into account the valuation provided by two qualified independent experts. For the purpose of verifying the recoverable value, the fair market value was determined, given that no information was available to estimate the value in use, as there were no economic/financial projections for the company on which to base the expected financial flows. This valuation was therefore determined on the basis of the market multiples method of comparable listed companies (stock exchange multiples method) and of the multiples inferred from public information concerning trading performed outside regulated markets and involving shares of sector companies (comparable transactions method). It is also reported that, as only the company’s 2006 and 2007 figures and its interim result as 30 June 2008 are currently available, and as the share capital underwent a considerable increase in 2007 for business expansion, a “normalised” net result was determined, which on one hand mediates the volatility of the results of the financial statements over the various years and on the other takes into account the greater resources to be destined to expanding the business and reducing the financial exposure deriving from the recent capital increase. For the purposes of application of the comparable listed company multiples, taking into account the exceptional downturn in stock exchanges, the investment’s market capitalisation was calculated as the average of the last 24 months from the valuation date. Furthermore, in order to mediate the exceptional stock exchange fluctuations recorded from September 2008, post-Lehman Brothers collapse, the multiples were calculated on the basis of the average market capitalisation of the last two years as from the date of 6 March 2009. It is specified that, with regard to the recent transaction (January 2009) on Delta’s capital concerning the assignment of 13.29% of the capital held by Banco Popolare for EUR 44 million, this transaction was not taken as reference in determining the value of the shares held by Sopaf as the valuers believe the price to have been affected by the changed strategies of Banco Popolare. Over the last year, Banco Popolare has undertaken various initiatives to dispose of non-strategic assets, especially in the consumer credit segment where, in the last two years, it disposed of another two investments that were more significant than the one held in Delta S.p.A., and namely Linea and Ducato, and signed a joint venture agreement with Credit Agricole to promote the consumer credit activities concentrated in Agos. The afore-mentioned assignment occurred between Banco Popolare and the other shareholders of Delta S.p.A., excepting Sopaf. The independent experts identified a reference range for the share held by Sopaf of between EUR 40 million and EUR 120 million. The EUR 40 million valuation refers to an investment value to which a 15% discount has been applied, deriving from the market multiples method, considering the Equity Value on Net Result multiple of listed companies and from comparable transactions, equal to 12.64x and 19.70x respectively. The EUR 120 million valuation refers to an investment value to which a 15% discount has been applied, deriving from the market multiples method, considering the Equity Value on Shareholders’ Equity multiple of listed companies and from comparable transactions, equal to 1.43x and 2.69x respectively.
Considering that the income result of financial companies is subject to high volatility, because of a series of internal and external factors, such as the general economic trends in active and passive interest rates and the company’s expansion strategies and taking into account the fact that in our case only a partial view of the 2008 result is available and that there are no future economic projections to reflect the economic potential associated with current expansion strategies, the Directors chose to use a value that mediates the value deriving from application of the shareholders’ equity multiple with that of the income multiple. Hence, for the purposes of valuation of the investment held an average value equal to EUR 80 million was used. l Statements as at 31.12. 2008 l as at 31.12. Statements With regard to the investment held in Conafi Prestitò S.p.A., analysis of the recoverability of the investment’s historical cost was carried out with the assistance of an independent external consultant. Without a business plan it was not possible to estimate the investment’s recoverable value through a “fundamental” valuation. However some stress tests were performed (based on information inferred from documentation available to the public, financial statement figures, price/earning margin multiples deriving from available transactions) which confirm the recoverability of the book value of the Conafi Prestitò S.p.A. investment held by Sopaf S.p.A. The analysis carried out led the Directors to consider the stock exchange price Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 165 to be of little significance as the security in question may be defined as “slim”, i.e. featuring low liquidity following the drastic reduction in volumes that took place in the last part of the year. As at 31 December 2008, the company records a cash surplus of approximately EUR 76 million and therefore even on the assumption that Conafi’s core business value is equal to zero, the value of the share would be equal to the value of the net financial position and accordingly it would be higher than the year-end stock exchange price. Considering the aforesaid elements, the Directors did not deem value adjustments to be necessary.
With regard to the investment in Sadi S.p.A., an impairment test was carried out on recoverability of the investment’s historical cost, estimating the company’s value in use. The current value of the operating cash flows relating to the 2008-2011 business plan, provided by the company, was estimated, as was a terminal value estimated in accordance with the nature of the investments and with the operating segments in which the company carries on business. The main reference parameters used for discounting the flows were an average WACC of 7.11% and a growth rate g=0%. Furthermore, taking a prudential approach, some Group companies whose value currently proves “potential” were not considered. The discount rate was determined autonomously for the various companies/segment of the Sadi group in order to take their various characteristics into account. The outcome of the analysis shows that the company has an economic value which is far removed from the stock market share price, affected by the reduced stocks on the market and the negative stock market trends. Hence the Directors did not deem value adjustments for impairment to be necessary.
With regard to the investment in IMMSI, an analysis was carried out on recoverability of the investment’s historical cost. Considering that it is an investment holding, the analysis took the impairment tests that IMMSI had performed on its own main assets into account. Hence, taking into account the company’s capitalisation, which is higher than the investment’s historical cost, the absence of extraordinary elements that could compromise its income capacity, the IMMSI Group’s generation of liquidity, the pro-rata shareholders’ equity/book value ratio, Sopaf’s monitoring of management activities through the presence of two representatives in the boards of directors of IMMSI and Piaggio, the Directors did not deem value adjustments for impairment to be necessary.
> Realisability of deferred tax assets and tax losses carried forward As at 31 December 2008, the company has deferred tax assets deriving from tax losses that may be carried forward for EUR 1 million (tax losses relating to 2007 equal to EUR 3.8 million) fully recognised in the financial statements. These prepaid taxes have been recognised, as it is deemed probable that sufficient positive taxable income will be realised to allow use of the amount entered as at 31 December 2008. The management recorded the value of the deferred tax assets up to the value for which it deems recovery to be probable, also taking into account the further deterioration of the assumptions provided for a medium-term time range and the fact that the net deferred tax assets set aside in this way, refer to temporary differences/tax losses that can be recovered within a time range that falls within that of the Group plan.
The forecasts are based on taxable income that may be generated with reasonable certainty in light of the 2009 budget, also taking into account some transactions which are currently under negotiation and which the Directors believe will be finalised during next year.
> Potential liabilities The Group is subject to legal and tax lawsuits and considering the inherent uncertainties, it proves difficult to foresee the outlay that these disputes may involve with any degree of certitude. The lawsuits and disputes arise from complex legal matters, which are subject to differing degrees of uncertainty, including the facts and circumstances inherent to each case. The Group ascertains a liability against these disputes when it deems a 2008 l as at 31.12. Statements financial outlay to be probable and when the amount of the ensuing losses can be reasonably estimated. In the event that a financial outlay becomes possible, but the amount cannot be determined, this fact is reported in the explanatory notes. Specifically, as illustrated in the Report on Operations, with regard to the investment in Delta S.p.A. the following legal proceedings involving Sopaf are pending: - a case brought by Sopaf before the Court of Bologna relating to cancellation of the resolution to increase the share capital of Delta S.p.A. passed on 6 August 2007 and related compensation of damages; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 166 - a case before the Court of Bologna brought by one of the shareholders of Delta S.p.A. relating to failure to perform the Delta S.p.A. shareholders’ agreements and related compensation of damages, quantified as EUR 15 million. As part of this dispute, Sopaf filed a counterclaim requesting that the plaintiff be sentenced to refund the defendant for the damage incurred in relation to failure to perform the shareholders’ agreement, the amount of which has been quantified as EUR 36 million. As the dispute has just commenced, it is not possible to predict the outcome at this stage.
> Changes in accounting estimates
Pursuant to IAS 8, these are recognised prospectively in the income statement from the financial year in which they are adopted.
> Adjustment of items of the previous financial statements
With regard to the income statement as at 31 December 2008 shown in these separate financial statements, during the year a number of reclassifications were made on the previous year’s statement in order to facilitate legibility. These reclassifications did not however affect the net result or the shareholders’ equity. Specifically, the amount of banking expenses, banking/factoring commissions classified last year under “Other operating costs” have been included in the items “Purchases of materials and external services” and “Financial charges” according to their nature, The corresponding figures for 2007 have not been shown as their amounts are negligible. l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 167 > Accounting standards, amendments and interpretations not yet applicable and not adopted in advance by the Group
On 30 November 2006, IASB issued the accounting standard IFRS 8 – Operating Segments, to be applied from 1 January 2009 and replacing IAS 14 – Segment Reporting. The new accounting standard requires the company to identify operating segments on the basis of internal reporting that is regularly reviewed by management for the purpose of allocating resources to the various segments and for performance analysis purposes. Adoption of this principle will have no effect on the valuation of items of the financial statements.
On 6 September 2007, IASB issued a revised version of IAS 1 – Presentation of Financial Statements to be applied from 1 January 2009. The new version requires that all changes generated by transactions with shareholders are presented in a statement of changes in shareholders’ equity. All transactions with third parties (comprehensive income) must instead be recorded in a single statement of comprehensive income or in two separate statements (income statement and comprehensive income statement). In any event, comprehensive income cannot be recorded in the statement of changes in shareholders’ equity. Adoption of this principle will have no effect on the valuation of items of the financial statements.
On 29 March 2007, IASB issued a revised version of IAS 23 – Financial charges to be applied from 1 January 2009. The new version of the standard has removed the option of immediate recognition in the income statement of financial charges incurred on assets for which a certain period of time must pass in order for them to be ready for use or for sale. The standard will be applied prospectively to financial charges relating to capitalised assets as from 1 January 2009.
On 10 January 2008, IASB issued an updated version of IFRS 3 – Business combinations, and amended IAS 27 - Consolidated and separate financial statements. The main changes to IFRS 3 regard elimination of the obligation to value individual assets and liabilities of a subsidiary at fair value at each subsequent acquisition, where subsidiaries are acquired gradually. In such cases goodwill will be calculated as the differential between the value of the investment immediately before acquisition, the transaction price and the net value of assets acquired. In addition, where a company does not acquire 100% of the investee, the minority interest share of shareholders’ equity can be valued either at fair value or using the method previously envisaged in IFRS 3. The revised version of the standard also envisages recognition in the income statement of all costs relating to a business combination and recognition as at the date of acquisition of contingent liabilities. In the amendment to IAS 27, however, IASB has established that changes in the holding that do not constitute a loss of control must be treated as an equity transaction and must therefore have a corresponding entry in shareholders’ equity. In addition, it is established that when a parent company transfers control of an investee but continues to hold an interest in that company, the investment is carried at fair value in the balance sheet and any capital gain or loss from the transfer of control is recognised in the income statement. Lastly, the amendment to IAS 27 requires that all losses attributed to minority interests are allocated to the minority interest shareholders’ equity, even when these amounts exceed their percentage interest in the investee share capital. The new rules must be applied prospectively as from 1 January 2010.
On 17 January 2008, IASB issued an amendment to IFRS 2 – Vesting conditions and cancellations, according to which, for the assessment of share-based payment instruments, only the service and performance conditions can be considered as plan vesting conditions. The amendment must be applied from 1 January 2009. Adoption of this principle will have no effect on the valuation of items of the financial statements.
Lastly it is reminded that the following IFRS interpretations and amendments have been issued which refer to
situations and cases present within the Group: 2008 l as at 31.12. Statements
• IFRS 5 – Non-current assets held for sale and discontinued operations: the amendment, which must be applied prospectively from 1 January 2010, establishes that if a company is engaged in a disposal plan that leads to loss of control over an investee, all the investee’s assets and liabilities must be reclassified as assets held for sale, even if after disposal the company will still hold an minority interest in the investee. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 168 • IAS 1 – Presentation of financial statements (revised in 2007): the amendment, which must be applied prospectively from 1 January 2009, requires assets and liabilities deriving from derivative financial instruments that are not held for trading to be classified in the balance sheet with distinction between current and non-current assets and liabilities. Adoption of this principle will have no effect on the valuation of items of the financial statements. • IAS 28 – Investments in associates: the amendment, which must be applied (even only prospectively) from 1 January 2009, establishes that in the case of investments valued by the equity method, any loss of value must not be allocated to the individual assets (and in particular to any goodwill) which make up the investment’s book value, but to the value of the investee as a whole. Hence, where the conditions for a subsequent write-back occur, the write-back must be fully recognised. • IAS 36 – Impairment of assets: the amendment, which must be applied prospectively from 1 January 2009, establishes that additional information must be provided if the company determines the recoverable value of the cash generating unit using the cash flow discounting method. • IAS 39 – Financial instruments: recognition and valuation: the amendment, which must be applied retrospectively from 1 January 2009, provides clarification on how to calculate the new effective rate of return of a financial instrument at the end of a fair value hedging relationship. It also clarifies that the restriction on reclassifying in the category of financial instruments with fair value adjustment of the income statement must not be applied to derivative financial instruments that can no longer qualify as hedging instruments or that instead become hedging instruments. • On 31 July 2008 IASB issued an amendment to IAS 39 – Financial instruments: recognition and valuation which must be applied retrospectively from 1 January 2010. The amendment clarifies application of the principle for definition of the underlying hedged item in specific situations. At the reporting date, the competent EU authorities have not yet concluded the authorisation process required for its application. • Improvement to IAS 28 – Investments in associates, and to IAS 31 – Investments in joint ventures: these amendments, which must be applied from 1 January 2009, establish that additional information must also be provided for investments in associated companies and in joint ventures carried at fair value according to IAS 39. Accordingly amendments were made to IFRS 7 – Financial instruments: additional information and to IAS 32 – Financial instruments: presentation in financial statements. • Improvement to IAS 40 – Investment property: the amendment, which must be applied prospectively from 1 January 2009, establishes that investment property under construction falls within the scope of application of IAS 40, rather than of IAS 16.
At the issue date of these financial statements, the Group is assessing the effects of adoption of these amendments.
Furthermore it is reported that amendments have been made to the IFRS with regard to IAS 16, IAS 19, IAS 20, IAS 23 and IAS 38, which govern situations and cases that are not currently present within the Group.
Lastly it should be mentioned that the following interpretations, which govern situations and cases not currently present within the Group, have been issued:
• IFRIC 13 – Customer loyalty programmes (applicable from 1 January 2009 and not yet authorised by the European Union); • IFRIC 15 – Agreements for the construction of real estate (applicable from 1 January 2009 and not yet authorised by the European Union); • IFRIC 16 – Hedges of a net investment in a foreign operation, which eliminates the option to apply
l Statements as at 31.12. 2008 l as at 31.12. Statements hedge accounting to exchange rate hedges on differences between the operating currency of the foreign investee and the presentation currency of the consolidated financial statements. The interpretation was issued on 3 July 2008 and must be applied from 1 January 2009. As at the date of these financial statements, the competent EU authorities have not yet completed the authorisation process required for its application.
In relation to the aforesaid documents no significant effects on shareholders’ equity and on profit for the period are reported. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 169 > Balance Sheet – Assets
> Non-current assets
> 4 Intangible assets This item totalled EUR 114 thousand, recording a decrease of EUR 43 thousand, as shown in the table below:
Proprietary Software Trademarks Total software licences
Values as at 01/01/2008 10 142 5 157
Changes in the period:
- acquisitions 5 47 4 56 - net disposals - - - - - reclassifications - - - - - amortisation/depreciation (8) (90) (1) (99) - write-downs - - - -
Total changes (3) (43) 3 (43)
Values as at 31/12/2008 7 99 8 114
Of which: - historical cost 51 270 10 331
- provision for amortisation/depreciation (44) (171) (2) (217)
Net book value 7 99 8 114
The item mainly includes investments in software and user licences.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 170 > 5 Property, plant and equipment This item totals EUR 2,296 thousand, recording a decrease of EUR 20,861 thousand, as shown in the table below which provides a breakdown of the item and the changes occurring in the year, with acquisitions of EUR 776 thousand, sales, net of the funds use, for EUR 21,153 thousand, and depreciation charges for EUR 484 thousand:
Land Building Leasehold General plant Furniture, Other assets Total improvemen electronic ts machines and equipment Cost as at 01/01/2008 11,226 8,202 1,760 2,654 56 23,898
Changes in the period:
- changes in the scope of consolidation ------acquisitions - 165 404 - 192 - 761 - increases in assets under finance leases - - - - 15 - 15 - disposals (165) - - (3) - (168) - disposal of financial leases (10,837) (7,452) - (1,699) (1,703) - (21,691) - reclassifications - (482) 482 - - - - - write-downs ------
Total changes (10,837) (7,934) 886 (1,699) (1,499) - (21,083) Total cost as at 31/12/2008 389 268 886 61 1,155 56 2,815
Provision for amortisation/depreciation as at - (202) - (126) (384) (29) (741) 01/01/2008 Changes in the period: - changes in the scope of consolidation ------acquisitions ------disposals - 265 - 182 259 - 706 - write-downs ------reclassifications - 9 (9) - - - - - amortisation/depreciation - (85) (56) (65) (264) (14) (484)
Total changes - 189 (65) 117 (5) (14) 222
Total provisions for amortisation/depreciation as at - (13) (65) (9) (389) (43) (519) 31/12/2008 Values as at 31/12/2008 389 255 821 52 766 13 2,296 of which under finance leases: - historical cost 389 268 - 61 122 - 840 - Depreciation and amortisation expense - (12) - (8) (24) - (44)
The decrease of EUR 20,861 thousand in property, plant and equipment mainly relates to the assignment of assets under finance lease. In the first half of 2008 Sopaf S.p.A. finalised the assignment of finance lease agreements previously entered into with Locat S.p.A. for properties and related furnishings situated in Foro Buonaparte, Milan at the registered offices of the Parent Company Sopaf S.p.A., which resulted in a total capital gain of EUR 16,864 thousand.
These transactions were finalised as at 30 June 2008 and involved: • 3 agreements on the real estate with an original contractual value of EUR 17,038 thousand, redeemed by the assignee. The overall amount of the assignment was EUR 21,660 thousand which, against a book value of EUR 19,412 thousand and a financial liability of EUR 13,543 thousand, resulted in capital gains of EUR 15,791 thousand; • 19 agreements on fixtures and fittings for a total original contractual value of EUR 1,703 thousand, l Statements as at 31.12. 2008 l as at 31.12. Statements taken over by the assignee. The amount of the assignment was EUR 1,505 thousand which, against a book value of EUR 1,444 thousand and a financial liability of EUR 1,012 thousand, resulted in capital gains of EUR 1,073 thousand.
The most significant increases concerned: • improvements to third party assets made after completion of the renovation works on the property in Foro Buonaparte first held under finance lease and then (from 1 July 2008) under lease; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 171 • office furniture and fittings for stipulation of a further finance lease agreement upon completion of the furnishing of the area to be used as offices; • electronic office equipment following acquisitions aimed at completing upgrade of the IT systems and data transmission network, also required by full implementation of the complex project to overhaul the offices in Foro Buonaparte 24, for the most part completed in 2008 but continued in 2009 with a series of further improvements decided by management.
