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MANAGEMENT REPORT
ON THE FINANCIAL STATEMENTS
2018
1
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
MANAGEMENT REPORT ACCOMPANYING
THE CONSOLIDATED FINANCIAL
STATEMENTS AS OF 31/12/2018
RENCO GROUP SpA
Registered office in Viale Venezia 53 - 61121 Pesaro (PU)
Share capital € 9,012,500.00 of which € 9,012,500.00 paid-in
Pesaro Companies’ Register No. 13250670158
Tax Code 13250670158
Pesaro Economic and Administrative Index no. 193317
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I N D E X
5 Foreword
8 Methodological Note
9 Situation Of Group Companies And Operating Performance
11 Development of Demand and Trends in the Market the Company Serves
14 Overall Performance of the Main Companies in the Scope of Consolidation
21 Financial Aspects of Operations
23 Alternative Performance Indicators
25 Information Concerning the Environment
26 Information on Personnel
28 Description of the Main Risks and Uncertainties to Which the Group is Exposed
32 Notice As Per Art. 2428 No. 6 Bis
32 Company Objectives and Policies Concerning Financial Risk Management
33 Company Risk Exposure
34 Research And Development Activities
34 Transactions With Subsidiary, Associated, Parent And Partner Companies
35 Treasury Shares And Shares/Stocks In Parent Companies
35 Foreseeable Business Outlook
37 Activities Pursuant To Legislative Decree 231/01
Financial Statement
40 Consolidated financial statements as of 31/12/2018
46 Consolidated cash flow statement
Explanatory notes to the consolidated financial statementsas of 31/12/2018
53 Foreword
53 Activities carried out and significant events regarding the group
53 Preparation criteria
54 Scope and methods of consolidation and significant events during the year
56 Consolidation criteria
57 Measurement criteria
64 Reclassification
65 Balance sheet assets
76 Current assets
83 Balance sheet liabilities
93 Income statement
101 Other information
113 Independent Auditor’s Report
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
Dear Shareholders,
In support of the financial statements for the period ended 31.12.2018, we provide this Management Report
to the consolidated financial statements, prepared pursuant to art. 2428 of the Italian Civil Code, with the
aim of providing a faithful, balanced and comprehensive information framework regarding the situation
of the Group, the performance and results of operations, as well as the activities carried out by the Group
during the year.
FOREWORD
The “Renco Group”, of which Renco Group S.p.A. is the parent company, is an important Italian company
in the industrial plant engineering sector and in the general contracting area. The Group operates various
lines of business, which include the Industrial Plants division, Infrastructure division, Asset Management
division and Services division.
The activities are carried out, in addition to the two Italian companies Renco S.p.A. and Renco Group
S.p.A., also by the following portfolio companies:
NAME CITY OR COUNTRY % OWNERSHIP COMPANY ACTIVITIES
RENCO ALGERIA ALGERIA 100.00 Industrial plant engineering, energy sector
ANGORENCO * ANGOLA 100.00 Industrial services
RENCO ARMESTATE LTD ARMENIA 100.00 Asset management, Civil and industrial buildings
NUOVO VELODROMO ARMENIA 100.00 Asset management
PIAZZA GRANDE LLC ARMENIA 100.00 Asset management
ARMENIA GESTIONI LLC ARMENIA 100.00 Asset management and tourism-hotel activities
VELOFIRMA LLC ARMENIA 53.70 Asset management and tourism-hotel activities
ARMPOWER ARMENIA 60.00 Industrial plant engineering, energy sector
RENCO POWER CJSC ARMENIA 100.00 Industrial plant engineering, energy sector
RENCO CANADA LTD CANADA 100.00 Industrial plant engineering, energy sector
RENCO GESTION IMMOBILIERE CONGO 70.00 Asset management
RENCO TERNA JV GREECE/ALBANIA 50.00 Industrial plant engineering, energy sector
RENCO REAL ESTATE SRL ITALY 100.00Sub-holding with investments in the civil construction, asset management and hotel sectors
REAL ESTATE MANAGEMENT SRL ITALY 30.00 Asset management and tourism-hotel activities
RENCO HEALTH CARE SRL ITALY 90.00Civil and industrial buildings and asset management in health care (nursing homes)
TOLFA CARE SRL ITALY 42.54 Health care/Nursing home management
JOINT GREEN SRL ITALY 100.00 Industrial plant engineering, energy sector
RESIDENCE VISERBA SRL ITALY 100.00 Asset management
REN TRAVEL SRL * ITALY 99.00 Travel and Trips Sector
RENCO CAPITAL SRL ITALY 99.99 Asset management
CONSORZIO STABILE RENCOLANCIA ITER
ITALY 65.00 Civil construction
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
ITALSEC SRL ITALY 90.00 Security services
RENCO FOOD SRL ITALY 100.00 Organised distribution and catering
ARENGEST SRL ITALY 100.00 Asset management
RENCO KAT LTD KAZAKHSTAN 50.00 Civil and industrial buildings
RENCO PROPERTY LLP KAZAKHSTAN 100.00 Asset management
RENCO MAR * MOROCCO 97.00 Civil and industrial buildings
RENCO ENERGIES SA * MOROCCO 57.63 Industrial plant engineering, energy sector
RENCO MOZAMBICO LTD MOZAMBIQUE 97.00 Asset management and tourism-hotel activities
RENCO TEK LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities
RENCO ENERGIA LDA MOZAMBIQUE 62.50 Industrial plant engineering, energy sector
RENCO IREM CONSTRUCOES LTD MOZAMBIQUE 31.25 Civil and industrial buildings
BAYTREE INVEST.& SERVICE LDA PORTUGAL 100.00Sub-holding with investments in the asset management and tourism-hotel sector
GRAPEVINE LDA PORTUGAL 50.00 Asset management and tourism-hotel activities
INTERRENKO LTD RUSSIA 100.00 Asset management
RENCO SAKH LLP RUSSIA 100.00 Asset management and tourism-hotel activities
SOUTHERN CROSS LLC RUSSIA 50.00 Asset management and tourism-hotel activities
BAYTREE LLCUNITED STATES OF AMERICA
100.00 Asset management and tourism-hotel activities
RENCO TANZANIA CONSTR. LTD TANZANIA 99.00 Civil and industrial buildings
RENCO ZANZIBAR LTD ZANZIBAR 99.99 Asset management and tourism-hotel activities
ITALSEC ARMENIA LLC ARMENIA 100.00 Security services
ITALSEC CONGO ARL CONGO 100.00 Security services
ITALSEC MOZAMBIQUE LDA MOZAMBIQUE 100.00 Security services
VILLA SOLIGO SRL ITALY 100.00 Asset management and tourism-hotel activities
REAL MOZ LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities
TRADE MARK ITALY LLP KAZAKHSTAN 50.00 Assets management and food sale activities
NIASSA SANCTUARY LTD MOZAMBIQUE 50.00 Asset management and tourism-hotel activities
*Company in liquidation
From the previous year the following changes occurred in the Group structure:
in December 2018 Renco S.p.A. sold 100% of the shares of the company Hotel Yerevan Cjsc at a price
of 20 million Euros, generating a capital gain at a consolidated level of 11.6 million Euros, calculated
by taking into account the higher value contributed by the subsidiary in our consolidated financial
statements. The sale price was paid by the buyer for 5 million Euros at the time of the sale, while the
remaining 15 million Euros will be paid by 30 June 2019, guaranteed by a pledge benefiting Renco S.p.A.
on shares of the company Hotel Yerevan Cjsc;
in Mozambique, in order to apply for important works in the field of prefabrication and mechanical
installations for Oil&Gas, the Group decided to stipulate an exclusive commercial cooperation agreement
with the Italian company IREM S.p.A., specialised in the field of mechanical installations for Oil&Gas. For
NAME CITY OR COUNTRY % OWNERSHIP COMPANY ACTIVITIES
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
this reason, in October Renco S.p.A. sold to Irem S.p.A. 31.25% of the share capital of the Mozambican
company Renco Costrucoes Ltd, which subsequently changed its name to Renco Irem Costrucoes
Ltd. The sale led to the recognition of a capital gain of 3 thousand Euros, as well as the loss of control
thereof;
in August, Renco Real Estate Srl completed the acquisition of 100% of the share capital of Villa Soligo
Srl, a company operating in the Italian hotel sector and owner of the Hotel Villa Soligo in Farra di Soligo
(Treviso), a historic residence built in 1782. Villa Soligo is a 4-star hotel with a neoclassical structure in
Palladian style and consists of 35 rooms, restaurant, swimming pool and park. The property is located in
an urban setting in the heart of the Prosecco area, which has applied to be named as a UNESCO World
Heritage Site. In return for the investment, the amount of which is supported by a specific appraisal,
Renco Real Estate recorded payables to the sellers of Villa Soligo for 1,076 thousand Euros as a residual
part of the agreed price;
to strengthen the security services provided by Italsec Srl, the Group has boosted its presence in the
countries it operates in. To this end, Italsec Congo ARL, Italsec Armenia LLC and Italsec Mozambique
LDA were established to seek opportunities and synergies in the management of security for both
Group companies and third-party customers;
Real Moz LDA, a company 99% owned by Renco Real Estate S.r.l. and 1% by Renco S.p.A., was
established to develop projects in the real estate and hotel sector in the Republic of Mozambique. In
turn, Real Moz LDA participates for 50% of the share capital in the Niassa Sanctuary LDA, a business
that was established at the end of 2018;
In October, the Group decided to proceed with a merger by incorporation of the companies subject to
Kazakh law, Renco Ak LDA, with registered office in Astana, via Kosmonavtov 62, and Renco Property
LLP, with registered office in Almaty, Zenkov/Kazibek bi Str., 26/41, both 100% owned by Renco S.p.A..
The merger took effect on 1 January 2018 and had no effect on the consolidated financial statements;
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
in November, the Kazakh company Trademark Italy Ltd was set up, 50% owned by Renco S.p.A.,
which will be responsible for the marketing of Italian-made furniture, household articles and
accessories and for the distribution of food and foodservice products. This was done in order to
develop these activities in Kazakhstan, taking advantage of its experience and presence in the
country, by allocating the available commercial spaces at the recently built multifunctional building
in Almaty called “Ablay Khan”. This company is not included in the scope of consolidation as it
is not considered significant from the time it was created at the end of the year and was not yet
operational at 31 December 2018;
As part of the project to build a power plant in Armenia, during the year Renco S.p.A. sold 40% of its
interest in Armpower Cjsc to the company Siemens Venture Capital Gmbh of the Siemens group, the
project’s technology partner, and 60% to Renco Power Cjsc, an Armenian company owned by Renco
S.p.A..
METHODOLOGICAL NOTE
Unless otherwise specified, all comments and comparisons in the remainder of this report refer to the
economic and financial data for the 2018 financial year compared to the 2017 financial year. All figures in
the report on operations and the related schedules are expressed in thousands of Euros and all comments
in the “Notes to the financial statements” are also expressed in thousands of Euros. All percentage ratios
(margins and deviations) are calculated with regard to values expressed in thousands of Euro.
Figures for the previous year are shown in brackets.
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
SITUATION OF GROUP COMPANIES AND OPERATING PERFORMANCE
The value of production for the year 2018, including production to order and final inventories and revenues
from ancillary operations, amounted to 243.3 million Euros 248.2 million Euros), fundamentally in line with
the previous year.
The Industrial Plants division contributed 98.8 million Euros to the value of production (92 million Euros),
with growth of 7.6%; the Services division contributed 49.2 million Euros (43 million Euros), with growth of
13.2%; the Infrastructure division contributed 36.4 million Euros (71 million Euros). The Asset Management
division, which produced 58.9 million Euros (42.3 million Euros) in the year, is growing due to the growth
in revenues from newly established structures and the contribution deriving from the sale of the company
Hotel Yerevan, which owns the hotel of the same name.
The decrease in the value of production of the Infrastructure division is partly due to the exceptional nature
of 2017, which saw the production of the TCO order, and partly to a greater selectivity of the works.
EBITDA is equal to 38.5 million Euros (33 million Euros), 15.8% of the value of production. EBITDA increased
by 16.6% in relative terms compared to 13.3% in the previous year. The Group’s EBITDA % for works and/or
services rendered to third parties alone was 17.2% compared to 14.3% in the previous year. The increase in
EBITDA is characterised by the higher contribution recorded in the period by the Asset Management and
Industrial Plants divisions.
The reduction in the ratio between Ordinary Result and Production Value, in addition to what has already
been commented with reference to the effects on EBITDA, is characterised by the growth in amortisation
and depreciation, which amounted to 11.7 million Euros (8.8 million Euros). The growth is mainly due to
the higher investments in tangible fixed assets made in recent years, which were depreciated when fully
operational in 2018. In addition, an increase in the provision for doubtful accounts of 1.5 million Euros and
the creation of a provision for job orders to guarantee possible risks after the completion of the job orders,
with a provision of 1.3 million Euros, contributed to the reduction.
EBIT amounted to 25.2 million Euros compared to 23.3 million Euros in 2017.
The operating components of a financial nature express a balance of net financial charges of 13.1 million
Euros (12 million Euros in the corresponding period of comparison). The negative exchange rate differences
contributed to the decrease in the result for 2018, generating charges of 2.3 million Euros (-7.3 million
Euros).
Adjustments to the value of financial assets are mainly due to the valuation at net equity of the subsidiary
Renco Food. For the company a provision of 4,668 thousand Euros was set aside to cover losses due to
the accumulated losses and the substantial interruption of the investees of Renco Food active in food
distribution, which are in the process of disposing of their businesses.
The aforementioned operating dynamics generated a pre-tax profit of 12.1 million Euros, up compared to
11.3 million Euros in 2017.
Income taxes for the period amounted to 6 million Euros (9.8 million Euros), down on 2017. The tax charge
includes 2.2 million Euros of taxes relating to previous years, of which 0.9 million Euros for disputes raised
by tax authorities for the year 2014 and 1.3 million Euros for non-recoverable foreign taxes relating to
previous financial years.
By means of the following tables, we provide you with a summary of the financial situation and operating
performance of the company during the year, highlighting the factors described above:
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
DESCRIPTION 31.12.2018 31.12.2017 CHANGE
Fixed assets 248,800 204,227 44,573
Current assets 397,635 463,420 -65,785
Accrued expenses and deferred income 3,128 4,330 -1,202
TOTAL ASSETS 649,563 671,977 -22,414
Shareholders’ equity: 160,642 152,410 8,232
- of which profit (loss) for the year 6,101 1,505 4,596
Provisions for risks and future liabilities 20,919 16,291 4,628
Employee severance indemnity 2,411 2,009 402
Short-term payables 153,734 268,857 -115,123
Long-term payables 310,427 229,767 80,660
Accrued expenses and deferred income 1,430 2,643 -1,213
TOTAL LIABILITIES 649,563 671,977 -22,414
DESCRIPTION 31.12.2018 % ON REVENUES 31.12.2017 % ON REVENUES
Revenues from normal operations 228,744 94.02% 244,540 98.52%
Revenues from ancillary operations 14,538 5.98% 3,679 1.48%
VALUE OF PRODUCTION 243,282 100.00% 248,219 100.00%
Cost for the purchase of goods and services 144,811 59.52% 156,230 62.94%
Labour costs 56,476 23.21% 56,534 22.78%
Other operating costs 3,534 1.45% 2,467 0.99%
EBITDA 38,461 15.81% 32,988 13.29%
Depreciation, write-downs and other provisions
13,244 5.44% 9,700 3.91%
OPERATING RESULT (EBIT) 25,217 10.37% 23,288 9.38%
Financial income and expenses and adjust. of financial assets
(13,137) -5.40% (12,000) -4.83%
Financial income and expense (6,026) -2.48% (4,330) -1.74%
Exchange differences (2,280) -0.94% (7,341) -2.96%
Value adjustments to financial assets: (4,832) -1.99% (329) -0.13%
RESULT BEFORE TAXES 12,078 4.97% 11,288 4.55%
Income taxes 5,978 2.46% 9,784 3.94%
Profit (loss) for the year 6,100 2.51% 1,504 0.61%
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
DEVELOPMENT OF DEMAND AND TRENDS IN THE MARKET THE COMPANY SERVES
The protectionist shift in US trade policies has begun to affect world trade patterns, business confidence
and manufacturing activity. The main downward revision of estimates concerns the Eurozone as it is more
dependent on foreign demand and also affected by specific shocks. The short-term outlook for the global
economy as a whole remains favourable, with a reduction in the consensus growth outlook. The general
underlying weakness of inflation remains. While continuing to expand, world trade has decelerated,
recording a GDP close to 2.9% in 2018 (3.6% in 2017). The economic cycle continued to expand in the
United States, stabilising in the Eurozone and Japan. In emerging countries as a whole, growth is being
held back by the strength of the US dollar.
The current phase of economic expansion has other peculiarities in addition to moderate growth rates,
being characterised by low inflation rates in advanced countries, a reduced elasticity of international trade
in relation to GDP growth and a limited propensity to invest. There seem to be no factors at the moment
that would usually put an end to expansions: there are no inflationary pressures that push central banks to
impose very restrictive monetary policies, while fiscal policies remain in neutral territory.
Inflation in the main advanced economies net of volatile components remains moderate: it is close to 2% in
the United States and the UK, while it remains above 1% in the Eurozone. Inflation remains below historical
averages in the major emerging economies.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
In the main emerging countries, the economic situation is hampered by the strengthening of the US dollar.
The cycle accelerated in India while it remained in line with estimates in China.
Russia’s economic outlook continues to improve gradually, linked to the expected evolution of oil prices. In
the first quarter of 2018, the price of oil was US$ 64.6 per barrel (+22% over the first quarter of 2017) and
rose to US$ 71.5 per barrel in the second quarter, up 11% over the previous quarter and 45% over the second
quarter of 2017. However, from the beginning of October the price of oil began to fall. At the beginning
of December, in order to support the price of oil the OPEC and non-OPEC countries agreed to reduce the
production of oil, with a cut of 1.2 million barrels a day. The downward trend is mainly due to shale oil in the
USA, whose production exceeded that of Saudi Arabia in 2018, which was also overtaken by record-setting
production in Russia.
Recently the U.S. dollar has stabilised against a broad basket of global currencies after the growth of
previous quarters. Over the next few months it is expected to gradually weaken. Emerging currencies
showed widespread devaluations in 2018. A trend of moderate appreciation is assumed to coincide with a
weakening of the US dollar’s relative strength.
Finally, also in 2018, the main companies in the sector continued their strategy of reducing costs and
resources, with consequent restructuring programmes and corporate operations like mergers and
acquisitions in order to remain as competitive as possible in the market, strengthening their financial and
equity structures and expanding their presence in “strategic” markets.
Market policies and industrial policy
The breakdown of value of production by geographical area is summarised below:
GEOGRAPHIC AREA 31.12.2017 % 31.12.2018 % CHANGE CHANGE %
Italy 37,494 15.11 35,722 14.68 -1,772 -4.73
European Union 58,025 23.38 73,332 30.14 15,307 26.38
Russia and former USSR countries 86,200 34.73 55,902 22.98 -30,298 -35.15
Africa 55,900 22.52 63,928 26.28 8,028 14.36
Middle East 5,300 2.14 7,400 3.04 2,100 39.62
Other 5,300 2.14 7,000 2.88 1,700 32.08
Total 248,219 100.00 243,282 100.00 -4,935 -1.99
The table above shows the absolute value and the percentage weight of production by geographical area.
In line with the previous year, production grew in Europe, the driving force behind the Group’s production.
The value of production in the African market grew to the same levels as in 2016. In the Russian market,
production contracted compared to the value of production in 2017, which saw the construction of the
TCO field, maintaining the same levels as in 2016.
Unlike previous years, the value of the Group’s production was balanced across all the main geographical
areas, excluding the Middle East and the remaining areas where, even if growing, the level of production
did not reach significant values.
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
Group order book
The Renco Group’s Order Book, excluding the Assets Management division, amounts to 820.4 million
Euros, with a backlog of 576.1 million Euros.
BUSINESS UNIT JOB COUNTRY CLIENTCONTRACT
VALUE YEAR ENDTO BE
PRODUCED
INDUSTRIAL PLANTS
YEREVAN PLANT ARMENIA ARMPOWER 159.8 2021 158.7
TAP ITALIA ITALY TAP 71.3 2020 42
TAP ALBANIA (Renco share)
ALBANIARENCO TERNA JV
89.7 2020 24.5
ENI CASSIOPEA ITALY ENI 17.9 2021 17.8
TAP GRECIA (Renco share)
GREECE TAP 62.6 2020 15.8
SARIR LIBIA LIBYA EMI FRANCE 53.4 2019 10.1
NAFT DASLARI PP EXPANSION AZERBAIJAN
AZERBAIJANNAFT DASLAARI
5 2020 5
OTHERS 32.8 9.2
TOTAL INDUSTRIAL PLANTS 492.5 283.1
INFRASTRUCTURE
ACCADEMIA GDF ITALY CDP 20.3 2020 19.7
ARMENIAN CIVIL WORKS
ARMENIA ARMPOWER 15.2 2020 15.2
VILLA ALMATY KAZAKHSTAN PRIVATE 12.1 2020 10.8
BUILDING CEC SAIPEM CONGO
CONGO SAIPEM 6.2 2019 5.5
NH LOGISTICS HEADQUARTERS - MOZAMBIQUE
MOZAMBIQUE NH LOGISTICS 2 2020 2
OTHERS 10.3 10.3
GROUP BUILDINGS 63.6 63.6
TOTAL INFRASTRUCTURE 129.7 127.1
SERVICES
ENI CONGO PERSONNEL + PSV
CONGO ENI CONGO 78.1 2022 63.4
BAKER HUGES - GE WORLD GE 36.1 2021 35
OTHERS 42.1 37.6
TOTAL SERVICES 156.3 136
ASSETTCO CAMP MANAGEMENT
KAZAKHSTANTENGIZ-CHEVROIL
41.9 2023 29.9
MANAGEMENT
TOTAL ASSETS 41.9 29.9
GRAND TOTAL 820.4 576.1
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
OVERALL PERFORMANCE OF THE MAIN COMPANIES IN THE SCOPE OF CONSOLIDATION
Below is the performance of the main companies included in the scope of consolidation:
Renco Armestate LLC
Renco Armestate closed the year ended 31/12/2018 with revenues of 3.4 million Euros (5.2 million Euros
in 2017).
The activities of Renco Armestate were mostly concentrated in 2018 on the Jermuk mine for the Amulsar
Gold Project of the customer Lydian Armenia. In 2017 Renco Armestate had built a housing camp that
can accommodate up to 1,000 people, staff who will work in mining, and during 2018 additional activities
requested by the client were carried out.
Lastly, as mentioned last year, Renco Armestate was positively affected by the signing by Renco S.p.A.
of a Memorandum of Understanding with the Armenian government for the construction of a combined-
cycle power plant (about 250 MW) near Yerevan, with works beginning in 2019. This is a project worth
approx. 300 million dollars which for Renco Armestate can translate into contracts for civil and electro-
instrumental works worth over 70 million Euros in 25 months.
Armpower CJSC
In August 2016, the Group established Armpower based on the memorandum of understanding signed with
the Government of the Republic of Armenia. The company has the purpose of implementing the project
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
for the construction of a 250 MW gas-powered combined-cycle power plant near the city of Yerevan, the
capital of Armenia.
In April 2017, Armpower, Renco and the Government of the Republic of Armenia signed a framework
agreement to regulate the relations and commitments of the parties on the project and entrusted
Armpower with the financing, construction and management of the plant for twenty years. Renco S.p.A.
was assigned the role of project finance developer and EPC contractor for the construction of the plant.
The investment amounts to approx. 300 million dollars to be financed by (non-recourse) project financing
with a debt/equity ratio of approx.70:30.
In order to raise the financial resources necessary for the implementation of the investment, Armpower
appointed the International Finance Corporation (IFC), as the arranger bank and co-financier of the
operation.
In August 2017, Renco S.p.A. and Siemens Venture Capital Gmbh signed a collaboration agreement that
envisages the entry of Siemens as Armpower’s equity partner (with a 40% stake), technological partner for
the supply of turbines and operator and maintainer of the plant.
