Consolidated and Parent Company Financial Statements at 31 December 2010 of EEMS Italia

Transcription

1 Consolidated and Parent Company Financial Statements at 31 December 2010 of EEMS Italia

2 Contents Contents...2 DIRECTORS' REPORT...5 EEMS ITALIAN GROUP - OPERATIONS AND PERFORMANCE Group structure Board of Directors, Statutory Auditors, Independent Auditors Nature of the business and Activities Information regarding the preparation of the accounts on a going-concern basis Significant events in the business Comments on the Group s position, operations and results Shares held by key managers Capital expenditures Global scene: Semiconductors sector Global scene: Photovoltaic sector Research and development Management and Control Organisational Model pursuant to...20 Legislative Decree 231/ Report on corporate governance and ownership Treatment of personal data Related parties and intercompany transactions Atypical and/or unusual transactions Financial risk Other risks and uncertainties Outlook for the business Events subsequent to the year end...23 EEMS ITALIA S.P.A. - OPERATIONS AND PERFORMANCE Summary of results Major shareholders Proposal for the approval of the 2010 financial statements of...26 EEMS Italia S.p.A. and allocation of the results for the year...26 Consolidated Financial Statements...27 of the EEMS Italia Group at 31 December CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 31 DECEMBER CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED DECEMBER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FORM AND STRUCTURE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATION AREA INFORMATION ON THE EVALUATION OF THE GROUP AS A GOING CONCERN ACCOUNTING STANDARDS AND VALUATION METHODS OPERATIONS SOLD DURING THE YEAR SEGMENT REPORTING BUSINESS COMBINATIONS AND OTHER SIMILAR VENTURES REVENUES OTHER OPERATING INCOME RAW MATERIALS AND CONSUMABLE STORES USED SERVICES STAFF COSTS

3 12. OTHER OPERATING COSTS FINANCIAL INCOME AND CHARGES TAXES EARNINGS PER SHARE GOODWILL AND DEFINITE-USEFUL-LIFE INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT - CORPORATE-OWNED AND ASSETS HELD UNDER FINANCIAL LEASES OTHER NON-CURRENT AND CURRENT ASSETS TRADE RECEIVABLES RECOVERABLE TAXES CASH AND CASH EQUIVALENTS EQUITY CURRENT AND NON-CURRENT FINANCIAL LIABILITIES PROVISIONS FOR FUTURE RISKS AND CHARGES TRADE PAYABLES TAXES PAYABLE OTHER CURRENT LIABILITIES NET FINANCIAL DEBT FINANCIAL RISK RELATED PARTIES AND INTERCOMPANY TRANSACTIONS SIGNIFICANT NON-RECURRENT EVENTS AND OPERATIONS ATYPICAL AND/OR UNUSUAL TRANSACTIONS KEY MANAGEMENT COMPENSATION INFORMATION TO BE PROVIDED PURSUANT TO ARTICLE 149-DUODECIES OF CONSOB REGULATION REGOLAMENTO EMITTENTI AVERAGE NUMBER OF EMPLOYEES EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE LIST OF INVESTMENTS ATTESTATION REGARDING THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154 BIS OF LEGISLATIVE DECREE 58/ Parent Company Financial Statements...97 of EEMS Italia S.p.A. at 31 December PARENT COMPANY INCOME STATEMENT PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME PARENT COMPANY BALANCE SHEET PARENT COMPANY STATEMENT OF CASH FLOWS PARENT COMPANY STATEMENT OF CHANGES IN EQUITY NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS FORM AND STRUCTURE OF THE PARENT COMPANY FINANCIAL STATEMENTS INFORMATION ON THE EVALUATION OF THE COMPANY AS A GOING CONCERN ACCOUNTING STANDARDS AND VALUATION METHODS REVENUES OTHER OPERATING INCOME RAW MATERIALS AND CONSUMABLE STORES USED SERVICES STAFF COSTS OTHER OPERATING COSTS FINANCIAL INCOME AND CHARGES TAXES DEFINITE-USEFUL-LIFE INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT - CORPORATE-OWNED AND ASSETS HELD UNDER FINANCIAL LEASES INVESTMENTS OTHER NON-CURRENT AND CURRENT ASSETS TRADE RECEIVABLES RECEIVABLES AND PAYABLES WITH SUBSIDIARIES RECOVERABLE TAXES CASH AND CASH EQUIVALENTS EQUITY CURRENT AND NON-CURRENT FINANCIAL LIABILITIES PROVISIONS FOR FUTURE RISKS AND CHARGES TRADE PAYABLES TAXES PAYABLE

4 25. OTHER CURRENT LIABILITIES NET FINANCIAL DEBT FINANCIAL RISK RELATED PARTIES AND INTERCOMPANY TRANSACTIONS SIGNIFICANT NON-RECURRENT EVENTS AND OPERATIONS ATYPICAL AND/OR UNUSUAL TRANSACTIONS KEY MANAGEMENT COMPENSATION INFORMATION TO BE PROVIDED PURSUANT TO ARTICLE 149-DUODECIES OF CONSOB REGULATION REGOLAMENTO EMITTENTI AVERAGE NUMBER OF EMPLOYEES EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE ATTESTATION REGARDING THE PARENT COMPANY FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154 BIS OF LEGISLATIVE DECREE 58/