> 6 Investments These total EUR 131,295 thousand, posting a decrease of EUR 37,532 thousand, as shown in the table below:
31/12/2008 31/12/2007 Investments in subsidiaries 27,788 77,317 Investments in associated companies and joint ventures 103,507 91,510 131,295 168,827
> Investments in associated companies
These stand at EUR 27,788 thousand, posting a net decrease of EUR 49,529 thousand, as shown in the table below:
31/12/2007 Increases Decreases Write-downseclassifications 31/12/2008 Investments in subsidiaries Adenium Sicav - 300 (300) - - - Cutter S.àr.l. (wound up) 50 - (50) - - - Vintage Holdings S.àr.l. - 10 (10) - - - LM&Partners SCA (wound up) 52,221 - (52,221) - - - Life Science Capital S.p.A. 5,000 1,468 - - (6,468) - PWM SGR S.p.A. (merged by incorporation 3,826 855 - - (4,681) - Sopaf Asia S.àr.l. - 11 - - - 11 Sopaf Capital Management SGR S.p.A. 3,860 910 - - 4,681 9,451 Tenerani S.r.l. 100 - (100) - - - Tergeste Fondo Immobiliare 12,260 8,000 (211) (1,723) - 18,326 Vintage General Partner S.àr.l. - 10 (10) - - - 77,317 11,564 (52,902) (1,723) (6,468) 27,788
With regard to the corporate reorganisation project undertaken earlier by the Parent Company the following corporate transactions were performed:
• closure by the liquidator, on 18 December 2008, of the process to liquidate the subsidiary LM&Partners S.c.a. commenced in 2006, with assignment to the sole shareholder Sopaf S.p.A. of assets worth EUR
52,224 thousand and liabilities worth EUR 602 thousand, with shareholders’ equity equal to EUR 51,622 thousand which, compared with the investment’s book value of EUR 24,981 thousand, allowed Sopaf to realise a capital gain of EUR 26,641 thousand. The book value of EUR 24,981 thousand is net of the previous assignments of assets which occurred in 2008, such as the advances on liquidation, which concerned investment assets worth EUR 5,240 thousand (Green Bit EUR 240 thousand and China Opportunity EUR 5,000 thousand) and EUR 22,000 thousand in cash and cash equivalents; • closure by the liquidator, on 9 September 2008, of the process to liquidate the subsidiary Cutter S.a.r.l., with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 1,521 thousand and liabilities
worth EUR 511 thousand, with shareholders’ equity equal to EUR 1,010 thousand which, compared 2008 l as at 31.12. Statements with the investment’s book value of EUR 50 thousand, allowed Sopaf to realise a capital gain of EUR 960 thousand; • merger by incorporation of the subsidiary PWM Sgr S.p.A. into Sopaf Capital Management Sgr S.p.a., deliberated the Boards of Directors of the two companies on 27 March 2008 for the purpose of allowing the Group to streamline hedge fund management activities under a single product company, and enforced with public deed dated 9 December 2008 with economic/accounting effects from 16 December 2008. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 172 Some further details are provided on the main changes occurring during 2008:
• between June and July 2008 Sopaf S.p.A. subscribed its portion of a share capital increase for the subsidiary Life Science Capital S.p.A. (formerly LM LS S.p.A.) to support new investment initiatives in the biomedical sector, for an amount equal to EUR 1,468 thousand. The company’s shareholders’ equity, inclusive of the share premium reserve, totals EUR 8.7 million. The investment was subsequently reclassified as a held-for-sale asset as it was the subject of a future assignment transaction (as reported in events after 31 December 2008); • on 16 December 2008 the merger by incorporation of PwmSgr.S.p.a. into Sopaf Capital Management Sgr.S.p.a. was enforced and hence the value of the investment in Pwm Sgr S.p.a. was cancelled, while the value of the incorporating company Sopaf Capital Management Sgr S.p.a. was increased by the same amount. It is reminded that during January and February 2008 Sopaf S.p.A. had finalised acquisition of the minority interests of the share capital of Pwm Sgr, equal to 23.36%, for a total outlay of EUR 813 thousand. Furthermore, during the year Sopaf S.p.A. made a payment of EUR 910 thousand to future increases in the share capital of the subsidiary Sopaf Capital Management Sgr.S.p.a. • on 18 July 2008 the investment in Tenerani S.r.l. was sold generating a capital loss of EUR 40 thousand; • during the year Sopaf S.p.A. subscribed 23 units of Fondo Tergeste with a total outlay of EUR 8,000 thousand to finance a number of real estate transactions. During 2008 EUR 211 thousand was refunded to the shareholder. Furthermore, at year end Sopaf S.p.A. wrote down the investment, by EUR 1,723 thousand on the basis of the fund’s NAV which had considered an assessment of an independent expert which led to the write-down of a property held in the fund’s portfolio.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 173 > Investments in associated companies and joint ventures
This item totals EUR 103,506 thousand, posting a net increase of EUR 11,997 thousand, as shown in the following table:
31/12/2007 Increases Decreases Write-downseclassifications 31/12/2008 Investments in associated companies Area Life International Assurance Ltd 8,385 1,611 - - - 9,996 ASM Lomellina Inerti S.r.l. 30 - - - - 30 Aviva Previdenza S.p.A. - 15,436 (551) - - 14,885 Banca Network Investimenti S.p.A. 19,841 6,188 - (4,729) - 21,300 China Opportunity S.A. Sicàr - 9,180 - - - 9,180 Essere S.p.A. 2,051 3,109 - (1,547) (3,613) - Five Stars S.A. 70 - - - - 70 Petunia S.p.A. 39,931 10,412 - (10,069) - 40,274 Polis Fondi SGR p.A. 7,729 - - - - 7,729 PWM AIGGIG Multimanager Fund 12,979 - (12,979) - - - S.F.E.R.A. S.r.l. 494 376 - - (870) - Sopaf&Partners RE-Investment S.r.l. - 40 - - - 40 Volare Group S.p.A. (in receivership) ------Sun System S.p.A. - 2,606 - (2,606) - Westindustrie S.r.l. - 2 - - - 2 91,510 48,960 (13,530) (16,345) (7,089) 103,506
Some information is provided on the main changes in the investments during 2008:
• on 6 November 2008 Sopaf S.p.A. made a payment for a future increase in the share capital of the associate Area Life Int.Ass. Limited of EUR 1,607 thousand; • on 11 January 2008 Sopaf and Aviva Italia Holding S.p.A. finalised acquisition from Finoa S.r.l. of 100% of the share capital of Aviva Previdenza S.p.A.; Sopaf S.p.A. acquired a 45% share for a total consideration of EUR 15,436 thousand. The dividend for the year 2007, paid to shareholders in 2008, equal to EUR 551 thousand, was recorded as a decrease in the cost of the investment; • on 19 August 2008 Sopaf S.p.A. participated in the share capital increase deliberated by the shareholders’ meeting of Banca Network Investimenti S.p.A. held on 29 April 2008 with a payment of EUR 2,996 thousand. On 30 December 2008 Sopaf S.p.A. made a further payment of EUR 2,248 thousand for a future increase in the share capital. Furthermore, as the “price adjustment” agreements with Banca Popolare parametered to the total assets under management were still in force and after verification that the three-year plan approved by the bank and used for the purpose of performing the impairment test satisfied this clause, the investment was increased at year end by EUR 944 thousand as balancing entry of the liability entered under other liabilities.With regard to the value of the investment, considering the negative results posted by the investee and the reorganisation plan underway, an impairment test was carried out, supported by a survey performed by an external assessor appointed by Petunia S.p.A. Determination of the value in use is based on the recoverable value determined with the cash flows available to the shareholder with the following assumptions: 1. Analysis of the economic value is based on the economic/financial forecasts for the 2009/2011 period prepared on the basis of the three-year business plan, drawn up with the assistance of an advisor and approved on 20 February 2009 by the company’s Board of Directors. In the basic assumption used in the analysis, the plan provides for an improvement in BNI’s profitability and its consequent return to profit as a result of two main strategic actions: – review of the network incentive and loyalty system, which would lead to a reduction in costs thanks
to the introduction of a new bonus system linked to the achievement of set targets and thanks to the 2008 l as at 31.12. Statements extension of the financial advisors’ loyalty period; – obtaining the mandate for management of the SICAV, which would lead to additional revenues in terms of performance and management commissions on the SICAV’s total assets. 2. As the valuation was performed using the Dividend Discount Model, the company’s economic value arises from discounting of a flow of dividends determined by taking into account the minimum capital restrictions imposed by the Supervisory Authority. 3. The main assumptions used to determined the value in use were the following: Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 174 – a cash flow growth rate beyond the plan period (“g”) of 2%, equal to the scheduled inflation rate; – reference K(e): 10.46%
The k(e) was in turn determined using the following values: − Sector’s financial structure: absence of borrowings − Risk free rate (BTP 10Y): 3.8% − Sector beta: 0.933 − Equity market risk premium: 5% − Market risk premium: 4.67% − Additional risk: 2%
The outcome of the analysis highlighted the need to record a total impairment of EUR 14,798 thousand, of which EUR 4,729 thousand attributed directly to the investment in Banca Network Investimenti S.p.A. and 10,069 indirectly through write-down of the investment in Petunia S.p.A.
In order to estimate the recoverable value of the investment entered in the balance sheet the Directors had to use hypotheses, assumptions and estimates. Determination of the economic value is in fact based on the use of future economic and financial projections for the 2009-2011 period. However it must be remembered that, because of the uncertainty associated with the occurrence of any future event, both in terms of whether it will actually take place and when and to what extent it will occur, the variances between the actual values and the forecasts could be significant, even when the events foreseen in the hypothetical assumptions used to draw up the economic and financial projections occur. Hence the company cannot guarantee that an impairment will be experienced in future periods. In fact, various factors linked also to developments in the difficult market context could require redetermination of the value of the investment. The circumstances and events that could lead to further verification of impairment will be constantly monitored by the company. As required by the reference accounting standards a sensitivity analysis was also performed on the two input assumptions listed above (i.e. the “g” rate and the expected earnings set forth in the plan) and processing the data for the two alternative extreme scenarios we obtain: − g= -1% (greater impairment for Banca Network Investimenti (also through Petunia S.p.A. - equal to a total of EUR 5.8 million) − Expected earnings: -5 % (greater impairment for Banca Network Investimenti - also through Petunia S.p.A. - equal to a total of EUR 3.2 million).
• on 6 August 2008 Sopaf participated in the capital increase deliberated by the Board of Directors of China Opportunity S.A. Sicar subscribing 2,302 class B shares for an outlay of EUR 2,669 thousand, as the liquidator of LM&Partners SCA (the company holding the China Opportunity shares) had requested succession to exercise of the rights of the wholly owned subsidiary, in view of its imminent final liquidation. Furthermore the liquidator also ordered transfer of the company’s class B shares to Sopaf S.p.A. (on which the rights relating to the aforesaid capital increase had accrued), through a partial distribution of liquidation proceeds, equal to 5,000 class B shares for an invested value of 5,000 thousand. Then following wind-up of the wholly owned subsidiary Cutter S.a.r.l., on 12 September 2008, the company’s class A shares, with a book value of EUR 480 thousand were assigned to Sopaf S.p.A. Lastly in December 2008, as Sopaf S.p.A. had acquired the Cutter class A shares with associated right to subscribe to an increase in capital of the class B shares at par value, it subscribed 870 class B shares for a value of EUR 16 thousand at the same time increasing the cost of the investment by a value equal to the credit assigned at the time of Cutter’s wind-up (EUR 1,014 thousand) and equal to the differential between the par subscription value and the company’s last available NAV; l Statements as at 31.12. 2008 l as at 31.12. Statements • the investment in Essere S.p.A. underwent various changes during the year: − on 26 March 2008 and 26 May 2008 Sopaf S.p.A. made capital account payments totalling EUR 1.7 million to the investee to cover losses recorded as at 31 December 2007 and as at 31 March 2008 and to re-establish capital; − on 3 August, at the deadline established by the shareholders’ meeting held on 24 June 2008 which had deliberated to re-establish the capital at EUR 600,000 to be offered under option to shareholders in proportion to their respective investments, Sopaf reached 81.87% of the share Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 175 capital of Essere S.p.A., becoming its controlling shareholder and therefore reclassifying the investment under subsidiary companies; − on 8 October Sopaf S.p.A. acquired a further 10.13% of the share capital of Essere from third party investors for EUR 175 thousand, increasing its investment from 81.87% to 92%; − on 16 October and 12 November, the Board of Directors of Sopaf S.p.A. deliberated on a project to enhance the value of the investee which could be finalised through extraordinary transactions on the company’s share capital. The directors therefore decided to reclassify the investment in the category “Assets held for sale”; − lastly, in the last quarter, following resolution passed by the shareholders’ meeting on 24 June 2008 which approved an increase in the share capital of Essere S.p.A. from EUR 600 thousand to EUR 2,000 thousand to be offered under option to shareholders with expiry 31 December 2008, Sopaf paid in a total of EUR 1.2 million; − as at 31 December 2008 the investment’s book value is lower than its recoverable value.
• as outlined with regard to the changes in the investment in Banca Network Investimenti, Sopaf capitalised the associate Petunia S.p.A. for a total of EUR 10,412 thousand so that Petunia S.p.A. could participate proportionally to its shareholding in the capital increase of BNI and subsequent payment for a future capital increase. Furthermore, as specified for the changes in Banca Network, Petunia also subjected the investee BNI to impairment test on the basis of the assumptions outlined in the previous paragraph. The outcome of the test showed that it was necessary to write down the investment by EUR 10,069 thousand ; • during the year Sopaf S.p.A. finalised its disinvestment from the hedge fund of funds PWM AIGGIG Multimanager Fund, managed by the subsidiary Private Wealth Management SGR in partnership with AIG Global Investment Group (asset management company of the US insurance Group AIG). In November 2008 redemption of the units was completed generating capital losses for Sopaf S.p.A. of EUR 562 thousand; • during the year Sopaf S.p.A. subscribed an increase in the capital of Sfera S.r.l. by EUR 376 thousand. At year end this investment was reclassified among “held-for-sale assets” as it is destined for sale within the next twelve months; • on 27 February 2008 the company Sopaf & Partners RE-Investment S.r.l. was set up with Sopaf S.p.A. holding an investment of 40% through a EUR 40 million contribution to the share capital. The company’s purpose is to perform investment and disinvestment transactions in the real estate segment, including through the acquisition and disposal of investments in other companies or entities; • in March 2008 Sopaf S.p.A entered the shareholding structure of Sun System S.p.A, having subscribed 15.94% of the share capital through subscription to a reserved share capital increase by an amount equal to EUR 2.5 million. Sun System S.p.A. is a company operating throughout the country in the renewable energy sector, constructing photovoltaic plants. Following the signing of shareholders’ agreements with the other shareholders this investment was classified under investments in associated companies. As at 31 December 2008 the directors decided to reclassify the investment in the category “held-for-sale assets” as the investee is currently undergoing an enhancement project that should be completed next year with extraordinary transactions on the company’s share capital.
> 7 Financial assets This item totalled EUR 107,933 thousand, posting a decrease of EUR 23,383 thousand, as shown in the following table:
31/12/2008 31/12/2007
Available-for-sale financial assets 97,338 129,690 2008 l as at 31.12. Statements Bonds 856 792 Loans and receivables 9,240 272 Guarantee deposits and other financial assets 499 562 107,933 131,316
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 176 > Available-for-sale financial assets
This item has undergone the following changes:
31/12/2007 Increases Decreases ges in fair value Write-downseclassifications 31/12/2008 Blue H Technologies BV - 160 - - - - 160 Coronet S.p.A. ------Conafi Prestitò S.p.A. 4,004 345 - (2,880) - - 1,469 Delta S.p.A. 96,000 - - (16,000) - - 80,000 Demofonte S.r.l. 703 - - - - - 703 Ezechiele Ltd. 47 2 (49) - - - - FIP - Fondo Immobili Pubblici 19,017 - (19,017) - - - - Formula Sport Group S.r.l. (in liquidation) ------Green Bit S.p.A. - 241 - - - - 241 IGI Investimenti Quattro Fondo - 361 (17) (32) - - 312 Immsi S.p.A. - 4,479 - (2,081) - - 2,398 Industria degli Invest. FCB S.p.A. (in liquid'n) ------Leisure Link Ltd. ------Management&Capitali S.p.A. 3,664 12,822 (16,486) - - - Newman Lowther & Associates call option 322 - - - - - 322 Nova Fronda S.r.l. - 1,693 - - (193) (1,500) - Noventi Ventures II LP 146 141 (2) (4) - - 281 Parc Eolien De S.Riquier 16 - (16) - - - - Raffaele Caruso S.p.A. 101 - (101) - - - - Sadi Servizi Industriali S.p.A. 4,945 - (259) (3,323) - - 1,363 Tessitura Pontelambro S.p.A. 344 - (344) - - - - The Infrastructure&Growth Capital Fund - 7,105 (973) (848) - - 5,284 Valore by Avere Asset Management SCA - 2,488 - (88) - - 2,400 Value Secondary Investments Sicàr SCA 381 314 (119) (114) - - 462 Vintage Fund Sicav-Sif - 2,155 - (212) - - 1,943 129,690 32,306 (37,383) (25,582) (193) (1,500) 97,338
Some information is provided below on the main changes in investments classified as available-for-sale financial assets:
• on 30 January 2008 in an extraordinary meeting the shareholders of Coronet S.p.A. resolved the wind- up and liquidation of the company after having deliberated to reduce the share capital from EUR 19 million to EUR 1 million to cover losses realised as at 30 June 2007 and losses recorded in the balance sheet as at 31 December 2007. On 24 July 2008 the shareholders’ meeting of Coronet S.p.A. (then in liquidation) resolved to write-off the share capital to partially cover the losses as at 30 April 2008 and to re-establish the share capital at EUR 2 million with share premium, also revoking the company’s state of liquidation. As Sopaf S.p.A. did not participate in re-establishment of capital by 31 August 2008, it definitively cancelled its investment, which had already been entirely written down; • during January 2008 Sopaf acquired 16,423 Conafi Prestitò S.p.A. shares for a value of EUR 345 thousand. The market price as at 31 December 2008 was 30% lower than its historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 3,344 thousand; • as already outlined in the Report on Operations, on 22 August Sopaf informed Delta S.p.A. of the exercise of its right of withdrawal for 16,967,900 shares pursuant to Articles 2437, sub-section 1, letter a) of the Italian Civil Code and, following the company’s denial of the right, a motion was filed to defend its rights before the Court of Bologna, the final outcome of which is not yet known. Hence, as illustrated in the paragraph “Key transactions completed in 2008”, in order to represent the company’s fair value as at 31 December 2008, the directors of Sopaf considered the appraisal proved by two l Statements as at 31.12. 2008 l as at 31.12. Statements qualified independent professionals. The assessment of the fair value is based on the market value arising from similar transactions as no information is available to estimate the value in use (expected financial flows). The valuation method selected is based on the application of market multiples of comparable listed companies (stock exchange multiples method) and of multiples inferred from public information concerning trading performed outside regulated markets and involving shares of sector companies (comparable transactions method). It is specified that with regard to the recent transaction (January 2009) on Delta’s capital concerning the assignment of 13.29% of the capital held by Banco Popolare for EUR 44 million, this transaction was not taken as reference in determining the value of the Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 177 shares held by Sopaf, as the valuers consider the price to have been affected by the changed strategies of Banco Popolare, which over the last year has undertaken various initiatives to dispose of non-strategic assets, especially in the consumer credit segment where, in the last two years, it disposed of another two investments that were more significant than the one held in Delta S.p.A., and namely Linea and Ducato, signing a joint venture agreement with Credit Agricole to promote the consumer credit activities concentrated in Agos. Further details can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”; • on 31 March 2008 Sopaf S.p.A. sold 128 class A units of the closed-end real estate fund FIP- Fondo Immobili Pubblici to third party investors, generating capital gains of EUR 1,278 thousand; • the investment in Green Bit S.p.A. worth EUR 241 thousand was assigned to Sopaf S.p.A. as part of the process to conclude liquidation of LM&Partners Sca; • on 29 September Sopaf S.p.A. bought off 20 units of the private equity fund Igi Investimenti Quattro from third party investors with an outlay of EUR 344 thousand and a total subscription commitment of up to EUR 1,000 thousand; • on 31 January 2008 Sopaf S.p.A. purchased 3,445,585 Immsi S.p.A. shares for EUR 4,479 thousand. As at 31 December 2008 the market value was 30% lower than the historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 2,081 thousand; • during the first part of the year Sopaf S.p.A. finalised acquisition from its own indirect associate Beven Finance S.a.r.l. of 14,999,970 Management & Capitali S.p.A. shares for a value of EUR 10,725 thousand and purchased on the market 2,846,765 shares for a value of EUR 2,097 thousand. A series of assignments were also made involving 3,400,000 of the same shares, generating capital gains of EUR 348 thousand. With regard to the remaining 19,397,468 shares, on 13 June 2008 Sopaf S.p.A provided notice, pursuant to and for the purposes of Articles 2437 and 2437–bis of the Italian Civil Code and following amendments to the by-laws approved by an extraordinary meeting of the company’s shareholders held on 15 May 2008, of exercise of its right of withdrawal, which allowed Sopaf to be refunded on 1 October 2008 with a capital gain of EUR 492 thousand; • the recognition value of Newman Lowther & Associates Ltd , equal to EUR 322 thousand, represents the component relating to the call option to which Sopaf is entitled following its subscription to the convertible bond loan issued by the South African company, as outlined below; • on 15 October 2008 Sopaf S.p.A., Nova Fronda S.r.l. and another investor signed an investment agreement that led to the subscription of 25% of the share capital of Nova Fronda S.r.l. The transaction involved a total outlay of EUR 1,693 thousand. Following Sopaf S.p.A.’s exercise of its right of withdrawal formally notified on 29 January 2009, the investment was reclassified under assets held for sale with write-down of the financial asset by EUR 193 thousand classified in the item “Write- downs/write-ups of investments”; • between the months of March and July 2008 Sopaf S.p.A. entirely subscribed its $10 million commitment in the private equity Infrastructure and Growth Capital Fund managed by Abraaj Capital, a leading infrastructural investment company in the MENASA region (Middle East, North Africa and South-East Asia), with $4 billion worth of assets under management. On 7 August 2008 the fund paid Sopaf S.p.A. $1.5 million by way of partial refund of the subscription as the fund had collected extraordinary cash from a transaction involving disposal of an investee. As at 31 December 2008 the investment in the fund recorded a negative adjustment to the NAV for the year of EUR 848 thousand and a positive exchange difference of EUR 748 thousand;
• as at 31 December 2008 Sopaf still holds 2,350,357 Sadi Servizi Industriali S.p.A. shares. The market 2008 l as at 31.12. Statements price as at 31 December 2008 was 30% lower than the historical cost and the directors therefore performed an impairment test to verify if the loss in value recorded at year end may be considered lasting or if it is exclusively linked to the generalised current financial markets crisis. Information on the impairment test can be found in the paragraph “Main sources of uncertainty in performing financial statement estimates”. As at 31 December 2008 the fair value reserve is negative by an amount of EUR 2,754 thousand; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 178 • following liquidation of LM & Partners SCA, Sopaf entered under financial assets a share of the real estate fund Valore By Avere Asset Management SCA, a fund which performs the purchase and sale of real estate in the Berlin area; • on 31 July 2008, as part of the industrial investment rationalisation strategy launched by Sopaf S.p.A. during 2007, the Sopaf Group sold four industrial investments to a newly established foreign fund entitled “Vintage Fund”. The initial investors were Paul Capital Partners IX, L.P. (a US private equity fund) and Sopaf S.p.A. with an investment equal to 5% of the fund for a total commitment of approximately EUR 2,155 thousand. The fund acquired from Sopaf S.p.A. 28.9% of Aft S.p.A.; the remaining investments (28.4% of Green Bit S.p.A., 26.5% of Sila Holding Industriale S.p.A. and 24.7% of Res Finco Ag) were acquired by Lm & Partners Sca (liquidated). As at 31 December 2008 the investment in the fund recorded a negative adjustment to NAV for the year of EUR 212 thousand.
> Impairment tests on available-for-sale financial assets As required by the IFRS standards available-for-sale financial assets were subject to impairment test to verify whether there is objective evidence to suggest that the entry value of the assets may not be fully recoverable. The process for detecting impairment involves verification of the presence of impairment indicators and determination of any write-down. The impairment indicators identified by the directors can essentially be divided into two categories: indicators deriving from internal factors pertaining to the company under valuation, and hence of the qualitative kind, and external indicators deriving from the company’s market values (only in the case of listed securities). The presence of an impairment indicator internal to the issuer and of a market price that is lower by over 30% or for a period of more than 12 months than the initial recognition value leads to recording of an impairment. In other cases recording of the impairment must also be corroborated by the outcome of specific analysis relating to the security or the investment. The extremely negative performance of the financial markets during 2008 caused various listed securities to show impairment indicators, linked to their respective market prices, When such indicators are found it proves necessary to carry out a “fundamental” valuation of the company. The methods adopted are based on market criteria or on the discounting of expected financial flows, for the purpose of quantifying the impact on the valuation of the security, where internal impairment indicators are present, or confirming the relevance of the values inferred from market prices, where impairment indicators arise from financial markets. Even in the case of listed securities for which stock exchanges prices have fallen sharply, it is still deemed necessary to verify any objective evidence of impairment. Share prices can represent the best valuation of fair value in normal and efficient financial market conditions (and in these conditions valuations based on the company’s fundamental values normally tend to converge). However this is not the case in situations of market turmoil or conditioned by strong speculative factors based on short-term trading logics which as such are in conflict with the purpose of the impairment test which must also involve medium-to-long term analysis to detect impairment that is not deemed recoverable within a reasonable period of time. For these reasons, the indicators of impairment deriving from the market prices of individual securities are also considered in terms of their relation to the general performance of the market in which the security is listed and to the company’s assets. In any case they are always linked to a “fundamental” valuation of the security. The analyses performed, described for the investment in Delta S.p.A. and for the listed shares of Conafi Prestitò, Immsi S.p.A. and Sadi S.p.A. in the paragraph “Main sources of uncertainty in performing financial statement estimates” did not lead to the need to perform value adjustments.
