annual reportcarraro group · financial results of the carraro group. these forecasts have by their...

Carraro GroupAnnual R

eport20

09

relazione sulla gestione

1

Carraro GroupAnnual Report2009

Contents

5\Directors’ Report on Operations7\Ownership Structure12\Letter from the Chairman16\Summary Data and Graphs36\General Data and Comments

112\Consolidated Financial Statements 187\Report of the Boardof Statutory Auditors188\Auditors’ Report190\Ordinary Shareholders’ Meeting

4 annual report 2009


5

Directors’ Report on Operationsat December 31, 2009

Board of Directorsin office until approval of the 2011 Financial statements (appointed, general Meeting 23/04/2009 – powers conferred, Board resolutions 07/05/2009 and 04/08/2009)

Mario Carraro Chairman

Enrico Carraro 1/3 Deputy Chairman

Alexander Bossard 1

Chief executive officer

Anna Maria Artoni 2/4 Director

Arnaldo Camuffo 2/3/4 Director

Francesco Carraro Director

Tomaso Carraro 1 Director

Antonio Cortellazzo 2/3/4 Director

Pietro Guindani 1/3/4 Director

Marco Milani 1/3/4 Director

1 Members of the internal auditing Committee 2 Members of the Human resources and remuneration Committee 3 Members of the strategic operational Committee 4 independent directors

Board of Statutory Auditors in office until approval of the 2011 Financial statements (appointed, general Meeting 23/04/2009

Luigi Basso Chairman

Saverio Bozzolan regular auditor

Roberto Saccomani regular auditor

Silvano Corbella alternate auditor

Marina Manna alternate auditor

Auditing Company From 2007 to 2015 PricewaterhouseCoopers Spa

Parent Company Finaid Spa

the Chairman Mr Mario Carraro, the Deputy Chairman Mr enrico Carraro and the Chief executive officer Mr alexander Bossard have been given severally powers of legal representation and use of the corporate signature in relations with third parties and in legal actions; they carry on their work within the limits of the powers conferred on them by the Board of Directors at the meetings on 7 May 2009 and 4 august 2009, in accordance with the applicable legal constraints, in terms of matters which cannot be delegated by the Board of Directors and of responsibilities reserved for the Board itself, as well as of the principles and limits provided for in the Company’s Code of Conduct.

CARRARO Spa Registered Office Via olmo, 3735011 Campodarsego (padova), italy t +39 049 9219111F +39 049 [email protected]

share Capital euro 23,914,696, fully paid-up tax Code, Vat and registration number in the padua Companies register 00202040283 – rea no. 84033

DisClaiMerthis document contains forward-looking statements, in particular in the section “Business outlook for the current year”, in relation to future events and the operating, economic and financial results of the Carraro group.

these forecasts have by their very nature a component of risk and uncertainty, as they depend on the occurrence of future events and developments. the actual results may differ, even significantly, from those announced in relation to a multiplicity of factors.

general inForMation

7

GeneRAl infORmAtiOn

Carraro Spa

Carraro International Spa

Carraro

Finance Lt

d.

South A

merica

Gears

Siap Spa

Stm Srl

Zao Santern

o

Eletronica

Santern

o

Industr

ia e Comerc

io Ltda

Elettronica

Santern

o

España Sl

Turbo G

ears

India Pvt L

td.

Minigears

Suzhou Co. L

td.

Minigears

Shangai

Trad. L

td.

Minigears

Inc.

Minigears

Property

Minigears

Spa

Gear World

North A

merica Llc

Carraro

Tech

nologies Ltd

.

Carraro

Deutschland G

mbh

O&K Antri

ebstech

nik

Gmbh & Co. K

G

Carraro

Argentin

a Sa

Carraro

Driv

e Tech

do Bra

sil In

c.

Carraro

Qingdao

Trading Co. L

td.

Carraro

China

Drives S

yst C

o. Ltd

.Carraro

India

Pvt Ltd

.

Carraro

North A

meric

a Inc.

Fon Sa

Carraro Drive Tech Spa

ElettronicaSanterno Spa

Gear World Spa

100%

99%

51%

49%

99.94%

99.90%

100%

100%

100%

1%

100%

100%

100%

100%

98.1659%

100%

100%

67%

0.34%

99.66%

45.60%

28.22%

0.0002%

33%

Santern

o Inc.

100%

100%100%

99.9998%

99.958%100%

67%

50.0001%

100%

100%

100%


Carraro Spa

Carraro International Spa

Carraro

Finance Lt

d.

South A

merica

Gears

Siap Spa

Stm Srl

Zao Santern

o

Eletronica

Santern

o

Industr

ia e Comerc

io Ltda

Elettronica

Santern

o

España Sl

Turbo G

ears

India Pvt L

td.

Minigears

Suzhou Co. L

td.

Minigears

Shangai

Trad. L

td.

Minigears

Inc.

Minigears

Property

Minigears

Spa

Gear World

North A

merica Llc

Carraro

Tech

nologies Ltd

.

Carraro

Deutschland G

mbh

O&K Antri

ebstech

nik

Gmbh & Co. K

G

Carraro

Argentin

a Sa

Carraro

Driv

e Tech

do Bra

sil In

c.

Carraro

Qingdao

Trading Co. L

td.

Carraro

China

Drives S

yst C

o. Ltd

.Carraro

India

Pvt Ltd

.

Carraro

North A

meric

a Inc.

Fon Sa

Carraro Drive Tech Spa


Gear World Spa

100%

99%

51%

49%

99.94%

99.90%

100%

100%

100%

1%

100%

100%

100%

100%

98.1659%

100%

100%

67%

0.34%

99.66%

45.60%

28.22%

0.0002%

33%

Santern

o Inc.

100%

100%100%

99.9998%

99.958%100%

67%

50.0001%

100%

100%

100%

general inForMation

9


11

Letter from the Chairman


The use and abuse of metaphors, from tempest to hurricane, to tsunami, with which people have described the economic crisis which struck all over the world in 2009, give an idea of the shock suffered, first by financial business-

es, and then, more heavily, by manufacturing. Manufacturing industries in particu-lar, and among these engineering worst of all. Even more brutal was the effect on the segments of Construction Equipment and Tractors, where the markets fell by 30-40%, with further devastating effects on the supplies of components, hit by drastic destocking operations carried out upstream. A terrifying situation, which only after months of ups and downs, produced a clear picture of a scenario, never seen before, with an average reduction of 50% of manufacturing business, greater in the histori-cal segments of the core business. A condition that left no choice on the measures to be taken which, although they were dramatic at the social level, aimed in strong and imperative terms to ensure the safety of the Group. It became essential to adopt a shock therapy, arriving with no hesitation at an action plan with the primary aim of drastically lowering the Ebitda break-even point. This was to be achieved through general staff cuts, stringent cash management of the businesses, a radical reduction in investments, a drastic lowering of overheads, concrete improvement of purchas-ing conditions and untiring attention to the values of productivity. All this without losing a single customer, without lowering, and if anything raising, our share on the global markets in which Carraro is present. Accelerating at the same time the recovery actions of Santerno Elettronica, with an increasingly important role in the Group’s general strategy. Without, in this process, shrinking R&D work, and indeed reinvigorating the mission that we believe research and innovation must have in our future. In which, despite today’s data, we continue to believe.

The figures are the result of the situation described, as, besides, those for the last few quarters had led us to expect. The year ended with turnover of 487 million euro, down exactly 50% compared with the 973 million of 2008. While variable margins remained in line with the previous years, there was instead a sharp drop in Ebitda and Ebit, the former a negative 17.6 million euro and the latter a negative 49.5 million euro. The final result was a loss of 45.9 million euro, of which, however, there were 16.5 million euro of non-recurring provisions and costs associated with the restructuring process. Figures to be forgotten. Or, rather, to be remembered, so as not to leave for a single moment the rudder of the routes we have chosen, in a process of recovery that we have traced out from now to 2012. This is true also as a commitment to the banking system with which, as the covenants set in previous agreements had obviously been broken, we are going to sign a new agreement in support of the actions taken, in a plan for reduction of the debt, which has become incompatible with the halving of turno-ver. The financial position at December 31, 2009 showed debts of 241 million euro, worse than the 216 of the previous year, but down from the 267 million at September 30, 2009, thanks finally to the recovery in cash flow generation in the last quarter. While the grip seems now to be loosening, it is still too soon to talk of recovery. And in any case, the scenario that is emerging at the end of the tunnel leads us to new

letter FroM tHe CHairMan

13

strategic considerations, in a different framework for the global economy. It would take too long, and this is not the moment, to embark on an analysis of the possible consequences of so vast a crisis on the various regions of the planet. It is enough here to observe China and India, considered once as opportunities for low cost produc-tion, emerging today as future leading markets for the lines in which we operate. It is also on the basis of the great changes that we can expect, that from the difficult economic situation we are experiencing we have to learn the lesson to recreate a model of governance that helps to formulate and guide an innovative strategy of technological evolution of our products, of methods of producing around the world, of new criteria in tackling the markets, of actions for the improvement of profit-ability. If it has to be a lesson, it should be a courageous lesson, while one that still takes advantage of tools and experience already present in the Group. As of now the managerial structure presents a radically changed management model, which can be seen in the plan being prepared and which will tend to push the rationaliza-tion of manufacturing allocations, with the maximum attention to regional market developments, with a ‘local to local’ formula. Making the most of products, with marketing efforts that help the diversification to become manifest in objective devel-opment factors. This will be through concrete and more autonomous assumption of responsibility in the business units, starting from Drive Tech, which operates in the Group’s historical core business, and then Gear World, equipped with production machinery of the highest level, and the aforementioned Santerno, present in areas already expanding strongly again. But also increasing integration of the manufac-turing facilities abroad. And all giving priority to the culture and processes of qual-ity, called upon to become distinctive of the brands by which the Group is known. While I have tried seriously and openly to acknowledge the gravity of the crisis; while I have not tried to under estimate the difficulties still ahead of us in re-establishing again a process of growth to which Carraro can and must aspire, I have in any case the serene perception that enough intelligence, competence and determination are present in the Group to overcome the last possible obstacles to getting the engines started again. The market is giving us some comforting signs. The full speed will not be a question of months naturally, but the security of the future is already present. The target will be to bring to fruition the already existing manufacturing potential and to guarantee a structure appropriate for a new era of growth, reinforcing our leadership in the areas in which we work. At the beginning growth will be based on the earning capacity which is in the present reality. A new era for Carraro, a new future. But immediately, in the meantime, we have to accompany the ship to regain speed. I am certain that the wait will not be long and the challenge will be won. It is not optimism that leads me to this conclusion.

MARiO CARRAROChairman

suMMary Data anD grapHs

15

Summary Data and Graphs2008/2009


Net revenues

973,3692008

Summary Data and Graphs

Figu

res

in e

uro/

00

0

Shareholders’ equity

149,632Cash Flow

44,047net of minority interests e 126,459

ROE

9.82 %ROI

4.53 %net income/equity operating income/invested capital

Operating income

36,940Net income

11,310adjusted for the effect of exchange differences net of minority interests

R&D/Sales

1.52 %Workforce at 31/12

4,205R&D

14,802Gross investments

58,413Share Performance

–68.51%

0.07%

–34.22%

Carraro Ftse MiB


17

Net revenues

487,4402009

net of minority interests e 81,469


96,619Cash Flow

- 13,943

net income/equity operating income/invested capital

ROE

- 36.01 %ROI

- 7.47 %

adjusted for the effect of exchange differences net of minority interests

Operating income

- 49,485Net income

- 45,856

Fte e 2,832

R&D/Sales

2.87 %Workforce at 31/12

3,612R&D


24,337Share Performance

–36.75%

31.58%

–2.58%

Carraro Ftse MiB


Consolidated Sales Revenues

2009

487,440

2007

813,734

2008

973,369

Consolidated EBIT

2009

- 49,485

2007

39,5102008

36,940

Consolidated Net Income

2009

- 45,856

2007

15,587 2008

11,310Fi

gure

s in

eur

o/0

00


19

2007 Uses

Sources

Liquidity32,655

Working capital369,766

Fixed assets315,296

Short-term payables381,600

M/L terms payables160,776

Shareholders’equity150,004

Sever, Indem25,337

2009 Uses

Sources

Liquidity54,711

Fixed assets351,341


Sever, Indem21,576




Consolidated Equity Structure

2008 Uses

Sources


Liquidity51,674


Fixed assets344,860


Sever, Indem23,642



Consolidated Cash Flow

Consolidated Net Financial position (debt balance)

2009

- 13,943

2007

41,4722008

44,047

2009

241,0572007

175,947

2008

216,545Fi

gure

s in

eur

o/0

00


21

Carraro Group Investments (gross of revenues from disposals)

Research and Innovation Expenditure Carraro Group

2009

24,337

2007

46,958

2008

58,413

2009

13,9892007

15,0692008

14,802


Breakdownby Sector of Application

Construction Equipment

26 %36 %

Agriculture

42 %36 %

Industrial

4 %3 %

Other

4 %4 %

Automotive

5 %4 %

Material Handling

4 %5 %

Renewable Energies

9 %7 %

Gardening & Power Tools

6 %5 %


23

Breakdownby Business Unit

Drivelines

62.4 %Components

17.2 %Vehicles

11.5 %Power Controls

8.8 %Other

0.1%


Main Markets

South America

8.0 %6.1 %

North America

10.9 %14.3 %

Others extra UE

8.7 %5.8 %

Others UE

9.1 %11.6 %

Total Export

79.6 %79.4 %


25

india

4.0 %3.0 %

China

9.5 %4.9 %

Poland

1,3 %2.2 %

Germany

17.7 %17.6 %

UK

3.1 %7.8 %

France

7.3 %6.1 %

20092008

Legend

italy

20.4 %20.6 %


Carraro Group Workforce BreakdownItaly

Carraro Agritalia rovigo

79/14677/172

Elettronica Santerno Cambiago

44 Carraro Drive Tech

rovigo

23/412/14

20092008

Legend

ExecutivesOffice workers Management

Blue-collarWorkers

Total Italy

660/1,339689/1,491


27

Elettronica Santerno imola

122110/11

mini Gears poggiofiorito

14/11517/118

mini Gears padova

73/25586/266

Carraro Drive Tech gorizia

17/9720/101

STM Maniago

11/7711/84

Gear World padova

105

Assali Emiliani Bologna

11/41

Carraro Spa [HQ] Campodarsego

64/269/2

Carraro Drive Tech Campodarsego

197/387216/397

Siap Maniago

46/25651/285


Carraro Group Workforce Breakdown Foreign Countries

Elettronica Santerno Brazil

11/1112/11

Carraro North America usa

76

mini Gears usa

13/4614/57

South America Gear argentina

13/15025/189

Carraro Argentina argentina

43/17544/193

Elettronica Santerno spain

9


29

mini Gears China

32/17747/220

Carraro China Drives Syst China

55/7576/96

Elettronica Santerno russia

36

Carraro Technologies india

3942

Carraro india india

64/17983/183

Turbo Gears india

31/20055/268

20092008

Legend

ExecutivesOffice workers Management

Blue-collarWorkers

O&K Antriebstechnik germany

51/14155/146

Fabryka Osi Napedowych poland

28/5737/160

Total Foreign Countries

399/1,211502/1,523


Consolidated Income Statementat 31/12/2009

31/12/09 % 31/12/08 % Changes31/12/09 31/12/08

Changes31/12/09 31/12/08

Revenues from Sales 487,440 100.00% 973,369 100.00% –485,929 –49.92%

purchases of goods and materials (net of change in stocks)

–293,492 –60.21% –585,086 –60.11% 291,594 –49.84%

services and use of third-party goods and services

–91,692 –18.81% –175,210 –18.00% 83,518 –47.67%

personnel costs –109,590 –22.48% –132,848 –13.65% 23,258 –17.51%

amortisation, depreciationand impairment of assets

–32,935 –6.76% –33,141 –3.40% 206 –0.62%

provisions for risks –12,550 –2.57% –16,050 –1.65% 3,500 –21.81%

other income and expenses 1,623 0.33% 3,514 0.36% –1,891 –53.81%

internal construction 1,711 0.35% 2,392 0.25% –681 –28.47%

Operating Costs –536,925 –110.15% –936,429 –96.20% 399,504 –42.66%

Operating profit/(loss) (eBit) –49,485 –10.15% 36,940 3.80% –86,425 –233.96%

income from equity investments – – –

other financial income 1,204 0.25% 1,565 0.16% –361

Financial costs and expenses –12,897 –2.65% –17,818 –1.83% 4,921

net foreign exchange gains/losses 437 0.09% –4,817 –0.49% 5,254

Value adjustmentsof financial assets

–8 0.00% – 0.00% –8

Gains/(losses)on financial Assets

–11,264 –2.31% –21,070 –2.16% 9,806 –46.54%

Profit/(loss) before taxes –60,749 –12.46% 15,870 1.63% –76,619 –482.79%

Current and deferred income taxes 7,237 1.48% –4,764 –0.49% 12,001

net profit/(loss) –53,512 –10.98% 11,106 1.14% –64,618 –581.83%

profit/(loss) pertainingto minorities

7,656 1.57% 204 0.02% 7,452

Group consolidated profit/(loss)

–45,856 –9.41% 11,310 1.16% –57,166 –505.45%

ebitda –17,572 –3.60% 69,677 7.16% –87,249 –125.22%

Figu

res

in e

uro/

00

0


31

Consolidated Statement of Financial Positionat 31/12/2009

31/12/09 31/12/08 31/12/07

property, plant and equipment 238,464 240,248 225,062

intangible fixed assets 79,964 78,799 73,328

real estate investments 707 709 710

equity interests in group companies 149 148 195

Financial assets 927 446 1,135

Deferred tax assets 28,997 22,144 12,961

trade and other receivables 2,133 2,366 1,905

Non current assets 351,341 344,860 315,296

Closing inventory 136,741 203,602 182,430


Financial assets 14,561 14,123 1,837

Cash and cash equivalents 54,711 51,674 32,655

Current assets 311,008 470,988 402,421

Total assets 662,349 815,848 717,717

share capital 23,915 21,840 21,840

reserves 115,117 101,410 96,281

Foreign currency translation reserve –11,707 –8,101 –7,288

profit (loss) for the period –45,856 11,310 15,587

Minority interests 15,150 23,173 23,584

Shareholders’ equity 96,619 149,632 150,004

Financial liabilities 26,437 161,565 132,234

trade and other payables 306 17,149 14,331

Deferred tax liabilities 6,265 9,563 11,941

severance, pension and similar provisions 21,576 23,642 25,337

provisions for risks and liabilities 5,667 2,946 2,270

Non current liabilities 60,251 214,865 186,113


trade and other payables 195,180 303,103 289,877

Current taxes payable 6,228 9,299 5,479

provisions for risks and liabilities 18,549 15,431 7,240

Current liabilities 505,479 451,351 381,600

total equity and liabilities 662,349 815,848 717,717

Figu

res

in e

uro/

00

0


Cash Flow at 31/12/2009

31/12/09 31/12/08 31/12/07

Opening net financial Position –216,545 –175,947 –131,361

Group profit/(loss) –45,856 11,310 15,587

Profit/(loss) pertaining to minorities –7,656 –204 1,535

Amortization, depreciation and impairment of fixed assets 31,913 32,737 25,885

Cash flow before net Working Capital –21,599 43,843 43,007

Change in net Working Capital 28,766 –16,970 2,575

investments in fixed assets –24,337 –58,413 –42,284

Disinvestments in fixed assets 2,973 3,875 3,070

Operational Free Cash Flow –14,197 –27,665 6,368

other operational flows –885 –3,607 22,597

other investment flows –9,929 2,152 –87,265

Change in share Capital 2,075 – –

Dividends paid – –7,209 –5,400

other equity flows –1,576 –4,269 19,114

Free Cash Flow –24,512 –40,598 –44,586

Closing net financial Position –241,057 –216,545 –175,947

Figu

res

in e

uro/

00

0


33

Analysis of Net Working Capitalat 31/12/2009

31/12/09 31/12/08

trade receivables 67,995 148,587

inventory 136,741 203,602

trade payables –151,973 –270,660

net Working Capital (nWC) 52,763 81,529

Figu

res

in e

uro/

00

0

DireCtors’ report on operations

35

General Data and Comments


At the end of three years of sustained growth (Cagr 06-08 = 21%) the Group had consolidated an organizational structure oriented to reaching and exceeding a turno-ver of 1 billion euro. A target that seemed achievable on the basis of the forecasts and the demands of the market, verified with the most important customers, which are global players in the agricultural construction machinery segments. Between the end of 2008 and the beginning of 2009 the situation changed in a way that was unforeseen, for its speed and intensity, bringing a drop in sales of more than 50%, in every segment and geographical area, and up to 80% in the Construction Equipment segment. This drop was also influenced by the destocking effect, which led numerous customers to produce by utilising components already present in their inventory.

In the light of a scenario that was new as much as it was complex, a series of actions was undertaken in a timely manner with the aim of making the company secure and keeping the business afloat. This was achieved with short-term inter-ventions aimed at lowering the break-even point on the Ebitda, reduced by about 140 million euro in 2009 and a further 120 million euro in 2010, to maintain more stringent operating cash management and to guarantee presence on the market and continuity in developing new products. These actions were implemented alongside a series of initiatives which will bring benefits during the next three years (2010-2012), supporting the turnaround phase.

The Group has developed its actions through an initial organisational phase of ‘reaction to the crisis’ and a second constructive phase of ‘growth’.

Reaction to the crisis: actions begun and completed during 2009As well as carrying out staff cuts in some foreign Group facilities, between the end

of 2009 and January 2010 important agreements were also sealed with trade unions in Italy and Germany to use social security cushions – such as the Cassa Integrazione Straordinaria (Extraordinary Redundancy Benefit Fund). In 2011, the combined ef-fect of the two actions will bring about a staff reduction of 1,375 compared with 31 December 2008, of which 788 in Italy. The workforce, which had reached 4,500 in July 2008, will be 2,800 at the end of this process, a reduction of 1,700.

Furthermore, activities were implemented for the optimisation of direct and in-direct purchases, with a reduction of the proportion of direct materials to sales in 2009 compared with 2008 of about 1.5 percentage points, and a saving on indirect purchases of about 7 million euro compared with 2008.

Alongside this, a reduction of working capital was achieved (-25 million euro in 2009 compared with 2008) thanks to opportune payment renegotiations with sup-pliers, inventory resizing, and the optimisation of receivables from customers.

At the same time, investment policies were re-examined, with a reduction of 35 million euro compared with 2008, focusing attention on interventions aimed at re-designing the industrial footprint and keeping facilities and machines efficient. This confirmed a strong focus on quality and innovation, therefore maintaining R&D costs constant in absolute terms at 2.9% of turnover in 2009.

General Data And Comments


37

During the course of 2009, finally, the company’s top management was radically renewed, starting from the Managing Director and some Business Unit Managers, with a simultaneous review of governance mechanisms and an important strength-ening of the role of guidance and control of the Holding.

the path of growth: actions begun in 2009 but with implementation and effects in the next three years 2010-2012Because of the need to establish renewed balance at the industrial level, in order

to confront the new sizes of the main reference markets, a process of optimisation of the Group’s global manufacturing platform has begun, with the transfer of some production of Carraro DriveTech and GearWorld to India and China (to be com-pleted by the end of 2011) which will be reflected in a decrease in the proportion of manufacturing in Europe (from 80% in 2009 to 69% in 2012). At the same time, assessments are underway regarding keeping open certain less important manufac-turing facilities.

Internally, the Group redefined its organisational model with the aim of mak-ing its structure even more efficient in its processes and effective in its responses. Consistent with this, commercial presence was reinforced in the main geographical areas of interest, protecting the market share, and the development of commercial activity in high-potential countries such as India, China, and South America was boosted.

At the same time – with the support of a leading advice studio – a process of strategic development was launched for the three years 2010-2012, entitled ‘Car-raro 2.0’. This project focuses on the revision of the Group’s business model (for the manufacturing structure, the local-for-local market coverage, and the organisa-tional structure), the optimization of assets (saturation of facilities and protection of intangible assets), development of technical and technological competencies (excellence in products and processes, mechatronics, renewable energy), and lever-age of an already-consolidated global presence in India, China, and South America (supply chain from Best Cost Countries to new local customers).

Summary of financial year 2009 Financial year 2009 ended with turnover of 487 million euro, 50% down on the

973 million euro of 2008. The variable margin remained in percentage terms in line with the previous year, at approximately 20% of turnover, net of non-recurring ef-fects, while Ebitda and Ebit were very negative, at 17.6 million and 49.5 million euro respectively as a result of a failure to absorb depreciation, overheads and large non-recurring provisions and costs related to the restructuring process of 16.5 million euro. The net loss came out at 45.9 million euro. The net financial position showed debts of 241 million euro, worse than the 216 million euro of 2008 but an improve-ment on the figure at September 30, 2009 of 267 million euro, thanks to the cash generation of the last quarter of 2009.


Restructuring and ReorganizationDuring 2009 the plan for the restructuring and reorganization of the business

was of particular significance. Faced with a sharp drop in the main segments of reference, the need became evi-

dent, right from the last quarter of 2008, to adjust the structure of the Group to the new and reduced dimensions of the current and future markets. To this end a proc-ess was envisaged which will lead, from now until 2011, to a considerable reduction in the workforce, for a total of 1,375 employees (788 in Italy and 587 abroad).

In order to facilitate a process of re-employment of personnel made redundant, in alternative to the immediate start of a mobility procedure, in Italy the Group opted for the use of Cigs, the Extraordinary Redundancy Benefit Fund. The agree-ment, signed in the presence of the Ministry of Employment on December 15, 2009, provided for an initial phase of this procedure for the year 2010 as a result of the ‘situation of crisis’, with the possibility to extend it, after an agreement with both the trade unions – on the basis of the overall situation and the performance of the markets – for a further period of 1 year for ‘reorganization’. In Germany, in the same way, a similar agreement (Kurzarbeit) was signed to deal with the reduction in the workforce in accordance with the most opportune existing social ‘shock absorbers’.

In this context the strategic decision to change the Group’s organizational foot-print had a strong impact, as important decisions were made on the selection of management in discontinuity with the past. This entailed a profound renewal in a number of key positions, starting from the top management of Carraro Spa, with a significant reduction in the number of executives (down from 81 at the beginning of 2009 to the current 58).

At the same time the role of guidance and control of the holding was strength-ened, in particular as regards the transversal functions of Procurement, Human Resources and Finance, Administration and Control, presiding over even more attentive governance. The responsibilities for Research and Development and inno-vation were instead allocated to the individual Business Units, focusing further the specific objectives of each business, but always with a view to maximizing, through appropriate working parties, all possible synergies.

Renegotiation of terms and expiries of debtIn view of negative financial results such as those indicated, it cannot be a surprise

that the financial statements present figures which make clear that the Company and some of its subsidiaries did not respect certain financial covenants, set to protect the positions of the lending banks in some of the numerous medium- and long-term loan agreements that the Company itself and its subsidiaries are parties to.

A consequence of the failure to observe these covenants would, in normal prac-tice, be the so-called acceleration of the loans (that is demands for immediate re-payment).

At the end of financial year 2009, taking into account the possible violation of the


39

said covenants and in order to stop the lending banks from activating, when they would have been effectively entitled to do so, their rights of acceleration, the Com-pany, which had always fulfilled correctly its obligations of payment to the banks, began negotiations with its lending banks (and therefore not only with institutions whose financing provides for the aforesaid covenants) to redefine its commitments to these banks reformulating the expiries of the loans and the covenants themselves on the basis of the new industrial plan and the Three-Year Plan.

This negotiating process – which was always characterized by a climate of full confidence of the lending banks on the recovery prospects of the Company – was, in practice, divided into two stages:i. a first stage, now concluded, of discussions on a bilateral plan between the

company and each bank, in the context of which the Company informed its interlocutors of the considerations that had emerged also with its own strate-gic advisors on the market conditions, on its situation, on the actions already taken, on the results of these actions and on the consequent prospects. and

ii. a second stage, which began only in the early months of 2010 and is now close to completion, which involves the banks collectively, with the aim of agreeing a rescheduling of the maturities of the repayment instalments of existing loans and the redefinition of the covenants currently provided for as part of a multi-lateral agreement between the Company and the Banks (the so-called Frame-work Agreement).

At the date of the present report, the Company and the banks, assisted by their respective legal consultants, have already defined almost all the main terms and conditions of the Framework Agreement which, at the moment, presents only residual and, in the judgement of the Management of the Company, insignificant open issues. A final agreement with the banks seems to be imminent, and in fact the legal consultants of the banks have informed us that they will shortly be sending the Company a letter in which they will confirm that – although negotiations are still in progress for the definition of the Framework Agreement and although they cannot in any way guarantee the position that the governing bodies will in the end decide upon – the technical bodies of the banks will present to their respective governing bodies with their favourable opinion the proposal formulated by the Company to the banks (and substantially reflected in the current draft of the Framework Agree-ment).

The opinion – considered reasonable by the directors – of the Management of the Company charged with the negotiations, supported in this by the Company’s legal and financial consultants is, in particular, that this issue can be resolved a few days after the date of this report (note: Framework Agreement signed on 13 April, 2010).


The figures for financial year 2009 contain important non-recurring costs relat-ing to write-offs, permanent impairment losses of certain corporate assets and to restructuring operations. The amounts and the effects of these are broken down in the table below:

31/12/2009 % of turnover

ebitda –17,572

non-recurring costs * 16,572

aDJusteD ebitda –1,000 –0.21

ebit –49,485

non-recurring costs * 16,572

aDJusteD ebit –32,913 –6.75

net profit/(loss) –45,856

non-recurring costs net of tax effect * 12,028

aDJusteD net proFit/(loss) –33,828 –6.94

* Commented on and detailed in the notes to the statements

The Group’s turnover came to 487.440 million euro at 31 December 2009, down by 49.9% from the figure recorded in 2008, when it was 973.369 million euro. The causes of this reduction are explained in detail in several parts of the present Re-port.

The following table breaks turnover down by market segment:

sales sales to tHirD parties intra-group sales

2009 2008 Diff. % 2009 2008 Diff. % 2009 2008 Diff. %

Drivelines 314,277 662,198 –52.54 304,257 636,259 –52.18 10,020 25,939 –61.37

gears &Components

109,073 231,661 –52.92 83,929 161,605 –48.07 25,144 70,052 –64.11

Vehicles 58,790 107,001 –45.06 56,067 104,687 –46.44 2,723 2,314 17.68

powerControls

43,295 63,511 –31.83 42,999 63,098 –31.85 296 413 –28.33

non-allocated Business

18,046 28,580 –36.86 188 7,720 –97.56 17,858 20,860 –14.39

Total Segments

543,481 1,092,951 –50.27 487,440 973,369 –49.92 56,041 119,578 –53.13

intra-groupp eliminations

–56,041 (119,578) –53.13 – – – – – –

Consolidated Total

487,440 973,369 –49.92 487,440 973,369 –49.92 56,041 119,578 –53.13

Economic and Equity Data

Turnover

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41

The following table breaks down turnover by geographical area:

geograpHiCal area 2009 % 2008 % Difference % ’09-‘08

germany 86,190 17.68 171,497 17.62 –49.74

north america 52,935 10.86 139,187 14.30 –61.97

China 46,153 9.47 47,680 4.90 –3.2

south america 38,950 7.99 58,969 6.06 –33.95

France 35,444 7.27 59,347 6.10 –40.28

switzerland 28,008 5.75 23,113 2.37 +21.18

india 19,339 3.97 28,945 2.97 –33.19

great Britain 15,101 3.1 76,402 7.85 –80.23

poland 6,277 1.29 21,428 2.20 –70.71

turkey 3,974 0.82 11,904 1.22 –66.62

other eu areas 45,396 9.31 112,641 11.57 –59.70

other non-eu areas 10,268 2.11 21,747 2.23 –52.78

total Abroad 388,035 79.61 772,860 79.40 –49.79

Italy 99,405 20.39 200,509 20.60 –50.42

total 487,440 100.00 973,369 100.00 –49.92

of which

total eU area 287,813 59.05 641,824 65.94 –55.15

total non-eU area 199,627 40.95 331,545 34.06 –39.78

Figures at 31/12/2009.

31/12/2009 % of turnover 31/12/2008 % of turnover Diff.%

ebitda 1 –17,572 –3.6 69,677 7.16 –125.2

ebit 2 –49,485 –10.2 36,940 3.80 –234.01 understood as the sum of operating profit/loss, amortization, depreciation and impairment of fixed assets.2 understood as operating profit/loss in the income statement.

Ebitda came out at a negative 17.572 million euro, down from the 69.677 million euro in 2008, going from 7.16% of turnover to a negative 3.6% of turnover.

Ebit also fell, going down from 36.940 million euro in 2008 (3.8% of turnover), to a negative 49.485 million euro (-10.2% of turnover).