5 DIRECTORS' REPORT 5

6 This Directors' Report contains data and information explaining, pursuant to Legislative Decree 32/2007, both the consolidated and the parent company financial statements of EEMS Italia S.p.A. at 31 December EEMS Italian Group - Operations and Performance 1. Group structure The EEMS Group at 31 December 2010 comprises the companies shown below (operating companies are shown in yellow). EEMS Italia S.p.A. (Italy) 100% 100% 100% EEMS Asia Pte Ltd (Singapore) EEMS Sing. Pte Ltd (Singapore) Solsonica S.p.A. (Italy) 100% EEMS China Pte Ltd (Singapore) 50% Kopernico S.r.l. (Italy) 100% EEMS Suzhou Co Ltd (China) 100% Solsonica Energia S.r.l. (Italy) 100% EEMS S. Tech. Co Ltd (China) 6

7 2. Board of Directors, Statutory Auditors, Independent Auditors The Board of Directors consists of eleven members, namely: Office Name Date appointed Place and date of birth Chairman Raffaele Nobili 30 April 2010 Brescia, 11 November 1930 Managing Director Vincenzo D Antonio 29 April 2008 Orta di Atella (Naples), 11 April 1945 Non-executive Director Guido Cottini 29 April 2008 Cuneo, 15 April 1942 Non-executive Director Carlo Bernardocchi 30 April 2010 Non-executive Director Giancarlo Malerba 30 April 2010 Verona, 11 September 1965 Salice Salentino (Lecce), 12 May 1961 Non-executive Director Paolo Andrea Mutti 30 April 2010 Milan, 25 March 1965 Non-executive Director Marco Stefano Mutti 30 April 2010 Milan, 1 May 1964 Independent Director Simone Castronovo 30 April 2010 Cesano Boscone (Milan) 11 February 1971 Independent Director Adriano De Maio 30 April 2010 Biella, 29 March 1941 Independent Director. Giuseppe Farchione 29 April 2008 Pescara, 5 July 1960 Independent Director. Stefano Lunardi 1 December 2008 Genoa, 23 December 1971 The present Board of Directors will remain in office until the approval of the 31 December 2010 Annual Report. On 30 April 2010 the Shareholders Meeting raised the number of directors to eleven. For the purposes of their office, the members of the Board of Directors are domiciled at the EEMS registered office located in Cittaducale (Rieti, Italy), Viale delle Scienze 5. 7

8 Board of Statutory Auditors Pursuant to article 24 of the Company s statutes, the Board of Statutory Auditors is composed of three Statutory Auditors in office and two alternate Statutory Auditors, appointed in such a way as to ensure that the minority shareholders can appoint one Statutory Auditor in office and one alternate Statutory Auditor. Their term of office lasts for three years and they may be re-elected. The Board of Statutory Auditors, who will remain in office until the approval of the 31 December 2010 Annual Report, was appointed at EEMS s Shareholders Meeting on 29 April 2008, and consists of the following members: Office Name Place and date of birth Chairman Vincenzo Donnamaria Rome, 4 October 1955 Statutory Auditor in office Felice De Lillo Senise (Potenza), 25 November 1963 Statutory Auditor in office Francesco Masci L Aquila, 23 October 1955 Alternate Statutory Auditor Egidio Filetto Ottaviano (Naples), 1 July 1970 Alternate Statutory Auditor Massimo Pagani Guazzugli Bonaiuti Pesaro, 15 July 1946 For the purposes of their office, the members of the Board of Statutory Auditors are domiciled at EEMS s registered office located in Cittaducale (Rieti, Italy), Viale delle Scienze 5. Independent Auditors Reconta Ernst&Young S.p.A. 2. Nature of the business and Activities The EEMS Group, which is controlled by EEMS ITALIA S.p.A. (in short, EEMS Italia, the parent company or the Company ) is among the leading operators at world level in the assembly, testing and finishing of semiconductor memories. Through its subsidiary Solsonica SpA it produces photovoltaic cells and modules and develops complete solutions for the design and realisation of photovoltaic systems. Its headquarters are in Cittaducale (Rieti, Italy), with a strong operational presence in China. Memories Business The Group provides a full range of back-end services including all the final phases of the assembly, packaging, testing and finishing of DRAM memories and DIMM memory modules. All this is achieved thanks to the use of high level technological equipment which is continually updated to allow us to maintain the leadership which is necessary for us to provide our customers with state of the art production. In this situation, through our continual research and development activities we are able to adjust rapidly to technological changes in processes and production. 8