> Bonds
31/12/2007 Increases Decreases 31/12/2008 l Statements as at 31.12. 2008 l as at 31.12. Statements Newman Lowther & Associates 792 64 0 856 Total securities 792 64 0 856
This item refers to the subscription, during 2006, by EUR 1 million, of a convertible bond loan redeemable in 2011 issued by the South African company Newman Lowther & Associates Ltd., which carries on financial consulting. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 179 In the event of conversion into shares, Sopaf S.p.A. will be entitled to 30% of the current share capital. The bond should yield a coupon equal to 43% of the distributed dividend. The amount entered in this item represents the loan component of the financial instrument. As reported above, the Sopaf S.p.A. call option component implicit in the financial instrument of the bond issue, equal to EUR 322 thousand, is classified among available-for-sale financial assets.
> Loans and receivables
This item includes loans and receivables with breakdown as follows:
31/12/2008 31/12/2007 Loans to subsidiaries Tenerani S.r.l. - 100 Loans to associated companies China Opportunity S.A. Sicàr 4,896 - Nearco Inv. S.àr.l. - 22 S.F.E.R.A. S.r.l. - 15 Sopaf&Partners RE-Investment S.r.l. 4,006 - Other loans Other loans 338 135 Total loans and receivables 9,240 272
Other financial assets 10 Guarantee deposits 489 562 Total guarantee deposits and other financial assets 499 562
The item “Loans to Associated Companies” includes the performance fees accrued by Sopaf on the investment China Opportunity Sa.Sicar for EUR 4,896 thousand (as holder of class A shares which accrue rights to subscribe class B shares at par value in proportion to the company’s performance) and interest-bearing loans granted to Sopaf& Partners RE Inv. S.r.l. for a total of EUR 4,006 thousand to be used partly for acquisition of a property/hotel complex in Capri, through establishment of the company Tiberio S.r.l., which is 20% owned by Sopaf & Partners Re S.r.l., and partly to support new transactions.
The item “Other loans”, of EUR 338 thousand, refers to a term deposit held at a leading bank (to secure a tax payment request relating to the investment formerly held in Codis S.p.A., with regard to which an appeal by the Inland Revenue pending before the Court of Cassation, the last stage of appeal undertaken by the authority despite the rulings in favour of Codis S.p.A. issued in the first two stages of proceedings) and a receivable due from Cassa di Risparmio di San Marino for EUR 234 thousand, relating to withholdings on capital income that were not refunded by the bank; the receivable has been discounted by EUR 30 thousand;
The item “Guarantee deposits” concerns a deposit of EUR 560 thousand paid by the incorporated company LM Real Estate S.p.A. to the company Osram S.p.A. relating to a preliminary sale agreement entered into on 15 May 2003 on a joint-venture basis (50%) with Jargonnant Partners S.r.l. for purchase for a total price of EUR 11,200 thousand of land and the building built on it in Via Savona, 105, Milan. At present the real estate transaction has not been finalised due to default of the counterparty. Accordingly LM Real Estate S.p.A., acting with Jargonnant Partners S.r.l., commenced a legal dispute to recover the earnest money and to be compensated for the damages
incurred. At the moment the proceedings are in the preliminary stage as the magistrate has requested a court 2008 l as at 31.12. Statements survey to quantify the damage suffered by LM Real Estate S.p.A. (incorporated into Sopaf) and by Jargonnant Partners S.r.l. The receivable has been discounted on an estimated period of 3 years by EUR 72 thousand.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 180 > 8 Tax credits This item totals EUR 4,397 thousand, posting a decrease of EUR 13,679 thousand, as shown in the following table:
Tax credits beyond 12 months 31/12/2008 31/12/2007 Requ. reimb. of IRPEG tax credits and interest t'ferred to factoring 4,362 4,352 Requ. reimb. of IRPEG tax credits t'ferred to third parties - 10,329 Interest on IRPEG credits t'ferred as collateral to third parties - 3,355 Other tax credits 35 40 4,397 18,076
The item “Requ. reimb. of IRPEG tax credits and interest” concerns tax credits for which reimbursement was requested for 1998 and 2001 (totalling EUR 3,516 thousand) and related interest (of EUR 836 thousand), assigned in March 2007 to a finance company through a factoring transaction without recourse. As the requirements of IAS 39 have not been met in full for the purpose of derecognition of this item, it has been retained in the balance sheet with a corresponding payable towards the factor. See note 18.
The item “Requ. reimb. of IRPEG tax credits transferred to third parties”, concerns the IRPEG tax credit for the year 1997, (equal to EUR 10,329 thousand) with related interest (equal to EUR 3,355 thousand), assigned to third parties to secure credit lines granted, reclassified under current assets as refund from the tax authorities is scheduled in 2009.
> 9 Prepaid taxes The item breaks down as follows:
31/12/2008 31/12/2007
Prepaid taxes 3,951 8,191 Deferred tax liabilities (1,832) (2,966) 2,119 5,225
Prepaid tax assets mainly arise from:
• EUR 1,064 thousand, from valorisation of the future benefit deriving from use of previous tax losses carried forward relating to the year 2007, equal to EUR 3,871 thousand, and unused as at 31 December 2008.It is reported that in 2008 tax losses were used by EUR 35,690 thousand corresponding to a release of prepaid taxes of EUR 9,815 thousand. These prepaid taxes have been recognised considering the probability that future taxable income will be realised against which the amounts entered as at 31 December 2008 can be used. The forecasts are based on expectations concerning Sopaf’s capacity to generate income over the coming years; • EUR 1,653 thousand from temporary differences relating to the negative adjustment of the fair value of investments valued at year end with this criterion.
Deferred tax liabilities mainly refer to:
• EUR 1,134 thousand to the convertible bond issue insofar as, at the time of the bond’s release, the fair value of the debt component was determined using the market price of an equivalent non-convertible
l Statements as at 31.12. 2008 l as at 31.12. Statements bond; the amount of such deferred tax liabilities represents the tax component relating to the cost items of the bond issue that will be amortised during its life; • EUR 679 thousand to the future tax burden relating to the positive adjustment of the fair value of investments valued at year end with this criterion.
We also remind that with notice submitted to the tax authorities on 13 June 2008, in its capacity as consolidating company, Sopaf S.p.A. adhered to the national tax consolidation regime, referred to in Articles 117 and thereafter of the Consolidated Income Tax Law, with the consolidated subsidiaries Sopaf Capital Management Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 181 Sgr S.p.A. and Private Wealth Management Sgr S.p.A. (merged in December 2008 by incorporation into SCM Sgr S.p.A.).
The table below provides a summary of prepaid and deferred taxes:
31/12/2008 31/12/2007
Total temporary Total temporary differences Tax effect differences Tax effect
Leased assets 10 3 292 94 Directors' fees 266 73 1,094 301 Provisions for risks and charges 807 261 807 261 Provision for write-downs 2,361 649 1,084 298 Tax losses 3,871 1,064 24,822 6,826 Intangible assets 34 11 115 37 Amortised bank charges 40 13 77 25 Amortised factoring charges 12 3 14 4 Tax credits transferred to factoring 799 220 790 217 Write-downs 1,722 474 0 0 Total effect on income statement 9,922 2,771 29,095 8,063 Fair value adjustments 4,290 1,180 465 128 Total prepaid taxes 14,212 3,951 29,560 8,191
Leased assets (4) - (28) (12) Convertible bond loan (4,124) (1,134) (5,267) (1,448) Discounting of employee severance indemnity 4 1 4 1 Amortised cost of loans (21) (6) (50) (13) Bonds (50) (14) (114) (31) Release of fair value reserves to income statement 0 0 0 (7) Total effect on income statement (4,195) (1,153) (5,455) (1,510) Fair value adjustments (2,470) (679) (59,576) (1,456) Total deferred taxes (6,665) (1,832) (65,031) (2,966) Net prepaid/(deferred) taxes: 7,547 2,119 (35,471) 5,225
Temporary differences excluded from prepaid/deferred tax calculations: Tax losses carried forward - - 14,739 4,053 Other adjustments - - - - Temporary differences excluded from prepaid/(deferred) tax calculations - - 14,739 4,053
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 182 > Current Assets
> 10 Trade receivables and other commercial assets The item totals EUR 976 thousand, posting an increase of EUR 195 thousand, as shown in the attached table:
31/12/2008 31/12/2007
Receivables from subsidiaries/associated companies 910 676 Sundry trade receivables 66 105 976 781
Specifically the item “Receivables from subsidiaries/associates” essentially concerns services provided by the Parent Company pursuant to service and property lease agreements.
> 11 Other receivables and other current assets This item totals EUR 20,153 thousand, posting an increase of EUR 6,744 thousand, as shown in the following table:
31/12/2008 31/12/2007 Requ. reimb. of IRPEG tax credits t'ferred as collateral to third parties 10,329 - Interest on IRPEG credits t'ferred as collateral to third parties 3,640 - VAT credits 147 2,391 Other tax credits 1,580 2,065 Sundry receivables from subsidiaries - 340 Sundry receivables from associated companies 30 38 Receivables on acquisition cost of investments 350 - Other receivables 3,982 8,482 Prepayments and accrued income 95 93 20,153 13,409
The item “Requ. reimb. of IRPEG tax credits transferred as collateral to third parties”, concerns the tax credit for the year 1997, (equal to EUR 10,329 thousand) with related interest (equal to EUR 3,355 thousand), assigned to third parties to secure credit lines granted, reclassified this year from non-current asset to current asset as the refund procedure has almost been completed, given that on 16 February 2009, the judgment ordering the tax authorities to refund became final. Hence it is reasonable to expect the credit to be refunded in 2009.
The item “VAT credits” relates to the receivable arising from the 2008 annual VAT settlement.
The item “Other tax credits” mainly includes receivables for offsettable taxes relating to previous years, for a total of EUR 1,132 thousand, net of utilisation of the IRES receivable of EUR 516 thousand used in set-off in 2008 and the IRES tax credits arising in 2008 for EUR 366 thousand.
The item “Receivables on acquisition cost of investments”, of EUR 350 thousand, refers to charges incurred for acquisition of control of the associate Polis Fondi Sgr. The acquisition agreement was finalised on 8 October 2008 but acquisition is subject to obtaining the necessary authorisations from the Supervisory Authorities. l Statements as at 31.12. 2008 l as at 31.12. Statements The item “Other receivables”, equal to EUR 3,982 thousand, mainly includes: • EUR 580 thousand for receivables from the company Coemi Property S.p.A. for partial succession to the loan from Sopaf S.p.A. to the sold company S. Apostoli S.r.l, of which the maturity was extended from 31 December 2008 to 31 December 2009; • EUR 2,628 thousand for receivables from the company Dascal S.p.A. for assignment of investments maturing next year following an extension granted to the counterparty; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 183 • EUR 1,083 thousand for receivables acquired from Nova Surgelati S.p.A. (effect of the award in settlement of arbitration between Sopaf S.p.A. and Arena Surgelati) and sundry receivables written-off in full from the special provision; • EUR 398 thousand for a receivable for advance of expenses due from a number of investors partnering Sopaf in a transaction to recapitalise the Aedes Group, which was not concluded successfully.
> 12 Derivative financial instruments As at 31 December 2008 the item totals EUR 32,246 thousand and refers to the fair value as at 31 December 2008 of a number of derivative financial instruments entered into by Sopaf S.p.A. The item breaks down as follows:
31/12/2008 31/12/2007 Forward purchase - FIP units 26,990 0 Forward sale - FIP units 713 Equity linked swap - FIP units 4,543 0
32,246 0
The items “Forward purchase FIP units” and “Forward sale FIP units” refer to entry of the fair value of two forward purchase and sale transactions involving units of the FIP fund. Following these transactions, finalised in December 2008, Sopaf S.p.A. entered into two agreements with forward consignment (one purchase agreement for 800 units and one sale agreement for 450 units) with two different institutional investors, involving units of the FIP fund. The agreements were valued on the basis of the FIP fund’s NAV as at 31 December 2008 and considering a discount relating to the instrument’s liquidity. This discount was determined by the directors on the difference between the net asset value and the value of the transactions concluded in 2008 on the basis of the track record available to the company. Valuation of the agreements allowed the company to record income from the fair value valuation of EUR 27.7 million in the income statement. These forward agreements were settled in the first months of 2009.
The item “FIP swap mark-to-market value” refers to the fair value of an asset swap transaction concluded on 30 September 2008 and maturing on 7 October 2009 with a leading foreign banking counterparty. For Sopaf S.p.A. the transaction provides, in exchange for payment of a fixed rate, for recognition of the income flows linked to the distribution of dividends/extraordinary financial income of Fondo Immobili Pubblici on an initial notional amount of EUR 30 million. As at 31 December 2008 the company asked an independent surveyor to value the derivative by analysing evolution of the fund’s business plan (disposal of the real estate portfolio) with regard to the expected future cash flows and the estimated growth trend of the real estate market for the next decade. The mark-to-market valuation is positive by EUR 4,543 thousand. Further information can be found in paragraph 50 “Additional information on financial instruments and on risk management policies”. An option has also been provided for the banking counterparty to request closure of the swap as from 2013 with physical consignment of
the residual capital units of FIP.
Furthermore, on 31 March 2008, Sopaf entered into an asset swap agreement relating to 128 units of Fondo Immobili Pubblici with a notional value of EUR 19,840 thousand. According to the contractual provisions Sopaf pays a variable rate and receives a portion of the operating income disbursed by the fund. As it is a trading instrument, the agreement has a 7-year duration and also provides Sopaf with a purchase option on 64 units of Fondo Immobili Pubblici to be exercised against the counterparty and provides the counterparty with the option to withdraw from the derivative agreement without paying a penalty. Valuation of all the elements making up the asset swap and the counterparty’s withdrawal option led to the directors to determine the instrument’s value as 2008 l as at 31.12. Statements equal to zero as at 31 December 2008. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 184
> 13 Other current financial assets This item has a balance of EUR 3,055 thousand, posting a decrease of EUR 1,225 thousand compared to the previous year, as shown in the following table:
31/12/2008 31/12/2007 Receivable from Sopaf Small Cap Europe 1,517 - Loan to Demofonte S.r.l. 1,508 3,008 Loan to third parties 30 1,272 Securities held for trading - - 3,055 4,280
The item “Receivables from Sopaf Small Cap Europe” concerns the residual receivable relating to liquidation of the Sopaf Small Cap Europe fund. The fund was subscribed by Sopaf in August 2008, but in December 2008 it requested redemption due to the current financial crisis. This receivable was fully collected during January 2009.
The item “Loan to Demofonte S.r.l.” relates to an interest-free loan provided by the incorporated company LM Real Estate S.p.A. (now Sopaf S.p.A.). During the year two tranches were collected for a total of EUR 1,500 thousand;
The decrease in the item “Loans to third parties” compared to the previous year relates to the full write-down for impairment of the residual credit due from a foreign counterparty in relation to the transfer of Appaloosa Arbitrage Fund Ltd. shares, for an original amount of EUR 1,815 thousand. The amount inclusive of the interest accrued, was written down following a further request for extension from the debtor.
The item “Securities held for trading” underwent the following changes during the year:
Changes in fair 31/12/2007 Increases Decreases value Reclassifications 31/12/2008 FIP - Fondo Immobili Pubblici - 29,215 (29,215) - -- Sopaf Small Cap Europe - 10,000 (9,302) (698) -- - 39,215 (38,517) (698) - -
In September 2008 Sopaf S.p.A. finalised an agreement to sell 209 units of the FIP fund generating capital gains of EUR 881 thousand.
As previously mentioned, in August 2008 Sopaf Capital Management Sgr S.p.a. commenced operations in the Sopaf Small Cap Europe fund, as it received the first subscription of units equal to EUR 10,000 thousand from the Parent Company Sopaf S.p.A., in its capacity as fund sponsor. Given financial market trends and the lack of units placed with new institutional investors, during December 2008 Sopaf S.p.A. decided to disinvest from the fund recording a loss of EUR 583 thousand.
> 14 Cash and cash equivalents The item, which includes only cash and bank deposits collectible within three months, records a decrease of EUR 8,399 thousand compared to the previous year, as shown in the following table:
31/12/2008 31/12/2007
l Statements as at 31.12. 2008 l as at 31.12. Statements Cash on hand 9 10 Bank deposits 1,376 5,392 Cash equivalents - 4,382 1,385 9,784
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 185 > 15 Non-current assets classified as held for sale The item mainly concerns a number of companies destined for sale during 2009, as shown in the following table:
31/12/2008 31/12/2007
AFT S.p.A. 12,147 3,968 Essere S.p.A. 3,613 - Life Science Capital S.p.A. 6,467 - Nearco S.àr.l. - 1,455 Nova Fronda S.r.l. 1,500 - S.F.E.R.A. S.r.l. 870 - Sun System S.p.A. 2,606 - 27,203 5,423
Information on the investments in Essere S.p.A., Nova Fronda S.r.l., Life Science Capital S.p.A., Sfera S.r.l. and Sun System S.p.A. can be found in Notes 6 “Investments” and 7 “Financial Assets”.
With regard to the investee Aft S.p.A., which in March 2008 was awarded user rights for the Wimax licences in 13 Italian regions, it is reminded that on 19 June 2008 the company deliberated to increase the share capital from 4.3 to 60 million. Sopaf subscribed to the increase by converting the shareholders’ loan of EUR 18.5 million provided to the company for purchase of the aforesaid licences. At the end of July 2008 Sopaf assigned 28.9% of the capital of AFT to the Vintage Fund generating capital gains of EUR 1,384 thousand. Furthermore, with assignment of the assets of Nearco Sarl, subject to final liquidation in December 2008, Sopaf S.p.A. acquired a further share of ATF equal to 10.30%, bringing its investment to 24.89%. The investment is classified under held-for-sale assets in view of a series of initiatives undertaken by the management of Sopaf for the purpose of disposal of a further share of the investment by next year.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 186 > Balance Sheet - Liabilities
> Shareholders Equity
> 16 Shareholders’ equity Shareholders’ equity totals EUR 139,074 thousand, posting an increase of EUR 8,107 thousand compared to 31 December 2007. A breakdown of shareholders’ equity is provided in the table below:
31/12/2008 31/12/2007 Capital 80,100 80,002 Treasury shares (2,363) (174) Legal reserve - - Other reserves Reserve for infragroup transactions - 4,822 Merger surplus reserve - 16,712 Reserve for share capital decrease - 4,327 Reserve for bond loan conversion option 3,991 3,991 Reserves from LM Real Estate-Acal merger - (23,111) Cash flow hedge reserve (358) Valuation reserve 22,338 46,986 Retained earnings (losses) 162 (22,663) Profit (loss) for the year 35,204 20,075 139,074 130,967
> Share capital As at 31 December 2008 the share capital is equal to EUR 80,100 thousand corresponding to 421,908,392 ordinary shares without par value. The increase in shareholders’ equity is linked to the conversion into ordinary shares of 111,583 bonds.
> Treasury shares The item “Treasury shares” contains 5,200,000 treasury shares comprising a total investment of EUR 2,363 thousand, of which 4,809,737 were purchased during the first half of 2008, allowing completion of the purchase plan approved by the meeting of the shareholders of Sopaf S.p.A. held on 27 November 2007. The weighted average cost of the transaction was EUR 0.4545 per share. Following conclusion of the buy back programme, on 28 June 2008 the Sopaf S.p.A shareholders’ meeting resolved to cancel the authorisation to purchase treasury shares for the remainder of the validity period. The treasury shares will be held in the portfolio, unless traded, exchanged, transferred or subject to other act of disposition as part of business plans or extraordinary finance transactions for which the shareholders’ meeting approved authorisation for a period of eighteen months, in compliance with the prevailing legal and regulatory provisions, regulations issued by Borsa Italiana S.p.A. and in observance of applicable EU provisions. In this case, the economic terms of the sale transaction, including valuation of the shares traded, will be determined with the assistance of independent experts, on the basis of the nature and characteristics of the transaction, also taking into account the market performance of the Sopaf S.p.A. shares.
> Reserve for infragroup transactions
l Statements as at 31.12. 2008 l as at 31.12. Statements This reserve, equal to EUR 4,822 thousand, was used to partially offset the merger reserves established with the incorporations of the subsidiaries LM Real Estate S.p.A. and Acal S.p.A. implemented in December 2007, as deliberated by the shareholders’ meeting held on 28 June 2008.
> Merger surplus reserve This reserve, equal to EUR 16,712 thousand, which emerged following the transaction involving the merger of LM ETVE S.p.A. into Sopaf, executed in the period ended 30 June 2006, was used to partially offset the merger Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 187 reserves established with the incorporations of the subsidiaries LM Real Estate S.p.A. and Acal S.p.A. implemented in December 2007, as deliberated by the shareholders’ meeting held on 28 June 2008.
> Share capital reduction reserve The share capital reduction reserve, equal to EUR 4,327 thousand, represented the difference between the EUR 21.588 thousand reduction in the share capital deliberated by the extraordinary shareholders’ meeting of 29 March 2005, and the coverage of previous years’ losses of EUR 17,261 thousand. It was used to partially offset the merger reserves mentioned above, by EUR 1,580 thousand, and the previous years’ losses by EUR 2,747 thousand, as deliberated by the shareholders’ meeting of 28 June 2008.
> Convertible bond loan conversion option reserve This reserve, amounting to EUR 3,991 thousand, represents the value attributed to the conversion option held by bondholders of EUR 5,715 thousand, net of deferred taxes of EUR 1,572 thousand and pro-rata accessory charges for placement of EUR 152 thousand. According to international accounting standards, at the time of issue the fair value of the debt component was calculated on the market price of an equivalent non-convertible bond and corresponds to the difference between the discounting of bond loan interest based on the contractual rate and on the market rate. This difference is carried to the income statement using the amortised cost method up to the date of conversion or redemption. On issue of the bond loan, this difference, representing the value attributed to the conversion option, was recognised to shareholders’ equity net of the issue costs. The value of the conversion option cannot be amended in subsequent years. In addition, the issue costs were spread proportionately among the debt and shareholders’ equity components on the bond loan.