Net of the non-recurring events fully explained above, the amounts would have been: Ebitda a negative 1 million euro (-0.21% of turnover), Ebit a negative 32.913 million euro (-6.75% of turnover). Despite the important actions to contain the main cost items – which decreased in line with the reduction in turnover – person-nel costs and depreciation and amortisation expenses, which did not decline in proportional terms, adversely affected profitability in the period.

Ebitda and Ebit

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Financial expenses 11,693 2.4 16,253 1.67 –28.1

Although the average net financial position (indebtedness) was more than in the previous year, owing to the lower cost of money financial expenses fell to 11.693 mil-lion euro, 2.4% of turnover, compared with 16.253 million euro (1.67% of turnover) in the previous year.



exchange differences 437 –0.1 –4,817 –0.49 109.1

Exchange differences at December 31, 2009 were a positive 437 thousand euro (compared with a negative 4.817 million euro at December 31, 2008) .



net profit/(loss) –45,856 –9.4 11,310 1.16 –505.5

Financial year 2009 closed with a loss of 45.856 million euro (-9.4% of turnover), compared with a profit of 11.310 million euro (1.16% of turnover) in the last financial year. Net of non-recurring effects, the net income would have been a loss of 33.828 million euro (-6.94% of turnover).



amortization, depreciation and impairment

31,913 6.6 32,737 3.36 –2.5

At December 31, 2009 these included 701 thousand euro of impairment of cor-porate assets.

Financial Expenses

Exchange Differences

Net Profit/(Loss)

Amortization, Depreciation and Impairment of Assets

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43


31/12/2009 31/12/2008

investments * 24,337 58,413

* the item does not include increases in goodwill.

Investments were made for 24.337 million euro compared with 58.413 mil-lion euro in 2008, and included the carry-over of investments launched in the last financial year for about 11 million euro. As a consequence of the restructur-ing begun, these investments were allocated to support productive reorganisation programmes. The remaining portion of approximately 13.3 million euro was ear-marked, as well as for the maintenance, also for the development of new projects.

Despite the drastic resizing of operations, expenses for Research and Development, the purposes and applications of which are commented on in a specific paragraph, amounted to 13.989 million euro in financial year 2009, 2.87% of turnover com-pared with 14.802 million euro in 2008, representing 1.52% of sales.


31/12/2009 30/09/2009 30/06/2009 31/12/2008

net financial position * 241,057 266,919 240,542 216,545

gearing 2.49 2.40 1.89 1.45

* understood as the sum of amounts payable to banks, short and medium/long-term bonds and financing, net of liquid assets, negotiable securities and financial receivables.

Following the worsening of the net financial position at September 30, 2009 to 266.919 million euro – as shown in the quarterly report – thanks to the actions undertaken to implement financial safety measures, in the last quarter positive free cash flow generation was resumed (working capital reduction of 28.7 million euro from 2008 to 2009) allowing us to reach, at December 31, 2009, 241.057 million euro of debt in line with the debt of 240.542 million euro at June 30, 2009, a wors-ening compared with the figure at December 31, 2008.

The figure at December 31, 2009 also includes the portion of debt, 5 million euro, relating to the purchase of the Agritalia Division.

Gearing (defined as the ratio of net financial position to owners’ equity) came out at 2.49 at December 31, 2009, compared with 1.89 at June 30, 2009 and 1.45 at December 31, 2008.

Net Financial Position and Gearing

Investments

Research and Innovation

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PeRSOnnel


31/12/2009 31/12/2008 31/12/2007

executives 66 78 63

Clerical staff 987 1,133 993

Factory workers 2,466 2,810 2,698

temporary workers 93 184 277

total 3,612 4,205 4,036

In consideration of the programme of systematic reduction of the workforce, with-out taking into account personnel suspended with instruments such as CIG (Extraor-dinary Redundancy Benefits), the number of personnel of the Group employed at December 31, 2009 (including temporary contracts, apprentices and contract work-ers) amounted to 3,612 compared with 4,205 at December 31, 2008. Among these, 66 are classified as executives, 987 as middle managers and clerical staff, 2,466 as factory workers, and 93 as apprentices/temporary staff.

employee turnoverIn view of the massive reduction programme launched, the Personnel Turnover

rate (personnel leaving/personnel taken on) is not meaningful as the number of employees leaving was due mainly to corporate decisions and consequent actions.

initiatives launchedAs already explained, the sudden change in the global economic panorama and the

consequent influences on the operations, plans and strategies of the various Group companies have called for the implementation of a diverse programme for the devel-opment of direct and indirect human resources at the various sites. This programme has involved the use of all available tools – holidays in lieu, reduction of weekly and monthly hours, salary supplements – at all of the Group’s sites and offices.

In Italy an agreement was signed with the national and territorial trade unions and with their representa-tive at the individual factories for the use of instruments to facilitate the suspension and laying off of sur-plus staff. This entailed the use of Re-dundancy Benefits for business crises and the identification of a com-plex proposal to encourage voluntary redundancies.

For executive personnel, depending on the cases and specific situations, we proceed-ed, with agreement between the parties, to consensual termination of employment. Among all cases, only one was resolved with dismissal for justified reasons.

In Germany, besides the use of the Kurzarbeit instrument, a process began which is expected to lead to the signing of an Agreement and of a consequent Company Plan, with the aim of reducing the workforce and the structure down to 100 people by 31/03/2011 (the agreement was reached and signed on January 19, 2010).

Workforce Trend


45

Risks regarding health and safety at workThe group carries out industrial processes that feature mechanical works and the

assembly of mechanical components. The risks associated with health and safety at the workplace are those typical of manufacturing.

The Italian manufacturing facilities continually monitor compliance with cur-rent legislation. The other manufacturing facilities operate in compliance with local requirements while maintaining the standards envisaged by Italian legislation as a reference. The Group management is attentive to all efforts to ensure and improve safety at working conditions paying particular attention to situations with a greater degree of risk.

ReSeARCH AnD innOVAtiOn

As far as was compatible with the difficult economic situation, the work on methodolog-ical improvements, development of the product range and innovation of the Business Units of the Carraro Group continued and were consolidated in financial year 2009.

In the area of Methodologies the set of Product Development procedures was further optimized, in particular defining and implementing the processes of Product Application analysis in the offer stage. The Automatic Product Configurer was also consolidated and made operational, also thanks to the progress made in the modular approach to design.

In relation to Agricultural Drivelines a first prototype was made of the 170Hp transmission, with an innovative proprietary architecture, a fruit of the potential of-fered by the consolidated skills in mechanical design, in hydraulic automation and in electronic control. Thanks to the same potential the process of industrialization and promotion of the new continual variation technology also accelerated.

In the field of Construction Equipment, the market hit most hard by the economic crisis, we proceeded in any case with the development and industrialization of the new robotized transmissions for backhoe loaders and telehandlers and of the new family of industrial axles, with the primary aim of increasing the energy efficiency and expand-ing the power range of the range of products.

In the sector of Hybrid and Electric Powertrains, thanks to synergy between the skills of the different Business Units, we continued with the development of the new range of electric drive activators. In particular in the context of the ‘Industria 2015’ programme for sustainable transport, partnerships were consolidated with leading Italian companies in the segments of energy and urban transport.

In the Vehicles sector we completed the homologation of a new generation of agri-cultural tractors for special applications, which comply with the new emissions regula-tions (Tier III). The year also featured the official launch of the new Agricube platform with the Carraro brand in the European market for specialized tractors.

In the field of Renewable Energies, a very interesting market with great potential,


development began of the new platforms of static converters for residential applica-tions in photovoltaic and wind power, and of the programme for the certification of products for medium/large systems for the North-American market.

The role of Carraro Technologies India, finally, was consolidated with a view to proactive and decisive support for the product development work of all Business Units.

PeRfORmAnCe Of tHe PARent COmPAnY

Carraro SpaPlease note that the data refer to six months of operations, in relation to the manu-

facture and marketing of axles and transmissions, conferred with effect from July 1, 2008 to Carraro Drive Tech Spa, and to 12 months of operations of the Agritalia Division in the manufacture and marketing of agricultural tractors, not subject to the above conferment. Following the conferment Carraro, as the parent company, has maintained its functions of strategic guidance, control and coordination of the individual business units of the Carraro Group, managing the finances and risks of the individual Carraro Group companies and the planning and production of agricultural machines of the business unit known as ‘Divisione Agritalia’ (Agritalia Division).

For the above reasons the year-end data are not comparable. A detailed analysis of the Agritalia Division is provided in another part of this Report.

Carraro Spa achieved sales revenues of 66.384 million euro (323.484 million euro at December 31, 2008).

Ebitda was a negative 8.311 million euro, -12.52% of turnover (12.300 million euro, 3.80% of turnover, at December 31, 2008). Ebit was a negative 11.201 million euro, -16.87% of turnover (6.907 million euro, 2.14% of turnover, at December 31, 2008). Net of the effects of non-recurring restructuring expenses in 2009 the figures would have been: Ebitda a negative 4.131 million euro, -6.22% of turnover, Ebit a negative 7.021 million euro, -10.57% of turnover.

Net financial expenses amounted to 2.213 million euro, 3.33% of turnover (4.813 million euro, 1.49% of turnover, at 31 December 2008) and net exchange differ-ences including hedging expenses were a negative 191 thousand euro (a negative 263 thousand euro at December 31, 2008).

Income from equity investments amounted to 3.010 million euro (7.573 million euro at December 31, 2008) and refer to dividends approved in the year by the sub-sidiaries Elettronica Santerno Spa (2.010 million euro) and Carraro International (1.0 million euro). With tax assets of 2.038 million euro (liabilities of 817 thousand euro in 2008), financial year 2009 closed with a net loss of 8.557 million euro (net profit of 8.587 million euro, 2.65% of turnover, at December 31, 2008).

In 2009 depreciation and amortization amounted to 2.890 million euro (5.393 million euro at December 31, 2008).


47

Gross investments in 2009 totalled 2.802 million euro (9.244 million euro at December 31, 2008) and related, as well as to the maintenance of the Divisione Ag-ritalia plant, to the capitalisation of orders for research and development.

The net financial position was debts of 62.471 million euro. The position was net debts of 44.079 million euro at June 30, 2009 (net debts of 51.552 million euro at December 31, 2008).

As at December 31, 2009 the company had 291 employees (of whom 66 at Cam-podarsego and 225 at the Divisione Agritalia facility in Rovigo).

A summary of the results of the parent company and of the companies it directly controls, not attributable to any of the Business Units, is provided below.

Carraro Spa Carraro technologies ltd 1



Diff.% 31/12/2009 % of turnover


Diff.%

turnover 66,384 323,484 –79.5 790 964

ebitda –8,311 –12.5 12,300 3.8 –167.6 193 24.4 209 21.7 –7.7

ebit –11,201 –16.9 6,907 2.1 –262.2 53 6.7 63 6.54 –15.9

net profit/(loss) –8,557 –12.9 8,587 2.6 –199.6 35 4.4 6 0.6 483.3

amortiz., depreciation and impairment

2,890 4.4 5,393 1.7 –46.4 140 17.7 146 15.1 –4.1

investments 2,802 9,244 41 54

net financial position –62,471 –51,552 249 171

shareholders’ equity 79,377 84,478 256 220

gearing 0.79 0.61 –0.97 –0.781 the company engages in design, research, and development for the group and for third parties – based in pune (india)

Carraro international SA 2 Carraro finance lts. 3





Diff.%

turnover 8,921 15,581 – – –

ebitda 1,692 19.0 3,421 22.0 –50.5 –18 –19 –5.3

ebit 1,691 19.0 3,420 22.0 –50.6 –18 –19 –5.3

net profit/(loss) 5,192 58.2 6,881 44.2 –24.6 –18 –16 –12.5

amortiz., depreciation and impairment

1 – 1 – – – – –

investments – 1 – –

net financial position 1,838 619 9,064 9,076

shareholders’ equity 44,754 40,856 9,050 9,068

gearing –0.04 –0.02 –1.00 –1.002 Based in luxembourg, the company performs the financial management and treasury functions of the group – is engaged in work of a commercial nature on products for the engineering and electronics industries and provides commercial services in general to the swiss branch in lugano.3 the company supports its parent company, Carraro international, in undertaking international financing and treasury operations for the benefit of the group – based in Dublin (ireland).

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49

Performance and Results of the Subholding Companies BusinessUnits


Carraro Drive Tech SpaCarra

ro

Deutschland Gmbh

O&K Antriebste

chnik

Gmbh & Co. KG

Carraro

Argentina Sa

Carraro Driv

e Tech

do Brasil In

c.

Carraro Qingdao

Trading Co. Ltd.

Carraro China

Drives S

yst Co. L

td.

Carraro In

dia

Pvt Ltd.Carra

ro

North Americ

a Inc.

Fon Sa

Carraro Spa

Carraro

Internatio

nal Spa

100%

51%

49%

99.94%

99.90%

100%

100%

100%100%

100%

100%

98.1659%


51

DrivelinesBusiness UnitDrivetech


Summary Data and GraphsDrivelines

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Cash Flow

9,688Cash Flow

- 8,890

2008

Net revenues

662,198Net revenues

314,277

2009

Workforce at 31/12

1,891Workforce at 31/12



10,036

Operating income

- 16,886Operating income

9,044adjusted for the effect of exchange differences adjusted for the effect of exchange differences

Net income

- 20,661Net income

- 1,054net of minority interests net of minority interests


64,609Shareholders’ equity

46,502net of minority interests e 64,493 net of minority interests e 46,450


53

Breakdown by Sector of Application

turnover by Geographical Area

Workforce Breakdown

Executives Office Workers Management

483560

Blue-collar Workers

1,1171,331

Total foreign countries

84.7 %81 %

Total Italy

15.3 %19 %

Agriculture

41.5 %33.3 %

Construction Eq.

37.7 %49.5 %

Material Handling

3.7 %5 %

Powerstations

3 %1.8 %

Spare Parts

10,4 %7.2 %

Other

0.9 %1 %

Auto & Truck

2.8 %2.2 %


Subconsolidated income Statement at 31/12/2009Drivelines BU / Drivetech

31/12/09 % 31/12/08 % Changes31/12/09 31/12/08

Changes31/12/09 31/12/08

Revenues from sales 314,277 100.00% 662,198 100.00% –347,921 –52.54%


–211,981 –67.45% –447,817 –67.63% 235,836 –52.66%


–53,789 –17.12% –113,111 –17.08% 59,322 –52.45%

personnel costs –48,592 –15.46% –68,216 –10.30% 19,624 –28.77%

amortisation, depreciation and impairment of assets

–12,196 –3.88% –14,764 –2.23% 2,568 –17.39%

provisions for risks –5,369 –1.71% –11,997 –1.81% 6,628 –55.25%

other income and expenses 563 0.18% 2,618 0.40% –2,055 –78.50%

internal construction 201 0.06% 133 0.02% 68 51.13%

Operating costs –331,163 –105.37% –653,154 –98.63% 321,991 –49.30%

Operating profit/(loss) (Ebit) –16,886 –5.37% 9,044 1.37% –25,930 –286.71%


other financial income 146 0.05% 347 0.05% –201

Financial costs and expenses –7,045 –2.24% –7,152 –1.08% 107

net foreign exchange gains/losses –1,353 –0.43% –2,990 –0.45% 1,637

Value adjustments of financial assets

–8 0.00% – 0.00% –8

Gains/(losses)on financial assets

–8,260 –2.63% –9,795 –1.48% 1,535 –15.67%

Profit/(loss) before taxes –25,146 –8.00% –751 –0.11% –24,395 3,248.34%

Current and deferred income taxes 4,354 1.39% –577 –0.09% 4,931

net profit/(loss) –20,792 –6.62% –1,328 –0.20% –19,464 1,465.66%

profit/(loss) pertainingto minorities

131 0.04% 274 0.04% –143


–20,661 –6.57% –1,054 –0.16% –19,607 1,860.25%

ebitda –5,115 –1.63% 19,786 2.99% –24,901 –125.85%

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Drivelines-Drivetech Subconsolidated Statement of financial Position at 31/12/2009Drivelines BU / Drivetech

31/12/09 31/12/08

property, plant and equipment 84,023 87,021

intangible fixed assets 23,468 23,957

real estate investments 12 14

equity interests in group companies 149 148

Financial assets 179 152

Deferred tax assets 17,504 13,349

trade and other receivables 1,188 1,707

non current assets 126,523 126,348

Closing inventory 86,028 123,571


Financial assets 119 279

Cash and cash equivalents 25,024 32,797

Current assets 165,635 277,178

total assets 292,158 403,526

share Capital 50,758 50,758

reserves 25,431 21,076

Foreign currency translation reserve –9,078 –6,287

profit (loss) for the period –20,661 –1,054

Minority interests 52 116

Shareholders’ equity 46,502 64,609

Financial liabilities 4,776 15,320

trade and other payables 302 299

Deferred tax liabilities 1,338 1,838

severance, pension and similar provisions 12,211 13,214

provisions for risks and liabilities 1,987 1,113

non current liabilities 20,614 31,784


trade and other payables 109,415 204,346

Current taxes payable 2,172 3,879


Current liabilities 225,042 307,133

total equity and liabilities 292,158 403,526

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Cash flow at 31/12/2009Drivelines BU / Drivetech

31/12/09

Opening net financial Position –67,440

Group profit/(loss) –20,661

Profit/(loss) pertaining to minorities –131

Amortization, depreciation and impairment of fixed assets 11,771

Cash flow before net Working Capital –9,021

Change in net Working Capital 6,480

investments in fixed assets –10,036

Disinvestments in fixed assets 2,717

Operational Free Cash Flow –9,860

other operational flows –5,519

other investment flows –966

Change in share Capital –

Dividends paid –

other equity flows 2,685

Free Cash Flow –13,660

Closing net financial Position –81,100

Analysis of net Working Capital at 31/12/2009Drivelines BU / Drivetech

31/12/09

trade receivables 34,634

inventory 86,028

trade payables –100,111

net Working Capital (nWC) 20,551

The Drivelines-Drivetech Business Unit, which comprises Italian and foreign operations in the design, manufacture and marketing of axles, transmissions and drives for construction equipment and agricultural machinery applications, re-corded a reduction of 52.5 % in sales in 2009 in comparison with the previous year. This change, which is absolutely extraordinary and had never occurred in the past, was particularly concentrated in the sector of construction machines, mining ma-chines, and material handling.

However, this extraordinary sales contraction was also due to the fact that the movement from record sales peaks in 2008 to negative peaks in 2009 caught by surprise all Oem clients, who found themselves having to manage inventories, both at their own establishments and at dealers, which were completely oversized com-

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pared to real sales on the final market.What happened was therefore a sharp drop in the final sell-out, the feeding of the

remaining sales directly from stock and finally drastic stock reduction to reduce the working capital used. Factors which led, overall, for all component manufacturers, including Carraro, to a greater extent with respect to their customers, to a dramatic reduction in production. The work of stock reduction had an impact also on sales of replacement parts to Oems which was only partially offset by higher turnover with independent channels.

Another element characterizing 2009 was the rapidity of this change in the mar-ket at the beginning of the year, sometimes even the cancelling of all orders from customers, which created the conditions, despite an immediate halting of procure-ment, for the reduction in stocks of raw materials to occur slowly and gradually throughout the whole of 2009. Consequently the possibility of transferring fully the significant reduction in raw material costs which occurred during the year to the cost of the product was reduced.

Agricultural marketAs the basic conditions favourable for the growth trend of agricultural machin-

ery remained (increase of world population and global prosperity and increased use of maize, soya, sugar cane for the production of ethanol and biodiesel), demand in the agricultural segment fell less than in the construction industry.

This led for Drivetech to an increase in the proportion of products for the agri-cultural segment to 46.5 % of turnover compared with 40% in 2008.

The decline in demand was extremely differentiated between the different geo-graphical areas with a drastic reduction in the countries of Eastern Europe, Turkey and the former Soviet Union, a significant reduction in the Usa and Europe and substantial resistance in South America, China and India. The drop in demand, given as said the continuation of positive basic trends, was due essentially to the liquidity crisis and to the reduced availability of funding from the banking system.

The use of four-wheel-drive tractors continues to increase in emerging econo-mies, resulting in greater demand for axles, as does the trend towards technological change which is creating interesting opportunities in the agricultural machinery transmission segment.

Despite the generalized drop in sales owing to the market crisis, in 2009 Carraro Drivetech maintained, and in some cases slightly increased, its share of the market.

Construction equipmentIn the western markets the situation was, for most of 2009, one of absolutely de-

pressed levels and, for some products, even close to zero. In China, India and South America after a decidedly weak first half of the year,

the market returned to levels comparable with the past.The reasons for this can be found in the vertical drop of demand for homes,


commercial and industrial buildings and infrastructures in the western countries and, vice versa, in the resistance of the same sectors seen in the emerging markets, thanks to government incentives and to effervescent demand on the part of private individuals.

As a result of this the proportion of the ‘construction’ segment out of total Drivet-ech turnover went down from 40% in 2008 to 20.4% in 2009.

However, in these business segments too, Carraro maintained its market share, even increasing it in non-traditional areas such as India and China.

Mining equipmentIn the mining equipment market – one with low volumes but high value – Car-

raro also gained an increasingly significant position, and in this field, at the end of 2009, the largest drive in the world for belted excavators was delivered.

Material Handling MarketThe Material Handling market was also severely affected by the crisis in 2009,

as the reduced economic activity led automatically to less goods sold and conse-quently handled.

Planetary Drives MarketDemand for drives remained high in 2009 thanks above all to the medium/long-

term contracts signed in 2008 and thanks to the fact that, despite the situation of the construction market in deep recession, Carraro gained significant market share especially in China.

During the year a new range of drives was developed for the new wind power segment (pitch & yaw drives) and in 2010 the first deliveries will begin.

The escalator power-stations segment saw a fall of 10% in 2009.

The turnover of the Drivetech Business Unit at December 31, 2009 amounted to 314.277 million euro (662.198 million euro at December 31, 2008 including the first six months of 2008 when it was part of Carraro Spa). The causes of this reduc-tion in volumes can be found in the drastic drop in sales destined for the construc-tion equipment market and for the agricultural market as fully explained in the introduction.

A breakdown of turnover between sales to third parties and intra-group sales is provided below:


2009 2008 Diff. % 2009 2008 Diff. % 2009 2008 Diff. %

Drivelines 314,277 662,198 –52.54 304,257 636,259 –52.18 10,020 25,939 –61.37

Turnover

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59

The following table breaks down sales to third parties by geographical area:


germany 51,029 16.77 94,199 14.81 –45.83

China 39,932 13.12 37,768 5.94 +5.73

united states of america 32,705 10.75 109,504 17.21 –70.13

France 20,056 6.59 33,316 5.24 –39.80

india 18,279 6.01 27,194 4.27 –32.78

great Britain 14,174 4.66 54,825 8.62 –74.15

Belgium 10,397 3.42 20,552 3.23 –49.41

austria 6,388 2.10 14,926 2.35 –57.20

poland 6,129 2.01 21,199 3.33 –71.09

argentina 5,569 1.83 8,263 1.30 –32.60

turkey 3,736 1.23 11,079 1.74 –66.28

others 49,388 16.23 82,576 12.98 –40.19

total abroad 257,782 84.73 515,401 81.00 –49.98

italy 46,475 15.27 120,858 19.00 –61.55

total 304,257 100 636,259 100 –52.18

The following table breaks down sales to third parties by application segment:

segMent 2009 % 2008 % Difference % ’09-‘08

Off-Highway 241,136 79.25 526,868 82.81 –54.23

agricultural segment 126,302 41.51 211,748 33.28 –40.35

Constr. equipment segment 114,834 37.74 315,120 49.53 –63.56

On-Highway 28,786 9.46 57,356 9.01 –49.81

Material Handling 11,413 3.75 31,625 4.97 –63.91

auto & truck 8,414 2.77 14,005 2.20 –39.92

systems for escalators 8,959 2.94 11,726 1.84 –23.60

Replacement parts 31,682 10.41 45,864 7.21 –30.92

Others 2,653 0.87 6,171 0.97 –57.01

total 304,257 100 636,259 100 –52.18

Figures at 31/12/2009


ebitda 1 –5,115 –1.6 19,786 3.0 –125.9


Ebitda and Ebit

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Ebitda was a negative 5.115 million euro, -1.6% of turnover (it was a positive 19.786 million euro, 3.0% of turnover in 2008).

Ebit was a negative 16.886 million euro (-5.4% of turnover). it was a positive 9.044 million euro (1.4% of turnover) at December 31, 2008.

Net of non-recurring expenses, the amounts would have been respectively: Ebit-da a positive 152 thousand euro. Ebit a negative 11.619 million euro.

The important remedial actions enabled costs to be cut for the purchase of goods and services in keeping with the decline in turnover. Personnel expenses, which declined only marginally owing to the time necessary for the definition of a restruc-turing agreement for the Italian plants, and amortization and depreciation, had an adverse effect on profitability in the year.



Financial expenses 6,899 2.2 6,805 1.0 1.4

Although there was a greater average negative net financial position than in the previous year, owing to the lower cost of money financial expenses rose only to 6.899 million euro, 2.2% of turnover, compared with 6.805 million euro (1.0% of turnover) in the previous year.



exchange differences –1,353 –0.4 –2,990 –0.5 –54.7

Exchange differences at December 31, 2009 were a negative 1.353 million euro (compared with a negative 2.990 million euro at December 31, 2008).



net profit/(loss) –20,661 –6.6 –1,054 –0.2 –1,860.3

Financial year 2009 closed with a loss of 20.661 million euro (-6.6% of turno-ver), worse than the loss of 1.054 million euro (-0.2% of turnover) in the previous financial year. Net of non-recurring effects, there would have been a loss of 16.833 million euro.

Financial Expenses


Net Profit/(Loss)

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11,771 3.8 10,742 2.2 9.6

This figure included 153 thousand euro of impairment of the corporate assets of FON Sa.


31/12/2009 31/12/2008

investments 10,036 21,387

Investments of 10.036 million euro were made compared with 21.387 million euro in 2008, destined for the support of manufacturing reorganization pro-grammes.

Despite the drastic downsizing of operations, expenses for Research and Develop-ment, the purposes and applications of which are commented on in a specific para-graph, amounted to 8.313 million euro in financial year 2009, 2.6% of turnover compared with 4.686 million euro in 2008, representing 0.98% of sales.


31/12/2009 30/09/2009 30/06/2009 31/12/2008



Thanks to the actions undertaken to implement financial safety measures (re-duction of 7.5 million euro in working capital from 2008 to 2009) after an increase in the net financial position at September 30, 2009 to 101.235 million euro, in the last quarter positive free cash flow generation was resumed allowing us to reach, at December 31, 2009, 81.099 million euro of debt, an improvement compared with the debt of 90.663 million euro at June 30, 2009.


Net Financial Position

Investments


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PeRSOnnel


31/12/2009 31/12/2008 31/12/2007

executives 28 35 nc

Clerical staff 455 525 nc

Factory workers 1,115 1,307 nc

temporary workers 2 24 nc

total 1,600 1,891 nc

Summary data of the companies belonging to the Drivelines BU / Drivetech at 31/12/2009

Carraro Drive tech Spa 1 Carraro Argentina SA





Diff.%

turnover 179,549 169,485 5.9 38,481 65,636 –41.4

ebitda –12,096 –6.7 4,330 2.5 –379.3 1,201 3.12 2,069 3.2 –41.9

ebit –17,947 –10 1,388 0.8 –1,393.0 52 0.1 563 0.9 –90.8

net profit/(loss) –25,790 * –14.4 –1,235 –0.7 1,988.3 248 0.6 2,073 3.2 –88.0

amortiz., depr. and impairment

5,851 3.3 2,942 1.7 98.9 1,149 3.0 1,506 2.3 –23.7

investments 3,462 2,672 296 1,180

net financial pos. –62,877 –16,375 476 –491

shareholders’ eq. 28,201 49,523 18,964 21,303

gearing 2.23 0.33 –0.03 0.021 subholding parent company of the Business unit. please note that the 2009 figures are not comparable with the year 2008 as they refer to only 6 months of business of the company, founded on conferment by Carraro spa on July 1, 2008. * includes the impairment of the subsidiary Fon sa of 8.9 million euro.

fOn SA Carraro india Pvt. ltd.





Diff.%

turnover 17,567 80,572 –78.2 27,568 56,411 –51.1

ebitda –1,441 –8.2 2,404 3.0 –159.9 2,778 10.1 5,164 9.2 –46.2

ebit –2,322 –13.2 –233 –0.3 –896.6 1,579 5.7 3,986 7.07 –60.4

net profit/(loss) –4,732 –26.9 –2,974 –3.7 –59.1 –158 –0.6 –587 –1.04 73.8


881 (*) 5.0 2,637 3.3 –66.6 1,199 4.4 1,178 2.1 1.8

investments 455 3,088 2,896 4,785

net financial pos. –7,835 –15,229 –6,634 –12,338

shareholders’ eq. 2,847 1,788 12,662 12,132

gearing 2.75 8.52 0.52 1.02

* includes 135 thousand euro of impairment of corporate assets.

Workforce Trend

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Carraro China Drives System Co. ltd. Carraro Qingdao trad. Co ltd.

31/12/2009 % of tur-nover




Diff.%

turnover 10,272 22,045 –53.4 – 3,529 –100.0

ebitda 300 2.9 –544 –2.5 –155.2 –52 37 1.05 –240.5

ebit –1,671 –16.3 –1,680 –7.6 –0.5 –101 –9 –0.26 –1,022.2

net profit/(loss) –2,287 –22.3 –2,456 –11.1 –6.9 –185 –198 –5.61 –6.6


1,971 19.2 1,136 5.2 73.5 49 46 1.30 6.5

investments 3,011 7,524 – –

net financial pos. –12,950 –13,780 39 1,751

shareholders’ eq. 6,623 7,853 –194 16

gearing 1.96 1.75 0.20 109.44

Carraro north America inc. (Virginia Beach) Carraro Deutschland GmbH





Diff.%

turnover – – – – –

ebitda –696 –25 – –14 –10

ebit –712 –25 – –14 –10

net profit/(loss) –754 –60 – 576 287


16 – – – –

investments 16 52 – –

net financial pos. –774 –309 319 –310

shareholders’ eq. 790 63 9,769 9,194

gearing –0.98 –4.90 –0.03 0.03

O&K Antriebstechnik GmbH & Co. KG



Diff.%

turnover 58,146 71,385 –18.6

ebitda 4,640 8.0 5,494 7.7 –15.5

ebit 3,985 6.9 4,318 6.1 –7.7

net profit/(loss) 3,017 5.2 3,650 5.1 –17.3


655 1.1 1,176 1.1 –44.3

investments 534 1,990

net financial pos. 9,126 283

shareholders’ eq. 13,150 10,812

gearing –0.69 –0.03

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South America

Gears

Siap Spa

Stm Srl

Turbo Gears

India Pvt Ltd.

Minigears

Suzhou Co. Ltd.

Minigears

Shangai Trad. L

td.

Minigears

Inc.

Minigears

Property

Minigears

Spa

Gear World

North Americ

a Llc

Carraro Spa

Gear World Spa Carraro

Internatio

nal Spa

100%

45.60%

28.22%

0.0002%

33%

100%

100%

100%

99.9998%

99.958%

50.0001%

100%

100%

100%

67%


65

Gears & Components Business UnitGear World


Summary Data and GraphsGears&Components

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Cash Flow

13,682Cash Flow

- 8,554

2008

Net revenues

231,661Net revenues

109,073

2009

Workforce at 31/12

1,798Workforce at 31/12



9,711

Operating income



Net income

- 25,059Net income

- 2,482net of minority interests net of minority interests



46,850net of minority interests e 69,135 net of minority interests e 42,985


67


Workforce Breakdown


261331

Blue-collar Workers

1,2581,467


80.5 %77.4 %

Total Italy

19.5 %22.6 %


Agricultural

16 %16 %

Eolic Energy

12 %11 %

Construction Eq.