At the beginning of 2018, together with the government of Armenia the lending banks reviewed the
content of the Framework Agreement signed with the government in 2017 in order to bring it into line with
international standards for similar projects.
For negotiations with the banks the Armenian government involved the gas supplier Gazprom Armenia
and the company ENA, which is committed to purchase electricity.
The negotiations were successfully concluded in March 2018. The text of the Framework Agreement for
the construction of the plant negotiated between the Government of the Republic of Armenia and the
banks was approved by Renco, Siemens and Simest S.p.A. (CDP Group) and on 9 April 2018 the Board of
Directors of IFC (World Bank) approved the investment.
At the end of April 2018, pending the signing of the renegotiated Framework Agreement, Armenia
experienced a political crisis caused by a popular movement of peaceful protest that led to the fall of the
current government and the renewal of the country’s political class. The new government did not take
office with full powers until September 2018.
Following further negotiation of the Framework Agreement with the new government in office, the
Framework Agreement was then signed with the new government and all other parties involved on 13
November 2018.
Financial closure is expected by early 2019 and work on the site is expected to commence by March 2019.
Pursuant to contractual and statutory agreements with the shareholder Siemens Venture Capital Gmbh,
the company is subject to joint control and, as such, is not consolidated in the financial statements of
Renco Group S.p.A., but valued with the equity method.
Renco Power CJSC
Renco Power Cjsc was established by Renco S.p.A. in October 2017 (initial capital of 100,000 Dram
equivalent to USD 209.09).
The company was set up with the aim of financing the project company Armpower for the construction of
the Yerevan power plant, involving Simest S.p.A. (Cdp Group) as an institutional partner, on the basis of the
conditions set out in the investment contract signed between Renco and Simest S.p.A. on 27 December
2017.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
On 29 November 2018 Renco S.p.A. capitalised Renco Power for 196,200,000 Armenian Drams (equivalent
to € 353,843) and amended its Articles of Association on the basis of the text shared with its partner
Simest S.p.A..
On the same date, Renco Power Cjsc purchased a 60% interest in Armpower Cjsc from Renco S.p.A. at the
price of 196,260,000 Dram.
Renco Kat Ltd
The company has been present for nearly twenty years in Kazakhstan, located in all of the areas of greatest
economic interest in the country and established in the field of civil and industrial construction and the
provision of services.
In 2018, Renco Kat completed the construction of the Ablay Khan multifunctional complex in Almaty. The
contract was acquired in 2015 by the client Darin Ltd for a total value of 40 million Euros. The complex is
spread over 11 floors above ground and 3 floors underground for a total gross area of 51 thousand square
metres divided into two blocks. The first block is dedicated to a 4-star hotel affiliated with the Accor
brand, and occupies a total area of 8,287 square metres. The second block, dedicated to the executive and
commercial part, contains a shopping centre, apartments, executive offices, a sky restaurant on the top
floor and underground car parks on which the company will carry out fit-out work as the spaces are rented.
In the construction business, Renco Kat acquired a contract of 12.1 million Euros for the construction of a
villa in Almaty.
The company is also engaged in managing the 300-seat field for the customer Tengizchevroil (TCO) in
the Atyrau region. The contract was acquired in 2016 and in addition to the construction of the camp,
concluded in 2017, it also has the purpose of managing the same for a period of four years, for a value
equal to a further 37.2 million Euros of production that the company will implement during the course of
the four-year period 2018-2021. Revenues for the period relating to the management of the TCO camp
amounted to 6.1 million Euros.
Renco Kat ended the year at 31.12.2018 with a production value of 7.5 million Euros (16.5 million Euros in
2017).
Renco Property Ltd
Renco Property was founded in 2014 as a real estate spin-off of Renco Kat, and in October 2018 it merged
Renco Ak by incorporation, a company that owns the Presidential Plaza of Astana, a building of 24,000
square metres in the city centre used for management offices leased to prestigious customers like
multinational companies and international institutions.
In this manner the Group has decided to concentrate the entire Kazakhstan property stock in Renco
Property with a benefit in terms of costs and unified management.
The company closed 2018 with revenues of 16.5 million Euros (17.9 million Euros in 2017 on a like-for-like
basis) and a net profit of 7.6 million Euros (6.1 million Euros in 2017).
The decrease in the value of revenues is mainly due to the weakening of the local currency against the euro
compared to the previous year, while the increase in net profit is due not only to better management of the
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
cost structure but also to the positive contribution of the exchange rate effects, which this year recorded
a positive value of 2 million Euros (-0.2 million Euros in 2017 on a like-for-like basis).
Renco Mozambique Lda
This is the Mozambique real estate company of the Group. In 2010, the company was awarded the right
to build a tourist resort on a 32-hectare piece of seafront land in the Mecufi district, located in the north
of Mozambique. The area is an emerging tourist destination in international circuits, with very interesting
potential.
The Diamonds Mecufi Beach Resort has been fully operational from February 2016 and consists of 40
deluxe rooms and 10 suites. The resort is considered to be an absolute highlight in the country’s tourist
offering, as demonstrated by its affiliation with the prestigious Small Luxury Hotel of the World during
2016. This affiliation represents a strategic change from a commercial point of view, and will ensure access
to international circuits for the luxury segment in future years.
The facility was further enhanced in 2016 with a horse riding facility, with seven horses available to guests,
and a yoga corner for meditation.
During 2017 the company completed the investment related to the Bay Palace Apart Hotel, a structure
consisting of 12 luxury apartments, built and furnished with European standards. The property is located
on a plot of 10,000 sqm, and enjoys the use of the beach in front of it, overlooking the bay of Pemba, the
third largest bay in the world.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
In order to increase its presence in the North of the country, Renco Mozambique has also acquired
the right to use and exploit a 3-hectare plot of land, in the centre of Palma, near the Afungi Peninsula,
where the industrial activities in the Oil&Gas sector will be implemented. Based on a consolidated
knowledge of the local market, the company’s development plan provides for an additional real estate
investment on this lot, aimed at serving the future demand for logistics services with international
standards by all operators in the Oil&Gas sector.
Rencotek Lda
This is the Mozambican portfolio company established in 2013, wholly owned by Renco S.p.A. and to
which all civil engineering and industrial plants in Mozambique are being handled.
Rencotek has in fact contracted the works for the construction and subsequent improvements of the
Diamonds Mecufi Beach Resort as well as the works for the construction of the Bay Palace Apart Hotel.
The company has also built a 3,100 sqm multifunctional building, located in the city of Pemba in a
strategic position, about 1.5 km away from the city’s International Airport. The building, which consists
of 3 floors and offers offices, residential areas and the canteen service, in compliance with the highest
international standards of quality and safety, was created to support Rencotek Lda’s activities as well
as to be rented to third parties. During 2018, the company started the fit-out activities of the part of
the building destined to accommodate qualified third-party companies of high standing that will rent
offices during 2019, including the National Institute of Petroleum (INP), regulatory body in the oil and
gas sector, and Mozambique Rovuma Venture, a subsidiary of Eni Rovuma Basin Mozambique Branch,
confirming the excellent competitive position of Rencotek Lda, considered a reliable partner for both
foreign companies and local authorities of strategic importance.
Rencotek has also acquired the right to use and develop an area of 1 hectare, located in the industrial
area of Pemba, Muaria district, where in the near future further investments will be possible, to service
the gas extraction logistics activities in the Rovuma basin.
Following confirmation of the launch of the ENI Coral project, and with the entry of EXXON Mobil as
an operator in Area 4, an important increase in the demand for logistics services is expected in the
course of 2019, both to host expatriate and local staff as well as for storage and handling, by numerous
international and local companies operating in the energy sector.
Renco IREM Construções Lda
This is a Mozambican company that was formed in partnership with a local partner. Initially, Renco
S.p.A. owned 62.5% of the company, which was partly sold in 2018 to IREM S.p.A. (for 31.25%). As a
result, Renco S.p.A. held 31.25% at 31 December 2018 and it is not included in the consolidation.
Renco IREM Construçoes Lda operates in civil construction; the partnership between the Renco Group,
IREM and its local partner brings significant strategic expertise to the company in order to acquire and
develop new projects.
During 2017, Renco IREM Construcoes Lda acquired the contract for the maintenance of the ENI offices
and Hangars in Pemba, a two-year contract, renewable for a further year.
In addition, the company acquired from ENI the contract for the construction of civil works at the
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
Paquitequete school in Pemba, demonstrating the technical skills and deep knowledge of the local
market and context, acknowledged by a customer of global importance.
In light of the growing ferment in the Oil&Gas sector, Renco IREM Construcoes Lda acquired the right
to use and exploit a plot of land of approx. 12.5 hectares, strategically located in the industrial area of
Palma, just 18 km from the Afungi Peninsula, where the industrial activities of the Oil&Gas sector will
be developed. The company has already carried out preliminary activities on this plot, instrumental to
the future development of an industrial base and highly specialised mechanical workshops.
Renco Energia Lda
This is the Mozambican holding company, established in partnership with a local partner and 62.5%
owned by Renco S.p.A.. The partnership with the local partner brings significant strategic competences
to the company, aimed at acquiring and developing new projects. The company’s business purpose is
the performance of industrial plant activities related to Oil & Gas, as well as other activities within the
energy sector. In this regard, Renco Energia Lda’s activity is synergistic and complementary to that
of Renco Irem Construçoes Lda, and is therefore intended to provide the Group with all of the tools
needed to achieve leadership in the market for the provision of services related to development in
Northern Mozambique.
In 2018, following intense commercial activity over the years, Renco Energia Lda signed a contract
with the ENH Group (Empresa Nacional de Hidrocarbonetos), a Mozambican state-owned company,
to develop a detailed master plan for “City Gas”, which will be built on the Afungi peninsula, near the
plants for the liquefaction of gas from fields off the coast of Mozambique.
On an area of about 18,000 hectares the Mozambican government plans to build a city with residential
areas, business districts, industrial areas and all the infrastructure necessary for a settlement that –
according to government estimates – will exceed 200,000 inhabitants in a few years. As part of this
project, the company will have to prepare the master plan for the area, identifying the ways in which
the project will be implemented (public, private and public-private investments are planned) and
assisting ENH in identifying the funding and implementing parties of the works that will be carried out.
Renco Energia Lda closed the year on 31.12.2018 with a value of production of 394 thousand Euros and
a net result of 164 thousand Euros.
Renco S.p.A.
Renco S.p.A. is the main company in the Group to which the foreign-owned companies directly refer.
Renco S.p.A. closed 2018 with a value of production of 136.7 million Euros (145.5 million Euros in 2017)
and with a net profit of 15.8 million Euros (1.7 million Euros in 2017).
The change in net income compared to the previous year was positively impacted by the capital gain
of 19 million Euros recorded following the sale of the company owning the Hotel Yerevan, offset by the
higher provisions made during the period for the order warranty provision of 1.3 million Euros and for
the bad debt provision of 1.4 million Euros.
The main acquisitions made in 2018 are listed below:
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
award of a contract in joint venture with the Italian CMB worth 20.3 million Euros (Renco’s share) for the
construction of the new Guardia di Finanza Academy located in Bergamo. The work will be completed
in 2020.
award in Italy of a contract in joint venture with Solar worth 17.9 million Euros (Renco’s share) for the
construction of a gas compression system to be built in Italy on the Cassiopeia offshore platform of the
ENI group. The engineering phase is scheduled to begin in early 2019 and work will be completed in
2021.
award in Congo (Brazzaville) of a contract worth € 5.5 million for the construction of three different
process buildings for Centrale Electrique du Congo. The works were commissioned by Boscongo SA, a
subsidiary of Saipem S.p.A., and will be completed in 2019.
award in Congo (Brazzaville) of a contract worth 4 million Euros for the revamping of the rescue
system on the offshore platforms of the company ENI Congo. The works will be completed in 2019.
The Mozambican Government foresees the
realization, on a territory of approximately
200km2 a City with residential areas, business
headquarters/district, industrial areas, as well
as all of the necessary infrastructures for a
settlement that – according to the government
estimates – will exceed 200.000 inhabitants
within a few years.
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
FINANCIAL ASPECTS OF OPERATIONS
The table below shows the net financial position.
DESCRIPTION 31.12.2018 31.12.2017 CHANGE
a) Short-term assets
Bank deposits 72,194 91,009 (18,815)
Cash and equivalents on hand 283 351 (68)
Shares and bonds not classified as fixed assets 52 136 (84)
Financial receivables within 12 months 1,758 3,187 (1,429)
Other short-term assets
CASH AND CASH EQUIVALENTS AND SECURITIES IN CURRENT ASSETS
74,287 94,683 (20,396)
b) Short-term liabilities
Bonds and convertible bonds (within 12 months)
Payables due to banks (within 12 months) 44,101 30,788 13,313
Payables due to other lenders (within 12 months) 60 50 10
Other short-term liabilities
SHORT-TERM FINANCIAL PAYABLES 44,161 30,838 13,323
NET SHORT-TERM FINANCIAL POSITION 30,126 63,845 (33,719)
c) medium / long-term assets
Financial receivables beyond 12 months: 20,739 13,490 7,249
Other non-trade receivables 5,080 4,850 230
TOTAL MEDIUM/LONG-TERM ASSETS 25,819 18,340 7,479
d) Medium/long-term liabilities
Bonds and convertible bonds (within 12 months) 44,368 44,214 154
Payables due to banks (within 12 months) 49,569 61,999 (12,430)
Due to other lenders (beyond 12 months) 1,605 1,430 175
Other medium/long-term liabilities
TOTAL MEDIUM/LONG-TERM LIABILITIES 95,542 107,643 (12,101)
NET MEDIUM/LONG-TERM FINANCIAL POSITION (69,723) (89,303) 19,580
NET FINANCIAL POSITION (39,597) (25,458) (14,139)
With regard to the trend of the Group’s cash flows, reference should be made to the Cash Flow Statement
and the Notes to the Financial Statements.
The net financial position recorded a result of -39.6 million Euros (compared to -35.5 million Euros in 2017).
The cash and cash equivalents as of 31.12.2018 amounted to 74.3 thousand Euros (94.7 thousand Euros in
2017).
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
The decrease in the net financial position is due to lower cash flows compared to 2017, mainly as a result
of the reduction in trade payables and the increase in trade receivables, which increased due to the sale of
the subsidiary Hotel Yerevan.
On the other hand, the following table provides a reclassification of the Balance Sheet based on the uses
and sources of liquidity.
USES 31.12.2018 31.12.12017
Immediate liquidities 72,478 91,360
Deferred liquidity 98,846 61,984
Stock availability (net of advances received) (9,822) 18,894
Total current assets 161,502 172,238
Intangible fixed assets 3,627 3,355
Tangible fixed assets 213,590 208,246
Financial fixed assets 40,585 37,972
Total fixed assets 257,802 249,573
TOTAL USES 419,304 421,811
SOURCES 31.12.2018 31.12.12017
Current liabilities 136,833 140,255
Consolidated liabilities 121,827 129,144
Total minority capital 258,660 269,399
Share capital 9,013 9,013
Reserves and profits (losses) carried forward 145,530 141,894
Profit (loss) for the year 6,101 1,505
Total own capital 160,644 152,412
TOTAL SOURCES 419,304 421,811
Fixed assets
Intangible, tangible and financial fixed assets amounted to 257.8 million Euros.
Shareholders’ equity
2018 closed with a Shareholders’ Equity of 160.6 million Euros.
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
ALTERNATIVE PERFORMANCE INDICATORS
Renco’s management assesses the performance of the Group and its business segments based on certain
indicators that are not included in the OIC accounting principles. In particular, EBITDA is used as the main
indicator of profitability, as it enables the analysis of the Group’s margins, eliminating the effects deriving
from volatility originating from non-recurring items or items unrelated to ordinary operations.
The components of each of these indicators are described below:
Order book: this is the sum of the backlog from the previous period and the orders taken.
EBITDA or Gross Operating Margin: this is given by Production Value - Production Costs + depreciation,
write-downs, provisions and taxes on foreign income not recoverable and not deductible for tax purposes
(therefore reclassified from the item “Other operating costs” to the item “Income taxes”).
The EBITDA is then used in the calculation of the ROI (Return on Investment) and the ICS (Interest
Coverage Ratio).
Net Financial Position: expresses the ability to meet financial obligations, represented by gross financial
debt less cash and cash equivalents and other financial assets.
In accordance with the provisions of art. 2428 par.2 of the Italian Civil Code, the main financial and non-
financial indicators are highlighted.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
STRUCTURAL RATIOS MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Secondary structural ratio
The ratio measures the ability of the corporate financial structure to cover long-term uses with long-term sources.
1.26 1.10 Permanent capital fully finances fixed assets and partly current assets. The Company is in the condition for further development of investments.
Shareholders’ equity + Consolidated liabilities---------------------------Fixed assets of the year
EQUITY AND FINANCIAL RATIOS MEANING
PREVIOUS YEAR
CURRENT YEAR COMMENT
Total debt ratio
Expresses the degree of equilibrium of financial sources.
1.77 1.61The Company has a situation of balance between equity and third party resources.
Minority interest means------------------------Shareholders’ Equity
LIQUIDITY RATIO MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Availability ratio The ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term and the sale of inventory.
1.42 1.18
The ability to meet short-term commitments is highlighted.
Current assets------------------------Current liabilities
Treasury ratioThe ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term.
1.09 1.25
The Company has a situation of financial equilibrium.
Imm. Liq. + Def. Liq.------------------------Current liabilities
PROFITABILITY RATIOS MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Return on investments (R.O.I.) The ratio provides a measurement in
% of the viability of current normal operations and of the self-financing capacity of the company regardless of the financial structure choices.
5.48 6.01
The profitability ratios show an improvement in the company’s profitability compared to the previous year
EBITDA------------------------Capital invested in yr.
Return on Equity (R.O.E.)The ratio provides a measurement in % of the overall viability of company operations and of the ability to remunerate equity.
0.67 3.80
Period result------------------------Shareholders’ Equity
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
FINANCIAL EQUILIBRIUM RATIOS MEANING
PREVIOUS YEAR
CURRENT YEAR COMMENT
Debt/Equity
The ratio measures the degree of equilibrium between third-party resources and equity.
0.2 0.2
The Company has a situation of equilibrium.
Net financial position------------------------Shareholders’ Equity
NFP/EBITDA The ratio expresses in how many years it would theoretically be able to repay financial debts if it used all of its operating cash flow for this purpose.
0.8 1.02
The Company has a situation of equilibrium.Net financial position
------------------------EBITDA
Interest Coverage Ratio (ICS) The ratio measures the degree of
coverage that the operating profit can provide to the cost of financial charges.
7.2 7.0
The Company has a good situation.EBITDA
------------------------Financial charges
INFORMATION CONCERNING THE ENVIRONMENT
The commitment on the issues of corporate social responsibility and of the territory is now an integral
part of the Group’s principles and conduct, oriented towards technological excellence, maintenance of
high levels of safety, environmental protection and energy efficiency, as well as training, awareness and
involvement of personnel on corporate social responsibility issues.
The Group has always operated in the markets in which it operates, with particular attention to the problems
of pollution and environmental damage. During the year, no damage was caused to the environment for
which Group companies were declared definitively guilty.
Environmental litigation
The Group currently has no civil or criminal litigation with third parties for damage caused to the
environment or environmental crimes.
The Group obtained ISO 14001 certification on 22/12/2000.
During the audit carried out in July 2018 by the certifying body, the Group’s certification for the ISO
14001:2015 standard was renewed, which is now valid until 18 December 2021.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
INFORMATION ON PERSONNEL
Safety
The Group operates in all its environments in compliance with the provisions of Italian Legislative Decree
81/08 for the safety of workers.
The Group obtained OHSAS 18001 certification on 19/12/2003.
During the audit carried out in July 2018 by the certifying body, the Group’s certification for the OHSAS
18001:2007 standard was renewed, which is now valid until 11/03/2021.
The activity carried out in this field includes:
training of employees and collaborators;
periodic medical examinations;
organisation and training of intervention teams provided for by the standard;
continuous company monitoring of the HSM;
preparation and dissemination of the documents of Legislative Decree 81/08.
Coordination and supervision of compliance with Health and Safety requirements in construction site
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
In particular, during the year the following initiatives were undertaken:
20 different health and safety training courses were held and a total of 265 employees were trained.
The main courses held are shown below
- 12-hour firefighting course
- 16-hour first aid course
- RLS course for new appointed representatives
- Worker training according to the State-Regions Agreement of 21/12/2001
- Training of managers and supervisors
- Specific courses for construction site risks (Work, Height, Confined spaces, Personal protection
equipment, etc.)
The courses were provided both in classrooms and using e-learning systems, adopting the different
methods envisaged by the regulations
The group has implemented a supplier qualification system based on the monitoring of technical,
administrative and financial aspects as related to Quality, Health, Safety and the Environment using the
Qualiware information system. This system has been associated with a process of assigning Ratings to
monitor the performance of these suppliers.
A dedicated procedure has been put in place to determine the inputs and outputs, objectives and
interfaces of the different business processes.
A RACI (Responsible, Accountable, Consulted and Informed) Responsibility Matrix has been established
to define responsibilities among the QAHSE, Engineering, Procurement, Test Inspection and Expediting
offices.
The figure of the Company Physician as Coordinating Physician has been introduced in the group. The
purpose of this position is to coordinate the health monitoring of workers working in foreign offices,
ensuring greater health protection
Following the annual safety meeting, visits to working environments in construction sites were added.
Injuries
During the year, there were:
no injuries to Renco S.p.A. personnel;
6 commuting accidents;
no ascertained occupational diseases;
no deaths.
Litigation
For disputes pending at 31/12/2018, entrusted to our lawyers, the Group believes that these will not have
significant consequences from the point of view of potential liabilities beyond the provisions indicated in
the paragraph “Provisions for risks and charges” of the Explanatory Notes.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Information on Group personnel
With reference to employees directly employed by Renco S.p.A., with the exclusion of its branches, the
following information is provided:
434 employees were in the workforce at the end of the financial year, including 357 men and 77 women,
256 with open-ended contracts of whom 201 men and 55 women and 178 men and 22 women with
fixed-term contracts;
average length of service is 5.88 years;
388 days of training were carried out during the year;
122 employees, collaborators and interns were hired, and 98 people terminated the employment
relationship, with an increase of 24 units.
DESCRIPTION OF THE MAIN RISKS AND UNCERTAINTIES TO WHICH THE GROUP IS EXPOSED
In carrying out its activities, the Group is exposed to risks and uncertainties deriving from external factors
related to the general or specific macroeconomic context of the operating sectors in which it operates, as
well as to the risks deriving from strategic choices and to internal operating risks.
The identification and mitigation of these risks has been systematically carried out, allowing for timely
monitoring and management of the risks occurring.
With reference to risk management, the Group has a centralised risk management function, while
delegating identification, monitoring and mitigation of the same to the functional level, also in order to
better measure the impact of each risk on business continuity, reducing the occurrence and/or limiting the
impact according to the causal factor (controllable or otherwise by the Company).
In the context of business risks, the main risks identified, monitored and managed by the company are the
following:
risks depending on exogenous variables;
risk linked to competitiveness;
risks related to demand/macroeconomic cycle;
risk linked to financial management;
risks associated with the activation of partnerships.
Risks depending on exogenous variables
The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation
of foreign currency exchange rates with which the Group operates, especially as regards the Kazakh
Tenge, Armenian Dram, Rouble and USD. Currency risk derives from future business transactions, assets
and liabilities recorded in the financial statements. The management policy stipulates that the Group will
manage its exposure to currency risk by sometimes hedging its net foreign currency position. The approach
is to cover the expected cash flows in the main currency of the Group’s operations, in Euro.
The Group is exposed to Country risk by operating in “emerging” markets and countries; the continuous
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
monitoring of local situations of reference and the continuous presence of managerial staff trained in Renco
S.p.A. allows constant monitoring of the situation. In any case, the exposure to this risk can be defined as
limited because it in any case refers to countries in a condition of sufficient political stability since many
years and whose ratings have recorded constant improvements over the years. This diversification of
markets in which the Group operates represents a precise strategy to limit risk.
Risk linked to competitiveness
The Group operates on open, unregulated markets, not protected by any tariff barriers, administered
regimes or public concessions, excluding the photovoltaic business partially linked to the existence of
incentive policies promoted by local governments. The markets are highly competitive in terms of product
and service quality, innovation, price competitiveness, reliability and customer service.