9 The range of services offered by the Company includes: Assembly and testing of packages; Assembly and testing of memory modules and cards; Qualification, reliability control and breakdown analysis services; Packages, modules and cards design; Writing, correlation and adjustment of testing software programmes. Photovoltaic business (Production of photovoltaic cells and panels) Solsonica was established as the result of the EEMS Group s strategy to diversify its production into a new area with high growth potential, such as the photovoltaic market. Capitalising on its industrial background built up over 30 years of experience in the highly competitive, technology-intensive, semiconductors market, Solsonica set the ground in 2008 to stand out as a leading player in the PV industry on a national and worldwide basis. The production of photovoltaic cells is done through processing silicon wafers. The modules are produced through the use of cells manufactured in the Cittaducale plant or else purchased on the open market. 3. Information regarding the preparation of the accounts on a going-concern basis The present financial statements have been prepared from the perspective of the business as a going concern. 4. Significant events in the business Restructuring of the syndicated bank loan During the course of the year the Company worked intensively with its advisors to complete the financial restructuring process which had been initiated at the beginning of Two agreements were signed with the Syndicate. Specifically: - on 26 March 2010 a Revolving Facilities Agreement was signed whereby new lines of credit were made available to the subsidiary Solsonica; - on 30 March 2010 an agreement was made renegotiating the original loan, through the signing of an Amended and Restated Facilities Agreement. With these agreements conclusion was reached in the process of redefining the terms and conditions of the main loan to the Group and defining a funding system which is more in line with expected results in the sectors in which the Group is engaged and with the working capital and investment requirements of Solsonica. For further details reference should be made to Note 23 to the consolidated financial statements and Note 21 to the parent company financial statements relating to financial debt. 9

10 Sale of the holding in EEMS Test Singapore On 2 August 2010 Eems Asia Pte. Ltd. (held entirely by Eems Italia) sold 100% in its own subsidiary Eems Test Singapore Pte. Ltd. to ASE Singapore Pte. Ltd. ( ASE ). The results of the sale of Eems Test are described in the notes to the consolidated financial statements. For a complete description of the operation reference should be made to the information statements published on 9 August 2010 which has already been summarised in the consolidated half-year report at 30 June 2010 which was approved by the EEMS Italia Board of Directors on 27 August Comments on the Group s position, operations and results On the basis of what is reported in the section Significant events in the business, the Company in drawing up the present financial report at 31 December 2010 has applied the provisions of IFRS 5. Accordingly, the financial data at 31 December 2010 (and the comparative income statement figures at 31 December 2009) have been reclassified presenting separately those relating to continuing operations and those relating to operations held for sale. a) Income Statement selected data (in thousands of euros) Change % Total operating revenues 192, ,187 88% Operating result before depreciation and amortisation and writeback/writedown of non-current assets 31,468 13, % Operating result (635) (17,338) -96% Result for the year from continuing operations (4,894) (22,271) -78% Result for the year from sold operations 2,085 2,052 2% Total overall net result (2,809) (20,219) -86% Number of shares 43,597,120 42,502,845 Number of employees in continuing operations 1,456 1,870 Total Group operating revenues from continuing operations in the year ended 31 December 2010 amount to about 192,058 thousand euros, up significantly (about 88%) on year These results relate to the Semiconductors and Photovoltaic sectors in which the Group operates. Note should be taken in particular of the growth in the Photovoltaic business (through the subsidiary Solsonica) which closed year 2010 with turnover of 109,817 thousand euros compared with about 37,037 thousand euros in Also the operating result before depreciation and amortisation (EBITDA) shows significant growth on the preceding year. EBITDA for year 2010 was about 31,468 thousand euros, benefiting from volumes recovery in the semiconductors division and the significant growth in business and margins realised in the photovoltaic sector through the subsidiary Solsonica. 10

11 For information purposes we report below the Group income statement figures at 31 December 2010 (together with the comparative figures at 31 December 2009) considering those relating to both continuing and operations held for sale. (in thousands of euros) Change % Total operating revenues 215, ,519 62% Operating result before depreciation and amortisation and writeback/writedown of non-current assets 43,102 25,532 69% Operating result 4,458 (15,491) -129% Result for the year (2,809) (20,219) -86% b) Selected balance sheet data (in thousands of euros) 31/12/ /12/2009 Total Non-current Assets 143, ,845 Total Current Assets 85,266 62,454 Total Assets held for sale - - Total Assets 228, ,299 Equity 110, ,189 Total Equity 110, ,799 Total Non-current Liabilities 5,053 9,189 Total Current Liabilities 112, ,921 Total Equity and Liabilities 228, ,299 The decrease in assets from 31 December 2009 is mainly attributable to the sale of the subsidiary EEMS Test Singapore. c) Summary cash flow data (in thousands of euros) Cash flow from operating activities 19,945 8,231 Cash flow from investing activities 34,096 (12,588) Cash flow from financing activities (35,533) (15,107) Effect of exchange rates on cash (1,986) (58) Net cash flows for the year 16,521 (19,522) Operating activities generated cash flows for about 20 million euros, significantly up on 2009, as a direct consequence of the excellent performance of both sectors of the Group s business. Cash flows generated by investing activities consist mainly of the net proceeds coming from the sale of the subsidiary Eems Test, for about 56 million euros, which were reduced in particular by cash used to acquire machinery and plant for about 18 million euros. Cash generated by the above activities was partly used to extinguish loans for a total amount of 36 million euros. 11