13 %23 %

Material Handling

5 %5 %

Automotive

15 %11 %

Power Tools

12 %10 %

Gardening

12 %9 %

Other

20 %20 %


Subconsolidated income Statement at 31/12/2009Gears & Components BU / Gear World

31/12/09 % 31/12/08 % Changes31/12/09 31/12/08

Changes31/12/09 31/12/08



–54,253 –49.74% –108,368 –46.78% 54,115 –49.94%


–26,135 –23.96% –59,673 –25.76% 33,538 –56.20%

personnel costs –34,507 –31.64% –43,717 –18.87% 9,210 –21.07%


–16,689 –15.30% –16,206 –7.00% –483 2.98%

provisions for risks –3,180 –2.92% –745 –0.32% –2,435 326.85%

other income and expenses 550 0.50% 888 0.38% –338 –38.06%

internal construction 630 0.58% 615 0.27% 15 2.44%

Operating costs –133,584 –122.47% –227,206 –98.08% 93,622 –41.21%

Operating profit/(loss) (Ebit) –24,511 –22.47% 4,455 1.92% –28,966 –650.19%



Financial costs and expenses –3,919 –3.59% –6,268 –2.71% 2,349

net foreign exchange gains/losses –206 –0.19% –1,405 –0.61% 1,199

Value adjustments of financial assets

– 0.00% 14 0.01% –14

Gains/(losses) on financial assets

–4,051 –3.71% –7,480 –3.23% 3,429 –45.84%

Profit/(loss) before taxes –28,562 –26.19% –3,025 –1.31% –25,537 844.20%

Current and deferred income taxes 2,536 2.33% 1,262 0.54% 1,274

net profit/(loss) –26,026 –23.86% –1,763 –0.76% –24,263 1376.23%

profit/(loss) pertaining to minorities

967 0.89% –719 –0.31% 1,686


–25,059 –22.97% –2,482 –1.07% –22,577 909.63%

ebitda –8,006 –7.34% 20,619 8.90% –28,625 –138.83%

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Subconsolidated Statement of financial Position at 31/12/2009Gears & Components BU / Gear World

31/12/09 31/12/08 31/12/07

property, plant and equipment 116,671 123,732 111,099

intangible fixed assets 25,378 26,873 27,599

real estate investments 155 155 155

equity interests in group companies – – 5,065

Financial assets 82 22 140

Deferred tax assets 2,923 4,084 1,791

trade and other receivables 1,457 655 458

non current assets 146,666 155,521 146,307

Closing inventory 33,107 50,097 42,086


Financial assets 281 566 397

Cash and cash equivalents 4,583 9,424 2,512

Current assets 67,424 120,061 102,777

total assets 214,090 275,582 249,084

share Capital 35,084 35,084 35,084

reserves 35,970 38,265 35,171

Foreign currency translation reserve - 3,011 - 1,732 - 1,846

profit (loss) for the period - 25,059 - 2,482 2,698

Minority interests 3,866 4,983 4,481

Shareholders’ equity 46,850 74,118 75,588


trade and other payables 4 4 4

Deferred tax liabilities 4,804 7,829 9,057

severance, pension and similar provisions 6,662 7,058 7,363

provisions for risks and liabilities 1,934 373 565

non current liabilities 42,812 77,286 58,810


trade and other payables 42,174 69,947 69,419

Current taxes payable 418 615 388

provisions for risks and liabilities 1,931 1,020 330

Current liabilities 124,428 124,178 114,686

total equity and liabilities 214,090 275,582 249,084

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Cash flow at 31/12/2009Gears & Components BU / Gear World

31/12/09 31/12/08

Opening net financial Position –104,404 –83,458

Group profit/(loss) –25,059 –2,482

Profit/(loss) pertaining to minorities –967 719

Amortization, depreciation and impairment of fixed assets 16,505 16,164

Cash flow before net Working Capital –9,521 14,401

Change in net Working Capital 20,150 –5,100

investments in fixed assets –9,711 –25,982

Disinvestments in fixed assets 261 2,681

Operational Free Cash Flow 1,179 –14,000

other operational flows –1,297 –7,652

other investment flows 1,501 413

Change in share Capital – –

Dividends paid –150 –217

other equity flows –1,092 510

Free Cash Flow 141 –20,946

Closing net financial Position –104,263 –104,404

Analysis of net Working Capital at 31/12/2009Gears & Components BU / Gear World

31/12/09 31/12/08


inventory 33,107 50,097



The year 2009 will be remembered in the Gears & Components area as ‘the year of the tsunami’. The first signs of cracks in certain strategic outlet markets for Gear World, in particular the Construction Equipment market, began to appear at the end of 2008 as an immediate consequence of the global financial crisis. The viru-lence and violence of the ‘infection’ in progress was at that time, however, unfore-seeable. Right from the beginning of 2009 however this exploded in its full inten-sity. From January onwards all ten markets in which Gear World competes showed clear signs of weakness which gradually were confirmed and intensified until they reached practically in all segments a drop in demand of around 50%.

There was a particularly deep crisis in the Construction Equipment segment (-55%), but also in Agriculture (-30%), Trucks (-60%) and Power Tools (-30%).

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Even the Energy segment, which initially seemed to be untouched by the storm, weakened as the months passed and at the end of the year also closed at –10%. The only department which to some extent limited the damage and indeed during the year had moments of effervescence was the Automotive sector, which thanks to the state aid distributed all over Europe had a partially opposite trend. A global crisis in terms of applications but also of outlet markets. Our traditional markets, from Germany to the United States and including the entire EU, suffered downturns of around 50%. But also new markets such as China and India suffered a sharp drop, at least in the segments in which Gear World has aimed up to now (high-tech and high-quality gears destined mainly for export). Less brutal, but still significant, was the slowdown in Brazil.

It is important to stress that the drop in demand was amplified for Gear World by the destocking effect (customers produced their goods using components that they had purchased in 2008 and that were held in stock) and by the insourcing ef-fect (many customers preferred the internal production of gears to saturate their existing plants rather than purchasing) but also that the drop in demand did not absolutely affect our market shares, which in fact in several cases increased.

The inevitable economic effects resulting from the drop in demand, which are evident from a reading of the Gear World income statement, were attenuated by the prompt reaction of the management and by a series of temporary and struc-tural measures put in place. At the beginning of the year all the classical tempo-rary measures necessary to stop the haemorrhage such as redundancy benefits, collective closures, termination of all temporary employment contracts, a block on investments, SG&A cost reduction and so on. Actions which over time were transformed into structural measures. In particular during 2009 the total work-force was reduced by 16% (executives –19%, clerical staff -21%, factory workers –14%) through actions to encourage voluntary redundancy but thanks also to an agreement signed at the end of 2009 by the entire Carraro Group Italy for an Ex-traordinary Redundancy Benefit package of 2 years. Investments were halted and decreased compared with the budget by 32% and if many of these had not been carried over from the previous year they would have been for the exclusive purposes of maintenance or security and the environment. Through the reduction of refunds of expenses, advice and in general all activities unnecessary for the immediate op-eration of the business General Expenses also declined by 15% compared with the 2009 budget. Careful management of stocks and cash flows enabled the company to decrease stocks by 30% and to generate Free Operating Cash Flow.

In view of the changed market scenarios but also in the light of the strategic re-view of Gear World, to which we refer in the next paragraph, the company also considered necessary to replace two key figures in its organizational structure: the General Manager and the Sales & Marketing Manager.

Alongside these actions to ensure the survival of the business, Gear World, in the context of the work on reviewing the Group strategies entitled Carraro 2.0,


analyzed and partially changed its guidelines. First of all the commercial strategy which went from a period of expansion of the markets (with consequent expansion of investments) to one of saturation of the existing plants and focusing on the mar-kets in which we are already a leader with a particular focus on the opportunities in the automotive sector both for gears and components produced with sintered technology and for assembled units. The industrial strategy also changed radically. In the Italian factories we are proceeding to focus the three existing facilities on specific product lines of high technology and quality while the foreign factories, while remaining partially ‘generalist’, will be devoted mainly to so-called local-for-local production: the manufacture of components destined for the market where they are situated.

The year 2009 was one that can obviously be defined as terrible but one which in any case confirmed the validity of the idea that led in 2007 to the creation of Gear World, which remains a unique case in the markets of competence in terms of dimensions, product portfolio and global industrial presence. so financial but also operational solidity, due to the fact of being part of a large Group, the economic/in-dustrial synergies due to the wide range of products and the global production ca-pacity (but also local for local) are still, in fact now more than ever, aspects that all customers or potential customers appreciate and sustain. Tangible proof of this is the very intense work of quotation, prototyping and sampling of new products car-ried out in the year 2009. Work that already in 2010 will be transformed into new contracts and supplies for both historical and newly-acquired customers which will enable Gear World to get back on the road to growth that the unforeseeable events of 2009 so dramatically interrupted.

The turnover of the Gears&Components Business Unit at December 31, 2009 de-creased by 52.92% reaching 109.073 million euro (231.661 million euro at Decem-ber 31, 2008). The reasons for this significant reduction in volumes have been fully illustrated in the introduction to the data.



2009 2008 Diff. % 2009 2008 Diff. % 2009 2008 Diff. %

gears &Components

109,073 231,661 –52.92 83,929 161,605 –48.07 25,144 70,052 –64.11

Turnover

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germany 26,911 32.06 49,996 30.94 –46.17

united states of america 12,653 15.08 17,813 11.02 28.97

sweden 7,609 9.07 18,737 11.59 –59.39

China 5,738 6.84 8,886 5.50 –35.43

Finland 2,885 3.44 6,387 3.95 –54.83

Brazil 2,332 2.78 3,623 2.24 –35.63

spain 1,229 1.46 4,463 2.76 –72.46

lichtenstein 1,032 1.23 2,318 1.43 –55.48

great Britain 696 0.83 903 0.56 –22.92

others 6,517 7.76 11,968 7.41 –45.55

total abroad 67,602 80.55 125,094 77.41 –45.96

italy 16,327 19.45 36,511 22.59 –55.28

total 83,929 100 161,605 100 –48.07

The following table breaks down turnover by application segment:

segMent 2009 % 2008 % Difference % ’09-‘08

%

agricultural 16,923 16% 36,486 16% –19,563 –54%

Costruction equipment 14,446 13% 54,352 23% –39,906 –73%

eolic energy 13,432 12% 25,996 11% –12,564 –48%

Material handling 5,346 5% 12,664 5% –7,317 –58%

automotive 16,892 15% 24,497 11% –7,605 –31%

gardening 13,395 12% 20,428 9% –7,033 –34%

power tools 13,300 12% 24,091 10% –10,791 –45%

Miscellaneous 14,175 13% 31,964 14% –17,789 –56%

Market nD 1,161 1% 1,183 1% –22 –2%

MKas 2 0% – 0% 2

Application market 109,073 100% 231,661 100% –122,588 –53%



ebitda 1 –8,006 –7.3 20,619 8.9 –138.8


Ebitda was a negative 8.006 million euro, -7.3% of turnover (it was a positive

Ebitda and Ebit

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20.619 million euro, 8.9% of turnover in 2008).Ebit was a negative 24.511 million euro (-22.5% of turnover). it was a positive

4.455 million euro (1.9% of turnover) at December 31, 2008.The drastic drop in volumes had an extremely negative effect on Gear World ow-

ing to the type of business where the components of labour costs and depreciation are extremely high. The adjustment of the workforce to the real manufacturing needs even in the face of an immediate reaction took the entire year with conse-quent misalignments of an economic nature and depreciation by its nature could not be reduced. For these reasons Ebitda and Ebit were significantly penalized also net of non-recurring costs for restructuring of 4.261 million euro.

Net of non-recurring expenses of 4.261 million euro, the amounts would have been respectively: Ebitda a negative 3.745 million euro. Ebit a negative 20.250 mil-lion euro.




Diff.%

Financial expenses 3,845 3.5 6,089 2.6 -36.9

Although there was a greater average negative net financial position than in the previous year, owing to the lower cost of money financial expenses fell to 3.845 mil-lion euro, 3.5% of turnover, compared with 6.089 million euro (2.6% of turnover) in the previous year.




Diff.%

exchange differences –206 –0.2 –1,405 –0.6 –85.3

Exchange differences at December 31, 2009 were a negative 206 thousand euro (compared with a negative 1.405 million euro at December 31, 2008).




Diff.%

net profit/(loss) –25,059 –23.0 –2,482 –1.1 –909.6

Financial Expenses


Net Profit/(Loss)

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Financial year 2009 closed with a loss of 25.059 million euro (-23.0% of turno-ver), worse than the loss of 2.482 million euro (-1.1% of turnover) in the previous financial year.

Net of the effects on non-recurring restructuring costs, there would have been a net loss of 22.778 million euro.




Diff.%


16,505 15.1 16,164 7.0 +2.1

This amount includes 603 thousand euro of impairment of corporate assets of Siap Spa.


31/12/2009 31/12/2008


Investments of 9.711 million euro were made compared with 25.982 million euro in 2008, destined for the support of manufacturing reorganization programmes.


31/12/2009 30/09/2009 30/06/2009 31/12/2008



Thanks to the actions taken, working capital was reduced by 20.1 million euro. This improvement was nullified by the significant losses in the year and the result was a marginal improvement in free cash-flow of 141 thousand euro which re-duced the net financial position to debts of 104.263 million euro compared with the 108.493 in June 2009 and the 104.404 million euro at December 31, 2008.



Investments

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PeRSOnnel


31/12/2009 31/12/2008 31/12/2007

executives 13 16 13

Clerical staff 248 315 279

Factory workers 1,184 1,340 1,114


total 1,519 1,798 1,583

Summary data of the companies belonging to theGears & Components BU / Gear World

Gear World Spa 1 Siap Spa





Diff.%

turnover 1,659 744 +123.0 45,622 123,305 –63.0

ebitda –1,706 –102.8 –3,217 –432.39 –47.0 –3,936 –8.6 10,389 8.4 –137.9

ebit –1,717 –103.5 –3,221 –432.93 –46.7 –9,855 –21.6 4,136 3.4 –338.3

net profit/(loss) –619 –37.3 –78 –10.48 –693.6 –9,956 –21.8 2,216 1.8 –549.3


11 0.66 4 0.54 +175.0 5,919 * 13.0 6,253 5.1 –5.3

investments – 87 6,088 13,253


shareholders’ eq. 49,730 50,349 16,918 28,836

gearing 0.25 0.22 1.61 1.331 subholding parent company of the Business unit * euro 603 thousand company asset depreciation.

Stm Srl turbo Gears india Pvt ltd





Diff.%

turnover 7,374 24,110 –69.4 4,279 13,433 –68.2

ebitda –867 –11.8 3,143 13.0 –127.6 –777 –18.2 1.876 14.0 –141.4

ebit –1.783 –24.2 2,270 9.4 –178.6 –1,678 –39.2 950 7.1 –276.6

net profit/(loss) –1,946 –26.4 1,452 6.0 –234.0 –2,011 –47.0 –1,349 –10.0 –49.1


916 12.4 873 3.2 +4.9 901 21.1 926 6.9 –2.1

investments 229 426 1,823 3,353


shareholders’ eq. 7,748 9,994 10,366 12,121

gearing 0.41 0.37 0.62 0.38

Workforce Trend

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South America Gears minigears Spa





Diff.%

turnover 7,329 9,293 –21.1 33,622 57,473 –41.5

ebitda 227 3.1 457 4.9 –50.3 –1,847 –5.5 5,258 9.2 –135.1

ebit –481 –6.6 –169 –1.8 –184.6 –7,896 –23.5 –455 –0.8 –1,635.4

net profit/(loss) –379 –5.2 –217 –2.3 –74.6 –7,403 –22.0 –1,778 –3.1 –316.4


708 9.7 626 6.7 +13.1 6,049 18.0 5,713 9.9 +5.9

investments 142 1,102 2,188 5,287

net financial pos. 842 148 –50,319 –40,495

shareholders’ eq. 5,618 6,800 11,263 8,667

gearing –0.15 –0.02 4.47 4.67

minigears Suzhou Co ltd minigears Shangai trading ltd





Diff.%

turnover 9,017 13,175 –31.6 14 144 –90.3

ebitda 1,157 12.8 2,296 17.4 –49.6 –9 –64.3 92 63.9 –109.8

ebit 5 0.1 1,391 10.6 –99.6 –9 –64.3 92 63.9 –109.8

net profit/(loss) –263 –2.9 1,295 9.8 –120.3 –6 –42.9 63 43.8 –109.5


1,152 12.8 905 6.9 +27.3 – –

investments 850 2,388 – –

net financial pos. –1,941 –2,803 301 305

shareholders’ eq. 6,608 7,113 328 346

gearing 0.29 0.39 –0.92 –0.88

minigears inc (Usa)



Diff.%

turnover 10,133 13,521 –25.1

ebitda –433 –4.3 322 2.4 –234.5

ebit –1,307 –12.9 –548 –4.1 –138.5

net profit/(loss) –1,552 –15.3 –483 –3.6 –118.4


874 8.6 870 6.4 +0.5

investments 404 86

net financial pos. –3,836 –3,578

shareholders’ eq. 6,422 8,204

gearing 0.60 0.44

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VehiclesBusiness Unit Agritalia


Summary Data and GraphsVehicles

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Cash Flow

3,410Cash Flow

- 1,584

2008

Net revenues

107,001Net revenues

58,790

2009

Workforce at 31/12

249Workforce at 31/12

225Gross investments


1,389

Operating income



Net income

- 1,898Net income

3,176net of minority interests net of minority interests



10,316


81


Workforce Breakdown


7977

Blue-collar Workers

146172


92.5 %91.5 %

Total Italy

7.5 %8.5 %


Agriculture

100 %100 %


income Statement at 31/12/2009Vehicles BU / Agritalia

31/12/09 % 31/12/08 % Changes31/12/09 31/12/08

Changes31/12/09 31/12/08

Revenues from sales 58,790 100.00% 107,001 100.00% – 48,211 –45.06%


– 45,223 –76.92% – 80,517 –75.25% 35,294 –43.83%


– 5,849 –9.95% – 8,437 –7.88% 2,588 –30.67%

personnel costs – 9,438 –16.05% – 9,843 –9.20% 405 –4.11%


– 314 –0.53% – 234 –0.22% – 80 34.19%

provisions for risks – 1,460 –2.48% – 3,027 –2.83% 1,567 –51.77%

other income and expenses 1,229 2.09% 255 0.24% 974 381.96%

internal construction 87 0.15% 143 0.13% – 56 –39.16%

Operating costs – 60,968 –103.70% – 101,660 –95.01% 40,692 –40.03%

Operating profit/(loss) (Ebit) – 2,178 –3.70% 5,341 4.99% – 7,519 –140.78%


other financial income – 0.00% 4 0.00% – 4

Financial costs and expenses – 55 –0.09% – 0.00% – 55

net foreign exchange gains/losses 15 0.03% – 4 0.00% 19

Value adjustments of fin. assets – 0.00% – 0.00% –


– 40 –0.07% – 0.00% – 40

Profit/(loss) before taxes – 2,218 –3.77% 5,341 4.99% – 7,559 –141.53%

Current and deferred income taxes 320 0.54% – 2,165 –2.02% 2,485

net profit/(loss) – 1,898 –3.23% 3,176 2.97% – 5,074 –159.76%


0.00% 0.00% –


– 1,898 –3.23% 3,176 2.97% – 5,074 –159.76%

ebitda – 1,864 –3.17% 5,575 5.21% – 7,439 –133.43%

Statement Of financial Position at 31/12/2009Vehicles BU / Agritalia

31/12/09 31/12/08


intangible fixed assets 403 433

real estate investments – –

equity interests in group companies – –

Financial assets – –

Deferred tax assets 2,770 2,120

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31/12/09 31/12/08

trade and other receivables 8 7




Financial assets 7 –

Cash and cash equivalents 6,615 8,383


total assets 37,446 52,149

share Capital – –

reserves 12,214 4,627

Foreign currency translation reserve – –

profit (loss) for the period – 1,898 3,176

Minority interests – –


Financial liabilities – –

trade and other payables – –

Deferred tax liabilities 69 –

severance, pension and similar provisions 1,363 1,692

provisions for risks and liabilities 594 1,347

non current liabilities 2,026 3,039

Financial liabilities 5,000 –


Current taxes payable 101 –




Statement Of Cash flows At 31/12/2009Vehicles BU / Agritalia

31/12/09 31/12/08

Opening net financial Position 8,383 –

Group profit/(loss) – 1,898 3,176

Profit/(loss) pertaining to minorities – –

Amortization, depreciation and impairment of fixed assets 314 234

Cash flow before net Working Capital – 1,584 3,410

Change in net Working Capital 5,364 – 3,659

investments in fixed assets – 1,389 – 717

Disinvestments in fixed assets 138 138

Operational Free Cash Flow 2,529 – 828

other operational flows – 5,151 8,421

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31/12/09 31/12/08

other investment flows – 8,550 – 3,837

Change in share Capital – –

Dividends paid – –

other equity flows 4,411 4,627

Free Cash Flow – 6,761 8,383

Closing net financial Position 1,622 8,383

Analysis of net Working Capital at 31/12/2009Vehicles BU / Agritalia

31/12/09 31/12/08


inventory 10,373 21,577

trade payables - 15,543 - 33,690

net Working Capital (nWC) - 1,705 3,659

With a drop in turnover of more than 45% compared with the previous year, for Agritalia 2009 was a year of sharp contraction.

Sales of tractors declined to 2,399, -48.93% compared with 2008, while engineer-ing services brought in 2.745 million euro, -49.5% (54.23%) compared with 2008.

The significant decrease in volume was determined by the crash of 50%, at the European level, of the special and light tractor market (between 50 and 100 horse-power) . Furthermore, the phase-out of Tier 2 John Deere and Claas models, with the launch of new ranges planned only toward the end of the year, further reduced demand, shifting the focus toward the beginning of 2010.

In this context there was increased monitoring on the fronts of investments and costs. All actions involving manufacturing re-layouts that were not strictly neces-sary, and not decisive in ensuring safety, functionality and productivity, were, in fact, postponed to a later date. In the same way we worked to optimize and reduce the existing range of suppliers, achieving economies of scale with a number of key part-ners. It is worth pointing out, finally, the significant commitment to the reduction of General Expenses, which decreased significantly thanks mainly to the freezing of non-indispensable work, of the amount of travelling and of a number of advisory services.

In the current year Agritalia will renew its entire production from the Tier 2 to the Tier 3 generation, completing at the same time a significant programme of standardization, with transmissions, structures and cabins shared among the vari-ous product platforms.

This will be achieved with the new range of John Deere 5G series tractors, with the special (orchard, high-crop and vineyard) and standard light tractors, and with

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the launch of the renewed Claas Elios (standard) and Nexos (special) tractors. At the end of 2009 it was decided, finally, to relaunch the production of tractors with the Carraro brand (3 little horses), with a modernized range that will start to have an impact on sales in 2010.

In general terms for the current year only a modest market recovery is expected, mainly towards the second half of the year. The expected volumes will therefore be substantially in line with 2009.

The turnover of the Vehicles Business Unit at December 31, 2009 amounted to 58.790 million euro (107.001 million euro at December 31, 2008).



2009 2008 Diff. % 2009 2008 Diff. % 2009 2008 Diff. %

Vehicles 58,790 107,001 –45.06 56,067 104,687 –46.44 2,723 2,314 17.68



switzerland 26,585 47.42 19,036 18.18 +39.66

France 15,129 26.98 25,810 24.65 –41.38

germany 6,865 12.24 26,875 25.67 –74.46

united states of america 1,444 2.58 2,402 2.29 –39.88

australia 837 1.49 606 0.58 +38.12

portugal 668 1.19 – – –

great Britain 180 0.32 20,505 19.59 –99.12

others 158 0.28 610 0.58 –75.00

total abroad 51,866 92.51 95,844 91.55 –45.88

italy 4,201 7.49 8,843 8.45 –52.49

total 56,067 100 104,687 100 –46.44




Diff.%

ebitda 1 –1,864 –3.2 5,575 5.2 –133.4

ebit 2 –2,178 -3.7 5,341 5.0 –140.81 understood as the sum of operating profit/loss, amortization, depreciation and impairment of fixed assets.2 understood as operating profit/loss in the income statement.

Turnover

Ebitda and Ebit

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Ebitda was a negative 1.864 million euro, -3.2% of turnover (it was a positive 5.575 million euro, 5.2% of turnover in 2008). Ebit was a negative 2.178 million euro (-3.7% of turnover). it was a positive 5.341 million euro (5% of turnover) at December 31, 2008. Net of non-recurring expenses, the amounts would have been respectively: Ebitda a negative 1.519 million euro, Ebit a negative 1.833 million euro.



Financial expenses –55 –0.1 4 – nc

Financial expenses came out at 55 thousand euro, -0.1% of turnover, compared with 4 thousand euro in the previous year.



exchange differences 15 – –4 – 475.0

Exchange differences at December 31, 2009 were a positive 15 thousand euro (compared with a negative 4 million euro at December 31, 2008) .



net profit/(loss) –1,898 –3.2 3,176 3.0 –159.8

Financial year 2009 closed with a loss of 1.898 million euro (-3.2% of turnover), worse than the profit of 3.176 million euro (3% of turnover) in the previous finan-cial year.

Net of the effects of non-recurring events, there would have been a loss of 1.648 million euro.




314 0.5 234 0.2 34.2


Net Profit/(Loss)


Financial expenses

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31/12/2009 31/12/2008

investments 1,389 2.327

Investments of 1.389 million euro were made compared with 2.327 million euro in 2008, destined for the maintenance of the efficiency of plants.

Despite the drastic downsizing of operations, expenses for Research and Develop-ment amounted to 920 million euro in financial year 2009, 1.6% of sales compared with 896 million euro, or 0.8% of sales, in 2008.


31/12/2009 30/09/2009 30/06/2009 31/12/2008



The actions to limit working capital generated a positive operating free cash flow of 3.147 million euro. At December 31, 2009 the Business Unit absorbed de-finitively the Agritalia division which includes the ownership of property, plant and equipment. Including the effects of this operation, a negative free cash flow of 6.761 million euro was generated. As a consequence there was a worsening in the net financial position, which, while it still remained positive, declined to 1.622 million euro from the 14.924 million euro of June 2009 and compared with 5.464 million euro at December 31, 2008.

PeRSOnnel


31/12/2009 31/12/2008 31/12/2007

executives 4 5 4


Factory workers 146 146 146

temporary workers – 26 2

total 225 249 225

Net Profit/(Loss)

Investments


Workforce Trend

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Zao Santerno Elettr

onica Santerno

España Sl

Eletronica

Santerno

Industria e

Comercio Ltda

Carraro Spa

100%

67%

0.34%

99.66%


Santerno In

c.

100%

100%


89

Power ControlsBusiness Unit ElettronicaSanterno

Summary Data and GraphsPower Controls

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Cash Flow

10,621Cash Flow

643

2008

Net revenues

63,511Net revenues

43,295

2009

Workforce at 31/12

154Workforce at 31/12

160Gross investments


2,306

Operating income

477Operating income


Net income

- 3Net income

10,276net of minority interests net of minority interests



11,494



Workforce Breakdown


144132

Blue-collar Workers

1622


25 %46 %

Total Italy

75 %54 %


Renewable Energies

73.2 %73.1 %

Industrial

23.9 %23.6 %

Other

2.9 %3.3 %


91


Subconsolidated income Statement at 31/12/2009Power Controls BU / elettronica Santerno

31/12/09 % 31/12/08 % Changes31/12/09 31/12/08

Changes31/12/09 31/12/08



–20,974 –48.44% –32,977 –51.92% 12,003 –36.40%


–10,916 –25.21% –8,231 –12.96% –2,685 32.62%

personnel costs –8,264 –19.09% –6,833 –10.76% –1,431 20.94%


–963 –2.22% –550 –0.87% –413 75.09%

provisions for risks –2,477 –5.72% –200 –0.31% –2,277 1138.50%

other income and expenses 75 0.17% –289 –0.46% 364 –125.95%

internal construction 701 1.62% 891 1.40% –190 –21.32%

Operating costs –42,818 –98.90% –48,189 –75.88% 5,371 –11.15%

Operating profit/(loss) (Ebit) 477 1.10% 15,322 24.12% –14,845 –96.89%



Financial costs and expenses –437 –1.01% –366 –0.58% –71

net foreign exchange gains/losses 179 0.41% –11 –0.02% 190

Value adjustments of fin. assets – 0.00% – 0.00% –


–228 –0.53% –276 –0.43% 48 –17.39%

Profit/(loss) before taxes 249 0.58% 15,046 23.69% –14,797 –98.35%

Current and deferred income taxes –252 –0.58% –4,770 –7.51% 4,518

net profit/(loss) –3 –0.01% 10,276 16.18% –10,279 –100.03%


– 0.00% – 0.00% –


–3 –0.01% 10,276 16.18% –10,279 –100.03%

ebitda 1,123 2.59% 15,667 24.67% –14,544 –92.83%

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Subconsolidated income Statement at 31/12/2009Power Controls BU / elettronica Santerno

31/12/09 31/12/08


intangible fixed assets 7,330 5,205

real estate investments – –

equity interests in group companies – –

Financial assets – –

Deferred tax assets 1,111 330

trade and other receivables 116 104




Financial assets 1 –

Cash and cash equivalents 700 862


total assets 47,020 44,973

share Capital 2,500 2,500

reserves 8,941 1,697

Foreign currency translation reserve 56 –6

profit (loss) for the period –3 10,276

Minority interests – –


Financial liabilities 58 116

trade and other payables – –

Deferred tax liabilities – –

severance, pension and similar provisions 634 684

provisions for risks and liabilities 40 31

non current liabilities 732 831




provisions for risks and liabilities 2,477 224



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Cash flow at 31/12/2009Power Controls BU / elettronica Santerno

31/12/09 31/12/08

Opening net financial Position –3,013 –

Group profit/(loss) –3 10,276

Profit/(loss) pertaining to minorities – –

Amortization, depreciation and impairment of fixed assets 646 345

Cash flow before net Working Capital 643 10,621

Change in net Working Capital 814 –13,488

investments in fixed assets –2,306 –1,744

Disinvestments in fixed assets 13 –

Operational Free Cash Flow –836 –4,611

other operational flows 3,128 2,978

other investment flows –682 –5,571

Change in share Capital – 2,500

Dividends paid –3,000 –3,000

other equity flows 30 4,691

Free Cash Flow –1,360 –3,013

Closing net financial Position –4,373 –3,013

Analysis of net Working Capital at 31/12/2009Power Controls BU / elettronica Santerno

31/12/09 31/12/08


inventory 10,801 12,735



The year 2009 was characterized by serious difficulties for the Business Unit. Elettronica Santerno, in fact, went through a significant drop during the first half of the financial year compared with the previous year, because of the credit crunch and the generalised crisis situation on a global level which impacted the main refer-ence markets.

The negative trend in the industrial drives sector continued for the whole year, while in the renewable energy market the initial impasse was brilliantly overcome in the second semester, with important increases both in the photovoltaic sec-tor and in the wind power management sector, with the introduction of products aimed at micro and mini wind systems .

In order to strengthen further the market presence, during the year the entire

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Santerno commercial area was radically reorganized leading also to a review of a number of processes.

With a view to organizational discontinuity, the Board of Directors of the compa-ny considered it opportune to appoint a Managing Director who assumed responsi-bility for operations from April 2009 onwards.

Following the above changes, development of the networks and diversification of sales channels were boosted significantly, obtaining important results in 2009 in terms of orders acquired as the basis of a considerable growth in turnover which will occur in 2010.

Industrial drivesThe global market for industrial drives was, according to the forecasts, seriously

affected by the contraction of investments in the specific segments of reference, and therefore suffered a negative trend, with very slight signs of recovery only at the end of the year.

The reorganization of the Brazilian operation carried out in 2008 with the aim of increasing its efficiency and effectiveness enable an increase in turnover in this area in 2009. In the same way, and for the same reasons, during the year the organi-zation of the Moscow branch was also revised. The combination of these actions contributed to an increase the percentage of exports of the BU, reinforcing a trend already seen in the previous year.

An important commercial agreement was also sealed in 2009 with a multina-tional company operating in the industrial automation segment, which was im-mediately implemented, achieving a good market share in Canada. This is an excel-lent foundation for new development opportunities both in the rest of the North American market and in other markets in which Santerno can take advantage of this significant reference.

Finally, the results obtained in the year by one of the main distributors in the Chinese market were very interesting, at the level both of orders collected and of turnover. From the product point of view the development of the range of 690V drives continued. These are destined for specific applications for energy savings and for innovative regeneration systems, the first of which have already been in-stalled in Canada and Texas. This new product family may therefore be distributed also in the markets in which the BU operates.

As result of these initiatives, and thanks above all to reorganization of the com-mercial activities, the decline in turnover in the field of industrial drives in the ref-erence markets was limited.

Energy management The renewable energy management market showed an uneven trend in 2009,

with very diverse situations.


PhotovoltaicsThe Italian market, after a first quarter substantially locked down as a result

of the uncertainty on the financial front deriving from the credit crunch, showed strong signs of recovery from May/June onwards, and the growth rate was fairly constant for the whole year, with even more interesting prospects for 2010.

The Spanish market, which in 2008 had accounted for more than 30% of San-terno’s total turnover, essentially came to a halt, with a constant and flat trend in the whole year, showing only slight and very timid signs of recovery towards the end of the year. This, however, does not necessarily mean that there will be a recov-ery of this market in 2010.

In a global context in full expansion, Santerno’s entry – starting in the last two months of 2009 – into the German market (the most important market in the world, with a 50% share), can be considered a strong factor of success and an inter-esting opening for potential growth.

The year 2009 was also one in which the company consolidated numerous com-mercial initiatives and procedures for the approval of its products under the tech-nical standards of the markets with the greatest potential for the photovoltaic seg-ment such as the Usa, France, Korea and China.

With these premises, and considering the good positioning at the international level that today means that Santerno can be counted among the leading companies in the world for the production of inverters for high-power plants, the business can guarantee in 2010 even more rapid growth in its sales.

Wind power As far as wind power systems are concerned, Santerno implemented the impor-

tant agreement sealed last year with an important global operator in the segment, for the creation of a prototype destined for high-range wind plants.