On certain markets and services, the Group is faced with very fierce competitors, some of which are large
operators and may have superior resources or cost positions, both due to economies of scale and to more
competitive factor costs, allowing them to be able to implement very aggressive pricing policies.
The success of the Group’s activities will depend on its ability to focus its efforts on specific industrial
sectors, focusing on the solution of technological problems and on customer service, so as to provide a
higher value to the customer in the market niches in which it competes.
Risks related to the evolution of the general economic scenario
The performance of the sector in which the Group operates is related to the general economic situation
and therefore any negative economic or recession periods may result in a consequent reduction in the
demand for the products and services provided.
The Group operates through its subsidiary companies in many international markets, such as in particular
Africa, the Middle East, CIS countries as well as in European countries; this widespread geographical
presence allows the Group as a whole to mitigate the effects of the recession, which has mainly affected
the countries of the Eurozone and Italy. Diversification of the markets in which the Group operates and of
the products and services that the Group offers mitigates and decreases its exposure to cyclical trends in
certain markets; nevertheless, it is not possible to exclude that these cyclical trends may have a significant
impact on the business and economic and financial situation of the Group.
Risk linked to financial management
The Group has a financial situation characterised by the presence of a controlled current financial
indebtedness, in line with the growth in the volume of activity produced. This determines the presence of
a positive net working capital without any sign of financial difficulties.
In exercising its activity, the Group is exposed to various financial or similar risks (liquidity, exchange rate,
interest and credit).
Regarding the information required by art. 2428 of the Italian Civil Code par. 3 point 6 bis, the following is
specified.
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MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Liquidity risk
As of 31 December 2018, the Group had total bank credit facilities granted for approximately 210.9 million
Euros (192.8 million Euros in 2017), of which 66.9 million Euros in the short term (60.9 million Euros in 2017)
and 144 million Euros in the medium and long term (131.9 million Euros in 2017), and pursues a policy of
careful management of liquidity risk.
At the Group level, the correct and timely planning of short-term cash flows guarantees the ability to meet
future financial commitments, through the availability of funds generated by current assets and through
the use of an adequate amount of committed credit lines.
The bank credit facilities currently granted to the Group and the cash and cash equivalents and liquidity
generated by ordinary activities are therefore deemed to be adequate and such as to be able to meet
obligations in a timely manner on the due dates.
Liquidity is managed by the company through the use of short-term or easily disposable assets.
Exchange rate risk
The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation of
foreign currency exchange rates with which the Group operates, especially as regards the Kazakh Tenge,
Armenian Dram, Ruble and USD. The policy adopted by the Group is based on a correct assessment of
foreign exchange risks, deriving from future commercial and financial transactions in currencies other than
the Euro, and is aimed at stabilizing the flows expected in Euros through the use of derivative instruments
and forward contracts. To this end, USD/Euro exchange rate option contracts have been stipulated to
hedge future cash flows relating to the payment of capital for the Power Plant Armenia project, capital
that will be paid in USD. These contracts in 2018 allowed stabilisation of the USD exchange rate, bringing
a financial benefit of approx. 307 thousand Euros.
On the basis of the financial statements for the year ended on 31 December 2018, the Group recorded
losses on exchange rates for a total of 2.3 million Euros.
These consist mainly of unrealised exchange rate losses resulting from the conversion of intercompany
trade receivables or payables denominated in foreign currency (transaction risk).
Finally, the Group, through its currency current accounts, hedges against the risk of fluctuations in exchange
rates with certain foreign currencies with a natural hedging approach.
Credit risk
The Group’s credit risk is mainly attributable to the amount of trade receivables from its customers, which
mainly include large oil companies, international operators and institutions.
The credit management functions establish the quality of the customer, considering its financial position,
past experience and other factors. In any case, the high standing of the commercial counterparties with
which Renco operates determines a credit risk for customer exposure of limited amount.
Provisions for credit depreciation by Group companies accurately reflect the actual risk on receivables
through the targeted quantification of the provision.
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Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
As a result of the current economic situation, the Group has improved its risk on receivables control
through the strengthening of monitoring and reporting procedures, in order to promptly identify potential
countermeasures in the event of identified causes. In order to control the risk on receivables, methods for
monitoring and controlling the former have been defined along with the definition of strategies to reduce
credit exposure, among which is a solvency analysis of customers being acquired and the management of
legal disputes of receivables for services rendered.
Interest rate risk
The interest rate risk refers to the potential effects on the income statement that may result from any
fluctuations in interest rates on Group loans.
The amount of debt of the company at variable rates not hedged by the interest rate risk represents the
main risk element for the negative impact resulting from an increase in market interest rates. The interest
rate risk to which the company is exposed mainly derives from medium/long-term financial payables.
The Renco Group’s policy to manage this risk aims to achieve a properly balanced debt structure in order
to, on the one hand, reduce the amount of financial debt subject to variable rates and, on the other, at the
same time limit the cost of the loan.
With regard to medium and long-term loans, the company has Interest Rate Swaps and Interest Rate Caps
in place at 31 December 2018 with financial counterparties of primary standing for a total of 46.4 million
Euros of notional amount. Such derivative instruments allow for coverage of the risk of increased interest
rates by transforming variable rates into fixed rates.
32
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
At 31 December 2018, at Group level, 71.6% of medium/long-term gross debt with third parties was at a
fixed rate (81% in 2017), while 28.4% at a variable rate (19% in 2017).
Risks associated with the activation of partnerships.
The increasing complexity of the works implemented and/or conditions of opportunities for sharing risks
make recourse to models for the management of certain investments and projects in partnership with
other operators in the sector in question increasingly frequent. This approach facilitates entry into new
countries and/or sectors but, at the same time, determines potential risks and complexities related to
cultural and organisational integration with partners which, in the worst case scenario, could even lead to a
discrepancy between the vision of the Group and that of the partnership. There are also further problems
related to the exposure to the economic-financial situations of the partners. The management of this type
of risk is guaranteed through an effective assignment of roles and responsibilities within the individual
strategic initiatives, as well as a correct application of the process of defining and subsequently managing
contracts and any shareholders’ agreements.
NOTICE AS PER ART. 2428 NO. 6 BIS
The Group has no investments in significant financial assets.
COMPANY OBJECTIVES AND POLICIES CONCERNING FINANCIAL RISK MANAGEMENT
The Group pursues the objective of containing financial risks also through hedging transactions with
derivatives and by means of a control system managed by the Administrative Department.
The corporate policy for hedging financial risks consists of hedging exchange risks on purchases and
sales through the stipulation of derivative financial instruments without speculative purposes; of hedging
credit risks through the periodic verification of the reliability of customers and insurance programs for
guaranteeing trade receivables.
This includes the stipulation by Group companies of insurance policies with SACE to protect the loans
disbursed (and to be disbursed) to Mozambican subsidiary companies.
With reference to debt towards the banking system, fluctuations in interest rates affect the market value
of the Group’s financial assets and liabilities and net financial charges. The Group’s policy is to seek to
maintain a ratio between fixed and variable rate exposure such as to minimise the risk deriving from the
fluctuation in interest rates without renouncing to exploit the particularly favourable economic situation
in terms of low interest rates. In order to maintain this balance, the Group has entered into derivative
contracts, typically interest rate swaps and interest rate caps.
33
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
COMPANY RISK EXPOSURE
Price risk
Since the Group’s production processes are mainly linked to high value-added services, engineering and
assembly activities, exposure to energy price fluctuations is very limited.
The Group is exposed to changes in the price of basic raw materials (such as oil, minerals, etc.) to an
insignificant extent, given that the product cost component linked to these materials is very limited.
Credit risk
Credit risk derives from cash and cash equivalents, derivative financial instruments and deposits with banks
and financial institutions, as well as from customer exposure, which includes outstanding receivables and
planned transactions. Precise policies have been put in place in order to limit the extent of credit exposure
to any bank. Please refer to that stated previously for a detailed description of credit risk management.
34
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Liquidity risk
The Group’s policy is to carefully manage its treasury, through the implementation of income and expense
planning tools. The Group expects to maintain an adequate capacity to meet the financial resources
required for planned investments and to manage operations. Credit lines and cash and cash equivalents
are adequate with respect to the Company’s operations and growth forecasts.
Please refer to that stated previously for a detailed description of credit risk management.
RESEARCH AND DEVELOPMENT ACTIVITIES
During 2018 there was a significant development of IT activities following the implementation of Oracle
JDEdwards in smaller Italian companies (Renco Capital, Joint Green, Renco Health Care, Renco Real Estate,
Arengest and Italsec) and in the foreign subsidiary companies of Armenia (Renco Armestate, Piazza
Grande, Italsec Armenia, Armenia Gestioni, Nuovo Velodromo and Armpower) and Kazakhstan (Renco
Property and Renco Kat), which went live on 1 January 2019. The adoption of the Oracle management
system will continue in 2019 for the Mozambican companies and this will mean that the main companies
of the Group will have a single, uniform system, with consequent improvements in terms of timeliness and
accuracy in data analysis and reporting.
At the same time, interfaces were developed between the management suites of the owned hotels in
Kazakhstan (3 hotels) and Italy (1 hotel) and Oracle JDE to allow the automation of invoicing and
management of food & beverage stocks.
The research project, in collaboration between the Company and Alma Mater Studiorum - University of
Bologna continues with the identification of innovative membrane processes for the separation of acid
compounds from natural gas. Further results of the research activities carried out have been published
in scientific journals of international importance and the experimental test facility was developed for
hydrogen sulphide tests.
Finally, during the year Renco S.p.A. achieved GDPR compliance and ISO/IEC 27001:2013 certification on
information system security, reaching an international standard of excellence.
At the end of the year the company also renewed the company’s data centre, equipping itself with
technologically advanced equipment based on Netapp hyperconvergence and Cisco solutions that
guarantee the company’s IT performance over the next five years.
TRANSACTIONS WITH SUBSIDIARY, ASSOCIATED, PARENT AND PARTNER COMPANIES
With regard to transactions with related parties and in particular the transactions with associated and
partner companies, please refer to the detailed table included in the specific paragraph of the Explanatory
Notes.
Transactions with associated and partner companies, which do not include any atypical and/or unusual
operations, are regulated at normal market conditions.
35
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
TREASURY SHARES AND SHARES/STOCKS IN PARENT COMPANIES
In compliance with points 3) and 4), par. 2, art. 2428 of the Italian Civil Code, we provide an appropriate
summary table of the data relating to treasury shares held by the parent company Renco Group S.p.A.,
highlighting the changes during the year and we inform that the Company did not hold any shares or
stocks of parent companies during the year.
DESCRIPTION
NO. OF SHARES HELD AT THE BEGINNING OF
THE YEAR
NO. OF NEW SHARES SOLD/CANCELLED DU-
RING THE YEAR
NO. OF NEW SHARES SUBSCRIBED DURING
THE YEAR
NOMINAL VALUE OF NEW SHARES SUBSCRI-BED DURING THE YEAR
SHARES:
- treasury shares 36,050
Total 36,050
With reference to treasury shares recognised as a reduction in equity, it should be noted that these were
purchased in part in 2010 and in part in 2012. As of 31.12.2018 the Parent Company held 36.050 shares equal
to a nominal 360,500 representing 4% of its share capital; the percentage share held respects the legal
constraints set forth by articles 2357 and 2357-bis of the Code.
FORESEEABLE BUSINESS OUTLOOK
In 2018 the Renco Group consolidated its growth in value of production, reaching production of 243 million
Euros compared to 248 million Euros in 2017 and 187 million Euros in 2016.
The Group’s margin is also an important element of the financial year. With regard to the value of production
from third parties, EBITDA rose from 14% in 2017 to 17% in 2018, confirming the Group’s ability to generate
a significant margin.
The growth in margins is linked to commercial, industrial and organisational choices that the group has
made in recent years. First of all, the decision to participate only in tenders that by geographical area, type
of activity and technology required allow the group to be competitive in a manner that is not exclusively
attributable to the lowest price. A further action aimed at improving margins involves a commercial
commitment to acquire O&M contracts (Operation and Maintenance). From an internal point of view,
the process of strengthening the company’s management team, especially with respect to its technical
structure, has enabled us to tackle highly complex orders with greater capacity than in the past.
Margin growth was also supported by the establishment of the PMO (Project Management Office)
organisational unit, the decision to equip all the Group’s operating companies with a powerful ERP (ORACLE
JDE), but also by the strategic choices made in recent years aimed at fuelling the growth of the Asset
Management division through major investments and that of the other divisions (Services, Infrastructures
and Industrial Plants), through a focus on niche markets with higher margins.
36
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
As planned, in 2018 production growth continued for the Services and Asset Management divisions, which,
thanks to their recurring business, contribute to stabilising the economic and cash volumes of the other
divisions, which by their nature are more subject to changes in the Oil&Gas market and to the risks typical
of the order execution phase.
The decrease in the value of production of the Infrastructure division, which amounted to 36 million
Euros compared to 70.6 million Euros in 2017, is due to the completion of the important contract for the
construction of the TCO field, commenced and completed in 2017, and should be read in the light of the
Group’s strategy that sees an increasing selection of orders and markets to operate in.
The Group’s excellent result in the 2018 financial year acquires even greater value in the light of certain
exogenous elements that occurred during the same financial year. Due to the complex Italian political
situation, the delay in the launch of the TAP Italia project increased in 2018, contributing less to the value
of production than planned. In Armenia, again for political reasons, the Velvet Revolution that took place
in the spring of 2018 led to the postponement of the Yerevan power plant project, with the consequent
postponement of the value of production planned for 2018 to subsequent years and an increase in the
project development costs.
These factors, while negatively affecting the 2018 financial year, contributed to increasing the Group’s
portfolio, which boasts a total volume of work acquired and still to be produced of 576.1 million Euros,
to which should be added the annual turnover of the Asset Management division estimated at 59 million
Euros for the 2019 financial year. The size of the order book and its quality in terms of expected margins
guarantee the Group’s growth and sustainability in the coming years.
37
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018
Mozambique will play a particularly important role in the Group’s future development. Indeed, our company
has been present in the country since 2010. In Mozambique, Renco has made important investments like
the Mecufi resort and the Pemba office building, now leased to important companies like Anadarko, Eni
and the National Hydrocarbons Agency of Mozambique. As is well known, there will be huge investments
in this country linked to the exploitation of gas deposits and the construction of liquefaction plants.
Renco’s presence in the country and the establishment of a number of local companies in possession of all
the necessary licences represent an undoubted competitive advantage for the near future.
Renco’s presence in the country was recognised by the National Hydrocarbons Authority, which awarded
it the assignment to prepare the City Gas master plan. City gas will be the city hosting the staff, services
and industrial activities supporting the gas liquefaction facilities.
Investment in real estate assets designed to increase the Group’s current assets, which include more than
280,000 m2 of owned structures, remains one of the elements characterising the growth strategy for 2018.
Investments made in 2018 amounted to 20 million Euros. The budget of the investments planned for the
following years boasts a portfolio of initiatives amounting to 63.6 million Euros (of which 9.8 million Euros
planned for the year 2019, in addition to the project of the power plant in Armenia under implementation).
From a financial point of view, despite the important investment plan carried out during the year, the
Group closed with an NFP of 39.6 million Euros and maintained the financial performance indicators at
the excellent levels of 2017, corroborating the expertise gained in previous years in the management of
internal processes that impact the cash flow of the core business.
The ever-increasing organisational complexity of the Group due to the simultaneous operations in several
countries with all its divisions has led to the emergence of the need to start a process of corporate
reorganisation in 2018, aimed at rationalising and simplifying the Group’s corporate structure. The objective
is to group together the companies that hold and manage real estate assets in a single vehicle under the
direct control and coordination of the holding company Renco Group S.p.A., separating them from Renco
S.p.A..
This new organisational structure, which will separate the industrial branch of the company from the
branch that owns and manages the properties, will provide the group with greater transparency and clarity
towards the outside, making the group’s financial structure more efficient and laying the foundations for
attracting new capital.
ACTIVITIES PURSUANT TO LEGISLATIVE DECREE 231/01
In 2018, the Supervisory Body monitored the updating of the adopted Model, proceeding with constant
verification of the company’s activities and ascertaining the absence of any violations of and compliance
with the Organisational Model adopted by the subsidiary Renco S.p.A..
Pesaro, Italy, 20 April 2019
On behalf of the Board of Directors
The Chairman
Giovanni Gasparini
FINANCIAL STATEMENT
40
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018 ⏐ Renco Group Spa
CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018(Balances in thousands of Euros)
BALANCE SHEET ASSETS 31/12/2018 31/12/2017
A) Receivables due from shareholders for payments still due
I) Receivables due from shareholders for payments still due - -
II) (of which already called) - -
B) Fixed assets
I) Intangible fixed assets
1) Start-up and expansion costs 9 46
2) Development costs - -
3) Industrial patents and intellectual property rights 2,063 2,365
4) Concessions, licences, trademarks and similar rights 78 49
5) Goodwill - -
6) Assets under construction and advances 767 -
7) Other 710 896
3,627 3,355
II) Tangible fixed assets
1) Land and buildings 183,629 153,420
2) Plants and machinery 2,667 2,484
3) Industrial and commercial equipment 5,928 6,751
4) Other assets 5,022 6,428
5) Assets under construction and advances 16,344 39,163
213,590 208,246
III) Financial fixed assets
1) Equity investments in:
a) Subsidiary companies 1,596 65
b) Associated companies 1,341 1,305
d bis) Other companies 53 23
2,989 1,393
2) Receivables
a) Due from subsidiary companies 4,882 3,187
1) Due within 12 months 4,882 3,187
b) Due from associated companies 21,306 13,490
1) Due within 12 months 567 -
2) Beyond 12 months 20,739 13,490
c) from parent companies - -
d) from companies subject to the control of parent companies - -
d-bis) from others 1,591 1,068
1) Due within 12 months 381 37
2) Beyond 12 months 1,210 1,031
27,780 17,744
3) Other securities - -
4) Derivative financial asset instruments 814 70
31,583 19,207
Total fixed assets 248,800 204,227
41
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018
C) Current assets
I) Inventories
1) Raw and ancillary materials and consumables 4,059 6,896
2) Products under construction and semi-finished products 229 658
3) Contract work in progress 206,851 252,200
4) Finished products and goods 8,456 8,445
5) Advances 843 861
220,438 269,060
II) Receivables
1) Trade receivables 50,541 25,922
1) Due within 12 months 50,541 25,922
2) Due from unconsolidated subsidiary companies 7,534 1,668
1) Due within 12 months 7,534 1,668
3) Amounts due from associated companies 2,877 8,520
1) Due within 12 months 2,877 2,695
2) Beyond 12 months - 5,825
4) From parent companies - -
5) From companies subject to the control of parent companies - -
5-bis) Tax receivables 22,172 18,021
1) Due within 12 months 21,338 16,318
2) Beyond 12 months 834 1,703
5-ter) Prepaid tax 7,184 6,979
5-quater) from others 14,360 15,173
1) Due within 12 months 6,192 6,788
2) Beyond 12 months 8,168 8,385
104,668 76,283
III) Financial assets not classified as fixed assets
6) Other securities 52 136
52 136
IV) Cash and cash equivalents
1) Bank and post office deposits 72,194 91,009
3) Cash and equivalents in hand 283 351
72,478 91,360
Total Current assets 397,635 463,420
D) Accruals and deferrals 3,128 4,330
Total Assets 649,564 671,977
BALANCE SHEET ASSETS 31/12/2018 31/12/2017
42
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018 ⏐ Renco Group Spa
BALANCE SHEET - LIABILITIES 31/12/2018 31/12/2017
A) Shareholders’ equity
I) Share capital 9,013 9,013
II) Share premium reserve 25,988 25,988
III) Revaluation reserves 4,696 4,802
IV) Legal reserve 1,281 1,168
V) Statutory reserves - -
VI) Other reserves 25,595 23,266
VII) Reserve for hedging operations for expected financial flows 398 (591)
VIII) Retained earnings (accumulated losses) 86,963 87,544
IX) Profit (loss) for the year 8,755 707
X) Negative reserve for own shares held in portfolio (3,609) (3,609)
Total Group Shareholders’ equity 159,078 148,286
Minority interest
Minority interests in capital and reserves 4,218 3,326
Income (Loss) pertaining to minority shareholders (2,655) 798
Total Minority Shareholders’ equity 1,563 4,124
Total Consolidated Shareholders’ equity 160,641 152,410
B) Provisions for risks and charges
1) Provision for pensions and similar obligations - -
2) Provisions for taxes, including deferred taxes 13,457 14,102
3) Derivative financial liability instruments
4) Others 7,183 1,377
20,919 16,291
C) Employee severance indemnity 2,411 2,009
D) Payables
1) Bonds 44,368 44,214
2) Beyond 12 months 44,368 44,214
2) Convertible bonds - -
3) Payables to shareholders for loans 6,201 6,426
1) Due within 12 months 6,201 6,426
4) Payables to banks 93,670 92,787
1) Due within 12 months 44,101 30,788
2) Beyond 12 months 49,569 61,999
43
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018
5) Payables to other lenders 1,665 1,480
1) Due within 12 months 60 50
2) Beyond 12 months 1,605 1,430
6) Advances 230,260 250,166
1) Due within 12 months 18,333 131,248
2) Beyond 12 months 211,927 118,918
7) Trade payables 61,483 79,425
1) Due within 12 months 61,483 79,243
2) Beyond 12 months - 182
8) Payables represented by credit instruments - -
9) Payables to subsidiary companies 1,925 38
1) Due within 12 months 1,925 38
10) Payables to associated companies 2,126 1,732
1) Due within 12 months 2,126 1,732
11) Payables to parent companies - -
11 bis) Payables to companies subject to the control of parent companies - -
12) Tax payables 6,871 5,986
1) Due within 12 months 6,871 5,986
13) Payables to social security and welfare institutions 1,759 1,486
1) Due within 12 months 1,759 1,486
14) Other payables 13,833 14,884
1) Due within 12 months 10,875 11,860
2) Beyond 12 months 2,958 3,024
464,160 498,622
E) Accruals and deferrals 1,432 2,646
Total Liabilities 649,564 671,977
BALANCE SHEET - LIABILITIES 31/12/2018 31/12/2017
44
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018 ⏐ Renco Group Spa
INCOME STATEMENT 31/12/2018 31/12/2017
A) Value of production
1) Revenues from sales and services 253,639 254,954
2) Change in inventories of products currently being manufactured, semi-worked products and finished products
(451) 52
3) Changes in contract work in progress (44,443) (28,059)
4) Increases in fixed assets for in-house works 19,999 17,593
5) Other revenues and income, with separate indication of operating grants
a) Various items 14,538 3,679
b) Operating grants - -
Total Value of production 243,282 248,219
B) Cost of production
6) Raw, ancillary and consumable materials and goods for resale 61,203 83,395
7) For services 76,765 67,263
8) For use of third party assets 4,589 5,313
9) Personnel 56,476 56,535
a) Wages and salaries 46,206 46,451
b) Social security contributions 8,311 8,024
c) Severance indemnity 1,372 1,472
d) Pensions and similar commitments - -
e) Other costs 588 588
10) Amortisation/depreciation and write-downs 11,745 8,824
a) Depreciation of intangible fixed assets 705 675
b) Depreciation of tangible fixed assets 9,323 7,728
c) Other write-downs of fixed assets 248 -
d) Impairment of receivables including in current assets and cash and cash equivalents 1,469 421
11) Changes in inventories of raw, ancillary materials, consumables and goods 2,254 259
12) Provision for risks 199 876
13) Other provisions 1,300 -
14) Other operating expenses 3,534 2,467
Total cost of production 218,066 224,931
Difference between value and cost of production (A-B) 25,216 23,288
C) Financial income and charges
15) Income from equity investments 4 -
a) From subsidiary companies 4 -
b) From associated companies - -
c) From parent companies - -
d) From companies subject to the control of parent companies - -
e) Others - -
16) Other financial income 622 211
a) from receivables recorded as fixed assets - -
1) From subsidiary companies - -
2) From associated companies - -
3) From parent companies - -
4) From companies subject to the control of parent companies - -
5) Others - -
45
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018
b) From securities included under fixed assets not comprising equity investments - -
c) From securities included under current assets not comprising equity investments
- -
d) Income other than the above 622 211
1) From subsidiary companies 16 -
2) From associated companies 143 -
3) From parent companies - -
4) From companies subject to the control of parent companies - -
5) Others 463 211
17) Interest and other financial charges 6,652 4,541
a) Due from subsidiary companies - -
b) Due from associated companies - -
c) Due from parent companies - -
d) Due from companies subject to the control of parent companies - -
e) Others 6,652 4,541
17 bis) Exchange losses and gains (2,280) (7,341)
Total financial income and expense (8,305) (11,671)
D) Value adjustment to financial assets and liabilities
18) Revaluations 36 49
a) Of equity interests 36 49
b) Of financial fixed assets (not comprising equity investments) - 274
c) Of securities included under current assets (not comprising equity investments) - -
d) Of derivative financial instruments - -
e) Of financial assets for centralised cash management - -
19) Write-downs 4,868 652
a) Of equity interests 4,667 497
b) Of financial fixed assets 101 -
c) Of securities included under current assets (not comprising equity investments) 84 138
d) Of derivative financial instruments 16 16
e) Of financial assets for centralised cash management - -
Total value adjustments to financial assets (4,832) (329)
Pre-tax profit/loss (A-B+C+D) 12,078 11,289
20) Income taxes for the year, current, deferred and prepaid
a) Current taxes 5,970 10,087
b) Prior year taxation 2,605 66
c) Deferred and prepaid taxes (1,794) 148
d) income (expense) from compliance with the tax consolidation / tax transparency regime
803 (517)
Profit (Loss) for the year 6,100 1,504
Profit (loss) for the year relating to the Group 8,755 707
Profit (loss) for the year relating to minority interests (2,655) 798
The Chairman of the Board of Directors
Giovanni Gasparini
INCOME STATEMENT 31/12/2018 31/12/2017
46
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018 ⏐ Renco Group Spa
CONSOLIDATED CASH FLOW STATEMENTIndirect method as of (values expressed in thousands of Euros)
31/12/2018 31/12/2017
A. Cash flow from operating activities (indirect method)
Income (loss) for the year 6,100 1,504
Income taxes 5,979 9,784
Interest expense / (interest income) 6,029 4,330
Value adjustments to financial assets 472 354
Write-downs for impairment losses 248 -
(Gains)/losses from the sale of assets (11,640) (397)
1. Profit (loss) before income tax, interest, dividends and capital gains/losses on disposals 7,188 15,575
Adjustments for non-monetary items not offset in net working capital
Allocations to provisions 9,788 3,204
Depreciation of fixed assets 10,028 8,403
Adjustments to the value of derivative financial instruments 28 18
Other upward or downwards adjustments for non-monetary elements (1,639) 11,379
2. Cash flow before changes in NWC 18,205 23,004
Changes to net working capital
Decrease/(increase) in inventories 28,676 (10,537)
Decrease/(increase) in trade receivables (14,423) 10,120
Increase/(decrease) in trade payables (16,185) 21,516
Increase/(decrease) in accrued income and prepaid expenses 1,206 (1,265)
Increase/(decrease) in accrued liabilities and deferred income (2,338) (785)
Other changes in net working capital (4,958) 2,020
3. Cash flow after changes in NWC (8,022) 21,069
Other adjustments
Interest collected/(paid) (4,909) (3,881)
(Income tax paid) (7,608) (4,409)
(Use of provisions) (3,540) (1,035)
4. Financial flow after other adjustments (16,056) (9,324)
Cash flow generated by income management (A) 1,315 50,324
B. Cash flow from investment activities
Tangible fixed assets
(Investments) (22,754) (37,887)
Disposals 103 1,231
47
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018
Intangible fixed assets
(Investments) (998) (866)
Disposals
Financial fixed assets
(Investments) (6,186) (3,941)
Disposals 1,028 1,736
Total non-current financial assets
(Acquisition of business units, net of cash and cash equivalents) (870)
Sale of business units, net of cash and cash equivalents 6,828 -
Cash flow from investment activities (B) (22,849) (39,727)
C. Cash flow from financing activities
Minority interest means
Increase (decrease) in payables to banks 5,132 (11,906)
Loans taken out 10,417 15,465
Loans repaid (14,667) (12,601)
Repayment of loans to shareholders (225) (651)
Increase (decrease) in payables to bond holders 154 34,214
Increase (decrease) in payables to other lenders (466) 1,023
Own resources
Dividends paid (19) (19)
Change in reserve for translation differences 2,325 (5,412)
Cash flow from financing activities (C) 2,651 20,112
Increase (decrease) of cash and cash equivalents (A ± B ± C) (18,883) 30,710
Cash and cash equivalents at beginning of year 91,361 60,651
Cash and cash equivalents at end of year 72,478 91,361
As shown in the cash flow statement, prepared using the indirect method, there was a decrease in liquidity
of 18,883 thousand Euros during the year. The main changes in the cash flow statement are shown below.