> Lm Real Estate S.p.A. and Acal S.p.A. merger reserve This reserve, equal to EUR 23,111 thousand, emerged following the transaction involving merger of LM Real Estate S.p.A. (EUR 25,904 thousand) and Acal S.p.A. (EUR 2,793 thousand), into Sopaf which took place on 19 December 2007 with economic and tax effects from 1 January 2007. It is reminded that this negative reserve has been offset using the merger surplus reserve of EUR 16,712 thousand, the infragroup transactions reserve by EUR 4,819 thousand and the share capital reduction reserve by EUR 1,580 thousand, as deliberated by the shareholders’ meeting held on 28 June 2008.
> Cash flow hedge reserve This reserve, negative by EUR 359 thousand, relates to the effective portion of the change in value of the hedging derivative instruments reported according to hedge accounting rules.
> Valuation reserve The valuation reserve relates to the adjustment to fair value of the financial assets represented by investment securities classified as available for sale, net of the related tax effects.
The table below shows the breakdown and changes in the valuation reserve during the year:
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 188
Changes in fair value Reserve Increases Decreases released to the income Values as at Values as at statement due Deferred taxes 01/01/2008 to financial 31/12/2008 asset disposals
Available-for-sale financial assets:
IMMSI S.p.A. - - (2,081) - 572 (1,509) Sadi Servizi Industriali S.p.A. 468 - (3,362) (17) 194 (2,716) Tessitura Pontelambro S.p.A. (1) - (55) 41 15 - Management&Capitali S.p.A. 239 506 - (474) (271) - Conafi Prestitò S.p.A. (336) - (2,880) - (27) (3,243) The Infrastructure&Growth Capital Fund - - (848) - 233 (615) Demofonte S.r.l. 508 - - - 183 691 Valore by Avere Asset Management SCA - 488 (88) - (110) 290 Raffaele Caruso S.p.A. - 1 - (1) - - FIP - Fondo Immobili Pubblici 608 - - (608) - - IGI Investimenti Quattro - - (32) - 9 (23) Noventi Ventures II LP - - (4) - 1 (3) Vintage Fund Sicav Sif - - (212) - 58 (154) Value Secondary Investments Sicàr SCA - - (114) - 31 (83) Delta S.p.A. 45,499 - (16,000) - 203 29,703 46,985 995 (25,677) (1,059) 1,094 22,339
Cash flow hedges Interest rate hedges - - (358) - - (358) 46,985 995 (26,035) (1,059) 1,094 21,981
> Retained earnings / (losses) The retained losses have been covered with the profits for the year 2007 of EUR 20,075 thousand and using the share capital reduction reserve by EUR 2,747 thousand, as deliberated by the shareholders’ meeting held on 28 June 2008.
It is also reported that the shareholders’ meeting of 5 May 2005, called to approve the merger of LM ETVE S.p.A. into Sopaf S.p.A., resolved to allocate 28,104,600 newly-issued Sopaf 2005-2011 warrants to the holders of the 1,860 LM ETVE S.p.A. warrants, each having the right to subscribe to 2 ordinary Sopaf S.p.A. shares without par value at the price of EUR 0.50 per share, inclusive of share premium. The shareholders consequently resolved to increase the share capital, on a split basis, up to a maximum of EUR 28,104,600, to be used for the Sopaf warrants, with the warrant holders entitled to subscribe a maximum of 56,209,200 Sopaf shares as from 18 March 2006 and up to 31 December 2011. Furthermore, on 23 November 2007, Giorgio Magnoni, Sopaf S.p.A.'s CEO and principal shareholder, sold 7,225,000 of the aforementioned warrants to managers, directors and consultants of the Sopaf Group at the unit price of EUR 0.11 thus extending participation in the Group's results. As required by the provisions of corporate law, the table below provides a breakdown of the shareholders’ equity items, with specification of the possibility of utilisation and distribution of the reserves.
l Statements as at 31.12. 2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 189
Summary of utilisation in last three years
Utilisation STATEMENT OF RESERVES Amount options Available as loss cover other reasons
Capital 80,100 = Treasury shares reserve (2,363) = Reserve for bond loan conversion option 3,991 = Merger surplus reserve - A,B,C - Reserve for share capital decrease -B - Valuation reserve 21,980 = Retained earnings (losses) 163 =
Total 103,871
Key A: for share capital increases B: as loss cover C: for distribution to Shareholders
> Non- current liabilities
> 17 Convertible bonds
31/12/2008 31/12/2007 Convertible bond loan 2007-2012 45,514 44,469 Placement fees (845) (1,079) 44,669 43,390
This item represents the “SOPAF 2007-2012 convertible 3.875%” bond issue released in August 2007 and represented by 56,406,777 bonds convertible into ordinary shares of the company at any time throughout the issue’s validity on the basis of a conversion ratio of one share per bond held. During 2007 and 2008 conversion into ordinary shares was requested for 2,103 and 111,583 bonds respectively. If any bonds remain unconverted, these will be redeemed at par value for a unit value of EUR 0.88 each. A 3.875% interest rate is paid per year up to maturity of the bond loan. The convertible bond component which has characteristics of a liability is recognised in the balance sheet as a payable net of issue costs.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 190 On the basis of the above, a breakdown of the bond issue is provided below:
Amounts in EUR/thousand
Par value of the bond issue 49,738 Equity component (5,715) Debt component as at the date of issue 44,023 Recognized interest: contractual interest 2,681 Interest rate spread based on market rate 1,589 Bond conversion to shares (101) Interest paid (1,924) Residual placement fees (845) Debt component as at 31 December 2008 45,423 Of which Bond issue - current share 754 Bond issue - non-current share 44,669
> 18 Payables to banks and other lenders This item totals EUR 54,173 thousand, posting a decrease of EUR 7,385 thousand, as shown in the following table:
31/12/2008 31/12/2007 Bank borrowing 49,480 57,162 Payables to other lenders 4,693 4,395 54,173 61,558
The item “Bank borrowing” includes the instalments repayable after 12 months of the following loans: • EUR 41,148 thousand as the medium/long-term portion of the syndicated loan to support acquisition of Banca Network Investimenti S.p.A. and Area Life International Assurance Ltd. provided for a total of EUR 54,000 thousand and maturing on 30 September 2012. It is reminded that the syndicated loan is secured by pledge on the shares of Banca Network Investimenti S.p.A. held directly by Sopaf S.p.A., on the shares of Petunia S.p.A. which in turn holds 49.92% of Banca Network Investimenti S.p.A., and on the shares of Area Life held by Sopaf S.p.A.; • EUR 3,908 thousand as the medium/long-term portion of two unsecured loans, with an amortisation plan up to 2012; • EUR 1,424 thousand as the medium-term portion of a loan secured by 22,759 Sun System S.p.A. shares. • EUR 3,000 thousand as an unsecured loan granted by a leading bank to help meet the company’s liquidity requirements.
It is reported that the syndicated loan to support the acquisition of Banca Network Investimenti S.p.A. and Area Life is secured by a number of contractual covenants including compliance with pre-established financial parameters, and namely the value of shareholders' equity and the debt/shareholders' equity ratio of both the borrowing company and the company whose shares are pledged. If one or more of the parameters are not respected the company has 30 days from the date of notice from the agent bank to take the necessary steps to l Statements as at 31.12. 2008 l as at 31.12. Statements provide remedy, with the understanding that the steps have to be completed within 30 days of their adoption. In this regard it is noted that the losses posted in 2007 by Banca Network Investimenti reduced the company’s capitalisation to a level below the benchmark parameter established by the loan, but the capital increase subscribed in August 2008 and the further payment for future capital increase made at the end of 2008 allowed the parameter to be restored. As at 31 December 2008 all the parameters requested have been respected.
The item “Payables to other lenders”, amounting to EUR 4,693 thousand, refers exclusively to amounts due to factoring companies for the assignment of tax credits, as outlined in note 8. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 191
The amortisation plans of the aforesaid loans do not contain instalments with maturities exceeding 5 years.
> 19 Lease payables This item totals EUR 534 thousand as shown in the following table:
31/12/2008 31/12/2007 Lease payables - Fittings > 12 m 64 1,065 Lease payables - Building > 12 m 470 13,775 534 14,840
It is reminded that the decrease compared to last year is due to the transfer of a number of lease agreements relating to the property in Foro Buonaparte 24, Milan, as mentioned above.
> 20 Other liabilities This item totals EUR 944 thousand, posting a decrease of EUR 15,819 thousand compared to the previous year, as shown in the following table:
31/12/2008 31/12/2007 Payables to third parties - 10,612 Payables to subsidiaries - 6,151 Payables to associated companies 944 - 944 16,763
The item “Payables to third parties”, relating to the portion, with maturity December 2009, of the loan contracted with the third party shareholders of LM & Partners S.C.A. (liquidation concluded on 18 December 2008) and the former Star Venture 1 (company liquidated on 29 June 2007) for acquisition of the company’s minority shares, which were almost all acquired in December 2007, has been reclassified in the current portion of “Other liabilities”.
The item “Payables to subsidiary companies”, was written off following closure of liquidation of LM&Partners Sca setting off the payable with the corresponding credit assigned to the sole shareholder Sopaf by the liquidator.
The item “Payables to associated companies” refers to a payable to Banco Popolare for adjustment of the purchase price of the BNI investment by EUR 944 thousand. As the “price adjustment” agreements for assignment of Banca Bipielle Net (now Banca Network Investimenti), parametered to the total assets under management, are still in force and after verification that the three-year plan used for the impairment test satisfies this clause, the directors represented the liability in this item increasing the value of the investment as balancing entry.
> 21 Pension scheme and employee severance indemnity liabilities
31/12/2008 31/12/2007 Employee severance indemnity 262 170 262 170
The employee severance indemnity, which includes indemnities accrued by office and executive staff up to 31 2008 l as at 31.12. Statements December 2008 totals EUR 262 thousand, after advances to staff of EUR 62 thousand, as shown in the following table: Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 192
Balance as at Infragroup Provisions Utilisation Other Balance 31/12/2007 transfers changes as at 31/12/2008
Employee severance indemnity 170 15 159 (40) (42) 262
Pursuant to IAS 19, to calculate the employee severance indemnity, which qualifies as a defined benefit plan, the 'Projected Unit Credit Method' was adopted as follows: • the future benefits potentially due to each employee in the event of retirement, resignation, death or disability were calculated. These benefits were determined on the basis of the financial assumptions set forth below; • the average current value of the future benefits payable was calculated at each valuation date, applying the discount rate indicated below; • the liability to be recorded in the financial statements in relation to the average current value of the future benefits payable as at the valuation date was calculated.
Financial assumptions: Inflation rate 3.2% Pay increase rate 2.5%/1% Discount rate 4.75% Demographic assumptions: Mortality: RG48 mortality rate table Invalidity: INPS invalidity rate tables Turnover: 4% for all ages Pension age: 65 years (M) and 60 years (F)
> 22 Provisions
31/12/2008 31/12/2007 Provisions for risks and charges 1,019 808 1,019 808
The table below shows the changes in the year:
Balance as at Increases Utilisation Balance 31/12/2007 as at 31/12/2008 Provisions for risks 808 211 - 1,019
The item has increased by EUR 211 thousand following a new provision to cover the liability arising from receipt of a tax payment request for the same amount. The item breaks down as follows: • EUR 289 thousand as a provision to cover a letter of patronage issued by Sopaf S.p.A. in favour of a leading bank to secure a receivable (of the same amount) owed to the bank by the investee Formula Sport Group S.r.l. (in liquidation);
l Statements as at 31.12. 2008 l as at 31.12. Statements • EUR 519 thousand as a provision entered against a real estate transaction subject to contractual restrictions linked to finalisation of the transaction; • EUR 211 thousand as provision entered against a tax payment request issued by the tax authorities in relation to a tax dispute arising with the company LM Real Estate S.p.A. (merged into Sopaf S.p.A.) and concerning the 2004 tax period; the hearing on the merits to examine the petition filed by the company has been set for 7 April 2009. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 193 > Current liabilities
> 23 Convertible bonds The item totalling EUR 754 thousand refers to the portion of interest expense accrued in favour of bondholders from 11 August 2008 to 31 December 2008, restricted to unconverted bonds, as shown in the table below:
31/12/2008 31/12/2007 Payables to bondholders 754 755 754 755
> 24 Payables to banks and other lenders The item totals EUR 65,918 thousand, posting a decrease of EUR 14,630 thousand, as shown in the following table:
31/12/2008 31/12/2007 Current account payables 5,922 4,935 Bank borrowings 59,974 51,044 Payables to subsidiaries - 21,858 Payables to associated companies 22 22 Payables to other lenders - 2,689 65,918 80,548 The item “Payables to banks c/a”, equal to EUR 5,922 thousand, concerns ordinary current account overdrafts partly secured by 2,350,357 Sadi shares.
The item “Bank borrowing”, equal to EUR 59,974 thousand, mainly includes: • EUR 6,655 thousand for the short-term portion of the syndicated loan for the acquisition of Banca Network Investimenti S.p.A. and Area Life International Assurance Ltd. granted for a total of EUR 54,000 thousand, described in detail in the section on non-current liabilities. • EUR 10,000 thousand for an unsecured loan granted by a leading bank to help meet the company’s liquidity requirements; • EUR 4,950 thousand for a syndicated loan secured by tax credits claimed back from the tax authorities for a notional value of EUR 10,329 thousand, expected to be refunded by the end of 2009; • EUR 566 thousand for the short-term portion of a loan secured by 22,759 Sun System S.p.A. shares; • EUR 3,320 thousand for the current portion of two loans entered into with a leading bank (as already described in non-current liabilities); • EUR 5,000 thousand for a credit line granted by a leading bank for a duration of 18 months less one day for short-tem liquidity requirements; • EUR 1,518 thousand for a loan of the former Lm Real Estate S.p.A. (merged into Sopaf S.p.A.) expiring in June 2009; • EUR 10,973 thousand for a loan with a leading bank maturing by the end of 2009 secured by pledge on 4,982,148 AFT S.p.A. shares and 580,541 Life Science Capital S.p.A. shares; • EUR 3,045 thousand for an uncommitted loan secured by 1,919,423 Conafi shares and by 3,445,585 Immsi shares; • EUR 9,984 thousand for a number of loans entered into with a leading bank for working capital requirements; • EUR 2,500 thousand for two uncommitted loans to meet cash requirements;
• EUR 1,463 thousand for interest accrued up to 31 December 2008 and collectible in 2009. 2008 l as at 31.12. Statements
Payables for bank loans are entered on the basis of the amounts used as at 31 December 2008, net of costs relating to the transaction and subsequently valued at amortised cost using the effective interest rate method.
The item “Payables to subsidiary companies”, which included the interest-bearing loans provided by LM & Partners Sca (liquidated) at market rates, has been written off following closure of liquidation of LM&Partners Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 194 Sca, setting off the debt exposure with the corresponding credit claim of LM&Partners Sca assigned by the liquidator to the sole shareholder Sopaf.
The item “Payables to other lenders”, equal to EUR 2,689 thousand, exclusively concerned the outstanding payable for a trust loan. The amount, inclusive of the interest due at the final maturity, was repaid in February 2008.
> 25 Lease payables These total EUR 40 thousand and break down as follows:
31/12/2008 31/12/2007 Lease payables - Fittings < 12 m 15 226 Lease payables - Building < 12 m 25 797 40 1,023
This item refers to the current portion of lease payables, a breakdown of which is provided in the item relating to the non-current portion.
> 26 Derivative financial instruments These total EUR 616 thousand and break down as follows:
31/12/2008 31/12/2007 Interest Rate Swap 99 - Interest Rate Swap (Hedge accounting) 517 11 616 11
The item “Interest Rate Swap” (Hedge accounting) refers to the fair value as at 31 December 2008 of the three interest rate swaps entered into in February 2008, maturing in June 2012, as interest rate hedges on medium-term financing of EUR 21,250 thousand. The timeframe deemed significant for management of the risk of interest rate change is defined as a minimum of 18 months of residual duration of the transaction.
Hedge accounting is used from the date the derivative contract is entered into up to the date of its discharge or maturity, documenting with special report the risk subject to hedging and the purpose of the hedging relationship and regularly verifying its effectiveness. The cash flow hedge method provided by IAS 39 is specifically used. According to this method the effective portion of the change in value of the derivative is reflected in a shareholders’ equity reserve which is used to adjust the value of the income statement interest subject to hedging.
The Cash Flow Hedge Reserve entered under shareholders’ equity as at 31 December 2008 with regard to these derivative instruments is negative by EUR 358 thousand, net of the related prepaid taxes. Assessment of the effectiveness aims to show the high correlation between the technical/financial characteristics of the hedged liabilities (maturity, amount, etc.) and those of the hedging instrument by carrying out special retrospective and prospective tests. The fair value of the Interest Rate Swap contracts is obtained by using a cash flow model on the basis of the values of the forward curve recorded as at 31 December 2008. The main characteristics of the IRS derivative instruments are the following:
l Statements as at 31.12. 2008 l as at 31.12. Statements Fixed rate at maturity − notional value EUR 21.25 million 3.885% September 2012 − notional value EUR 3 million 3.7% June 2011 Variable rate at maturity − 3 month EURIBOR September 2012 − 6 month EURIBOR June 2011
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 195 The item “Interest rate swap” refers to the fair value valuation of an IRS contract relating to a loan (former LM Real Estate S.p.A.) of EUR 3 million with expiry June 2010 originally entered into to reduce the risk of interest rate fluctuation and accounted as a trading instrument. The negative fair value as at 31 December 2008 is equal to EUR 99 thousand.
> 27 Trade payables This item totals EUR 5,547 thousand, posting an increase of EUR 2,904 thousand as shown in the following table:
31/12/2008 31/12/2007 Trade payables 1,799 1,352 Payables on invoices to be received and fees due 2,388 1,509 Credit notes to be received from suppliers (166) (168) VAT on proforma invoices (73) (50) Payables to subsidiaries 1,599 - 5,547 2,643
The items “Payables from suppliers” and “Payables for invoices to be received and considerations to be settled” mainly include payables for “Success fees” of EUR 1,400 thousand due in relation to the forward sale of FIP units, in addition to trade payables mainly contracted for the supply of services, hardware material, software products, notary, legal, tax and administration services and advice.
The item “Payables to subsidiary companies” of EUR 1,599 thousand concerns commissions to the subsidiary Sopaf Capital Management Sgr S.p.A. relating to the forward sale transaction of FIP units.
> 28 Other liabilities These total EUR 19,619 thousand, posting a decrease of EUR 7,339 thousand, as shown in the following table:
31/12/2008 31/12/2007 Payables to personnel 338 1,206 Social security payables 195 491 Directors' and auditors' fees due 330 1,228 Payables to subsidiaries - 12,880 Current tax payables 505 - Other tax payables 543 915 Other payables 17,693 10,179 Accrued liabilities and deferred expense 15 59 19,619 26,958
The item “Payables to personnel” includes the considerations accrued as at 31 December 2008 by personnel for fourteenth month payments, holidays, suppressed public holidays and reduction of working hours.
The item “Social security payables” includes the contributions due to social security, pension and industrial insurance institutions on wages and salaries accrued as at 31 December 2008.
The item “Directors’ and auditors’ fees due” includes emoluments deliberated for the year 2008 and not disbursed in the same year.
2008 l as at 31.12. Statements The item “Payables to subsidiaries”, concerning exposures towards LM & Partners Sca, has been written off following closure of the company’s liquidation, setting off the payable with the corresponding credit due to LM & Partners Sca and assigned to the sole shareholder Sopaf by the liquidator.
The item “Current tax payables” refers exclusively to the payable to the tax authorities for IRAP due for the year 2008.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 196 The item “Other tax payables” exclusively concerns withholdings to be paid to the tax authorities on wages, salaries and considerations to project and self-employed consultants paid in the month of December 2008.
The item “Other payables” mainly includes the current portion of payables contracted with the third party shareholders of LM & Partners S.C.A. (liquidated) and of Stare Venture I (liquidation of which was concluded in 2007) for the transaction to purchase the minority shares of LM & Partners Sca. These payables total EUR 17,608 thousand (inclusive of interest accrued) and include payables maturing as at 31 December 2008 of EUR 6,589 thousand, paid on 5 January 2009, and receivables maturing as at 31 December 2009 of EUR 11,019 thousand. l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 197 > Income Statement
The main items are illustrated below.
> 29 Dividends and other shares in profits This item totals EUR 3,344 thousand and breaks down as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Dividends from associated companies 344 306 Dividends from other investments 224 3,858 Financial income from subsidiary funds 1,770 - Financial income from other funds 1,006 - 3,344 4,164
The item “Dividends from associated companies” refers to dividends collected in the year from the associate Polis Fondi Sgr.p.A..
The item “ Dividends from other investments” refers to dividends collected in the year from Sadi for EUR 30 thousand, Conafi Prestitò S.p.A. for EUR 67 thousand, Immsi S.p.A. for EUR 103 thousand and Tessitura Pontelambro S.p.A. for EUR 24 thousand.
The item “Financial income from subsidiary funds” exclusively refers to the income paid out by Fondo Tergeste to Sopaf S.p.A. as fund unitholder.
The item “Financial income from other funds” exclusively refers to the income paid out from the FIP fund to Sopaf S.p.A. as unitholder.
> 30 Capital gains (Capital losses) on disposal of investments This item totals EUR 33,736 thousand, posting a decrease of EUR 21,120 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Capital gains from disposal of subsidiaries 30,371 1,854 Capital gains from disposal of associated companies 1,384 346 Capital gains from disposal of other investments 2,853 52,738 Capital losses from disposal of subsidiaries (40) - Capital losses from disposal of associated companies (728) (21) Capital losses from disposal of other investments (104) (61) 33,736 54,856
The item “Capital gains from disposal of subsidiaries” mainly includes the capital gains of EUR 26,641 thousand and EUR 960 thousand realised with closure of the liquidation of LM&Partners Sca and Cutter S.a.r.l. respectively, while EUR 2,769 thousand refers to the capital gains realised from disposal of the company Vintage Holding S.à.r.l. On this transaction “Success Fees” of EUR 600 thousand were paid and recorded under
the item “contract financial consulting”. 2008 l as at 31.12. Statements
The item “Capital gains from disposal of associated companies” equal to EUR 1,384 thousand refers exclusively to the capital gains realised with disposal of 28.9% of the share capital of AFT S.p.A.