Approval tests in the laboratory were completed successfully, and the prototype was installed in a 2.2 MW wind turbine which is still operating. the field test stages are being completed and the partial results are positive.

The products destined for micro and mini wind systems, which from February 2009 have received incentives in the Italian market with a specific energy account, completed the prototyping stage. The first inverters for this segment were sold and installed already in 2009.

TractionIn the traction field, in 2008 Santerno continued its work on developing a new

hybrid platform for the use of hybrid and/or electric traction systems for town buses, as part of a project financed by an ‘Industria 2015’ grant.


97

After the beginning of the year in which turnover suffered a slowdown as a result of the credit crunch which involved the leading players in the market, starting in the second quarter there was a turnaround in the segment of industrial, photovoltaic and wind power applications.

The turnover declined in any case by 31.83% going down from 63.511 million euro in 2008 to 43.295 million euro at December 31, 2009 although from the third quarter the monthly sales figures were back in line with previous year.



2009 2008 Diff. % 2009 2008 Diff. % 2009 2008 Diff. %

powerControls

43,295 63,511 –31.83 42,999 63,098 –31.85 296 413 –28.33



Brazil 2,354 5.47 1,982 3.14 +18.77

germany 1,385 3.22 326 0.52 +324.85

australia 1,239 2.88 125 0.20 –18.81

spain 1,183 2.75 18,164 28.79 –93.49

others 4,568 10.62 8,364 13.26 –45.38

total abroad 10,729 24.95 28,961 45.90 –62.95

italy 32,270 75.05 34,137 54.10 –5.49

total 42,999 100 63,098 100 –31.85



ebitda 1 1,123 2.6 15,667 24.7 –92.8

ebit 2 477 1.1 15,322 24.1 –96.91 understood as the sum of operating profit/loss, amortization, depreciation and impairment of fixed assets.2 understood as operating profit/loss in the income statement.

Ebitda decreased by 92.8% to 1.123 million euro, 2.6% of turnover, compared with 15.667 million euro, 24.7% of turnover, in 2008.

Ebit fell by 96.9% to 477 million euro (-1.1% of turnover). it was a positive 15.322 million euro (24.1% of turnover) at December 31, 2008.

Net of non-recurring expenses, the amounts would have been respectively: Ebit-da of 3.987 million euro, Ebit of 3.341 million euro.

Turnover

Ebitda and Ebit

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The decline in profitability compared with the previous year must be seen in relation also to the decision to maintain the Santerno workforce unchanged in sup-port of the growth recorded towards the end of the year and above all of the signifi-cant growth prospects for 2010 and future years.



Financial expenses 407 0.9 265 0.4 +53.6

Financial expenses came out at 407 thousand euro, 0.9% of turnover, compared with 265 thousand euro (0.4% of turnover) in the previous year.



exchange differences 179 0.4 –11 – nc

Exchange differences at December 31, 2009 were a positive 179 thousand euro (compared with a negative 11 million euro at December 31, 2008) .



net profit/(loss) –3 – 10,276 16.2 –100.03

Financial year 2009 closed with a loss of 3 thousand euro compared with a net profit of 10.276 million euro (16.2% of turnover) in the previous year.

Net of the effects of non-recurring events, there would have been a profit of 1.968 million euro.




646 1.5 345 0.5 87.5


Net Profit/(Loss)


Financial Expenses

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99


31/12/2009 31/12/2008


Investments of 2.306 million euro were made compared with 1.744 million euro in 2008. They were allocated for the expansion of the manufacturing capacity, and related mainly to plants, testing instruments, basic software and patents used by the Research and Development sector, and to research projects applied to the de-velopment of new products.

Owing to the implicit innovative logic of the Business Unit and the constant expan-sion of research activities in the technological field, in financial year 2009 Research and Development expenses went up from 2.287 to 3.015 million euro, amounting to 7% of turnover (compared with 3.6% of turnover in 2008).


31/12/2009 30/09/2009 30/06/2009 31/12/2008

net financial position * –4,373 –7,738 –6,100 –3,013


After an increase of the same at 30 September 2009 to 7.738 million euro, in the last quarter the generation of a positive free cash-flow resumed making it possible to reach 4.373 million euro at December 31, 2009, an improvement compared with the debt of 6.100 million euro at June 30, 2009.

PeRSOnnel


31/12/2009 31/12/2008 31/12/2007

executives 6 7 3


Factory workers 11 15 4


total 160 154 90


Investments


Workforce Trend

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Summary data of the companies belonging to thePower Controls BU / elettronica Santerno

elettronica Santerno Spa 1 Zao Santerno (Russia)





Diff.%

turnover 41,972 62,289 –32.6 296 401 –26.2

ebitda 1,715 4.1 16,067 25.8 –89.3 –137 –46.3 –102 –25.4 –34.1

ebit 1,129 2.7 15,737 25.3 –92.8 –140 –47.3 –104 –25.9 –34.6

net profit/(loss) 17 0.0 10,202 16.4 –99.8 –150 –50.7 –86 –21.5 –74.4


586 1.4 330 0.5 +77.6 3 1.0 2 0.5 +50.0

investments 2,171 1,622 3 6

net financial pos. –4,421 –3,457 36 36

shareholders’ eq. 11,091 14,074 –150 –73

gearing 0.40 0.25 0.24 0.49

eletronica Santerno industria e Comercio ltda(Brasile)

elettronica Santerno espana Sl





Diff.%

turnover 2,354 1,631 +44.3 992

ebitda –364 –15.5 –295 –18.1 –23.4 –33

ebit –413 –17.5 –308 –18.9 –34.1 –41

net profit/(loss) –171 –7.3 –217 –13.3 +21.2 –26


49 2.1 13 0.8 +276.9 8

investments 129 116 –

net financial pos. 248 407 –237

shareholders’ eq. 552 78 977

gearing –0.45 –5.22 0.24

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SiGnifiCAnt eVentS in finAnCiAl YeAR 2009

During the first half of the year, on 23 April 2009, the Shareholders’ Meeting voted to renew the Board of Directors and the Board of Statutory Auditors, which were both due for renewal. The following people were elected directors: Mario Carraro – Chairman, Francesco Carraro, Enrico Carraro, Tomaso Carraro, Carlo Borsari, Antonio Cortellazzo, Arnaldo Camuffo, Marco Milani, Pietro Guindani, Anna Ma-ria Artoni, Alexander Josef Bossard, while the following were elected members of the Board of Statutory Auditors: Luigi Basso – Chairman, Roberto Saccomani – Regular Auditor, Saverio Bozzolan – Regular Auditor, Silvano Corbella – Alternate Auditor, Marina Manna – Alternate Auditor.

The Meeting also approved a treasury share purchase and disposal plan involv-ing no more than 5% of the share capital, for a term of 18 months, which provides for: a purchase price per ordinary share no less than 30% lower, and no more than 20% higher than the reference price for the share recorded in the stock exchange session on the day prior to each individual transaction, and a sale price per ordi-nary share no less than 20% lower, and no more than 20% higher than the refer-ence price for the share recorded in the stock exchange session on the day prior to each individual transaction. The Meeting decided to allocate the profit for the year, of Euro 8,587,035 entirely to the extraordinary reserve, without therefore proceed-ing to the distribution of dividends.

On 1 March 2009 a new company was incorporated by A.E. Srl, and given the name ‘AE Assemblaggi Emiliani Srl’. A.E. Srl conferred to it the business unit in-volved in the work of assembling axles and mechanical components in general. As part of this operation, the company CPS Italia Scarl, which held a 10% stake in A.E. Srl sold its holding to the company Carraro Drive Tech Spa, while A.E. Srl sold to CPS Italia Scarl its entire equity interest, representing 100% of the share capital of AE Assemblaggi Emiliani Srl.

Elettronica Santerno España Sa, which was incorporated in February of this year with registered office in Valencia, acquired, on 1st April 2009, the business unit involved in the distribution, marketing and post-sale servicing of inverters for the industrial, wind power and photovoltaic sectors of the company Servicios de Co-generacion s.l., a company with twenty years’ experience in the industry.

During the second half of financial year 2009, the Managing Director, Mr Carlo Borsari, resigned with effect from July 31, 2009. On August 4, 2009 the Board of Directors of Carraro Spa resolved not to co-opt a new member of the Board and referred all decisions on the matter to the Shareholders’ Meeting, assigning, in the meantime, the post of managing director to the director Alexander Josef Bossard. Subsequently, the Shareholders’ Meeting of Carraro Spa, on December 23, 2009, resolved not to make up the number of members of the Board of Directors and thus to reduce the number of the same to 10. On September 4, 2009 the company Elettronica Santerno Spa incorporated a company in the United States, named


103

Santerno Inc., with registered office in San Francisco, California.Again in the second half of the past year, the company Carraro Drive Tech Spa

and the company AE Srl merged by incorporation of the latter into the former with a deed dated December 23, 2009 and with legal effect from December 31, 2009. This merger operation did not involve an increase in the share capital of Carraro Drive Tech Spa because the latter already held 100% of the capital of the incorporated company AE Srl. On December 23, 2009, the business of the company Agritalia Spa was also conferred on Carraro Spa. This deed of conferment involved an increase in the share capital of Carraro Spa of 2,074,696.00 euro carried out through the issue of 3,989,800 shares of a par value of 0.52 euro each. With effect from December 31, 2009, the share capital of Carraro Spa is therefore 23,914,696.00 euro.

Finally, with effect from December 31, 2009, the business owned by the company Siap Spa relating to the facility of Poggiofiorito (CH), devoted to the work of pro-duction of gears, was conferred on the company MG Mini Gears Spa of Padua.

KeY RiSKS AnD UnCeRtAintieS tO WHiCH CARRARO SPA AnD tHe GROUP ARe eXPOSeD

Risks associated with the general economic conditionsThe Group’s financial, capital and borrowing situation is influenced by various

factors within the general macro-economic framework, such as changes to the gross national product, the state of the agricultural and construction industries, the cost of raw materials and the level of business confidence in the various countries in which the Group operates. During 2009, the financial markets experienced a high level of uncertainty and reduced turnover and transactions with significant effects on access to credit for both consumers and businesses.

This increasing constraint brought about a shortage of liquidity with recessive effects on consumption and investment and fallout in the various industrial sectors including the one in which the Group operates.

If this particularly recessive and uncertain situation continues for a long time, despite the signs of improvement, the Group’s businesses and prospects may be adversely affected with an impact on the individual companies’ and consolidated earnings, equity and financial position.

Risks having an effect on the Group’s resultsSignificant macro-economic events, such as a generalised and significant in-

crease in the prices of raw materials, a significant fall in demand in one of the key markets, enduring uncertainty and volatility of the financial and capital markets, falling interest rates and unfavourable changes in the exchange rates of the major


currencies to which the Group is exposed are all negative factors for the Group’s operations and future, as well as its financial results and its borrowing position. Moreover the Group’s profitability is affected by the risk of insolvency of its coun-terparties, as well as the general economic conditions of the country in which the Group carries out its industrial and commercial operations.

Risks associated with funding requirementsThe Group’s liquidity risk is mainly linked to the activation and maintenance of

sufficient funding to support industrial operations. The raising of funds, consistent with the Group’s short- and medium-term devel-

opment plans, is intended to finance both the working capital and investments in fixed assets necessary to ensure sufficient and technologically advanced production capacity. This requirement is directly proportional to the trend in customer orders and the consequent trend in business volumes.

The cash flows envisaged for financial year 2010 include, besides the trend in working capital and investments, also the effects of the maturity of the current li-abilities and short-term portions of non-current liabilities, and the effects (assuming the same rates of exchange with respect to 31/12/2009) of the closure of derivative financial instruments on currencies in existence at the reporting date. The Group en-visages meeting the needs deriving from all of the above with the flows deriving from operations, available liquidity and the renewal and refinancing of bank loans.

Even in the current market context the Group expects to generate financial re-sources with operations in consideration of the gradual recovery in manufacturing activity keeping its working capital under strict control.

However further unanticipated reductions of sales volumes would have a nega-tive effect on the cash generation capacity. The management of the liquidity, funding requirements and cash flows are under the direct control and management of the Group Treasury, who operates with the aim of managing the resources available as efficiently as possible. However, again in consideration of the current financial crisis, we cannot exclude situations in the banking and monetary market that could form an obstacle to normal financing operations. Lastly, regardless of the fact that the Group has continued refinancing its debts with the support of its banking counterparties and the financial markets, the situation could arise of having to seek additional fi-nancing in less favourable market conditions, with the limited availability of such sources and an increase of financing charges.

Risks associated with the instability of exchange rates and interest ratesThe Group is exposed to exchange rate risks by virtue of the fact that a significant

portion of sales and some of the purchases are made in currencies other than the group’s functional currency, with trade transactions carried out by companies in the euro area with counterparties that do not belong to the euro area and vice versa.

Another aspect of exchange rate risk is the fact that several Group companies pre-


105

sent their financial statements in currencies other than the Group’s functional cur-rency.

Exposure to the exchange rate risk with reference to each entity is regularly moni-tored by the Group Treasury according to a strategy which focuses, in particular, on the balance between purchases and sales in foreign currency and activating, for the remaining non-balanced portion and according to the criteria set by the company policy in terms of the management of financial risks, appropriate initiatives to hedge or reduce the risks identified, using the instruments available on the market.

The Group is also exposed to interest rate risks in relation to the financial liabilities assumed to fund either normal operations or, where applicable, the Group’s expan-sion by acquisitions. Changes in interest rates have a positive or negative effect on both the financial outcome and on cash flows. The strategy adopted pursues the basic objective of achieving a balance between floating-rate and fixed-rate debt. The inter-est rate risk on the floating portion is then reduced via specific hedging operations.

Credit riskThe Group includes among its customers leading international manufacturers

of agricultural machinery, construction equipment vehicles, industrial vehicles and light power tools. The concentration of the risk is associated with the size of these customers, which on a global context is on average high, yet balanced by the fact that the credit exposure is distributed across a complex network of counterparties who are active in diverse geographical areas.

The management of credit is designed to prioritise the acquisition of custom-ers of national and international standing for multi-annual supplies. on this basis consolidated historical relationships have been built up with the main customers. Generally speaking, these relationships are governed by ad hoc supply contracts. Credit control requires periodic monitoring of the main financial and economic data (including the delivery schedules) relating to each customer.

Except in special circumstances to do with country or counterparty risk, guar-antees are not normally obtained on the credit. Receivables are recognized in the accounts net of any writedowns determined by assessing the counterparty’s risk of insolvency based on the information available.

Country riskOperating at an international level the Carraro Group is exposed to the risks as-

sociated with internationalisation. Political instability, changes in legislative provi-sion, changes in import and export rules in the countries where the Group has a presence, can all have a negative effect on our revenue.

environmental risksThe Group operates across 18 manufacturing sites in seven different nations.The manufacturing processes carried out in the Group’s industrial sites are es-

sentially mechanical processing of iron and steel and assembling purchased com-ponents. These processes have accessory materials such as packaging, lubricants, paints and solvents. The objective of limiting the impact of emissions into the en-vironment has seen a significant improvement from 2008 onwards through an im-portant investment in moving from solvent-based coatings to water-based paints that reduce atmospheric emissions to zero.

Each site operates in compliance with local environmental regulations. Moreover the management pays continual attention to environmental issues adopting all the applications that current technology has made available to reduce the risks of pol-lution. In specific terms, all activities are being carried out to obtain Environmental Certification in accordance with the criteria of ISO 14001 in all of the Group’s facili-ties. Particular attention has been paid to increasing the efficiency of processes in order to maximise energy savings. In the choices for the allocation of production and in making make/buy decisions the variable of the optimisation of transport has also been considered from a viewpoint of eco-sustainability and the reduction of CO2 emissions in line with the Group’s mission.

SHARe PeRfORmAnCe

In 2009 the Carraro stock recorded an uneven trend but one in any case in line with the main stock exchange indicators. The first few months of the year reflected the trend of the Ftse Mib, holding up, indeed, better at the beginning of March compared with the general trend. The official average price in 2009 was 2.669 euro with a maximum quotation of 3.211 euro on August 27, and a minimum of 2.199 euro on December 18. The beginning of 2010, with the exception of a trough re-corded on January 26 owing mainly to incorrect rumours published on a number of financial websites, shows a performance in line with the stock exchange trend, with no particular differences.The maximum price in the period of 2.626 euro was recorded on January 20. The average price up to March 15 was 2.423 euro.

01/0

9

04/

09

07/0

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10/0

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12/0

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–36.75%

31.58%

–2.58%

Carraro

Ftse MiB


107

BUSineSS OUtlOOK AnD PROJeCtiOnS fOR 2010

The results of the first few months and the first projections confirm the budget es-timate in terms of growth of turnover and Ebitda, while as of today, the portfolio’s performance could offer further room for improvement. The net financial position and the working capital will be kept under strict control.

RelAteD-PARtY tRAnSACtiOnS

Transactions with related parties carried out during the period gave rise to relationships of a commercial, financial or advisory nature and were expedited at market terms, in the economic interest of the individual companies involved in the transactions. No transactions were carried out that were atypical or unusual with respect to nor-mal business operations, with the exception of the conferment of the business arm of Agritalia Spa to Carraro Spa, and the interest rates and terms applied to and by the companies in their reciprocal financial relationships are in line with market terms. For detailed information, such as that required by art. 2497-bis C.C., paragraph 4, regarding operations carried out with related parties, refer to the Explanatory Notes to the Financial Statements.

StAnDARDS USeD in PRePARinG tHe COnSOliDAteD finAnCiAl StAtementS

The accounting standards, consolidation principles and measurement criteria used in preparing the present report were applied in a manner consistent with the con-solidated financial statements at 31/12/2008 and on an ongoing concern basis in view of the following considerations. As described in detail in other sections of the present Report, in consideration:

› of the significant decrease in turnover and the gradual deterioration of the net income of the Group during the entire year.

› of the ongoing situation of difficulty of the global economy, which was reflect-ed and is still reflected also in a significant contraction of the consumption of durable goods.

› of the eventuality that the Group will continue to have to operate in this con-text and, consequently, of expectations of uncertainty over the possibility of reversing the negative trend in the short term.

The Management of the Company, also with the collaboration of strategic consult-ants, began a process of targeted and profound reorganization. The main objectives of this process, which has been accurately planned and detailed (the ‘Three Year


Plan’), are essentially attributable to the reduction of overheads, the improvement of industrial efficiency and the rationalization of various manufacturing facilities in Italy and abroad. At the same time as the launch of the Three Year Plan, stringent mechanisms of operational cash management were immediately adopted (all as il-lustrated in more detail in the section General Data and Comments at the beginning of the present report).

The Three Year Plan, the implementation of which already had an impact in the second half of 2009 and that will be more extensively put into practice in financial year 2010 and in subsequent years, has the aim of rendering the structure of the Group more flexible and appropriate to the new dimensions of demand. The indus-trial plan, an integral part of the Three Year Plan that the Management of the Com-pany prepared, in the light of the results already achieved in financial year 2009 and of the further results that are expected and are likely to be obtained in subsequent years, seems efficient, reasonable and well-balanced. The essential assumptions of the Three Year Plan, in fact, seem confirmed also by the good results achieved by the Company in the early months of financial year 2010.

In the light of the above, therefore, the Management of Carraro Spa – after carry-ing out the necessary checks, analyzed the results of the impairment tests performed at the level of business units and of the Group as a whole, also in consideration of the state of progress of the negotiations with the lending banks of the Company and of the Group with the aim of signing a framework agreement mainly in relation to re-scheduling of the repayment instalments of the existing loans and of redefining of the covenants, briefly described in the previous paragraph Renegotiation of terms and expiries of debt, and, in particular, of the shortly expected said framework agreement (note: agreement signed on 13 April, 2010) – believes that the remaining uncertain-ties linked to the performance of the market are not such as to generate doubts about the company being an ongoing concern and that there is therefore the reasonable expectation that the company will have adequate resources to continue its operations in the foreseeable future. For these reasons, for the preparation of the consolidated financial statements the ongoing concern presumption continues to be adopted.

OtHeR infORmAtiOn

With reference to the provisions of Articles 36 and 39 of Consob Order 16191 of 29/10/2007 (the so-called ‘Market Regulations’) and of Art. 2.6.2 Section 15 of the Stock Exchange Regulations we can confirm that the parent company Carraro Spa meets the conditions required by points a), b) and c) of Section 1 of the aforemen-tioned Art. 36 on the subject of accounting situations, bylaws, corporate bodies and administrative and accounting control of its subsidiaries incorporated and regu-lated in countries that do not belong to the European Union.

The perimeter of the group includes 19 companies established and regulated in


109

non-European Union countries, specifically in Argentina, Brazil, China, India, Rus-sia and the United States. of these, five, in Argentina, China, India, and the United States, are significant under the terms of Title VI, Section II of the Issuer Regulations (Consob Order 11971/1999). For more complete disclosure on the system of corpo-rate governance of Carraro Spa and its share holding structure, as required by Art. 123-bis of Legislative Decree 58 of 24 February 1998, (TUF – the Combined Act on Finance), see the Report on Corporate Governance, consultable on the company’s website www.carraro.com, in the investor relations/corporate governance section, prepared under the terms of Arts. 89-bis of the Consob Regulations for Issuers.

StAtement Of ReCOnCiliAtiOn Of COnSOliDAteD net inCOme AnD SHAReHOlDeRS’ eQUitY WitH tHe net inCOme AnD SHAReHOlDeRS’ eQUitY Of tHe PARent COmPAnY

The following table illustrates the reconciliation of the consolidated net income and shareholders’ equity as disclosed on the Consolidated Financial Statements and the net income and shareholders’ equity disclosed on the Financial Statements of Carraro Spa:

iteMs net income for the period

shareholders’ equity for the period

profit/(loss) for the previous period

shareholders’ equity previous period

profit and shareholders’ equity of Carraro spa

-8,557 79,377 8,587 84,478

profit and shareholders’ equities of the investee companies

-49,325 272,769 16,586 309,543

aggregate -57,882 352,146 25,173 394,021

elimination of carrying amount of the investee companies

9,104 -289,109 348 -276,008

Consolidation adjustments -4,734 33,582 -14,415 31,619

Profit and shareholders’ equity -53,512 96,619 11,106 149,632

recognition of minority interests 7,656 -15,150 204 -23,174

Profit and shareholders’ equity attributable to the Group

-45,856 81,469 11,310 126,458

The information required by article 79 of the Regulations for Issuers (informa-tion on the equity investments in the Parent Company Carraro Spa and its subsidi-aries by the directors, statutory auditors and …omitted…) is set forth in a specific statement annexed to the Explanatory Notes to the Financial Statements to which this Report refers. The financial statements have been compiled on the basis of an ongoing concern assumption.

MARiO CARRAROChairman

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ConsoliDateD FinanCial stateMents

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ConsolidatedFinancialStatementat 31 dicember 2009


Income Statement

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nOte 31/12/2009 of which non-recurring

31/12/2008 of which non-recurring

A) Revenues from sales

1) products 477,978 955,765

2) services 4,700 9,958

3) other revenues 4,762 7,646

Total revenues from sales 1 487,440 973,369

B) operating costs

1) purchases of goods and materials 228,889 609,641

2) services 85,497 2,454 169,521

3) leases, rents and third-party services 6,195 5,689

4) personnel costs 109,590 3,995 132,848

5) amortisation, depreciation and impairment of assets 32,935 33,141

5.a) Depreciation of property, plant and equipment 27,712 27,647

5.b) amortisation of intangible assets 3,500 3,388

5.c) impairment of fixed assets 701 1,702

5.d) impairment of receivables 1,022 404

6) Changes in inventories 64,603 2,570 –24,555

7) provision for risks and other liabilities 12,550 7,553 16,050 4,760

8) other expenses and income –1,623 –3,514

9) internal construction –1,711 –2,392

Total operating costs 2 536,925 16,572 936,429 4,760

Operating profit/(loss) –49,485 36,940

C) Gains/(losses) on financial assets

10) income from equity interests – –

11) other financial income 1,204 1,565

12) Financial costs and expenses –12,897 –17,818

13) net gains/(losses) on foreign exchange 437 –4,817

14) Value adjustments of financial assets –8 –

Net gains/(losses) on financial assets 3 –11,264 –21,070

Profit/(loss) before taxes –60,749 15,870

15) Current and deferred income taxes 4 –7,237 –3,735 4,764 –1,470

Net profit/(loss) –53,512 11,106

16) profit/(loss) pertaining to minority interests 7,656 –809 204 –104

Group consolidated profit/(loss) –45,856 12,028 11,310 3,186

Earnings per share 5

Basic, for the profit for the period attributable to ordinary shareholders of the parent company

–€ 1.11 € 0.27

Diluted, for the profit for the period attributable to ordinary shareholders of the parent company

–€ 1.11 € 0.27

31/12/2009 31/12/2008

Net profit/(loss) for the period –53,512 11,106

Other comprehensive income components:

net change in cash flow hedge reserve 1,491 –1,879

Foreign operation translation exchange differences –3,924 –1,214

taxes on other comprehensive income components –393 350

Other comprehensive income components, net of tax effects

–2,826 –2,743

Total comprehensive income for the period –56,338 8,363

Total comprehensive income attributable to:

shareholders of the parent company –48,424 8,705

profit/(loss) pertaining to minorities –7,914 –342

Total comprehensive income for the period –56,338 8,363

nOteS 31/12/2009 31/12/2008

A) Non-current assets

1) property, plant and equipment 6 238,464 240,248

2) intangible fixed assets 7 79,964 78,799

3) real estate investments 8 707 709

4) Holdings in subsidiaries and associates 9 149 148

4.1) Holdings in subsidiaries and associates 149 148

4.2) equity investments held for sale – –

5) Financial assets 10 927 446

5.1) loans and receivables 122 –

5.2) other financial assets 167 167

5.3) Financial deferrals 638 279

6) Deferred tax assets 11 28,997 22,144

7) trade receivables and other receivables 12 2,133 2,366

7.1) trade receivables – –

7.2) other receivables 2,133 2,366

Total non-current assets 351,341 344,860

B) Current assets

1) Closing inventory 13 136,741 203,602

2) trade receivables and other receivables 12 104,995 201,589

2.1) trade receivables 67,995 148,587

2.2) other receivables 37,000 53,002

3) Financial assets 10 14,561 14,123

3.1) loans and receivables 13,976 13,210

3.2) other financial assets 48 275

3.3) Financial accruals and deferrals 537 638

4) Cash and cash equivalents 14 54,711 51,674

4.1) Cash 219 135

4.2) Bank current accounts and deposits 54,413 51,539

4.3) other cash and cash equivalents 79 –

Total current assets 311,008 470,988

Total assets 662,349 815,848

Statement of Comprehensive Income

Statement of Financial Position

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nOteS 31/12/2009 31/12/2008

A) Shareholders’ equity 15

1) share Capital 23,915 21,840

2) other reserves 71,290 58,620

3) profits/(losses) brought forward 0 –

4) ias/ifrs first adoption reserve 44,384 44,384

5) other ias/ifrs reserves –557 –1,594


6) result for the period pertaining to the group –45,856 11,310

Group shareholders’ equity 81,469 126,459

7) Minority interests 15,150 23,173

Total shareholders’ equity 96,619 149,632

B) Non-current liabilities

1) Financial liabilities 16 26,437 161,565

1.1) Bonds – –

1.2) loans 26,437 161,565

1.3) Financial deferrals – –

1.4) other – –

2) trade payables and other payables 17 306 17,149

2.1) trade payables – 8

2.2) other payables 306 17,141

3) Deferred tax liabilities 11 6,265 9,563

4) provision for severance indemnity and retirement benefits 19 21,576 23,642

4.1) provision for severance indemnity 16,615 18,755

4.2) provision for retirement benefits 4,961 4,887

5) provision for risks and liabilities 20 5,667 2,946

5.1) provision for warranties 655 1,331

5.2) provision for legal claims 1,248 628

5.3) provision for restructuring and reconversion 3,628 –

5.4) other provisions 136 987

Total non-current liabilities 60,251 214,865

C) Current liabilities

1) Financial liabilities 16 285,522 123,518

1.1) Bonds – –

1.2) loans 283,953 119,529

1.3) Financial accruals and deferrals 651 1,252

1.4) other 918 2,737

2) trade payables and other payables 17 195,180 303,103

2.1) trade payables 151,973 270,660

2.2) other payables 43,207 32,443

3) Current tax liabilities 18 6,228 9,299

4) provision for risks and liabilities 20 18,549 15,431

4.1) provision for warranties 10,880 10,541

4.2) provision for legal claims 207 130

4.3) provision for restructuring and reconversion 6,080 1,400

4.4) other provisions 1,382 3,360

Total current liabilities 505,479 451,351

Total liabilities 565,730 666,216

Total shareholders’ equity and liabilities 662,349 815,848

Statement Of Financial Position

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StAtement Of CHAnGeS in SHAReHOlDeRS’ eQUitY

share Capital

other reserves: ias/ifrs 1st adoption

reserve

own shares purchased

Cash flow hedge

reserve

Foreign currency

translation reserve

profit/(loss)for the period

group shareholders’

equity

Minority interests

total

equity profit

Balance at 1/1/2008 21,840 17,833 34,207 44,384 – –143 –7,288 15,587 126,420 23,584 150,004

Comprehensive income for the period

–341 –1,451 –813 11,310 8,705 –342 8,363

Transactions with shareholders:

Dividend, Carraro spa –6,930 –6,930 –6,930

Dividend, other companies

–279 –279

allocation of 2007 residual profit

8,657 –8,657 – –

own share purchase –1,526 –1,526 –1,526

Change in consolidation scope

–210 –210 210 –

– – 8,447 – –1,526 – – –15,587 –8,666 –69 –8,735

Balance at 31/12/2008 21,840 17,833 42,313 44,384 –1,526 –1,594 –8,101 11,310 126,459 23,173 149,632

share Capital

other reserves: ias/ifrs 1st adoption

reserve

own shares

purchased

Cash flow hedge

reserve

Foreign currency

translation reserve

profit/(loss)for the period

group shareholders’

equity

Minority interests

total

equity profit

Balance at 01/01/2009

21,840 17,833 42,313 44,384 –1,526 –1,594 –8,101 11,310 126,459 23,173 149,632

Comprehensive income for the period

1,037 –3,606 –45,856 –48,425 –7,913 –56,338

Transactions with shareholders:

Dividend, Carraro spa – –

Dividend, other companies

– –150 –150

allocation of 2008 residual profit

11,310 –11,310 – –

own share purchase –955 –955 –955

Change in consolidation scope

–22 –22 40 18

agritalia conferment 2,075 9,297 –7,142 4,230 4,230

agritalia ias adjustment

182 182 182

2,075 9,297 4,328 – –955 – – –11,310 3,435 –110 3,325

Balance at 31/12/2009

23,915 27,130 46,641 44,384 –2,481 –557 –11,707 –45,856 81,469 15,150 96,619

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nOteS 31/12/2009 31/12/2008

profit/(loss) for the year pertaining to the group 15 –45,856 11,310

profit/(loss) for the year pertaining to minority interests –7,656 – 204

tax for the year –7,237 4,764

Profit/(loss) before tax –60,749 15,870

Depreciation of property, plant and equipment 2 27,712 27,647

amortisation of intangible assets 2 3,500 3,388

impairment of intangible assets 2 701 1,702

provisions for risks 2 12,550 16,050

of which provisions set aside 7,553 4,760

provisions for employee benefits 2 8,920 5,931

net financial income/expense 3 11,693 16,253

net foreign exchange gains/losses 3 –437 4,817

net adjustments of financial assets 3 8 –

Cash flows before changes in Net Working Capital 3,898 91,658

Changes in inventory 13 67,058 –21,172

Changes in trade and other receivables 12 97,770 –19,205

Changes in trade and other receivables from related parties –340 2,654

Changes in trade and other payables 17 –124,199 18,164

Changes in trade and other payables to related parties –567 –2,120

Changes in receivables/payables for deferred taxation 11 914 –321

Changes in provisions for employee benefits 19 –10,986 –7,626

Changes in provision for risks 20 –6,767 –7,183

interest received 946 1,269

interest paid –13,498 –17,778

tax consolidation expense and income –649 –3,049

tax payments 4 –6,233 –9,135

Cash flows from operating activities 7,349 26,156

investments in ppe and real estate investments 6 –11,685 –52,821

Divestments and other movements in ppe 6 –6,250 8,287

investments in intangible assets 7 –4,991 –8,652

Divestments and other movements in intangible assets 7 992 –207

net cash from conferment 21 –5,000 –

net cash provided by business combinations 22 –890 –

equity investments/divestments –8 23

effect of forex conversion on equity investments –1 24

Cash flows from investing activities –27,834 –53,346

Changes in current financial assets 10 –142 –17,122

Changes in current financial assets with related parties 40 44

Changes in non-current financial assets 10 –122 960

Changes in current financial liabilities 16 162,605 44,474

Changes in non-current financial liabilities 16 –135,128 29,331

Changes in reserves 15 –3,364 –4,062

Dividends paid – –7,209

Changes in minority interests –367 –207

Cash flows from financing activities 23,522 46,209

Total cash flows for the period 3,037 19,019

Opening cash and cash equivalents 51,674 32,655

Closing cash and cash equivalents 54,711 51,674

Statement of Cash Flows

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eXPlAnAtORY AnD SUPPlementARY nOteS tO tHe COnSOliDAteD ACCOUntS fOR tHe YeAR enDeD DeCemBeR 31, 2009

Publication of the Consolidated Financial Statements of Carraro Spa for the year ended December 31, 2009 was authorised by a resolution of the Board of Directors on March 20, 2009.