12 d) Summary data per business segment for continuing operations Turnover and Margins Description (in thousands of euros) Change Change Change % % % Revenues Ebitda* Ebit (Operating results) Semiconductors 81,644 64, % 18,936 15, % (10,547) (14,211) 25.8 % Photovoltaic 110,237 37, % 11, ns 8,215 (1,215) ns EEMS Italia 14,155 9, % 4,749 (1,492) ns 4,393 (1,922) ns Intercompany eliminations (13,978) (9,155) 52.7 % (3,423) (972) ns (2,696) 10 ns Total for continuing operations 192, , % 31,468 13, % (635) (17,338) * Operating result before depreciation and amortisation and writeback/writedown of non-current assets. n.s.: change higher than 200% Investment and Employees in place at year end. Description (in thousands of euros) Investment Employees Semiconductors 20,659 5,550 1,215 1,585 Photovoltaic 3,047 3, * EEMS Italia Intercompany eliminations (3,459) (298) 0 0 Total for continuing operations 20,923 9,355 1,456 1,870 * Including employees temporarily seconded from other Group companies (in the third quarter of 2010 Solsonica had almost completed the process of absorbing employees seconded from Eems Italia) Semiconductors Billings of the Asia semiconductors division rose in 2010 by about 27% on the preceding year. Production volumes were favourably affected by recovery in the semiconductors market. Margins increased significantly in that the higher production levels permitted fixed and indirect costs to be remunerated in an efficient manner. Photovoltaic During 2010 Solsonica earned revenues for about 109,817 thousand euros which is considerably up on 37,037 thousand euros in Sales benefited from the general trend in the sector which was driven by the renewal, at conditions which are now well-known to operators, of the current incentives system under the Conto Energia. The increase in sales volumes also positively affected Solsonica s margins. In this connection, EBIT shows for the first time since Solsonica was formed a positive margin of about 8,229 thousand euros (in 2009 the margin was negative for 1,215 thousand euros). In addition, during 2010 Solsonica made further investment in machinery for the production of photovoltaic panels which will bring its productive capacity up to about 130 megawatts already in the first months of Eems Italia S.p.A. EEMS Italia revenues include the recharging of central expense borne also on behalf of subsidiaries. 12

13 e) Summary financial indicators table Earnings indices: ROE (Result for the Period/Average Equity) (2.6)% (17.3)% ROI (Operating Result/Average Total Assets) 1.9% (6.0)% ROS (Operating Result /Revenues) 2.1% (11.7)% Solvency indices: Treasury margin ((Current Assets Inventory)/Current Liabilities) Solvency ratio (Current Assets /Current Liabilities) These alternative performance indicators have not been prepared in accordance with IFRS. Although there are no applicable references, the table, which is in line with Recommendation CESR b of 3 November 2008 taken into Consob Communication of 28 July 2006, includes the criteria applied for the determination of alternative performance indicators. f) Non-financial indicators 1) Customer satisfaction Considering the present type of business and clientele, this indicator is not relevant. 2) Production efficiency factors Semiconductors: the Group s productivity indicator, measured as the ratio of revenues to number of employees, is about 67 thousand euros (34 thousand euros in the preceding year); Photovoltaic: the productivity indicator, measured as the relationship of revenues to number of employees, is about 492 thousand euros (319 thousand euros in the preceding year). 13

14 6. Reconciliation between results for the year and equity as per the parent company financial statements of EEMS Italia S.p.A and the consolidated financial statements at 31 December 2010 and 2009 The following statement shows the reconciliation between the results for the year and equity as appearing in the parent company financial statements of EEMS Italia S.p.A and in the consolidated financial statements at 31 December 2010, pursuant to Consob Communication DEM/ of 28 July Reconciliation (in thousands of euros) Equity and result for the year appearing in parent company financial statements of EEMS Italia S.p.A. Equity at Changes to equity in the year Result for year 2010 Equity at ,127 1, ,961 Results of consolidated subsidiaries 28,257-6,074 22,183 Elimination of effects of intercompany transactions * (19,644) - (9,471) (10,173) Reserve for difference on translation of foreign currency financial statements (751) 5,800 - (6,551) Other (190) 1,041 - (1,231) Equity and result for the year appearing in consolidated 110,799 8,419 (2,809) 105,189 financial statements * Relating mainly to the elimination of the effects of intercompany sales of machinery. 7. Shares held by key managers The table below gives the information to be disclosed on shares held at 31 December 2010 by board members and key managers with control and strategic responsibilities as required under article 79 of the regulation Regolamento Emittenti. Summary table Name Vincenzo D Antonio Paolo Andrea Mutti Francesco Fois Position Managing Director EEMS Italia Managing Director Solsonica S.p.A. Financial Manager EEMS Group Investee company Number of shares at start of year Number of shares acquired Number of shares sold Number of shares at end of year EEMS Italia SpA 2,504, ,275 (247,000) 2,950,975 Solsonica S.p.A. 2,340,369 1,787,394-4,127,763 EEMS Italia SpA 30, ,078 14

15 8. Capital expenditures The table below gives information on the major items of investment in fixed and intangible assets made by the Group in the years ended 31 December 2010 and Summary table (in thousands of euros) Investment in: Fixed assets 20,923 9,355 Comprising: Leased assets - - Corporate-owned assets 20,923 9,355 Intangible assets Total 20,939 9,576 During 2010 the Group made investments in fixed assets, net of intercompany sales, for Euro 20,923 thousand, principally at the factories of the Asian subsidiaries. This amount also includes expenditure of the subsidiary Solsonica amounting to Euro 3,034 thousand. Expenditure on intangible assets for the year ended 31 December 2010 amounted to 16 thousand euros. 9. Global scene: Semiconductors sector The memories market, which had a good start in 2010, with prices finally on the rise after a difficult year in 2009, went back into its cyclical phase with a turnaround already from the month of August The turnaround in the price trend for memories was due mainly to a slow-down in the third quarter in growth in the Computer market segment (which constitutes about 80% of the entire market) which led to imbalance between supply and demand. The price drop continued up to December 2010 and finally settled in the first months of The damage caused by the recent seismic event in Japan was not particularly significant to many semiconductors producers, including certain memories producers. As a result of this, possible price rises of 3% to 5% are expected. The same event caused damage to certain materials producers for the semiconductors industry, and it is possible that there will be a temporary scarcity in supply. The volumes projections for memories remains very strong for years according studies made by Gartner. 15