The item “Capital gains from disposal of other investments” equal to EUR 2,853 thousand refers to: • EUR 1,981 thousand for capital gains realised through disposal of F.I.P.(Fondi Immobiliari Pubblici) units; Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 198 • EUR 840 thousand for capital gains realised from disposal/exercise of withdrawal for Management & Capitali S.p.A. shares; • EUR 32 thousand for sundry capital gains realised from disposal of financial assets represented by investment securities.
The item “Capital losses from disposal of subsidiaries” equal to EUR 40 thousand refers to the capital loss generated by disposals of the investment in Tenerani S.p.A.
The item “Capital losses from disposal of associated companies” equal to EUR 728 thousand refers to the capital loss generated by closure of the liquidation of Mirror Tre ( EUR 30 thousand), and of Nearco Invest S.a.r.l. (EUR 136 thousand) and by disposal of units of the PWMAiggig fund ( EUR 562 thousand).
The item “Capital losses from disposal of other investments” equal to EUR 104 thousand refers to capital losses generated from the investments in Ezechiele (EUR 44 thousand), Tessitura Pontelambro S.p.A. (EUR 59 thousand) and Sadi S.p.A.(EUR 1 thousand).
> 31 (Write-downs) Write-ups of the value of investments This item refers to write-downs for impairment of financial assets and totals EUR 18,261 thousand, posting an increase of EUR 4,861 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Write-down of investments in subsidiaries (1,723) Write-down of investments in associated companies (16,345) - Write-down of other investments (193) (13,400) (18,261) (13,400)
The item “Write-down of investments in subsidiaries” refers to the write-downs of the real estate fund Tergeste for adjustment to the NAV as at 31 December 2008 (EUR 1,723 thousand).
The item “Write-down of investments in associated companies” refers to the write-downs of Essere S.p.A. (EUR 1,547 thousand), Petunia S.p.A. (EUR 10,069 thousand) and Banca Network Investimenti (EUR 4,729 thousand).
The item “Write-down of other investments” refers to the write-down of Nova Fronda S.r.l. (EUR 193 thousand)
Further information on write-downs can be found in the notes on the analyses performed for the respective balance sheet items.
> 32 Other operating revenues This item totals EUR 23,816 thousand, posting an increase of EUR 22,224 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007
Income from subsidiaries 522 234 Income from associated companies 5,282 114 l Statements as at 31.12. 2008 l as at 31.12. Statements Capital gains on asset disposals 9 Income from leases 476 - Capital gains from disposal of financial leases 16,864 - Contingent assets 476 834 Other revenues 196 401 23,816 1,592
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 199 The item “Income from subsidiaries” refers to charge-backs for services provided to investee companies of the Sopaf Group.
The item “Income from associated companies” refers to EUR 4,895 thousand for performance fees accrued by Sopaf S.p.A. for the increase in the NAV of China Opportunity Sa Sicar and to EUR 386 thousand for charge- back of infrastructural services provided by the Parent Company to the Group’s investee companies. The performance fee is paid as a variable commission to be settled in China Opportunity shares and has been determined as 20% of the increase in the NAV of China Opportunity between the beginning and the end of the year.
The item “Income from leases” includes rental income for the year collected for sub-lease of the property unit in Foro Buonaparte.
The item “Capital gains from disposal of financial leases” refers, as illustrated in Note 5, to assignment of the financial lease agreements previously entered into with Locat S.p.A. concerning the properties and related furnishings located in Foro Buonaparte, Milan, at the registered office of the Parent Company Sopaf S.p.A. which generated total capital gains of EUR 16,864 thousand.
The item “Contingent assets” mainly concerns: • the recovery of extra contributions of EUR 64 thousand paid to INPS in the years 2005/2006/2007 with regard to positions of a number of employees who were included in calculation of pensions with the contribution system; • the reduction by EUR 76 thousand of a payable to Omniainvest S.p.A. allocated as at 31 December 2007 by the incorporated company LM Real Estate S.p.A.
> 33 Purchases of materials and external services This item totals EUR 8,572 thousand, posting a decrease of EUR 10 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007
Purchase of goods and materials 48 69 Services provided 306 501 Cost of project-based contracts and strategic consulting 1,026 1,259 Legal and tax consulting 424 641 Project, investment and divestment consulting 2,588 1,353 Support legal services 94 44 Administrative services for independent audit 310 361 Administrative services for internal audit 31 38 Administrative services 9 25 Directors' fees 1,112 2,547 Auditors' and supervisory fees 130 167 Reimbursement of expenses 185 177 Leases 1,078 234 Rentals and operating leases 263 233 Insurance 197 189 Utilities 222 211 Service and bank commission/securities costs 190 49 Entertainment expenses 31 55 Maintenance costs 137 82 2008 l as at 31.12. Statements Overheads 102 282 Securities and governance service 89 68 8,572 8,585
Compared to last year some reclassifications have been made to this item to provide a clearer representation of corporate events. The total of this item has not changed as the 2007 figures were also reclassified in order to
provide more meaningful comparison. Financia S.p.A. | Sopaf Sopaf 200 Specifically: • the item “Provision of services” mainly consists of expenses for tax and administration services (EUR 151 thousand); • the item “Legal and tax consulting” concerns services specifically relating to the legal sector (EUR 200 thousand), the tax/administrative sector (EUR 162 thousand) and the financial sector (EUR 17 thousand); • the item “Consulting for investment and disinvestment transactions” encompasses services provided for conclusion of a number of transactions (such as establishment of the Vintage Fund, assignment of the lease agreements, transactions on Fondo Immobili Pubblici) for approximately EUR 1,600 thousand and consulting for transactions that were not successfully concluded for approximately EUR 400 thousand ; • the items “Directors’ Fees” and “Statutory Auditors’ and Supervisory Board Fees” are itemised in a special section, which does not include the Supervisory Board fees totalling EUR 22 thousand; • the item “Leases” is made up of lease rental and related ancillary costs on properties for EUR 1,061 thousand and parking spaces/garages for EUR 17 thousand;
> 34 Personnel costs The item has recorded a downturn on the previous year following a policy to contain structure costs, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Wages and salaries 2,433 3,275 Social security costs 560 908 Employee severance indemnity 150 254 Other costs 36 40 3,179 4,477
> 35 Other operating costs These total EUR 1,419 thousand, posting a decrease of EUR 2,180 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Bank and trading charges - 634 Taxes 980 1,556 Entertainment expenses - 98 Contingent liabilities 276 1,203 Other operating costs 163 108 1,419 3,599
As mentioned in item 33 “Purchases of materials and external services”, compared to the previous year some reclassifications have been made to this item to provide a clearer representation. Specifically, compared to 2007, the item “Bank and trading expenses” were reclassified in 2008 partly to financial charges and partly to external services according to the nature of the costs, while the item “Entertainment expenses” was reclassified in 2008 to the item “Purchases of materials and external services”.
The item “Taxes and duties” mainly includes EUR 942 thousand for non-deductible VAT (pro-rata 100%) on 2008 purchases relating to financial operations. l Statements as at 31.12. 2008 l as at 31.12. Statements The item “Contingent liabilities” mainly includes taxes (100 thousand) due to the Luxembourg tax authorities to settle the tax position of the liquidated Star Venture I, notary expenses linked to the 2007 mergers (EUR 60 thousand) and receivables written off as unrecoverable (EUR 37 thousand).
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 201 > 36 Depreciation and amortisation expense This item totals EUR 582 thousand, posting a decrease of EUR 65 thousand, as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Amortisation of intangible assets 98 81 Depreciation of property, plant and equipment 484 566 582 647
> 37 Allocations to provisions for future charges The item has changed by EUR 212 thousand as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Provisions for future charges 212 - 212 -
The item “Provisions for future charges” essentially concerns the amount of EUR 212 thousand allocated against a payment request issued by the tax authorities in relation to a tax dispute that arose with the incorporated company LM Real Estate S.p.A. and relating to the 2004 tax period; the hearing on the merits to examine the petition filed by the company has been set for 7 April 2009.
> 38 Write-downs of receivables The item has changed by EUR 1,277 thousand as shown in the following table:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Write-down of loans 1,277 - 1,277 -
The item refers to the write-down for impairment of the receivable of EUR 1,277 thousand due from Elkbridge S.A. as illustrated in Note 13.
> 39 Gains/ (Losses) from disposals of non-current assets The item did not change during the year.
> 40 Net financial income/ (charges) The item breaks down as follows:
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 202
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Financial income Interest income on current accounts 72 252 Other interest income 635 625 Interest income on swaps 184 - Capital gains on securities held for trading 881 Income from derivatives 32,254 - Positive exchange differences 750 1 Total 34,776 878 Financial charges Interest expense on current accounts 273 798 Interest expense on borrowings 9,633 4,025 Interest expense due to subsidiaries 1,728 2,281 Interest expense on convertible bond loan 3,303 1,294 Interest expense on leases 542 105 Other interest expense 1,124 1,406 Capital losses on securities held for trading 583 - Losses from fair value adjustments 245 25 Derivative commissions 3,751 - Negative exchange differences 4 1 Total 21,186 9,935 Net difference 13,590 (9,057)
As mentioned in items 32 “Purchases of materials and external services” and 35 “Other operating costs”, compared to last year some reclassifications have been made to this item to provide a clearer representation of corporate events. The total of this item has not changed as the 2007 figures were also reclassified in order to provide more meaningful comparison.
The item “Sundry interest income” mainly refers to interest accrued on the credits claimed back from the tax authorities (EUR 284 thousand) and interest on extended loans (EUR 227 thousand).
The item “Income from derivatives” refers to EUR 27,703 thousand for fair value valuation as at 31 December 2008 of two forward contracts for the purchase and sale of 800 and 450 units respectively of the FIP fund, EUR 4,552 thousand for mark-to-market valuation of the equity swap concluded with a leading foreign bank counterparty which provides for Sopaf S.p.A., in exchange for payment of a fixed rate, for recognition of the income flows linked to the distribution of dividends/extraordinary financial income of Fondo Immobili Pubblici. Further information can be found in Note 12 and in Paragraph 45 “Additional information on financial instruments and risk management policies”.
The item “Interest expense on bank loans” of EUR 9,633 thousand includes the interest accrued on loans provided by various banks and the related accessory costs calculated using the amortised cost method.
The item “Interest expense due to subsidiary companies” is entirely represented by interest due on interest- bearing loans provided by the subsidiary LM & Partners S.C.A. up until the date of closure of the liquidation process on 18 December 2008 (EUR 1,728 thousand).
The item “Sundry interest expense” mainly includes interest on payables to the former shareholders of LM & l Statements as at 31.12. 2008 l as at 31.12. Statements Partners Sca relating to acquisition of their shares (EUR 693 thousand).
The item “Losses from fair value adjustments” refers to the adjustment to the mark-to-market of three IRS hedging contracts (EUR 245 thousand).
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 203 The item “Commissions for derivative financial instruments” includes commissions paid to a third party considered as transaction costs, upon finalisation of the forward purchase and sales contracts on FIP fund units and recorded on an accrual basis at the time the related service is completed.
> 41 Income taxes This item totals EUR (5,780) thousand and breaks down as follows:
01/01/2008 01/01/2007 31/12/2008 31/12/2007 Current tax payable (845) - Prepaid taxes (5,292) (890) Deferred taxes 357 118 (5,780) (772)
The changes in taxes during the year are shown below.
2008
Provisions for deferred taxes - Change in deferred tax rate - Deferred taxes utilised 357 Total deferred taxes 357 Prepaid tax credits utilised/cancelled (10,243) Change in prepaid tax rate - Recognition of prepaid taxes 4,951 Total prepaid taxes (5,292) Total (4,935)
The table below provides reconciliation between the effective tax burden and the theoretical tax burden determined on the basis of the tax rate in force in Italy relating to the company’s income tax:
Amounts in EUR/thousand 31/12/2008 31/12/2007 % tax rates
Income before tax 40,983 20,848 IRES tax rate 27.50% 33.00%
Theoretical IRES 11,270 6,880
Net operating margin 13,176 (25,874) Cost of personnel and other minor costs 5,236 4,477
Income before tax for IRAP purposes 18,412 (21,396) IRAP tax rate 4.81% 5.25% Theoretical IRAP 886 (1,123) Total theoretical taxation 12,156 5,756 32.31% 38.25%
Permanent tax differences: Tax effect of differences not deductible for IRES purposes 6,666 22,763 17.72% 151.26% Tax effect of differences not taxable for IRES purposes (9,030) (32,094) (24.00%) (213.26%) Tax effect of differences not deductible for IRAP purposes 41 1,123 11.00% 7.46%
Prepaid taxes on tax losses from past years (4,053) - (10.77%) - 2008 l as at 31.12. Statements Tax loss for the year not recognised as prepaid taxes - 1,771 - 11.77% Effect of tax rate change on deferred taxes - 1,453 -9.65%
Tax payables recognised to the income statement 5,780 772 15.36% 5.13%
Financia S.p.A. | Sopaf Sopaf 204 > 42 Basic and diluted earnings per share As provided by IAS 33, Sopaf S.p.A. reports the basic earnings per share as net profit (loss) for the year divided by the weighted average number of shares outstanding in the year, net of treasury shares and the diluted earnings determined by adjusting the net profit attributable to holders of ordinary capital instruments to take account of the effects of all the potential ordinary shares with dilution effect. Specifically the basic and diluted earnings per share are determined as follows: • Basic earnings per share: basic earnings per share are determined by dividing the economic result attributable to the holders of ordinary capital instruments by the weighted average of the ordinary shares outstanding during the year, net of treasury shares. • Diluted earnings per share: diluted earnings per share should take into account the potential reduction arising from exercise of the warrants issued and the conversions of convertible bonds in the assumption that all the potential ordinary shares with dilution effect are converted into ordinary shares.
For this purpose the dilution effect attributable to holders of ordinary capital instruments is adjusted by the amount, net of taxes, of interest relating to the convertible bonds reported during the year with reference to the potential ordinary shares and to reflect the change in income or charges that could arise from conversion of the potential ordinary shares with dilution effect. Potential ordinary shares are considered as having dilution effect only when their conversion into ordinary shares reduces the earnings per share deriving from the on-going ordinary activity. The earnings deriving from on-going ordinary activity are the earnings deriving from ordinary activity after exclusion of the components relating to assets under disposal and any effects of changes in accounting standards and of corrections of decisive errors. To calculate diluted earnings per share, the estimated average market price of shares to be issued is calculated on the basis of the average market price of the ordinary shares reported in the year. The number of shares considered for the calculation of diluted earnings per share is the sum of the ordinary shares outstanding and the number of ordinary shares to be issued in the event of conversion of all the potential ordinary shares with dilution effects. Potential ordinary shares with dilution effects are considered converted into ordinary shares at the beginning of the year. Specifically, in 2008 the number of ordinary shares with dilution effects include only the number of convertible bonds (1 ordinary share for 1 convertible bond - totalling 56,520,463 convertible bonds) which have a potential dilution effect on ordinary shares. Warrants have not been considered in the calculation of diluted earnings per share as their exercise price exceeds the average market value of the shares (out of the money) and hence this would generate an anti-dilution effect that should not be indicated. In 2007, the number of ordinary shares with dilution effects also includes the number of warrants (2 ordinary shares for 1 warrant – totalling 28,104,600 warrants) with conversion right, as corresponding to potential ordinary shares issued for a consideration that is lower than the average current market value reported in the year.
Basic earnings per share for the year 2008 compared with the previous year and reconciliation of the weighted average number of shares outstanding are provided below: 31/12/2008 31/12/2007 Basic earnings per share (No. of ordinary shares in thousands) N° of shares - opening balance 421,797 421,795 Weighted average of bonds converted to shares during the year 87 2 Treasury shares - opening balance (390) - Weighted average of treasury shares purchased during the year (4,127) (15) l Statements as at 31.12. 2008 l as at 31.12. Statements Weighted average of treasury shares sold during the year - - Weighted average of shares outstanding - closing balance 417,367 421,782
Amounts in EUR/thousand Share of net profit 35,204 20,076
Amounts in EUR Basic earnings per share 0.08435 0.04760 Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 205 Diluted earnings per share for the year 2008 compared with the previous year and reconciliation of the weighted average number of ordinary shares that would be issued by conversion of the potential shares with dilution effect are provided below: 31/12/2008 31/12/2007 Diluted earnings per share (No. of ordinary shares in thousands)
Weighted average of shares outstanding - closing balance 417,367 421,782 plus shares required for: Subscription options - 3,342 Bonds convertible at 3.875% 56,407 56,520 Potential dilution of ordinary shares 56,407 59,862
Weighted average of shares outstanding - closing balance 473,773 481,644
Amounts in EUR/thousand Share of net profit 35,204 20,076 Less: 3.875% interest on bonds after tax 2,395 299 Potential effect of conversions 2,395 299 Net profit available to ordinary shareholders plus potential conversions 37,598 20,375
Amounts in EUR Diluted earnings per share 0.07936 0.04230
It is also specified that the figures relating to the diluted earnings per shares published in the financial statements as at 31 December 2007 have been reprocessed through adjustments concerning calculation of the weighted average number of ordinary shares that would be issued by conversion of the potential shares with dilution effect in order to allow comparison with the calculation method adopted for 2008.
> 43 Closure of liquidation of the subsidiary LM&Partners SCA through assignment of assets and liabilities
On 18 December 2008 the procedure to liquidate the subsidiary LM&Partners SCA was closed with assignment to the sole shareholder Sopaf S.p.A of assets worth EUR 52,224 thousand and liabilities worth EUR 602 thousand, with positive shareholders’ equity equal to EUR 51,622 thousand.
The financial and economic effects of closure of liquidation of LM&Partners SCA are set forth below:
Amounts in EUR/thousand Values at the date of Incoming cash Netting of allocation flows infragroup relations and reimbursement of investment
Non-current assets 2,179 2,179 - Current assets 390 390 - Current assets from infragroup relations 49,504 - 49,504 Cash and cash equivalents 151 151 - Total Assets 52,224 2,720 49,504
Financial liabilities - - - Other liabilities 534 (534) - Non-current liabilities 534 (534) -
Financial liabilities - - - Other liabilities 68 (68) - l Statements as at 31.12. 2008 l as at 31.12. Statements Current liabilities 68 (68) - Total Liabilities 602 (602) -
Net assets 51,622
Netting of infragroup relations due to winding-up 49,504 Net incoming cash flows 2,118 2,118 Controlling investment in LM&Partners SCA (24,981) (24,981) Net capital gains from allocation 26,641 26,641
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 206 > 44 Net Financial Position
According to the provisions of CONSOB Notice dated 28 July 2006 and in compliance with CESR Recommendation dated 10 February 2005 “Recommendations for standardised implementation of the European Commission regulations on prospectuses”, it is reported that the net position of Sopaf S.p.A. as at 31 December 2008 is negative by EUR 130,018 thousand, posting an improvement of EUR 58,042 compared to the previous year, as shown in the following table:
31 December 31 December Change Net financial position 2008 2007 A) Cash 9 10 (1) B) Other cash and cash equivalents 1,376 9,774 (8,398) C)Securities held of trading 32,246 - 32,246 D) Total liquidity (A+B+C) 33,631 9,784 23,847 E) Current loans 3,055 4,280 (1,225) Due from Group companies 3,025 3,008 17 Due from others 30 1,272 (1,242) F) Current bank payables (54,398) (27,031) (27,367) G) Current portion of non-current borrowings (11,497) (30,736) 19,239 H) Other current financial payables (1,432) (24,570) 23,138 Due to Group companies (22) (21,881) 21,859 Due to others (1,410) (2,689) 1,279 I) Current financial borrowings (F+G+H) (67,327) (82,337) 15,010 J) Current financial borrowings, net (I-E-D) (30,641) (68,273) 37,632 K) Non-current bank payables (49,481) (57,162) 7,681 L) Bonds issued (44,669) (43,390) (1,279) M) Other non-current payables (5,227) (19,235) 14,008 Due to Group companies - - - Due to others (5,227) (19,235) 14,008 N) Non-current financial borrowings (K+L+M) (99,377) (119,787) 20,410 O) Net financial borrowings (J+N) (130,018) (188,060) 58,042
The improvement in the net financial position is attributable to a reduction in both short-term exposure, by EUR 37,632 thousand, and in medium-term exposure, by EUR 20,410 thousand. This improvement is mainly linked to the finalisation of important financial transactions during the year which led to an improvement in the company’s net financial position. l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 207 > 45 Commitments and guarantees A breakdown of the commitments undertaken and the guarantees provided is shown below:
31/12/2008 31/12/2007
Sureties and guarantees issued Sureties issued in favour of: - subsidiaries - - - associated companies - - - third parties 1,080 612 Treasury securities pledged and given as guarantees 55,946 73,196 Other guarantees 13,969 13,685 Sureties and guarantees issued 70,995 87,493
The item Sureties and guarantees issued in favour of third parties mainly refers to:
• EUR 312 thousand for a guarantee issued in favour of third parties at the time of disposal in previous years of Codis S.p.A.; • EUR 289 thousand for a letter of patronage issued in favour of a bank on behalf of the company Formula Sport Group S.r.l. (in liquidation); • EUR 479 thousand relating to two guarantees issued to secure two real estate lease contracts.
The company-owned securities pledged as security refer to securities of investee companies totalling EUR 55,946 thousand provided as guarantee to banks for short/medium term loans and specifically refer to:
• 2,350,357 Sadi S.p.A shares for a par value of EUR 1,222 thousand; • 12,145,430 Area Life shares for a par value of EUR 12,125 thousand; • 4,503,598 BNI S.p.A. shares for a par value of EUR 4,504 thousand; • 29,690,000 Petunia S.p.A. shares for a value of EUR 29,690 thousand; • 1,919,423 Conafi Prestitò S.p.A. shares for a value of EUR 3,516 thousand; • 3,445,585 Immsi S.p.A. shares for a value of EUR 1,792 thousand; • 22,759 Sun System S.p.A. shares for a value of EUR 23 thousand; • 4,982,148 A.F.T S.p.A. shares for a value of EUR 2,491 thousand; • 580,541 Life Science Capital S.p.A. shares for a value of EUR 581 thousand; • 2,250 Demofonte S.r.l. units for a value of EUR 2 thousand.
