Upload
others
View
3
Download
0
Embed Size (px)
Citation preview
1
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
MANAGEMENT REPORT ACCOMPANYING THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
RENCO GROUP SpA
Registered office in Viale Venezia 53 - 61121 Pesaro (PU)
Share capital € 9,012,500.00 of which € 9,012,500.00 paid-in
Pesaro Companies’ Register No. 13250670158
Tax Code 13250670158
Pesaro Economic and Administrative Index no. 193317
3
I N D E X
5 Foreword
8 Methodological Note
8 Situation Of Group Companies And Operating Performance
11 Development of Demand and Trends in the Market the Company Serves
13 Overall Performance of the Main Companies in the Scope of Consolidation
20 Financial Aspects of Operations
22 Alternative Performance Indicators
24 Information Concerning the Environment
25 Information on Personnel
27 Description of the Main Risks and Uncertainties to Which the Group is Exposed
30 Notice As Per Art. 2428 No. 6 Bis
31 Company Objectives and Policies Concerning Financial Risk Management
31 Company Risk Exposure
32 Research And Development Activities
32 Transactions With Subsidiary, Associated, Parent And Partner Companies
33 Treasury Shares And Shares/Stocks In Parent Companies
34 Foreseeable Business Outlook
35 Activities Pursuant To Legislative Decree 231/01
Financial Statement
40 Consolidated financial statements as of 31/12/2018
46 Consolidated cash flow statement
Explanatory notes to the consolidated financial statementsas of 31/12/2018
53 Foreword
53 Activities carried out and significant events regarding the group
53 Preparation criteria
54 Scope and methods of consolidation and significant events during the year
56 Consolidation criteria
57 Measurement criteria
64 Information on financial statement items
64 Balance sheet assets
76 Current assets
83 Balance sheet liabilities
93 Income statement
102 Other information
112 Reasons for exclusion
5
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Dear Shareholders,
In support of the financial statements for the period ended 31.12.2019, we provide this Management Report
to the consolidated financial statements, prepared pursuant to art. 2428 of the Italian Civil Code, with the
aim of providing a faithful, balanced and comprehensive information framework regarding the situation
of the Group, the performance and results of operations, as well as the activities carried out by the Group
during the year.
FOREWORD
The “Renco Group”, of which Renco Group S.p.A. is the parent company (hereinafter the “Group” or
“RENCO”), is an important Italian company in the industrial plant engineering sector and in the general
contracting area. The Group operates various lines of business, which include the Industrial Plants division,
Infrastructure division, Asset Management division and Services division.
The activities are carried out, in addition to the two Italian companies Renco S.p.A. and Renco Group
S.p.A., also by the following portfolio companies:
NAME CITY OR COUNTRY % OWNERSHIP ACTIVITY CARRIED OUT
RENCO ALGERIA ALGERIA 100.00 Industrial plant engineering, energy sector
ANGORENCO * ANGOLA 100.00 Industrial services
ARMENIA GESTIONI LLC ARMENIA 100.00 Asset management and tourism-hotel activities
ARMPOWER ARMENIA 60.00 Industrial plant engineering, energy sector
HOTEL YEREVAN OJSC ARMENIA 100.00 Asset management and tourism-hotel activities
ITALSEC ARMENIA LLC ARMENIA 90.00 Security services
NUOVO VELODROMO ARMENIA 100.00 Asset management
RENCO ARMENIA VALORE LLC (previously PIAZZA GRANDE LLC)
ARMENIA 100.00 Asset management
RENCO ARMESTATE LTD ARMENIA 100.00 Asset management, Civil and industrial buildings
RENCO POWER CJSC ARMENIA 100.00 Investments in the energy sector
VELOFIRMA LLC ARMENIA 53.70 Asset management and tourism-hotel activities
RENCO CANADA LTD CANADA 100.00 Industrial plant engineering, energy sector
ITALSEC CONGO ARL CONGO 90.00 Security services
RENCO CONGO SARLU CONGO 100.00Civil construction, industrial construction and services
RENCO CONGO VALORE CONGO 100.00 Asset management
RENCO GESTION IMMOBILIERE CONGO 70.00 Asset management and tourism-hotel activities
RENCO TERNA JV GREECE/ALBANIA 50.00 Industrial plant engineering, energy sector
ARENGEST S.R.L. ITALY 100.00 Asset management
CONS. STABILE RENCO LANCIA ITER
ITALY 65.00 Civil construction
RENCO NOT-FOR-PROFIT FOUNDATION
ITALY 100.00Development and financing of projects in favour of children
ITALSEC S.R.L. ITALY 90.00 Security services
6
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
NAME CITY OR COUNTRY % OWNERSHIP ACTIVITY CARRIED OUT
JOINT GREEN S.R.L. ITALY 100.00 Industrial plant engineering, energy sector
REAL ESTATE MANAGEMENT S.R.L.
ITALY 30.00 Asset management and tourism-hotel activities
RENCO ASSET MANAGEMENT S.R.L.
ITALY 100.00 Asset management
RENCO CAPITAL S.R.L. ITALY 99.99 Asset management
RENCO CAPITAL S.R.L. ITALY 100.00 Large-scale distribution
RENCO HEALTH CARE S.R.L. ITALY 90.00Asset management in the health care sector (Old People’s Homes)
RENCO IMMOBILIARE S.R.L. ITALY 100.00 Asset management
RENCO VALORE S.R.L. (previously RENCO REAL ESTATE S.R.L.)
ITALY 100.00Sub-holding with investments in the civil construction, Asset management and hotel sectors
RESIDENCE VISERBA S.R.L. ITALY 100.00 Asset management
TOLFA CARE S.R.L. ITALY 42.54 Health care/Nursing home management
VILLA SOLIGO S.R.L. ITALY 100.00 Asset management and tourism-hotel activities
GEODELTA CORP KAZAKHSTAN 60.00 Design and construction of industrial plants
RENCO KAT LTD KAZAKHSTAN 50.00 Civil and industrial buildings
RENCO PROPERTY LLP KAZAKHSTAN 100.00 Asset management
TRADE MARK ITALY LLP KAZAKHSTAN 50.00 Assets management and food sale activities
RENCO ENERGIES SA MOROCCO 57.63 Industrial plant engineering, energy sector
RENCO MAR MOROCCO 97.00 Civil and industrial buildings
CABO DELGADO PROPERTIES SA MOZAMBIQUE 63.00Development and management of logistic structures and ports
ITALSEC MOZAMBIQUE LDA MOZAMBIQUE 90.00 Security services
MOZESTATE LDA MOZAMBIQUE 100.00 Asset management
NIASSA SANCTUARY LTD MOZAMBIQUE 50.00 Asset management and tourism-hotel activities
PEMBA BULK TERMINAL MOZAMBIQUE 50.40 Port construction and management
REAL MOZ LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities
RENCO ENERGIA LDA MOZAMBIQUE 62.50 Industrial plant engineering, energy sector
RENCO IREM CONSTRUCOES LTD MOZAMBIQUE 31.25 Civil and industrial buildings
RENCO MOZAMBICO LTD MOZAMBIQUE 97.00 Asset management and tourism-hotel activities
RENCO TEK LDA MOZAMBIQUE 100.00 Asset management and tourism-hotel activities
BAYTREE INVEST.& SERVICE LDA PORTUGAL 100.00Sub-holding with investments in the Asset management and tourism-hotel sector
GRAPEVINE LDA PORTUGAL 50.00 Asset management and tourism-hotel activities
INTERRENKO LTD RUSSIA 100.00 Asset management
RENCO SAKH LLP RUSSIA 100.00 Asset management and tourism-hotel activities
SOUTHERN CROSS LLC RUSSIA 50.00 Asset management and tourism-hotel activities
7
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
NAME CITY OR COUNTRY % OWNERSHIP ACTIVITY CARRIED OUT
BAYTREE LLC *UNITED STATES OF AMERICA
100.00 Asset management and tourism-hotel activities
RENCO TANZANIA CONSTR. LTD *
TANZANIA 99.00 Civil and industrial buildings
*Company in liquidation
From the previous year the following changes occurred in the Group structure:
in June 2019, Renco S.p.A. sold 100% of the shares held in Renco Zanzibar Ltd to companies of the RIU
Group, recording a capital gain net of brokerage costs of 32.8 million Euros, a gain determined taking
into account the value contributed by the subsidiary in the consolidated financial statements. The sales
price was fully received in July 2019. The sale underlines the core business of the Asset Management BU,
which also evaluates and concludes extraordinary transactions, such as acquisitions and disposals, for the
benefit of the Renco Group;
the Group has begun a corporate restructuring process, aimed at rationalising the Group’s corporate
structure, which is why on 4 April 2019, Renco Immobiliare S.r.l. was formed, a vehicle under which
companies holding real estate assets will be allocated. The transaction has a mainly industrial purpose
and is aimed at separating the logistics activities in the energy and ho.re.ca -”Hotellerie, Restaurant, Cafè”-
market relating to the Asset Management Division from the activities of the Services, Infrastructure and
Industrial Plant Divisions. Renco Immobiliare S.r.l. has the same shareholding structure as Renco S.p.A.
and that is why the Renco Group directly owns 99.51% of the company.
The restructuring project also includes the demerger of the know-how acquired in facility management
activities necessary to promote it on the market, not limiting it to captive activities for the Group. To this
end, in July 2019, Renco Asset Management S.r.l. was created, whose share capital is owned in the same
proportions as Renco Immobiliare S.r.l.; on 10 December 2019, the single deed of proportional demerger
of Renco S.p.A. in favour of Renco Immobiliare S.r.l. and Renco Asset Management S.r.l. and that of the
merger of Renco Immobiliare S.r.l. with Renco Real Estate S.r.l. was formalised. The accounting, statutory,
tax and legal effects of the demerger and reverse merger will take effect as from 1 January 2020.
Finally, the name of Renco Real Estate S.r.l. was changed to Renco Valore S.r.l. by a deed dated 24 January
2020.
2019 saw the transformation into a company of the Congolese branch of Renco S.p.A., which took on the
name Renco Congo Sarlu. In turn, following the Group’s corporate restructuring project, Renco Congo
Sarlu transferred the real estate assets, consisting of the Djeno building, the Djeno field and the Pointe
Noire building, to the new company Renco Congo Valore, 100% owned by Renco Valore S.r.l.
During the period, Renco S.p.A. capitalised Renco Power Cjsc, a company incorporated under Armenian
law, for the amount of 37.2 million Euros. In March 2019, the share capital of Renco Power Cjsc was
increased by DRAM 6,083 million, equal to 11 million Euros, through subscription by Simest S.p.A. and
the Venture Capital Fund of 22.37% of the share capital. In compliance with the reference accounting
standards and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by
Simest S.p.A., to be carried out by 30 June 2026, this share capital increase was represented as a payable
to other lenders; Renco Power Cjsc as holding company, which owns 60% of Armpower Cjsc, capitalised
the subsidiary for the amount of USD 29.7 million during the period, up to a total paid-in capital of USD
37.3 million.
8
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
The Group decided to enforce the right of lien provided for in the contract for the sale of the investment in
Hotel Yerevan, concluded during 2018, which became necessary due to the insolvency of the counterparty
that did not meet the payment terms of the last tranche, amounting to 15 million Euros. The sales price of
the Hotel was 20 million Euros, of which 5 million Euros collected at the time the sales contract was signed
and 15 million Euros to be paid by 30 June 2019. Following the conclusion of a settlement agreement in
December 2019, the Group regained 100% ownership of the Armenian company, against the return of the
advance received, except for retention of a penalty of 200 thousand Euros. The effect of the settlement
agreement resulted in a contingent liability of 11.3 million Euros in the consolidated income statement,
deriving from the difference between the contractual value of the settlement and the value of the net
equity of the acquired company.
As part of the activities planned in Mozambique, three new companies have been set up: Mozestate, 99%
owned by Renco Real Estate S.r.l. and 1% by Renco S.p.A., to which the Pemba building and two plots
of land were sold; Cabo Delgado Properties SA, 63% owned by Renco S.p.A., is a vehicle company that
owns 80% of Pemba Bulk Terminal SA.
The latter, owned by Cabo Delgado Properties SA and a Mozambican public company, is investing in the
construction of the commercial port of Pemba for the handling and transport by sea of bulk materials
necessary for the construction of LNG plants in the Afung Peninsula, located in northern Mozambique.