16 BU % BGR Volume growth in 2011 will be about 20% and will be accompanied by an increase in the Bit Growth Rate of about 60%. This is due mainly to the fact that maturity was been reached in the introduction of new nanometre technologies, which by now are fully applied by the greater part of memories producers. The coming years will maintain a volume growth rate of around 20% with a Bit Growth Rate of over 50%. BU % BGR On the other hand, our major customer Nanya forecasts, according to Gartner data, that growth in 2011 will be even more significant both in volume and memory content. This is probably due to the fact that Nanya suffered delays in the introduction of 42 nanometre technology in 2010 and that the entire impact of the introduction of such technology will have a significant effect on volume in As regard Micron, which is at present not in production, activities are proceeding on the qualification of new products which can go into production in the second half of At the same time, the Group is taking all the steps necessary to acquire new customers. EEMS, which in the meantime is appropriately equipping itself to support the introduction of these new technologies and DDR3 in particular, will be able to benefit from volume growth in the coming years. 16

17 10. Global scene: Photovoltaic sector Year 2010 presented a global scene which was not positive from the financial point of view, especially in the Euro area, as a result of the high public debt accumulated by a series of Member States. The impact of this situation on Italy was moderate but the difficult credit situation (particularly for access to credit) certainly caused a slowdown in economic growth conditions for businesses, generating a substantially static situation in numerous economic sectors. The renewable energies sector and, specifically, the photovoltaic solar sector in Italy, showed a very opposite trend from the general stagnation in the economy and strongly felt the positive effect of remunerative tariff conditions, thus being able to achieve a record in 2010 of installations for about 2.8 gigawatts (the number of systems which had entered service at 28 February 2011 as communicated by the Energy Services Manager); this number is four times higher than that for The Energy Services Manager has also indicated that the number of systems whose construction had been reported as terminated within 31 December 2010 is far higher, for a further 3.4 gigawatts. Even though there are many uncertainties as to the reliability of this data, one can however imagine that the overall number of photovoltaic systems realised in 2010 is any case higher than the already high level already achieved. Within a worldwide context, Italy in 2010 has therefore achieved exceptional success and has by far the second-largest photovoltaic market in the European Union, surpassed only by Germany. Market Trend The worldwide market is again registering very positive results, reaching 20 gigawatts of cumulated power and growth of 450% in five years, and is maintaining very positive growth prospects overall. Source: Epia (European Photovoltaic Industry Association) At single country level, Germany is still showing itself to be the principal world market, with a 52% share of global annual installations in Europe continues to hold leadership in the market even though it is forecast that there will be growth in other markets including those in North America and Asia, particularly China and Japan. 17

18 As regards Italy, although on the one hand many analysts consider market growth expectations to be positive, on the other, recent changes to regulations on incentives in the photovoltaic area have generated serious worries on the market s future. The reference is to the Legislative Decree (the Decreto Romani ) recently presented by the Government to give effect to Directive 2009/28/CE whose objective is the definition of instruments, mechanisms, incentives and the institutional, financial and juridical reference framework to achieve objectives up to (20% reduction in energy consumption, 20% reduction in carbon dioxide emissions, and a 20% level in renewable energies) which have been set at EU level as the overall level for energy from renewable sources. Despite the fact that the spirit of the Decree was aimed at rationalising photovoltaic incentive policies, also following the observations made by the Authority for Electric Power and Gas on the high level of financial speculation present in the photovoltaic area and the observations made by the Energy Services Manager on the surprising number of installations registered in 2010, it in fact gave rise to great confusion in the Market regarding incentives for photovoltaic systems which were in the course of being realised. The Decree in fact interrupts the regulations which are in place (that is, Ministerial Decree of 6 August 2010, the so-called Terzo Conto Energia ) for all systems which will not yet have gone into service at 31 May 2011 and refers operators to future Implementation Decrees, to be issued within and not after 30 April 2011, for the definition of new regulations on incentives for all other systems. In concrete, the sudden interruption of the Terzo Conto Energia and the absence of certain regulations for the future have seriously disturbed the whole Market starting from the financial and banking system, which has frozen lending processes for photovoltaic systems pending the issue of clear regulation and, following from this, all sector operators. The Government s intention, expressed by the Ministry for Economic Development and the Environment Ministry, is however to arrive within a very short period at the definition of certain, and long-term, regulations for the photovoltaic incentives system. However, once the present uncertainty in the incentives system is behind us, foreseeably and hopefully by the end of March 2011, analysts are taking a positive view of market prospectives which, if adequately supported by a proper incentives policy, should make the market one of the best at world level. Forecasts furnished by EPIA (European Photovoltaic Industry Association) in fact indicate an annual market of about 1,200-1,400 megawatts for the coming years. The time chart of cumulated total power in Italy is presented below. 18