Carraro Spa is a joint-stock company registered in Italy at the Padua Companies Register and controlled by Finaid Spa.

Carraro Spa is not subject to management and coordination activities under the terms of Art. 2497 et seq of the Civil Code.

The controlling shareholder of Finaid Spa does not direct and coordinate Car-raro’s operations. More specifically:

› Finaid is a purely financial holding; › Finaid does not issue any directions to Carraro;› the Finaid Board of Directors does not approve Carraro’s strategic plans or

business plans nor does it ‘interfere’ regularly in its operations; and› there are no relationships of a commercial or financial nature between Finaid

and Carraro.These financial statements are presented in euro, as this is the currency in which

most of the group’s operations are conducted. The foreign companies are included in the consolidated report in accordance with the principles described in the notes that follow.

Amounts in these financial statements are given in euro thousands, while amounts in the notes are indicated in euro millions (mln).

The Carraro Group companies are principally engaged in the manufacture and marketing of drive systems developed for agricultural tractors, construction equip-ment, material moving machinery, light commercial vehicles and automobiles, and electronic control and power systems.

Carraro, as the parent company, has function of strategic direction, control and coordination of the four business units of the Carraro Group: Drivelines (under the control of Carraro Drive Tech Spa), Gears & Components (under the control of Gear World Spa), Vehicles (Divisione Agritalia, managed as a rented business from April 1, 2005, it was conferred by the company Agritalia Spa on Carraro Spa on December 23, 2009) and Power Controls (under the control of Elettronica Santerno Spa).

The consolidated financial statements, besides the BUs, include Carraro Inter-national, based in Luxembourg, which carries on the work of financial and treasury management of the Group, as well as business of a commercial nature at the Swiss branch, Carraro Finance, based in Dublin (Ireland), which supports Carraro Inter-national in the performance of financial and treasury work, and Carraro Technolo-gies, based in Pune (India), which works on design, research and development in favour of the Group and of third parties.

1.Introduction


On December 23, 2009, following conferment of the tractor production business unit of the Agritalia Spa company to Carraro Spa, the share capital of Carraro Spa was increased by Euro 2,074,696.00 by the issue of 3,989,800 shares with a nomi-nal value of Euro 0.52 each. With effect from December 31, 2009, the share capi-tal of Carraro Spa is therefore Euro 23,914,696.00, corresponding to 45,989,800 shares of a nominal value of Euro 0.52 each. The company has issued a single cat-egory of ordinary shares which do not give the right to a fixed dividend. No other financial instruments which assign equity and investment rights have been issued. The operation was carried out in conditions of fiscal neutrality and at constant car-rying amounts.

Reporting criteria and accounting principlesThe financial statements have been prepared in accordance with the Interna-

tional Financial Reporting Standards (Ifrs) issued by the International Accounting Standards Board (Iasb) and endorsed by the European Union. These financial state-ments also conform to the directives issued enacting Article 9 of Italian Legislative Decree no. 38/2005. The term Ifrs also includes the revised International Account-ing Standards (Ias) and all interpretations of the International Financial Reporting Interpretations Committee (Ifric) previously known as the Standard Interpreta-tion Committee (Sic). These standards are the same as those used for the financial statements at December 31, 2008, with the exceptions described in the paragraph Accounting standards, amendments and interpretations adopted since January 1, 2009. The financial statements were prepared assuming that the company is a go-ing concern, on the basis of the considerations already explained in the report on operations.

The financial statements have been prepared in accordance with the Interna-tional Financial Reporting Standards (Ifrs) issued by the International Accounting Standards Board (Iasb) and ratified by the European Union and to this end the figures of financial statements of the consolidated companies have been reclassified and adjusted appropriately.

2.1 format of the consolidated financial statementsWith regard to the format of consolidated accounting schedules, the Company

opted to present the following accounting statements:

Statement of Financial PositionThe consolidated statement of financial position is presented with separate dis-

closure of Assets, Liabilities and Shareholders’ Equity.Assets and Liabilities are illustrated in the Consolidated Financial Statements

according to their classification as current and non-current.

2.Form and Content of the Financial Statements


119

Income StatementItems on the consolidated income statement are classified by their nature.

Statement of Comprehensive IncomeThe revision of the accounting standard Ias 1 requires all the changes generated by

transactions with shareholders to be presented in a statement of changes in share-holders’ equity. All transactions generated with third parties must, instead, be pre-sented in a single statement of comprehensive income or in two separate statements represented by the income statement and the statement of other income statement items. The other income statement components include items of income and expens-es not recognized in the income statement of the period as required or allowed by the Ifrs’s, such as changes in the cash flow hedge reserve, changes in the translation reserve, net gains/losses on available-for-sale financial assets and actuarial gains/losses resulting from application of Ias 19. The standard was applied by the Carraro Group retrospectively from January 1, 2009, showing all the changes generated by transactions with third parties in two statements entitled respectively income state-ment and statement of comprehensive income. The Group consequently modified the presentation of the Statement of Changes in Shareholders’ Equity.

Statement of Cash FlowsThe consolidated cash flow statement illustrates the changes in cash and cash

equivalents (as presented in the statement of financial position) divided by cash generating area in accordance with the ‘indirect method’, as permitted by Ias 7.

Statement of Changes in Shareholders’ EquityAs required by the international accounting standards, the changes in consoli-

dated shareholders’ equity are presented with evidence of the result for the period and all operating income and expenditure separate from other items not recorded in the income statement, but charged directly to consolidated shareholders’ equity in accordance with specific Ias/Ifrs standards.

Accounting statements of transactions with related parties (Consob resolution 15519)With reference to the reporting of related-party transactions in the financial

statements, provided for in Consob Resolution 15519 of July 27, 2006, balances of a significant amount are specifically indicated, to facilitate understanding of the assets and liabilities, financial position and results of the group, in the table of para-graph 8 below devoted to related party transactions.

Non-recurring costs and revenues and/or costs and revenues resulting from atyp-ical and/or unusual operations are entered in the Income Statement; further details are provided in paragraph 5 below.


2.2 Content of the Consolidated financial StatementsConsolidation areaThe Group’s consolidated financial statements include the financial statements of

Carraro Spa and of the companies in which it holds, directly or indirectly, the major-ity of voting rights at the annual general meeting.

A subsidiary company is an entity in which the Group, directly or indirectly via its own subsidiaries, holds more than half of the voting rights, unless in exceptional cases where it can be clearly demonstrated that this ownership does not constitute control. Control is presumed when the parent company has half, or even less than half, of the votes that can be exercised at meetings of shareholders, if it has:

› control over more than half of the voting rights under an agreement with other investors;

› the power to determine the financial and operating policies of the entity under a clause of the articles of association or an agreement;

› the power to appoint or remove the majority of the members of the board of directors or the equivalent corporate governance body, and control of the entity is held by that board or body;

› the power to exercise the majority of voting rights at a meeting of the board of directors or the equivalent corporate governance body, and control of the entity is held by that board or body.

The following companies are consolidated using the line-by-line method:

name Based in Currency Par valueShare capital

Group stake

Parent company:

Carraro spa Campodarsego (pD) euro 23,914,696

italian subsidiaries:

Carraro Drive tech spa Campodarsego (pD) eur 50,758,291 100.00%

elettronica santerno spa Campodarsego (pD) eur 2,500,000 67.00%

gear World spa padua eur 35,084,397 73.82%

M.g. Mini gears spa padua eur 15,000,000 73.82%

siap spa Maniago (pn) eur 10,122,616 73.82%

stm srl Maniago (pn) eur 1,549,080 36.91%

foreign subsidiaries:

Carraro international sa luxembourg eur 39,318,000 100.00%

Carraro Deutschland gmbh Hattingen (germany) eur 10,507,048 100.00%

Carraro technologies india pvt ltd pune (india) inr 18,000,000 100.00%

Carraro Finance ltd Dublin (ireland) eur 100,000 100.00%

o&K antriebstechnik & Co gmbh Kg Hattingen (germany) eur 2,045,168 100.00%

Carraro argentina sa Haedo (argentina) ars 77,327,617 99.94%

Carraro China Drive system Qingdao (China) usD 16,570,168 100.00%

Carraro india ltd pune (india) inr 568,260,000 100.00%

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name Based in Currency Par valueShare capital

Group stake

Carraro north america inc norfolk (usa) usD 1,000 100.00%

Carraro Qingdao trading Co ltd Qingdao (China) eur 170,000 100.00%

Fon sa radomsko (poland) pln 35,918,220 98.17%

Carraro Drive tech Do Brasil santo andrè(state of sao paulo)

real 25,569 99.84%

eletronica santerno industria and Comercio ltda

Minas gerais (Brazil) real 2,443,827 66.77%

elettronica santerno espana sl Valencia (spain) euro 1,003,006 67.00%

santerno inc san Francisco (usa) usD 10 67.00%

zao santerno Moscow (russia) ruBli 100,000 67.00%

turbo gears india ltd pune (india) inr 550,000,000 73.82%

south america gears Haedo (argentina) ars 27,768,888 73.79%

Mini gears inc Virginia Beach (usa) usD 8,910,000 73.82%

gear World north america inc Virginia Beach (usa) usD 20,000 73.82%

Mini gears property Virginia Beach (usa) usD 20,000 73.82%

Mini gears shangai trading ltd shanghai (China) usD 200,000 73.82%

Minigears suzhou Co ltd suzhou (China) usD 4,300,000 73.82%

Changes in the consolidation areaThe following companies have been included in the consolidation area beginning

in the current financial year:

Elettronica Santerno España SaElettronica Santerno España Sa, which was incorporated on February 27, 2009,

with registered office in Valencia, acquired, on 1st April 2009, the business unit involved in the distribution, marketing and post-sale servicing of inverters for the industrial, wind power and photovoltaic sectors of the company Servicios de Cogen-eracion Sl, a company with twenty years’ experience in the industry.

Santerno Inc. On September 4, 2009 the company Elettronica Santerno Spa incorporated a

company in the United States, named Santerno Inc, with registered office in San Francisco, California.

A.E. SrlOn 1 March 2009 a new company was incorporated by A.E. Srl, 100% controlled

by Carraro Drive Tech Spa, and given the name “AE Assemblaggi Emiliani Srl”. A.E. Srl conferred to it the business unit involved in the work of assembling axles and mechanical components in general. As part of this operation, the company CPS Ita-lia Scarl, which held a 10% stake in A.E. Srl sold its holding to the company Carraro Drive Tech Spa, while A.E. Srl sold to CPS Italia Scarl its entire equity interest, rep-


resenting 100% of the share capital of AE Assemblaggi Emiliani Srl. Finally, with a deed dated December 23, 2009, and effects anticipated to begin from January 1, 2009, the company Carraro Drive Tech Spa carried out a merger by incorporation of the company A.E. Srl.

MG Mini Gears North America Llc During the period, the company MG Mini Gears North America Llc changed its

corporate name to Gear World North America Llc.

MG SpaWith effect from December 31, 2009, the business owned by the company Siap

Spa was conferred in relation to the facility of Poggiofiorito (CH), devoted to the work of production of gears, on the company MG Mini Gears Spa of Padua, while the percentage of consolidation under Carraro Spa remained unchanged.

3.1 Consolidation criteriaThe figures are consolidated using the line by line method, that is assuming the

entire amount of the assets, liabilities, costs and earnings of the individual compa-nies, regardless of the stock held in the company.

Foreign companies are consolidated using financial statement formats in line with the layout adopted by the parent company and compiled in accordance with common accounting standards, as applied for Carraro Spa Where necessary, to achieve alignment with the reporting dates of the foreign companies, infra-annual financial statements at December 31, 2009 have been provided by the administra-tors, with the same criteria as those used for the year-end.

The carrying amount of consolidated equity interests, held by Carraro Spa or by other companies within the consolidation scope, was offset by the relevant amount of shareholders’ equity in the subsidiary company. The amount of shareholders’ eq-uity and the net result of these third-party shareholders are shown in the Consoli-dated Statement of Financial Position and Income Statement respectively.

Payable and receivables, income and expenditure and all operations undertaken between the companies included within the consolidation scope have been elimi-nated, including dividends distributed within the Group. Profits not yet realised and capital gains and losses deriving from operations between companies of the Group have also been eliminated. Intra-group losses that indicate impairment are recognized in the consolidated financial statements.

Balances in foreign currencies have been converted into euro using the exchange rate of the end of the period for assets and liabilities, historical exchange rates for shareholders’ equity items and average exchange rates in the period for the income statement.

Exchange differences resulting from this conversion method are shown in a spe-

3.Consolidation Criteria and Accounting Principles


123

cific shareholders’ equity item entitled Foreign currency translation reserve.The exchange rates applied for the translation of accounts presented in foreign

currencies were as follows:

Currency Average exchange rate 2009 exchange rate at 31/12/2009

indian rupee 67.3610511 67.04

polish zloty 4.3276156 4.1045

us Dollar 1.3947824 1.4406

Chinese renminbi 9.5277082 9.835

argentine peso 5.2110316 5.46185

russian ruble 44.1376390 43.154

Brazilian real 2.7674230 2.5113

3.2 Discretional evaluations and relevant accounting estimates

Estimates and assumptionsIn applying the Group accounting standards, the administrators did not take

decisions based on discretional evaluations (excluding those that encompass esti-mates) having a significant effect on the value as entered on the financial statements apart from those indicated in this section Accounting standards and measurement criteria, with reference to the acquisition of equity interests after gaining control.

We present below the key assumptions on the future and other significant sources of uncertainty in the estimates at the reporting date, which could bring about sig-nificant changes in the carrying amounts of assets and liabilities within the next financial year.

Impairment loss on goodwillGoodwill is examined for any impairment once a year. This test requires an esti-

mate of the value in use of the cash generating unit to which the goodwill is attrib-uted, which in turn is based on an estimate of the anticipated cash flows from the unit and its discounting based on an appropriate discount rate.

Deferred tax assetsDeferred tax assets are recognized in compliance with Ias 12 and they include re-

tained tax losses, to the extent that it is likely there will be future tax gains to offset these losses with the returns of the temporary differences absorbed. A significant discretional assessment is required of the directors to determine the amount of the deferred tax assets that can be accounted for. They must estimate the probable tim-ing and the amount of future taxable profits as well as a planning strategy for future taxation. The details are provided in Note 11.


Pension funds and other post employment benefits The cost of defined-benefit pension plans is determined using actuarial valuations.

The actuarial valuation requires assumptions on the discount rates, the expected rate of return on investments, future salary increments, mortality rates and future pension increases. Because of the long-term nature of these plans, these estimates are subject to a significant level of uncertainty. Further information is provided in Note 19.

Development costsDevelopment costs have been capitalised based on the following accounting prin-

ciple. In order to determine the amounts to be capitalised the directors must de-velop assumptions on anticipated future cash flows from assets, the discount rates to apply and the periods of manifestation of the anticipated benefits (see Note 7).

Provisions for risks and liabilitiesThe Group used estimates for the valuation of the provisions for credit risks, for

work under warranties granted to customers, for company restructuring, for stock depreciation and for other risks and liabilities. Further details are provided in the notes relating to the individual accounting entries.

3.3 Accounting standards and measurement criteria

Accounting standards, amendments and interpretations adopted since January 1, 2009The revised version of Ias 1 – Presentation of Financial Statements states that all

changes generated by transactions executed with non-shareholders must be pre-sented in a single separate statement that shows the trend in the period (statement of comprehensive income) or in two separate statements (income statement and statement of comprehensive income). These changes must be presented separately also in the Statement of Changes in Shareholders’ Equity.

The improvement to Ias 19 – Employee Benefits clarifies the definition of ex-penses/income relating to past employment and states that in the case of the reduc-tion of a plan, the effect to be entered immediately on the income statement must include only the reduction of the benefits relating to future periods, while the effect deriving from any reductions associated with past periods of service must be consid-ered as an expense relating to past employment.

The improvement to Ias 38 – Intangible Assets sets out the recognition of promo-tional and advertising costs in the income statement. Furthermore, it states that if the enterprise sustains charges having future financial benefits without recognition of intangible assets, these expenses must be entered in the income statement at the time the enterprise gains access to the asset, in the event of the acquisition of assets, or when the service is provided, for the acquisition of services.


125

The amendment to Ias 7 – Financial Instruments: Supplementary Information was issued to increase the level of disclosure required in the case of measurement at fair value and to strengthen the existing standards on the subject of disclosure of the liquidity risks of financial instruments. In particular, the amendment requires disclosure of the determination of fair value of financial instruments by hierarchical levels of measurement.

Accounting standards, amendments and interpretations not relevant or not yet applicable and not adopted in advance by the Group› Amendment to Ias 32 – Financial instruments: Presentation and to Ias 1 – Presentation of Financial Statements – Financial Instruments› Revised version of Ias 23– Borrowing Costs› Improvements to Ias 16 – Property, Plant and Equipment› Improvements to Ias 20 – Accounting for Government Grants and Disclosure

of Government Assistance› Improvements to Ias 28 – Investments in Associates, and Ias 31

Interests in Joint Ventures› Improvements to Ias 29 – Financial Reporting in Hyperinflationary Economies› Improvements to Ias 36 – Impairment of Assets› Improvements to Ias 39 – Financial Instruments:

Recognition and Measurement› Improvements to Ias 40 – Investment Property› Ifric 13 – Customer Loyalty Programmes› Ifric 15 – Agreements for the Construction of Real Estate› Ifric 16 – Hedges of a Net Investment in a Foreign OperationThe Iasb also issued a series of changes to the Ifrs’s (‘improvements’). The ones

listed below are those indicated by the Iasb as amendments that entail a change in the presentation, recognition and measurement of accounting items, leaving aside instead those that will determine only terminological changes or those that refer to issues not present in the Group.

› Ifrs 5 – Non–current Assets Held for Sale and Discontinued Operations› Ifrs 8 – Operating Segments› Ias 1 – Presentation of Financial Statements › Ias 7 – Statement of Cash Flows› Ias 17 – Leases› Ias 36 – Impairment of Assets› Ias 38 – Intangible Assets› Ias 39 – Financial Instruments: Recognition and Measurement› Ifric 9 – Reassessment of Embedded Derivatives


Business Combinations and GoodwillBusiness combinations are accounted for according to the purchase method. This

requires the recognition at fair value of the identifiable assets (including intangible assets previously not recognized) and identifiable liabilities (including potential li-abilities and excluding future restructuring) of the business acquired.

The goodwill acquired through a business combination is initially measured at cost, represented by the amount by which the cost of the business combination exceeds the share attributable to the Group of the net fair value of the identifiable assets, liabilities and potential liabilities (of the business acquired). In order to analyse appropriate-ness, goodwill acquired in a merger is allocated at the date of acquisition, to the indi-vidual cash generating units of the Group or to groups of cash generating units, which should benefit from the synergies of the combination, irrespective of whether other Group assets or liabilities are allocated to such units or groups of units.

› Each unit or group of units to which the goodwill is allocated:represents the lowest level, within the Group, at which the goodwill is monitored

for internal management purposes; and › is no larger than the business segments identified on the basis of the Group’s

primary or secondary schedule of presentation of the segment reporting, deter-mined on the basis of the indications of Ias 8 “Operating Segments”.

When the goodwill represents part of a cash generating unit (or group of cash generating units) and part of the asset internal to that unit is transferred, the good-will associated with the asset transferred is included in the carrying amount of the asset in order to determine the gain or loss generated by the transfer. Goodwill transferred in such cases is calculated on the basis of the values relating to the asset transferred and of the portion of the unit maintained in existence.

When the transfer concerns a subsidiary, the difference between the selling price and the net assets plus the accumulated translation differences and goodwill is rec-ognized in the income statement.

Acquisitions of additional equity interests after achieving controlIfrs 3 applies only to transactions that involve the acquisition of control by a

purchasing entity over the business operations of the company acquired. Therefore, acquisitions of additional equity interests after gaining control are not specifically regulated by Ifrs 3.

In the absence of an accounting method specified by the Ias’s/Ifrs’s, Ias 8, para-graph 10 et seq states that the Management should use its own discretion in estab-lishing and applying an appropriate and reliable accounting method.

Taking into account:› The fact that the theory of the ‘parent company approach’ requires, for transac-

tions through which control is gained, recognition as goodwill of the positive difference between the cost incurred by the purchaser and the resulting share held in the net value of the assets and liabilities distinctly identifiable as be-


127

longing to the business acquired measured at fair value (current value) on the acquisition date;

› The specific limitation of Ifrs 3 for the further revaluation of the assets and li-abilities of the subsidiary subsequent to the date of acquisition.

In acquiring additional non-controlling interests the goodwill is defined as the difference between the price paid and the carrying amount of the minority interests.

This method is applied to all acquisitions of additional stock after control is gained.Ias 27 does not regulate the accounting treatment of transfers of equity interests

that do not bring about the loss of control. In line with the approach described above for the acquisition of minority interests, the gain or loss through the transfer of the shares is entered in the income statement.

The measurement criteria and accounting standards are illustrated below for the most significant items.

Property, plant and equipmentProperty, plant and equipment items are recognized at their historical cost, less

the related accumulated depreciation and cumulative impairment losses. This cost includes expenses for replacing parts of machinery and plant at the time they are incurred if this is in accordance with the recognition criteria. Depreciation is calcu-lated on a straight-line basis with reference to the estimated useful life of the assets.

Property, plant and equipment items are derecognized at the time of sale or once future economic benefits are no longer expected from their use or disposal. Any losses or gains (calculated as the difference between the net income on the sale and the carrying amount) are recognized in the income statement during the year of elimination as above.

The asset’s residual value, its useful life and the methods applied are reviewed an-nually and adjusted if necessary, at the end of each accounting period. On average the useful life, in years, is as follows:

Category Useful life

industrial land n/a

industrial buildings 20-50

plant 15-25

Machinery 15-18

equipment 3-15

Dies and models 5-8

Furniture and fittings 15

office machines 5-10

Motor vehicles 5-15

Assets held in relation to financial lease agreements are depreciated on the basis of the estimated useful life, in a way consistent with owned assets.


Real estate investmentsReal estate investments are recognized at fair value and are not depreciated.

Intangible fixed assetsIntangible assets are recognized in the accounts only if they can be identified and

checked, are expected to generate future economic benefits, and their cost can be reliably determined. Intangible fixed assets with a limited life are carried at pur-chase or production cost net of amortisation and accumulated impairment losses. Amortisation is calculated in relation to their anticipated useful life and starts when the asset becomes available for use.

GoodwillGoodwill, with an unlimited useful life, represents the surplus of the purchase

cost over the purchaser’s stakeholding at fair value (with reference to the net identi-fiable asset or liability values of the entity acquired). After initial recognition, good-will is carried at cost, less any cumulative impairment losses. Goodwill is subject, at least once a year, to an impairment test, to identify any impairment losses. In order to perform a correct fair value analysis, goodwill is allocated to each of the cash gen-erating units that will benefit from the effects deriving from the acquisition.

Research and development costsThe costs of research are charged to the income statement when incurred, in ac-

cordance with Ias 38.Again in compliance with Ias 38, development costs relating to specific projects

are recorded among the assets only if all the following conditions are fulfilled:› the asset can be identified;› it is likely that the asset created will generate future financial benefits;› the costs of the development of the asset can be reliably measured.Such intangible assets are amortised on a straight-line basis over their useful

lives.

Trademarks and licencesTrademarks and licences are stated at cost, net of amortisation and accumulated

impairment losses. The cost is amortised over the shorter of the duration of the con-tract and the limited useful life.

SoftwareThe cost of software licences, inclusive of ancillary expenses, is capitalised and

recognized net of amortisation and of any accumulated impairment losses. Such intangible assets are amortised on a straight-line basis over their useful lives.


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Impairment lossesWhere there are specific signs of impairment, tangible and intangible fixed assets

are subject to an impairment test, estimating the recoverable value of the assets and comparing it with their net carrying amount. The recoverable value is the greater of the fair value of an asset net of selling costs and its value in use, which is determined as the present value of the cash flows that the company estimates will derive from the continuous use of the asset and from its disposal at the end of its useful life. This recoverable value is determined for each individual asset except when the asset does not generate cash flows which are fully dependent on those generated by other as-sets. If the recoverable value is lower than the carrying amount, the latter is reduced accordingly. This reduction represents an impairment loss, which is recognized in the income statement.

If there is no longer any reason for an impairment loss previously recognized to be maintained, with the exception of goodwill and of intangible assets with an unlim-ited useful life, the carrying amount is reinstated to the new value deriving from the estimate, provided that this value does not exceed the net carrying amount which the asset would have had, if no writedown had ever been made. The value written back is also recorded in the income statement.

Impairment tests are carried out annually in the case of goodwill and of intangi-ble fixed assets with an unlimited useful life. Impairment tests are also carried out on all assets with independent flows that show evidence of impairment.

Equity investments in associated companiesAn associated company is an entity over which the Group is able to exercise sig-

nificant influence, but does not have control or joint control, via the equity invest-ment, over the financial and operating policies of the investee company.

The income, expenses, assets and liabilities of associated companies are shown in the consolidated financial statements using the net equity method, with the excep-tion of cases that are classified as held for sale.

Equity investments in other companies and other securitiesIn accordance with the provisions of the standards Ias 39 and 32, equity invest-

ments in companies other than subsidiary and associated companies are classified as financial assets available for sale and are carried at fair value except in cases where it is not possible to determine the market price or the fair value: in such cases the cost method is adopted.

Gains and losses deriving from value adjustments are recognized in the state-ment of comprehensive income and accumulated in a specific shareholders’ equity reserve. In the presence of permanent impairment losses or in the event of a sale, gains and losses recognized up to that moment in shareholders’ equity are recog-nized in the income statement.


Financial assetsIas 39 defines the following types of financial instrument: financial assets at fair

value through profit or loss, loans and receivables, investments held to maturity and assets available for sale. Initially, all financial assets are recognized at fair value, increased, in the case of assets other than those at fair value through profit or loss, by any ancillary expenses. The Group establishes the classification of its financial assets after initial registration and, where appropriate and permitted, revises the classification at the end of each financial year.

All standardised (regular way) purchases and sales of financial assets are recog-nized at the trade date, or at the date on which the Group undertakes to acquire the asset. Standardised purchases and sales means all purchase/sale transactions on financial assets which require the handing over of the assets in the period generally envisaged by the regulations and by the practices of the market on which the trade occurs.

Financial assets at fair value through profit or lossThis category comprises financial assets held for trading, that is, all assets ac-

quired for the purpose of sale in the short term. Derivatives are classified as finan-cial instruments held for trading unless they are designated as effective hedging instruments, in which case their accounting treatment is described in the paragraph “Derivative financial instruments and hedging transactions”, below. Gains or losses on assets held for trading are recorded in the income statement.

Investments held to maturityFinancial assets which are not derivative instruments and which are character-

ised by payments with fixed or determinable maturities are classified as “invest-ments held to maturity” when the Group has the intention and the capacity to main-tain them in the portfolio until maturity. Financial assets that the Group decides to keep in the portfolio for an indefinite period do not fall within this category. Other long-term financial investments which are held to maturity, such as bonds, are subsequently measured using the amortised cost method. This cost is calculated as the value initially recognized, less the repayment of the principal, plus or minus the amortisation accumulated using the effective interest rate method on any difference between the value initially recognized and the amount at maturity. This calculation includes all the fees or points paid between the parties, which form an integral part of the effective interest rate, the transaction costs and other premiums or discounts. For investments measured at their amortised cost, gains and losses are recognized in the income statement at the moment in which the investment is derecognized or in the event of an impairment loss, as well as by means of the amortisation process.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determi-


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nable payments which are not quoted on an active market. These assets are stated on the basis of amortised cost using the effective discount rate method. Gains and losses are recognised in the income statement when the loans and receivables are derecognized or on the occurrence of impairment losses, as well as by means of the amortisation process.

Available-for-sale financial assetsAvailable-for-sale financial assets are financial assets, excluding derivative instru-

ments, which are designated as such or not classified in any of the other three previ-ous categories. After initial recognition at cost, financial assets held for sale are car-ried at fair value and gains and losses are recorded in a separate shareholders’ equity item until the assets have been derecognized or until it is ascertained that they have suffered an impairment loss. Gains and losses accumulated up to that moment in shareholders’ equity are then charged to the income statement.

In the case of securities widely traded on regulated markets, the fair value is de-termined by making reference to the stock market price struck at the end of trading on the reporting date. In relation to investments which do not have an active mar-ket, the fair value is determined by means of valuation techniques based on prices of recent transactions between independent parties, the current market value of an essentially similar instrument, the analysis of discounted cash flows and option pricing models.

InventoriesInventories are measured at the lower of the average purchase or production cost

for the period, and market value. Production cost includes materials, labour and di-rect and indirect manufacturing costs. Obsolete or slow-moving stocks are written down appropriately, as well as in consideration of their anticipated future use and their realisation value.

Trade receivables and other receivablesTrade receivables and other receivables are included among current assets, with

the exception of those falling due more than 12 months after the reporting date, which are classified as non-current assets. These assets are valued at amortised cost on the basis of the effective interest rate method.

Receivables which mature at more than one year, are interest-free or that earn less interest than the market, are discounted using market rates. Trade receivables are discounted when they have longer payment terms than the average term of ex-tension granted.

If there is objective evidence of elements indicating an impairment loss, the asset is reduced by an amount that returns the discounted value of the cash flows ob-tainable in the future. Impairment losses are recognized in the income statement. Where reasons for previous writedowns are not maintained into subsequent trad-


ing periods, the value of the asset is reinstated until it corresponds to the value that would have derived from application of the amortised cost.

Cash and cash equivalentsCash and cash equivalents include cash on hand and cash deposits and invest-

ments maturing within three months of the original date of acquisition.

Loans and bondsLoans are initially stated at the cost represented by the fair value of the balance

received net of the related loan acquisition costs. After initial recognition, loans are carried on the basis of their amortised cost calculated by means of the application of the effective interest rate. The amortised cost is calculated taking into account the issue costs and any discounts or premium provided for at the time of settlement.

Derecognition of financial assets and liabilitiesFinancial assetsA financial asset (or, if applicable, part of a financial asset or parts of a group of

similar financial assets) is cancelled from the financial statements when:› the right to receive the cash flows from the asset has expired;› the Company maintains the right to receive cash flows from the asset, but has

undertaken a contractual commitment to pay them in full and without delay to a third party;

› the Group has transferred the rights to receive cash flows from the asset and (a) has essentially transferred all the risks and benefits of the ownership of the financial asset or (b) has not transferred or essentially withheld all the risks and benefits of the asset, but has transferred control of the same.

In cases where the Group has transferred the rights to receive cash flows from an asset and has not essentially transferred or withheld all the risks and benefits or has not lost control over the same, the asset is recorded in the Group’s financial state-ments to the extent of its residual involvement in this asset. The residual involve-ment, which takes the form of a guarantee on the asset transferred, is measured at the lower of the initial carrying amount of the asset and the maximum amount which the Group could be obliged to pay.

In cases where the residual involvement takes the form of an option issued and/or acquired on the asset transferred (including options settled in cash or similar), the extent of the Group’s involvement corresponds to the amount of the asset trans-ferred which the company could re-acquire; however, in the case of a put option issued on an asset measured at fair value (including options settled in cash or by means of similar provisions), the extent of the Group’s residual involvement is lim-ited to the lower of the fair value of the asset transferred and the exercise price of the option.


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Financial liabilitiesA financial liability is derecognized when the underlying obligation is discharged,

cancelled or fulfilled.In cases where an existing financial liability is replaced by another of the same

lender, under essentially different conditions, or the conditions of an existing liabil-ity are essentially changed, this change or amendment is treated as derecognition of the original liability and recognition of a new liability. Any difference between the carrying amounts are recognized in the income statement.

Impairment losses on financial assetsThe Group assesses whether a financial asset or group of financial assets has un-

dergone a loss in value at the end of each accounting period.

Assets measured on the basis of amortised costIf there is objective evidence that a loan or receivable recognized at amortised

cost has suffered an impairment loss, the amount of the loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows (excluding future receivable losses not yet incurred) dis-counted at the original effective interest rate of the financial asset (that is the effec-tive interest rate calculated at the date of initial recognition). The carrying amount of the asset is reduced both directly and by setting aside provisions. The amount of the loss will be recognized in the income statement.