The other guarantees totalling EUR 13,969 thousand were issued in favour of a bank through assignment of receivables from the tax authorities claimed back in previous years.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 208 > 46 Additional information in financial instruments and risk management policies
With regard to the additional information on financial instruments and related risks required by IFRS 7 to illustrate the impact of financial instruments on the extent of related risk exposure, details are provided below on the policies and measures adopted by the company to manage financial risk exposure.
> 46.1 Classes of financial instruments
> Categories of financial assets and liabilities
The additional information required by IFRS 7 to assess the relevance of financial instruments with regard to the financial and economic position of Sopaf S.p.A. is provided below and set out separately for the two years under comparison.
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS Fair value financial Available-for-sale instruments held Assets held to Loans and financial Balance sheet Explanator Financial assets as at 31 December 2008 for trading maturity receivables instruments values y notes
Other financial assets: Investments - - - 97,338 97,338 7 Other financial assets - - 1,355 - 1,355 7 Loans (portion beyond 12 months) - - - - 339 7 Loans to related parties (portion beyond 12 months) - - 8,901 - 8,901 7
Loans: Loans to customers - - 3 - 311-ott Loans to related parties - - 973 - 973 11-ott Other receivables - - 3,396 - 3,396 11-ott
Other loans/current assets: Factoring loans - - 4,361 - 4,361 8
Current financial assets: Loans (portion within 12 months) - - - - (0) 13 Loans to related parties (portion within12 months) - - 3,055 - 3,055 13 Securities - - - - - 13 Hedges - - - - - 13 Non-hedging derivatives 32,246 - - - 32,246 12
Cash and cash equivalents Bank and postal deposits - - 1,385 - 1,385 14
TOTAL FINANCIAL ASSETS 32,246 - 23,430 97,338 153,353
IAS 39 CLASSIFICATIONS Fair value financial instruments held Liabilities at Balance sheet Explanator Financial liabilities as at 31 December 2008 for trading amortised cost values y notes
Non-current payables and financial liabilities: Bond loan - 44,669 - - 44,669 17 Bank payables - 54,173 - - 54,173 24 Lease payables - 534 - - 534 19 Other financial liabilities - - - - - 944
Current liabilities: Bond loan - 754 - - 754 23 Bank payables - 65,895 - - 65,895 17 Trade payables - 3,949 - - 3,949 27 Lease payables - 40 - - 40 25 l Statements as at 31.12. 2008 l as at 31.12. Statements Other payables - - - - 17,604 28 Payables to related parties - 1,624 - - 1,624 28
Other financial liabilities: Payables to factoring companies - - - - - Other financial liabilities - - - - - Hedges 616 - - - 616 26 Non-hedging derivatives - - - - - Financial liabilities to related parties - - - - - TOTAL FINANCIAL LIABILITIES 616 171,639 - - 188,915 Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 209
Amounts in EUR/thousand IAS 39 CLASSIFICATIONS Fair value financial Available-for-sale instruments held Assets held to Loans and financial Balance sheet Explanatory Financial assets as at 31 December 2007 for trading maturity receivables instruments values notes
Other financial assets: Investments - - - 130,496 130,496 7 Other financial assets - - 697 - 697 7 Loans (portion beyond 12 months) - - 122 - 122 7 Loans to related parties (portion beyond 12 months) - - 15 - 15 7
Loans: Loans to customers - - 106 - 106 11-ott Loans to related parties - - 1,625 - 1,625 11-ott Other receivables - - 7,294 - 7,294 11-ott
Other loans/current assets: Factoring loans - - 4,373 - 4,373 8
Current financial assets: Loans (portion within 12 months) - - 1,243 - 1,243 13 Loans to related parties (portion within12 months) - - 3,037 - 3,037 13 Securities - - - - - 13 Hedges - - - - - 13 Non-hedging derivatives - - - - - 12
Cash and cash equivalents Bank and postal deposits - - 9,784 - 9,784 14
TOTAL FINANCIAL ASSETS - - 28,295 130,496 158,792
IAS 39 CLASSIFICATIONS Fair value financial instruments held Liabilities at Balance sheet Explanatory Financial liabilities as at 31 December 2007 for trading amortised cost values notes
Non-current payables and financial liabilities: Bond loan - 43,390 - - 43,390 17 Bank payables - 61,557 - - 61,557 24 Lease payables - 14,840 - - 14,840 19 Other financial liabilities to related parties - 6,151 - - 6,151 20 Other financial liabilities - 4,461 - - 4,461 20
Current liabilities: Bond loan - 755 - - 755 23 Bank payables - 58,668 - - 58,668 17 Trade payables - 2,643 - - 2,643 27 Lease payables - 1,023 - - 1,023 25 Other payables - 10,013 - - 10,013 28 Financial payables to related parties - 21,880 - - 21,880 24
Payables to related parties - 12,879 - - 12,879 28
Other financial liabilities: Payables to factoring companies - - - - - Other financial liabilities - - - - - Hedges 11 - - - 11 26 Non-hedging derivatives - - - - - Financial payables to related parties - - - - - TOTAL FINANCIAL LIABILITIES 11 238,260 - - 238,271
2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 210 Separate information is provided below on the financial liabilities as required by IAS 7 within the various categories established by IAS 39 with current and non-current maturity for both 2007 and 2008.
Amounts in EUR/thousand 31/12/2008 31/12/2007
Non-current financial liabilities Convertible bond liabilities (44,669) (43,390) Secured bank loans (42,572) (47,162) Unsecured bank loans (6,909) (10,000) Lease payables (534) (14,840) Payables to related parties 0 (6,152) Other liabilities (944) (10,612) (95,628) (132,156) Current financial liabilities Convertible bond liabilities (754) (755) Secured bank loans (35,456) (42,645) Unsecured bank loans (26,368) (10,498) Bank payables for overdrafts (4,072) (5,524) Factoring advances (4,693) (4,395) Lease payables (40) (1,023) Loans from related parties (22) (21,858) Non-hedging derivatives: 0 (11) Trade payables (3,949) (2,643) Payables to related parties (1,599) (12,880) Other liabilities (17,691) (10,012) (94,644) (112,244) (190,272) (244,400)
> Financial income and charges recorded according to IAS 39
Net financial income and charges from financial assets and liabilities divided into the categories established by IAS 39 are reported below, with specification for each one of the nature of said income and charges: Amounts in EUR/thousand
From other From changes From equity From capital income/charg Exchange Net Explanato IAS 39 classifications as at 31 December 2008 From interest in fair value reserve losses/gains es gains/losses profit/loss ry notes
Financial instruments held for trading - 32,167 - - - - 32,167 40 Liabilities at amortised cost (15,468) - - - (5,442) (4) (20,914) 40 Financial instruments held to maturity ------Loans and receivables 1,587 - - - - 750 2,337 40 Available-for-sale financial instruments ------
TOTAL IAS 39 CLASSIFICATIONS (13,881) 32,167 - - (5,442) 746 13,590
Amounts in EUR/thousand
From other From changes From equity From capital income/charg Exchange Net Explanato IAS 39 classifications as at 31 December 2007 From interest in fair value reserve losses/gains es gains/losses profit/loss ry notes
Financial instruments held for trading ------
Liabilities at amortised cost (9,531) - (25) - (378) (1) (9,935) 40 l Statements as at 31.12. 2008 l as at 31.12. Statements Financial instruments held to maturity ------
Loans and receivables 877 - - - - 1 878 40
Available-for-sale financial instruments ------
TOTAL IAS 39 CLASSIFICATIONS (8,654) - (25) - (378) - (9,057)
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 211 Furthermore, the gains and losses deriving from fair value valuations previously carried directly to shareholders’ equity and which have been carried to the income statement following assignment or entry of impairment of available-for-sale financial assets are also reported below. These gains were carried to the income statement under the item “Gains/losses from disposals of non-current assets”.
Amounts in EUR/thousand From equity IAS 39 classifications as at 31 December 2008 reserve
Financial instruments held for trading -
Liabilities at amortised cost -
Financial instruments held to maturity -
Loans and receivables -
Available-for-sale financial instruments 1,059
Total capital gains/losses 1,059
Amounts in EUR/thousand
From equity IAS 39 classifications as at 31 December 2007 reserve
Financial instruments held for trading -
Liabilities at amortised cost -
Financial instruments held to maturity -
Loans and receivables -
Available-for-sale financial instruments 51,472
Total capital gains/losses 51,472
> Fair value of financial assets and liabilities and calculation criteria
The fair value of financial assets and liabilities is calculated as follows: • The fair value of financial assets and liabilities with standard terms and conditions and listed on an active market, is measured with reference to the prices published in the active market; • The fair value of other financial assets and liabilities (excluding derivative instruments) is measured using commonly accepted valuation techniques based on discounted cash flow analysis models using, as variables, the observable prices deriving from recent market transactions and from broker prices for similar instruments; • The fair value of derivative instruments, if listed on an active market, is calculated on the basis of market prices; if these prices are not published, other valuation techniques are used according to the type of instrument.
Specific distinction can be made between:
• interest rate swaps (IRS): to determine the fair value of IRS the discounted cash flow analysis method is
used; 2008 l as at 31.12. Statements • structured swaps: the instrument is broken down into a plain component and an optional component of which the values are defined separately and summed (“building block”).
It is specified that the book value of financial assets and liabilities, excepting investments, available-for-sale financial assets and derivative instruments, approximates their fair value. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 212 > 46.2 Capital Management The capital management objectives of Sopaf S.p.A. are geared towards safeguarding the Group’s capacity to continue to guarantee profitability for shareholders, the interests of stakeholders, the observance of covenants in relation to pertinent liabilities and the maintaining of an optimum capital structure. The company records 5,200,000 treasury shares for a total investment of EUR 2,363 thousand, of which 4,809,737 purchased in the first half of 2008, to conclude the purchase plan deliberated by the shareholders’ meeting of Sopaf S.p.A. held on 27 November 2007. The weighted average cost of the transaction was equal to EUR 0.4545 per share. On 28 June 2008 the Sopaf S.p.A. shareholders’ meeting resolved to cancel the authorisation to purchase treasury shares for the remainder of the validity period. The treasury shares will be held in portfolio, unless traded, exchanged, transferred or subject to other act of disposition as part of business plans or extraordinary finance transactions for which the shareholders’ meeting approved authorisation for a period of eighteen months, in compliance with the prevailing legal and regulatory provisions, regulations issued by Borsa Italiana S.p.A. and in observance of applicable EU provisions. In this case, the economic terms of the sale transaction, including valuation of the shares traded, will be determined with the assistance of independent experts, on the basis of the nature and characteristics of the transaction, also taking into account the market performance of the Sopaf S.p.A. shares.
> 46.3 Risk management policies The company’s Finance Department is responsible for all the activities concerning financial risk management and is the only body qualified to monitor risks and define the related hedging policies. The main sources of risk and the admissible hedging strategies are set forth below.
> Interest rate risk
The interest rate risk management policy adopted by the company aims to: • reduce the impact that a rise in the interest rate curve could have on corporate cash flows; • minimise the overall cost to be incurred for hedging, executing the transactions more efficiently and effectively to achieve better contractual terms. The Sopaf Group aims to limit this risk by arranging interest rate swaps. The definition stage of the management strategy refers to identification of the desired risk protection profile (total, partial or zero hedging) and possible management strategies applicable in the corporate context (static or dynamic management). By associating propensity to risk with the potential economic impact of the risk in question, the Finance Department defines an initial draft strategy. This strategy is then assessed by verifying expected future interest rate trends formulated by leading bank and financial broker counterparties with whom the Sopaf Group operates on a regular basis.
The interest rate risk management methods do not involve daily observation of the markets, but rather a periodic analysis of the positions based on specific needs. This type of management therefore allows for existing hedges to be reduced or increased in order to partially benefit from any favourable changes in interest rates. Hedges may be generic to cover the company’s debt exposure or specific to cover certain loans. Whether they qualify as “hedge transactions” pursuant to IAS 39 is decided on a case-by-case basis and approved by the Finance Department. Counterparties are leading banks and financial brokers with a minimum rating of investment grade (BBB, S&P), without prejudice to exceptions formally authorised by the Board of Directors. As required by IAS 39, hedge accounting may be applied if the hedging relationship is highly effective both at the time it is implemented and throughout the life of the hedging transaction. Hedge effectiveness is verified through special tests performed: • at the start of the hedge and at the closing date for the production of financial statements/management l Statements as at 31.12. 2008 l as at 31.12. Statements reports – prospective testing; • at the date of every report and at the closing date of the hedge – retrospective testing.
> Liquidity risk
For Sopaf the liquidity risk represents the likelihood of the company encountering difficulties in meetings its financial liability commitments.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf This may derive from: 213 • insufficient available financial resources, own funds or indebtedness to meet financial obligations according to established terms and deadlines in the event of sudden closure of its uncommitted lines of credit; • the likelihood of the company needing to settle its financial liabilities sooner than expected.
The general aim of liquidity risk monitoring is linked to the availability and management of sources of liquidity used to provide secure, stable and economic coverage of current and future commitments of the company. The activity is geared towards prudent management of liquidity risk, and therefore it is preferable to maintain an appropriate mix of liquid funds and/or financial assets and availability of usable funds through sufficient lines of credit diversified across several banks and with a short/medium-term timescale.
The planning instruments used to estimate liquidity needs are: - annual capital planning: drafted by the Finance Department which, based on corporate strategies, prepares an annual budget, approved by the CEO and the Chairman of the Board of Directors; - monthly planning document: drafted by the controller using 3-month rolling forecasts, the document is updated weekly based on documentation prepared by the Accounting Department (Treasury report).
The reports produced aim to support the company at the planning stage of investment/disinvestment strategies, which represents its core business.
> Credit risk
The company manages credit risk through a commercial counterparty screening procedure that involves analysis of the counterparty’s economic and financial position, performed when determining the limit of the initial credit line and through continuous monitoring of observance of payment conditions. Where necessary, the credit limit previously assigned is adjusted. The company does not have particularly risky loan positions with commercial parties and in general all credit positions are adequate to the credit line provided.
> Exchange risk
Sopaf Group business is concentrated mainly in the Eurozone. Where investments are in currencies other than the Euro, the Group makes a case-by-case assessment as to whether existing uncertainties are sufficient to warrant the activation of specific exchange risk hedges.
> 46.4 Credit risk Credit risk represents the Group’s exposure to potential losses arising from the failed performance of obligations undertaken by both commercial and financial counterparties. This risk mainly derives from factors of a typically economic/financial nature, that is from the possibility of counterparty default, and from factors of a more strictly technical/commercial or administrative/legal nature.
> Exposure to credit risk
As at year end 2008 and 2007, the Company’s exposure to credit risk was as follows.
Credit risk exposure 31/12/2008 31/12/2007 Loans to third parties 11,927 3,145 2008 l as at 31.12. Statements Loans to related parties 867 1,969 Trade receivables from third parties 3 105 Trade receivables from related parties 1,003 1,053 Other receivables 4,332 8,482 Cash and cash equivalents 1385 9784 19,517 24,538
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 214 > Receivables and bad debt provision
Changes in the bad debt provision for trade and sundry receivables is summarised in the table below:
Amounts in EUR/thousand 31/12/2008 31/12/2007
Balance as at 1 January (135) (135) Provisions/Impairment for the year (1,277) - Utilisation for the year 135 -
(1,277) (135)
With regard to the valuation criteria for loans and receivables, it is specified that these financial assets are subject to impairment if and only if there is objective evidence to suggest a reduction in value as a result of one or more events that have occurred after initial recognition of the asset and if that event (or events) has an impact on the asset’s estimated future financial flows. Impairment estimates must not include the expected losses deriving from future events, regardless of the likelihood that they will occur. If the presence of impairment is ascertained, the company will assess each receivable that is individually significant, or will consider receivables on the whole. The company calculates the impairment on the basis of rules that differ according to the different accounting procedures used for the receivables. Specifically the procedure for calculating the extent of the impairment applicable to loans and receivables entered at amortised cost provides that the impairment loss is measured as the difference between the asset’s book value and the current value of estimated future financial flows discounted at the financial instrument’s original effective interest rate. In accounting terms, the asset’s value must be reduced directly or indirectly through allocation to a liability provision. The amount of the adjustment is entered in the income statement for the year.
During the year an impairment write-down of EUR 1,277 thousand was entered on loans against an estimated impairment on a residual loan relating to an agreement entered into on 16 February 2005 by LM ETVE S.p.A. (later merged into Sopaf), concerning assignment of the investment in Appaloosa Arbitrage Fund Ltd. shares, for an original value of EUR 1,815 thousand. The value of this loan, entered at amortised cost, was reduced on the basis of an expected loss measured as the difference between the asset’s book value and the current value of estimated future financial flows discounted at the financial instrument’s effective interest rate.
The table below provides a breakdown of third party trade receivables outstanding as at 31 December 2008 and 2007 for trade receivables that are not yet due (line “To fall due”) and past due with indication of the past due period (lines “0-180 days”, and “180-360 days” and “Over 360 days”).
Amounts in EUR/thousand 31/12/2008 31/12/2007
Par value Write-downs Par value Write-downs
Maturity 3 - 104 - 0-180 days - - - - 180-360 days - - 1 - Beyond 360 days - - - -
l Statements as at 31.12. 2008 l as at 31.12. Statements 3 - 105 -
A breakdown is also provided of the other financial assets for which the maximum exposure to credit risk is represented by the book value.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 215 The item non-current loans and receivables breaks down as follows:
31/12/2008 31/12/2007 Loans to subsidiaries Tenerani S.r.l. - 100 Loans to associated companies China Opportunity S.A. Sicàr 4,896 - Nearco Inv. S.àr.l. - 22 S.F.E.R.A. S.r.l. - 15 Sopaf&Partners RE-Investment S.r.l. 4,006 - Other loans Other credit facilities 338 135 Total non current loans and receivables 9,240 272
The receivable of EUR 4,896 thousand from China Opportunity refers to the performance fees accrued by the Parent Company Sopaf S.p.A. as at 31 December 2008. These performance fees are paid to Sopaf as holder of class A shares, which accrue rights to subscribe class B at par value proportional to the company’s performance.
The Sopaf & Partners RE Inv. S.r.l. receivable refers to an interest-bearing loan provided for a total of EUR 4,006 thousand to be used partly for acquisition of a property/hotel complex in Capri, through establishment of the company Tiberio S.r.l., which is 20% owned by Sopaf & Partners Re S.r.l., and partly to support finalisation of new transactions. The item “current loans” breaks down as follows:
31/12/2008 31/12/2007 Receivable from Sopaf Small Cap Europe 1,517 - Loan to Demofonte S.r.l. 1,508 3,008 Loan to third parties 30 1,272 3,055 4,280
Current loans as at 31 December 2008 include: • EUR 1,517 thousand for a receivable from Sopaf Small Cap Europe referring to the receivable for liquidation of the fund of the same name. The receivable was fully collected during January 2009; • EUR 1,508 thousand for an interest-free loan provided by the Parent Company Sopaf S.p.A. to Demofonte S.r.l.
Furthermore, as already reported, the item “current loans” include EUR 1,277 thousand for a residual loan relating to an agreement entered into on 16 February 2005 by LM ETVE S.p.A. (later merged into Sopaf), concerning assignment of the investment in Appaloosa Arbitrage Fund Ltd. shares, entirely written-down as at 31 December 2008.
The item Other current loans breaks down as follows:
31/12/2008 31/12/2007
Sundry receivables from subsidiaries - 340 2008 l as at 31.12. Statements Sundry receivables from associated companies 30 38 Receivables on acquisition cost of investments 350 - Other receivables 3,982 8,482 4,362 8,860
The item “Other loans”, equal to EUR 3,982 thousand, mainly includes: Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 216 • EUR 580 thousand for receivables due from Coemi Property S.p.A. for partial succession to the loan from Sopaf S.p.A. to the sold company S. Apostoli S.r.l., of which the maturity was extended from 31 December 2008 to 31 December 2009; • EUR 2,628 thousand for receivables due from the company Dascal S.p.A. for assignment of investments, maturing next year following an extension granted to the counterparty; • EUR 1,083 thousand for receivables acquired from Nova Surgelati S.p.A. (effect of the award in settlement of arbitration between Sopaf S.p.A. and Arena Surgelati) and sundry receivables written-off in full from the special provision; • EUR 398 thousand for a receivable for advance of expenses due from a number of investors partnering Sopaf in a transaction to recapitalise the Aedes Group, which was not concluded successfully.
Receivables factored without recourse total EUR 4.3 million and are included in the item non-current tax credits. The item specifically includes IRPEG tax credits for which reimbursement was requested for 1998 and 2001 (totalling EUR 3,516 thousand) and related interest (of EUR 836 thousand), assigned in 2007 to a finance company as part of a without recourse factoring transaction. As the requirements of IAS 39 are not met in full for the purpose of derecognition of this item, it has been retained in the balance sheet with a corresponding payable to the factor. Advances have been obtained from the assignee for these receivables and have been entered under the item payables to factor for EUR 4,619 thousand.
> Derivative financial instruments
In selecting counterparties with which to enter into financial hedging contracts (derivative instruments) the Group applies only to those that have a high credit standing.
> Cash and cash equivalents
Group cash and cash equivalents stand at EUR 1,385 thousand (EUR 9,784 thousand as at 31 December 2007) and consist of bank deposits and readily available funds. In selecting counterparties for management of temporary surpluses of financial resources and for entering into financial hedging contracts (derivative instruments) the Group applies only to those that have a high credit standing. In this respect it is reported that as at 31 December there are no significant exposures to risks associated with any further deterioration of the global financial scenario.
> Guarantees provided and received
As at 31 December 2008 no guarantees have been received by the Group to secure loans to third parties. Guarantees have instead been issued to third parties for EUR 791 thousand (323 thousand as at 31 December 2007) mainly to secure commercial lease agreements. With regard to guarantees provided, there is no evidence of significant exposure to risks for future liabilities.