The Pemba Bulk Terminal will follow the management and logistics activities of the port once the
construction is completed.
During the period, the Renco Not-For-Profit Foundation was established, a philanthropic body whose
purpose is to support the communities located in rural areas, where the most disadvantaged sections
of the population live, in the countries where the Group is present, and with a particular focus on Africa.
The work that Renco’s founder and Renco itself have always wanted to promote has been to focus on
high-impact interventions that are recognised for their effectiveness in combating maternal and child
mortality and in children’s education;
Finally, it should be noted that the liquidation of RenTravel S.r.l. was completed during the first half of
2019.
9
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
METHODOLOGICAL NOTE
Unless otherwise specified, all comments and comparisons in the remainder of this report refer to the
economic and financial data for the 2019 financial year compared to the 2018 financial year. All figures in
the report on operations and the related schedules are expressed in thousands of Euros and all comments
in the “Notes to the financial statements” are also expressed in thousands of Euros. All percentage ratios
(margins and deviations) are calculated with regard to values expressed in thousands of Euro.
Figures for the previous year are shown in brackets.
SITUATION OF GROUP COMPANIES AND OPERATING PERFORMANCE
In 2019, the Group exceeded all its economic and financial objectives and recorded growth compared
to 2018.
The Value of Production for 2019, including closing inventory contract production and revenues from ancillary
operations, amounted to 315.2 million Euros (243.3 million Euros), of which 297.8 million Euros to third parties
(233.3 million Euros), recording an annual increase of 33.3% in the value of production to third parties.
The Industrial Plants division contributed 130.8 million Euros to the value of production (98.8 million Euros),
with growth of 32.4%; the Services division contributed 47.7 million Euros (49.2 million Euros), with a decrease
of 3%; the Infrastructure division contributed 58.6 million Euros (36.4 million Euros). The Asset Management
division, which produced 78.1 million Euros (58.9 million Euros) in the year, grew, due to the growth in revenues
from newly established structures and the sale of Renco Zanzibar which alone contributed 35.1 million Euros.
EBITDA amounted to 46.9 million Euros (38.5 million Euros), an increase of 22% compared to 2018, with a
value of production margin of 14.9% compared to 15.8% in the previous year.
The Group’s EBITDA% for works and/or services rendered to third parties alone was 17% compared to 17.2%
in the previous year. The sale of the Gemma Dell’Est Resort in Zanzibar contributed 32.8 million Euros to the
EBITDA generated by the Asset Management division, while the settlement agreement on sales contract of
the Hotel Yerevan had a negative effect on EBITDA of 11.3 million Euros.
Normalized EBITDA (net of extraordinary operations) amounted to 25.7 million Euros (26.9 million Euros) in
line with the results of the previous year.
The operating components of a financial nature express a balance of net financial charges of 9.7 million Euros
(13.1 million Euros in the corresponding period of comparison), a decrease of 3.4 million Euros compared to
2018. Financial charges deriving from the Group’s gross financial debt amounted to 6.6 million Euros.
The adjustments to the value of financial assets are mainly due to the valuation of the Armpower company at
equity, amounting to 2.7 million Euros, and to the write-down of the assets of Renco Food, whose amount was
0.6 million Euros, which is in the process of liquidating the activities of the large-scale distribution division.
The aforementioned operating dynamics generated a pre-tax profit of 24.1 million Euros, up compared to
12.1 million Euros in 2018.
Income taxes for the period amounted to 16 million Euros (6 million Euros), up on 2018. The tax burden
includes 6.8 million Euros in write-downs of tax credits on foreign taxes already paid in previous years and
no longer recoverable.
By means of the following tables, we provide you with a summary of the financial situation and operating
performance of the company during the year, highlighting the factors described above:
10
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
DESCRIPTION 31.12.2019 31.12.2018 CHANGE
Fixed assets 278,316 248,800 29,516
Current assets 563,903 397,635 166,268
Accruals and deferrals 4,132 3,128 1,004
TOTAL ASSETS 846,350 649,564 196,788
Shareholders’ equity: 166,801 160,642 6,159
- of which: profit (loss) for the year 8,088 6,100 1,988
Provisions for risks and future liabilities 16,883 20,919 -4,036
Employee severance indemnities (TFR) 2,886 2,411 475
Short-term payables 400,658 153,734 246,924
Long-term payables 258,209 310,427 -52,218
Accruals and deferrals 915 1,429 -514
TOTAL LIABILITIES 846,350 649,564 196,790
DESCRIPTION 31.12.2019 % ON REVENUES 31.12.2018 % ON REVENUES
Revenues from normal operations 276,282 87.66% 228,744 94.02%
Revenues from ancillary operations
38,893 12.34% 14,538 5.98%
VALUE ADDED 315,175 100.00% 243,282 100.00%
Cost for the purchase of goods and services
191,359 60.72% 144,811 59.52%
Cost of work 61,181 19.41% 56,476 23.21%
Other operating costs 15,670 4.97% 3,534 1.45%
GROSS OPERATING MARGIN (EBITDA) 46,965 14.90% 38,461 15.81%
Depreciation, write-downs and other provisions
13,135 4.17% 13,244 5.44%
OPERATING RESULT 33,830 10.73% 25,217 10.37%
Financial income and charges and value adjustments of financial assets
-9,733 -3.09% -13,137 -5.40%
Financial income and charges -4,741 -1.50% -6,026 -2.48%
Exchange differences -1,710 -0.54% -2,280 -0.94%
Value adjustments to financial assets:
-3,283 -1.04% -4,832 -1.99%
INCOME FROM ORDINARY ACTIVITIES 24,097 7.65% 12,080 4.97%
Income taxes 16,011 5.08% 5,978 2.46%
Profit (loss) for the year 8,088 2.57% 6,100 2.51%
11
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
DEVELOPMENT OF DEMAND AND TRENDS IN THE MARKET THE COMPANY SERVES
2019 was again characterised by high oil price volatility and a still low level of new investments, particularly in
offshore and drilling. On the other hand, there was a significant wave of investment in new developments of gas
liquefaction (LNG - Liquid Natural Gas) plants. In this regard, it should be remembered that the Government of
Mozambique, a country in which we have been present for some time, in May 2019 approved the Rovuma LNG
development plan for the production, liquefaction and marketing of gas from the three fields of the Mamba
complex.
The market is still characterised by significant uncertainty concerning the economic and financial outlook, and
by political instability in various regions of the world, which have had an impact on oil demand and related
price scenarios; the weak signs of recovery in the sector had not yet translated into a decisive acceleration of
investment programs in exploration and production by customers, except for certain opportunities in specific
geographical areas. In this context, investment initiatives in segments that are part of the energy transition
area, such as gas and renewables, represent an exception.
However, in the first few months of 2020, macroeconomic factors returned to the forefront, with fears
fuelled by the spread of COVID-19 which had a negative impact on economic growth expectations and the
performance of global stock markets. The outcome of the OPEC meeting at the beginning of March and Saudi
Arabia’s decision to increase crude oil production, combined with the impact of the Coronavirus epidemic, had
a significant impact on the price of oil, which fell sharply.
Continued low oil prices could have a substantial impact on the future investment decisions of major producers.
Market policies and industrial policy
The breakdown of value of production by geographical area is summarised below:
GEOGRAPHIC AREA 31.12.2019 % 31.12.2018 % CHANGE CHANGE %
Italy 48,568 15.41 35,722 14.68 12,846 26.45
European Union 74,537 23.65 73,332 30.14 1,205 1.62
Russia and former USSR countries 98,031 31.10 55,902 22.98 42,129 42.98
Africa 79,600 25.26 63,928 26.28 15,672 19.69
Middle East 6,572 2.09 7,400 3.04 (828) -12.59
Other 7,867 2.50 7,000 2.88 867 11.02
Total 315,175 100.00 243,284 100.00 71,891 22.81
The table above shows the absolute value and the percentage weight of production by geographical area.
In continuity with the previous year, production in Italy increased, while the Russian area and former USSR
countries became the driving force behind the Group’s production, thanks mainly to the new order in
Armenia for the construction of the gas-fired power plant. Production on the African market continued to
grow, also thanks to the contribution of new works in Mozambique.
12
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
As in the previous year, the value of the Group’s production was balanced across all the main geographical
areas, excluding the Middle East and the remaining areas where the level of production remained stable.
Group order book
The Renco Group’s Order Book, excluding the Assets Management division, amounts to 1,038.6 million
Euros, with a backlog of 563.7 million Euros.
BUSINESS UNIT JOB COUNTRY CLIENTCONTRACT
VALUE YEAR ENDTO BE PRO-
DUCED
INDUSTRIAL PLANTS
YEREVAN PLANT ARMENIA ARMPOWER 159.8 2021 108.4
TAP ITALIA ITALY TAP 79.0 2020 22.1
TAP ALBANIA (Renco share)
ALBANIA TAP 91.7 2020 7.8
ENI CASSIOPEA ITALY ENI 18.3 2021 17.4
TAP GRECIA (Renco share)
GREECE TAP 64.8 2020 3.2
SARIR LIBIA LIBYA EMI FRANCE 53.4 2020 0.2
EVERDRUP COMPRESSOR STATION
DENMARK ENERGYNET 72.0 2022 72.0
INTERNAL TAP ORDERS
ALBANIA/GREECE
RENCO TERNA JV
28.9 2020 1.2
SANNAZZARO TA7 REPLACEMENT
ITALY ENI 4.6 2021 4.6
OTHERS 7.6 1.0
TOTAL INDUSTRIAL PLANT 580.1 238.0
INFRASTRUCTURE
ACCADEMIA GDF ITALY CDP 20.1 2021 11.7
ARMENIAN CIVIL WORKS
ARMENIA ARMPOWER 15.2 2021 10.3
VILLA ALMATY KAZAKHSTAN PRIVATE 12.1 2020 5.3
BUILDING CEC SAIPEM CONGO
CONGO SAIPEM 8.0 2020 0.5
CCS JV FIELD MOZAMBIQUE CCS JV 70.3 2021 64.7
CCS JV TEMPORARY BUILDINGS
MOZAMBIQUE CCS JV 44.9 2021 44.9
OTHERS 14.7 2020 6.6
GROUP BUILDINGS 65.0 62.1
TOTAL INFRASTRUCTURE 250.4 206.1
SERVICES
ENI CONGO PERSONNEL + PSV
CONGO ENI CONGO 78.1 2022 54.8
BAKER HUGES - GE WORLD GE 60.7 2024 51.0
OTHERS 27.4 9.3
TOTAL SERVICES 166.2 115.1
ASSET MANAGEMENT
TCO CAMP MANAGEMENT
KAZAKHSTANTENGIZ-CHEVROIL
41.9 2020 4.5
TOTAL ASSET MANAGEMENT 41.9 4.5
TOTAL PORTFOLIO 1,038.6 563.7
13
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
OVERALL PERFORMANCE OF THE MAIN COMPANIES IN THE SCOPE OF CONSOLIDATION
Below is the performance of the main companies included in the scope of consolidation:
Renco Armestate LLC
Renco Armestate closed the year at 31.12.19 with revenues of 9.9 million Euros (3.4 million Euros in 2018), an
EBITDA of 777 thousand Euros (-115 thousand Euros in 2018) and a net profit of 696 thousand Euros (loss
of 695 thousand Euros in 2018).
During 2019, Renco Armestate began construction work on the 250 MW combined cycle power plant in the
immediate outskirts of the city of Yerevan. This is a project worth approx. USD 200 million which for Renco
Armestate can translate into contracts for civil and electro-instrumental works worth over 70 million Euros
in 25 months.
Moreover, during 2019, new works for a total amount of approximately 3 million Euros were acquired, mainly
regarding Fit Out Work for the new offices of the customer Synopsys (2.3 million) and the design of the
new headquarters of the Armenian bank ACBA (Credit Agricole) for approximately 0.5 million.
Lastly, in connection with the reorganisation of the Group’s real estate activities, Renco Armestate sold
properties and land worth approximately 2.5 million Euros to Renco Armenia Valore (formerly Piazza
Grande).
Armpower CJSC
In August 2016, the Group established Armpower based on the memorandum of understanding signed with
the Government of the Republic of Armenia. The company has the purpose of implementing the project
for the construction of a 250 MW gas-powered combined-cycle power plant near the city of Yerevan, the
capital of Armenia.