Change in trade receivables, inventories, trade payables - This item includes the cash absorption or cash
generation relating to net working capital, therefore changes in trade receivables, inventories and trade
payables. It should be noted that changes in inventories refer to the item in question and include change
in advances, and recorded an increase of 28.6 million Euros. The change in inventories and advances
is directly linked to the life cycle of orders, for the analysis of which reference should be made to the
paragraph “Inventories” of these explanatory notes.
31/12/2018 31/12/2017
48
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018 ⏐ Renco Group Spa
Other changes in net working capital - This item includes the change in all other assets and liabilities
both current and non-current, net of the effects produced in the same by the allocations of non-monetary
charges or income, i.e. the change that had a direct effect on cash absorption or generation.
Disbursements for investments in tangible fixed assets and collections for disinvestments in tangible
fixed assets - For detailed information on the cash flow for investments in tangible fixed assets please refer
to the paragraph “Tangible fixed assets” in these explanatory notes.
Disbursements for investments in intangible assets - The cash flow for investments in intangible assets is
related to the investments made in the new Oracle JDE ERP system.
Collections for disinvestments in financial fixed assets and Disbursements for financial fixed assets -
For a precise representation of the cash flow for disinvestments and investments in financial fixed assets
please refer to the paragraph “Financial fixed assets” in these explanatory notes.
Increase/(decrease) in payables to banks - This item includes the change in payables due to banks, which
during the period underwent a positive change of 0.8 million Euros due to taking out new loans for the
amount of 10.4 million Euros and the repayment of loans for the amount of 14.7 million Euros.
49
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2018
Disposal of business units net of cash and cash equivalents - This item mainly includes the consideration
received during the year for the sale of the investee Hotel Yerevan (equal to 5 million Euros) net of cash
and cash equivalents sold (equal to 62 thousand Euros). In compliance with OIC 17, the book values of the
related assets/liabilities sold are shown below:
HOTEL YEREVAN
Fixed assets 9,755 Shareholders’ Equity 6,754
Receivables and Inventories 340 Deferred tax provision 969
Cash and cash equivalents 62 Payables 2,434
Total Assets 10,157 Total Liabilities 10,157
The Chairman of the Board of Directors
Giovanni Gasparini
EXPLANATORY NOTESTO THE CONSOLIDATED FINANCIAL
STATEMENTS AS OF 31/12/2018
52
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
53
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
FOREWORD
Dear Shareholders,
These consolidated financial statements, submitted for your examination, show a period profit of 6,100
thousand Euros.
ACTIVITIES CARRIED OUT AND SIGNIFICANT EVENTS REGARDING THE GROUP
The “Renco Group”, of which Renco Group S.p.A. is the parent company, is an important Italian company
in the industrial plant engineering sector and in the general contracting area. The Group operates various
lines of business, which include the Energy Division, Construction division, Asset Management division and
Services division.
PREPARATION CRITERIA
These consolidated financial statements consisting of balance sheet, income statement, cash flow statement
and explanatory notes have been prepared in accordance with Art. 29 of Italian Legislative Decree 127/91
as emerges from these explanatory notes, drawn up in accordance with Art. 38 of the same decree. Where
necessary, the accounting standards issued by the OIC (Italian Accounting Body) have been applied in the
most recent version and, where these are lacking, the accounting standards recommended by IASC and
incorporated by CONSOB.
The presentation currency of the financial statements is the Euro. The balances are expressed in thousands
of Euros, unless specifically stated otherwise. It should also be noted that any differences found in certain
tables are due to the rounding of the values expressed in thousands of Euros.
The consolidated financial statements show the figures from the previous year for comparison, in
parentheses.
The criteria used in the preparation and valuation of the financial statements as of 31.12.2018 take into
account the changes introduced into national law by Legislative Decree 139/2015, which from 2016
implemented Directive 2013/34/EU. As a result of Legislative Decree 139/2015 the OIC national accounting
standards were amended.
With these explanatory notes we highlight the data and disclosures provided by Art. 38 of the same
decree, therefore the Financial Statements consist of the following documents:
Balance Sheet
Income Statement
Cash Flow Statement
Explanatory Notes
In addition to the schedules provided for by law, the statement reconciling the net profit and shareholders’
equity of the consolidating company with the respective values resulting from the consolidated financial
statements is presented.
54
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
SCOPE AND METHODS OF CONSOLIDATION AND SIGNIFICANT EVENTS DURING THE YEAR
The consolidated financial statements originate from the financial statements of @X005001RENCO GROUP
S.P.A.@X005001End (Parent Company) and of the Companies in which the Parent Company directly or
indirectly holds the controlling interest or exercises control. The financial statements of the Companies
included in the scope of consolidation were consolidated by using the line-by-line method. The list of these
companies is shown in Annex 1.
From the previous year the following changes occurred in the Group structure:
in December 2018 Renco S.p.A. sold 100% of the shares of the company Hotel Yerevan Cjsc at a price
of 20 million Euros, generating a capital gain at a consolidated level of 11.6 million Euros, calculated
by taking into account the higher value contributed by the subsidiary in our consolidated financial
statements. The sale price was paid by the buyer for 5 million Euros at the time of the sale, while the
remaining 15 million Euros will be paid by 30 June 2019, guaranteed by a pledge benefiting Renco S.p.A.
on shares of the company Hotel Yerevan Cjsc;
in Mozambique, in order to apply for important works in the field of prefabrication and mechanical
installations for Oil&Gas, the Group decided to stipulate an exclusive commercial cooperation agreement
with the Italian company IREM S.p.A., specialised in the field of mechanical installations for Oil&Gas. For
this reason, in October Renco S.p.A. sold to Irem S.p.A. 31.25% of the share capital of the Mozambican
company Renco Costrucoes Ltd, which subsequently changed its name to Renco Irem Costrucoes
Ltd. The sale led to the recognition of a capital gain of 3 thousand Euros, as well as the loss of control
thereof;
in August, Renco Real Estate completed the acquisition of 100% of the share capital of Villa Soligo S.r.l.,
a company operating in the Italian hotel sector and owner of the Hotel Villa Soligo in Farra di Soligo
(Treviso), a historic residence built in 1782. Villa Soligo is a 4-star hotel with a neoclassical structure in
Palladian style and consists of 35 rooms, restaurant, swimming pool and park. The property is located in
an urban setting in the heart of the Prosecco area, which has applied to be named as a UNESCO World
Heritage Site. In return for the investment, the amount of which is supported by a specific appraisal,
Renco Real Estate recorded payables to the sellers of Villa Soligo for 1,076 thousand Euros as a residual
part of the agreed price;
to strengthen the security services provided by Italsec, the Group has boosted its presence in the
countries it operates in. To this end, Italsec Congo, Italsec Armenia and Italsec Mozambique were
established to seek opportunities and synergies in the management of security for both Group
companies and third-party customers;
Real Moz, a company 99% owned by Renco Real Estate S.r.l. and 1% by Renco SpA, was established to
develop projects in the real estate and hotel sector in the Republic of Mozambique. In turn, Real Moz
participates for 50% of the share capital in the Niassa Sanctuary, a business that was established at the
end of 2018;
In October, the Group decided to proceed with a merger by incorporation of the companies subject to
Kazakh law, Renco Ak, with registered office in Astana, via Kosmonavtov 62, and Renco Property LLP,
with registered office in Almaty, Zenkov/Kazibek bi Str., 26/41, both 100% owned by Renco SpA. The
merger took effect on 1 January 2018 and has no effect on the consolidated financial statements;
in November, the Kazakh company Trademark Italy Ltd was set up, 50% owned by Renco SpA, which
will be responsible for the marketing of Italian-made furniture, household articles and accessories
55
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
and for the distribution of food and foodservice products. This was done in order to develop these
activities in Kazakhstan, taking advantage of its experience and presence in the country, by allocating
the available commercial spaces at the recently built multifunctional building in Almaty called “Ablay
Khan”. This company is not included in the scope of consolidation as it is not considered significant
from the time it was created at the end of the year and was not yet operational at 31 December 2018;
As part of the project to build a power plant in Armenia, during the year Renco S.p.A. sold 40% of its
interest in Armpower Cjsc to Siemens, the project’s technology partner, and 60% to Renco Power, an
Armenian company owned by Renco SpA;
As a result of significant events during the year, in 2018 the Group continued to implement Oracle
JDEdwards, extending it to a number of foreign subsidiary companies in Armenia and Kazakhstan. The
project will continue in 2019 with the companies in Mozambique, and this way Oracle will be used by
all the relevant companies of the Group. For further significant events, please refer to the explanations
given in the Management Report.
The Companies for which, due to legal or factual reasons, consolidation is irrelevant for the Group, are
excluded from the consolidation. The list is provided in Annex 3 to the explanatory notes.
It should be noted that the Armenian company Velofirma Llc as of 31.12.2018, although 53.7% indirectly
owned through Nuovo Velodromo, is not controlled by the Group on the basis of agreements with the local
partner. Among other things, the agreements provide for the gradual acquisition of the majority by the
local partner and the permanence of the Renco Group with a final shareholding of 20%.
The Companies over which joint control is exercised pursuant to art. 37 of Italian Legislative Decree 127/91
are included in the consolidation in proportion to the shareholding held. A list of these Companies is
provided in Annex 2.
56
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Associated companies, over which the Parent Company exercises either directly or indirectly significant
influence and holds between 20% and 50% of the share capital are valued according to the equity method
or, in the absence of appropriate information for the correct application of this method, to the cost method
net of impairment losses. A list of these Companies is provided in Annex 3.
The other subsidiary companies excluded from consolidation pursuant to Italian Legislative Decree 127/91
are valued according to the cost method, net of impairment losses. These companies are listed in Annex 3,
with an indication of the reasons for their exclusion.
With regard to the company Ren Travel S.r.l. in liquidation, it should be noted that it was put into liquidation
on 20.12.2017 since there are no longer any business objectives that justify the continuation of the company’s
business. Liquidation has been completed. The final liquidation balance sheet as of 31.12.2018 and the
related allocation plan are currently being approved. For this reason, the company has been excluded from
the consolidation.
The Companies having a shareholding greater than 50% but with shareholders’ agreements that demonstrate
joint control, as defined in paragraph 13 of OIC 17, are recorded under Investments in associated companies
and valued using the equity method. Specifically, this is the case of the Armenian company Armpower
Cjsc where the Shareholder Agreement signed with Siemens highlights a joint governance of the company.
For the consolidation, the financial statements of the individual companies were used, already approved by
the Shareholders’ Meetings or prepared by the Boards of Directors for approval, reclassified and adjusted,
in order to standardise them with the accounting standards and presentation policies used by the Group.
CONSOLIDATION CRITERIA
The book value of the equity investment in the consolidated company is eliminated against the corresponding
fraction of shareholders’ equity. The differences resulting from the elimination are attributed to the
individual financial statement items that justify them and, the residual amount, if positive, is recognised
in an asset item called “goodwill”, unless it must be fully or partially charged to the income statement
under item B14. The amount recognised under assets is depreciated in the period provided for by the first
paragraph, point 6, of article 2426. If negative, the difference is recognised, where possible, as a deduction
from the assets recognised for values above their recoverable value and to liabilities recognised at a value
lower than their repayment value. The residual negative difference is recognised under the shareholders’
equity item “Consolidation reserve” or in the specific “Consolidation provision for future risks and charges”,
in compliance with the criterion of art. 33, paragraph 3 of Italian Legislative Decree 127/91.
The provision is used in subsequent years to reflect the assumptions made for its estimate at the time of
purchase.
The portions of shareholders’ equity pertaining to minority interest are recorded under a specific item of
the balance sheet. The portion of result pertaining to minority interest is highlighted separately on the
income statement.
Equity and economic relations between the Companies included in the scope of consolidation are
eliminated.
Gains and losses on transactions between consolidated Companies, not realised on transactions with third
parties are eliminated.
Gains and losses on transactions between group companies and relating to values included in the assets
of one of them at the closing date of the consolidated financial statements are not eliminated since they
57
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
are irrelevant for the purposes of a true and correct representation of the equity, financial and operating
position of the group.
Prior to consolidation entries relevant solely for taxes were eliminated and the related deferred taxes
allocated to a fund.
In the case of acquisition or loss of control of investee companies, the related effects of consolidation or
deconsolidation, respectively, are made starting from the date on which the transaction was finalised.
The conversion of the financial statements of foreign subsidiary and associated companies was carried
out using the spot exchange rate at the balance sheet date for assets and liabilities while, for income
statement items, the average exchange rate for the period was used. The net effect of the translation of the
financial statements of the investee company into the accounting currency is recognised in the “Reserve
for translation differences”.
For the conversion of financial statements expressed in foreign currencies, the rates stated in the table
below were applied:
CURRENCY EXCHANGE RATE AS OF 31.12.2017 EXCHANGE RATE AS OF 31.12.2018
AS OF 31.12. 2017 2017 AVERAGE AS OF 31.12. 2018 2018 AVERAGE
Algerian Dinar 137.83 125.31 135.49 137.65
Libyan dinar 1.63 1.57 1.60 1.61
Armenian dram 579.65 544.93 555.10 570.58
CFA franc 655.96 655.96 655.96 655.96
Lek 133.58 134.13 123.53 127.62
N. Metical 70.66 71.68 70.51 71.29
Readjustado Kwanza 198.91 187.39 353.02 297.38
Russian Ruble 69.39 65.89 79.72 74.04
Tanzanian shilling 2,683.14 2,525.56 2,630.94 2,686.24
Tenge Kazakhstan 397.96 368.63 437.52 406.91
MEASUREMENT CRITERIA
The criteria used for preparation of the consolidated financial statements as of 31.12.2018 are those used for
the financial statements of the parent company that prepares the consolidated financial statements and
are consistent with those used for the preparation of the previous years’ consolidated financial statements,
particularly with regard to measurements and continuity of said criteria.
In application of the principle of materiality, pursuant to Art. 2423, paragraph 4, of the Italian Civil Code, the
Explanatory Notes do not contain comments to financial statement items, even if specifically provided for
in Art. 2427 of the Italian Civil Code or by other provisions, in cases where the amount of such items and
the related information are irrelevant in providing a true and fair view of the equity and financial position
and operating profit of the Company and the Group.
58
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
The recognition and presentation of the financial statement items was performed taking into consideration
the substance of the transaction or contract.
The valuation of item lines was performed according to the general criteria of prudence and competence;
the recording and presentation of items was made taking into account the substance of the transaction or
contract, where compatible with the provisions of the Italian Civil Code and the OIC accounting standards;
More specifically, the following measurement criteria were adopted.
Intangible fixed assets
Intangible fixed assets have been recorded at their purchase or internal production cost, inclusive of
directly related accessory charges.
These amounts were stated net of amortisation, calculated systematically with reference to the rates
indicated below and taking their residual use into account.
DESCRIPTION RATES OR CRITERIA APPLIED
Start-up and expansion costs 20%
Industrial patents and intellectual property rights 20%
Concessions, licences, trademarks and similar rights 33.33%
Other intangible fixed assets Rates depending on the residual duration of the contract
Special treatment was reserved for investment in the new integrated Oracle - JDEdwards management
system implemented by Renco S.p.A. operational from 2017 for which a depreciation rate of 10% was used
considering a very long useful life; a choice corroborated by a market analysis on the main companies of
the international scenario that for decades have been using this ERP system, which in fact turns out to be
one of the most used.
There have been no changes in depreciation rates compared to the previous year.
If an asset suffers lasting impairment independently of the depreciation already entered, the asset will
be written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the
assets’ original value will be restored, adjusted to reflect depreciation only.
Tangible fixed assets
Tangible assets have been recorded in the financial statements at their purchase cost or internal production
cost. This cost is inclusive of related costs, as well as directly attributable costs.
Other costs in the amount that were reasonably related to the asset were also included, incurred during
manufacturing and up to the time from which the asset may be used.
Any financial charges incurred in the acquisition or construction of capitalised assets for which a certain
period of time normally elapses to make the asset ready for use or sale, are capitalised and depreciated
over the life of the class of assets to which they refer. In this regard, during the period, 1,437 thousand Euros
were capitalised on the building in Pointe Noire (Hotel Delux) and 38 thousand Euros on the Pesaro office.
59
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
All other financial expenses are recognised in the income statement during the year to which they refer.
The amounts are stated net of accumulated amortisation, and calculated systematically with reference to
the rates indicated below, in relation to their remaining useful life in consideration of their use, destination,
and the economic-technical useful life of the assets.
DESCRIPTION RATES APPLIED
Buildings 3%
Plant and machinery 10%
Plant and machinery (photovoltaic systems part related to the system) 9%
Industrial and commercial equipment 12.5%
Other assets:
- Furniture and fixtures 12%
- Electronic office machines 20%
- Cars and motorcycles 25%
- Motor vehicles 20%
There were no changes in depreciation rates from the previous year.
For photovoltaic systems, being complex systems and following the accounting principle OIC 16, the
cost was broken down according to the nature of the related components (component approach) with a
different useful life. Therefore, starting from 2016, the part relating to photovoltaic systems was reclassified
from “Land and buildings” to “Plant and machinery”.
60
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
If an asset suffers lasting impairment independently of the depreciation already entered, the asset will
be written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the
assets’ original value will be restored, adjusted to reflect depreciation only.
Financial fixed assets
Financial assets consisting of investments in unconsolidated subsidiary and associated companies have
been valued according to the equity method, adjusted for the intercompany profits/losses, including
ancillary charges, or, in the absence of appropriate information for the correct application of this method, to
the cost method; the recording value in the financial statement is determined on the basis of the purchase
or subscription price or the value attributed to the assets.
Investments that are expected to be sold within one year are classified as current assets under financial
assets other than fixed assets.
Investments in other non-subsidiary and/or associated companies were recorded at their acquisition cost,
adjusted on the basis of the losses recorded by investee companies and therefore exposed to a value less
than their acquisition cost.
Receivables posted under financial fixed assets are recognised in the financial statements according to the
amortised cost criterion, taking into account the time factor and estimated realisable value. This criterion
is applied for receivables recognised from 1 January 2016, as permitted by OIC 15.
The amortised cost criterion is not applied when the effective interest rate is not significantly different
from the market interest rate or when the effects of applying this criterion are irrelevant compared to the
criterion adopted.
Inventories, securities and financial assets
Inventories, securities and financial assets not held as fixed assets are stated at the lesser purchase cost,
including any directly attributable expenses and the estimated realisable value based on market conditions.
Raw materials, ancillary materials and finished products have been recorded using the specific cost method
because they are not interchangeable and are correlated to the specific nature of the materials used in the
job orders.
Products in progress have been recorded according to the expenses incurred during the year.
Work in progress (projects of duration within the year) are recognised based on the costs incurred during
the year or on the completed contract criterion: the project revenues and margin are recognised only when
the contract is completed, i.e. when the works are completed and delivered.
Works in progress (projects of duration beyond the year) are recognised according to percentage
completion or interim payment certificate criterion: project costs, revenues and margins are recognised
according to effective progress of production activities. For the application of this criterion the cost-to-
cost method is adopted.
Any reasonably estimated losses on projects have been fully charged to the income statement in the year
in which they become known.
61
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Receivables
Receivables are recognised in the financial statements according to the amortised cost criterion, taking
into account the time factor and estimated realisable value.
In the initial recognition of receivables with the amortised cost criterion, the time factor is complied with
by comparing the effective interest rate with the market interest rates. If the effective interest rate is
significantly different from the market interest rate, the latter is used to discount future cash flows deriving
from the receivable in order to determine its initial recognition value.