> 46.5 Market Risk The risks assumed by the company as a result of fluctuations of market variables can be identified as the risk of fluctuation of the interest rate curve. An illustration is provided of the actual exposure to this source of risk as at 31 December 2008 and of the possible impact on the balance sheet of plausible changes in the risk factor. l Statements as at 31.12. 2008 l as at 31.12. Statements
> Interest rate risk
The company is exposed to interest rate risk for its variable rate, medium/long-term debt obligations. Sopaf S.p.A. is exposed to interest rate fluctuations, which have repercussions on the amount of financial charges on borrowings. The benchmark parameter for establishing the interest rates of the outstanding loans is EURIBOR. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 217 The table below identifies the book value of the positions subject to interest rate risk:
31/12/2008 31/12/2007
Floating rate liabilities Non-current bank loans (49,481) (61,557) Current bank loans (35,455) (58,667) Unsecured bank loans (27,868) - Bank payables for overdrafts (2,572) - Factoring advances (4,693) - Lease payables (574) (14,840) Loans from related parties - (21,402) (120,643) (156,466) Fixed rate liabilities Non-current convertible bond liabilities (45,423) (43,390) Current convertible bond liabilities - (755) Other non-current liabilities - (10,612) Payables to related parties - (6,152) Other current liabilities (17,692) (10,013) (63,115) (70,922) (183,758) (227,388)
The terms and contractual positions of the bank loan contracts are shown in the table below:
31/12/2008 31/12/2007
Curren Initial par Initial par cy Spread terms value Book value value Book value
Floating rate bank loans: Bank loans with maturity within 1 year Euro 0.9 - 1.25 bps 23,045 (23,211) 10,000 (9,999) Bank loans with maturity within 1 year Euro 1.25 - 2 bps 26,452 (24,958) 30,452 (30,573) Bank loans with maturity within 2 years Euro 1.25 - 2 bps 3,000 (3,046) 3,000 (3,000) Bank loans with maturity within 3 years Euro 1.25 - 2 bps 7,750 (7,427) 11,250 (11,210) Bank loans with maturity beyond 3 years Euro 0.9 - 1.25 bps 2,000 (2,012) - - Bank loans with maturity beyond 3 years Euro 1.25 - 2 bps 31,500 (31,539) 31,500 (31,350) Bank loans with maturity beyond 3 years Euro Over 2 bps 22,500 (17,203) 22,500 (22,074)
Current account overdrafts Euro 5,979 (5,980) 1,280 (1,280)
Promissory notes Euro - - 2,689 (2,689) Total bank payables 122,226 (115,376) 112,671 (112,175)
The exposure to risk of changes in the interest rate as at 31 December 2008 on total financial borrowings, considering the interest rate risk hedging policy in place, is set forth in the table below:
2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 218
31/12/2008 31/12/2007
Floating rate liabilities
With derivatives (50,265) 42% 27% (56,424) 36% 25% Without derivatives (70,378) 58% 38% (100,042) 64% 44% (120,643) 100% 66% (156,466) 100% 69%
Fixed rate liabilities
With derivatives - 0% 0% - 0% 0% Without derivatives (63,115) 100% 34% (70,922) 100% 31% (63,115) 100% 34% (70,922) 100% 31%
Total gross borrowing (183,758) (227,388)
As indicated in the tables provided above, exposure to the risk of changes in the interest rate as at 31 December 2008 may be quantified as approximately 38% of the Sopaf S.p.A.’s total gross exposure (44% as at 31 December 2007); the residual 34% at fixed rate (31% as at 31 December 2007), derives from the combination of payables originally at pre-set fixed rate and derivatives placed to hedge bank loans and the bond payable with fixed rate.
The interest rate mainly originates from variable rate financial payables and from indexing of finance lease agreements that expose the company to a cash flow risk. Risk management aims to limit oscillation of the financial charges that affect the economic result, containing the risk of a potential interest rate rise.
The interest rate risk hedging policy is based on the following guidelines. Sopaf S.p.A. enters into derivatives with the aim of reducing volatility of financial charges. These are hedging transactions that partly qualify as such pursuant to IAS 39, and partly according to an economic hedge prospective, and in both cases aim to mitigate the effect of changes in the benchmark parameter EURIBOR on financial charges, while maintaining part of the benefits associated with any rate reductions. The objective is achieved through a suitable combination of fixed and variable rates in the composition of debt, after hedging.
Following this approach the company uses derivative contracts entered into with third party counterparties for the purpose of predetermining or limiting the change in cash flows due to market changes in the aforesaid interest rates, with regard to medium/long-term payables. The minimum term of 18 months of residual duration of a transaction is deemed to be an appropriate timeframe for managing the risk of interest rate change. Hedge accounting is used from the date the derivative contract is entered into up to the date of its discharge or maturity, documenting with special report the risk subject to hedging and the purpose of the hedging relationship and regularly verifying its effectiveness. The cash flow hedge method provided by IAS 39 is specifically used. According to this method the effective portion of the change in value of the derivative is reflected in a shareholders’ equity reserve which is used to adjust the value of the income statement interest subject to hedging, when required. Assessment of the effectiveness aims to show the high correlation between the technical/financial characteristics of the hedged liabilities (maturity, amount, etc.) and those of the hedging instrument by carrying out special prospective tests. The fair value of the Interest Rate Swaps is obtained by discounting the cash flows determined as differential of the fixed and variable rates established in the contract. The fair value of the Interest Rate Swaps is obtained through mark-to-market valuation recorded as at 31
l Statements as at 31.12. 2008 l as at 31.12. Statements December 2008.
Details of the IRS derivative instruments in place are provided below:
Fixed rate at maturity • notional value EUR 21.25 million 3.885% September 2012 • notional value EUR 3 million 3.7% June 2011
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 219 Variable rate at maturity • 3 month EURIBOR; maturity: September 2012 • 6 month EURIBOR; maturity: June 2011
> Sensitivity analysis – interest rate risk
Financial instruments exposed to interest rate risk were subject to sensitivity analysis at the reporting date. The assumptions on which the model is based are set forth below.
> Financial liabilities
For short and medium/long-term payables, finance leases and other current financial liabilities the amount of the financial charges was redetermined by applying a symmetric variation of the estimated interest rate curve as at 31 December 2008 of +/- 100 basis points and +/- 50 basis points. Analysis was performed by assuming that the other variables are constant and was performed for 2007 using the same assumptions.
The table below provides indication of the impact on the income statement of the sensitivity analysis of financial liabilities:
Amounts in EUR/thousand 31-dic-08 31 December 2007 Increase by 100 Decrease by 100 Increase by 100 Decrease by 100 bps bps bps bps
Change in cash flow (1 year) Floating rate loans (2,798) 80 (1,049) 1,049 Lease payables (82) 82 (159) 159 Floating rate credit facilities - - - -
Net cash flow sensitivity (2,881) 162 (1,208) 1,208
31-dic-08 31 December 2007 Increase by 50 Decrease by 50 Increase by 50 Decrease by 50 bps bps bps bps
Change in cash flow (1 year) Floating rate loans (2,119) 760 (525) 525 Lease payables (41) 41 (79) 79
Floating rate credit facilities - - - -
Net cash flow sensitivity (2,160) 801 (604) 604
> Derivative financial instruments – Interest Rate Swaps
For Interest Rate Swaps the fair value valuation calculated on the basis of forward rates implicit in the interest
rate curve applicable at the reporting date was changed by applying a parallel and symmetric shift of 100 bps to 2008 l as at 31.12. Statements the interest rate curve applicable at the reporting date. The impact on the income statement and on shareholders’ equity was calculated on the basis of the effectiveness of the IRS recorded during the year. In determining the aforesaid impacts account was taken of the consequent effect on unwinding of the cash flow hedge reserve to the income statement.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 220 The table below summarises the change in Profit (loss) for the year and in Shareholders’ Equity following the sensitivity analysis performed gross of the consequent tax effects:
Amounts in EUR/thousand
Floating Diff. +100 31/12/2008 Book value Par value Fixed rate rate 31/12 Diff. 31/12 +100 bps -100 bps bps Diff. -100 bps
Interest rate swaps (517) (517) 21,250 3.885% 2.928% 0.957% 3.93% 1.93% 0.04% -1.96% Interest rate swaps (99) (99) 3,000 3.700% 3.000% 0.700% 4.00% 2.00% 0.30% -1.70%
(616) (616) Effect on income statement 61 (1,432) Effect on shareholders' equity 18 (467)
The company expects to be able to appropriately withstand the interest rate risk reflected in the value of the financial liabilities deemed compatible with the expected proceeds from its financial assets.
> 46.6 Analysis of forward transactions and derivative instruments With regard to derivative instruments relating to the risk of market oscillation of underlying assets, the company has implemented transactions in trading derivative instruments. The result accrued for these transactions and their prospective value have been included under financial income and charges in relation to transactions of a financial nature.
> Derivative instruments outstanding as at 31 December 2008
The table below provides the following information: • • the derivative contracts outstanding at the reporting date, analysed by maturity; • • the balance sheet value of these contracts, represented by their fair value; • • the portion of the fair value referred to in the previous point carried to the income statement from the contract date gross of the related tax effect. Amounts in EUR/thousand
of which of which income shareholder 6 months Beyond 3 31/12/2008 statement s' equity Book value or less 6-12 months 1-2 years 2-3 years years
Interest rate swaps (516) - (516) (516) (440) (309) (216) (64) - Interest rate swaps (99) (99) - (99) (52) (9) - - - Equity linked swap - FIP units 4,543 4,543 - 4,543 4,357 4,172 3,379 2,586 5,930 Forward - FIP unit sales 713 713 - 713 718 - - - - Forward - FIP unit purchases 26,990 26,990 - 26,990 28,419 - - - - 31,631 32,147 (516) 31,631 33,002 3,854 3,163 2,522 5,930
Given that Interest Rate Swaps partly qualify as hedging pursuant to IAS 39 of the financial flows (cash flow hedge), the risk of change in the fair value of these derivatives has been reported and analysed in the previous note on the interest rate risk.
With regard to the other derivative financial instruments that do not qualify as hedging pursuant to IAS 39, it is specified that these instruments meet the requisites of generic hedges, in line with corporate risk policies, and hence the result accrued and the fair value have been included under financial income and charges.
Details of the outstanding contracts are provided below: l Statements as at 31.12. 2008 l as at 31.12. Statements > Derivative instrument – Equity linked Swap FIP
As at 31 December 2008 an “Equity linked Swap” transaction is outstanding for a value of EUR 4,543 thousand, and represents the fair value of an asset swap entered into by Sopaf with an important financial counterparty of which the notional value is made up of 209 units of Fondo Immobili Pubblici equal to EUR 30 million. The contract provides for the payment by Sopaf S.p.A. of a fixed rate of 5.5% in exchange for a variable rate equal to the income distributed by the fund increased by 50% of the extraordinary capital gains paid to Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 221 subscribers for disposal of the fund’s real estate assets. This instrument, which is a trading derivative, matures on 7 October 2019 and provides an option to accelerate closure of the contract at the end of the fifth year if certain conditions are met. The fair value valuation of the components of this derivative instrument has been determined on the estimate of the discounted future cash flows deriving from implementation of the business plan. This valuation was carried to the income statement for EUR 4,543 thousand gross of accessory charges for commissions of EUR 752 thousand.
> Sensitivity analysis: Analysis of this derivative’s sensitivity at the reporting date can be adequately determined with reference to the change in the variable linked to trends in real estate, represented by the annual expected change in real estate prices. Data relating to three alternative scenarios is set forth below: • Stable price scenario (annual increase equal to 0% for the 2009-2018 period) the swap’s mark-to-market falls to EUR 4,288 thousand (lower that the mark-to-market as at 31 December 2008 by EUR 255 thousand); • Rising price scenario (annual increase equal to 4% for the 2009-2018 period) the swap’s mark-to-market rises to EUR 5,704 thousand (higher than the mark-to-market as at 31 December 2008 by EUR 1,161 thousand); • Falling price scenario (annual decrease equal to 1% for the 2009-2018 period) the swap’s mark-to- market falls to EUR 3,940 thousand (lower than the mark-to-market as at 31 December 2008 by EUR 603 thousand).
> Derivative instrument – Forward purchase and sale of FIP units
The item relating to the forward transactions to purchase units of the FIP fund total EUR 26,990 thousand and refers to a forward purchase contract entered into on 30 December 2008 by Sopaf S.p.A. concerning 800 class A units of the closed-end real estate investment fund reserved to institutional investors entitled “FIP – Fondo Immobili Pubblici” for a total consideration of EUR 80 million. At the same time Sopaf S.p.A. entered into a forward sale contract concerning 450 units of the same fund for a total price of EUR 60 million, of which the fair value as at 31 December 2008 is positive by EUR 713 thousand. Both the aforesaid transactions were finalised in March. The total fair value valuation as at 31 December 2008 of these two forward contracts is positive by EUR 27,703 thousand. The fair value valuation of both the forward purchase and sale transactions was performed on the basis of a valuation that considered market expectations (how the market would price the financial asset in question), the risk factors and the yield factors inherent in the financial asset and the time factor, therefore requiring discounting of the financial flows of the positions underlying the forward commitments established by the contracts. The market risk relating to these forward contracts is predefined considering that the forward transactions were finalised in March 2009.
> Derivative instrument – Asset Swap FIP
Furthermore, on 31 March 2008 Sopaf entered into an asset swap agreement on 128 units of the Fondo Immobili Pubblici with a notional value of EUR 19,840 thousand. According to contractual provisions, Sopaf pays a variable rate (EURIBOR + spread) and in exchange receives a portion of the operating income distributed by the fund. This trading instrument has a 7-year duration and also provides Sopaf with a purchase option on 64 units of Fondo Immobili Pubblici and the counterparty with an option to withdraw from the agreement without paying a penalty. The valuation of all components of this derivative gives a zero value as at 31 December 2008. l Statements as at 31.12. 2008 l as at 31.12. Statements
> 46.7 Liquidity Risk The liquidity risk is the risk that the company may have difficulty meeting future obligations associated with financial liabilities if financial resources are not sufficient to meet the obligations within the established terms and due dates. The company's aim is to achieve a balance between maintaining its bank credit rating and exploiting flexibility through the use of overdraft facilities, short-term hot-money facilities and medium-term loans. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 222 With regard to the maturities of cash flows relating to the company's financial exposure and considering the nature of its cash flow cycle, for liquidity risk purposes, the repayment plans for medium-term secured borrowings, including medium-term financing obtained for investment acquisition projects, are deemed to be of particular importance. Risk analysis performed aims to quantify, on the basis of contractual maturities, the cash flows deriving from repayment of non-current financial liabilities held by the company as at 31 December 2008 as they are considered significant for the purpose of liquidity risk.
In order to provide a view of the liquidity risk on the Group’s financial exposure arising from cash flows scheduled for repayment of financial borrowings and other non-current liabilities, the cash flows relating to the payment plan for annual periods are provided below.
The details provided below represent the worst case scenario, which shows: • the future nominal outgoing cash flows, for both principal and interest, with regard to financial liabilities (excluding trade payables) and interest rate derivative contracts; • financial assets are not considered; • assumes that banks loans mature on demand, if they are uncommitted credit lines, and if this is not the case the expiry date is established on the basis of the first maturity at which repayment may be demanded.
In order to provide a view of the liquidity risk on the Group’s financial exposure (arising from cash flows scheduled for repayment of financial borrowings and other non-current liabilities), the cash flows relating to the payment plan for annual periods are provided below. In this regard it is specified that cash flows relating to payments scheduled on non-current financial liabilities have been quantified by calculating the net present value of future flows generated by the financial instrument, taking the principal repayment plan defined in the contract into account. Future interest rates were estimated on the basis of the annual IRS yield curves implicit in the EURIBOR curve as at 31 December 2008.
The tables below summarise the analysis performed comparing the situations as at 31 December 2007 and as at 31 December 2008: Amounts in EUR 12 months 31/12/2007 Contractual value or less 2 years 3 years 4 years 5 years beyond 5 years
Convertible bond liabilities (58,630,209) 49,738,007 1,932,628 1,927,348 1,927,348 1,927,348 50,915,538 - Bank loans (124,976,770) 111,390,860 58,855,528 27,800,905 13,873,908 13,239,207 11,207,223 - Unsecured bank loans ------Payables to related parties (19,031,090) 19,031,090 12,879,545 6,151,545 - - - - Loans from related parties (25,273,327) 24,318,827 25,273,327 - - - - - Other liabilities (21,801,096) 23,602,084 10,764,798 11,036,298 - - - -
Derivatives with negative fair value: Trading derivatives ------Hedges ------
(269,720,182) 252,408,675 111,288,376 48,500,045 17,386,658 18,019,106 69,259,509 5,266,488
Amounts in EUR 12 months 31/12/2008 Contractual value or less 2 years 3 years 4 years 5 years beyond 5 years
Convertible bond liabilities (56,798,735) 49,738,007 1,925,653 1,925,653 1,925,653 51,021,776 - - Bank loans (118,938,081) 117,622,439 66,590,023 20,284,550 17,387,313 14,676,195 - - Unsecured bank loans (17,996,569) 23,602,084 17,996,569 - - - - - Factoring payables for credit facilities granted (4,692,845) 4,372,685 - - - - 4,692,845 - Bank payables for overdrafts (2,572,158) 2,572,158 2,572,158 - - - - - Lease payables (730,545) 567,377 52,816 52,583 52,351 52,120 520,676 - l Statements as at 31.12. 2008 l as at 31.12. Statements Other liabilities (17,996,569) 23,602,084 17,996,569 - - - - -
Derivatives with negative fair value: Trading derivatives ------Hedges 810,522 215,784 64,132 - - -
(219,725,503) 222,076,836 107,944,311 22,478,570 19,429,449 65,750,091 5,213,521 -
The difference between the book values and the total financial flows is mainly attributable to calculation of the interest for the contractual duration of the payables due to banks. Furthermore, on loans valued with the Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 223 amortised cost method, the interest calculation method provides for use of the nominal rate rather than the effective rate of return.
In this context the Group expects to meet its financial commitments through appropriate management of its standard activity, by disposing of assets, renegotiating current loans, raising new loans and finalising opportunistic transactions that allow the generation of positive cash flows.
> 46.8 Default Risk and debt covenants This risk concerns the possibility that the loan contracts or the regulations of the bond issue, to which Sopaf S.p.A. is party, contain provisions that entitle counterparties, whether they be banks or bondholders, to ask the debtor, upon occurrence of certain events, to execute immediate repayment of the sums provided, thus generating a liquidity risk. Sopaf S.p.A. still has an outstanding bond issue with a total par value of EUR 45.5 million. In this respect it is specified that Sopaf S.p.A. has an outstanding syndicated loan for a total residual debt of EUR 47.8 million, which was raised to support acquisition of the investments in Banca Network Investimenti S.p.A. and Area Life. This syndicated loan is secured by a number of covenants such as compliance with pre- established financial parameters (shareholders’ equity and borrowings/shareholders’ equity ratio) to be calculated twice yearly. These parameters are linked to the capitalisation and borrowings of the Sopaf Group and of the investees whose shares have been pledged. It is specified that on 21 August 2008 the share capital of Banca Network Investimenti S.p.A. was increased from EUR 16 million to EUR 30 million plus a share premium reserve equal to EUR 6 million. This recapitalisation, together with a further measure to provide financial support scheduled by shareholders for the end of 2008, will allow compliance with the financial parameter related to the bank’s shareholders’ equity to be restored. Furthermore on 30 December 2008 a payment to future capital increase was made which allowed the Group to restore compliance with the financial parameter related to the bank’s shareholders’ equity.
At present the Group is not aware of the existence of any default position or of the breach of any of the aforesaid covenants. Furthermore, the regulations governing the convertible bond issue, released by the company during 2007, in accordance with market practices, contains a series of standard clauses of which the breach would oblige the issuer to execute early redemption of the bonds issued. These include cross default/cross acceleration clauses which give rise to the obligation of immediate redemption of the bonds upon occurrence of serious defaults on other loan contracts, with regard to a considerable portion of the total debt. They also include clauses which entitle the bondholders to request early refund of the amount due through early termination of the relationship with the principal debtor in all cases in which the latter defaults with regard to one or more obligations undertaken pursuant to the bond issue regulations, is cancelled from listing on the electronic equity market, is declared insolvent and/or is subject to insolvency procedures, has breached the law or regulations with a significant adverse effect on the performance of its activities and has commenced a liquidation procedure or other procedure with similar effects.
> 47 Infragroup and related party disclosures It is stated that, with regard to legislation in force, in the meeting held on 12 December 2005 the Board of Directors set forth the guidelines for identifying related party transactions, providing a step-by-step procedure for their execution, including the economic terms and conditions for their implementation and the valuation procedures to be followed. All related party transactions are performed at market conditions.
> Transactions with group companies 2008 l as at 31.12. Statements
The tables below provide a summary of financial and economic transactions with subsidiary, associated and affiliated companies. Existing relations mainly refer to the granting of loans and to the provision of administrative and general services.
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 224 Administrative and general services are provided under normal market conditions. Loans are granted at market conditions except for certain interest-free loans granted to a number of subsidiaries. Further details on financial and economic transactions with Group companies can be found in the explanatory notes.
The table below summarises the transactions existing as at 31 December 2008:
Trade Other (Payables to receivables Other (Other Balance of Financial receivables banks and (Trade and other financial current receivables assets and other other payables) business assets liabilities) (payables) assets lenders) Counterparty assets Amounts in EUR/thousand AFT S.p.A. -485 -- ---485 ASM Lomellina Inerti S.r.l. - - -- (22) - - (22) Banca Network Investimenti S.p.A. -- - -- 0 China Opportunity S.A. Sicàr 4,896 - -- 4,896 Demofonte S.r.l. ---1,508 - - - 1,508 Essere S.p.A. -82-- - -- 82 Five Stars S.A. -30- - -- 30 Life Science Capital S.p.A. -258 -- ---258 Polis Fondi SGR p.A. -5-- --(4)1 Sopaf Asia S.àr.l. -2-- ---2 Sopaf Capital Management SGR S.p.A -68-- - (1,599) - (1,531) Sopaf&Partners RE-Investment S.r.l. 4006 10 - - ---4,016 Sopaf Small Cap Europe --- 1,517 ---1,517 Total Group companies 8,902 910 30 3,025 (22) (1,599) (4) 11,242 Total balance sheet items 107,933 976 20,153 3,055 (65,918) (5,547) (19,620) 41,032 % incidence on balance sheet items 8.25% 93.24% 0.15% 99.02% 0.03% 28.83% 0.02% 27.40%
Dividends and Capital gains Other (Purchase of Financial (Financial Balance of other income (losses) on operating materials income charges) Revenues / from disposal of income and external (Costs) investments investments services)
Counterparty Amounts in EUR/thousand AFT S.p.A. - - 324 - - - 324 Banca Network Investimenti S.p.A. --1---1 China Opportunity S.A. Sicàr - - 4,896 - - - 4,896 Conafi Prestitò S.p.A. 67 - -- - 67 Essere S.p.A. --73---73 FIP - Fondo Immobili Pubblici 1,006 - --- - 1,006 Five Stars S.A. ------0 Immsi S.p.A. 103- --- -103 LM&Partners SCA (wound up) - - - - - (1,728) (1,728) Life Science Capital S.p.A. - - 258 - - - 258 Polis Fondi SGR p.A. 344 - 230 - - - 574 PWM SGR S.p.A. - - 173 - - - 173 Sadi Servizi Industriali S.p.A. 30 - -- - 30 Sopaf Capital Management - - 328 - - (1,599) (1,271) Sopaf&Partners RE-Investment S.r.l. --8-47-55 Tergeste Fondo Immobiliare 1,770 - --- - 1,770 Tessitura Pontelambro S.p.A. 24- --- - 24 Total Group companies 3,344 0 6,291 0 47 (3,327) 6,355 Total balance sheet items 3,344 23,815 (8,571) 34,776 (21,186) 32,178 % incidence on balance sheet items 100.00% - 26.42% 0.00% 0.14% 15.70% 19.75% l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 225 The most significant transactions, completed in the year between Sopaf S.p.A. and the other Group companies, as summarised in the above tables, are described below.