19 11. Research and development The EEMS Group research and development department is a key element in maintaining a close commercial relationship with customers. The department, which operates at the Asian plants, not only continually develops new test packages and technologies to supply customers with increasingly competitive and efficient solutions, but also develops modifications to the existing packages in use to adapt them to the specific characteristics of chips which are constantly evolving. The research and development department also provides a prototyping service to enable customers to integrate activities for the development of new chips and those relating to the packages themselves, thus permitting a general reduction in overall development periods and a higher level of reliability in the manufacture the final product. As for the photovoltaic division, research and development activities in 2010 proceeded along the lines already launched in 2009 and on the new front of supporting the supply of complete photovoltaic systems. Production processes for cells and modules were further refined and improved so as to bring the Company up to the highest worldwide performance levels in technologies being used. The level reached at year end in terms of transformation efficiency, returns, productivity and hence costs, both in the production of cells and modules, bear witness to the validity of the technological developments made and the ability of the actions undertaken to exploit them. In addition, the efforts expended on research and development have permitted the Company to announce to the market and launch a new family of modules, the Silver Plus models, which besides improving performances in terms of weight, dimension and thermal dissipation offer customers the highest levels of guarantee today offered on the market: guarantees against manufacturing faults for up to 10 years and guarantees for the productibility of electric power for up to 25 years while maintaining well over 80% of initial power. Further innovative solutions have been explored and partly developed. These technologies will constitute the basis the launching further new products in Year 2010 also saw our huge effect in research and development activities to define technical solutions supporting Solsonica s entering the field for the supply of complete photovoltaic systems for the residential, commercial and small-business markets (planned for the start of 2011). 19

20 In fact, a substantial part of the work has been carried out on the definition of technological decisions and identification of industrial partners, as well as the necessary technical tests and trials which are indispensible for the Company to be in a condition to provide the market with planned, supplied, installed and checked solutions and which especially are guaranteed for the effective productibility of electric power for at least 10 years. Solsonica has set itself the goal of being one of the first companies in the photovoltaic sector in the world, providing solutions which, while guaranteeing the systems effective productibility of electric power, will relieve customers of all the doubts and uncertainties by which they are at present beset. Research and development costs incurred by the Group are fully charged off to profit and loss in the year incurred. During the year ended 31 December 2010 research and development expenses amounted to Euro 1,920 thousand. This amount does not include other costs not directly incurred by the research and development department but which however relate to this activity. 12. Management and Control Organisational Model pursuant to Legislative Decree 231/01 The Management and Control Organisational Model was introduced in February 2006 in accordance with Legislative Decree 231/01, which also reflected the regulatory changes introduced by Legislative Decree 61/102. The Management and Control Organisational Model adopted consists of a body of rules, tools and modes of conduct aimed at equipping the Company with a system reasonably suited to identifying and preventing serious criminal behaviour as defined by Legislative Decree 231/2001, whether committed by the Company itself or by parties under its management and supervision. The types of offences recently introduced are in the course of regulatory definition. The Supervisory Body, established in conformity with regulatory requirements, implements the action plan for monitoring and evaluating the adequacy of the Management and Control Organisational Model adopted. It meets periodically to evaluate the checks performed and examine the information transmitted by the corporate departments. 13. Report on corporate governance and ownership The report prepared pursuant to article 123-bis of the Consolidated Finance Code containing information on the system of corporate governance, company ownership and adherence to the codes of conduct is available on the Company s Internet site: Treatment of personal data Article 34 of Legislative Decree 196 of 30 June 2003 provides that, in the case of the electronic processing of personal data, specific security measures must be adopted, according to what is set forth in the technical regulations set out in Appendix B of the law, which include, under letter g, the maintenance of an updated Security Planning Document (SPD). The SPD is a document in which, on the basis of a study made of risks, job distributions and responsibilities within the departments handling data processing, a description is given of the technical and organisational measures which have been taken to ensure, as required by law, that such data is being protected from the viewpoint of correct maintenance and handling. In compliance with Legislative Decree 196/03, EEMS Italia has revised and updated the SPD that had previously been prepared pursuant to the law. 20

21 15. Related parties and intercompany transactions The Group has no dealings with related parties other than subsidiaries, and the jointly controlled company Kopernico S.r.l. Intercompany transactions are governed by market conditions. Balances and transactions relating to such dealings are summarised in the notes on Related parties and intercompany transactions contained in the parent company and consolidated financial statements. 16. Atypical and/or unusual transactions There were no atypical and/or unusual transactions in the year. 17. Financial risk The EEMS Group is exposed to financial risk connected with its operations, particularly in the following areas: - market risk (interest rate risk, foreign currency risk and price risk) - liquidity risk - credit risk - cash flow variation risk The Group monitors in a timely manner each of the above-mentioned financial risks to minimize their impact, also through the use of hedge derivative instruments in the case of foreign exchange risks. The responsibility for setting the guidelines for Group policy in terms of risk management policies and the creation a risk management system for the Group belongs to the Board of Directors. The Finance and Control Department is in charge of the application and monitoring of these guidelines. For further information see Note 29 to the consolidated financial statements - Financial risk. 18. Other risks and uncertainties Taking account of the potential causes that can give rise to other risks and uncertainties, a distinction can be made between those from internal and external sources. TYPE COMMENT AND PREVENTIVE ACTION INTERNAL Effectiveness/efficiency of processes Delegation Immaterial risk - The Group operates on the basis of processes which are technologically complex but there are no material uncertainties. - The delegation system is to a fair extent concentrated in a limited number of key persons. - Corporate management has an average experience in the sector of over 20 years. Should the professional relationship of a number of management members turn out to be lacking at the same time, this could have a negative effect on Group results. 21