At the end of the financial year, the value of receivables measured at amortised cost is equal to the present
value of future cash flows discounted at the effective interest rate. In the event that the contractual rate
is a fixed rate, the effective interest rate determined at the time of initial recognition is not recalculated. If,
on the other hand, it is a floating rate based on market rates, then the future financial flows are periodically
recalculated to reflect changes in market interest rates, recalculating the effective interest rate.
The discounting of receivables was not made for receivables due within less than 12 months.
With reference to the receivables recognised in the financial statements prior to the financial year starting
from 1 January 2016, these are recognised at their presumed realisable value since, as envisaged by the
accounting standard OIC 15, it was decided not to apply the criterion of amortised cost and discounting.
The nominal value of receivables is adjusted to their estimated realisable value by means of a specific
allowance for doubtful accounts, taking into account the existence of indicators of a permanent loss. The
receivables originally collectible by the end of the year and subsequently turned into long-term receivables
have been listed under financial fixed assets in the balance sheet.
These are taken off the balance sheet when contractual rights on cash flows resulting from the receivable
are extinguished or if all risks related to the liquidated receivable have been transferred.
Securities
Securities held as fixed assets expected to remain in the Group’s portfolio until their maturity are recorded
at acquisition cost. The book value takes into account the directly chargeable related costs.
Cash and cash equivalents
The item consists of availability of cash and cash equivalents in both national and in foreign currency,
stamps and cash holdings resulting from the accounts held by the company with credit institutions, all
expressed at nominal value, specially converted into the national currency if it concerns accounts in foreign
currency.
Accruals and deferrals
Accruals and deferrals were determined on an effective accruals basis.
With regard to accrued expenses and deferred income, steps were taken to verify the retention of the
original registration; necessary changes were made where appropriate.
62
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Treasury shares
Treasury shares held by the parent company in its financial statements are also recognised in the
consolidated financial statements as treasury shares of the group and follow the accounting treatment
envisaged by OIC 28.
Derivative financial instruments
Derivative financial instruments, even if incorporated into other financial instruments, were initially
recognised when the related rights and obligations were acquired; their measurement was made at fair
value both at the initial recognition date and at each financial statements closing date. The changes in fair
value compared to the previous year were recognised in the income statement; in the case of instruments
that hedge the risk of changes in the expected cash flows of another financial instrument or of a planned
transaction and in line with the requirements of OIC 32, the changes were recognised in a positive reserve
in shareholders’ equity.
Derivative financial instruments with a positive fair value were recognised in balance sheet assets. Their
classification in fixed assets or current assets depends on the nature of the instrument itself:
a derivative financial instrument hedging cash flows or the fair value of an asset follows the classification,
under current assets or fixed assets, of the asset hedged;
a derivative financial instrument hedging the cash flows and the fair value of a liability, an irrevocable
commitment or a highly probable planned transaction is classified under current assets;
a non-hedging derivative financial instrument is classified under current assets within 12 months.
Changes in the fair value of the effective component of derivative financial instruments hedging financial
assets were recognised in the reserve for hedging operations for expected financial flows.
Derivative financial instruments with negative fair value were recognised in the financial statements under
provisions for risks and charges.
Provisions for risks and charges
These were allocated to cover known or likely losses or liabilities of a determined or probable nature, the
timing and amount of which cannot be determined at year-end.
The value of these provisions is determined on the basis of the general criteria of prudence and the pro
tempore principle, and no generic provisions for risks are set up without economic justification.
Potential liabilities are stated in the financial statements and recorded in the reserves since they are
believed to be probable and the amount of the related charge can be reasonably estimated.
Employee severance indemnities (TFR)
The employee severance indemnity reflects the actual liability of the Company for each employee,
determined in accordance with existing legislation and art. 2120 of the Italian Civil Code and the collective
bargaining agreements and company agreements.
63
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
This liability is subject to revaluation using indices.
The provision reflects the total of the individual indemnities accrued in favour of the employees until 31
December 2006, net of any advances paid out, and is equal to that which would have to be paid to the
employees in the event of the termination of the employment contract as of that date.
The provision does not include indemnities matured as from 01 January 2007, destined to additional
pension forms in accordance with legislative decree no. 252 dated 05 December 2005 (namely transferred
to the INPS treasury fund).
Payables
These are recognised according to the amortised cost criterion, taking into account the time factor.
In the initial recognition of payables with the amortised cost criterion, the time factor is complied with by
comparing the effective interest rate with the market interest rates.
At the end of the financial year, the value of payables measured at amortised cost is equal to the present
value of future cash flows discounted at the effective interest rate.
The discounting of payables was not carried out for payables due within less than 12 months {and/or if the
effects are insignificant compared to the discounted value}.
With reference to the payables recognised in the financial statements prior to the financial year starting
from 1 January 2016, these are recognised at their nominal value since, as envisaged by the accounting
standard OIC 19, it was decided not to apply the criterion of amortised cost and discounting.
Translation of foreign currency balances
Receivables and payables originally in foreign currency are converted into Euro at the exchange rates
in force on the day on which they arose. The exchange differences arising from foreign currency debt
payments and the collection of receivables are recorded in the income statement.
As regards receivables in foreign currency existing at the year-end, these were converted into Euros at
the exchange rate of the closing date of the financial statements; gains and losses on foreign exchange
identified as such were disclosed in the financial statements under the item C.17-bis “Exchange gains/
losses”.
Property acquired and/or held through leasing contracts (so-called Leases)
Properties held under leasing, through which all the risks and benefits of ownership are substantially
transferred to the Group, are presented as Group assets and classified under property, while the
corresponding liability towards the lessor is shown under financial payables; the cost of the leasing fee
is decomposed into its components of financial charges, charged to the income statement, and capital
repayment, recognised as a reduction of the financial payable. The value of the leased asset is determined
on the basis of the fair value of the asset itself.
Capitalised leased assets are depreciated over the estimated useful life of the asset.
64
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Accounting of revenues and costs
Revenues and income are recorded net of returns, discounts, allowances, as well as the taxes directly
associated with the sale of products and the provision of services.
Specifically:
revenues from services are recognised on the basis of the service itself and in accordance with the
relevant contracts. Revenues related to contract work in progress are recorded in proportion to the
progress of the work;
income from the sale of goods is recognised when ownership passes, which normally coincides with the
time of shipment or delivery of the goods;
revenues from increases in fixed assets for internal works are recognised on the basis of the cost
incurred for the construction of the fixed asset;
costs are accounted on an accruals basis;
financial income and expenses are recognised on an accruals basis.
Income taxes
Taxes are allocated on the basis of the pro tempore principle; they therefore represent:
the allocations for taxes paid or to be paid for the year, determined in accordance with current rates
and legislation in force in the individual countries;
the sum total of deferred taxes or prepaid taxes relating to timing differences which have arisen or been
cancelled during the year;
The amount of the deferred and prepaid taxes is also subject to recalculation in the event of changes in
the tax rates originally considered.
RECLASSIFICATIONS
It should be noted that during 2018 the Directors reviewed the classification in the financial statements
of the building area of Viserba and, while maintaining the same destination, consider that the land is a
tangible fixed asset and was therefore reclassified under the item “Land and buildings” of Tangible Fixed
Assets, for 26,582 thousand Euros. The land had been recorded under the item “Work in progress and
semi-finished products” as a current asset since its purchase in 2000 due to the initial prospects for the
rapid development of the investment. To date, the investment prospects have been confirmed, but given
the long period of time required to obtain authorisations and start it up, it is considered that the most
suitable classification is within fixed assets.
In order to comply with the principle of data comparability, the 2017 financial statements have been
adjusted by applying the same classification.
65
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
I N F O R M A T I O N O N F I N A N C I A L S T A T E M E N T I T E M S
The following is an analysis of the financial stat-ement items, in compliance with the contents of art. 2427
of the Italian Civil Code.
BALANCE SHEET ASSETS
Intangible fixed assets
The item consists of the following.
BALANCE SHEET ITEMS 31.12.2017
ACQUISI-TIONS
RECLASSIFI-CATIONS SALES
TRANSLA-TION DIFFE-
RENCES
AMORTISA-TION AND DE-
PRECIATION 31.12.2018
Start-up and expansion costs
46 2 - - (1) (38) 9
Industrial patent and intellectual property rights
2,365 262 (146) - 2 (420) 2,063
Concessions, licences, trademarks and similar rights
49 59 (5) - (3) (22) 78
Fixed assets under construction and advances
612 172 - (17) - 767
Other intangible assets
896 59 (21) - 1 (225) 710
Total 3,355 994 - - (18) (705) 3,627
Intangible assets also include the accounting results of the foreign permanent establishments.
Start-up and expansion costs
“Start-up and expansion costs”, equal to 9 thousand Euros, decreased during the year by 37 thousand
Euros mainly due to the amortisation for the period.
Patents and intellectual property rights
The net balance amounts to 2,063 thousand Euros (2,365 thousand Euros), and includes the rights to use
third-party software. The increase of 187 thousand Euros in the previous year relates to various investments
66
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
in the JDE Oracle (“Oracle”) management system, mainly made in Renco SpA, relating to compliance with
the adoption of electronic invoicing, integration with the Cosmo engineering management system and
other customised implementations, and 75 thousand Euros relating to the implementation of the Tagetik
consolidation software.
The investment in Oracle of previous years made within the scope of improvement of the administrative
structure in Group companies and to make the systems adopted in the main companies homogeneous,
and required, in addition to the use of external consultants, the use of internal resources dedicated to the
project.
Based on the option granted by the OICs, this category of intangible assets is depreciated on a straight-line
basis over a period of 5 years, with the exception of the new Oracle JDE ERP which was depreciated over
a period of 10 years, for the reasons indicated above.
Amortisation for the period amounted to 420 thousand Euros.
Concessions, licences, trademarks and similar rights
Equal to 78 thousand Euros, the item recorded an increase of 29 thousand Euros mainly due to the
capitalisations recorded during the period, of 59 thousand Euros and amortisation recognised during the
year equal to 22 thousand Euros.
Fixed assets under construction and advances
The item increased by a total of 767 thousand Euros with respect to the expenses incurred for the
implementation of the Oracle management system in the Armenian and Kazakh businesses, which were
fully adopted and went live on 1 January 2019. The change is due to the capitalisation of 612 thousand
Euros incurred during the period and the reclassification of the costs incurred in 2017 by the Armenian
companies for the work carried out in Oracle on the Logistics module, which in 2017 were represented
under the item “Industrial patents and intellectual property rights” but which, in line with the go live of 1
January 2019 of the entire management program, were reflected under “Assets under construction and
advances”.
Other intangible fixed assets
The net balance amounts to 710 thousand Euros (896 thousand Euros), and mainly consists of capitalisation
of the ancillary charges for the bond issue in 2015 of the Parent Company Renco Group S.p.A. for the
amount of 177 thousand Euros (287 Euros at 31 December 2017) and of capitalisation of the transaction
and procedural costs for the medium-long term bank loans prior to 2016 of Renco S.p.A amounting to 279
thousand (316 thousand Euros as of 31 December 2017). The increase in the period was recorded at Renco
S.p.A. and is due to the costs incurred for the certification of ISO/IEC 27001:2013, security of information
systems. The decrease in the item is due to the depreciation for the period.
67
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Tangible fixed assets
The item consists of the following.
BALANCE SHEET ITEMS
LAND AND BUILDINGS
PLANT AND MACHINERY
INDUSTRIAL AND
COMMERCIAL EQUIPMENT
OTHER ASSETS
ASSETS UNDER CONSTRUCTION AND ADVANCES TOTAL
Balance as of 31.12.2017 153,420 2,484 6,751 6,428 39,163 208,246
Acquisitions for the year 6,083 332 988 1,526 17,552 26,481
Change in the scope of consolidation
(9,193) (102) (1) (628) - (9,924)
Reclassifications 40,467 335 (366) (41) (40,395) -
Disposals/decreases for the year
- (39) (14) (49) (1) (103)
Amortisation/Depreciation in the year
(5,624) (313) (1,402) (1,984) - (9,323)
Write-downs (248) - - - - (248)
Translation differences (1,276) (30) (28) (230) 25 (1,539)
Balance as of 31.12.2018 183,629 2,667 5,928 5,022 16,344 213,590
As specified in the paragraph “Reclassifications” to which reference should be made, the building area
of the company Residence Viserba S.r.l. has been classified under the item “Land and buildings”. On the
basis of the information available to date and the valuations made by the directors, there are no problems
relating to the recoverability of the amounts recorded considering the importance of the investment which,
despite the slowdowns, continues to be considered strategic by the Group.
Land and buildings
These amount to 183,629 thousand Euros (153,420 thousand Euros as of 31 December 2017).
The increase deriving from the acquisitions for the year amounts to 6.1 million Euros and consists of:
3.7 million Euros for the change in the scope of consolidation; in fact Villa Soligo Srl owns a 4-star hotel
and the increase refers to this property;
0.3 million Euros for the fit-out work carried out on the Palazzina Gingone in Pemba, owned by Rencotek
Lda, necessary to accommodate the tenants who will enter during 2019;
0.5 million Euros for the improvement works carried out on the Congolese structures of Pointe Noire
and Djeno;
0.4 million Euros for the works supported by Renzo Zanzibar, which involved the renovation of
the barriers protecting the beach, the finishing touches to the beach restaurant and suites and the
arrangement and securing of the poles supporting the wharf where the restaurant, bar and living area
are located;
68
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
1.18 million Euros for the extraordinary maintenance of the various Group structures aimed at maintaining
production activities.
In 2018, the Zanzibar government granted Renco Zanzibar Ltd a 49-year extension of the right to use the
20.84-hectare area where the Resort is located.
The increase deriving from the reclassifications made from the item “Assets under construction and
advances” to the item “Land and buildings” amounts to 40.5 Euros and consists of:
3.4 million Euros for the finalisation of the extension of the building located in Djeno in Congo, which
includes landscaping (as it was previously uncultivated), the urbanisation of the area, the construction
of the warehouses, the extension of the mechanical workshop and the fences protecting the area;
36.9 million Euros for works supported by Renco Gestion Immobiliere Sarl for the completion of the
hotel in Pointe Noire, Congo. The property is affiliated with the Hilton Worldwide Group and consists
of 121 rooms in total divided into Senior Suites, Junior Suites and Executive rooms; a multi-purpose
meeting room, a restaurant, two bars, one of which is located by the pool, a swimming pool, a gym and
a large park, as well as a fully fenced and guarded parking lot.
The decrease of 9.2 million Euros during the year reflects the deconsolidation of the Armenian company
Hotel Yerevan, located in the Armenian capital Yerevan, following the sale during the period, which resulted
in a capital gain of 11.6 million Euros, as discussed above.
The write-down of 248 thousand Euros relates to the capital gain previously allocated to the investee
company Interrenko.
The depreciation for the period amounts to 5.6 million Euros (3.9 million Euros in 2017).
In accordance with the OIC Accounting Standard No. 16, the value of the land on which the buildings exist
has been spun off and recognised separately.
69
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Plant and machinery
These amount to 2,667 thousand Euros (2,484 thousand Euros as of 31 December 2017).
The depreciation for the period amounts to 0.3 million Euros (0.3 million Euros in 2017).
The increases for the period equal to 332 thousand Euros are due to the purchase of machinery used to
carry out the orders or for the functionality of the structures. In particular, 152 thousand Euro refer to Renco
Property Llp, 143 thousand Euros to JV Renco Terna, 17 thousand Euros to Renco S.p.A. and 20 thousand
Euros to Villa Soligo Srl.
Industrial and commercial equipment
These amount to 5,928 thousand Euros (6,751 thousand Euros as of 31 December 2017).
The increases, equal to 988 thousand Euros, are due to the purchase of equipment for the implementation
of the operational contracts under implementation by the Group. In particular, the increases refer to Renco
S.p.A. for 470 thousand Euros, Rencotek Lda for 177 thousand Euros, Renco Zanzibar for 235 thousand
Euros and 105 thousand Euros for other Group companies.
The depreciation for the period amounts to 1.4 million Euros (1.3 million Euros in 2017).
Other assets
These amount to 5,022 thousand Euros (6,428 thousand Euros as of 31 December 2017).
The increase of 1,526 thousand Euros is due to the various Group companies for the purchase of furnishings
for fit-out works and technical office equipment for 564 thousand Euros, the purchase of motor vehicles
for 471 thousand Euros and other assets for a value of 491 thousand Euros.
The decrease of 628 thousand Euros refers to the deconsolidation of the Hotel Yerevan, the effects of
which were described above.
The depreciation for the period amounts to 2 million Euros (2.3 million Euros in 2017).
Fixed assets under construction and advances
These amount to 16,334 thousand Euros (39,163 thousand Euros as of 31 December 2017).
The increase in the item “Assets under construction” is due in part to the capitalisation of internal costs for
the implementation of investment initiatives still in progress and partly to the costs related to investment
initiatives completed during the year. In this second case the amounts were subsequently reclassified to
the asset item in question. Reclassifications amounted to 40.4 million Euros and relate to the Hotel Pointe
Noire in Congo for 36.9 million Euros and the expansion of the Djeno base in Congo for 3.6 million Euros,
investments completed in 2018.
The main increases refer to investments for the construction of the Hotel Delux in Pointe Noire in Congo for
11.8 million Euros, subsequently reclassified as completed properties as described above; 5.6 million Euros
for the construction of the new headquarters of the Renco Group on the area owned by Renco Capital S.r.l.
70
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
in Strada Montefeltro (Pesaro); the remaining part of 0.1 million Euros for works underway to modernise
and renovate the Group’s structures.
The investment for the new headquarters is 12 million Euros and consists of a structure that is spread over
6 levels, with an area of 7,840 m2 of offices for 352 workstations. In addition to ensuring a very high degree
of energy efficiency, the building will be powered by an important photovoltaic system and will house a
company canteen, a nursery, a gym and a laundry for the exclusive use of the group employees.
Its location near the access to the A14 motorway and its operational characteristics have been designed
to ensure greater organisational efficiency, concentrating the staff who are currently located in several
offices in the centre of Pesaro in a single building. The building is scheduled for completion in July 2019.
Financial fixed assets
The item consists of the following.
DESCRIPTION 31.12.2017 INCREASES DECREASES 31.12.2018
Equity investments in:
b) subsidiary companies 65 1,853 (322) 1,596
b) Associated companies 1,305 36 - 1,341
d) other companies 23 30 - 53
Receivables from:
a) subsidiary companies 3,187 2,256 (561) 4,882
b) Associated companies 13,490 8,355 (539) 21,306
d) other companies 1,068 556 (33) 1,591
Derivative asset instruments 70 744 - 814
Total 19,207 13,831 (1,455) 31,583
Equity investments
The changes which took place in equity investments are the consequence of the following:
DESCRIPTIONEQUITY INVESTMENTS INSUBSIDIARY COMPANIES
INVESTMENTS IN ASSO-CIATED COMPANIES
EQUITY INVESTMENTS IN OTHER COMPANIES
Balance as of 31.12.2017 65 1,305 23
Increases for the financial year 1,802 - 30
Translation differences 41 - -
Change in the scope of consolidation 10 - -
Revaluations during the year - 36 -
Write-downs during the year (322) - -
Balance as of 31.12.2018 1,596 1,341 53
71
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Subsidiary companies that are not consolidated
The following information relating to the equity investments held directly or indirectly for subsidiary and
associated companies, is provided below (art. 2427, first paragraph, point 5 of the Italian Civil Code).
Changes in investments in non-consolidated subsidiary companies are shown in the table below:
DESCRIPTION 31/12/2017 INCREASES DECREASESEXCHANGE
EFFECTOTHER
ADJUSTMENTS 31/12/2018
CONSORZIO RENCO - LANCIA - ITER
65 - - - - 65
RENCO FOOD SRL SHARE - - - - - -
RENCO POWER CJSC SHARE 0.2 - - - 0.2 -
TRADEMARK ITALY LLP SHARE
- 0.3 - - - 0.3
REAL MOZ LTD SHARE - 4 - - - 4
ARMPOWER 0.2 1,796 - 41 (323) 1,514
ITALSEC MOZAMBICO - 2 - - - 2
REN TRAVEL SRL - - - - - 10
TOTAL 65 1,802 - 41 (323) 1,596
During the 2018 financial year, the share capital of the subsidiary Armpower Cjsc was increased by a total
of 1.7 million Euros in order to equip it with the means necessary for the construction of the Yerevan power
plant.
The other adjustments to Armpower, amounting to a negative 323 thousand Euros, derive from the
valuation of the company using the equity method, which is valued using the equity method as a result
of the shareholders’ agreements, as described in greater detail in the paragraph “Preparation criteria”, to
which reference should be made.
NAMEREGISTERED
OFFICESSHARE
CAPITAL
SHAREHOLDERS’ EQUITY AS OF
31.12.2018PROFIT (LOSS)
AS OF 31/12/2018% OWNER-
SHIPBOOK
VALUE
CONSORZIO RENCO-LANCIA-ITER (1)
ITALY 100 100 - 71.0% 65
RENCO FOOD SRL (2) ITALY 100 (4,632) (4,732) 100.0% -
TRADEMARK ITALY LLP (2)
KAZAKHSTAN 0 0 - 50.0% 0
REAL MOZ LTD (2) MOZAMBIQUE 4 4 - 100.0% 4
ARMPOWER (2) ARMENIA 3,082 2,524 (231) 60.0% 1,514
ITALSEC MOZAMBICO (2) MOZAMBIQUE 2 2 - 100.0% 2
REN TRAVEL in liquidation (1) (3)
ITALY 10 417 33 100.0% 10
TOTAL 1,596
(1) Measured with the cost method(2) Measured with the equity method(3) Values as of 31.12.2017
72
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
The investment in Renco Food, which is not consolidated, was valued at cost and a provision to cover losses
was recognised as a provision for risks and charges. The provision of 4,732 thousand Euros was set aside
due to the accumulated losses and the substantial interruption of the subsidiary’s business, which is in the
process of disposing of the business units managed by the subsidiary companies involved in distribution.
Associated companies
Changes in investments in associated companies are shown in the table below:
DESCRIPTION 31/12/2017 INCREASES DECREASESEXCHANGE
EFFECTOTHER
ADJUSTMENTS 31/12/2018
RENCO IREM COSTRUCOES - - - - - -
RENCO NIGERIA 8 - - - - 8
RENCO QATAR 43 - - - - 43
REAL ESTATE MANAGEMENT
9 - - - - 9
DARIN CONSTRUCTION 642 - - - - 642
TOLFA CARE 602 - - - 36 638
VELOFIRMA - - - - - -
TOTAL 1,305 - - - 36 1,341
The other Tolfa Care adjustments, amounting to a positive 36 thousand Euros, derive from the valuation of
the company using the equity method.
NAMEREGISTERED
OFFICESSHARE
CAPITAL
SHAREHOL-DERS’ EQUITY
AS OF 31.12.2018
PROFIT (LOSS) AS OF
31/12/2018 % OWNERSHIPBOOK
VALUE
DARIN CONSTRUCTION (1) (4) KAZAKHSTAN 44 (2,502) 616 25.0% 642
REAL ESTATE MANAGEMENT (1) (3)
ITALY 10 838 619 30.0% 9
RENCO IREM COSTRUCOES (2)
MOZAMBIQUE 0 (0) (0) 31.3% (0)
RENCO NIGERIA (1) AFRICA na na na 49.0% 8
RENCO QATAR (1) QATAR 52 3,812 270 49.0% 43
TOLFA CARE (2) ITALY 1 1 0 47.6% 638
VELOFIRMA (1) (4) ARMENIA 7 (3,388) (628) 58.1% -
Total 1,340
(1) Measured with the cost method(2) Measured with the equity method(3) Values as of 31.12.2017(4) Values as of 31.12.2016
73
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
It should be noted that, should it be impossible to obtain the information necessary for application of the
equity measurement method required by Article 36 of Legislative Decree 127/91, the cost method was
used. In this case, the value of the booking in the financial statements is determined on the basis of the
purchase or subscription price.
The cost as described above is reduced in the event that impairment is ascertained; should the reasons for
the adjustment cease to exist, the value of the investment shall be reset within the limit of the acquisition
cost.