In April 2017, Armpower, Renco and the Government of the Republic of Armenia signed a framework
agreement to regulate the relations and commitments of the parties on the project and entrusted Armpower
with the financing, construction and management of the plant for twenty years. Renco S.p.A. was assigned
the role of project finance developer and EPC contractor for the construction of the plant. The investment
amounts to approx. 300 million dollars to be financed by (non-recourse) project financing with a debt/
equity ratio of approx.70:30.
In order to raise the financial resources necessary for the implementation of the investment, Armpower
appointed the International Finance Corporation (IFC) as the arranger bank and co-financier of the
operation.
In August 2017, Renco S.p.A. and Siemens Venture Capital Gmbh signed a collaboration agreement that
envisages the entry of Siemens as Armpower’s equity partner (with a 40% stake), technological partner
for the supply of turbines and operator and maintainer of the plant. The corporate agreements with this
partner provide for substantial joint management of the Company.
At the beginning of 2018, together with the government of Armenia the lending banks reviewed the
14
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
content of the Framework Agreement signed with the government in 2017 in order to bring it into line with
international standards for similar projects.
For negotiations with the banks the Armenian government involved the gas supplier Gazprom Armenia
and the company ENA, which is committed to purchase electricity.
The negotiations were successfully concluded in March 2018. The text of the Framework Agreement for
the construction of the plant negotiated between the Government of the Republic of Armenia and the
banks was approved by Renco, Siemens and Simest S.p.A. (CDP Group) and on 9 April 2018 the Board of
Directors of IFC (World Bank) approved the investment. In the meantime, at the end of April 2018, pending
the signing of the renegotiated Framework Agreement, Armenia experienced a political crisis caused by
a popular movement of peaceful protest that led to the fall of the current government and the renewal
of the country’s political class. The new government did not take office with full powers until September
2018. Following further negotiation of the Framework Agreement with the new government in office, the
Framework Agreement was then signed with the new government and all other parties involved on 13
November 2018.
Finally, on 15 February 2019, Armpower signed the loan agreements with IFC and the other financial
institutions involved.
On 23 March 2019 Armpower signed the EPC contract with Renco S.p.A. for construction of the plant.
The Financial Close was reached on 14 June 2019; the financial institutions then disbursed the first tranche
of the loan, and on the same date construction work began on the power plant, based on the EPC contract
signed with Renco S.p.A.
Construction work on the power plant is proceeding as planned, reaching an overall progress of 33% of the
total value of the work in the period.
15
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Renco Power CJSC
Renco Power Cjsc was established by Renco S.p.A. in October 2017 (initial capital of 100,000 Dram
equivalent to USD 209.09).
The company was founded with the aim of financing the Armpower project company for construction
of the Yerevan power plant, involving Simest S.p.A. (CDP Group) as an institutional partner, based on
the conditions provided for in the investment contract signed between Renco and Simest S.p.A. on 27
December 2017.
On 29 November 2018 Renco S.p.A. capitalised Renco Power for 196,200,000 Armenian Drams (equivalent
to € 353,843) and amended its Articles of Association on the basis of the text shared with its partner
Simest S.p.A.
On the same date, Renco Power Cjsc purchased a 60% interest in Armpower Cjsc from Renco S.p.A. at the
price of 196,260,000 Dram.
During 2019, Renco S.p.A. and Simest S.p.A. then completed the capitalisation of Renco Power, on the basis
of agreements signed with financial institutions, subscribing a total of 27,809,849,000 Dram (equivalent
to a total of USD 56,870,000) of which 78.12% owned by Renco S.p.A. and 21.88 owned by Simest S.p.A.
At the end of the year, Renco Power capitalised Armpower Cjsc for the equivalent of USD 37.3 million.
Renco Kat Ltd
The company has been present for over twenty years in Kazakhstan, located in all of the areas of greatest
economic interest in the country and established in the field of civil and industrial construction and the
provision of services.
During 2019, Renco Kat continued construction work on a villa in Almaty, with an impact on value of
production of 4.9 million Euros.
The company is also engaged in managing the 300-seat field for the customer Tengizchevroil (TCO) in
the Atyrau region. The contract was acquired in 2016 and in addition to the construction of the camp,
concluded in 2017, it also has the purpose of managing the same for a period of four years, for a value equal
to a further 37.2 million Euros of production that the company will implement during the course of the four-
year period 2017-2021. Revenues for the period relating to the management of the TCO camp amounted
to 6.9 million Euros.
Renco Kat ended the year at 31.12.2019 with a production value of 16.7 million Euros (7.5 million Euros in
2018) and EBITDA of 2.6 million Euros, a net improvement compared to 2018.
Renco Property Ltd
Renco Property was founded in 2014 as a real estate spin-off of Renco Kat, and in October 2018 it merged
Renco Ak by incorporation, a company that owns the Presidential Plaza of Astana, a building of 31,350 square
metres in the city centre used for management offices leased to prestigious customers like multinational
companies and international institutions. In this manner the Group has decided to concentrate the entire
Kazakhstan property stock in Renco Property with a benefit in terms of costs and unified management.
16
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
The company closed 2019 with revenues of 18.7 million Euros (16.5 million Euros in 2018), EBITDA of 8.6
million Euros (7 million Euros in 2018) and net profit of 5.9 million Euros (7.6 million Euros in 2018).
Renco Mozambique Lda
This is the Mozambique real estate company of the Group. In 2010, the company was awarded the right
to build a tourist resort on a 32 hectare piece of seafront land in the Mecufi district, located in the north
of Mozambique. The area is an emerging tourist destination in international circuits, with very interesting
potential.
The Diamonds Mequfi Beach Resort has been fully operational from February 2016 and consists of 40 deluxe
rooms and 10 suites. The resort is considered to be an absolute highlight in the country’s tourist offering,
as demonstrated by its affiliation with the prestigious Small Luxury Hotels of the World. This affiliation
represents a strategic change from a commercial point of view, and will ensure access to international
circuits for the luxury segment in future years.
During 2017 the company completed the investment related to the Bay Palace Apart Hotel, a structure
consisting of 12 luxury apartments, built and furnished with European standards. The property is located on
a plot of 10,000 sqm, and enjoys the use of the beach in front of it, overlooking the bay of Pemba, the third
largest bay in the world.
The company closed 2019 with revenues of 1.2 million Euros (0.8 million Euros in 2018).
Real Moz LdA
Real Moz Lda (1% Renco S.p.A. / 99% Renco Real Estate – now Renco Valore) was founded in September
2018. The company was established with the aim of developing potential new business initiatives and
investments in Mozambique, particularly near the Afungi peninsula, where immense natural gas deposits
have been discovered. In anticipation of the huge demand for “accommodation” services that will be
requested by the Oil Companies that are deploying in the area, in July 2019 Real Moz acquired the right of
use on an area of 18 hectares located near the city of Palma. On this plot of land it is developing a project
for the financing, construction and management of a “Men Camp Hotel” with 1500 beds, which can be
extended to 3,500 beds. The location of the land is particularly favourable as it is adjacent to the area where
the gas extraction and liquefaction works will be carried out. The works, which will begin in early 2020,
will be carried out by the subsidiary Rencotek, while management of the camp, once completed, will be
entrusted to Renco Asset Management. Negotiations are underway with potential industrial and financial
partners to which up to 54% of the value of the project is to be sold, either directly or through holding
companies to be set up.
Mozestate LDA
The company was founded in 2019 as part of the Group’s wider restructuring process, with the aim of
managing the office properties in Mozambique belonging to the Renco Group. At the end of the financial
year, Mozestate purchased from Rencotek a 3,100 sqm multifunctional building, located in the city of
17
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Pemba , in a strategic position, about 1.5 km away from the city’s International Airport. The building, which
consists of 3 floors and provides office, residential and canteen service space, in compliance with the
highest international standards of quality and safety, was created to support Rencotek Lda’s activities
as well as to be rented to third parties. During 2019, the company concluded the fit-out activities of the
part of the building destined to accommodate qualified third-party companies of high standing, that were
rented, including the National Institute of Petroleum (INP), regulatory body in the oil and gas sector, and
Mozambique Rovuma Venture, a subsidiary of Eni Rovuma Basin Mozambique Branch, confirming the
excellent competitive position of RENCO, considered a reliable partner for both foreign companies and
local authorities of strategic importance.
Rencotek Lda
This is the Mozambican portfolio company established in 2013, wholly owned by Renco S.p.A. and to which
all civil engineering and industrial plants in Mozambique are being handled.
As already mentioned, during 2019 there were important acquisitions in Mozambique by the Renco Group
which resulted in important contracts for Rencotek Lda. Indeed, through a consortium created with two
other companies, the Group was awarded the construction of a 9,500-bed camp in Afungi worth 200 million
Euros (with Renco’s share being 70 million Euros) to serve the Mozambique LNG consortium headed by
the French Total EPC. In addition, the Group was awarded two other contracts for civil works in the Pemba
area, commissioned by Mozambique Rovuma Venture S.p.A., a consortium led by EXXON and ENI. In this
context, Rencotek was contracted to build the camp, with a contract value of USD 18.7 million.
Rencotek was also contracted for the construction of a jetty in Pemba, owned by Pemba Bulk Terminal, and
the camp on the Afungi peninsula, owned by Real Moz LdA.
The company closed 2019 with a value of production of 6.2 million Euros (0.5 million Euros in 2018) and
with a loss of 0.8 million Euros (loss of 1.5 million Euros in 2018).
Pemba Bulk Terminal
During the year, the Oil Companies started work in Mozambique on the construction of gas liquefaction
plants in the Afungi peninsula. It is therefore believed that there will be an imminent huge need for inert
material in the area to support the construction sites. Since there are many quarries in the surroundings
of Pemba, it is considered of interest to build a port (“Jetty”) and a logistics base in Pemba, suitable for
the unloading, storage and loading of inert material, which will then be transported by sea to Afungi. The
development of this activity will be carried out by the Mozambican company Pemba Bulk Terminal SA,
with registered office in Pemba, Rua do Porto nr. 4, registered in the Pemba Register of Legal Entities
under number 101126862. The company is 80% owned by a Mozambican company called CD Properties
Sa and 20% by a Mozambican company called Port of Cabo Delgado. In November 2019, Renco S.p.A.
acquired indirect control of Pemba Bulk Terminal through the acquisition of 63% of CD Properties. The
work, amounting to approximately USD 13.5 million, will begin in the first few months of 2020 and will be
carried out by Rencotek.
18
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Renco Energia Lda
This is the Mozambican holding company, established in partnership with a local partner and 62.5%
owned by Renco S.p.A. The partnership with the local partner brings significant strategic competences
to the company, aimed at acquiring and developing new projects. The company’s business purpose is
the performance of industrial plant activities related to Oil & Gas, as well as other activities within the
energy sector. In this regard, Renco Energia Lda’s activity is aimed at providing the Group with all the tools
needed to achieve leadership in the market for the provision of services related to development in Northern
Mozambique.
In 2018, following intense commercial activity over the years, Renco Energia Lda signed a contract with
the ENH Group (Empresa Nacional de Hidrocarbonetos), a Mozambican state-owned company, to develop
a detailed master plan for “City Gas”, which will be built on the Afungi peninsula, near the plants for the
liquefaction of gas from fields off the coast of Mozambique.
On an area of about 18,000 hectares the Mozambican government plans to build a city with residential
areas, business districts, industrial areas and all the infrastructure necessary for a settlement that – according
to government estimates – will exceed 200,000 inhabitants in a few years. As part of this project, the
company will have to prepare the master plan for the area, identifying the ways in which the project will be
implemented (public, private and public-private investments are planned) and assisting ENH in identifying
the funding and implementing parties of the works that will be carried out.
Renco Energia Lda closed the year as at 31.12.2019 with a value of production of 942 thousand Euros (394
thousand Euros in 2018) and a net profit of 37 thousand Euros (164 thousand Euros in 2018).
Renco Congo Sarlu
During the year, the Congolese Branch of Renco S.p.A. was transformed into a Congolese company, called
Renco Congo Sarlu, by means of the “sale” of the entire business of Renco S.p.A. to the Congolese company.
The effective date of the transaction was 1 January 2019 and saw the transfer from Renco S.p.A. of a net
book value of assets and liabilities of 36 million Euros, in addition to the personnel employed, to Renco
Congo Sarlu.