22 Human resources Integrity Security Information Dependence Market Regulations Catastrophes Competition Political and social context Immaterial risk - Staff competence is appropriate. - Taking account of the nature of our operations, staff training is effected through on-thejob-training. - The parent company is an important corporate institution in the area where it is located. - The work climate and relations with the unions are not hostile, neither in Italy nor in Asia. Immaterial risk Immaterial risk - The Group adopts security standards which are appropriate and consistent with regulations in the countries where it operates. - The Company protects its assets through theft and illegal entry prevention systems, particularly for assets with a durable life and inventories. Immaterial risk - Information used to support strategic and operational decisions, although sometimes compiled manually, is available, complete, correct, reliable and timely. - The semiconductors business is conditioned by dependence on a limited number of customers. EXTERNAL - There exists the risk of a reduction in the demand for outsourced services (Semiconductors) resulting from possible changes in customers commercial decisions. - The semiconductors business is addressed to a market consisting of a limited number of players, with the related concentration risk. - Risk caused by technological innovation. The Group operates on the basis of technically complex processes which, in the case of technological innovation, entail significant financial investment. - The photovoltaic business is subject to seasonal effects and price changes. - The photovoltaic sector is incentivised by the state through contributions of significant amount made within the context of the operating revenues produced by photovoltaic systems. There is the risk that unfavourable changes to the incentives system for the photovoltaic sector may be confirmed which could shrink the demand for photovoltaic modules. Immaterial risk No concrete risks of catastrophe have been identified which could affect the business. - In the short (and partly also in the medium) term, there is a marginal risk of possible entry by new competitors or the creation of competitive practices by competitors which could have a negative effect on our market share in the Semiconductors sector. - There is a concrete risk that new competitors may enter the market so as to negatively affect our expected results, given the development prospects for the Photovoltaic sector. - For the photovoltaic business, this risk is not considered to be material: possible changes in EU and world energy policies on the other hand could provide an opportunity. For semiconductors there are possible risks connected with possible changes in the social, political and economic context of the Chinese Republic. 19. Outlook for the business Semiconductors business The memories business continues to show signs of weakness and there persists a state of imbalance between demand and supply with the result that over recent months prices have continued to drop significantly. The entire sector, including our main customer, is continuing to make a speedy migration to 50-nanometre technology in order to reduce costs and maintain the necessary margins. For this reason, the volume for the 1 st quarter of 2011 is lower that our previous forecasts even though this is 22

23 due to the classically seasonal nature of the 1 st quarter with fewer working days in absolute terms, and the influence of the Chinese New Year. The lowest level in volume seems to have been hit in the month of January and after a February which was more or less constant, a glimpse can be caught of a slight recovery in volume as from the month of March which will then grow from the 2 nd quarter on. The conversion to DDR3 is still getting more intense and has been supported up to now by the Company with the investment necessary for high-speed Burn and Test systems. As an effect of the transition to 50-nanometre technology in course at our main customer, volume is forecast to grow significantly in the second half of the year and for this the Company has already prepared all the production capacity necessary to support such growth except for further high-speed Test equipment which will be acquired in the coming weeks, as soon as the volumes have been confirmed. In order to improve profitability, our customer like other sector operators is developing new products and specific applications for the Mobile Dram market (IPhones, IPads and PC Tablets more in general). The Company has already set up the technical resources necessary to complete the development of such technologies (new stack die packages) so as to be prepared to exploit market opportunities as they arise. Photovoltaic business The Group s 2011 plan provided, through Solsonica, for the widening of production capacity through Solsonica up to 130 MWp to better exploit scale economies and become the reference operator for the entire national market. Together with increasing production capacity, the Company intended to continue consolidating its existing customers, particularly Terni Energia with whom a supplies agreement for a volume of 30 MWp has been signed, expanding Kopernico s business (realisation of turnkey photovoltaic systems), with a projected 20 MWp of installations and, above all, the development of an offer dedicated to small installations, through the supply of a complete turnkey system to both households and businesses. Unfortunately, and unexpectedly, the Italian photovoltaic business is today going through a period of great uncertainty as a result of the very recent enactment of the Romani Decree since this has not established methods and amounts regarding incentives for photovoltaic plants which will go into operation after 31 May With the delay in the definition of the tariffs schedule and implementation rules, the uncertain situation which involves all businesses in the sector raises doubts for Solsonica on the possibility of reaching its 2011 objectives and could involve a redefinition of its strategies. These will be defined only after the issue of the Ministerial Decrees which, pursuant to the Romani Decree, will be issued within 30 April Events subsequent to the year end During the last quarter of 2010 the Company brought forward, as compared with the investment programme approved by the lender banks, certain investment in machinery necessary to meet the demand of major customers. This led to infringing a covenant in the loan agreements which had been signed with a banking syndicate and in consequence the Company on 18 January