In compliance with Art. 2426 paragraph 2 of the Italian Civil Code, the recording of the following investments
at a higher value than the corresponding share of equity is justified as specified below.
Darin Construction
Darin Construction is a vehicle company for the development of a real estate operation in the centre of
Almaty, the economic capital of Kazakhstan, consisting of a multifunctional complex. The complex was
completed in 2018 and is spread over 11 floors above ground and 3 floors underground for a total gross
area of 51 thousand square metres divided into two blocks. The first block is dedicated to a 4-star hotel
affiliated with the Accor brand, which went into operation in 2018 and occupies a total area of 8,287 square
metres. The second block, dedicated to the executive and commercial part, contains a shopping centre,
apartments, executive offices, a sky restaurant on the top floor and underground car parks on which the
company will carry out fit-out work as the spaces are rented. The percentage of office space occupied was
7% at the end of 2018, and increased in April 2019 to 52%.
The investment will be fully operational in 2020/2021, years in which the first economic returns of the
investment are expected.
The higher recognition value of the investment is mainly justified by the higher value of the fixed assets
owned by the investee company. Once the investments are fully operational, it is expected that the
company will develop cash flows that will rebalance its economic and financial situation. To date, the
company has completed the investment and is in the start-up phase of the management and rental of the
property, therefore the directors consider the impact in the consolidated financial statements of the failure
to adjust the equity investment to shareholders’ equity to be insignificant, given its insignificance in the
current operations of the Group.
Velofirma
Velofirma is a vehicle company for the development of an important buildable lot near the historical centre
of the capital of Armenia, Yerevan. The company that owns the lot completed the first development phase
in 2015 with the inauguration of the Yerevan City Center hotel associated with the Double Tree by Hilton
chain. The higher recognition value of the investment is mainly justified by the higher value of the fixed
assets owned by the investee company. Once the investments are fully operational, it is expected that the
company will develop cash flows that will rebalance its economic and financial situation.
Note also that the company Velofirma is not consolidated since the Group, based on the shareholders’
agreements with the other shareholders, does not control said investee company. Furthermore, the
agreements provide for the gradual acquisition of the majority by the local partners and the permanence
of the Renco Group with a 20% interest.
74
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
For the Renco Nigeria companies, at the date of preparation of this document no definitive data were
available. However, based on the information in their possession, the directors consider that the impact on
the consolidated financial statements of the failure to adjust the equity investment to shareholders’ equity
is insignificant in view of its irrelevance in the current operations of the Group.
Other companies
Changes in investments in other companies are shown in the table below:
DESCRIPTION 31/12/2017 INCREASES DECREASESEXCHANGE
EFFECTOTHER
ADJUSTMENTS 31/12/2018
CEDECORP SA-CAMERUN 23 - - - - 23
PROM INVEST ENGIN ATYRAU 0 - - - - 0
CONAI SHARE - 0 - - - 0
JSC Astanaenergoservic - 30 - - - 30
TOTAL 23 30 - - 53
Receivables
DESCRIPTION RECEIVABLES FROM SUB-
SIDIARY COMPANIESRECEIVABLES FROM AS-
SOCIATED COMPANIESRECEIVABLES FROM
THIRD PARTIES
Balance as of 31.12.2017 3,187 13,490 1,068
Increases for the financial year 2,256 8,355 556
Decreases during the year (561) (539) (33)
Balance as of 31.12.2018 4,882 21,306 1,591
Receivables from subsidiary companies, equal to 4,882 thousand Euros (3,187 thousand Euros), consist of:
receivables from the subsidiary company Armpower claimed by Renco S.p.A. amounting to 154
thousand Euros (542 thousand Euros as of 31 December 2017);
receivables from the subsidiary company Renco Food S.r.l. claimed by Renco S.p.A. amounting to
4,701 thousand Euros (2,640 thousand Euros as of 31 December 2017). The Group has set aside a
provision to cover losses of 4,732 thousand Euros, for which reference should be made to the section
“Unconsolidated subsidiary companies” for further information.
receivables from Mozambican companies, Italsec Mozambique, Real Moz, Nyassa Sanctuary, for 26
thousand Euros and relate to the share capital of the company. These companies were created at the
end of 2018 and have not been consolidated as they are not significant;
Receivables from associated companies, equal to 21,306 thousand Euros (13,490 thousand Euros) consist
of:
75
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
receivables from the associate company Velofirma claimed by the company Nuovo Velodromo for 6,311
thousand Euros (650 thousand Euros as of 31 December 2017), which increased due to the conversion
of the trade receivable – already present in previous financial statements – into a financial receivable;
the directors consider the receivable to be fully recoverable by virtue of the investments made and
the new initiatives relating to the subsidiary, already described in the paragraph relating to equity
investments;
receivables from the associated company Real Estate Management S.r.l. amounting to 1,644 thousand
Euros (1,644 thousand Euros as of 31 December 2017) claimed by Renco Real Estate S.r.l. The
administrators consider this position to be completely recoverable due to the expected cash flows of
the Hotel Palazzo Castri 1874 in Florence;
receivables from the associated company Darin Construction amounting to 12,783 thousand Euros (11,195
thousand Euros as of 31 December 2017) claimed by Renco Real Estate S.r.l. The Group owns 25% of Darin
Construction and the financial loan was disbursed in order to finance the pertinent portion of the real
estate development transaction, as better described in the paragraph “Associated companies” of these
notes, whose cash generation will also be used for the repayment of loans received from shareholders;
receivables from Renco Irem Construcoes for 568 thousand Euros. The company became an associate
following the deconsolidation of the company in the period following the sale of 31.25% by Renco SpA.
Receivables from others amounting to 1,592 thousand Euros (1,068 thousand Euros as of 31 December
2017) consist of 1,210 thousand Euros of deposits held at the Congolese branch. The sum of 1,105 thousand
Euros is currently subject to seizure at the request of a supplier, whose dispute is being examined by
the courts. In the presence of this situation, the Group, supported by the information received from the
lawyers, deemed it necessary to make a prudential allocation to the risk provision for legal disputes for
the same amount. Remember that in previous years there was a second seizure in the Congolese branch
relating to a case, which in the course of 2017 was concluded in favour of the Group with the recovery of
the amounts paid of 510 thousand Euros.
The breakdown of receivables as of 31.12.2018 by geographic area, is shown in the following table (Article
2427, first paragraph, no. 6, of the Italian Civil Code).
BALANCE SHEET ITEMS ITALY EUROPEAFRICA AND
MIDDLE EASTREST OF THE
WORLD TOTAL
Due from subsidiary companies 4,702 - 180 - 4,882
Due from associated companies 1,644 - 6,879 12,783 21,306
Due from others - - 1,591 - 1,591
Total 6,346 - 8,650 12,783 27,780
Other securities and derivative asset instruments
DESCRIPTION OTHER SECURITIESDERIVATIVE ASSET
INSTRUMENTS
Balance as of 31.12.2017 - 70
Increases for the financial year - 744
Decreases during the year - -
Balance as of 31.12.2018 - 814
76
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
The item derivative asset instruments, amounting to 814 thousand Euros, represents the valuation of
derivatives as of 31 December 2018. For a more detailed description of derivative instruments, please refer
to the appropriate section of these explanatory notes.
CURRENT ASSETS
Inventories
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Inventories:
1) Raw and ancillary materials and consumables 6,896 4,059 (2,837)
2) Work in progress and semi-finished products 658 229 (429)
3) Contract work in progress 252,200 206,851 (45,349)
4) Finished products and goods for resale 8,445 8,456 11
5) Advances 861 843 (18)
Total 296,060 220,438 (48,622)
The measurement criteria adopted are consistent with those used in the previous year, as described in the
initial part of these explanatory notes.
As for the work in progress of a multi-year duration, it should be noted that as outlined in the first part
of the explanatory notes, they are measured according to their percentage of completion. The progress
payments and advances received from clients are recorded under liabilities in the balance sheet under item
6 of class D; advances for work to be performed amounted to 843 thousand Euros (861 thousand Euros).
On the acquisition of contracts, the Group undertakes to release both bank guarantees that insurance
guarantees for clients for the completion of said contracts; the extent of the commitments undertaken by
the Group is shown in the “Off balance sheet commitments, guarantees and contingencies”, paragraph of
these explanatory notes.
The decrease in inventories derives from the conclusion of important contracts acquired during previous
years. In particular, the 45 million Euro decrease in Contract work in progress relates to the closure of
contracts in the energy sector (Industrial Plants Division), with particular reference to the works closed
in Congo (Moho Nord Djeno Integration and the Revamping of security systems for the DP4 and DP5
platforms), in Italy (the gas compressor stations in Sergnano and Minerbio) and also to the closure of
contracts in the Construction Division, with the completion in Kazakhstan of the Multifunctional Building
in Almaty.
The order portfolio as of 31 December 2018 with reference to work in progress of the Infrastructure and
Industrial Plant Divisions amounts to 820.4 million Euros of which 576.1 million Euros to be produced.
Finished products and goods for sale include a building located in Rome with a value of 5,900 thousand
Euros (5,900 thousand Euros as of 31 December 2017), used as a residential building, purchased for resale
by Renco Real Estate S.r.l. in May 2015; the property was granted to third parties on the basis of a rent to
77
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
buy contract. The asset is recorded at its estimated realisable value, corresponding to the amount agreed
in the rent-to-buy contract in the event the purchase option is exercised.
Receivables
The balance of consolidated receivables included under current assets, after eliminating intercompany
values, are divided up as follows according to due dates.
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Receivables
1) Trade receivables 25,922 50,541 24,619
2) to subsidiary companies 1,668 7,534 5,866
3) to associated companies 8,520 2,877 (5,643)
5-bis) Tax receivables 18,021 22,172 4,151
5-ter) Prepaid taxes 6,979 7,184 205
5-quater) others 15,173 14,360 (813)
Total 76,283 104,668 28,385
The balance is divided up according to due dates (Article 2427-bis, point 6 of the Italian Civil Code).
BALANCE SHEET ITEMS WITHIN 12 MONTHS BEYOND 12 MONTHS BEYOND 5 YEARS TOTAL
Receivables
1) trade receivables 50,541 - - 50,541
2) to subsidiary companies 7,534 - - 7,534
3) to associated companies 2,877 - - 2,877
5-bis) Tax receivables 21,338 834 - 22,172
5-ter) Prepaid taxes 7,184 - - 7,184
5-quater) others 6,192 7,465 703 14,360
Total 95,666 8,299 703 104,668
Receivables are broken down as follows, according to the geographical areas of operation of the debtor
(art. 2427, paragraph 6 of the Italian Civil Code).
78
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
DESCRIPTION 31.12.2017 31.12.2018
Italy 12,066 25,332
European Union 12,198 22,551
Russia and former USSR countries 22,802 11,710
Africa 17,166 16,633
Middle East 5,562 26,949
Other 6,488 1,493
Total 76,283 104,668
Finally, a detail of the most significant receivable items is provided.
Trade receivables
The item “Trade receivables” amounting to 50.5 million Euros (25.9 million Euros) is shown net of the
provision for credit depreciation amounting to 2,005 thousand Euros, which was used in the course of 2018
for the amount of 741 thousand Euros and increased by 1,469 thousand Euros compared to the previous
year.
The change in trade receivables is mainly attributable to the increase in services rendered by the Services
and Real Estate Divisions, in particular 15,000 thousand Euros from the purchaser of the shareholding in
Hotel Yerevan Ojsc, the collection of which, in accordance with the contractual terms defined at the time
of the sale of the hotel, is expected within 12 months. It is also pointed out that in the first months of 2019,
collection of receivables from customers has not had any problems.
The adjustment of the presumed nominal loan value has been obtained by means of a specific provision
for credit depreciation, that has been affected as follows during the year:
DESCRIPTION 31.12.2017 USE PROVISIONSTRANSLATION DIFFERENCES 31.12.2018
Provision for credit depreciation of current receivables
1,281 (741) 1,469 (4) 2,005
The provision, set up on 31 December 2018, is deemed appropriate to cover both specific situations, which
have already seen write-offs in the current period, as well as implicit risks implicit in uncollectable in bonis
receivables.
Receivables from subsidiary companies that are not consolidated
The item “Receivables from subsidiary companies that are not consolidated”, equal to 7.5 million Euros
(1.7 million Euros as of 31 December 2017), consist of trade receivables and include 7.5 million Euros in
receivables from the subsidiary Armpower and 43 thousand Euros in receivables from the subsidiary
Renco Food; both receivables are owed to Renco SpA.
79
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Receivables from associated companies
The item “Receivables from associated companies”, equal to 2.8 million Euros (8.5 million Euros as of 31
December 2017), consists exclusively of receivables of a commercial nature and specifically:
receivables from the associated company Velofirma for 917 thousand Euros (6,222 thousand Euros as
of 31 December 2017) of which 858 thousand Euros (380 thousand Euros as of 31 December 2017) is
due from the subsidiary Renco Armestate and 55 thousand Euros (18 thousand Euros as of 31 December
2017) from the company Renco SpA, 4 thousand Euros from Italsec Armenia, while the receivables from
Nuovo Velodromo, which last year amounted to 5,825 thousand Euros, have been entirely reclassified
under financial receivables as described above;
receivables from the associated company Renco Nigeria amounting to 1,293 thousand Euros (2,011
thousand Euros the previous year) claimed by Renco S.p.A. During the year, Renco S.p.A. received from
the associated company 1,331 thousand Euros and turnover of 613 thousand Euros;
receivables from the associated company Tolfa Care S.r.l. amounting to 49 thousand Euros (38 thousand
Euros the previous year) claimed by Renco Health Care S.r.l.;
receivables from the associated company Darin Construction amounting to 240 thousand Euros (in line
with the previous year) claimed by Renco Real Estate S.r.l.;
receivables from the associated company Real Estate Management S.r.l. of 312 thousand Euros (9
thousand Euros last year) due to Renco Real Estate S.r.l. for 305 thousand Euros and Renco S.p.A. for
7 thousand Euros;
receivables from the associated company Renco Irem Costrucoes Lda for 65 thousand Euros due to
Renco S.p.A. for 39 thousand Euros, Rencotek Lda for 5 thousand Euros and Renco Mozambique for 21
thousand Euros. Renco Irem Construcoes Lda is represented as an associated company following the
sale of 31.25% of the company, as previously noted.
The decrease during the year is mainly due to the reclassification of Velofirma’s position from a trade
receivable to a financial receivable.
Tax receivables
The item “tax receivables” amounting to 22.2 million Euros (18 million Euros at 31.12.2017) is made up as
follows.
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Tax credits
Foreign tax receivables 7,887 7,005 (882)
Tax receivables 2,186 3,863 1,677
VAT receivables 7,486 10,493 3,007
Other tax receivables 462 811 349
Total 18,021 22,172 4,151
The item receivables for taxes paid abroad is solely attributable to Renco Group S.p.A. and refers to taxes
paid abroad, almost all of which have already become final and not yet recovered.
80
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
The remainder consists of 5,990 thousand Euros of taxes paid in the Congo by the branch of the subsidiary
Renco S.p.A. in previous years that are believed to be recoverable in the coming financial years. The branch
has in fact signed an agreement with the local Congolese tax authorities for a tax reduction; with this
agreement, it is planned to generate Italian tax receivable surpluses on the income produced in the Congo
that will allow the recovery of foreign tax credit surpluses accrued in previous years.
The item tax receivables includes the amount of 129 thousand Euros relating to IRES advances in excess
of the amount to be paid as the balance for the 2018 financial year on the income taxed for transparency
relating to the subsidiary companies falling under the “CFC” regulations referred to in art. 167 of the Tuir.
Receivables for prepaid taxes
Receivables for prepaid taxes of 7,184 thousand Euros (6,979 thousand Euros as of 31 December 2017)
refer to temporary differences deductible also on tax losses carried forward, for a description of which
reference should be made to the appropriate paragraph in the last part of these Explanatory Notes. They
are considered to be recoverable with reasonable certainty through future taxable profits.
BALANCE SHEET ITEMS 31.12.2017 PROVISIONS USESTRANSLATION DIFFERENCES
OTHER CHANGES 31.12.2018
Receivables for prepaid taxes 6,979 1,982 (1,516) (258) (3) 7,184
Receivables from others
The item “receivables from others” amounting to 14,360 thousand Euros (15,173 thousand Euros at 31
December 2017) is made up as follows.
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Receivables from third parties
Advances to suppliers 737 1,437 700
Receivables from employees 1,088 1,211 123
Deposits 107 168 61
Receivables for sale of shareholdings 4,850 5,080 230
Receivables for rent-to-buy 3,467 3,106 (361)
Loan receivables 1,381 1,399 18
Amounts due from pension and social security institutions 40 8 (32)
Receivables from Terna 2,180 1,192 (988)
Other receivables 1,323 759 (564)
Total 15,173 14,360 (813)
The receivables for disposals of equity investments, equal to 5,080 thousand Euros (4,850 thousand Euros),
consist of receivables deriving from the sale of 50% of the Kazakh investee company Renco Kat, which
81
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
took place during 2015; compared to the previous year, the aforementioned receivables did not change
and the only differences refer to exchange differences. According to the contractual agreements, the
receivable will be collected by bank transfers equal to a determined percentage of the profits distributed
to the buyer as shareholders of Renco Kat for a number of years such as to allow total payment of the
selling price.
Receivables for rent-to-buy of 3.1 million Euros (3.5 million Euros) are recorded under Renco Real Estate
and relate to the amendment made to the rent-to-buy contract in 2016. Amendment which provides for
a further down payment by the buyer for the part of consideration agreed for the sale of the property,
assuming the amount of 3.7 million Euros. Since this is an external assumption with the consent of the bank
but not constituting a release, already in 2016 the amount of 3.7 million Euros was recognised among other
receivables and other payables, an amount that was reduced to 3.1 million Euros over the years;
Receivables from Terna of 1.2 million Euros (2.2 million Euros) relate to the trade receivable from the
Renco Terna JV. The company is consolidated using the proportional method and the trade receivable
still outstanding after the consolidation elimination entry was reclassified among receivables from others.
Loan receivables of 1.4 million Euros are recorded in Grapevine and relate to receivables from minority
shareholders.
Financial assets not classified as fixed assets
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Financial assets not listed under fixed assets
Other investments 136 52 (84)
Total 136 52 (84)
The group holds shares of Banca Monte dei Paschi di Siena S.p.a. for the amount of 274 thousand Euros
obtained in exchange for subordinated bonds for a nominal amount of 300 thousand Euros recognised
in previous financial statements and fully written down; against the exchange, the previously allocated
provision for depreciation was released for the amount of 274 thousand Euros in 2017. Finally, the value of
the MPS shares was adjusted during the current year, making a write-down of 84 thousand Euros based
on the share price as of 31 December 2018.
Cash and cash equivalents
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Cash and cash equivalents
Bank and post office deposits 91,009 72,194 (18,815)
Cash and equivalents on hand 351 283 (68)
Total 91,360 72,477 (18,883)
The balance represents cash and cash equivalents in existence as of the end of the year.
82
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Accrued income and deferred expenses
These represent the connecting items for the accounting period reckoned on an accruals basis. The
composition of the caption is analysed as follows.
DESCRIPTION 31.12.2017 31.12.2018 CHANGE
Accrued income 163 140 (23)
- Bank interests 4 6 2
- GSE contribution 159 134 (25)
Prepaid expenses 4,167 2,988 (1,179)
- Rents and leases 18 378 360
- Insurance 151 257 106
- Bank commissions and factoring 28 30 2
- Derivatives 82 94 12
- Software licences 223 273 50
- Surety charges 184 194 10
- Subsidies to the children of employees for schooling 145 189 44
- Villa Molaroni lease fees 311 252 (59)
- others 3,025 1,321 (1,704)
Total 4,330 3,128 (1,202)
These represent income and expense whose pertinence is advanced or deferred with respect to the cash
and/or documental manifestation and are irrespective of the date of payment or collection of the related
income and expense spanning two or more accounting periods which can be spread over time.
83
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
BALANCE SHEET LIABILITIES
Shareholders’ equity
Shareholders’ equity pertaining to the Group
BALANCE SHEET ITEMS 31.12.2017 INCREASES DECREASES 31.12.2018
Group shareholders’ equity
Share capital 9,013 - - 9,013
Share premium reserve 25,988 - - 25,988
Revaluation reserve 4,802 - (106) 4,696
Legal reserve 1,168 113 - 1,281
Other reserves 23,265 3,927 (1,597) 25,595
Reserve to cover expected cash flows (591) 989 - 398
Profit (loss) carried forward and other reserves
87,544 965 (1,546) 86,963
Reserve for the purchase of own shares (3,609) - - (3,609)
Group profit/(loss) for the year 707 8,755 (707) 8,755
Total 148,286 14,749 (3,956) 159,078
The item Other Reserves is broken down as follows
BALANCE SHEET ITEMS 31.12.2017 INCREASES DECREASES 31.12.2018
Other reserves
Extraordinary or optional reserve 18,058 2,140 - 20,198
Payments towards capital 25,026 - - 25,026
Conversion reserves from foreign consolidation
(25,729) 1,787 - (23,942)
Consolidation reserve 5,910 - (1,597) 4,313
Total 23,265 3,927 (1,597) 25,595
The translation reserve from foreign consolidation includes the effect of consolidation of foreign subsidiary
companies, with financial statements in currencies other than the Euro, and is determined according to the
consolidation criteria indicated above.
At the balance sheet date, there were 901,250 ordinary shares outstanding with a nominal value of 10
Euros each.
84
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Shareholders’ equity pertaining to minority interest
FINANCIAL STATEMENT ITEMS (IN THOUSANDS OF EUROS) 31.12.2017 31.12.2018 CHANGES
Minority interest
Capital and reserves 3,326 4,218 892
Profit (loss) for the year 798 (2,655) (3,453)
Total 4,124 1,563 (2,561)
The statement of changes in shareholders ‘equity and the statement of reconciliation between the net
profit and the shareholders’ equity of the consolidating company and the respective values resulting from
the consolidated financial statements are shown in Annexes 3 and 4 to these Explanatory Notes.
Provision for risks and charges
BALANCE SHEET ITEMS 31.12.2017 INCREASES DECREASES 31.12.2018
Provisions for risks and charges
2) Provisions for taxes, including deferred taxes 14,102 1,687 (2,332) 13,457
3) Derivative financial liability instruments 812 - (532) 280
4) Others 1,377 6,277 (471) 7,183
Total 16,291 7,964 (3,335) 20,920
The provision for taxes, equal to 13,457 thousand Euros (14,102 thousand Euros), includes 12,846 thousand
Euros (12,902 thousand Euros) for the temporary differences recorded in Group companies as well as
the tax effects deriving from the consolidation entries; all described in detail in the specific paragraph
“deferred/prepaid tax” of these Explanatory Notes.
Furthermore, tax provisions include probable liabilities for taxes and penalties of 610 thousand Euros
(1,200 thousand Euros) for tax audits on Renco S.p.A. conducted by the tax authorities on the years 2013
and 2014. Changes to this provision are as follows:
BALANCE SHEET ITEMS 31.12.2017 PROVISIONS USESTRANSLATION DIFFERENCES
CHANGE IN THE SCOPE OF
CONSOLIDATION 31.12.2018
Tax provisions, including deferred
Tax provisions, to be probably assessed
1,200 408 (998) - - 610
Deferred tax provision 12,902 1,278 (1,187) (50) (96) 12,847
Total 14,102 1,686 (2,185) (50) (96) 13,457
85
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
allocation of 408 thousand Euros to the tax provision for audits conducted by the tax authorities on the
year 2013;
use of the tax provision for the amount of 998 thousand Euros for settlement of the dispute for the
years 2013 and 2014 with the tax authorities;
change of a total of 645 thousand Euros in the provision for deferred taxes. In the section of this
explanatory note on the exposure of the effects of deferred taxes, details related to deferred tax
liabilities are provided.
Other reserves for risks and charges
The balance amounts to 7,183 thousand Euros (1,377 thousand Euros) and is made up as follows:
BALANCE SHEET ITEMS 31.12.2017USE FOR THE
YEARPROVISION FOR
THE YEAR 31.12.2018
Other provisions
Provision for legal disputes 906 - 199 1,105
Provision for warranties on plant orders - - 1,300 1,300
Provision to cover losses on equity investments
471 (471) 4,778 4,778
Total 1,377 (471) 6,277 7,183
Provision for legal disputes
The provision for legal disputes refers to the Congolese branch and is discussed in the paragraph
“Receivables” in the section “Financial fixed assets”. During the period, the balance increased to cover the
dispute with a Congolese customer, which in any case can be traced back to the legal dispute specified
above.