Renco Congo Sarlu, wholly owned by Renco S.p.A. and active in civil construction, industrial plant
engineering and services, closed the year with a value of production of 37.9 million Euros and EBITDA of
1.3 million Euros.
Finally, in relation to the restructuring of the Group’s real estate activities, Renco Congo Sarlu conferred the
Djeno and Pointe Noire buildings on Renco Congo Valore. Subsequently, Renco Congo Valore was sold to
Renco Valore S.r.l.
Renco S.p.A.
Renco S.p.A. is the main company in the Group to which the foreign-owned companies directly refer. Renco
S.p.A. ended 2019 with a Value of Production of 179.3 million Euros (136.7 million Euros in 2018). The increase
in the value of production was substantially in line with expectations and should be credited to the progress
of the TAP Italia order and the EPC Power Plant Yerevan order.
19
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Profit for the period amounted to 10.3 million Euros (15.8 million Euros in 2018).
Below are some of the main acquisitions of Renco S.p.A. in 2019:
award of an EPC (Engineering Procurement and Construction) contract for the construction of a 9,500-
bed temporary camp, including utilities and recreational areas, to be built in the Afungi Peninsula,
Mozambique. RENCO is participating in the implementation of the works in consortium with WHBO,
a South African company, and DORCE, a Turkish company. The contract is worth USD 55 million
(Renco S.p.A. share) and will be completed in 24 months. The customer is CCS JV, a consortium of
McDermott, Saipem and Chiyoda. The Joint Venture has completed 29 FEED projects, 24 EPC projects,
and produced 150 million tons of LNG, which represents 40% of the world’s LNG production projects.
award in Italy of a contract worth 3.9 million Euros for the replacement of a turboalternator at the ENI
refinery in Sannazzaro (PV). The project was commissioned by Eni S.p.A. and includes the dismantling of the
old group, engineering, purchase, construction and commissioning of a steam turbine with 1MW alternator.
The Contract also provides for commissioning assistance and functional and performance testing.
Finally, during the period Renco S.p.A. completed the construction of its new business headquarters in
Pesaro, which were inaugurated in September. The new structure on 6 floors for a total of 8,400 square
meters was completed in 14 months, with 300 workstations, 200 parking spaces, 600 metres of balconies,
a canteen seating 130 people, a training room seating 100 people and other services for use by Group
personnel (gym, laundry, shuttle to and from the train station).
20
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
FINANCIAL ASPECTS OF OPERATIONS
The table below shows the net financial position.
DESCRIPTION 31/12/2019 31/12/2018 CHANGE
a) Short-term assets
Bank deposits 97,826 72,194 25,632
Cash and equivalents on hand 303 283 20
Shares and bonds not classified as fixed assets - 52 (52)
Financial receivables within 12 months: 2,079 1,758 321
Other short-term assets
CASH AND CASH EQUIVALENTS AND SECURITIES IN CURRENT ASSETS 100,208 74,287 25,921
b) Short-term liabilities
Bonds and convertible bonds (within 12 months)
Payables due to banks (within 12 months) 29,442 44,101 (14,659)
Bonds and convertible bonds (within 12 months) 10,000 10,000
Payables due to other lenders (within 12 months) 979 60 919
SHORT-TERM FINANCIAL PAYABLES 40,421 44,161 (3,740)
NET SHORT-TERM FINANCIAL POSITION 59,787 30,126 29,661
c) medium / long-term assets
Financial receivables beyond 12 months: 21,540 20,739 801
Other non-trade receivables 5,178 5,080 98
TOTAL MEDIUM/LONG-TERM ASSETS 26,718 25,819 899
d) Medium/long-term liabilities
Bonds and convertible bonds (beyond 12 months) 34,530 44,368 (9,838)
Payables due to banks (beyond 12 months) 31,395 49,569 (18,174)
Due to other lenders (beyond 12 months) 12,874 1,605 11,269
Other medium/long-term liabilities
TOTAL MEDIUM/LONG-TERM LIABILITIES 78,799 95,542 (16,743)
MEDIUM/LONG-TERM NET FINANCIAL POSITION (52,081) (69,723) 17,642
NET FINANCIAL POSITION 7,706 (39,597) 47,303
With regard to the trend of the Group’s cash flows, reference should be made to the Cash Flow Statement
and the Notes to the Financial Statements.
2019 enabled the Group to achieve a substantial financial improvement. The net financial position recorded
a net improvement of 47.4 million Euros compared to 31 December 2018, since it went from -39.6 million
21
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Euros at 31 December 2018 to +7.7 million Euros at 31 December 2019. Liquid funds at the end of 2019
amounted to 97.8 million Euros (72.1 million Euros in 2018).
The cash flow from ordinary operations (52.8 million Euros) and the cash flow from the sale of the Renco
Zanzibar investment (48.9 million Euros) contributed to the improvement of the net financial position. The
liquidity absorbed by investment operations amounted to 53.7 million Euros.
On the other hand, the following table provides a reclassification of the Balance Sheet based on the uses
and sources of liquidity.
USES 31.12.2019 31.12.2018
Immediate liquidities 98,129 72,478
Deferred liquidity 77,945 98,846
Stock availability (net of advances received) (14,648) (9,822)
Total current assets 161,426 161,502
Intangible fixed assets 8,793 3,627
Tangible fixed assets 219,804 213,590
Financial fixed assets 57,445 40,585
Total fixed assets 286,042 257,802
TOTAL USES 447,467 419,304
SOURCES 31.12.2019 31.12.2018
Current liabilities 178,348 136,833
Consolidated liabilities 102,316 121,825
Total minority capital 280,664 258,658
Share capital 9,013 9,013
Reserves and profits (losses) carried forward 149,702 145,530
Profit (loss) for the year 8,088 6,100
Total own capital 166,803 160,643
TOTAL SOURCES 447,467 419,304
Fixed assets
Intangible, tangible and financial fixed assets amounted to 286.8 million Euros.
Shareholders’ equity
2019 closed with a Shareholders’ Equity of 166.8 million Euros.
22
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
ALTERNATIVE PERFORMANCE INDICATORS
Renco’s management assesses the performance of the Group and its business segments based on certain
indicators that are not included in the OIC accounting principles. In particular, EBITDA is used as the main
indicator of profitability, as it enables the analysis of the Group’s margins, eliminating the effects deriving
from volatility originating from non-recurring items or items unrelated to ordinary operations.
The components of each of these indicators are described below:
Order book: this is the sum of the backlog from the previous period and the orders taken.
EBITDA or Gross Operating Margin: this is given by Production Value - Production Costs + depreciation,
write-downs, provisions and taxes on foreign income not recoverable and not deductible for tax purposes
(therefore reclassified from the item “Other operating costs” to the item “Income taxes”).
The EBITDA is then used in the calculation of the ROI (Return on Investment) and the ICS (Interest Coverage
Ratio).
Net Financial Position: expresses the ability to meet financial obligations, represented by gross financial
debt less cash and cash equivalents and other financial assets.
In accordance with the provisions of art. 2428 par.2 of the Italian Civil Code, the main financial and non-
financial indicators are highlighted.
23
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
STRUCTURAL RATIOS MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Secondary structural ratio
The ratio measures the ability of the corporate financial structure to cover long-term uses with long-term sources.
1.10 0.97Permanent capital fully finances fixed assets and partly current assets. The Company has a substantially sustainable level of investment.
Shareholders’ equity + Consolidated liabilities
---------------------------
Fixed assets of the year
EQUITY AND FINANCIAL RATIOS MEANING
PREVIOUS YEAR
CURRENT YEAR COMMENT
Total debt ratio
Expresses the degree of equilibrium of financial sources.
1.61 1.68
The Company has a situation of balance between equity and third party resources.
Minority interest means
------------------------
Shareholders’ Equity
LIQUIDITY RATIO MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Availability ratioThe ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term and the sale of inventory.
1.18 0.95
The ability to meet short-term commitments is highlighted.
Current assets
------------------------
Current liabilities
Treasury ratio
The ratio measures the level of coverage of short-term payables through assets that are presumably realisable in the short term.
1.25 1.04
The Company has a situation of financial equilibrium.
Imm. Liq. + Def. Liq.
------------------------
Current liabilities
PROFITABILITY RATIOS MEANINGPREVIOUS
YEARCURRENT
YEAR COMMENT
Return on investments (R.O.I.) The ratio provides a measurement in
% of the viability of current normal operations and of the self-financing capacity of the company regardless of the financial structure choices.
6.01 7.56
The profitability ratios show an improvement in the company’s profitability compared to the previous year
EBITDA
------------------------
Capital invested in yr.
Return on Equity (R.O.E.)
The ratio provides a measurement in % of the overall viability of company operations and of the ability to remunerate equity.
3.80 4.85
Period result
------------------------
Shareholders’ Equity
24
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
FINANCIAL EQUILIBRIUM RATIOS MEANING
PREVIOUS YEAR
CURRENT YEAR COMMENT
Debt/Equity
The ratio measures the degree of equilibrium between third-party resources and equity.
0.2 0.0
Net financial position
The Company has a situation of equilibrium.
------------------------
Shareholders’ Equity
NFP/EBITDAThe ratio expresses in how many years it would theoretically be able to repay financial debts if it used all of its operating cash flow for this purpose.
1.02 -1.2
The Company is self-financing.
Net financial position
------------------------
EBITDA
Interest Coverage Ratio (ICR)
The ratio measures the degree of coverage that the operating profit can provide to the cost of financial charges.
7.0 12.6
The Company has a good situation.
EBITDA
------------------------
Financial charges
INFORMATION CONCERNING THE ENVIRONMENT
The commitment on the issues of corporate social responsibility and of the territory is now an integral
part of the Group’s principles and conduct, oriented towards technological excellence, maintenance of
high levels of safety, environmental protection and energy efficiency, as well as training, awareness and
involvement of personnel on corporate social responsibility issues.
The Group has always operated in the markets in which it operates, with particular attention to the problems
of pollution and environmental damage. During the year, no damage was caused to the environment for
which Group companies were declared definitively guilty.
Environmental litigation
The Group currently has no civil or criminal litigation with third parties for damage caused to the environment
or environmental crimes.
The Group obtained ISO 14001 certification on 22/12/2000.
During the audit carried out in July 2019 by the certifying body, the Group’s certification for the ISO
14001:2015 standard was renewed, which is now valid until 18 December 2021.
25
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
INFORMATION ON PERSONNEL
Safety
The Group obtained OHSAS 18001 certification on 19/12/2003.
During the audit carried out in July 2019 by the certifying body, the Group’s certification for the OHSAS
18001:2007 standard was renewed, which is now valid until 11/03/2021.
The activity carried out in this field includes:
training of employees and collaborators;
periodic medical examinations;
organisation and training of intervention teams provided for by the standard;
continuous company monitoring of the HSM;
preparation and dissemination of the documents of Legislative Decree 81/08.
Coordination and supervision of compliance with Health and Safety requirements in construction site
In particular, during the year the following initiatives were undertaken:
28 different health and safety training courses were held and a total of 884 employees were trained. The
main courses held are shown below
Worker training according to the State-Regions Agreement of 21/12/2011
WSRs took the 8-hour refresher course in March 2020.
116-hour H&S Manager Training Course held between April and June 2019
20-hour H&S Officer refresher course in January 2020
Training courses envisaged in accordance with the provisions of Legislative Decree 81/08
Supervisor training
- Supervisor refresher course
- Senior manager refresher course
- Forklift driver refresher course
- First Aid and Firefighting refresher course for emergency management team members
Further training for specific risks was organised mainly for service personnel:
- H2S training
- 3rd category PPE training and escape masks
- E-learning training on working at height
- Seveso directive training
- E-learning first aid training
- The courses were provided both in classrooms and using e-learning systems, adopting the different
methods envisaged by the regulations
Health and Safety supervision of the infrastructure division’s construction sites was made more
effective by appointing dedicated H&S Officers and carrying out periodic inspections and audits by the
headquarters safety department.
The redefinition of safety and emergency procedures for expatriates located in foreign branches is
currently in progress by the subsidiary Italsec.
With regard to the management of the road safety of personnel during working hours, the inclusion of
a canteen in the new premises has significantly reduced the risks of road traffic and potential accidents
on the move.