The Group assesses first of all the existence of objective evidence of impairment at the individual level. In the absence of objective evidence of an impairment loss for a financial asset measured individually, whether significant or otherwise, this asset is included in a group of financial assets with similar credit risk features and the group is subject to assessment for impairment losses in a collective manner. Assets assessed at the individual level, for which an impairment loss is seen or continues to be seen, will not be included in collective valuation.

If, in a subsequent accounting period, the amount of an impairment loss de-creases and this reduction can objectively be traced back to an event which took place after the impairment loss was recognized, the value previously written down is reinstated. Any subsequent write-backs are recognized in the income statement, provided that the carrying amount of the asset does not exceed the amortised cost at the date of the reversal.

Assets recognized at cost If objective evidence exists of the loss in value of an unlisted instrument repre-

senting equity which is not recognized at fair value because its value cannot be meas-ured reliably, or of a derivative instrument which is linked to this equity instrument and must be settled by means of the consignment of the instrument, the amount of the impairment loss is given as the difference between the carrying amount of the


asset and the present value of the expected future cash flows and discounted at the current market rate of return for a similar financial asset.

Available-for-sale financial assets In the event of an impairment loss of an available-for-sale financial asset, a value

equal to the difference between its cost (net of repayment of the principal and amor-tisation) and its current fair value, net of any losses in value previously recognized in the income statement, is transferred from shareholders’ equity to the income state-ment. Writebacks relating to equity instruments classified as available for sale are not recognized in the income statement. Writebacks relating to debt instruments are recognized in the income statement if the increase in the fair value of the instru-ment can be objectively traced back to an event which took place after the loss was recognized in the income statement.

Allowances and provisionsProvisions for risks and liabilitiesProvisions for risks and liabilities are made when the Group must meet a current

legal or implicit obligation deriving from a past event, a sacrifice of resources is like-ly in order to deal with this obligation and it is possible to make a reliable estimate of its amount. When the Group considers that a provision for risks and liabilities will be partly or fully reimbursed, for example in the case of risks covered by insur-ance policies, the indemnity is recognized separately among the assets if, and only if, it is practically certain. In this case, the cost of the possible related provisions, net of the amount recognized for the indemnity, is presented in the income statement. If the effect of discounting to the present the value of the money is significant, the provisions are discounted back using a pre-tax discount rate which reflects, where appropriate, the specific risks of the liabilities. When the discounting is carried out, the increase of the provision due to the passage of time is recognized as a financial expense.

Employee and similar benefitsAccording to Ias 19, employee benefits to be paid out subsequent to the termi-

nation of the employment relationship and other long-term benefits (including Employee Severance Indemnity) are subjected to actuarial valuations which have to take into account a series of variables (such as mortality, the provisions of future salary changes, the anticipated rate of inflation, etc.).

Following this method, the liability recognized represents the current value of the obligation, net of any plan assets, adjusted for any actuarial losses or gains not accounted for.

The actuarial losses and gains are recognized directly in the income statement, without taking advantage of the corridor approach.


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Revenue recognitionSales of goods are recognized when the goods are shipped and the company has

transferred to the purchaser the significant risks and rewards associated with own-ership of the goods.

Revenues for services are recognized with reference to the stage of completion.Interest income is recognized in accordance with the accruals concept, on the

basis of the amount financed and the effective interest rate applicable, which rep-resents the rate that discounts future collections estimated over the expected life of the financial asset so as to take them back to the carrying amount of the asset itself.

Revenues from dividends are recorded when the right to collection arises, which normally corresponds to the resolution of the shareholders’ meeting approving dis-tribution of the dividends. Dividends distributed are recognised as payable at the time of the distribution resolution.

Public grantsPublic grants are recognized when reasonable certainty exists that they will be

received and all the related conditions are satisfied. When the grants are associated with cost elements, they are recorded as revenues, but they are systematically spread over the accounting periods so that they are commensurate with the costs they are intended to offset. If the grant is linked to an asset, the fair value is suspended in long-term liabilities and the release to the income statement takes place progres-sively over the expected useful life of the asset concerned on a straight-line basis.

TaxesTaxation for the year represents the sum total of the current and deferred taxes.

Current taxesCurrent income taxes have been provided for on the basis of an estimate of the

taxable income for the consolidated companies, in accordance with the provisions issued or essentially issued at the balance sheet date and taking any applicable ex-emptions into account.

Deferred tax liabilitiesDeferred taxes are determined on the basis of the taxable temporary differences

existing between the carrying amount of assets and liabilities and their value for tax purposes; they are classified under non-current assets and liabilities.

Deferred tax assets are provided for only to the extent that future tax burdens will probably exist, against which this asset balance can be used.

The value of deferred tax assets which can be recognized is subject to an annual assessment and is written down to the extent that it is not likely that sufficient in-come for tax purposes will be available in the future so as to permit all or part of this credit to be used. Unrecognized deferred tax assets are reviewed annually at the


reporting date and are recognized to the extent that it has become likely that income for tax purposes will be sufficient to permit these deferred tax assets to be recovered.

Deferred tax assets and liabilities are determined with reference to the tax rates which are expected to be applied in the period in which these deferments will be realised, taking into account the rates in force or those which it is known will be subsequently issued.

Deferred tax assets and liabilities are offset, if a legal right exists to offset the cur-rent tax assets with current tax liabilities and the deferred taxes refer to the same fiscal entity and the same tax authority.

Value added taxRevenues, costs and assets are recognized net of value added tax, except when: › the tax applied to the purchase of goods or services is non-deductible, in which

case it is recognized as part of the purchase cost of the asset or part of the cost item recognized in the income statement;

› it refers to trade receivables and payables recorded including the value of the tax.

Earnings or losses per shareBasic earnings (losses) per share are calculated by dividing the net profit (net

loss) for the period attributable to equity holders holding ordinary shares of the Company by the weighted average number of ordinary shares outstanding in the period.

Diluted earnings (losses) per share are obtained by means of adjustment of the weighted average of outstanding shares, so as to take into account all the potential ordinary shares with diluting effects.

Translation of foreign currency balancesFunctional currencyThe companies of the Group provide their financial statements in the currency

used in the individual country.The Group’s reporting currency is the euro, which represents the currency in

which the separate financial statements are drawn up and published.

Accounting transactions and entriesTransactions carried out in a foreign currency are initially recognized using the

exchange rates at the transaction date.At the reporting date, the monetary assets and liabilities denominated in a foreign

currency are re-translated on the basis of the exchange rate in force at that date.Non-monetary foreign currency items measured at historical cost are translated

using the exchange rate in force at the date of the transaction.Non-monetary items recognized at fair value are translated using the exchange

rate in force at the date of determination of the value.


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Derivative financial instruments and hedging transactionsThe Carraro Group’s financial risk management strategy conforms to the com-

pany’s objectives set out in the policies approved by the Board of Directors of Car-raro Spa. In particular, it aims to minimize interest rate and exchange rate risk and optimize the cost of debt.

These risks are managed in accordance with the principles of prudence and mar-ket best practices and all risk management transactions are centrally managed.

The main objectives indicated by the policy are as follows:Exchange-rate risks:› to hedge all commercial and financial transactions against the risk of fluctua-

tion;› to apply the ‘currency balancing’ method of hedging the risk, where possible,

favouring the offsetting of revenues and expenses and payables and receivables in foreign currencies in order to engage in hedging solely for the excess balance not offset;

› not to permit the use and ownership of derivatives or similar instruments for mere trading purposes;

› to permit only the use of instruments traded on regulated markets for hedging transactions.

Interest-rate risks:› to hedge financial assets and liabilities against the risk of changes in interest

rates;› in hedging against the risk, to comply with the general criteria for balancing

lending and borrowing rates set at the Group level by the Board of Directors of Carraro Spa when it approves long-term plans and budgets (fixed and floating interest rates, short-term and medium/long-term shares);

› to permit only the use of instruments traded on regulated markets for hedging transactions.

The Group uses derivative financial instruments such as currency futures con-tracts and interest rate swaps to hedge the risks deriving mainly from fluctuations in interest and exchange rates. These derivative financial instruments are initially recognized at their fair value at the date they were entered into; this fair value is pe-riodically reviewed. They are accounted for as assets when the fair value is positive and as liabilities when it is negative.

Any gains or losses emerging from the changes in the fair value of derivatives not eligible for hedge accounting are charged directly to the income statement during the accounting period.

The fair value of currency futures contracts is determined with reference to the current forward exchange rates for contracts with a similar maturity profile. The fair value of interest rate swap agreements is determined with reference to the mar-ket value for similar instruments.


For hedge accounting purposes, the hedges are classified as: › fair value hedges, if they hedge the risk of change in the fair value of an underly-

ing asset or liability; › cash flow hedges, if they hedge the risk of change in the cash flows deriving

from existing assets and liabilities or from future transactions; › hedges of a net investment in a foreign operation (net investment hedges).A transaction hedging the exchange-rate risk relating to an irrevocable commit-

ment is accounted for as a cash flow hedge.When implementing a hedging transaction, the Group formally designates and

documents the hedging relationship to which it is intended to apply the hedge ac-counting, its risk management objectives and the strategy pursued. The documen-tation identifies the hedging instrument, the element or transaction subject to the hedge, the nature of the risk and the methods by means of which the entity intends to assess the effectiveness of the hedge in offsetting exposure to changes in the fair value of the element hedged or the cash flows attributable to the hedged risk.

These hedges are expected to be highly effective in offsetting exposure of the element hedged to changes in the fair value or in the cash flows attributable to the hedged risk. The assessment of whether these changes have effectively shown them-selves to be highly effective is carried out on an ongoing basis during the accounting periods in which they were designated.

Transactions which meet the criteria for hedge accounting are accounted for as follows:

Fair value hedgesThe Group resorts to transactions hedging the fair value against exposure to

changes in the fair value of balance sheet assets and liabilities or of an off-balance sheet irrevocable commitment, as well as an identified part of the said assets, li-abilities or irrevocable commitments, attributable to a particular risk, which could have an impact on the income statement. As far as fair value hedges are concerned, the carrying amount of the element being hedged is adjusted to reflect the gains and losses attributable to the risk subject to the hedge, the derivative instrument is re-determined at fair value and the gains and losses of both are booked to the income statement.

With regard to fair value hedges referring to elements recognized on the basis of amortised cost, the adjustment of the carrying amount is amortised in the income statement over the period remaining until maturity. Any adjustments to the carry-ing amount of the hedged financial instrument to which the effective interest rate method is applied are amortised in the income statement.

The amortisation can start as soon as an adjustment exists but not after the date when the hedged element ceases to be adjusted due to the changes in its fair value attributable to the hedged risk.

When an unrecognized irrevocable commitment is designated as a hedged ele-


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ment, subsequent cumulative changes in its fair value attributable to the hedged risk are recognized as assets or liabilities and the corresponding gains and losses are recognized in the income statement. Changes in the fair value of a hedging instru-ment are also booked to the income statement.

An instrument is no longer recognized as a fair value hedge when it matures or is sold, discharged or exercised, when the hedge no longer meets the requirements for hedge accounting purposes, or when the Group revokes its designation. Any ad-justments to the carrying amount of the hedged financial instrument to which the effective interest rate method is applied are amortised in the income statement. The amortisation can start as soon as an adjustment exists but not after the date when the hedged element ceases to be adjusted due to changes in its fair value attributable to the hedged risk.

Cash flow hedgesCash flow hedges are transactions hedging the risk of fluctuations in cash flows

attributable to a specific risk, associated with a recognized asset or liability or with a highly likely future transaction which could influence the financial outcome. Gains or losses deriving from the hedging instrument are recognized in the statement of comprehensive income and accumulated in a specific shareholders’ equity reserve for the efficient part, while the remaining (inefficient) portion is recognized in the income statement.

The gain or loss booked to shareholders’ equity is reclassified in the income state-ment during the period when the transaction being hedged influences the income statement (for example, when the financial income or expense is recognized or when an anticipated sale or purchase takes place). When the element being hedged is the cost of a non-financial asset or liability, the amounts recognized in sharehold-ers’ equity are transferred at the initial carrying amount of the asset or liability.

If the transaction is no longer expected to take place, the amounts initially ac-cumulated in shareholders’ equity are transferred to the income statement. If the hedging instrument matures or is sold, cancelled or exercised without being replaced, or if its designation as a hedge is revoked, the amounts previously accu-mulated in shareholders’ equity remain recognized therein until the expected trans-action takes place. If it is believed that this will no longer happen, the amounts are transferred to the income statement.

Hedges of a net investment in a foreign operationHedges of a net investment in a foreign operation, including hedges of a mon-

etary item recognized as part of a net investment, are recognized on a similar basis to cash flow hedges. Gains or losses deriving from the hedging instrument are rec-ognized in the statement of comprehensive income and accumulated in a specific shareholders’ equity reserve for the efficient part of the hedge, while for the remain-ing (inefficient) portion they are recognized in the income statement. On disposal


of the foreign operation, the cumulative value of these gains or losses booked to shareholders’ equity is transferred to the income statement.

Credit risk The Group includes among its customers leading international manufacturers of

agricultural machinery, construction equipment, industrial vehicles and light tools. The concentration of risk is associated with the size of these customers, which in a global context is, on average, high, yet balanced by the fact that the credit exposure is distributed across a complex network of counterparties who operate in different geographical areas.

The management of credit is designed to prioritise the acquisition of customers of national and international standing for multi-annual supplies; on this basis con-solidated historical relationships have been built up with the main customers. Gen-erally speaking, these relationships are governed by ad hoc supply contracts. Credit control requires periodic monitoring of the main financial and economic data (in-cluding the delivery schedules) relating to each customer.

Except in special circumstances to do with country or counterparty risk, guaran-tees are not normally obtained on the credit.

Receivables are recognized in the accounts net of any writedowns determined by assessing the counterparty’s risk of insolvency based on the information available.

Liquidity riskThe Group’s liquidity risk is mainly linked to the activation and maintenance of

sufficient funding to support industrial operations. The raising of funds, consist-ent with the Group’s short- and medium-term development plans, is intended to finance both the working capital, with particular regard to inventories held in store which supply the manufacturing process, and investments in fixed assets necessary to ensure sufficient production capacity in support of growth. This requirement is directly proportional to the trend in customer orders and the consequent increase in business volumes.The Group’s funding strategy is normally designed to increase medium-term provision, including for the benefit of the working capital require-ments, thereby reducing the short-term debt. The provision is achieved by drawing on bank loans of a term consistent with the Group’s liquidity cycle. The cycle of pay-ments and receipts normally reflects an average term for trade payables of around 120 days and an average term for receivables of around 60 days.

The cash flows envisaged for financial year 2010 reflect not only the aforemen-tioned trend in working capital, but also the effects of the maturity of the current liabilities and short-term portions of non-current liabilities, and the effects (assum-ing the same rates of exchange with respect to December 31, 2009) of the closure of derivative financial instruments on currencies in existence at the date of the finan-cial statements. These effects (amounts and maturities) are set out more clearly in the detailed statements of the items in question.


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The Company’s expansion activities through acquisitions of new entities are car-ried out using funding from ad hoc loans or direct via market provision (e.g.: bond loans). The management of liquidity, funding requirements and cash flows are un-der the direct control and management of the Group Treasury, which operates with the aim of managing the resources available as efficiently as possible.

With reference to this risk, at the end of the 2009 financial year, taking into ac-count the violation of certain financial parameters (the so-called covenants) and in order to stop the lending banks from activating, when they were effectively entitled to do so, their rights of acceleration, the Company began negotiations with the credit institutions that finance it (and therefore not only with institutions whose financing provides for the aforesaid covenants) to redefine its commitments to these institutions reformulating the expiries of the loans and the covenants themselves on the basis of the Three-Year Plan.

Exchange-rate risk and interest rate riskThe Group is exposed to exchange rate risks by virtue of the fact that a significant

portion of sales and some of the purchases are made in currencies other than the group’s functional currency, with trade transactions carried out by companies in the euro area with counterparties that do not belong to the euro area and vice versa. An-other aspect of exchange rate risk is the fact that several Group companies present their financial statements in currencies other than the Group’s functional currency. Exposure to exchange rate risk with reference to each entity is regularly monitored by the Group Treasury according to a strategy which focuses, in particular, on the balance between purchases and sales in foreign currency and activating, for the remaining non-balanced portion and according to the criteria set by the company policy in terms of financial risk management, appropriate initiatives to hedge or reduce the risks identified, using instruments available on the market.

The Group is also exposed to interest rate risks in relation to the financial liabili-ties assumed to fund either normal operations or, where applicable, the Group’s ex-pansion by acquisitions. Changes in interest rates have a positive or negative effect on both the financial outcome and on cash flows. The work of control and manage-ment of interest rate risks carried out by the Group Treasury also conforms to the guidelines laid down in the aforementioned company policy. The strategy adopted pursues the basic objective of achieving a balance between floating-rate and fixed-rate debt. The interest rate risk on the floating portion is then reduced via specific hedging operations.

Intra-group transactionsIn accordance with the Consob recommendations of 20 February 1997 (Dac

/97001574) and 27 February 1998 (Dac/98015375) we can confirm that:› intragroup transactions and transactions with related parties which took place

during the period, gave rise to trade, financial or consultancy-related relation-


ships, and were carried out under market terms, in the financial interest of the individual companies involved in the transactions;

› no atypical or unusual operations were carried out with respect to normal man-agement of a business with the exception of conferment of the company divi-sion by Agritalia Spa to Carraro Spa as described in paragraph 8;

› the interest rates and terms applied (paid and received) in financial relation-ships between the various companies are in line with market terms.

Information on Operating Segments is given on the basis of the internal reporting provided to the highest operating decision-making level.

For operational purposes, the group manages and controls its business on the basis of the type of products supplied.

Four operating segments were identified, corresponding to the following Busi-ness Units:

› Drivetech: production and marketing of axles, transmissions and drives for construction equipment and agricultural applications;

› Gears & Components: production and marketing of components for axles and transmissions, and of gears;

› Vehicles: production and marketing of agricultural tractors;› Power Controls: production and marketing of electronic and power systems.The item ‘other segments’ brings together the Groups operations not allocated

to the four segments, and comprises the central holding and group management activities.

The Management examines separately the results achieved by the operating seg-ments in order to take decisions on the allocation of resources and on assessment of the results. The results of the segments are assessed on the basis of the operating profit or loss which may differ in some respects from the operating profit or loss shown in the consolidated financial statements. Financial income and expenses and income taxes are managed at the group level and are not allocated to the operating segments.

On July 1, 2008, the Carraro Group put in place a process of corporate reor-ganization, with which it introduced a new model of management and governance which involved the separation of the four Business Units into Drivelines (under the control of Carraro Drive Tech Spa), Gears & Components (under the control of Gear World Spa), Vehicles (Agritalia Division) and Power Controls (under the control of Elettronica Santerno Spa), each of which controlled directly or indirectly by Carraro Spa, in its capacity as Parent Company. This decision was taken in order to better distinguish between the strategic control activities, for which Carraro Spa is respon-sible, and the work of managing the individual Business Units, with consequent greater focusing and efficiency for each area.

4.Information on Business Segments and Geographical Areas


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4.1 Business segments

The most significant information by business segment is presented in the tables below, with comparisons between financial years 2009 and 2008.

A. Economic data

2009 Drives & Drivelines

Components Vehicles power Controls

Cancellations and items

not allocated

Consolidated total

Revenues from sales 314,277 109,073 58,790 43,295 –37,995 487,440

sales to third parties 304,257 83,929 56,067 42,999 188 487,440

sales between divisions 10,020 25,144 2,723 296 –38,183 –

Operating costs 331,163 133,584 60,968 42,818 –31,608 536,925

purchases of goods and materials

176,435 37,751 33,986 18,808 –38,091 228,889

services 48,880 24,457 4,306 10,230 –2,376 85,497

use of third-party goods and services

4,909 1,678 1,543 686 –2,621 6,195

personnel costs 48,592 34,507 9,438 8,264 8,789 109,590


12,196 16,689 314 963 2,773 32,935

Changes in stocks 35,546 16,502 11,237 2,166 –848 64,603

provisions for risks 5,369 3,180 1,460 2,477 64 12,550

other income and expenses –563 –550 –1,229 –75 794 –1,623

internal construction –201 –630 –87 –701 –92 –1,711

Operating profit/(loss) –16,886 –24,511 –2,178 477 –6,387 –49,485

gains/(losses) on financial assets

–8,260 –4,051 –40 –228 1,315 –11,264

Current and deferred income taxes

4,354 2,536 320 –252 279 7,237

Minorities 131 967 – – 6,558 7,656

net Profit/(loss) –20,661 –25,059 –1,898 –3 1,765 –45,856

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Canc. and items not allocated

Consolidated total

Revenues from sales 662,198 231,661 107,001 63,511 –91,002 973,369

sales to third parties 636,259 161,605 104,687 63,098 7,720 973,369

sales between divisions 25,939 70,056 2,314 413 –98,722 –

Operating costs 653,154 227,206 101,660 48,189 –93,780 936,429

purchases of goods and materials

463,691 115,549 80,366 38,373 –88,338 609,641

services 108,924 58,076 6,661 7,653 –11,793 169,521

use of third-party goods and services

4,187 1,597 1,776 578 –2,449 5,689

personnel costs 68,216 43,717 9,843 6,833 4,239 132,848


14,764 16,206 234 550 1,387 33,141

Changes in stocks –15,874 –7,181 151 –5,396 3,745 –24,555

provisions for risks 11,997 745 3,027 200 81 16,050

other income and expenses –2,618 –888 –255 289 –42 –3,514

internal construction –133 –615 –143 –891 –610 –2,392

Operating profit/(loss) 9,044 4,455 5,341 15,322 2,778 36,940

gains/(losses) on financial assets

–9,795 –7,480 – –276 –3,519 –21,070

Current and deferred income taxes

–577 1,262 –2,165 –4,770 1,486 –4,764

Minorities 274 –719 – – 649 204

net Profit/(loss) –1,054 –2,482 3,176 10,276 1,394 11,310

B. Balance sheet




Consolidated total

non-current assets * 126,523 146,666 16,447 10,526 51,179 351,341

Current assets 165,635 67,424 20,999 36,494 20,456 311,008

shareholders’ equity 46,502 46,850 10,316 11,494 –18,543 96,619

non-current liabilities 20,614 42,812 2,026 732 –5,933 60,251

Current liabilities 225,042 124,427 25,104 34,794 96,112 505,479

* non-current assets include goodwill amounting to 21.08 mln euro relating to the Drives & Drivelines business unit, goodwill amounting to 20.88 mln euro relating to the power Controls business unit and goodwill amounting to 20.21 mln euro attributable to the Components segment.




Consolidated total

non-current assets * 126,348 155,521 6,309 7,404 49,278 344,860

Current assets 277,178 120,061 45,840 37,569 –9,660 470,988

shareholders’ equity 64,609 74,118 7,803 14,467 –11,365 149,632

non-current liabilities 31,784 77,286 3,039 831 101,925 214,865

Current liabilities 307,133 124,178 41,307 29,675 –50,942 451,351

* non-current assets include goodwill amounting to 21.08 mln euro relating to the Drives & Drivelines business unit, goodwill amounting to 19.18 mln euro relating to the power Controls business unit and goodwill amounting to 20.21 mln euro attributable to the Components segment.

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C. Other information




Consolidated total

investments * (euro/000) 10,036 9,711 1,389 3,013 1,885 26,034

Workforce at 31/12 1,600 1,519 225 160 108 3,612

* Cancellations and items not allocated included goodwill deriving from entries from consolidation for 1.70 mln euro attributable to the power Controls Business unit.




Consolidated total

investments * (euro/000) 25,365 25,982 2,347 1,744 6,035 61,473

Workforce at 31/12 1,891 1,798 249 154 113 4,205

* Cancellations and items not allocated included goodwill deriving from entries from consolidation for 3.06 mln euro attributable to the power Controls Business unit.

4.2 Geographic areas

The Group’s industrial operations are located in various areas of the world: Italy, other European countries, North and South America, Asia and other non-European countries. The Group’s sales, deriving from the manufacturing carried out in the above areas are achieved equally with customers in Europe, Asia and the Americas. The most significant information by geographic area is presented in the tables below.

A. SalesThe breakdown of sales by main geographic area is shown in the following table.

31/12/2009 31/12/2008

germany 86,190 171,497

north america 52,935 139,187

China 46,153 47,680

south america 38,950 58,969

France 35,444 59,347

switzerland 28,008 23,113

india 19,339 28,945

great Britain 15,101 76,402

poland 6,277 21,428

turkey 3,974 11,904

other eu areas 45,396 112,641

other areas outside eu 10,268 21,747

total abroad 388,035 772,860

italy 99,405 200,509

total 487,440 973,369

of which: totale eU area 287,813 641,824

total area outside eU 199,627 331,545

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B. Accounting values of assets by area

The following table illustrates the book values of current and non-current assets according to the primary geographic areas of manufacture.

31/12/2009 31/12/2008

Current assets Non-current assets Current assets Non-current assets

italy 219,216 440,036 340,823 428,910

other eu countries (germany, poland)

188,496 89,291 227,557 90,444

north america 4,505 8,926 7,235 10,414

south america 32,118 13,033 47,628 16,371

asia (india, China) 43,196 61,860 63,869 59,285

non-eu countries 391 5 269 6

Cancellations and items not allocated –176,914 –261,810 –216,393 –260,570

total 311,008 351,341 470,988 344,860

C. Investments by geographical area

The table below illustrates the value of investments in the primary geographic areas of manufacture.

31/12/2009 31/12/2008

italy 16,940 32,687

other eu countries 992 5,079

north america 420 138

south america 567 2,398

non-eu countries 8,621 6

asia 3 18,104

Cancellations and items not allocated –1,509 3,061

total 26,034 61,473

Cancellations and items not allocated include goodwill deriving from entries from consolidation for 1.70 mln euro attributable to the power Controls Business unit.

services personnel expenses

impair. prov. ebit taxes taxes Minorities net

Carraro spa 1,210 2,560 410 4,180 –1,196 965 3,949

Carraro Drive tech 2,220 2,697 4,917 –1,439 3,478

gear World spa 1,065 1,065 –293 –202 570

Mini gears spa 1,068 1,068 –294 –203 571

siap spa 220 1,908 2,128 –585 –404 1,139

elettronica santerno spa

1,244 150 1,470 2,864 –893 1,971

Fon 350 350 350

total 2,454 3,995 2,570 7,553 16,572 –4,700 965 –809 12,028

5.Non-Recurring Operations

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Expenses for services of Carraro Spa relate to advice from a leading studio which assisted the Group in the development of the strategic plan for the three years 2010-2012. In 2009 cuts began in the workforce. For the Italian companies the cost of the work already done was Euro 3.995 Mln and Euro 6.083 Mln as the estimate of the costs expected following the agreement signed at the end of December 2009, for a total of Euro 10.078 Mln. The expenses for services and the provisions for risks of Elettronica Santerno for a total of Euro 2.714 Mln are attributable to an extraordi-nary campaign of warranty extension. The impairment related to decommissioning expected following the drastic reduction in demand. Finally, following a tax inspec-tion by the Tax Authority, Carraro Spa set aside provisions for taxes of Euro 0.96 Mln, commented in more detail in Note 20.

6.1 Acquisition of elettronica Santerno españa (note 22)

On 1/4/2009 the subsidiary Elettronica Santerno España acquired from Servi-cios De Cogeneracion Sl the business unit relating to the distribution in Spain of electronic control and power systems.

The fair value of the identifiable assets and liabilities of the business unit at the acquisition date was as follows:

Fair value recognised on acquisition

Carrying amount

property, plant and equipment 27 27

intangible fixed assets 2 2

goodwill 664 664

inventories 197 196

net carrying amount 890 890

goodwill paid on acquisition 664 664

goodwill from consolidation accounts 43

of which for capitalized costs 43

of which for minority purchase option –

707 664

Cash used for the acquisition

payments 890

net cash acquired –

net cash acquired 890

In the business combination the intangible assets acquired were not separated from the goodwill, owing to a lack of objective elements in support of reliable de-termination.

6.Business Combinations

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6.2 Acquisition of minority interests in A.e. Srl

On 1 April 2009 the remaining 10% of A.E. Srl was acquired. The price paid was Euro 8 thousand, against a share of negative equity of Euro 9 thousand. The differ-ence was booked to the income statement because the transaction was part of an operation for the sale of the AE business unit described in section 7, below.

On 1 March 2009 a new company was incorporated by A.E. Srl, and given the name Assemblaggi Emiliani Srl. A.E. Srl conferred to it the business unit involved in the work of assembling axles and mechanical components in general. As part of this operation, the company CPS Italia Scarl, which held a 10% stake in A.E. Srl sold its holding to the company Carraro Drive Tech Spa, while A.E. Srl sold to CPS Italia Scarl its entire equity interest, representing 100% of the share capital of As-semblaggi Emiliani Srl.

The assets and liabilities of A.E. Srl are part of the Drivelines operating segment. The sale of the business unit represents a Disposal Group as defined by Ifrs 5. The disposal is not considered a discontinued operation because it does not involve a significant independent business unit or geographical area of business. The net car-rying amount of the assets and liabilities disposed of amounted to Euro 309 thou-sand and the net revenue was Euro 53 thousand.

Revenues and costs

A. Revenues from sales (note 1)Analysis by business segment and geographical areaSee the information provided in section 4 above.

B. Operating costs (note 2)

31/12/2009 31/12/2008

purchases of raw materials 225,488 599,464

returns of raw materials –2,401 –3,750

a. purchases 223,087 595,714

Miscellaneous consumables 1,293 2,697

Consumable tools 2,085 5,856

Maintenance material 1,251 3,443

Materials and services for resale 1,296 2,890

rebates and discounts – suppliers –123 –959

B. other production costs 5,802 13,927

7.Sale of Disposal Groups

8.Notes and Comments

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31/12/2009 31/12/2008

1. Purchases of goods and materials 228,889 609,641

a. external services for production 42,532 106,905

B. sundry supplies 9,378 14,295

C. general overheads 24,119 28,960

D. Commercial costs 1,674 2,556

e. sales expenses 7,794 16,805

2. Services 85,497 169,521

3. Services, leases and rents 6,195 5,689

a. Wages and salaries 75,089 94,264

B. social security contributions 23,267 29,218

D. employee severance indemnity and pensions 8,920 5,931

e. other costs 2,314 3,435

4. Personnel expenses 109,590 132,848

a. Depreciation of property, plant and equipment 27,712 27,647

B. amortisation of intangible assets 3,500 3,388

C. impairment of assets 701 1,702

D. impairment of receivables 1,022 404

5. Amortisation, depreciation and impairment of assets 32,935 33,141

a. Changes in inventories of raw & ancillary materials & goods 31,442 –2,301

B. Changes in inventories of wk in progress, semi-finished & finished prods 33,161 –22,254

6. Changes in inventories 64,603 –24,555

a. Warranty 5,643 10,261

B. expenses for disputes 84 81

C. renovation and conv. 6,085 1,400

D. other provisions 738 4,308

7. Provisions for risks and sundry charges 12,550 16,050

a. sundry income –3,826 –6,637

B. grants 84 –163

C. other operating expenses 2,730 4,936

D. other non-ordinary operating income/expenses –611 –1,650

8. total other expenses and income –1,623 –3,514

9. internal construction –1,711 –2,392

C. net income from financial assets (note 3)

31/12/2009 31/12/2008

10. income from equity investments – –

a. From financial assets –2,418 7,418

B. From bank current and deposit accounts 153 696

C. From other cash equivalents 858 940

D. income other than the above 2,601 –8,030

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31/12/2009 31/12/2008

e. From fair value changes, interest rate derivatives 10 541

11. Other financial income 1,204 1,565

a. From financial liabilities –5,780 –17,823

B. From bank current and deposit accounts –2,565 –5,617

C. expenses other than the above –4,552 5,804

D. From fair value changes, interest rate derivavtives – –182

12. financial costs and expenses –12,897 –17,818

From derivative transactions on exchange rates –2,942 –6,612

From changes in fair value of derivative transactions on exchange rates 233 172

other –15,280 –21,741

exchange losses: –17,989 –28,181

From derivative transactions on exchange rates 3,464 785

From changes in fair value of derivative transactions on exchange rates –102 –236

other 15,064 22,815

exchange gains: 18,426 23,364

13. foreign exchange income/expenses 437 –4,817

a. revaluations – –

B. impairment –8 –

14. Adjustments of financial assets –8 –

Although the average net financial position (indebtedness) was more than in the previous year, owing to the lower cost of money financial expenses fell to 11.7 mln euro, 2.4% of turnover, compared with 16.3 mln euro (1.67% of turnover) in the previous year.

Net exchange differences at December 31, 2009 were a positive 0.437 mln euro and include, as well as the adjustment of equity entries, the MTM (Mark to Market) effects of measurement at fair value of derivative instruments, and the fluctuations recorded in particular of the Argentinean Peso, the Chinese Renminbi and the In-dian Rupee.

income taxes (note 4)

31/12/2009 31/12/2008

Current taxes 3,058 12,438

income and expenses from tax consolidation 651 3,049

taxes from previous years 109 517

Deferred tax liabilities –11,055 –11,240

15. Current and deferred taxation 7,237 4,764

Current taxesTax on the income of Italian companies is calculated at 27.50%, for Ires (corpo-

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151

ration tax), and at 3.90% for Irap (regional business tax) on the respective taxable income for the period. Taxes for the other foreign companies are calculated at the rates in force in the various countries.