Provision for warranties on plant orders
Set up in 2018, the warranty fund takes into account recently updated contractual practices for orders for
industrial plants. It represents an estimate of the costs to be incurred for service under warranty between
the issue of the Preliminary Acceptance Certificate (“PAC”) and the Final Acceptance Certificate (“FAC”).
The PAC is the moment in which the ownership of the plant passes to the customer and the warranty
period commences (established on a contractual basis which usually lasts 24 months), and the FAC is
issued at the end of the warranty period. The provision is calculated on the basis of the historical incidence
of warranty costs for similar job orders. This provision was determined in the amount of 1,300 thousand
Euros upon reaching the CAP of some plant orders noted in the paragraph “Inventories”.
Provision to cover losses on equity investments
The change during the year refers to provisions of 46 thousand Euros relating to Renco Irem Construcoes
and 4,732 thousand Euros relating to Renco Food S.r.l. Additional information about the position of Renco
Food is provided in the section of these Notes entitled “Subsidiary companies that are not consolidated”
and “Receivables” under Financial fixed assets.
86
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Employee severance indemnity
DESCRIPTION OPENING BALANCE
TFR PAID DURING
THE YEAR PROVISIONS
CHANGE IN THESCOPE OF
CONSOLIDATION
OTHER CHANGES
(+/-)CLOSING
BALANCE
Employee severance indemnity
2,009 (139) 535 6 - 2,411
The provision allocated represents the amount effectively payable by the Group as of 31.12.2018 to its
employees in the workforce as of that date, net of any advances paid.
Payables
The breakdown and changes in the individual items are shown in the table below (Article 2427, paragraph
4 of the Italian Civil Code).
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Payables
1) Bonds 44,214 44,368 154
3) Payables to shareholders for loans 6,426 6,201 (225)
4) Payables to banks 92,787 93,670 883
5) Payables to other lenders 1,480 1,665 185
6) Advances 250,166 230,260 (19,906)
7) Trade payables 79,425 61,483 (17,942)
9) Payables to subsidiary companies that are not consolidated
38 1,925 1,887
10) Payables to associated companies 1,732 2,126 394
12) Tax payables 5,986 6,871 885
13) Payables to social security and welfare institutions 1,486 1,759 273
14) Other payables 14,884 13,833 (1,051)
Total 498,622 464,160 (34,463)
The tables relating to the breakdown of payables by due date and by geographical areas, respectively,
based on the combined provisions of art. 2427, point 6 of the Italian Civil Code are provided below.
87
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
BALANCE SHEET ITEMS WITHIN
12 MONTHSBEYOND
12 MONTHSBEYOND 5 YEARS TOTAL
Payables
1) Bonds - 44,368 - 44,368
3) Payables to shareholders for loans 6,201 - - 6,201
4) Payables to banks 44,101 45,753 3,816 93,670
5) Payables to other lenders 60 942 663 1,665
6) Advances 18,333 211,927 - 230,260
7) Trade payables 61,483 - - 61,483
9) Payables to subsidiary companies that are not consolidated
1,925 - - 1,925
10) Payables to associated companies 2,126 - - 2,126
12) Tax payables 6,871 - - 6,871
13) Payables to social security and welfare institutions
1,759 - - 1,759
14) Other payables 10,875 2,255 703 13,833
Total 153,734 305,245 5,182 464,160
DESCRIPTION 31.12.2017 31.12.2018
Italy 116,587 238,226
European Union 130,616 147,663
Russia and former USSR countries 69,234 21,106
Africa 174,775 50,400
Middle East 2,451 4,702
Other 4,959 2,063
Total 498,622 464,160
Bonds
The item “bonds” refers to the following bond issues:
bond issued on 13 August 2015 by the parent company Renco Group S.p.A. for the nominal amount
of 10 million Euros consisting of 100 bonds of 100,000 Euros each and maturing on 13 August 2020,
admitted to trading on the professional segment ExtraMOT PRO, interest rate 5%;
bond issued on 23 November 2017 by the parent company Renco Group S.p.A. for the nominal amount
of 35 million Euros consisting of 350 bonds of 100,000 Euros each and maturing on 23 November 2023,
admitted to trading on the professional segment ExtraMOT PRO, interest rate 4.75%.
It should be noted that the regulations of the bond issues contain the following financial covenants that
must be respected at group level. At the closing date of the financial year the envisaged covenants were
respected.
88
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
FINANCIAL EQUILIBRIUM RATIOS COVENANT CONSOLIDATED RESULT *
NFP/Equity ≤ 1.5 0.28
Net financial position
------------------------
Shareholders’ Equity
NFP/EBITDA ≤ 3.5 1.21
Net financial position
------------------------
EBITDA
Interest Coverage Ratio (ICS) ≥ 4.5 6.85
EBITDA
------------------------
Financial charges
*Computation in accordance with parameters defined in the regulations of the bonds.
Payables to shareholders for loans
Amounts due to shareholders for loans consist of the conversion in 2009 of the total coupon on bonds
matured in favour of the shareholders of the Parent Company Renco Group S.p.A. at 31 December 2008
and not yet paid by the company. The loan expiring on 31 December 2014 has been extended from time to
time until 21 December 2019. As a result of new guarantees given by the Parent Company to the subsidiary
Renco SpA, the shareholder loans were supplemented by a subordination clause valid until 31 December
2019.
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Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Payables to banks
The balance of payables to banks as of 31.12.2018, inclusive of loans, represents the effective liability for
principal, interest and related charges accrued and due.
During the year, the Group took out new loans of 10.4 million Euros (23.3 million Euros as of 31 December
2017), of which 7.2 million Euros related to loans obtained for the new Group headquarters in Pesaro,
2.7 million Euros for a medium/long-term loan and 0.5 million Euros (15.7 million Euros) as an advance
on contracts. The average weighted duration of the new loans acquires is 68 months. Some of the loans
granted to the Company envisage the observance of covenants which, as of the balance sheet date, were
observed.
It should be noted that during the year the subsidiary and consolidated Renco Capital S.r.l. obtained the
following loans for the construction of the new headquarters:
Floating rate loan of 1 million Euros maturing on 30 June 2025, indexed to the 6-month Euribor interest
rate and with a spread of 1.85%;
Floating rate loan of 2 million Euros maturing on 30 June 2022, indexed to the 6-month Euribor interest
rate and with a spread of 1.75%;
Mortgage loan up to 12 million Euros with maturity on 30 June 2032, indexed to the 6-month Euribor
interest rate and a spread of 2.3%. The amount disbursed as of 31 December 2018 amounted to 5.16
million Euros.
As of 31.12.2018, the balance of payables for foreign currency loans was USD 0.9 million.
The balance of payables to banks beyond 12 months totalling 49.6 million Euros is broken down as follows
(in parentheses the balances as of 31.12.2017):
6.3 million Euros (7 million Euros) is represented by a mortgage credit line granted to the subsidiary
Residence Viserba S.r.l. in view of the start of construction work for the area located in Viserba (Rimini);
1.7 million Euros (2.1 million Euros) is represented by the residual payable with maturity beyond 12
months of the loans to Joint Green S.r.l.;
34.9 million Euros (47.5 million Euros) is represented by the residual payable with maturity beyond 12
months of the loans to Renco S.p.A.
6.6 million Euros is represented by the residual payable with maturity beyond 12 months of the loans to
Renco Capital S.r.l.;
The balance of bank borrowings due beyond five years, which amounted to 3.8 million Euros, represents
the outstanding balance of the loan owed to Renco Capital S.r.l.
The company is currently in line with the payment of overdue instalments.
Payables to other lenders
“Payables to other lenders” of 1,665 thousand Euros (1,480 thousand Euros as of 31 December 2017)
include payables to leasing companies of 1 million euros, to the previous shareholders of Villa Soligo
S.r.l. of 0.7 million euros (position held by the company Villa Soligo S.r.l. and already present before the
acquisition).
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EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Advance payments
The balance of the item “Advance payments” includes advances already collected from customers when
ordering, advances received from customers on job orders in progress and advances relating to the rent-
to-buy contract. Specifically, advances amount to 6.5 million Euros (14.8 million Euros), advances on job
orders in progress amount to 218 million Euros (230 million Euros), advances to others relating to the
rent-to-buy contract stipulated in 2015 amount to 5.8 million Euros (5.8 million Euros). The decrease in the
“Advances” item is strictly related to the closure of ongoing contracts.
The amount of foreign currency advances is USD 29.7 million and LYD 6.3 million.
Trade payables
“Trade payables” amounting to 61,483 thousand Euros (79,425 thousand Euros as of 31.12.2017) are
recognised net of commercial discounts; cash discounts, on the other hand, are recognised at the time
of payment. The nominal value of these payables has been adjusted, at the time of returns or allowances
(invoicing adjustments), to an extent corresponding to the amount agreed with the counterpart.
Payables to subsidiary companies that are not consolidated
Payables to subsidiary companies that are not consolidated, equal to 1,925 thousand Euros (38 thousand
Euros as of 31 December 2017) refer to:
1.5 million Euros owed by Renco Power CJSC to its non-consolidated subsidiary Armpower CJSC for
unpaid share capital approved in December. Renco Power made the payment during 2019;
payables of the parent company Renco Group to the non-consolidated subsidiary Rentravel of 0.3
million Euros relate to positions arising from the tax consolidation;
other minor payables for subsidiary and non-consolidated companies of 0.1 million Euros.
Amounts due to associated companies
The item payables to associated companies of 2,126 thousand Euros (1,732 thousand Euros as of 31.12.2017)
includes short-term positions that are frequently transacted with Group companies. In particular, these are
payables of the company Renco S.p.A. to the associated companies Real Estate Management S.r.l. for 9
thousand Euros (4 thousand Euros as of 31 December 2017), Renco Qatar for 2,065 thousand Euros (1,672
thousand Euros as of 31 December 2017) and to the company Renco Irem Costrucoes for 51 thousand Euros.
Tax payables
The item “Tax payables” amounting to 6,871 thousand Euros (5,986 thousand Euros as of 31.12.2017)
includes only those payables representing certain taxes of known amount, as tax liabilities which are
91
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
probable or uncertain in amount or due date and deferred taxes are entered under item B.2 in the liabilities
(Provisions for taxes).
In particular, tax payables include:
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Tax payables
Payables for withholding taxes 1,999 1,065 (934)
Current tax liabilities 920 1,877 957
Payables for taxes to be assessed 838 1,407 569
Payables for VAT 1,553 1,436 (117)
Other tax payables 676 1,086 410
Total 5,986 6,871 885
Other payables
The balance of “Other payables” includes the following items:
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Payables to others
Payables to employees 4,889 5,394 505
Payables for rent-to-buy 3,319 2,958 (361)
Payables for the purchase of equity investments - 1,077 1,077
Dividends payable 500 500 -
Other sundry payables 6,176 3,904 (2,272)
Total 14,884 13,833 (1,051)
Amounts due to employees represent the payable for wages and salaries and holidays accrued by
employees.
The item “Payables for rent-to-buy” refers to the rent-to-buy contract stipulated in 2015 and relates to
the property in question included in the inventories. In this regard, it should be noted that in 2016 a deed
amending the rent-to-buy contract was signed. With the amendment to the contract, the buyer paid a
further advance for the portion of the consideration agreed for the sale of the property, taking over the
amount of 3,729 thousand Euros of the remaining portion of the mortgage loan taken out with MPS bank.
Since this is an external transaction with the bank’s consent but not in full discharge of its obligations,
the increase in advances paid and the cancellation of the loan payable to the bank were offset by the
recognition of the amount of 3,729 thousand Euros under other receivables and payables (amounts
reduced in 2018 as a result of the payment of loan instalments due during the year). In fact, in the event
of default by the buyer, the bank could request performance directly from Renco Real Estate S.r.l. as it is
obliged to do so on a subsidiary basis.
The “Payables for the purchase of equity investments” derive from the purchase of the equity investment
in Villa Soligo, whose debt due beyond one year has been appropriately discounted at a rate of 4.41%.
92
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Accrued liabilities and deferred income
These represent the connecting items for the accounting period reckoned on an accruals basis, and are
comprised as follows:
DESCRIPTION 31.12.2017 31.12.2018 CHANGE
Accrued expenses 1,118 1,000 (118)
- Interest expense and commissions 664 613 (51)
- Bond interest 345 345 -
- Derivatives 33 24 (9)
- Others 76 18 (58)
Deferred income 1,528 432 (1,096)
- Revenues from asset management 1,116 150 (966)
- Others 412 282 (130)
Total 2,646 1,432 (1,214)
These represent income and expense whose pertinence is advanced or deferred with respect to the cash
and/or documental manifestation and are irrespective of the date of payment or collection of the related
income and expense spanning two or more accounting periods which can be spread over time.
93
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
INCOME STATEMENT
Value of production
Indication is made of the composition of the value of production, as well as the changes in the individual
items, with respect to the previous year:
ITEM 31.12.2017 31.12.2018 CHANGE CHANGE %
Sales of goods and services 254,954 253,639 (1,315) (0.52)
Changes in inventories of work in progress, 52 (451) (503) na
Change in contract work in progress (28,059) (44,443) (16,384) -
Increases for in-house works 17,593 19,999 2,406 13.68
Other income and revenues 3,679 14,538 10,859 na
Total 248,219 243,282 (4,937) (1.99)
Revenues by category of activity
Below we provide the breakdown of value of production by production division.
ITEM 31.12.2017 31.12.2018 CHANGE CHANGE %
Services division 43,433 49,155 5,722 13.17
Construction division 70,614 36,447 (34,167) (48.39)
Real Estate Division 42,324 58,902 16,578 39.17
Energy division 91,848 98,778 6,930 7.55
Total 248,219 243,282 (4,937) (1.99)
The Renco Group achieved a “Value of Production” of 243,282 thousand Euros (248,219 thousand Euros in
the same period of 2017), with a decrease of 4,937 thousand Euros (-1.99%), substantially in line with the
previous year.
The maintenance of the value of production was supported by the Services Division, which contributed
with an increase of 5.7 million Euros, the Assets Management Division, with an increase of 16.6 million Euros
to which the sale of the Hotel Yerevan contributed, the values of which are specified in the “Introduction”
of this note, and the Energy Division with an increase of 6.9 million euros. The value of production of the
Construction Division decreased by 34 million Euros; it should be noted that in 2017 the construction work
of the TCO field was a determining element in reaching that value of production.
The result of the Energy Division, albeit on the increase, suffered delays not attributable to the Renco
Group in the contracts acquired which generated a production lower than expected.
For a complete analysis of the business performance, please refer to the Management Report.
94
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Revenues by geographic area
Below we provide the breakdown of value of production by geographical area.
GEOGRAPHIC AREA 31.12.2017 31.12.2018 CHANGE CHANGE %
Italy 37,494 35,722 (1,772) (4.73)
European Union 58,025 73,332 15,307 26.38
Russia and former USSR countries 86,200 55,901 (30,299) (35.15)
Africa 55,900 63,927 8,027 14.36
Middle East 5,300 7,400 2,100 39.62
Other 5,300 7,000 1,700 32.08
Total 248,219 243,282 (4,937) (1.99)
The table above shows the absolute value and the percentage weight of production by geographical area.
For a more in-depth analysis of the foreseeable evolution of operations and on the industrial and commercial
strategies, reference should be made to the Management Report.
Other income and revenues
The balance of “Other revenues and income” includes the following items:
ITEM 31.12.2017 31.12.2018 CHANGE
Other income and revenues
Capital gains from disposal of assets 1,019 13,272 12,253
Income from insurance 616 33 (583)
GSE photovoltaic contribution 524 478 (46)
Other sundry revenues 1,520 755 (765)
Total 3,679 14,538 10,859
The item “Capital gains from asset disposals” mainly consists of the capital gain from the sale of the
Armenian company Hotel Yerevan during the period, which owns the hotel of the same name.
Cost of production
Indication is made of the composition of the production costs, as well as the changes in the individual
items, with respect to the previous year:
95
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Cost of production
Raw, ancillary and consumable materials 83,395 61,203 (22,192)
Services 67,263 76,765 9,502
Leased assets 5,313 4,589 (724)
Wages and salaries 46,451 46,206 (245)
Social security contributions 8,024 8,311 287
Employee severance indemnity 1,472 1,372 (100)
Other personnel costs 588 588 -
Amortisation/depreciation of intangible fixed assets 675 705 30
Amortisation/depreciation of tangible fixed assets 7,728 9,323 1,595
Other amounts written off fixed assets - 248 248
Write-down of receivables included in current assets 421 1,469 1,048
Change in raw material inventories 259 2,254 1,995
Allocation for risks 876 199 (677)
Other provisions - 1,300 1,300
Other operating expenses 2,467 3,534 1,067
Total 224,931 218,066 (6,866)
Costs of raw materials
The item “Costs of raw materials” includes the following items:
ITEM 31.12.2017 31.12.2018 CHANGE
Raw, ancillary and consumable materials
Raw materials 77,445 54,911 (22,534)
Production components and materials 1,757 2,396 638
Capital goods valued less than € 516 196 50 (146)
Miscellaneous tools and equipment (repair parts, spare parts, building materials, etc.)
726 359 (367)
Fuel 2,131 1,048 (1,083)
Stationery and printed matter 158 923 765
Working clothes 450 285 (165)
Customs clearance materials 501 1,189 688
Other costs for raw materials 31 43 12
Total 83,395 61,203 (22,192)
The decrease in raw material purchase costs is attributable to the lower incidence of procurement activity
recorded in 2018.
96
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Service costs
“Costs for Services” includes the following items:
ITEM 31.12.2017 31.12.2018 CHANGE
Services
Work carried out by third parties 20,638 35,716 15,078
General works and services 1,770 5,144 3,375
Project collaborations 10,768 9,802 (966)
Transport costs 6,043 2,316 (3,727)
Costs for production licences 472 0 (472)
Property maintenance and repair 948 201 (747)
Motor vehicle maintenance and repair 262 510 248
Cleaning costs 144 228 84
Lighting 1,400 1,317 (83)
Other utilities 628 691 63
Postal and telephone charges 736 977 241
Security expenses 1,134 1,216 82
Technical and commercial consulting 3,702 4,063 361
Legal, administrative and tax consulting 1,392 1,832 440
Insurance 949 837 (112)
Travel expenses 3,741 3,885 144
Reimbursement of expenses 2,863 73 (2,790)
Other maintenance and repair 214 193 (21)
Advertising and promotional expenses 509 655 146
Personnel refresher courses 851 416 (435)
Software licences 786 1,242 456
Remuneration of corporate bodies 353 399 46
Company canteen 711 500 (211)
Health services 989 1,181 192
Bank commission 2,755 2,554 (201)
Other costs for services 2,508 818 (1,690)
Total 67,263 76,765 9,502
The amount for the financial year mainly includes 17 million Euros relating to the TAP Greece and TAP
Albania contracts of the Renco Terna Joint Venture and 51.2 million Euros relating to contract costs of
Renco SpA.
97
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
Costs for use of third party assets
The balance of “Costs for use of third party assets” includes the following items:
ITEM 31.12.2017 31.12.2018 CHANGE
Use of third party assets
Rental of premises and offices 3,458 2,705 (753)
Rental of vehicles and equipment 1,692 1,752 60
Other lease and rental expenses 164 133 (31)
Total 5,313 4,589 (724)
The amount mainly consists of rents for offices and warehouses and rental costs, of which 2.6 million Euros
for Renco SpA.
Personnel costs
The item “Personnel costs” totalling 56.5 million Euros, in line with 2017, mainly includes personnel costs of
41.7 million Euros relating to Renco S.p.A.
Below is the average number of employees of companies included in the consolidation with the line-by-line
method broken-down according to category.
DESCRIPTION 31.12.2017 31.12.2018 CHANGE AVERAGE NUMBER
Executives and Managers 56 59 3 58
Ordinary employees 645 706 61 676
Workers 2,367 2,467 100 2,417
Other 78 47 (31) 63
Total 3,146 3,279 133 3,213
98
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Other operating expenses
The balance of “Other operating expenses” includes the following items:
ITEM 31.12.2017 31.12.2018 CHANGE
Other operating expenses
Miscellaneous taxes 728 2,277 1,549
Membership fees 61 64 3
Rounding down 4 3 (1)
Administrative sanctions 286 159 (127)
Losses on receivables not covered by a specific provision
39 459 421
Capital losses on disposal of assets 632 25 (607)
Other sundry expenses 717 548 (169)
Total 2,467 3,534 1,067
The item “Other taxes” is mainly made up of 0.5 million Euros for the land occupation tax paid by the
company Renco Kat relating to the TCO field (whose construction was completed at the end of 2017), 0.9
million Euros for the non-deductible VAT of Baytree LLC on intercompany invoicing with Renco Zanzibar
and 0.4 million Euros for the taxes on real estate of the various Group companies.
Financial income and expenses
The item consists of the following.
ITEM 31.12.2017 31.12.2018 CHANGES
Financial income and expense
Income from equity investments due from subsidiary companies
- 4 4
Income other than the above 211 622 411
(Interest and other financial expenses) (4,541) (6,652) (2,111)
Exchange gains (losses) (7,341) (2,280) 5,061
Total (11,671) (8,305) 3,366
The item Interest and other financial charges equal to 6,652 thousand Euros includes interest of 1,114
thousand Euros deriving from the tax assessments closed in the period.
With regard to foreign exchange losses of 2.2 million Euros (exchange losses of 7.3 million Euros as of 31
December 2017), it should be noted that these include both the monetary changes on the items closed
during the year as well as “Unrealised exchange gains and losses” since they relate to transactions not yet
closed at the end of the period.
99
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
The economic result relating to realised and unrealised exchange differences reflects the trend of the
foreign exchange market that characterised 2018. In fact, with regard to the average exchange rates for
the period there was a consolidation of the Euro against the US Dollar, the Rouble, the Kazakh Tenge and
the Armenian Dram which again this year negatively impacted the exposure in these currencies of Group
companies present in these markets.
“Exchange gains (losses)” can be broken down as follows:
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Exchange gains 1,394 8,640 (7,246)
Exchange losses (2,191) (11,909) 9,718
Unrealised exchange gains 8,800 1,670 7,130
Unrealised exchange losses (15,343) (681) (14,662)
Total (7,341) (2,280) (5,061)
Income taxes for the period
BALANCE SHEET ITEMS 31.12.2017 31.12.2018 CHANGES
Income tax for the year
Current taxes 10,087 5,970 (4,117)
Taxes relating to previous years 66 2,605 2,539
Deferred/(prepaid) taxes 148 (1,794) (1,942)
Expenses (Income) from adhering to the tax consolidation
(517) (803) (286)
Total 9,784 5,978 (3,806)
The item Income taxes amounts to a total of 5,978 thousand Euros (9,784 thousand Euros), with a tax
rate of 49% (87% in the previous period). The tax rate for the year was affected by income from equity
investments benefiting from PEX (Participation Exemption).
Deferred/prepaid taxation
Deferred taxation is stated by the allocation to the tax provision, amounting to 12.8 million Euros. Deferred
taxes are calculated in accordance with the overall allocation approach, taking into account the cumulative
sum of all the timing differences on the average rates expected as of such time as these timing differences
shall reverse.
Prepaid taxes have been recorded since reasonable certainty exists regarding the occurrence – in the years
in which the deductible timing differences will reverse, against which prepaid taxes have been recorded –
of taxable income no lower than the total of the differences which will be cancelled.
The main timing differences which led to the reporting of deferred and prepaid taxes are indicated in the
following table together with the related effects.