The provision of a free shuttle for commuting between the station and the workplace can be considered
26
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
an improvement both in terms of safety (reducing the risk of road accidents) as well as from an
environmental point of view (reducing emissions from private cars).
Also in the area of environmental improvements, the reduction in plastic consumption due to the
replacement of disposable bottles with water dispensers and the delivery of a stainless steel water
bottle to all employees should be noted.
The new headquarters inaugurated in September 2019 unified the various Renco departments previously
situated in different locations, thus improving the infrastructure (offices and systems, updated hardware
and software, personal transport, parking, photovoltaic panels and electric charging stations for cars,
etc.). and the environment (canteen, gym, laundry) for the functioning of its processes.
Inspection and Expediting.
The figure of the Company Physician as Coordinating Physician has been introduced in the group. The
purpose of this position is to coordinate the health monitoring of workers working in foreign offices,
ensuring greater health protection
Following the annual safety meeting, visits to working environments in construction sites were added.
Injuries
During the year, there were:
no accidents involving personnel
2 non-work related accidents (malaria infections)
1 commuting accident
no ascertained occupational diseases
no deaths
Litigation
For disputes pending at 31/12/2019, entrusted to our lawyers, the Group believes that these will not have
significant consequences from the point of view of potential liabilities beyond the provisions indicated in
the paragraph “Provisions for risks and charges” of the Explanatory Notes.
Information on Group personnel
With reference to employees directly employed by Renco S.p.A., with the exclusion of its branches, the
following information is provided:
as at 31.12.2019, 433 employees were in the workforce at the end of the financial year, including 349
men and 84 women, 279 with open-ended contracts (215 men and 64 women) and 154 with fixed-term
contracts (134 men and 20 women);
average length of service is 7 years;
826 days of training were carried out during the year;
142 employees, collaborators and interns were hired, and 132 people terminated the employment relationship,
with an increase of 10 units (annual average).
27
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
DESCRIPTION OF THE MAIN RISKS AND UNCERTAINTIES TO WHICH THE GROUP IS EXPOSED
In carrying out its activities, the Group is exposed to risks and uncertainties deriving from external factors
related to the general or specific macroeconomic context of the operating sectors in which it operates, as
well as to the risks deriving from strategic choices and to internal operating risks.
The identification and mitigation of these risks has been systematically carried out, allowing for timely
monitoring and management of the risks occurring.
With reference to risk management, the Group has a centralised risk management function, while delegating
identification, monitoring and mitigation of the same to the functional level, also in order to better measure
the impact of each risk on business continuity, reducing the occurrence and/or limiting the impact according
to the causal factor (controllable or otherwise by the Company).
In the context of business risks, the main risks identified, monitored and managed by the company are the
following:
risks depending on exogenous variables;
risk linked to competitiveness;
risks related to demand/macroeconomic cycle;
risk linked to financial management;
risks associated with the activation of partnerships.
Risks depending on exogenous variables
The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation
of foreign currency exchange rates with which the Group operates, especially as regards the Kazakh
Tenge, Armenian Dram, Rouble and USD. Currency risk derives from future business transactions, assets
and liabilities recorded in the financial statements. The management policy stipulates that the Group will
manage its exposure to currency risk by sometimes hedging its net foreign currency position. The approach
is to cover the expected cash flows in the main currency of the Group’s operations, in Euro.
The Group is exposed to Country risk by operating in “emerging” markets and countries; the continuous
monitoring of local situations of reference and the continuous presence of managerial staff trained in Renco
S.p.A. allows constant monitoring of the situation. In any case, the exposure to this risk can be defined
as limited because it in any case refers to countries in a condition of sufficient political stability since
many years and whose ratings have recorded constant improvements over the years. This diversification of
markets in which the Group operates represents a precise strategy to limit risk.
Risk linked to competitiveness
The Group operates on open, unregulated markets, not protected by any tariff barriers, administered
regimes or public concessions, excluding the photovoltaic business partially linked to the existence of
incentive policies promoted by local governments. The markets are highly competitive in terms of product
and service quality, innovation, price competitiveness, reliability and customer service.
28
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
On certain markets and services, the Group is faced with very fierce competitors, some of which are large
operators and may have superior resources or cost positions, both due to economies of scale and to more
competitive factor costs, allowing them to be able to implement very aggressive pricing policies.
The success of the Group’s activities will depend on its ability to focus its efforts on specific industrial
sectors, focusing on the solution of technological problems and on customer service, so as to provide a
higher value to the customer in the market niches in which it competes.
Risks related to the evolution of the general economic scenario
The performance of the sector in which the Group operates is related to the general economic situation and
therefore any negative economic or recession periods may result in a consequent reduction in the demand
for the products and services provided.
The Group operates through its subsidiaries in many international markets, such as in particular Africa, the
Middle East, CIS countries as well as in European countries; this widespread geographical presence allows
the Group as a whole to mitigate the effects of the recession, which has mainly affected the countries of
the Eurozone and Italy. Diversification of the markets in which the Group operates and of the products and
services that the Group offers mitigates and decreases its exposure to cyclical trends in certain markets;
nevertheless, it is not possible to exclude that these cyclical trends may have a significant impact on the
business and economic and financial situation of the Group.
29
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Risk linked to financial management
The Group has a financial situation characterised by the presence of a controlled current financial
indebtedness, in line with the growth in the volume of activity produced. This determines the presence of a
positive net working capital without any sign of financial difficulties.
In exercising its activity, the Group is exposed to various financial or similar risks (liquidity, exchange rate,
interest and credit).
Regarding the information required by art. 2428 of the Italian Civil Code par. 3 point 6 bis, the following is
specified.
Liquidity risk
As at 31 December 2019, the Group had total bank credit facilities of approximately 238.7 million Euros
(210.9 million Euros in 2018) of which 146.7 million Euros related to unsecured credit, and pursues a policy
of careful liquidity risk management.
At the Group level, the correct and timely planning of short-term cash flows guarantees the ability to meet
future financial commitments, through the availability of funds generated by current assets and through the
use of an adequate amount of committed credit lines.
The bank credit facilities currently granted to the Group and the liquid funds and liquidity generated by
ordinary activities are therefore deemed to be adequate and such as to be able to meet obligations in a
timely manner on the due dates.
Liquidity is managed by the company through the use of short-term or easily disposable assets.
Exchange rate risk
The Group operates at an international level, and is therefore exposed to risk arising from the fluctuation of
foreign currency exchange rates with which the Group operates, especially as regards the Kazakh Tenge,
Armenian Dram, Ruble and USD. The policy adopted by the Group is based on a correct assessment of
foreign exchange risks, deriving from future commercial and financial transactions in currencies other than
the Euro, and is aimed at stabilizing the flows expected in Euros through the use of derivative instruments
and forward contracts.
To this end, USD/Euro exchange rate option contracts have been stipulated to hedge future cash flows
relating to the progress of the Yerevan Power Plant and CCS Camp construction contracts, whose collection
will be in USD.
On the basis of the financial statements for the year ended on 31 December 2019, the Group recorded
losses on exchange rates for a total of 1.7 million Euros (loss of 2.3 million Euros in 2018).
These consist mainly of unrealised exchange rate losses resulting from the conversion of intercompany
trade receivables or payables denominated in foreign currency (transaction risk).
Finally, the Group, through its currency current accounts, hedges against the risk of fluctuations in exchange
rates with certain foreign currencies with a natural hedging approach.
30
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Credit risk
The Group’s credit risk is mainly attributable to the amount of trade receivables from its customers, which
mainly include large oil companies, international operators and institutions.
The credit management functions establish the quality of the customer, considering its financial position,
past experience and other factors. In any case, the high standing of the commercial counterparties with
which Renco operates determines a credit risk for customer exposure of limited amount.
Provisions for credit depreciation by Group companies accurately reflect the actual risk on receivables
through the targeted quantification of the provision.
As a result of the current economic situation, the Group has improved its risk on receivables control
through the strengthening of monitoring and reporting procedures, in order to promptly identify potential
countermeasures in the event of identified causes. In order to control the risk on receivables, methods for
monitoring and controlling the former have been defined along with the definition of strategies to reduce
credit exposure, among which is a solvency analysis of customers being acquired and the management of
legal disputes of receivables for services rendered.
Interest rate risk
The interest rate risk refers to the potential effects on the income statement that may result from any
fluctuations in interest rates on Group loans.
The amount of debt of the company at variable rates not hedged by the interest rate risk represents the
main risk element for the negative impact resulting from an increase in market interest rates. The interest
rate risk to which the company is exposed mainly derives from medium/long-term financial payables.
The Renco Group’s policy to manage this risk aims to achieve a properly balanced debt structure in order
to, on the one hand, reduce the amount of financial debt subject to variable rates and, on the other, at the
same time limit the cost of the loan.
With regard to medium and long-term loans, the company has Interest Rate Swaps and Interest Rate Caps
in place at 31 December 2019 with financial counterparties of primary standing for a total of 58.4 million
Euros of notional amount. Such derivative instruments allow for coverage of the risk of increased interest
rates by transforming variable rates into fixed rates.
At 31 December 2019, at Group level, 74% of medium/long-term gross debt with third parties was at a fixed
rate (72% in 2018), while 26% at a variable rate (28% in 2018).
Risk related to the spread of infectious diseases
The global spread of epidemiological or pandemic emergencies affecting the population (i.e. COVID-19),
in addition to a deterioration in the macroeconomic scenario, may lead to slowdowns in the company’s
activities, resulting from measures issued by national and foreign authorities, the unavailability of personnel
and difficulties encountered by customers, with negative impacts on the Company’s results.
The Company immediately took steps to protect the health of its workers; on a regular basis the Board of
Directors assesses the risks in order to establish the actions to be taken.
31
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
The potential effects of this pandemic on the financial statements cannot be determined at this point
and are not adjustment elements, in line with the recent ESMA Communication. They will in any case be
constantly monitored during the year.
Risks associated with the activation of partnerships.
The increasing complexity of the works implemented and/or conditions of opportunities for sharing risks
make recourse to models for the management of certain investments and projects in partnership with other
operators in the sector in question increasingly frequent. This approach facilitates entry into new countries
and/or sectors but, at the same time, determines potential risks and complexities related to cultural and
organisational integration with partners which, in the worst case scenario, could even lead to a discrepancy
between the vision of the Group and that of the partnership. There are also further problems related to
the exposure to the economic-financial situations of the partners. The management of this type of risk is
guaranteed through an effective assignment of roles and responsibilities within the individual strategic
initiatives, as well as a correct application of the process of defining and subsequently managing contracts
and any shareholders’ agreements.
NOTICE AS PER ART. 2428 NO. 6 BIS
The Group has no investments in significant financial assets.
COMPANY OBJECTIVES AND POLICIES CONCERNING FINANCIAL RISK MANAGEMENT
The Group pursues the objective of containing financial risks also through hedging transactions with
derivatives and by means of a control system managed by the Administrative Department.
The corporate policy for hedging financial risks consists of hedging exchange risks on purchases and
sales through the stipulation of derivative financial instruments without speculative purposes; of hedging
credit risks through the periodic verification of the reliability of customers and insurance programs for
guaranteeing trade receivables.
This includes the stipulation by Group companies of insurance policies with SACE to protect the loans
disbursed (and to be disbursed) to Mozambican subsidiaries.
With reference to debt towards the banking system, fluctuations in interest rates affect the market value of
the Group’s financial assets and liabilities and net financial charges. The Group’s policy is to seek to maintain
a ratio between fixed and variable rate exposure such as to minimise the risk deriving from the fluctuation
in interest rates without renouncing to exploit the particularly favourable economic situation in terms of low
interest rates. In order to maintain this balance, the Group has entered into derivative contracts, typically
interest rate swaps and interest rate caps.
32
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
COMPANY RISK EXPOSURE
Price risk
Since the Group’s production processes are mainly linked to high value-added services, engineering and
assembly activities, exposure to energy price fluctuations is very limited.
The Group is exposed to changes in the price of basic raw materials (such as oil, minerals, etc.) to an
insignificant extent, given that the product cost component linked to these materials is very limited.
Credit risk
Credit risk derives from liquid funds, derivative financial instruments and deposits with banks and financial
institutions, as well as from customer exposure, which includes outstanding receivables and planned
transactions. Precise policies have been put in place in order to limit the extent of credit exposure to any
bank. Please refer to that stated previously for a detailed description of credit risk management.