24 presented a specific request for waiver. On 10 March 2011 the lender banks, through their lead agent Unicredit, granted the waiver thus rectifying the infringement and precluding the banks from being able to make an immediate request for the residual debt. During the first quarter of 2011, the subsidiary Solsonica signed a commercial agreement with TerniEnergia for the supply of photovoltaic modules for an overall power of 30 megawatts in The Directors of the Company have taken note of the resignation of the manager responsible for the preparation of corporate accounting documents with effect as from 1 April

25 EEMS Italia S.p.A. - Operations and Performance 1. Summary of results Information on the results of EEMS Italia S.p.A., referable to it as a holding company, is reported in preceding sections of this report. Major earnings highlights (in thousands of euros) 2010 % 2009 % Total operating revenues 14, , Operating result before depreciation and amortisation and writeback/writedown of non-current assets 4, (1,492) (15.1) Operating result 4, (1,922) (19.4) Result before taxes (6,327) (63.9) Result for the year (6,564) (66.3) Number of shares 43,597,120 42,502,845 Number of employees - Italy* * The number of employees at 31 December 2009 did not include EEMS Italia personnel (143 employees) who had been temporarily seconded to Solsonica. During 2010 almost the entire personnel of EEMS Italia was transferred to Solsonica. Major balance sheet highlights (in thousands of euros) 31/12/10 31/12/09 TOTAL NON-CURRENT ASSETS 154, ,355 TOTAL CURRENT ASSETS 15,858 16,386 TOTAL ASSETS 170, ,741 TOTAL EQUITY 103, ,961 TOTAL NON-CURRENT LIABILITIES 1,289 6,463 TOTAL CURRENT LIABILITIES 66,229 70,317 TOTAL LIABILITIES 67,518 76,781 TOTAL LIABILITIES AND EQUITY 170, ,741 Table summarising statement of cash flows (in thousands of euros) Cash flow absorbed by operating activities (10,638) (5,925) Cash flow used in investing activities 20,178 (5,166) Cash flow (absorbed) generated by financing activities (7,786) (717) Effect of exchange rates on cash and cash equivalents (2,553) 88 Net cash flow for the year (799) (11,720) 25

26 Selected financial indicators for the parent company are presented below In line with the CESR b recommendation of 3 November 2008 which was taken into Consob Communication of 28 July 2006, the table below includes criteria applied for the determination of alternative performance indicators. Earnings indicators: ROE (Result for the year/average equity) 0.6% (6.3)% ROI (Operating result/total average assets) 2.5% (1.1)% ROS (Operating result/revenues) 45.3% (22.0)% Solvency indicators: Treasury margin (Current assets - Inventories)/Current liabilities) Solvency ratio (Current assets/current liabilities) These performance indicators have not been prepared in accordance with IFRS. 2. Major shareholders Shares issued, which are all ordinary, number 43,597,120. Shareholders possessing more than 2% at 31 December 2010 are as follows: - Mutti Paolo Andrea: 9.47% - Mutti Marco Stefano: 6.28% - Vincenzo D Antonio: 6.77% On the basis of what can be gathered from the Consob website, as of the date of authorisation for publication of these financial statements there is a further shareholder holding a stake representing 2.01% of the Company s shares. 3. Proposal for the approval of the 2010 financial statements of EEMS Italia S.p.A. and allocation of the results for the year To the Shareholders We thank you for the trust you have placed in us and invite you to approve the parent company and consolidated financial statements at 31 December 2010 as submitted to you. We propose that the net profit for the year of Euro 588,389 be taken to profits brought forward. 14 March 2011 For the Board of Directors The Chairman Raffaele Nobili 26

27 Consolidated Financial Statements of the EEMS Italia Group at 31 December

28 CONSOLIDATED FINANCIAL STATEMENTS OF THE EEMS GROUP CONSOLIDATED INCOME STATEMENT Consolidated Income Statement (in thousands of euros) Continuing operations Revenues 7 189, ,953 Other operating income 8 2,441 1,234 Total operating revenues 192, ,187 Raw materials and consumable stores used 9 113,560 52,668 Services 10 22,186 16,477 Staff costs 11 22,771 18,286 Other operating costs 12 2,073 1,569 Operating result before depreciation and amortisation and writeback/writedown of non-current assets 31,468 13,187 Depreciation and amortisation ,138 29,377 Writebacks/Writedowns (35) 1,148 Operating result (635) (17,338) Financial income 13 1, Financial charges 13 (6,054) (6,596) Taxes for the year 14 (515) (1,042) Result for the year from continuing operations (4,894) (22,271) Sold operations Total operating revenues 23,851 31,332 Operating result before depreciation and amortisation and writeback/writedown of non-current assets 11,634 12,345 Operating result 5,093 1,847 Result before taxes 5,125 1,961 Taxes for the year 37 (91) Result for the year from sold operations 4 5,088 2,052 Gain (Loss) on sale of discontinued assets 4 2,099 - Taxes on sale of discontinued assets 4 5,102 - Comprehensive result for the year from sold operations 2,085 2,052 Comprehensive net result (2,809) (20,219) Portion pertaining to the Group (2,809) (20,219) Portion pertaining to minority interests - - Group profit (loss) per share 15 (0.066) (0.476) Group diluted profit (loss) per share 15 (0.066) (0.476) Group profit (loss) per share from continuing operations 15 (0.114) (0.524) Group diluted profit (loss) per share from continuing operations 15 (0.114) (0.524) 28