Tax consolidation expense and incomeCarraro Spa and Carraro Drive Tech Spa are part of the national tax consolidation

of the parent company Finaid Spa. The expenses/income deriving from the transfer of the Ires taxable income are accounted for under current taxes. On the basis of the agreements between the companies involved in the tax consolidation, Carraro Spa and Carraro Drive Tech Spa have the right to receive ‘relief ’ from Finaid Srl of 3% of the tax losses of the tax consolidation offset with the taxable income transferred by Carraro Spa.

Deferred tax liabilitiesThese are set aside on the temporary differences between the carrying amount of

the assets and liabilities and the corresponding tax value. The provisions for taxa-tion for the year can be reconciled with the result recorded in the financial state-ments as follows:

31/12/2009 % 31/12/2008 %

income before tax –60,750 15,870

theoretical tax rate –19,076 31.40% 4,983 31.40%

tax realignment –2,449 –15.43%

effect of non-deductible costs 2,638 –4.34% 3,538 22.29%

untaxable income 287 –0.47% – 0.00%

unrecognized tax losses 7,543 –12.42% –1,449 –9.13%

other unrecognized deferred taxes 1,559 –2.57% 305 1.92%

Change in deferred taxation rate –429 0.71% – 0.00%

adjustment of deferred taxes of previous year –88 0.14%

unrecognized tax losses –734 1.21% – 100.00%

Foreign companies rate difference 283 –0.47% –164 –1.03%

taxes for previous periods 780 –1.28% –164 –1.03%

taxation at effective rate –7,237 11.92% 4,764 30.02%

As well as taxes recognized in the income statement for the year, deferred tax li-abilities of 0.46 mln euro were charged directly to shareholders’ equity.

Group earnings or losses per share (note 5)

Basic earnings (losses) per share are calculated by dividing the net earnings (net losses) for the year attributable to the company’s ordinary equity holders by the weighted average number of outstanding ordinary shares during the year.

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31/12/2009euro/000

31/12/2008euro/000

Earnings

earnings (losses) for the purposes of calculation of basic earnings per share –45,856 11,310

Diluting effect deriving from potential ordinary shares – –

earnings (losses) for the purposes of calculation of diluted earnings per share –45,856 11,310

Number of shares

Weighted average number of ordinary shares for the calculation

of basic earnings (losses) per share 41,271,631 41,872,595

of diluted earnings (losses) per share 41,271,631 41,872,595

Basic earnings (losses) per share (euro) –1.11 0.27

Diluted earnings (losses) per share (euro) –1.11 0.27

DividendsCarraro Spa did not distribute dividends in 2009. In financial year 2008 the

dividends paid (in relation to distribution of the 2007 profit) amounted to a total of 6.93 mln euro, or 0.165 euro per ordinary share.

On December 23, 2009, Carraro Spa increased its share capital by a nominal Euro 2,074,696, by issuing 3,989,800 ordinary shares of a nominal value of 0.52 euro each at a price of Euro 2.85 of which a share premium of Euro 2.33, regular entitlement, destined exclusively and irrevocably for subscription of the company Agritalia Spa, to be settled by conferment in kind by Agritalia Spa of its business, including tangible and intangible assets, other assets, bonds, contractual relation-ships and associated rights relating to the exercise of the business of developing, assembling or distributing agricultural tractors, and distribution of commercial replacement parts for such tractors.

Property, plant and equipment (note 6)

These items present a net balance of 238.46 mln euro compared with 240.25 mln euro in the previous period. The breakdown is as follows:

items land and buildings

plant and machinery

industrial equipment

other assets

investments in progress and deposits

total

Historical cost 69,211 175,875 77,154 12,836 7,643 342,719

provisions for depreciation, amortisation and impairment

–11,805 –64,908 –34,471 –6,473 – –117,657

net at 31/12/2007 57,406 110,967 42,683 6,363 7,643 225,062

movements in 2008

increases 2,485 20,090 16,634 2,965 10,647 52,821

Decreases –3,675 –1,676 –435 –168 –410 –6,364

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153


plant and machinery


other assets


total

Capitalisation 2,987 3,931 667 31 –7,616 –

Change in consolidation area – – – – – –

Depreciation and amortization

–1,924 –14,912 –9,155 –1,656 – –27,647

reclassification – –13 –92 – 105 –

impairment – –1,702 – – – –1,702

Forex translation diff. –142 –1,550 141 –70 –301 –1,922

net at 31/12/2008 57,137 115,135 50,443 7,465 10,068 240,248

made up of

Historical cost 70,473 189,326 90,222 15,272 10,068 375,361

provisions for depreciation, amortization and impairment

–13,336 –74,191 –39,779 –7,807 – –135,113


plant and machinery


other assets


total

Historical cost 70,473 189,326 90,222 15,272 10,068 375,361

provisions for depreciation, amortisation and impairment

–13,336 –74,191 –39,779 –7,807 – –135,113

net at 31/12/2008 57,137 115,135 50,443 7,465 10,068 240,248

movements in 2009

increases 547 6,530 7,469 645 5,186 20,377

Decreases –273 –494 443 441 –1,928 –1,811

Capitalisation 363 2,052 1,688 25 –4,128 –

Change in consolidation area 6,918 1,242 441 64 – 8,665

Depreciation and amortization

– – 7 20 – 27

reclassification –1,865 –13,802 –10,306 –1,739 – –27,712

impairment –1 1,908 890 7 –2,011 793

Forex translation diff. – 779 –112 – –228 439

Diff. conv. Cambio –765 –924 –690 –67 –116 –2,562

net at 31/12/2009 62,061 112,426 50,273 6,861 6,843 238,464

made up of

Historical cost 77,057 199,507 100,591 15,880 7,071 400,106

provisions for depreciation, amortization and impairment

–14,996 –87,081 –50,318 –9,019 –228 –161,642

At 31/12/2009 there were leased assets recognised as plant and machinery of 5.96 mln euro and as land and Buildings of 4.08 mln euro.

The increase in land and buildings relates mainly to Carraro China Drive Systems Co and Mini Gears Suzhou.

The main investments in plant and machinery were made by Siap Spa and Turbo Gears.

The increases in industrial equipment refer primarily to the acquisitions of cast-

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ing moulds and tools by Carraro China Drive Systems, Carraro Drive Tech Spa, Car-raro India and Carraro Spa (Divisione Agritalia).

The increases in Investments in Progress and Deposits were mainly due to invest-ments being made in Carraro India Ltd, Mini Gears Spa, Carraro Drive Tech Spa and Siap Spa.

In relation to the Agritalia conferment and to the change in consolidation scope, see the specific notes (intra-group transactions and business combinations).

The properties of Carraro Spa have mortgage loans secured against them for a total of 25.11 mln euro.

intangible assets (note 7)

These items present a net balance of 79.96 mln euro compared with 78.80 mln euro in the previous period. The breakdown is as follows:

items goodwill Development costs

royalties and patents

licences and trademarks

invest. in prog. and deposits

other investments

total

Historical cost 57,414 6,728 518 12,743 3,280 2,316 83,999

provisions for amortization and impairment

– –3,945 –352 –3,908 – –1,466 –10,671

net at 31/12/2007 57,414 2,783 166 8,835 3,280 850 73,328

movements 2008

increases 3,060 10 285 1,935 3,072 290 8,652

Decreases – – – – –39 –7 –46

Capitalisation of int. costs – 647 – 2,258 –2,905 – –

Change inconsolidation area

– – – – – – –

amortization – –1,123 –113 –1,823 – –329 –3,388

reclassification – – – 5 –5 –

impairment – – – – – – –

Forex translation diff. – –91 – –4 379 –31 253

net at 31/12/2008 60,474 2,226 338 11,206 3,782 773 78,799

made up of

Historical cost 60,474 7,158 804 16,928 3,782 449 90,595


– –4,932 –466 –5,722 – 324 –11,796





other investments

total

Historical cost 60,474 7,158 804 16,928 3,782 449 90,595


– –4,932 –466 –5,722 – 324 –11,796

net at 31/12/2008 60,474 2,226 338 11,206 3,782 773 78,799

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other investments

total

movements 2009

increases 1,033 – 90 913 2,920 37 4,993

Decreases – –515 – – –409 –73 –997

Capitalisation of int. costs – – – 301 –301 – –

Change inconsolidation area

664 – – 2 – – 666

amortization – –659 –104 –2,409 – –328 –3,500

reclassification – –2 – 2 –645 645 –

impairment – – – – – – –

Forex translation diff. – 5 – –2 – – 3

net at 31/12/2009 62,171 1,055 324 10,013 5,347 1,054 79,964

made up of

Historical cost 62,171 6,574 894 18,033 5,347 25 94,044


– –5,519 –570 –8,020 – 1,029 –14,080

The item Licences and trademarks includes the fair value of the Brand (3.30 mln euro) and the Technology (3.50 mln euro) recorded in the 2007 period in the ac-quisition of the company Mini Gears. These intangible assets with a limited useful life are amortised on a straight-line basis over the terms estimated at 10 and 7 years respectively. The other intangible assets with a limited useful life are amortised on a straight-line basis over terms estimated at between 3 and 5 years. In relation to the change in consolidation area, see the specific notes on business combinations.

Goodwill and Impairment TestsGoodwillGoodwill is attributed to the CGUs (cash generating units) as shown in the fol-

lowing table; the assets of the CGUs were subjected to a specific impairment test as described below.

Impairment TestsImpairment tests were carried out, applying the provisions of Ias 36, with the

application criteria described below, taking onto account that these are in all cases production units of the industrial manufacturing segment:

› the recoverable value of the assets of the cash generating units (henceforth ‘CGUs’) was ascertained by identifying their “value in use” obtained from the present value of the expected operating cash flows of these assets applying a rate expressing the risks of the single ‘CGUs’ considered;

› the ‘CGUs’ were identified by combining the single elementary entities (com-panies or facilities) in the main areas of business of the Group, which are the four business units Drivelines, Components, Power Controls and Vehicles. The test was also performed at the level of the Group as a whole. With respect to the

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previous impairment tests, relating to the single entities of the Group to which goodwill was attributed, an approach based on business units was considered appropriate in consideration of the current business model and of the strategic and operational organization of the group developed in keeping with this model. From 2008 onwards, in fact, a wide-ranging and radical corporate reorganiza-tion process has been underway, which has involved also extraordinary finance operations with the establishment of the subholding Carraro Drivetech Spa to which the equity investments in the drivelines segment were conferred, so as to align the structure of the group to a management model organized in four dis-tinct business units. In 2009 the work of integration of the single companies into the four business units was completed; as of today each of these controls the cash flows it produces, manages its own customers and suppliers and is organized as an autonomous business division with its own organizational responsibilities and its own reporting system. This structure is reflected also in the organization of segment reporting under the terms of Ifrs 8;

› the reference time horizon for the estimate of future cash flows is a period of five years, subsequently using the perpetual return criterion;

› the economic/financial projections used are taken from the 2010-2012 Three Year Plan for the years 2011 and 2012 and from the Budget for the year 2010 drawn up by the corporate management and approved by the Board of Direc-tors in November and December 2009 for the 2010-2012 period of analytic forecasting; the assumptions are supported both by the size of current order portfolios and by the information available on the production plans of major customers, as well as by forecasts on the performance of the procurement mar-kets and by knowledge of the trends of the underlying industrial processes;

› for the remaining two years of the forecast (2013-2014) the data were estimat-ed in continuity with those of the Three Year Plan and on the basis of an annual growth rate of 1.5% starting in 2012. The stable cash flow (terminal value) was estimated in line with the flow of 2014, at a growth rate of zero. The projec-tions’ figures are expressed in real terms;

› to discount the flows the rates used (average weighted cost of capital) were calculated analyzing the data of comparable companies with respect to each business unit so as to reflect the riskiness of each business segment, as well as the uncertainties linked to the current recessive cycle of the economy. The rates were determined net of the tax effect;

› the sensitivity analysis was carried out: – assuming changes in the parameter of the discount rate, without introducing

significant criticalities;– identifying the discount rate which reduces to zero the recoverable value and

the carrying amount;– identifying the change in EBIT which reduces to zero the recoverable value

and the carrying amount.


157

The amounts of goodwill recognized are shown below:

Business unit (Cgu) 2008 Changes 2009

o&K antriebstechnik gmbH & Co Kg Drivelines 3,000 – 3,000

Carraro india ltd Drivelines 18,079 – 18,079

elettronica santerno spa Power Controls 19,180 1,697 20,877

Mini gears group Components 20,215 – 20,215

total 60,474 1,697 62,171

With reference to the company Elettronica Santerno Spa, it should be noted that the amount of Euro 20.87 mln is made up of Euro 2.89 mln of goodwill paid on purchase of the company division from to Casalfiumanese Spa and Euro 17.99 mln mainly as the difference between the value of the equity interest and the amount agreed for the purchase of the investee company. Carraro Spa has a buy option on the remaining 33% of Elettronica Santerno. The exercise price of the buy op-tion granted to the Carraro Group was set at 18.00 mln euro, exercisable from 30 January 2010 until 31 May 2011 and the minority shareholder has a sell option on the same interest exercisable in the 30 business days after 30 March 2010 and in the 30 business days after 31 May 2011. During the period there was an increase of 0.71 mln euro in relation to the purchase completed in April of the business unit acquired by Elettronica Santerno España.

The key parameters adopted by the Group, including for the sensitivity analysis, are summarised below:

net invested Capital at

31/12/2009

period of explicit

forecast (years)

rate of growth

after period of explicit

forecast

Discount rate net of taxes

Discount rate which reduces to zero recoverable

value and carrying amount

excess of recoverable

value over carrying amount

% change of ebit which makes recoverable

value equal to carrying amount

Carraro Group 350.6 5 0.0% 7.57% 11.79% 244.9 –37%

DrivelinesBusiness unit

128.8 5 0.0% 7.36% 14.30% 165.5 –45%

ComponentsBusiness unit

155 5 0.0% 7.31% 8.80% 33.2 –16%

Power ControlsBusiness unit

31.7 5 0.0% 9.74% 28.28% 69.4 –63%

VehiclesBusiness unit

9.6 5 0.0% 7.70% 23.70% 24.9 –59%

Investments in progress and depositsThe item refers mainly to development costs incurred by the companies Carraro

Spa, Carraro Drive Tech Spa and Elettronica Santerno Spa. These expenses derive from the design of new product lines developed in connection with similar projects launched by customers. Development costs generated internally are capitalised at cost.

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Licences and TrademarksThe increases mainly relate to licences and commissioning of software by Carraro

Spa.

Research and development costs (non-capitalizable)During the course of 2009 research and trials were carried out by some of the

personnel employed in both development and production.For these operations in 2009 the Group sustained total expenditure (not capital-

ised through the lack of the requirements envisaged by Ias 38) of 13.99 mln euro (14.80 mln euro in 2008).

Real estate investments (note 8)

These present a net balance of 0.7 mln euro. The breakdown is as follows:

items lands Buildings total

Balance at 31/12/2007 – 710 710

Change in currency conversion – –1 –1

Balance at 31/12/2008 – 709 709

items lands Buildings total

Balance at 31/12/2008 – 709 709

Change in currency conversion – –2 –2

Balance at 31/12/2009 – 707 707

Real estate investments refer to non-industrial property owned by Carraro Spa, Siap Spa and Carraro Argentina Sa The fair value of these investments does not dif-fer significantly from the cost of initial recognition.

equity investments (note 9)

Equity interests in subsidiariesThe balance of 0.15 mln euro can be broken down as follows:

name parent company Based in Currency par value share Capital

percentage stake

Value of net equity

31/12/09 Ctv. euro

Carrying amount

Carraro pnH Components india ltd

Carraro india ltd

Bombay (india)

rupees 10,000,200 99.998% 119,080 149

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159

Carraro PNH Components India Ltd. is a non-operational company, whose only assets consist of land for industrial development and the decision not to consolidate is not considered significant in presenting the accounts.

Equity investments held for saleEquity investments held for sale were not reclassified.

financial assets (note 10)

31/12/2009 31/12/2008

loans to third parties 122 –

Loans and receivables 122 –

available for sale 167 167

Cash flow hedge derivatives (irs on loans) – –

Other financial assets 167 167

Financial accruals & deferrals with third parties 638 279

Financial accruals and deferrals 638 279

Non-current financial assets 927 446

With related parties – 41

With third parties 13,976 13,169

Loans and receivables 13,976 13,210

Cash flow hedge derivatives (exch. rate derivatives) 48 275

Other financial assets 48 275

Financial accruals & deferrals with third parties 537 638

Financial accruals and deferrals 537 638

Current financial assets 14,561 14,123

Other non-current financial assetsThese include a loan of 0.12 mln euro to Cps and available-for-sale assets of 0.167

mln euro consisting mostly of guarantee deposits;

Current loans and receivables:These include a loan of 13.94 mln euro granted to the Busi Group under a con-

tract for the acquisition of a 33% share of Elettronica Santerno, and a residual loan of 0.04 mln euro to Elcon Elettronica Srl.

Other current financial assetsThese include cash flow hedging derivatives of 0.048 mln euro. The balance re-

lates to the fair value recognized at 31/12/2009 on existing derivatives on foreign currencies. As described in detail in the section on derivative financial instruments (Paragraph 9), gains or losses deriving from hedging instruments are recognized in

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the statement of comprehensive income and accumulated in a specific sharehold-ers’ equity reserve for the efficient part, while the remaining (inefficient) portion is recognized in the income statement.

Current financial accruals and deferralsThese relate mainly to the portion of interest and fees on bank loans and on inter-

est for Vat rebates deferred for accrual to the following year.

Deferred tax assets and liabilities (note 11)The table below illustrates the composition of deferred taxation by the nature of

the temporary differences that determine it. The change corresponds to the effect of deferred taxation on net equity and income.

Description of differences opening31/12/2007

reclassification Change Cons. scope

economic effect Differenceexchange

Closing31/12/2008

on income statement

on net equity

Assets

Depreciation of property, plant and equipment

3,488 –261 – 3,215 – –27 6,415

amortization of goodwill 129 – – –11 – – 118

impairment of equity investments –51 – – 51 – – –

Measurement of receivables 96 416 – 37 – –8 541

Measurement of financial assets/liabilities

8 – – 98 436 –2 540

adjustment of severance indemnity/pension provision

–585 – – –55 – – –640

provisions for risks and liabilities 5,451 –316 – 2,744 – –3 7,876

tax losses 2,967 – – 637 – 60 3,664

other 1,458 –141 – 2,460 – –147 3,630

Total 12,961 –302 – 9,176 436 –127 22,144

Liabilities


–9,819 261 – –1,189 – 177 –10,570

impairment of equity investments – – – – – – –

Measurement of receivables 139 –100 – 28 – 1 68


162 – – 32 –122 – 72


–268 – – 60 – – –208

provisions for risks and liabilities 228 141 – 155 – –7 517

other –2,383 – – 2,978 – 37 558

Total –11,941 302 – 2,064 –122 134 –9,563

Balance 1,020 – – 11,240 314 7 12,581

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161

Description of differences opening31/12/2008

reclassification Change Cons. scope

economic effect Differenceexchange

Closing31/12/2009

on income statement

on net equity

Assets


6,415 –6,415 – – – – –

amortization of goodwill 118 –118 – – – – –

amortization – 7,290 17 –3,189 – –6 4,113


Measurement of receivables 541 –216 – 76 – – 401


540 –1 – –3 –318 – 218


–640 28 – 87 – – –525

provisions for risks and liabilities 7,876 283 – 1,950 – –226 9,882

tax losses 3,664 –2,154 – 10,520 – – 12,030

other 3,631 –810 – 25 – 31 2,877

total 22,145 –2,113 17 9,466 –318 –201 28,997

liabilities


–10,570 1,366 – 790 – 195 –8,219


Measurement of receivables 68 –10 – 6 – – 65


72 – – – –79 – –7


–208 –28 – 44 –69 – –262

provisions for risks and liabilities 517 345 – 541 – 1 1,404

other 555 –339 – –232 – 8 –9

tax losses – 324 – 441 – –3 762

Total –9,566 1,657 – 1,590 –148 201 –6,266

Balance 12,579 –455 17 11,055 –466 – 22,730

The carrying amount of deferred tax assets recognized at December 31, 2009 was 28.9 mln euro. (2008: 22.14 mln euro).

Deferred tax assets include the potential benefits associated with retained tax losses, insofar as it is likely that there will be suitable future taxable profits against which these losses can be used in a reasonably short period. Tax losses for which it was decided not to recognize deferred tax assets at December 31, 2009 amounted to 26.4 mln euro. (2008: 4.04 mln euro) with a tax effect of 7.1 mln euro (2008: 1.29 mln euro). It was also not considered prudent to recognize deferred assets with reference to temporarily non-deductible financial expenses under the terms of the Thin Cap Rule for a taxable amount of 5.9 mln, with a tax effect of 1.6 mln euro.

Tax losses on which deferred tax assets were not recognized were used in the year (in Carraro International), with a tax effect of 0.6 mln euro.

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trade and other receivables (note 12)

31/12/2009 31/12/2008

Non current trade receivables – –

From related parties – 2

From third parties 2,133 2,364

other non-current receivables 2,133 2,366

Non-current trade & other receivables 2,133 2,366

From related parties 45 256


Current trade receivables 67,995 148,587

From related parties 287 –55


Other current receivables 37,000 53,002

Current trade & other receivables 104,995 201,589

Other non-current receivables (2.13 mln euro) consist mainly of guarantee depos-its and prepayments of costs accruing in subsequent periods. Trade receivables bear no interest and mature on average at 60 days.

Other current receivables due from third parties can be analysed as follows:

31/12/2009 31/12/2008

Vat credits 7,213 27,321

Vat credits due for rebate 5,895 8,108

other tax credits 10,440 7,773

receivables for current taxes 6,174 2,860

receivables from employees 385 302

receivables from welfare agencies 2,587 738

accrued income and prepayments 1,962 2,223

other receivables 2,057 3,732

Other current receivables from third parties 36,713 53,057

Italian companies earn interest on Vat rebates, if they qualify, at the rate of 2.75%. The breakdown of trade and other receivables (including provisions for impairment of receivables) by maturity is shown in the following table:

31/12/2009

Fallen Due Falling Due

less than 1 year More than 1 year less than 1 year More than 1 year total

trade receivables 16,965 5,708 48,296 – 70,969

other receivables – – 37,851 2,133 39,984

total 16,965 5,708 86,147 2,133 110,953

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163

31/12/2008



trade receivables 46,213 1,465 103,755 – 151,433

other receivables 253 54 53,187 2,366 55,860

total 46,466 1,519 156,942 2,366 207,293

The balance of receivables was 110.9 million euro (207.3 million euro in 2008). Receivables due – at December 31, 2009 – amounted to 22.7 million euro, or 20% of total receivables. As envisaged in Ifrs 7.37 bands of amounts due were identified: in 2009, compared with 22.7 million euro due, 5.7 million euro, or approximately 2% of total receivables, have been due for more than one year. In the same way, in 2008, compared with 47.9 million euro due, 1.5 million euro, or approximately 0.7% of total receivables, had been due for more than one year. An analysis was carried out on specific impairment at the reporting date for past due positions, from which a total impairment loss of 3.8 million euro emerged (3.3 million euro in 2008). The analysis was performed on the basis of the effective recoverability prospects of the positions analyzed.

Provisions for Impairment of ReceivablesThe breakdown of the gross and net value of the receivables is as follows:

31/12/2009 31/12/2008

Current trade receivables from third parties 71,019 151,177

provisions for impairment –3,069 –2,846

Net current trade receivables from third parties 67,950 148,331

trade receivables from related parties 45 256

Net trade receivables from related parties 45 256

other receivables from related parties 287 –

Net other current receivables from related parties 287

other current receivables from third parties 37,469 53,494

provisions for impairment –756 –492

Net other current receivables from third parties 36,713 53,002

Movements in provisions for impairment for the periods considered can be bro-ken down as follows.

31/12/2008 increases Decreases Change incons. scope

other movements

31/12/2009

provisions for impairment of trade receivables

2,846 547 – 281 – –43 3,069

provisions for impairment of other receivables

492 475 –193 –18 756

total 3,338 1,022 –474 – –61 3,825

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Closing inventory (note 13)

31/12/2009 31/12/2008

raw materials 86,567 114,705

Work in progress and semi-finished products 31,575 51,277

Finished products 40,210 54,984

goods in transit 151 251

Total inventories 158,504 221,217

provisions for impairment of inventories –21,763 –17,615

total inventory 136,741 203,602

The sharp reduction in production volumes made necessary actions with the aim of achieving immediate results in terms of optimization of purchases and efficient reordering of stocks leading to an average drop in inventories of 30%. During 2009 negative effects were also recorded on slow-moving stocks, in particular in Carraro Drive Tech Spa and Fon, which consequently led to adjustments of provisions with the effects described below:

Balance at December 31, 2008 17,615

provisions 9,014

utilisation –4,872

translation differences 6

Balance at December 31, 2009 21,763

Cash and cash equivalents (note 14)

31/12/2009 31/12/2008

Cash 219 135

Current accounts and bank deposits 54,413 51,539

other liquid funds or equivalent assets 79 –

total 54,711 51,674

Short-term bank deposits are remunerated at a floating rate.

Shareholders’ equity (note 15)

31/12/2009 31/12/2008

1. share Capital 23,915 21,840

2. other reserves 71,290 58,620

3. profits/(losses) brought forward – –

4. ias/ifrs first adoption reserve 44,384 44,384

5. other ias/ifrs reserves –557 –1,594


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165

31/12/2009 31/12/2008

6. result for the period pertaining to the group –45,856 11,310

Group shareholders’ equity 81,469 126,459

7. Minority interests 15,150 23,173

The Shareholders’ Meeting of April 23, 2009 approved a treasury share purchase and disposal plan involving no more than 5% of the share capital, for a term of 18 months, which provides for: a purchase price per ordinary share no less than 30% lower, and no more than 20% higher than the reference price for the share recorded in the stock exchange session on the day prior to each individual transaction, and a sale price per ordinary share no less than 20% lower, and no more than 20% higher than the reference price for the share recorded in the stock exchange session on the day prior to each individual transaction. The same Meeting allocated the profit for financial year 2008 of Euro 8,587,035.00 to the Extraordinary Reserve, and made no resolution for the distribution of dividends.

On December 23, 2009, following conferment of the business of the Agritalia Spa company to Carraro Spa, the share capital of Carraro Spa was increased by Euro 2,074,696.00 by the issue of 3,989,800 shares with a nominal value of Euro 0.52 each at a price of Euro 2.85 of which Euro 2.33 as a share premium destined exclu-sively for the subscription of Agritalia Spa.

With effect from December 31, 2009, the share capital of Carraro Spa is there-fore Euro 23,914,696.00, corresponding to 45,989,800 shares of a nominal value of Euro 0.52 each. The company has issued a single category of ordinary shares which do not give the right to a fixed dividend. No other financial instruments which as-sign equity and investment rights have been issued.

The following table shows the total of the shareholders’ equity items broken down by origin, utilisation possibility and distribution. At 31 December 2009, 832,270 shares had been purchased for a total investment of Euro 2.481 mln.

Other reservesThe item ‘Other reserves’ of 71.290 mln euro, includes the reserves of Carraro Spa

relating to profits not distributed or carried forward and others as follows:› 27.130 mln euro relating to the share premium reserve of Carraro Spa (in-

creased by 9,296 thousand euro following the capital increase of December 23, 2009);

› 4.458 mln euro relating to the Carraro Spa legal reserve;› 18.079 mln euro relating to Carraro Spa extraordinary reserve and profits car-

ried forward;› less 2.481 mln euro for deduction of the reserve corresponding to the purchase

of treasury shares;› 24.104 mln euro generated by the excess of the shareholders’ equity of the con-

solidated companies over the corresponding carrying amounts of the relevant equity investments and by the consolidation adjustments.

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Ias/Ifrs 1st adoption reserveThe Ias/Ifrs first adoption reserve amounted to 44.384 mln euro at 31/12/2009.

Other Ias/Ifrs reservesThis includes the values arising from application of the criterion prescribed for

cash flow hedging of 0.557 mln euro.

Foreign currency translation reserveThis reserve, of 11.707 mln euro is used to record the exchange differences deriv-

ing from the translation of the financial statements of foreign subsidiaries.

financial liabilities (note 16)

At the end of the 2009 financial year, taking into account the violation of certain financial parameters (the so-called covenants) and in order to stop the lending banks from activating, when they were effectively entitled to do so, their rights of ac-celeration, the Company began negotiations with the credit institutions that finance it (and therefore not only with institutions whose financing provides for the afore-said covenants) to redefine its commitments to these institutions reformulating the expiries of the loans and the covenants themselves on the basis of the Three-Year Plan.

The main terms and conditions of the Agreement are listed below:› Waiver of the covenants measured at December 31, 2009 and their revision for

the period 2010-2012 in line with the new data of the plan;› Rescheduling of the instalments of principal due in 2010 and 2011 which pro-

vides for the repayment of these portions of principal at the end of the original amortization schedules;

› certain M/L-term loans for smaller amounts are excluded from the reschedul-ing manoeuvre;

› Maintenance of the revolving line (tranche B) in relation to the pooled loan taken out by Carraro International up to the original amount of 50 mln euro, for which repayments and utilization are foreseen on the basis of the cash gen-eration of the Carraro Group;

› Definition of an amount of short-term loans according to the correct develop-ment of the plan prepared and pro-rata reduction of the loans (only for banks involved in the agreement) for a total of approximately 47 mln euro;

› The option of distributing dividends for the 2010 and 2011 financial years will depend on certain financial parameters and on the return of debts.

The agreement between the company and the banks exposed in the short term, represents approximately 85% of total short-term exposure (exiting utilization).


167

The classification of financial liabilities is shown below. The amounts take ac-count of the reclassification of Euro 109.11 mln from medium/long- to short-term as envisaged in Ias 1, paragraph 74.

31/12/2009 31/12/2008

Medium/long-term loans 26,437 161,565

non-current financial liabilities 26,437 161,565

Medium/long-term loans 149,508 20,250

loans to others 438 438

short-term loans 134,007 98,841

financial liabilities 283,953 119,529

financial accruals and deferrals 651 1,252

Fair value of interest rate derivatives 896 553

Fair value of exchange rate derivatives 22 2,184

Other financial liabilities 918 2,737

Current financial liabilities 285,522 123,518

Medium- and long-term loans are presented below, divided into short-term por-tion, medium-term portion and portion at more than 5 years, considering the ef-fects deriving from the reclassification described above.

total total

Company less than one year

from 1 to 5 years

more than 5 years

31/12/2009 less than one year

from 1 to 5 years

more than 5 years

31/12/2008

ae – – – – – 63 – 63

Carraro argentina – – – – 7 – – 7

Carraro China Drive syst. 1,583 2,375 – 3,958 1,640 4,100 – 5,740

Carraro india 1,532 1,521 – 3,052 1,750 3,030 – 4,780

Carraro international 118,777 – – 118,777 4,927 118,573 – 123,500

Carraro spa 15,333 707 – 16,040 690 1,423 – 2,113

elettronica santerno 58 58 – 116 58 116 – 174

Fon sa 1,173 880 – 2,053 1,159 2,029 – 3,188

Mg Mini gears spa 8,383 17,531 – 25,914 6,398 24,792 1,428 32,618

Mg suzhou – – – – 369 – – 369

siap spa – – – – 272 – – 272

stm srl 910 93 – 1,003 885 1,008 – 1,893

turbo gears 1,758 3,272 – 5,031 2,095 4,267 736 7,098

total 149,508 26,437 – 175,945 20,250 159,401 2,164 181,815

The following table provides further detailed information on the financial liabili-ties illustrated above. For an analysis of the maturities of trade payables see Note 17, while a description of how the Group manages liquidity risk can be found in paragraph 3.3.

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Company lender amount at short termat 31/12/09

amountat mid/long termat 31/12/09

expiry rate rate type Curr.