Liquidity risk
The Group’s policy is to carefully manage its treasury, through the implementation of income and expense
planning tools. The Group expects to maintain an adequate capacity to meet the financial resources
required for planned investments and to manage operations. Credit lines and liquid funds are adequate
with respect to the Company’s operations and growth forecasts.
Please refer to that stated previously for a detailed description of credit risk management.
RESEARCH AND DEVELOPMENT ACTIVITIES
During the year there was a further development of IT activities following the implementation of Oracle
JDEdwards in the foreign subsidiaries in Mozambique which went live on 1 January 2020, and all the
localisations on the Oracle system adopted in Kazakhstan necessary to meet the requirements of local tax
and accounting regulations were implemented.
In this way, the Group has a homogeneous and single system in the Group’s main companies, i.e. Italian,
Armenian, Kazakh and Mozambican, with improvements in terms of timeliness, accuracy and intelligibility
of data and reporting.
In 2019, the IT department was also involved in the design and implementation of the IT infrastructure of the
company’s new headquarters in accordance with best practices and international benchmarks.
The collaborative research project between the Company and Alma Mater Studiorum - University of
Bologna continued and was extended as a result of increased complexity due to the use of hazardous
gases such as hydrogen sulphide. The experimental apparatus has been completed and all the strict safety
measures have been put in place. The calibration process was performed, demonstrating the repeatability
of the data with the test gas compared to the results obtained with the equipment used in the first part of
the project. The testing phase with hydrogen sulphide has therefore begun.
33
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
During the year, Renco S.p.A. confirmed the ISO/IEC 27001:2013 certification on information system security,
reaching an international standard of excellence.
TRANSACTIONS WITH SUBSIDIARY, ASSOCIATED, PARENT AND PARTNER COMPANIES
With regard to transactions with related parties and in particular the transactions with associated and
partner companies, please refer to the detailed table included in the specific paragraph of the Explanatory
Notes.
Transactions with associated and partner companies, which do not include any atypical and/or unusual
operations, are regulated at normal market conditions.
TREASURY SHARES AND SHARES/STOCKS IN PARENT COMPANIES
In compliance with points 3) and 4), par. 2, art. 2428 of the Italian Civil Code, we provide an appropriate
summary table of the data relating to treasury shares held by the parent company Renco Group SpA,
highlighting the changes during the year and we inform that the Company did not hold any shares or
stocks of parent companies during the year.
DESCRIPTION
NO. OF SHARES HELD AT THE BEGINNING OF
THE YEAR
NO. OF NEW SHARES SOLD/CANCELLED DURING THE YEAR
NO. OF NEW SHARES SUBSCRIBED DURING
THE YEAR
NOMINAL VALUE OF NEW SHARES SUB-
SCRIBED DURING THE YEAR
SHARES:
- treasury shares 36,050
Total 36,050
With reference to treasury shares recognised as a reduction in equity, it should be noted that these were
purchased in part in 2010 and in part in 2012. As of 31.12.2018 the Parent Company held 36.050 shares equal
to a nominal 360,500 representing 4% of its share capital; the percentage share held respects the legal
constraints set forth by articles 2357 and 2357-bis of the Code.
GROUP RESTRUCTURING
With the aim of reorganising and rationalizing the Group’s structure, on 25 September 2019, the Board
of Directors of Renco S.p.A. approved the single plan for the partial and proportional demerger of Renco
S.p.A. in favour of Renco Immobiliare S.r.l. and Renco Asset Management S.r.l. pursuant to articles 2506 - bis
and 2501 - ter of the Italian Civil Code, and the simultaneous merger of Renco Immobiliare S.r.l. with Renco
Real Estate S.r.l. pursuant to articles 2501 - ter and 2505 of the Italian Civil Code.
34
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Apart from the technical aspects, it must be said that this operation completes a restructuring process that
already began in 2015 (when the Group still had companies that carried out the activities of all the divisions,
with a lot of mingling between industrial activity and real estate management).
This operation gives the Group as a whole greater transparency and understanding by external observers
and analysts, keeping industrial activities (Oil & Gas Division, Civil Construction, Services) and Asset
Management activities, which are profoundly different in terms of risk levels, financing requirements and
operational management, completely separate.
The operation, in its single and essentially simultaneous entirety, contemplates:
the partial and proportional demerger of Renco S.p.A. with assignment to Renco Immobiliare S.r.l. of the
business unit comprising the Asset Management Division;
the subsequent (reverse) merger of Renco Immobiliare and Renco Real Estate S.r.l. whose 100% stake
currently owned by Renco S.p.A. will be assigned to Renco Immobiliare as a result of the demerger.
The establishment of Renco Asset Management S.r.l., a consulting firm that possesses the Group’s know-
how in asset management activities and assists all Renco Real Estate subsidiaries, but also third party
customers in the main markets in which the Group operates, in the management of their properties;
The formalisation of the documents took place on 10 December 2019, with effect for accounting, statutory,
fiscal and legal purposes from 1 January 2020.
35
Renco Group Spa ⏐ MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019
Similarly to the actions undertaken on the Italian companies, the restructuring also involved the Armenian,
Mozambican and Congolese Group companies, in which the properties passed from the industrial companies
to the real estate companies through deeds of sale or conferral, as better illustrated above.
Finally, in 2020 Renco Real Estate S.r.l. will change its name to Renco Valore S.r.l.
In view of the corporate restructuring, it is necessary to provide the Group with a new financial structure.
This is achieved by redistributing the financial debt, towards third parties and intra-group, among the
group’s Italian holding companies (Renco Group S.p.A., Renco S.p.A. and Renco Valore S.r.l.), according
to the characteristics of the capital invested (sources-uses alignment), the characteristic activities carried
out and the investment plan of the individual companies. Below are the objectives to be achieved with the
implementation of the new financial structure:
a) Provide Renco S.p.A. with a leaner financial structure, to facilitate access to unsecured credit instrumental
to the growth of its core business and to short-term debt to meet working capital requirements.
b) Raise financial resources for the investment plan of Renco Valore and Renco S.p.A., giving Renco Valore
a financial structure to a sustainable extent according to the liquidity generated by the characteristic
operations of current income-generating assets.
c) To make the two Sub-Holdings, Renco S.p.A. and Renco Valore S.r.l., financially autonomous in the
pursuit of their industrial objectives.
FORESEEABLE BUSINESS OUTLOOK
2020 is certainly going to be a complex year which, at a global level, will suffer from the effects of the
Coronavirus pandemic, combined with oil price trends strongly influenced by the vertical drop in consumption
and demand for all goods.
From this point of view, however, it is essential to remember that the Renco Group has not worked in the
Oil market for many years now, having directed its activities almost exclusively towards the Gas and Power
Generation markets.
As is well known, the prospects of the gas sector are profoundly different from those of oil; market forecasts
see the sector growing rapidly until at least 2050, with good remuneration for international investors who are
increasingly attentive to the environmental implications of energy production and aware of the significant
environmental value of that produced with the use of gas.
It is precisely thanks to this change of direction implemented by the Renco Group that the fall in oil prices in
April 2020 did not have a significant impact on the Group’s order book.
Added to this is the fact that Oil Companies had, as an immediate reaction to the collapse of the price per
barrel, the suspension and, in some cases, the cancellation of the so-called “tactical” projects, keeping the
decisions on the “strategic” ones unchanged; the Renco Group is currently engaged exclusively on strategic
projects related to gas.
Moreover, the Coronavirus has only had an effect on the timing of completion of certain projects. Indeed,
there were only a few weeks of suspension for the construction sites for the Bergamo Guardia di Finanza
Academy and the Yerevan Power Plant (both resumed at full capacity at the beginning of May 2020) and a
mere slowdown of the construction site for the construction of the 9,500-bed CCS Camp in Mozambique (in
all cases, also with the intense application of Smart Working, design and procurement activities continued
without interruption or impairment of productivity).
On the other hand, the impacts on the activities of Renco Valore are a little more significant.
36
MANAGEMENT REPORT OF THE FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
While all that part of the business regarding the medium/long term rental of offices, apartments and commercial
areas has not suffered any contraction due to the Coronavirus pandemic (with the exception of some marginal
discounts granted in the most affected months), it must be said that there has been a more significant impact
on the activity of hotels with a tourist vocation; the Grand Hotel in Yerevan, the Hilton Hotel in Armenia, the
Castri Hotel in Florence and the Mecufi Resort in Mozambique were closed for the months of April and May.
On the contrary, some of the Group’s hotels, more precisely the Hotel Mira in Sakhalin, the Mercure Hotel in
Almata and the Hilton Hotel in Punta Nera (Congo) have been entirely occupied with the “used or not” formula
by Exxon Mobil, the Kazak Federation of Artistic Gymnastics and the French company Total, respectively, in
order to protect their staff by accommodating them in environments considered safe and with a low probability
of infection.
For all the above, the Group’s overall margins are expected to be in line with those of previous years, despite
Covid and the price of oil.
This is an expected result which is also supported by a careful review of overhead costs and in part by the
use of unemployment benefits and of other facilities provided by the Government to support workers and
businesses.
ACTIVITIES PURSUANT TO LEGISLATIVE DECREE 231/01
In 2019, the Supervisory Body monitored the updating of the adopted Model, proceeding with constant
verification of the company’s activities and ascertaining the absence of any violations of and compliance
with the Organisational Model adopted by the subsidiary Renco S.p.A.