100
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
YEAR 31/12/2017 YEAR 31/12/2018
VALUE OF TEMPORARY
DIFFERENCES TAX EFFECTAMOUNT OF TEMPO-RARY DIFFERENCES TAX IMPACT
Prepaid taxes
Unrealised exchange losses 86 21 45 11
Real estate lease instalments referring to land
81 23 94 27
Real estate depreciation referring to land 196 56 196 56
Maintenance costs 59 14 41 10
Maintenance costs 0 0 0 0
Provisions for risks and charges 906 253 2,552 706
Prepaid taxes foreign financial statements
16,111 3,222 19,759 3,952
ACE 7 2 9 2
Prepaid taxes on reserve for expected derivative flows
812 195 280 67
Tax losses that can be carried forward 4,833 1,160 392 94
Provision for credit depreciation 512 123 1,444 347
Other 147 35 26 6
Elimination of intercompany margins 5,973 1,875 6,832 1,906
Total deferred tax assets 23,751 6,980 24,838 7,184
Deferred taxes 0 0 0 0
Unrealised exchange gains 945 227 2,393 574
Reserve to cover cash flows 34 8 806 193
PO issue costs 757 182 632 152
Villa Soligo property greater value 0 0 538 150
Leasing accounting (equity method) 1,454 406 1,673 467
Deferred taxes foreign financial statements
16,924 3,385 8,307 1,661
Elimination of intercompany profits 877 263 877 694
Recognition of greater values 33,449 8,431 35,057 8,955
Recognition of Interrenko greater value (*) 264 53 0 0
Recognition of Renco kat greater value (*) 8,915 1,783 8,369 1,674
Recognition of Residence Viserba greater value (*)
22,043 6,150 22,043 6,150
Recognition of Renco AK greater value (*) 2,226 445 2,090 418
Recognition of Renco AK greater value (*) 0 0 2,555 713
Total deferred taxes 54,440 12,902 50,284 12,847
Net deferred tax liabilities (assets) 30,689 5,922 25,447 5,663
(*) These tax effects derive from the consolidation entries
101
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
OTHER INFORMATION
Disclosure on the fair value of derivative financial instruments
It should be noted that the Group decided to conclude derivative contracts to hedge the interest rate risk,
connected with part of the bank loans.
The detailed information required by Article 2427 bis, paragraph 1, no.1 of the Italian Civil Code is presented
as follows.
DESCRIPTION
FAIR VALUE
31/12/2017
2017 TAX
EFFECT
FAIR VALUE
31/12/20182018 TAX
EFFECT
CHANGE IN INCOME
STATEMENTCHANGE
IN SE NATURE
NOTIONAL IN THOU-
SANDS
INTEREST RATE SWAP
(231) 55 (170) 41 - 46
Derivative hedging on the risk of oscillating interest rates
25,000
IRS PLAIN VANILLA
(55) 13 (43) 10 - 9
Derivative hedging on the risk of oscillating interest rates
1,445
IRS PLAIN VANILLA
(55) 13 (43) 10 - 9
Derivative hedging on the risk of oscillating interest rates
1,445
INTEREST RATE SWAP
34 (8) (24) 6 - (44)
Derivative hedging on the risk of oscillating interest rates
8,500
CAP 36 - 8 - (28) -
Derivative hedging on the risk of oscillating interest rates
10,000
EURO/USD EXCHANGE OPTIONS
(471) 113 806 (193) - 970
Hedging derivative on exchange rates for future transactions
39,075 USD
Total (742) 187 535 (126) (28) 991
The Group has the following financial derivative instruments of the “Cash flow hedge” type to hedge
financing transactions and for which the following hedging relationship is present:
notional 25,000 thousand Euro IRS maturing on 11/10/2021 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative was credited to the “Reserve
for hedging operations for expected financial flows” net of deferred taxation and offset in item B 3)
“Derivative financial liability instruments” for the amount of 231 thousand Euros;
notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative was credited to the “Reserve
for hedging operations for expected financial flows” net of deferred taxation and offset in item B 3)
“Derivative financial liability instruments” for the amount of 55 thousand Euros;
102
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative was credited to the “Reserve
for hedging operations for expected financial flows” net of deferred taxation and offset in item B 3)
“Derivative financial liability instruments” for the amount of 55 thousand Euros;
notional 8,500 thousand Euro IRS maturing on 30/06/2025 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative was debited to the “Reserve
for hedging operations for expected financial flows” net of deferred taxation and offset in item B III)
4) “Derivative financial asset instruments” for the amount of 34 thousand Euros;
notional 10,000 thousand Euro interest rate cap maturing on 31/12/2021 with the frequency of
quarterly payment to hedge a loan for the same amount. The fair value of the derivative of 35,951
Euros was entered under item B III) 4) “Derivative financial asset instruments”;
Notional 39,075 thousand USD Euro/USD exchange rate options expiring on 30/06/2020 with a
frequency of half-yearly adjustment to hedge the capital contribution in USD that the Renco Group
will pay to finance the Yerevan Power Plant project. The fair value of the derivative was credited to
the “Reserve for hedging operations for expected financial flows” net of deferred taxation and offset
in item B 3) “Derivative financial liability instruments” for the amount of 471 thousand Euros
Related party transaction disclosure(Ref. Art. 38, first paragraph, lett. o-quinquies), Italian Legislative Decree No. 127/1991)
Transactions with related parties at normal market conditions were put in place. These transactions
relate to business activities carried out for long-standing clients, which have produced profitability in line
with corporate income parameters.
The table below summarises both commercial and financial transactions with related parties broken
down by category.
103
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
COMPANY REVENUES COSTS
FINANCE INCOME (EXPEN-
SES)TRADE RE-CEIVABLES
TRADE PAYABLES
OTHER PAYABLES
FINANCIAL RECEI-
VABLESFINANCIAL PAYABLES
Unconsolidated subsidiary companies
5,659 6 16 7,534 427 1,499 4,882 -
ARMPOWER 5,659 - 16 7,490 - 1,493 154 -
RENCO FOOD - - - 43 7 - 4,701 -
CONSORZIO RENCO LANCIA ITER
- 6 - - 24 - - -
REAL MOZ - - - - - 4 6 -
TRADEMARK - - - - - 0 - -
REN TRAVEL in liquidation
- - - - 396 - - -
NYASSA SANCTUARY
- - - - - - 12 -
ITALSEC MOZAMBICO
- - - - - 2 8 -
Associated companies
1,752 3,203 143 2,877 2,126 21,306
DARIN CONSTRUCTION
275 - 143 240 - - 12,783 -
VELOFIRMA 421 - - 917 - - 6,311 -
REAL ESTATE MANAGEMENT
289 - - 312 9 - 1,644 -
RENCO IREM COSTRUCOES
38 51 - 65 52 - 568 -
RENCO NIGERIA 613 - - 1,293 - - - -
TOLFA CARE SRL 115 - - 49 - - - -
RENCO QATAR - 3,152 - - 2,065 - - -
Other related parties
114 10 707 218 6,201
ISCO S.R.L. - 10 - 593 218 - - -
SHAREHOLDERS 114 - - 114 - - - 6,201
TOTAL 1,866 3,212 143 3,583 2,343 21,306 6,201
Information on significant events subsequent to the end of the financial year
Pursuant to art. 2427, no. 22-quater of the Italian Civil Code, the following significant events have occurred
in the period between the closing date of the financial year and today:
On 14 February 2019 Armpower and the pool of banks dedicated to the project signed the financing
agreements for the Yerevan power plant.
The financial closing with the disbursement of the loan is expected in May 2019.
Pending the financial closure, on 18 March 2019 Armpower and Renco signed the EPC contract for
construction and works began.
104
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
On 14 February 2019 Renco Power and its lender banks signed a contract for a commitment to capitalise
and retain ownership of the Armpower project company for the construction of the Yerevan power plant.
On 15 February 2019, Renco S.p.A. and Simest renewed and amended the investment agreement on Renco
Power Cjsc signed on 27 December 2017.
In 2019, Renco S.p.A. paid into Renco Power Cjsc’s account on the basis of the aforementioned contracts,
an amount equal to USD 43,187,992 as a share capital increase.
On the basis of the investment contract signed with Renco Spa, on 4 March 2019 Simest S.p.A. (Cdp
Group) paid € 11,000,000 as a share capital increase of Renco Power Cjsc.
As a result of the capitalisations made by Renco and Simest, Renco Power Cjsc has a total share capital of
US$ 56,070,000 equivalent and has therefore reached the capitalisation envisaged by the project for the
construction of the Yerevan power plant, as approved by the lending banks.
In March 2019 the Renco Group inaugurated the hotel in the city of Pointe Noire, in the Republic of Congo.
The structure is the second “Double Tree By Hilton” Hotel, after the positive experience of opening the first
Hilton, built in the city of Yerevan, capital of Armenia.
The hotel owned by Renco Gestion Immobiliere was designed, developed and built by Renco, which fully
financed it, and it will be managed directly like the other hotels of the Group. The property is affiliated with
the Hilton Worldwide Group category and consists of 121 rooms.
Off balance sheet commitments, guarantees and contingencies
Below is the total amount of commitments, guarantees and potential liabilities not shown in the balance
sheet, with indication of the nature of the collateral provided; the existing commitments on retirement
and similar commitments, as well as the commitments entered into with subsidiary companies, associated
companies, parent companies and companies subject to the control of the latter are indicated separately:
DESCRIPTION 31.12.2017 31.12.2018 CHANGES
Memorandum accounts of third-party risks 262,650 265,182 2,532
Memorandum accounts of commitments undertaken 198 185 (13)
Total 262,848 265,367 2,519
The following section provides information on the composition and nature of commitments and other
memorandum accounts, knowledge of which is useful for assessing the financial position of the company,
with specific indication of those relating to subsidiary companies, associated companies, parent companies
and partner companies.
The total amount of sureties issued by the Group at 31 December 2018 was 265.2 million Euros (262 million
Euros in 2017). The detail of sureties is provided below:
79.3 million Euros (90.2 million Euros in 2017), guarantees issued by Renco S.p.A. to clients, against the
commitments assumed by Group companies for the proper execution of acquisitions. The item consists
of performance bonds of 42.1 million Euros (47.9 million Euros in 2017), advance payment bonds of 29.2
105
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
million Euros (38.4 million Euros in 2017), bid bonds and stand by letters of 4.3 million Euros (2.7 million
Euros in 2017) and other guarantees of 3.8 million Euros (1.2 million Euros in 2017);
12.9 million Euros relate to the insurance guarantee issued by Residence Viserba S.r.l. to the city of
Rimini to guarantee the subsequent free transfer to the latter of the urbanisation works in the Viserba
area.
185.9 million Euros (159.7 million Euros in 2017) relate to parent company guarantees issued by Renco
Group to guarantee the obligations undertaken by Renco S.p.A with financial institutions, relating to
credit lines and loans granted by said institutions.
With reference to the commitments taken, it should be noted that 185 thousand Euros refer to the
commitment taken by the subsidiary Joint Green Srl, with the acquisition of the fixed-term (22 years) rights
on the Fossombrone area, to pay an annual instalment until the expiry of the right of the same.
Disclosure regarding off balance sheet agreements
(Ref. Art. 38, first paragraph, letter o-sexies), Italian Legislative Decree No. 127/1991)
The Group has no agreements in place not resulting from the Balance Sheet.
Information on the fees due to the independent auditor
(Ref. Art. 38, first paragraph, lett. o-septies), Italian Legislative Decree No. 127/1991)
In accordance with the law, please note the fees for the year for services provided by the statutory
independent auditing firm and entities belonging to its network to the Group:
fees due for the statutory audit of the consolidated accounts: 162.1 thousand Euros.
Other information
In accordance with the law, please note the total fees due to the directors, the members of the Board
of Auditors of the parent company including those due for the performance of these tasks also in other
businesses included in the consolidation.
OFFICE RENCO GROUP S.P.A. RENCO S.P.A. FEE
Directors 145.6 85.1 230.7
Board of auditors 17.5 72.8 90.3
Total 163.1 157.9 321.0
These consolidated financial statements, comprising the balance sheet, income statement and explanatory
notes, provide a true and fair view of the equity and financial situation as well as the economic result,
and are consistent with the underlying accounting records of the parent company, and the information
provided by the companies included in the consolidation.
106
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
Attachments to the consolidated financial statements:
list of companies included in the consolidation using the line-by-line method in accordance with Art. 26
of Italian Legislative Decree 127/91;
list of companies included in the consolidation using the proportional method in accordance with Art.
37 of Italian Legislative Decree 127/91
list of other equity investments in subsidiary and associated companies not consolidated;
list of other equity investments;
reconciliation table between the financial statements of the parent company and the consolidated
financial statements;
statement of changes in consolidated shareholders’ equity accounts.
Pesaro 20.04.2019
On behalf of the Board of Directors
The Chairman
Giovanni Gasparini
107
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
A T T A C H M E N T 1 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 8
List of companies included in consolidation using the line-by-line method in accordance with Art. 26 of Italian Legislative Decree 127/91 as of 31/12/2018
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL SHAREHOLDERS SHARE PROP. SHARE CONS.
RENCO S.P.A. ITALY EUROS 60,000,000RENCO GROUP S.P.A.
99.51% 99.51%
RENCO REAL ESTATE S.R.L.
ITALY EUROS 100,000 RENCO S.P.A. 100.00% 99.51%
RENCO HEALTH CARE S.R.L.
ITALY EUROS 100,000 RENCO S.P.A. 90.00% 89.56%
JOINT GREEN SRL
ITALY EUROS 10,000 RENCO S.P.A. 100.00% 99.51%
RENCO CAPITAL S.R.L.
ITALY EUROS 100,000RENCO GROUP S.P.A.
99.99% 99.99%
RESIDENCE VISERBA S.R.L.
ITALY EUROS 1,425,420 RENCO S.P.A. 100.00% 99.51%
ARENGEST S.R.L. ITALY EUROS 10,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
ITALSEC S.R.L. ITALY EUROS 100,000 RENCO S.P.A. 90.00% 89.56%
RENCO ARMESTATE LTD
ARMENIA DRAM 500,992,000 RENCO S.P.A. 100.00% 99.51%
ARMENIA GESTIONE
ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
PIAZZA GRANDE LLC
ARMENIA DRAM 500,000,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
NUOVO VELODROMO
ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
ITALSEC ARMENIA
ARMENIA DRAM 100,000 ITALSEC S.R.L. 100.00% 89.56%
RENCO POWER CJSC
ARMENIA DRAM 100,000 RENCO S.P.A. 100.00% 99.51%
RENCO-KAT S.R.L.
KAZAKHSTANTENGE KAZAKHSTAN
74,600,000 RENCO S.P.A. 50.00% 49.76%
RENCO PROPERTY LLP
KAZAKHSTANTENGE KAZAKHSTAN
74,600,000 RENCO S.P.A. 100.00% 99.51%
INTERRENKO LTD.
RUSSIARUSSIAN RUBLE
134,500 RENCO S.P.A. 100.00% 99.51%
SOUTHERN CROSS LLC
RUSSIARUSSIAN RUBLE
37,256,408GRAPEVINE INVESTIMENTOS E SERICOS LDA
100.00% 49.76%
RENCO SAKH LLP
RUSSIARUSSIAN RUBLE
233,278,000RENCO REAL ESTATE S.P.A.
100.00% 99.51%
BAYTREE INVESTIMENTOS E SERVICOS LDA
PORTUGAL EUROS 5,000 RENCO S.P.A. 100.00% 99.51%
GRAPEVINE INVESTIMENTOS E SERICOS LDA
PORTUGAL EUROS 5,000BAYTREE INVESTIMENTOS E SERVICOS LDA
50.00% 49.76%
108
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
RENCO ZANZIBAR LTD
TANZANIA SHILLING RENCO S.P.A. 100.00% 99.51%
RENCO TANZANIA LTD
TANZANIA SHILLING 20,000,000 RENCO S.P.A. 99.00% 98.52%
RENCO MOZAMBICO LTP
MOZAMBIQUE METICAL250,000
RENCO S.P.A.
RENCO REAL ESTATE S.R.L.
94.50% 96.53%
2.50% 96.53%
RENCOTEK MOZAMBIQUE METICAL10,000,000
RENCO REAL ESTATE S.R.L.
RENCO S.P.A. 99.00% 99.51%
1.00% 99.51%
RENCO ENERGIA LDA
MOZAMBIQUE METICAL 250,000 RENCO S.P.A. 62.50% 62.19%
RENCO GESTION IMMOBILIERE
CONGOAFRICAN FRANC
10,000,000RENCO REAL ESTATE S.R.L.
70.00% 69.66%
ITALSEC CONGO CONGOAFRICAN FRANC
10,000,000 ITALSEC S.R.L. 100.00% 89.56%
ANGORENCO LDA
ANGOLAREADJUSTADO KWANZA
750,000RENCO S.P.A.
RENCO GROUP S.P.A.
1.00% 99.52%
99.00% 99.52%
RENCO MAR MOROCCOMOROCCAN DIRHAM
1,000,000 RENCO S.P.A. 97.00% 96.53%
RENCO ENERGIES SA
MOROCCOMOROCCAN DIRHAM
300,000 RENCO MAR 59.70% 57.63%
RENCO ALGERIA ALGERIAALGERIAN DINAR
1,000,000 RENCO S.P.A. 100.00% 99.51%
BAYTREE LLCUNITED STATES OF AMERICA
US DOLLAR 12,482BAYTREE INVESTIMENTOS E SERVICOS LDA
100.00% 99.51%
VILLA SOLIGO SRL
ITALY EUROS 93,080RENCO REAL ESTATE S.R.L.
100.00% 99.51%
RENCO CANADA CANADACANADIAN DOLLAR
100 RENCO S.P.A. 100.00% 99.51%
List of companies included in consolidation using the net equity method in accordance with Art. 26 of
Italian Legislative Decree 127/91 as of 31/12/2018
COMPANY NAMEREGISTERED OFFICE CURRENCY
SHARE CAPITAL
SHAREHOL-DERS SHARE PROP. SHARE CONS.
ARMPOWER CJSC ARMENIA DRAM 100,000 RENCO S.P.A. 60.00% 59.71%
RENCO CAPITAL S.R.L. ITALY EUROS 100,000 RENCO S.P.A. 100.00% 99.51%
TOLFA CARE S.R.L. ITALY EUROS 825,000RENCO HEALTH CARE S.R.L.
47.50% 42.54%
Chairman of the Board of Directors
Giovanni Gasparini
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL SHAREHOLDERS SHARE PROP. SHARE CONS.
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Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
A T T A C H M E N T 2 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 8
List of companies included in consolidation using the proportional method in accordance with Art. 37 of Italian Legislative Decree 127/91 as of 31/12/2018
COMPANY NAMEREGISTERED OFFICE SHARE CAPITAL SHAREHOLDERS
PROP. HOLDING
CONS. HOLDING
Currency Amount % %
TERNA GREECE JV GREECE EUROS 0 RENCO S.P.A. 50.000 50.000
110
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
A T T A C H M E N T 3 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 8
List of other equity investments in subsidiary companies (not consolidated) and associated companies
COMPANY NAMEREGISTERED OFFICE CURRENCY
SHARE CAPITAL SHAREHOLDERS
SHARE PROP.
SHARE CONS.
VELOFIRMA (1) ARMENIA DRAM 4,100,000NUOVO VELODROMO
58.00% 57.72%
CONSORZIO STABILE RENCO LANCIA GAMMA (3)
ITALY EUROS 100,000 RENCO S.P.A. 65.00% 64.68%
TOLFA CARE S.R.L. ITALY EUROS 825,000RENCO HEALTH CARE S.R.L.
47.50% 42.54%
REAL ESTATE MANAGEMENT S.R.L.
ITALY EUROS 10,000RENCO REAL ESTATE S.R.L.
30.00% 29.85%
RENCO QATAR QATAR RYAL QATAR 200,000 RENCO S.P.A. 49.00% 48.76%
DARIN CONSTRUCTION
KAZAKHSTANTENGE KAZAKHSTAN
3,500,000RENCO REAL ESTATE S.R.L.
25.00% 24.88%
RENCO NIGERIA NIGERIANIGERIAN NAIRA
15,977 RENCO S.P.A. 49.00% 48.76%
NIASSA SANCTUARY LTD (3)
MOZAMBIQUE METICAL
100,000 REAL MOZ 50.00% 49.76%
ITALSEC MOZAMBICO (3)
MOZAMBIQUE METICAL
250,000 ITALSEC S.R.L. 100.00% 89.56%
REAL MOZ LDA (3) MOZAMBIQUE METICAL250,000
RENCO S.P.A.
RENCO REAL ESTATE S.R.L.
99.00% 98.52%
1.00% 1.00%
TRADEMARK ITALY LLP (3)
KAZAKHSTANTENGE KAZAKHSTAN
240,500 RENCO S.P.A. 50.00% 49.76%
RENTRAVEL S.R.L. (2) ITALY EUROS 10,000RENCO GROUP S.P.A.
99.99% 99.99%
RENCO IREM CONSTRUCOES LDA
MOZAMBIQUE METICAL 10,000,000 RENCO S.P.A. 31.25% 31.10%
REASONS FOR EXCLUSION
Company exempt from consolidation since not controlled based on contractual agreements
Company exempt from consolidation because it is in liquidation
Company excluded since insignificant
Chairman of the Board of Directors
Giovanni Gasparini
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Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
A T T A C H M E N T 4 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 8
Figures are given in thousands of Euros
Statement reconciling the net result and shareholders’ equity of the consolidating company with the respective values resulting from the consolidated financial statements
The group consolidated shareholders’ equity and consolidated economic results as of 31/12/2018 are
reconciled with those of the parent company as follows:
SHAREHOLDERS’
EQUITY RESULT
Shareholders’ equity and period result as recorded in the financial year of the parent company 79,617 1,721
Effect of adjustments made in application of the accounting standards 10 312
a) Adoption of IAS 17 (44) (168)
b) Valuation of non-consolidated associated and subsidiary companies using the equity method 53 480
Elimination of the book value of consolidated investments: 86,457 5,030
a) Net effect of elimination of the book value of the consolidated shareholdings with the relative shareholders’ equity and results
29,336 14,311
b) Reversal of write-downs/revaluations of equity investments 31,791 10,828
c) Reversal of intercompany dividends, investee companies - (12,010)
d) Value of net capital gains attributions at the acquisition date of investee companies net of the related tax effect
25,331 (785)
e) Elimination of capital gains from disposal of equity net of the related tax effect - (7,314)
Other consolidation entries net of the related tax effect (5,442) (962)
a) Elimination of intercompany profits net of the related tax effect (6,306) (1,217)
b) Other consolidation entries net of the related tax effect 864 255
Consolidated shareholders’ equity and period result 160,642 6,100
Chairman of the Board of Directors
Giovanni Gasparini
112
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018 ⏐ Renco Group Spa
A T T A C H M E N T 5 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 8
Amounts are shown in Euros.
Consolidated group statement of changes in shareholders’ equity
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Balance as of 31.12.2016
9,013 25,988 4,802 1,029 15,415 25,026 (3,609) (429) 5,910 (18,862) 78,194 10,240 152,717 3,418 156,135
Allocation of net income for the year
- - - 139 2,643 - - - - - 7,458 (10,240) - - -
Dividends paid - - - - - - - - - - - - - (19) (19)
Fair value measurement of reserve to hedge expected financial flows
- - - - - - - (162) - - - - (162) - (162)
Other changes - - - - - - - - - (6,866) 1,892 - (4,974) (73) (5,047)
Result for the current year
- - - - - - - - - - - 707 707 798 1,505
Balance as of 31.12.2017
9,013 25,988 4,802 1,168 18,058 25,026 (3,609) (591) 5,910 (25,728) 87,544 707 148,288 4,124 152,412
Allocation of net income for the year
- - - 113 2,140 - - - - - (1,546) (707) - - -
Dividends paid - - - - - - - - - - - - - (19) (19)
Fair value measurement of reserve to hedge expected financial flows
- - - - - - - 986 - - - - 986 5 991
Other changes - - (106) - - - - 3 (1,597) 1,786 965 - 1,049 108 1,158
Result for the current year
- - - - - - - - - - - 8,755 8,755 (2,655) 6,100
Balance as of 31.12.2018
9,013 25,988 4,696 1,281 20,198 25,026 (3,609) 398 4,313 (23,942) 86,963 8,755 159,078 1,563 160,642
Chairman of the Board of Directors
Giovanni Gasparini
113
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2018
114
115
Management Report accompanying the consolidated
financial statements as of 31/12/2018
Concept design and layout by
Studio grafico Agostini, Rome
Published in July 2019
© Renco Group S.p.A.