Carraro China Drive system

intesa sanpaolo 1,583 2,375 Jun ’12 5.18% Variable Cny

Carraro india exim 351 439 Mar ’12 13.00% Variable inr

Carraro india idbi Bank 373 839 Jan ’13 11.75% Variable inr

Carraro india Mcc 321 – apr ’10 2.26% Variable

Carraro india Mcc 487 243 apr ’11 2.26% Variable euro

Carraro international Banca antonveneta 10,500 – Jun ’13 2.03% Variable euro

Carraro international Mps 8,844 – Mar ’13 1.52% Variable euro

Carraro international pool of banks 99,433 – May ’15 1.69% Variable euro

Carraro spa Banca antonveneta 14,499 – Dec ’18 2.82% Variable euro

Carraro spa italian lessor 83 35 Jun ’11 0.00% euro

Carraro spa Mps leasing 477 395 Feb ’11 1.26% Variable euro

Carraro spa sanpaolo iMi (Fit) 274 277 Jun ’11 1.01% Fixed euro

elettronica santerno simest 58 58 nov ’11 1.40% Fixed euro

Fon Capitalia lux 1,173 880 sep ’11 5.34% Variable pln

Mg Mini gears spa Banca pop.Verona 4,925 16,462 Mar ’14 1.35% Variable euro

Mg Mini gears spa interbanca 2,000 – Dec ’11 2.25% Variable euro

Mg Mini gears spa intesa Mediocredito 632 – Jun ’10 1.50% Variable euro

Mg Mini gears spa Ministry of research 140 289 Jan ’13 2.00% Fixed euro

Mg Mini gears spa san paolo/locat leasing

686 780 aug ’10/ apr ’13

1.3-1.6% Variable euro

stm Banca pop.Verona 801 – Dec ’10 1.62% Variable euro

stm Mps leasing 109 93 nov ’11 1.51% Variable euro

turbo gears Bnp 945 149 nov ’11 8.60% Fixed inr

turbo gears idbi Bank 75 168 Jan ’13 12.75% Variable inr

turbo gears Mcc 739 2,955 Dec ’14 2.58% Variable euro

total 149,508 26,437

The net financial position is broken down below.

31/12/2009 31/12/2008

Loans Payable

non-current 26,437 161,565

Current 283,953 119,529

Financial accruals and deferred

non-current –638 –279

Current 114 614

Cash and cash equivalents

Cash –219 –135

Bank current accounts and deposits –54,492 –51,539

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169

31/12/2009 31/12/2008

Loans and Receivables

loans and receivables –14,098 –13,170

loans and receivables with related parties –40

Net financial position 241,057 216,545

of which payables / (receivables)

non-current 25,857 161,286

Current 215,200 55,259

The group has available short term banking credit facilities for a total of 196.1 mln euro. These credit lines are callable and may be used for various current-account purposes and short-term financing of a maximum term of 12 months, with the total balance being 134.0 mln euro.

The rate terms vary according to the country of usage and can be summarised as follows:

› Europe (excluding Poland): 4-5%› Poland: 6-7%› India: 12-13%The medium and long-term banking credit lines amounted to a total of 249.5 mln

euro, against a utilisation of 175.9 mln euro.

Fair ValueThe fair value of medium/long-term financial liabilities, taking account of the

fact that these are almost exclusively for variable-rate funding and that the terms being renegotiated with the banking counterparties are in line with the average levels for the market and the segment – even considering the residual volatility of the markets and the relative uncertainty in identifying ‘reference’ conditions – as measured is not significantly different overall from the carrying amounts.

Management of capitalThe Group’s main management objective is to ensure that a sound credit rating is

maintained, together with adequate levels of the capital indicators so as to support its activities and maximise value for the shareholders.

The Group manages and modifies the capital structure in line with changes in the economic conditions. To maintain or change the capital structure, the Group can adjust the dividends paid to the shareholders, redeem the capital or issue new shares. Particular attention is paid to the level of debt in relation to net equity and Ebitda, thereby pursuing the objectives of profitability and the generation of cash for the Group business.

In this context a number of covenants had been contractualized in exchange for credit facilities and loans (ratio between net financial position and equity less than or equal to 1.85; ratio between net financial position and Ebitda less than or equal

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to 3.70), successively redefined, which are currently being redefined in the light of the new development scenarios of the Group on which the 2010-2012 Three Year Plan is based.

trade payables and other payables (note 17)

31/12/2009 31/12/2008

to third parties – 8

non-current trade payables – 8

to third parties 306 17,141

Other non-current payables 306 17,141

trade and other non-current payables 306 17,149

to parent companies – –

to associates – –

to related parties 591 313

to third parties 151,382 270,347

Current trade payables 151,973 270,660

to parent companies – –

to related parties 151 995

to third parties 43,056 31,448

Other current payables 43,207 32,443


Trade payables do not produce interest and on average are settled at 120 days. During 2009, the maturities were renegotiated in agreement with the suppliers. Other payables due to third parties can be analysed as follows:

31/12/2009 31/12/2008

Vat payables 498 324

amounts due to social security & welfare institutions 5,141 6,640

amounts due to employees 9,359 14,540

accrued amounts due to employees 1,492 1,751

irpef (personal income tax) employees & professionals 3,480 3,269

Board of Directors 1,611 675

other payables 21,475 4,249

Other current payables 43,056 31,448

Other current payables include the reclassification from non-current of the price for the buy option for the remaining 33% of Elettronica Santerno granted to Carraro Spa. The following table shows an analysis of trade and other payables by maturity:

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31/12/2009



trade payables 31,990 2,961 117,022 – 151,973

other payables – – 43,207 306 43,513

total 31,990 2,961 160,229 306 195,486

31/12/2008



trade payables 85,453 1,820 183,387 8 270,668

other payables – – 32,443 17,141 49,584

total 85,453 1,820 215,830 17,149 320,252

liabilities for current taxes (note 18)

31/12/2009 31/12/2008


substitute tax payable pursuant to law 266/2005 798 1,851


employee severance indemnities and retirement benefits (employee benefits) (note 19)

31/12/2009 31/12/2008

Opening severance indemnities in accordance with ias 19 18,755 20,602

less Ae conferment –716 –

Utilisation of employee severance indemnities –1,968 –2,343

Employee severance indemnities transferred to other companies –384 –9,211

Employee severance indemnities transferred from other companies 373 9,232

Current Service Cost 8 2

Interest Cost 759 805

Actuarial Gains/Losses 38 –332

Sub total 16,866 18,755

Discounting of dep. Div. Agritalia –252 –

Closing severance indemnities in accordance with ias 19 16,615 18,755

It should be noted that the provisions relating to personnel of Divisione Agritalia was discounted to 31/12/2009 following the conferment mentioned several times above.

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The severance indemnity, calculated according to current Italian laws, is treated for accounting purposes as a defined benefit fund and as such is recalculated at the end of each accounting period according to a statistical-actuarial criterion which also takes account of the effects of financial discounting. The severance indemnity refers to employee benefits governed by current Italian laws.

The actuarial valuation of this obligation is carried out according to the actuarial criterion of the “projected unit credit method” with the support of the data issued by Istat, the Inps and the Ania. The parameters used are as follows: annual rate of interest: 5%, annual rate of effective increase in remuneration: 3%, annual inflation index: 2%

The accounting treatment of employee benefits recorded in the financial state-ments complies with Ias 19 for defined benefit plans; the change in liability noted between the end of the period and the previous one is booked in full to the income statement and classified under personnel costs.

Termination benefits are benefits to employees regulated by the laws in force in Italy and recognised in the financial statements of Italian companies.

On the basis of the changes introduced by Law 296/06, with effect from Jun. 30, 2007, the termination benefits maturing after Jan. 1, 2007 must be paid into a spe-cific treasury reserve established at the pensions agency Inps, or, if the employee so chooses, into a special complementary pension fund. There are no more provisions for termination benefits with these contributions.

opening sit.31/12/2008

increases

Decreases

Changes in exchange rate

Closing sit.31/12/2009

Pension funds and similar 4,887 832 –747 –11 4,961

Pension and similar funds relate to the liabilities recognised in the accounts of the company O&K Antriebstechnik; the actuarial recalculation, except for the struc-tural differences of the relevant plans, follows the same criterion described for the Italian termination benefit provisions.

The parameters used at 31/12/2009 are an annual interest rate of 5.20% and an annual inflation index of 2%.

The accounting treatment of employee benefits recorded in the financial state-ments complies with Ias 19 for defined benefit plans; the change in liability noted between the end of the period and the previous one is booked in full to the income statement and classified under personnel costs.

Number of employeesThe number of employees refers only to the fully consolidated companies and is

divided into categories:

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31/12/2008 Variazioni 31/12/2009

executives 78 –12 66

Clerical staff 1,133 –126 1,007

Factory workers 2,810 –352 2,458

temporary workers 184 –103 81

total at 31/12 4,205 –593 3,612

For comments on the reduction in the workforce see the report on operations.

Provisions for risks and liabilities (note 20)

The item can be broken down as follows:

opening situation

increases

Decreases

reclassification exchange-rate adjustments

Closing situation

Provisionsnon-current portion

1. Warranty 1,331 46 –62 –655 –5 655

2. Costs of legal claims 628 965 –172 –160 –13 1,248

3. renovation and conv. – 3,628 – – – 3,628

4. other provisions 987 97 –948 – – 136

total 2,946 4,736 –1,182 –815 –18 5,667

ProvisionsCurrent portion

1. Warranty 10,541 5,597 –5,862 655 –51 10,880

2. Costs of legal claims 130 84 –162 160 –5 207

3. renovation and conv. 1,400 2,457 –387 2,610 – 6,080

4. other provisions 3,360 652 –20 –2,610 – 1,382

total 15,431 8,790 –6,431 815 –56 18,549

6.43 mln euro of the product warranty reserve was used for customer claims ac-cepted and the reserve was increased by 8.79 mln euro on the basis of the expected warranty costs which will be incurred in relation to the sales made.

The item Costs of legal claims includes an allocation of 0.13 mln euro for a tax department dispute in 2008 with Mini Gears Spa. With reference to Carraro Spa, it should be noted that during the year 2009 the company was the subject of a tax inspection by the Tax Authority, covering the year 2006, which ended in November 2009 with notification of the Formal Notice of Assessment. As yet the Authority has not issued the Notice of Assessment. To cover the risk associated with the objec-tions raised in the Formal Notice of Assessment a provision of 0.96 mln euro was set aside.

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provisions31/12/2008

increases2009

Decreases2009

reclassification2009

provisions31/12/2009

short term portion

Medium/long-term portion

Carraro spa – 410 – – 410 150 260

Carraro Drive tech 850 2,697 –79 – 3,468 1,746 1,722

Mg spa 550 1,068 –306 561 1,872 1,214 658

siap spa – 1,909 – –561 1,348 360 988

o&K – – – 2,610 2,610 2,610 –

total 1,400 6,083 –385 2,610 9,708 6,080 3,628

In order to facilitate a process of re-employment of personnel made redundant, in alternative to the immediate start of a mobility procedure, in Italy the Group opted for the use of Cassa Integrazione Guadagni Straordinaria (Cigs - the Extraordinary Supplementary Benefit Fund). The agreement, signed in the presence of the Min-istry of Employment on December 15, 2009 provided for an initial phase of this procedure for the year 2010 as a result of the ‘situation of crisis’, with the possibil-ity to extend it, after an agreement with both sides of industry – on the basis of the overall situation and the performance of the markets – for a further period of 1 year for ‘reorganization’. In Germany, in the same way, a similar agreement (Kurzarbeit) was signed to deal with the reduction in the workforce in accordance with the most opportune existing social ‘shock absorbers’.

For this purpose restructuring provisions were set aside in the various companies as in the explanatory table.

In particular, at 31/12/2008 the company O&K Antriebstechnik had provided for a provision of 3.36 mln euro in relation to a dispute with the owner of the facility in which the company operates which could have entailed the transfer of the business to another production site, a dispute which has now been resolved. At 31/12/2009, 2.61 mln euro was reclassified to provisions for restructuring following the trade union agreement signed.

The reclassification of 0.561 mln euro relating to the provisions set aside for the Poggiofiorito personnel operating in the industrial conferred by Siap on MG.

The item ‘Other provisions’ includes amounts recognised in the individual com-panies for future expenses and liabilities.

Commitments and risks

31/12/2009 31/12/2008

Commitments

Commitments for operating leases – 356

The operating lease was the rental contract of the Agritalia business unit signed on Marche 24, 2005 concluded in 2009.

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175

transactions with related parties (note 21)

The Carraro Group is controlled directly by Finaid Spa, which as of 31/12/2009 held 64.9301% of the shares outstanding.

As already noted above, with effect from 31/12/2009, Agritalia Spa conferred the Tractors business unit (previously rented as a business) on Carraro Spa, with the effects explained below.

effects on Carraro Spa of Conferment of Agritalia

share capital increase 2,075

share premium reserve 9,296

economic value of unit conferred, expert’s estimate 11,371

recognition of ias negative reserve –7,141

total change in shareholders’ equity 4,230

Agritalia Contribution

plant, property and equipment 8,665

trade receivables 218

provisions for warranties –56

Deferred tax assets 17

receivable art. 2343 C.C. check 386

assumption of debt –5,000

4,230

The companies Carraro Spa and Carraro Drive Tech Spa adhere to the tax con-solidation of the parent company Finaid Spa. The charges/income deriving from the transfer of the Ires taxable base are booked under current taxes. According to the current regulations of the Tax Consolidation Agreement, Carraro Spa has the right to ‘relief ’ for the use of the tax losses of the subsidiary companies by Finaid. This ‘relief ’ amounts to 3% of the tax loss of the other companies of the Finaid Consolidation possibly offset with the taxable amounts of Carraro Spa and Carraro Drive Tech Spa. The regulation also provides for a mechanism of priority offsetting of the positive and negative taxable amounts between Carraro Spa and Carraro Drive Tech Spa with respect to offsetting with the other companies of the Finaid Consolidation. The same mechanism is provided for with reference to the non-deductible expenses as an effect of the Thin Cap Rule.

Transactions between Carraro Spa and its subsidiaries, which are related entities of Carraro Spa, were eliminated in the consolidated financial statements and are not shown. Details of transactions between the Carraro Group and other related entities, in accordance with Ias 24 and with the Consob requirements, are provided below.

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Financial and equity transactions

economic transactions

trade receivables

and other receivables

trade payables

and other payables

sales of services

purchases of goods

and materials

purchases of services

use of third-party goods and

services

purchases of fixed assets

Altre parti correlate

Finaid srl 618 151 1,422

Maus spa 96 589 122 20 18 605

european power system srl 2 8 31 75

Mgt srl 1

Purchases from Maus Spa relate to the supply of specific machine tools and the related spare parts and accessories. The services include mainly charges for the use of central information systems. Use of goods and services of third parties relate to the rental of the business paid by Carraro Spa to Agritalia Spa.

9.1 General summary of the effects on the income Statement deriving from financial instruments.

31/12/2009 Financial income

Financial expenses

positive change

differences

negative change

differences

revenue

financial assets

Financial instr. at fair value – – – – –

assets held to maturity

loans Bank accounts, pos. balance 148 5 – – –

other loans 906 – – – –

other assets trade receivables 45 –8 2,201 –1,684 –

assets available for sale – – – – –

Cash flow hedge derivatives on currencies

transfer from net equity reserve

– – 132 – –

gain/loss – – 3,464 –2,942 –

Cash flow hedge derivatives on rates

92 –400 – – –

financial liabilities

Financial instr. at fair value – – – –

loans Bank accounts, neg. balance – –6,325 187 –193 –

other loans – –2,869 11,335 –10,354 –

liabilities at amortized cost 2008 pool financing – –3,187 – – –

other liabilities trade receivables 3 – 783 –2,492 –


10 –113 – – –

total 1,204 –12,897 18,102 –17,665 –

9.Financial Instruments

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31/12/2008 Financial income

Financial expenses

positive change

differences

negative change

differences

revenue

financial assets


assets held to maturity – – – – –

loans Bank accounts, pos. balance 633 – – – –

other loans 370 – – – –

other assets trade receivables 16 – 9,610 –5,811 –

assets available for sale – – – – –

Cash flow hedge derivatives on currencies

transfer from net equity reserve

– – –64 –198 –1,351

gain/loss – –59 2,735 –6,863 –


541 – – – –

financial liabilities


loans Bank accounts, neg. balance – –13,460 – – –

other loans – 152 10,530 –8,580

liabilities at amortized cost 2008 pool financing – –4,248 – – –

other liabilities trade receivables 5 –21 1,968 –8,144 –


– –182 – – –

total 1,565 –17,818 24,779 –29,596 –1,351

The source for foreign currency exchange rates is provided by the Ecb for all ex-change rates with the euro and by the Emta for the Ars/Usd exchange rate.

9.2 Derivative financial instruments on currenciesThe following table indicates all the key information relating to the portfolio of

derivative financial instruments on currencies outstanding at 31/12/2009. These are instruments designated for the hedging of:

› foreign currency sales budgets› cash flows of medium/long-term loans› imbalances of current receivables and payables in foreign currencies

A. Notional values

Contract CarraroDrive tech

sag Carraroargentina

Carrarointernational

Fon

Carraroindia

turbogears

totalgroup

31/12/2009

totalgroup

31/12/2008

Swap (DCS) 1 1,902 819 107 2,828 39,427

Swap (DCS) 2 – –

Swap (DCS) 3 217 280 –2,004 –305 –1,812 –

total notional values

217 280 –2,004 1,902 –305 819 107 1,016 39,427

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B. Reference currencies and expiry dates of contracts

Contract CarraroDrive tech



Fon Carraroindia

turbo gears

Swap (DCS) 1 ref. currencies

pln/eurars/eurars/usDCny/eurCny/usD

inr/eurinr/usD

inr/eurinr/usD

expiry dates

Mar/Jun ‘10Mar/Jun ‘10Feb/Jun ‘10Feb/Jun ‘10Mar/Jun ‘10

Mar/Jun ‘10 Mar/Jun ‘10 May/Jun ‘10

Swap (DCS) 3 ref. currencies

usD/eur ars/eur ars/usD

ars/eurars/usD

pln/eur

expiry dates

Jan ‘10 Jan ‘10 Jan ‘10Jan/Feb ‘10

Jan ‘10

C. Fair value

CarraroDrive tech



Fon Carraroindia

turbogears

totalgruppo

31/12/2009

totalgruppo

31/12/2008

Swap (DCS) 1 6 20 2 28 –2,038

Swap (DCS) 2 –

Swap (DCS) 3 5 –5 –6 4 –2

total 5 –5 –6 6 4 20 2 26 –2,0381 instruments hedging foreign currency sales budget.2 instruments hedging cash flows of medium/long-term loans (MCC Carraro india).3 instruments hedging imbalances of current receivables and payables in foreign currencies.

D. Details of fair value

31/12/2009 31/12/2008

positive fair value

negative fair value

positive fair value

negative fair value

Cash flow Hedge

exchange rate risk – Domestic Currency swaps 84 –58 537 –2,574

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179

E. Summary of fair values recognised before tax effect according to their accounting treatment

CarraroDrive tech



Fon Carraroindia

turbogears

totalgruppo

31/12/2009

totalgruppo

31/12/2008

Value entered income statement

5 –5 –6 24 4 22 –133

Value entered to net equity

–18 20 2 4 –1,905

total 5 –5 –6 6 4 20 2 26 –2,038

In relation to the positioning in the hierarchy of fair values pursuant to Ifrs 7 par. 27 the financial instruments described are classifiable as level 2; there were no transfers of level during the period.

The fair values at 31/12/2009 of financial instruments on exchange rates were calculated using the forward exchange rate method.

The counterparties with which the contracts are stipulated are leading national and international banking institutions.

The financial instruments on currencies are used, on a basis consistent with the financial risk management policy adopted by the group, to hedge the risks deriv-ing from exchange rate fluctuations and concern sales volumes compared with the budget exchange rate and the collections and payment of short and medium-term receivables and payables with respect to the historical value.

For accounting purposes in relation to contracts hedging sales budgets in foreign currencies effective at the reporting date, it should be noted that for the transac-tions executed, especially Domestic Currency Swaps, and in accordance with all the conditions provided by the Ias/Ifrs standards, hedge accounting was applied with reference to the type of ‘cash flow hedge’. Consequently, the corresponding changes in fair values are reflected in a net equity reserve, net of the tax effect.

9.3 Derivative financial instruments on interest rates

A. Notional values and fair valueThe table shows the details of the notional and fair values and other information

regarding the various types of derivative contract on interest rates in existence at Dec. 31, 2009; on this date the ongoing contracts involved Carraro International Sa and Mini Gears Spa.

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Contract Curr. expiry notional31/12/2009

notional31/12/2008

Fair Value31/12/2009

Fair Value31/12/2008

interest rate swap eur 29/05/2012 3,324,000 4,660,000 –61,465 14,552

interest rate swap eur 29/05/2012 3,324,000 4,660,000 –60,765 15,848

interest rate swap eur 29/05/2012 3,324,000 4,660,000 –79,912 –19,572





total cash flow hedging derivatives

30,463,744 38,300,000 –895,336 –424,760

In relation to the positioning in the hierarchy of fair values pursuant to Ifrs 7 par. 27 the financial instruments described are classifiable as level 2; there were no transfers of level during the period. For determination of the fair value of Interest Rate Swaps the discounted cash flow method was applied. Details of the effects charged to the income statement are reported in the general summary table in para-graph 9.1 above.

Sensitivity analysisThe table below shows the economic and equity effects generated by the balance

sheet assets and liabilities (at Dec. 31, 2009 and Dec. 31, 2008 respectively), in the event of sudden changes in the following market variables:

› main foreign currencies with respect to the euro: +/- 10%› interest rates: +/- 100 ‘basis points’ The following methods were used:› for Interest Rate Swaps the discounted cash flow method was applied;› Domestic Currency Swap contracts were calculated using the forward ex-

change rate method;› Forward exchange rate options were calculated by breaking down the instru-

ment into its components which were in turn measured using the Black & Scholes formula.

The exchange-rate risks deriving from translation of the financial statements of foreign subsidiaries from local currency into euros were not considered.

Balances at 31/12/2009 interest rate risK eXCHange rate risK

+1% –0.3% +10% –10%

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

Assets

trade receivables 544 –391

other financial assets / derivatives on currencies

–225 –211 204 359

other financial assets / derivatives on interest rates

–321 98

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+1% –0.3% +10% –10%

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

loans 1,191 –975

Cash and cash equivalents 189 –152

total gross effect –321 98 1,699 –211 –1,314 359

taxes (27.50%) –88 –27 –467 58 361 –99

total net effect –233 71 1,232 –153 –953 260

liabilities

trade payables 1,173 –1,059

loans 1,873 –562 – 440 –695

total gross effect 1,873 – –562 – 1,613 –1,754

taxes (27.50%) –515 155 –444 482

total net effect 1,358 –407 –1,169 –1,272

total 1,358 –233 –407 71 2,401 –153 –2,225 260

Positive sign: income (economic) – increase (equity)Negative sign: expense (economic) – decrease (equity)


+1% –0.3% +10% –10%

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

effect on income

effect on equity

Assets

trade receivables 1,573 –1,346

other financial assets / derivatives on currencies

639 –5,398 –494 1,636

other financial assets / derivatives on interest rates

–610 635

Cash and cash equivalents –3,249 1,775

total gross effect –610 635 –1,037 –5,398 –65 1,636

taxes (27.50%) 168 –175 285 1,484 18 –450

total net effect –442 460 –752 –3,914 –47 1,186

liabilities

trade payables –2,749 2,632

loans –1,588 1,588 2,577 –1,293

total gross effect –1,588 1,588 –172 1,339

taxes (27.50%) 437 –437 47 –368

total net effect –1,151 1,151 –125 971

total –1,151 –442 1,151 460 –877 –3,914 –889 1,186

Positive sign: income (economic) – increase (equity)Negative sign: expense (economic) – decrease (equity)

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The Company and the banks have already defined almost completely the main terms of a Framework Agreement for the renegotiation of the terms and maturities of the debt, as commented on in depth in the Report on Operations and in Note 16 to which you are referred for further details (note: agreement signed on 13 April, 2010).

The auditing of the financial statements of the Carraro Group is to be carried out, until the trading period closing on Dec. 31, 2015, by PricewaterhouseCoopers Spa. The fees relating to the period of reference will be summarised below, as paid to PricewaterhouseCoopers Spa for auditing and non-auditing services.

2009 2008

accounting audit

Carraro spa 146 183

subsidiary companies 618 593

total accounting audit services 764 776

other services

Carraro spa 59 –

subsidiary companies 3 122

total other services 62 122

total fees 826 898

eQUitY inVeStmentS HelD BY DiReCtORS, StAtUtORY AUDitORS AnD GeneRAl mAnAGeRS AnD tHeiR immeDiAte fAmilieS

name and surname investee company:Carraro spa

n° shares held31/12/2008

n° shares purchased

n° shares acquired through

conferment

n° shares sold

n° shares held31/12/2009

Mario Carraro Directly held 1,903,250 1,903,250

via Finaid spa 21,803,627 982,137 3,989,800 26,775,564

Francesco Carraro Directly held 1,182,395 1,182,395

Chiara alessandri Directly held 20,000 20,000

alexander Josef Bossard

Directly held 2,000 2,000

10.Events Subsequent to the Reporting Date

11.Information in Accordance with Art. 149-duodecies of the Consob Issuer Regulations

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183

RemUneRAtiOn PAiD tO tHe ADminiStRAtiOn, mAnAGement AnD AUDitinG BODieS(Ias 24, Consob communication Dem/2064231 of September 30, 2002)

individual Company office held term of office euro/000

Mario Carraro Carraro spa Chairman three-year period 2009-2011 (from agM 23/4/09) 900.00

siap spa Chairman three-year period 2009-2011 (from agM 22/4/09) 30.00

stM srl Chairman three-year period 2007-2009 (from agM 24/4/07) 30.00

enrico Carraro Carraro spa Deputy Chairman three-year period 2009-2011 (from agM 23/4/09) 310.00

elettronica santerno spa Chairman three-year period 2009-2011 (from agM 21/4/09) 240.00

gear World spa Director three-year period 2007-2009 (from agM 19/7/07) 20.00

tomaso Carraro Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 220.00

siap spa Managing Director three-year period 2009-2011 (from agM 22/4/09) 130.00

gear World spa Chairman three-year period 2007-2009 (from agM 30/7/07) 220.00

Francesco Carraro Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 50.00

alexandrer J. Bossard Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 683.00


Carlo Borsari Carraro spa Managing Director three-year period 2009-2011 (from agM 23/4/09) 1,848.00


Carraro Drive tech spa Managing Director Financial year 2009 (from agM 21.4.2009) 29.00

anna Maria artoni Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 66.60

giorgio Brunetti Carraro spa Director three-year period 2006-2008 (from agM 11/5/06) 31.60

arnaldo Camuffo Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 73.00

antonio Cortellazzo Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 130.00

sergio erede Carraro spa Director three-year period 2006-2008 (from agM 11/5/06) 20.00

pietro guindani Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 80.00

Marco Milani Carraro spa Director three-year period 2009-2011 (from agM 23/4/09) 73.00

onofrio tonin Carraro spa Director three-year period 2006-2008 (from agM 11/5/06) 35.00

luigi Basso Carraro spa Chairman Boardof statutory auditors

three-year period 2009-2011 (from agM 23/4/09) 20.40

saverio Bozzolan Carraro spa statutory auditor three-year period 2009-2011 (from agM 23/4/09) 10.20

Federico Meo Carraro spa statutory auditor three-year period 2006-2008 (from agM 11/5/06) 5.20

roberto saccomani Carraro spa Chairman Boardof statutory auditors

three-year period 2006-2008 (from agM 11/5/06) 8.30

statutory auditor three-year period 2009-2011 (from agM 23/4/09) 13.90

Francesco secchieri Carraro spa statutory auditor three-year period 2006-2008 (from agM 11/5/06) 5.20

siap spa statutory auditor three-year period 2009-2011 (from agM 22/4/09) 14.90

stM srl statutory auditor three-year period 2008-2010 (from agM 22/4/07) 5.40

elettronica santerno spa statutory auditor three-year period 2006-2008 (from agM 21/4/09) 11.60

assali emiliani statutory auditor three-year period 2006-2008 (from agM 27/4/06) 5.10

Mini gears spa statutory auditor three-year period 2007-2009 (from agM 30/7/07) 7.90

gear World spa statutory auditor three-year period 2007-2009 (from agM 19/7/07) 11.40

Other information on related parties: (Consob Resolution 10310 of Nov. 12, 1996, encl. 3C Issuer Regulations).

During the 2009 accounting period, fees were paid for professional services to the following subjects, associated with members of the corporate bodies: Studio Bonel-li-Erede-Pappalardo, Euro 196.2 Ml., Studio Mocellini Euro 130.3 Ml.

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CeRtifiCAtiOn Of tHe COnSOliDAteD finAnCiAl StAtementS fOR tHe YeARPURSUAnt tO ARtiCle 154-BiS, SUBSeCtiOn 5 Of leGiSlAtiVe DeCRee 58/1998 (COnSOliDAteD finAnCe ACt) AnD ARtiCle 81-teR Of COnSOB ReGUlAtiOn nO. 11971 Of mAY 14, 1999 AS AmenDeD.

1. The undersigned Alexander Bossard, Managing Director, and Enrico Gomiero, Manager Responsible for Corporate Financial Reporting of Carraro Spa, taking into account also the provisions of Art. 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998, certify:

› the adequacy in relation to the characteristics of the enterprise; and› the effective application of the administrative and accounting procedures used

to prepare the consolidated financial statements for 2009;

2. In this regard no significant aspects emerged which require disclosure.

3. We can also certify that:

3.1 the consolidated financial statements:› were prepared in conformity with the applicable international accounting

standards endorsed by the European Community under the terms of Regula-tion (EC) N° 1606/2002 of the European Parliament and Council, of July 19, 2002;

› correspond to the figures in the accounting documents and books;› give a truthful and correct representation of the economic, financial and equity

position of the Group and of all the companies included in the consolidation;

3.2 the report on operations includes a reliable analysis of the progress and re-sults of operations, as well as the situation of the issuer and of the set of compa-nies included in the consolidation, together with a description of the key risks and uncertainties they are exposed to.

Date: 22 March 2010

ALExANDER BOSSARD ENRiCO GOMiEROManaging Director Chief Financial officer


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RePORt Of tHe BOARD Of AUDitORS tO tHe GeneRAl meetinG On tHe COnSOliDAteD finAnCiAl StAtementS

Dear Shareholders,In carrying out the role assigned to us, and referring to the consolidated financial statements of the Carraro group at December 31, 2009, we inform you of the fol-lowing:

› Regarding monitoring operations carried out during the course of the 2009 trading period, we refer to our report on the financial statements of the parent company Carraro Spa;

› We have, in any event and as far as we are required to do so, been aware of and monitored the company’s management structure and its compliance with the principles of correct administration through direct observation, collating data obtained from the company’s offices, and regular meetings with both the Auditing company and the members of the boards of statutory auditors of the Italian subsidiaries, to share significant information and data;

› We received the consolidated financial statements with the relative report on operations from the Board of Directors within the legal terms;

› We have verified compliance with the regulations governing the consolidated financial statements and reports on operations and acknowledged the report of the auditing company on the Carraro Group consolidated financial statements, which presents an opinion without disclosure.

The consolidated financial statements were compiled in accordance with Ias/Ifrs international accounting standards issued by the International Accounting Standards Board (Iasb) pursuant to the provisions of Italian Legislative Decree no. 38, of February 28, 2005, prescribed in enactment of Regulation (EC) no. 1606/2002 of the European Parliament and of the Council, of July 19, 2002.

The Board of Statutory Auditors examined the criteria adopted when compiling the consolidated financial statements, with particular reference to the area of consolida-tion and the uniformity of the application of the aforesaid accounting standards. The checks carried out enabled us to ascertain that the procedures applied correspond to current applicable regulations.

In our opinion, the consolidated financial statements in their entirety provide a cor-rect illustration of the Carraro group’s financial position and results from operations for the trading period to December 31, 2009, in compliance with the regulations that govern the consolidated financial statements cited above. The Board considers moreo-ver that the Group’s report on operations is correct and coherent with the consolidated financial statements.

Campodarsego, 15 april 2010

BOARD OF STATUTORY AUDiTORSluigi Basso saverio Bozzolan roberto saccomani


AUDitORS’ RePORt in ACCORDAnCe WitH ARtiCle 156Of leGiSlAtiVe DeCRee nO. 58 DAteD 24 feBRUARY 1998 (nOW ARtiCle 14 Of leGiSlAtiVe DeCRee nO. 39 DAteD 27 JAnUARY 2010)

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CARRARO SPA ORDinARY SHAReHOlDeRS’ meetinG Of 30 APRil 2010

Chairman: Mario Carraro

Shareholders attending: 19 shareholders personally or by proxy representing 56.227% of the share capital comprehensively amounting to 45,989,800 million ordinary shares with voting right.

The Ordinary Shareholders’ Meeting approved:› The financial statements as at 31 December 2009 and the Board of Directors’

Report;

› To cover the operating loss of 8,557,205 euro through a withdrawal of the same amount from the extraordinary reserve;

› The Directors’ remuneration for the year 2010, establishing it at 50,000 euro for each director;

› The Meeting also approved a treasury share purchase and disposal plan involving no more than 5% of the share capital, for a term of 18 months, which provides for:

– a purchase price per ordinary share no less than 30% lower, and no more than 20% higher than the reference price for the share recorded in the stock exchan-ge session on the day prior to each individual transaction.

– A sale price per ordinary share no less than 20% lower, and no more than 20% higher than the reference price for the share recorded in the stock exchange session on the day prior to each individual transaction.

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