Pesaro, 18 May 2020
On behalf of the Board of Directors
The Chairman
Giovanni Gasparini
40
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa
CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019(Balances in thousands of Euros)
BALANCE SHEET ASSETS 31/12/2019 31/12/2018
A) Receivables due from shareholders for payments still due
I) Receivables due from shareholders for payments still due 3 -
II) (of which already called) - -
B) Fixed assets
I) Intangible fixed assets
1) Start-up and expansion costs 8 9
2) Development costs 755 -
3) Industrial patents and intellectual property rights 4,006 2,063
4) Concessions, licences, trademarks and similar rights 16 78
5) Goodwill - -
6) Assets under construction and advances 3,516 767
7) Other 492 710
8,793 3,627
II) Tangible fixed assets
1) Land and buildings 201,129 183,629
2) Plants and machinery 5,556 2,667
3) Industrial and commercial equipment 3,029 5,928
4) Other assets 5,982 5,022
5) Assets under construction and advances 4,108 16,344
219,804 213,590
III) Financial fixed assets
1) Equity investments in:
a) Subsidiary companies 24,026 1,596
b) Associated companies 1,348 1,341
d bis) Other companies 53 53
25,427 2,990
2) Receivables
a) from subsidiary companies 275 4,882
1) within 12 months 275 4,882
b) from associated companies 23,619 21,306
1) within 12 months 2,079 567
2) Beyond 12 months 21,540 20,739
c) from parent companies - -
d) From companies subject to the control of parent companies - -
d-bis) from others 91 1,591
1) within 12 months 77 381
2) Beyond 12 months 14 1,210
23,985 27,779
3) Other securities - -
4) Derivative financial asset instruments 306 814
49,718 31,583
Total fixed assets 278,315 248,800
41
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019
BALANCE SHEET ASSETS 31/12/2019 31/12/2018
C) Current assets
I) Inventories
1) Raw and ancillary materials and consumables 7,601 4,059
2) Products under construction and semi-finished products 22 229
3) Contract work in progress 367,356 206,851
4) Finished products and goods 9,235 8,456
5) Advances 24 843
384,238 220,438
II) Receivables
1) Trade receivables 35,010 50,541
1) within 12 months 35,010 50,541
2) from unconsolidated subsidiary companies 217 7,534
1) within 12 months 217 7,534
3) from associated companies 3,975 2,877
1) within 12 months 3,975 2,877
4) From parent companies - -
5) From companies subject to the control of parent companies - -
5-bis) Tax receivables 19,199 22,172
1) within 12 months 19,199 21,338
2) Beyond 12 months 0 834
5-ter) Prepaid tax 5,237 7,184
5-quater) from others 17,898 14,360
1) within 12 months 10,172 6,192
2) Beyond 12 months 7,726 8,168
81,536 104,668
III) Financial assets not classified as fixed assets
6) Other securities - 52
- 52
IV) Cash and cash equivalents
1) Bank and post office deposits 97,826 72,194
3) Cash and equivalents in hand 303 283
98,129 72,478
Total Current assets 563,903 397,635
D) Accruals and deferrals 4,132 3,128
Total Assets 846,350 649,564
42
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa
BALANCE SHEET - LIABILITIES 31/12/2019 31/12/2018
A) Shareholders’ equity
I) Share capital 9,013 9,013
II) Share premium reserve 25,988 25,988
III) Revaluation reserves 4,696 4,696
IV) Legal reserve 1,367 1,281
V) Statutory reserves - -
VI) Other reserves 27,593 25,595
VII) Reserve for hedging operations for expected financial flows (1,227) 398
VIII) Retained earnings (accumulated losses) 93,998 86,963
IX) Profit (loss) for the year 8,017 8,755
X) Negative reserve for own shares held in portfolio (3,609) (3,609)
Total Group Shareholders’ equity 165,836 159,080
Minority interest
Minority interests in capital and reserves 896 4,218
Income (Loss) pertaining to minority shareholders 71 (2,655)
Total Minority Shareholders’ equity 967 1,563
Total Consolidated Shareholders’ equity 166,803 160,643
B) Provisions for risks and charges
1) Provision for pensions and similar obligations - -
2) Provisions for taxes, including deferred taxes 13,779 13,457
3) Derivative financial liability instruments 2,030 280
4) Others 1,074 7,183
16,883 20,920
C) Employee severance indemnity 2,886 2,411
D) Payables
1) Bonds 44,530 44,368
1) within 12 months 10,000 -
2) Beyond 12 months 34,530 44,368
2) Convertible bonds - -
3) Payables to shareholders for loans 5,701 6,201
1) within 12 months 5,701 6,201
4) Payables to banks 60,837 93,670
1) within 12 months 29,442 44,101
2) Beyond 12 months 31,395 49,569
5) Payables to other lenders 13,853 1,665
43
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019
BALANCE SHEET - LIABILITIES 31/12/2019 31/12/2018
1) within 12 months 979 60
2) Beyond 12 months 12,874 1,605
6) Advances 398,886 230,260
1) within 12 months 223,227 18,333
2) Beyond 12 months 175,659 211,927
7) Trade payables 98,431 61,483
1) within 12 months 98,431 61,483
8) Payables represented by credit instruments - -
9) Payables to subsidiary companies 54 1,925
1) within 12 months 54 1,925
10) Payables to associated companies 2,742 2,126
1) within 12 months 2,742 2,126
11) Payables to parent companies - -
11 bis) Payables to companies subject to the control of parent companies - -
12) Tax payables 12,826 6,871
1) within 12 months 11,676 6,871
2) Beyond 12 months 1,150
13) Payables to social security and welfare institutions 1,987 1,759
1) within 12 months 1,987 1,759
14) Other payables 19,014 13,829
1) within 12 months 16,413 10,871
2) Beyond 12 months 2,601 2,958
658,861 464,157
E) Accruals and deferrals 917 1,432
Total Liabilities 846,350 649,564
44
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa
INCOME STATEMENT 31/12/2019 31/12/2018
A) Value of production
1) Revenues from sales and services 98,372 253,639
2) Change in inventories of products currently being manufactured, semi-worked products and finished products
99 (451)
3) Changes in contract work in progress 160,463 (44,443)
4) Increases in fixed assets for in-house works 17,348 19,999
5) Other revenues and income, with separate indication of operating grants
a) Various items 38,745 14,538
b) Operating grants 148 -
Total Value of production 315,175 243,282
B) Cost of production
6) Raw, ancillary and consumable materials and goods for resale 87,029 61,203
7) For services 103,261 76,765
8) For use of third party assets 5,831 4,589
9) Personnel 61,181 56,476
a) Wages and salaries 49,087 46,206
b) Social security contributions 10,088 8,311
c) Severance indemnity 1,711 1,372
d) Pensions and similar commitments - -
e) Other costs 295 588
10) Amortisation/depreciation and write-downs 13,135 11,745
a) Depreciation of intangible fixed assets 729 705
b) Depreciation of tangible fixed assets 9,666 9,323
c) Other write-downs of fixed assets 1,271 248
d) Impairment of receivables including in current assets and cash and cash equivalents 1,469 1,469
11) Changes in inventories of raw, ancillary materials, consumables and goods (4,762) 2,254
12) Provision for risks - 199
13) Other provisions - 1,300
14) Other operating expenses 15,670 3,534
Total cost of production 281,345 218,065
Difference between value and cost of production (A-B) 33,830 25,217 C) Financial income and charges
15) Income from equity investments 418 4
a) From subsidiary companies 418 4
b) From associated companies - -
c) From parent companies - -
d) From companies subject to the control of parent companies - -
e) Others - -
16) Other financial income 1,855 622
a) from receivables recorded as fixed assets - -
1) From subsidiary companies - -
2) From associated companies - -
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 31/12/2019
INCOME STATEMENT 31/12/2019 31/12/2018
b) From securities included under fixed assets not comprising equity investments - -
c) From securities included under current assets not comprising equity investments - -
d) Income other than the above - -
1) From subsidiary companies - 16
2) From associated companies 170 143
3) From parent companies - -
4) From companies subject to the control of parent companies - -
5) Others 1,685 463
17) Interest and other financial charges 7,014 6,652
a) from subsidiary companies - -
b) from associated companies - -
c) from parent companies - -
d) From companies subject to the control of parent companies - -
e) Others 7,014 6,652
17 bis) Exchange losses and gains (1,710) (2,280)
Total financial income and expense (6,450) (8,305) D) Value adjustment to financial assets and liabilities
18) Revaluations 109 36
a) Of equity interests 7 36
b) Of financial fixed assets (not comprising equity investments) 101 -
c) Of securities included under current assets (not comprising equity investments) - -
d) Of derivative financial instruments - -
e) Of financial assets for centralised cash management - -
19) Write-downs 3,391 4,868
a) Of equity interests 2,919 4,667
b) Of financial fixed assets 354 101
c) Of securities included under current assets (not comprising equity investments) - 84
d) Of derivative financial instruments 118 16
e) Of financial assets for centralised cash management - -
Total value adjustments to financial assets (3,283) (4,832)
Pre-tax profit/loss (A-B+C+D) 24,098 12,078
20) Income taxes for the year, current, deferred and prepaid a) Current taxes 6,966 5,970
b) Prior year taxation 6,901 2,605
c) Deferred and prepaid taxes 2,547 (1,794)
d) income (expense) from compliance with the tax consolidation / tax transparency regime
403 803
Profit (Loss) for the year 8,088 6,100
Profit (loss) for the year relating to the Group 8,017 8,755
Profit (loss) for the year relating to minority interests 71 (2,655)
The Chairman of the Board of Directors
Giovanni Gasparini
46
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa
CONSOLIDATED CASH FLOW STATEMENTindirect method as of 31/12/2019 (values expressed in thousands of Euros)
31/12/2019 31/12/2018
A. Cash flow from operating activities (indirect method)
Income (loss) for the year 8,088 6,100
Income taxes 16,010 5,979
Interest expense / (interest income) 5,159 6,029
Value adjustments to financial assets 2,885 472
Write-downs for impairment losses 1,271 248
(Gains)/losses from the sale of assets (24,213) (11,640)
1. Profit (loss) before income tax, interest, dividends and capital gains/losses on disposals 9,200 7,188
Adjustments for non-monetary items not offset in net working capital
Allocations to provisions 2,377 9,788
Depreciation of fixed assets 10,395 10,028
Adjustments to the value of derivative financial instruments 69 28
Other upward or downwards adjustments for non-monetary elements 163 (1,639)
2. Cash flow before changes in NWC 13,004 18,205
Changes to net working capital
Decrease/(increase) in inventories 4,660 28,676
Decrease/(increase) in trade receivables 5,480 (14,423)
Increase/(decrease) in trade payables 36,564 (16,185)
Increase/(decrease) in accrued income and prepaid expenses (1,004) 1,206
Increase/(decrease) in accrued liabilities and deferred income (165) (2,338)
Other changes in net working capital (3,096) (4,958)
3. Cash flow after changes in NWC 42,439 (8,022)
Other adjustments
Interest collected/(paid) (4,908) (4,909)
(Income tax paid) (5,770) (7,608)
(Use of provisions) (1,160) (3,540)
4. Financial flow after other adjustments (11,837) (16,056)
Cash flow generated by income management (A) 52,806 1,315
B. Cash flow from investment activities
Tangible fixed assets
(Investments) (19,840) (22,754)
Disposals 797 103
47
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019
31/12/2019 31/12/2018
Intangible fixed assets
(Investments) (5,182) (998)
Disposals 23
Financial fixed assets
(Investments) (28,719) (6,186)
Disposals 1,649 1,028
Total non-current financial assets
(Acquisition of business units, net of cash and cash equivalents) 104 (870)
Sale of business units, net of cash and cash equivalents 48,858 6,828
Cash flow from investment activities (B) (2,311) (22,849)
C. Cash flow from financing activities
Minority interest means
Increase (decrease) in short-term payables to banks (16,642) 5,132
Loans taken out 49,483 10,417
Loans repaid (55,294) (14,667)
Repayment of loans to shareholders (500) (225)
Increase (decrease) in short-term payables to bond holders 162 154
Increase (decrease) in short-term payables to other lenders 19 (466)
Own resources
Dividends paid (166) (19)
Change in reserve for translation differences (1,905) 2,325
Cash flow from financing activities (C) (24,844) 2,651
Increase (decrease) of liquid assets (A ± B ± C) 25,652 (18,883)
Cash and cash equivalents at beginning of year 72,478 91,361
Cash and cash equivalents at end of year 98,129 72,478
As shown in the cash flow statement, prepared using the indirect method, there was an increase in liquidity
of 25,651 thousand Euros during the year. The main changes in the cash flow statement are shown below.
Change in trade receivables, inventories, trade payables - This item includes the cash absorption or cash
generation relating to net working capital, therefore changes in trade receivables, inventories and trade
payables. It should be noted that changes in inventories refer to the item in question and include change
in advances. The change in inventories and advances is directly linked to the life cycle of orders, for the
analysis of which reference should be made to the paragraph “Inventories” of these explanatory notes.
Other changes in net working capital - This item includes the change in all other assets and liabilities
both current and non-current, net of the effects produced in the same by the allocations of non-monetary
charges or income, i.e. the change that had a direct effect on cash absorption or generation.
48
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019 ⏐ Renco Group Spa
Disbursements for investments in tangible fixed assets and collections for disinvestments in tangible
fixed assets - For detailed information on the cash flow for investments in tangible fixed assets please refer
to the paragraph “Tangible fixed assets” in these explanatory notes.
Disbursements for investments in intangible assets - The cash flow for investments in intangible assets is
related to the investments made in the new Oracle JDE ERP system and to development costs.
Collections for disinvestments in financial fixed assets and Disbursements for financial fixed assets - For
a precise representation of the cash flow for disinvestments and investments in financial fixed assets please
refer to the paragraph “Financial fixed assets” in these explanatory notes.
Increase/(decrease) in payables to banks - This item includes the change in payables due to banks which
during the period underwent a negative change of 22.5 million Euros due to taking out new loans for the
amount of 49.5 million Euros and the repayment of loans for the amount of 55.3 million Euros.
49
Renco Group Spa ⏐ CONSOLIDATED STATEMENT OF CASH FLOWS AS OF 31/12/2019
Sale of business units, net of cash and cash equivalents - The item contains the effect of the sale of 100%
of Reno Zanzibar (Tanzania). The transaction was completed on the basis of a price of USD 56 million fully
received during 2019. In compliance with OIC 17, the book values of the related assets/liabilities sold are
shown below:
RENCO ZANZIBAR
Fixed assets 15,627 Shareholders’ Equity 14,071
Receivables and Inventories 984 Deferred tax provision -
Liquid funds 377 Payables 2,917
Total Assets 16,988 Total Liabilities 16,988
The Chairman of the Board of Directors
Giovanni Gasparini
53
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
FOREWORD
Dear Shareholders,
These consolidated financial statements, submitted for your examination, show a period profit of 8,088
thousand Euros.
ACTIVITIES CARRIED OUT AND SIGNIFICANT EVENTS REGARDING THE GROUP
The “Renco Group”, of which Renco Group S.p.A. is the parent company, is an important Italian company
in the industrial plant engineering sector and in the general contracting area. The Group operates various
lines of business, which include the Energy Division, Construction division, Asset Management division and
Services division.