For payables/receivables: • interest-bearing loan granted in several instalments to Sopaf & Partners Re-Investment S.r.l. for EUR 4,006 thousand repayable by 1 October 2010; • receivable of EUR 4,896 thousand from the associate China Opportunity S.A. sicar for performance fees due to Sopaf S.p.A. awaiting capitalisation following use in the share capital increase; • interest-free loan to Demofonte S.r.l. for EUR 1,508 thousand to be repaid by 31 December 2009; • residual credit of EUR 1,517 thousand for liquidation of the Sopaf Small Cap fund; fully collected in January 2009; • payable of EUR 1,599 thousand to the subsidiary Sopaf Capital Management Sgr .p.a. for commissions owed for the purchase and sale of units of the FIP public real estate fund.
For costs/revenues: • EUR 4,896 thousand for performance fees due to Sopaf S.p.A. from the associate China Opportunity as already indicated in the receivables/payables section; • EUR 1,599 thousand for commissions owed to Sopaf Capital Management Sgr.S.p.a. for purchase and sale transactions involving trading securities.
> Transactions with other related parties
A summary table is provided below on transactions with other related parties, companies attributable to one of the Directors: Amounts in EUR/thousand
Trade Other (Payables to receivables Other (Other Balance of Financial receivables banks and (Trade and other financial current receivables assets and other other payables) business assets liabilities) (payables) assets lenders) assets Counterparty Catabo S.r.l. 63 63 Coemi Property S.p.A. 580 580 Vector 102 S.r.l. 30 30 Total other related parties 0 63 580 30 0 0 0 610 Total balance sheet items 107,933 976 20,153 3,055 (65,918) (5,547) (19,620) 41,032 % incidence on balance sheet items 0.0% 6.45% 2.88% 0.98% 0.0% 0.0% 0.0% 1.5%
The receivable due from Catabo S.r.l. refers to the consideration for assignment from Sopaf S.p.A. to Catabo S.r.l. of a fraction of a real estate lease agreement partially offset by invoices issued by Catabo S.r.l. to Sopaf S.p.A. for services provided. The receivable due from Coemi Property S.p.A. refers to succession to the loan from Sopaf to the sold company S.Apostoli S.r.l. The receivable will be collected during 2009. The receivable due from Vector 102 S.r.l. is the result of an interest-bearing loan originally granted by LMReal
Estate S.p.A. (later merged into Sopaf S.p.A.). During the year the following transactions were also performed between Group companies and with other related parties: • assignments as advance on liquidation from the liquidated company LM& Partners Sca for EUR 22,000 thousand through a bank transfer; • assignment of 5,000 China Opportunity S.A. sicar shares from the liquidated company LM& Partners Sca for EUR 5,000 thousand; • assignment of 63,579 Green Bit shares from the liquidated company LM& Partners Sca for EUR 241 thousand. 2008 l as at 31.12. Statements
> 48 Significant non-recurring events and transactions Pursuant to the CONSOB Notice of 28 July 2007, it is specified that, as already outlined in the introduction to the explanatory notes, during the year the merger of the subsidiary PWM Sgr S.p.a. by incorporation into another subsidiary Sopaf Capital Management Sgr.p.a. took place, as deliberated the Boards of Directors of the two
companies on 27 March 2008 for the purpose of allowing the Group to streamline hedge fund management Financia S.p.A. | Sopaf Sopaf 226 activities under a single product company, and enforced with public deed dated 9 December 2008, file no. 54943, folder no, 9453, Notary Public Renato Giacosa, with economic/accounting effects from 16 December 2008.
> 49 Atypical and/or unusual transactions
Pursuant to the CONSOB Notice of 28 July 2007, during 2008 Sopaf S.p.A. did not implement any atypical and/or unusual transactions, as defined in said Notice, according to which atypical and/or unusual transactions are those which due to their significance/relevance, nature of the counterparties, subject of the transaction, transfer price calculation procedures and timing of the event (close to the end of the financial year) could give rise to doubts regarding the accuracy/completeness of disclosures provided in the financial statements, conflicts of interest, the safeguarding of equity and the protection of minority shareholders.
> 50 Other information
> Average number of employees per category
As at 31 December 2008 headcount is equal to 27 resources, the same number as 31 December 2007, and breaks down as follows:
Employees Yearly average Employees Yearly average 31/12/2008 1/1/08-31/12/08 31/12/2007 1/1/07-31/12/07
Executives 7 7.1 9 6.3 Middle 3 3.9 6 5 managers Office workers 17 14.5 12 8.8 Total 27 25 27 20 l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 227 > Fees paid to Directors, Statutory Auditors, General Managers and Executives with strategic responsibilities
The following information is provided pursuant to Article 78 of CONSOB Regulation no. 11971 of 14 May 1999 and subsequent amendments, concerning the adoption of rules for the implementation of Legislative Decree n. 58 of 24 February 1998 ("Draghi Decree") regarding issuer regulations.
(Values in EUR/thousand) Surname and Position held Period Expiry Emolument Non Bonus Other name in which of for the monetary and other considerations the office position benefits incentives position (2) was held (1) Directors: 400 - - - Cirla Giorgio Chairman 01-01- 31-12- 2008 2009 31-12- 2008 300 - - - Magnoni Deputy 01-01- 31-12- Giorgio (3) Chairman and 2008 2009 CEO 31-12- 2008 30 - - - Boschetti Director 01-01- 31-12- Giancarlo 2008 2009 31-12- 2008 30 - - 20 Cassaro Renato Director 01-01- 31-12- 2008 2009 31-12- 2008
30 - - 10 Galliani Director 01-01- 31-12- Adriano 2008 2009 31-12-
2008 20 Guidi Director 01-01- 30 Guidalberto 2008 31-12- 31-12- 2009 2008
70 - -
Magnoni Luca Director 01-01- 31-12- 2008 l as at 31.12. Statements 2008 2009 31-12- 2008 Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 228 30 - Martignoni Director 01-01- 31-12- Renato 2008 2009 31-12- 2008 Mario Rey Director 31-12- 25 11 29-02- 2009 2008 31-12- 2008 - Stella Marco Director 01-01- 31-12- 2008 2009 31-12- 2008 30 - - - Vender Director 01-01- 31- Giovanni Jody 2008 12- 31-12- 2009 2008 28 Sala Giovanni Chairman of the 01-01- 29-08- Board of 2008 2008 Statutory 29-08- Auditors 2008 13 Ronchi Chairman of the 01-09- 31-12- Riccardo Board of 2008 2008 Statutory 31-12- Auditors 2008 17 - - - Ronchi Standing 01-01- 28-06- Riccardo auditor 2008 2008 28-06- 2008 33 - - - Reali David Standing 01-01- 31-12- auditor 2008 2008 31-12- 2008 Grosso Enrico 28-06- 17 Standing 2008 31-12- auditor 31-12- 2008 2008 - - - - Dori Francesco Alternate 01-01- 31-12- auditor 2008 2008 31-12- l Statements as at 31.12. 2008 l as at 31.12. Statements 2008 - - - - Salvatore Alternate 01-01- 28-06- Marco auditor 2008 2008 28-06- 2008 Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 229 270 - Stella Marco Chief Operating 01-01- - Officer 2008 31-12- 31-12- 2008 2008
Executives with Executives with = = 487 140 4 200 strategic strategic responsibilities responsibilities
Total 1.840 4 200 201
(1) The considerations indicated refer exclusively to the period in which the position was held (2) The other considerations concern emoluments paid for other positions held in subsidiary companies, for end of office indemnity and for functions of responsibility within the remuneration committee, the internal control committee and as executive responsible for drawing up the corporate accounting documents. (3) Director who holds other positions in subsidiaries as shown in the following table.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 230 > Positions held by the Directors, General Managers, Executives with strategic responsibilities and by the Statutory Auditors of Sopaf S.p.A. in the subsidiary companies
Positions held by the Directors, Statutory Auditors and by Executives with strategic responsibilities of Sopaf. S.p.A. in the subsidiary companies Surname and name company position held term of office expiry of office
Giorgio Magnoni (Deputy Chairman and CEO) 14.04.2008 -appr.f.s. appr. f.s. * LIFE SCIENCE CAPITAL S.p.A. Director 31.12.2010 31.12.2010 Luca Magnoni (Director) 11.07.2008 - appr. f.s. * ESSERE S.p.A. Deputy Chairman appr.f.s.31.12.2010 31.12.2010 29.04.2008 - appr. f.s. * ESSERE TUTELA S.r.l. Director appr.f.s.31.12.2010 31.12.2010 Giovanni Jody Vender (Director) 11.05.2005- appr. f.s. * LIFE SCIENCE CAPITAL S.p.A. Director appr.f.s.31.12.2010 31.12.2010 Giovanni Nicchiniello (executive with strateg. resp.) 10.07.2007-appr.f.s. appr. f.s. * PETUNIA S.P.A. Director 31/12/2008 31/12/2008 Alberto Ciaperoni ( executive with strateg. resp.) * SOPAF CAPITAL Management Sgr 02.05.2007- appr. f.s. s.p.a Director appr.f.s.31/12/2008. 31/12/2008 Stefano Siglienti (executive with strateg. resp.) * SOPAF CAPITAL Management Sgr 02.05.2007- appr. f.s. s.p.a Director appr.f.s.31/12/2008. 31/12/2008 l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 231 > Events after 31 December 2008
On 29 January 2009 an agreement was finalised to govern (i) Sopaf’s withdrawal from Nova Fronda and (ii) the assignment of 1% of Ovo S.r.l. Exercise of the right of withdrawal pursuant to Article 2347 of the Italian Civil Code, concerns 25% of the share capital of Nova Fronda, equal to a par value of 3,333.33 for a value of EUR 1,500,000. This right was requested following an extraordinary shareholders’ meeting held on 26 January 2009 which approved adoption of a new version of the Articles of Association which provides for a right of approval in the event of transfer of shares.
With regard to Sopaf’s exercise of withdrawal from Delta S.p.A., upon motion filed by Sopaf, on 30 January 2009 the Court of Bologna appointed an expert to determine the liquidation value of the Delta S.p.A. shares pursuant to Article 2437-ter of the Italian Civil Code. This appointment was however suspended by the Court of Bologna on 20 February 2009 following appeal filed by Delta S.p.A. after which adversarial proceedings were commenced, during which the Court of Bologna will decide on whether to confirm or revoke appointment of the expert.
On 10 February 2009 the extraordinary shareholders’ meeting of Sopaf Capital Management SGR S.p.A. approved a number of amendments to the by-laws to extend operating activity to include the setting up and/or management of non-hedge funds. On 23 February 2009 SOPAF and a leading institutional investor signed a contract for assignment of 225 units of the mutual investment fund “FIP – Fondo Immobili Pubblici” for a total consideration of EUR 30 million.
On 26 February 2009 Sopaf S.p.A. and the other banking partners with which it signed, on 8 October 2008, a contract for acquisition of 51% of the share capital of Polis Fondi SGR p.A. for a total consideration of EUR 9.5 million, finalised an extension of said contract up to 30 June 2009 in which if the condition precedent is not met (approval by the meeting of Fondo Polis unitholders of certain amendments to the fund regulations concerning the introduction of an advisory committee), the sellers may issue joint communication in which they unilaterally waive the aforesaid condition precedent.
On 9 March 2009 Sopaf S.p.A. received from a third party investor a formal letter of offer for acquisition of the investment in Life Science Capital S.p.A. for a total of EUR 7.1 million. The offer was accepted by Sopaf S.p.A. on 13 March 2009.
On 12 March 2009 Sopaf S.p.A. finalised the purchase and sale contracts relating to the FIP units subscribed in December 2008 and the contract described above dated 23 February 2009. At the time this report is drawn up the company holds a total of 125 units.
On 17 March 2009, following call requested by the Board of Directors of Polis Fondi SGR, an extraordinary shareholders’ meeting of Fondo Polis was held. The meeting did not reach the quorum required for approval of the amendments to the regulations proposed by the management company and so Sopaf is awaiting, as established in the extension granted on 26 February mentioned above, joint notice from the sellers of waiver of the condition precedent relating to the contract for assignment of 51% of Polis SGR.
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 232
l Statements as at 31.12. 2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 233
s t Exhibits to the notes financial statemen
234 > Statement of investments in subsidiaries and associated companies pursuant to art. 2427, subsection 5 of the Italian Civil Code and to Consob communication DEM 6064293 of 28/07/2006
2 29 420 126 762 8,677 1,079 7,644 8,134 2,568 2,606 13,346 13,415 21,300 12,644 18,256 40,264 13,718 method method the equity the equity the equity
2 70 40 30 11 - 870 6,467 3,613 9,451 7,729 9,180 9,996 2,606 18,326 40,274 14,885 21,301 12,147
in EUR/thousand Amounts book value on based values book value on based values
53 425 2,200 7,000 2,000 40,000 29,700 22,759 32,109 treasury treasury treasury shares/units shares/units
% held % % held % directly directly R 0 15.94% (0) 33.00% N/A 40.00% 854 45.00% 7,875,000 381 49.00% 254,800 N/A 22.00% N/A 24.58% 40,000,000 (84) 85.00% (49) 59.38% 29,690,000 (33) 24.89% 5,879,275 (25) 48.00% 532,800 (257) 68.19% 620,549
(574) 100.00%
quota
Direct total pro quota 1
(1) N/A N/A 777 N/A (99) (82) (53) (377) (574) (134) 2,061 2,061 99.98% 1,897 1,981 1,981 100.00% 5,069 2,274 44.87% Total Direct total pro Total ROFIT/(LOSS) FOR THE YEAR ( YEAR THE ROFIT/(LOSS) FOR
P 30 16 841 N/A N/A N/A N/A (63) (470) (2,840) (2,613) 92.00% 184,000 4,455 (2,676) (1,204) 45.00% 12,125,430 4,894 6,029 2,417 2,423 (17,011) (2,550) 14.99% 4,503,598 1,549 7,001 2,793
quota quota Direct total pro 8 39,623 89 100 N/A N/A N/A N/A (74) (511) 9,899 7,177 2,417 6,030 6,225 5,701 1,753 Total Direct total pro
EQUITYSHAREHOLDERS’ YEA PROFIT/(LOSS) FOR THE SHAREHOLDERS’ EQUITY (*) Total .00 100 N/A
par valueshare/unit per par valueshare/unit per 10 1.00 12 25.00 70 10.00 90 1.00 100 1.00 910 1.00 431 20.00 37,398 16,780 143 N/A 2,000 1000.00 2,000 10.00 1, 5,200 10 9,100 0.52 15,557 1,110 1.00 26,945 1.00 50,000 1.00 66,72 30,044 1.00 16,161 11,809 0.50 162,732 1.00 Registered office share capital Milan Luxembourg Luxembourg Milan Milan Luxembourg Milan Milan Milan Milan Milan Agrate Brianza Agrate Milan Vigevano l Statements as at 31.12. 2008 l as at 31.12. Statements companies Held for sale for Held Held for sale for Held COMPANY NAME Associated Associated NAME COMPANY COMPANY NAME Subsidiaries NAME COMPANY office Registered capital share Life Science Capital S.p.A. Science Capital Life Essere S.p.A.Essere SOREI formerly TERGESTE (**) TERGESTE formerly SOREI Sopaf Capital Management SGR S.p.A. Management Capital Sopaf Milan Sopaf&Partners RE-Investment S.r.l. (**) RE-Investment Sopaf&Partners Milan Polis Fondi SGR p.A. SGR Polis Fondi Area Life International Assurance Ltd Assurance Life International Area Ireland - Dublin Sopaf Asia S.àr.l. Sopaf Petunia S.p.A. Petunia Volare S.p.A. (in receivership) (**)Westindustrie(**) S.r.l. Varese Banca Network Investimenti S.p.A. Investimenti Network Banca S.A. Sicàr Opportunity China Milan Aviva Previdenza S.p.A. ASM Lomellina Inerti S.r.l. (**) S.r.l. Inerti Lomellina ASM Five Stars S.A. Stars Five A.F.T. S.p.A. S.F.E.R.A. S.r.l. (*) The figures refer to the last financial statements approved (31/12/2007) approved statements financial last to the refer figures The (*) liquidation in companies and/or newcos to funds, refer as these applicable not N/A (**) Sun SystemSun S.p.A. Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 235 > Statement of investments in associated companies pursuant to art. 2427, subsection 5 of the Italian Civil Code and to Consob communication DEM 6064293 of 28/07/2006
- - 312 703 322 281 160 241 462 2,400 1,943 1,468 1,363 1,500 2,398 5,284
book value 1 1- 20 798 367 2,250 1,600 461,538 123,000
3,333.33 1,000,000 3,445,585 16,967,900 80,000 Amounts in EUR/thousand Amounts
treasury
shares/units
.1% 1,919,423 4 .97% 63,579 5.00% 25.0% 2.57% 20,524 0.98% 15.0% 1.00% 1.65% 0.50% 10,000,000 1 11.90% 2.535% 2,350,357
held% directly 1 2 1 19.53% 1 1 2.320%
par valueshare/unit per 15 1.00 13 464 0.52 372 1.00 15.95% N/A 50000 N/A 2,582 2500 1,596 2,156 0.29 1,312 0.01 1.219% 2,362 3,228 48,204 0.52 11,160 value par no 178, 106,
s
Registered office share capital Luxembourg Oosterhout (Netherland Milan Segrate Milan Mantova Milan U.S.A. Bologna Monza Grugliasco Turin
quidation) Milan
A.
)
2008 l as at 31.12. Statements
The Capital Infrastructure&Growth FundVintage Sicav-Sif Fund Dubai N/A not applicable as these refer to funds (*) Investment held for sale Nova Fronda S.r.l. Fronda (* Nova Immsi S.p.A. Leisure Link Ltd. Ventures II LP. Noventi Sadi Servizi Industriali S.p.A. Newman Lowther & Associates Lowther Newman Asset SCA Avere Valore Management by Value Secondary Investments Sicàr SCA Luxembourg Luxembourg Ind.degli Investimenti S.p. Investimenti Ind.degli IGI Investimenti Quattro Fund Blue H Technologies BV Conafi PrestitòConafi S.p.A. Green Bit S.p.A. Bit Green Delta S.p.A. Demofonte S.r.l. Formula S.r.l. Sport Group li (in
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 236
> Appendix Information pursuant to Article 149-duodecies of CONSOB Issuers Regulations
The table below, drawn up pursuant to Article 149-duodecies of CONSOB Issuers Regulations, shows the considerations paid in the year 2008 for audit services and for services other than audit provided by the independent auditors. No services were provided by their network companies.
Note Service provider Fees agreed for 2008 s Amounts in EUR/thousand
Audit Deloitte & Touche S.p.A. 253
Certification services Deloitte & Touche S.p.A. (1) 5
Other services Deloitte & Touche S.p.A. -
Total 258
(1) Signing of tax returns Unico and 770
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 237 > Certification of the financial statements pursuant to Article 81-ter of CONSOB Regulation no. 11971 of 14 May 1999, as amended
The undersigned, Giorgio Magnoni as Deputy Chairman and CEO, and Alberto Ciaperoni as the Executive responsible for preparation of the corporate accounting documents of Sopaf S.p.A., hereby certify, also taking into account the provisions of Article 154-bis, subsections 3 and 4, Italian Legislative Decree no. 58 of 24 February 1998: • the adequacy in relation to the characteristics of the company and • the effective application of the administrative and accounting procedures for preparation of the financial statements during 2008. It is also certified that: a) the financial statements as at 31 December 2008:
(i) were prepared in compliance with the International Accounting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and approved by the European Union, and with provisions issued in enactment of Article 9, Italian Legislative Decree no. 38/2005 and, to the best of the signatories’ knowledge, can provide a true and fair view of the financial position, financial performance and cash flows of the issuer;
(ii) are consistent with the entries in the accounting books and records;
(iii) can provide a true and fair view of the financial position, financial performance and cash flows of the issuer.
b) the report on operations includes a reliable analysis of the management performance and result, as well as of the issuer’s position, and a description of the main risks and uncertainties to which it is exposed.
Milan, 30 March 2009
2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 238 > Report of the Independent Auditors on the Holding Company Financial Statements
l Statements as at 31.12. 2008 l as at 31.12. Statements
Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 239
l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf 240 > Shareholders’ meeting resolutions
At the ordinary meeting held on 30 April 2009, the shareholders passed a resolution approving the Report on Operations, the Balance Sheet, the Income Statement, and the Explanatory Notes as at 31 December 2008, as presented by the Board of Directors individually and as a whole.
The shareholders approved unanimously a resolution to distribute the profit for the year of EUR 35,203,622 as follows:
- EUR 1,760,181 to legal reserve; - EUR 2,083,542 as dividend of EUR 0.005 for 416,708,392 ordinary shares; - EUR 31,359,899 as retained earnings.
Milan, 30 April 2009 l Statements as at 31.12. 2008 l as at 31.12. Statements Sopaf | Sopaf S.p.A. Financia S.p.A. | Sopaf Sopaf