PREPARATION CRITERIAThese consolidated financial statements consisting of balance sheet, income statement, cash flow statement
and explanatory notes have been prepared in accordance with Art. 29 of Italian Legislative Decree 127/91
as emerges from these explanatory notes, drawn up in accordance with Art. 38 of the same decree. Where
necessary, the accounting standards issued by the OIC (Italian Accounting Body) have been applied in the
version revised at the end of 2016 and, where lacking, the accounting standards recommended by IASB
and incorporated by CONSOB.
The presentation currency of the financial statements is the Euro. The balances are expressed in thousands
of Euros, unless specifically stated otherwise. It should also be noted that any differences found in certain
tables are due to the rounding of the values expressed in thousands of Euros.
The consolidated financial statements show the figures from the previous year for comparison, indicated in
the following notes in parentheses.
The criteria used in the preparation and valuation of the financial statements as of 31.12.2019 take into
account the Modifications introduced into national law by Legislative Decree 139/2015, which from 2016
implemented Directive 2013/34/EU. As a result of Legislative Decree 139/2015 the OIC national accounting
standards were amended.
With these explanatory notes we highlight the data and disclosures provided by Art. 38 of the same decree,
therefore the Financial Statements consist of the following documents:
Balance Sheet
Income Statement
Cash Flow Statement
Explanatory Notes
In addition to the schedules provided for by law, the statement reconciling the net profit and shareholders’
equity of the consolidating company with the respective values resulting from the consolidated financial
statements is presented.
54
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
SCOPE AND METHODS OF CONSOLIDATION AND SIGNIFICANT EVENTS DURING THE YEAR
The consolidated financial statements originate from the financial statements of @X005001RENCO GROUP
S.P.A.@X005001End (Parent Company) and of the Companies in which the Parent Company directly or
indirectly holds the controlling interest or exercises control. The financial statements of the Companies
included in the scope of consolidation were consolidated by using the line-by-line method. The list of these
companies is shown in Annex 1.
From the previous year the following changes occurred in the Group structure:
in June, Renco S.p.A. sold 100% of the shares held in Renco Zanzibar Ltd to companies of the RIU
Group, recording a capital gain net of brokerage costs of 32.8 million Euros, a gain determined taking
into account the lower value contributed by the subsidiary in the consolidated financial statements up
to 30.06.2019. The sales price was fully received in July 2019. The sale underlines the core business of
the Asset Management BU, which also evaluates and concludes extraordinary transactions, such as
acquisitions and disposals, for the benefit of the Renco Group;
the Group has begun a corporate restructuring process, aimed at rationalising the Group’s corporate
structure, which is why on 4 April 2019, Renco Immobiliare S.r.l. was formed, a vehicle under which
companies holding real estate assets will be allocated. The transaction has a mainly industrial purpose
and is aimed at separating the real estate and ho.re.ca “Hotellerie, Restaurant, Cafè” activities relating
to the property and asset management business units from the activities of the Services, Infrastructure
and Industrial Plant Divisions. Renco Immobiliare S.r.l. has the same shareholding structure as Renco
S.p.A. and that is why the Renco Group directly owns 99.51% of the company.
The restructuring project also includes the demerger of the know-how acquired in the property and
facility management activities necessary to ensure the possibility of promoting it on the market,
not limiting it to captive activities for the Group. The company created in July 2019 is Renco Asset
Management S.r.l., whose capital is owned in the same proportions as Renco Immobiliare S.r.l.;
On 10 December 2019, the single deed for the proportional demerger of Renco S.p.A. in favour of Renco
Immobiliare S.r.l. and Renco Asset Management S.r.l. and the merger of Renco Immobiliare S.r.l. with
Renco Real Estate S.r.l. was formalised. The accounting, statutory, tax and legal effects of the demerger
and reverse merger will take effect as from 1 January 2020.
Finally, the name of Renco Real Estate S.r.l. was changed to Renco Valore S.r.l. by a deed dated 24
January 2020.
2019 saw the transformation into a company of the Congolese branch of Renco S.p.A., which took on the
name Renco Congo Sarlu. In turn, following the Group’s corporate restructuring project, Renco Congo
Sarlu transferred the real estate assets, consisting of the Djeno building and the Pointe Noire building,
to the new company Renco Congo Valore, 100% owned by Renco Real Estate S.r.l.; the transactions
described had no effect on the Group’s consolidated financial statements;
During the period, Renco S.p.A. capitalised Renco Power Cjsc, a company incorporated under Armenian
law, for the amount of 37.2 million Euros. In March 2019, the share capital of Renco Power Cjsc was
increased by DRAM 6,083 million, equal to 11 million Euros, through subscription by Simest S.p.A. and
the Venture Capital Fund of 22.37% of the share capital. In compliance with the reference accounting
standards and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by
Simest S.p.A., to be carried out by 30 June 2026, this share capital increase was represented as a
payable to other lenders;
55
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
The Group decided to enforce the right of lien provided for in the contract for the sale of the Hotel
Yerevan, which became necessary due to the insolvency of the counterparty that did not meet the
payment terms of the last tranche, amounting to 15 million Euros. The sales price of the Hotel at the end
of 2018 was 20 million Euros, of which 5 million Euros collected at the time the sales contract was signed
and 15 million Euros to be paid by 30 June 2019. Following the conclusion of a settlement agreement in
December 2019, the Group regained 100% ownership of the Armenian company, which owns the Hotel
Yerevan, against the return of the advance received, except for retention of a penalty of 200 thousand
Euros. The effect of the settlement agreement resulted in a contingent liability of 11.3 million Euros in
the consolidated income statement, recognised in item B 14) “Other operating expenses”, deriving from
the difference between the contractual value of the settlement and the value of the net equity of the
acquired company;
as part of the planned activities in Mozambique, three additional companies were added during the
period: Real Moz LdA, 99% owned by Renco Real Estate S.r.l. and 1% by Renco S.p.A., to which the
Pemba building and two plots of land were sold; Cabo Delgado Properties SA, 63% owned by Renco
S.p.A., is a vehicle company that owns 80% of Pemba Bulk Terminal SA.
Pemba Bulk Terminal SA, owned by Cabo Delgado Properties SA and a Mozambican public company,
is investing in the construction of the commercial port of Pemba for the loading and unloading of
materials necessary for the development of Palma. The same company will follow the management
and logistics activities of the port once the construction is completed;
during the period, the Renco Not-For-Profit Foundation was established, a philanthropic body whose
purpose is to support the communities located in rural areas, where the most disadvantaged sections
of the population live, in the countries where the Group is present, and with a particular focus on Africa.
The work that Renco’s founder and Renco itself have always wanted to promote has been to focus on
high-impact interventions that are recognised for their effectiveness in combating maternal and child
mortality and in children’s education;
Finally, it should be noted that the liquidation of RenTravel S.r.l. was completed during the first half of
2019.
For significant events that occurred during the year, reference should be made to the first part of the
Management Report.
The Companies for which, due to legal or factual reasons, consolidation is irrelevant for the Group, are
excluded from the consolidation. The list is provided in Annex 3 to the explanatory notes.
It should be noted that the Armenian company Velofirma Llc as of 31.12.2019, although 53.7% indirectly
owned through Nuovo Velodromo, is not controlled by the Group on the basis of agreements with the local
partner. Among other things, the agreements provide for the gradual acquisition of the majority by the
local partner and the permanence of the Renco Group with a final shareholding of 20%.
The Companies over which joint control is exercised pursuant to art. 37 of Italian Legislative Decree 127/91
are included in the consolidation in proportion to the shareholding held. A list of these Companies is
provided in Annex 2.
Associated companies, over which the Parent Company exercises either directly or indirectly significant
influence and holds between 20% and 50% of the share capital are valued according to the equity method
or, in the absence of appropriate information for the correct application of this method, to the cost method
net of impairment losses. A list of these Companies is provided in Annex 3.
The other subsidiary companies excluded from consolidation pursuant to Italian Legislative Decree 127/91
are valued according to the cost method, net of impairment losses. These companies are listed in Annex 3,
with an indication of the reasons for their exclusion.
56
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
The Companies having a shareholding greater than 50% but with shareholders’ agreements that demonstrate
joint control, as defined in paragraph 13 of OIC 17, are recorded under Investments in subsidiaries and valued
using the equity method. Specifically, this is the case of the Armenian company Armpower Cjsc where the
Shareholder Agreement signed with Siemens highlights a joint governance of the company.
For the consolidation, the financial statements of the individual companies were used, already approved by
the Shareholders’ Meetings or prepared by the Boards of Directors for approval, reclassified and adjusted,
in order to standardise them with the accounting standards and presentation policies used by the Group.
CONSOLIDATION CRITERIA
The book value of the equity investment in the consolidated company is eliminated against the corresponding
fraction of shareholders’ equity. The differences resulting from the elimination are attributed to the individual
financial statement items that justify them and, the residual amount, if positive, is recognised in an asset
item called “goodwill”, unless it must be fully or partially charged to the income statement under item
B14. The amount recognised under assets is depreciated in the period provided for by the first paragraph,
point 6, of article 2426. If negative, the difference is recognised, where possible, as a deduction from the
assets recognised for values above their recoverable value and to liabilities recognised at a value lower
than their repayment value. The residual negative difference is recognised under the shareholders’ equity
item “Consolidation reserve” or in the specific “Consolidation provision for future risks and charges”, in
compliance with the criterion of art. 33, paragraph 3 of Italian Legislative Decree 127/91.
The provision is used in subsequent years to reflect the assumptions made for its estimate at the time of
purchase.
The portions of shareholders’ equity pertaining to minority interest are recorded under a specific item of
the balance sheet. The portion of result pertaining to minority interest is highlighted separately on the
income statement.
Equity and economic relations between the Companies included in the scope of consolidation are eliminated.
Gains and losses on transactions between consolidated Companies, not realised on transactions with third
parties are eliminated.
Gains and losses on transactions between group companies and relating to values included in the assets
of one of them at the closing date of the consolidated financial statements are not eliminated since they
are irrelevant for the purposes of a true and correct representation of the equity, financial and operating
position of the group.
Prior to consolidation entries relevant solely for taxes were eliminated and the related deferred taxes
allocated to a fund.
In the case of acquisition or loss of control of investee companies, the related effects of consolidation or
deconsolidation, respectively, are made starting from the date on which the transaction was finalised.
The conversion of the financial statements of foreign subsidiary and associated companies in currencies
other than the Euro was carried out using the spot exchange rate at the balance sheet date for assets and
liabilities while, for income statement items, the average exchange rate for the period was used. The net
effect of the translation of the financial statements of the investee company into the accounting currency
is recognised in the “Reserve for translation differences”.
For the conversion of financial statements expressed in foreign currencies, the rates stated in the table
below were applied:
57
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
CURRENCY EXCHANGE RATE AS OF 31.12.2018 EXCHANGE RATE AS OF 31.12.2019
AS OF 31.12. 2018 2018 AVERAGE AS OF 31.12. 2019 2019 AVERAGE
Algerian Dinar 135.49 137.65 133.89 133.68
Libyan dinar 1.60 1.61 1.57 1.57
Armenian dram 55530 570.58 538.11 537.88
CFA franc 655.96 655.96 655.96 655.96
Lek 123.53 127.62 122.05 123.02
N. Metical 70.51 71.29 69.59 69.94
Readjustado Kwanza 353.02 297.38 540.04 406.17
Russian Ruble 79.72 74.04 69.96 72.46
Tanzanian shilling 2,630.94 2,686.24 2,582.48 2,581.99
Tenge Kazakhstan 437.52 406.91 429.51 428.79
MEASUREMENT CRITERIA
The criteria used for preparation of the consolidated financial statements as of 31.12.2019 are those used for
the financial statements of the parent company that prepares the consolidated financial statements and
are consistent with those used for the preparation of the previous years’ consolidated financial statements,
particularly with regard to measurements and continuity of said criteria.
In application of the principle of materiality, pursuant to Art. 2423, paragraph 4, of the Italian Civil Code, the
Explanatory Notes do not contain comments to financial statement items, even if specifically provided for
in Art. 2427 of the Italian Civil Code or by other provisions, in cases where the amount of such items and the
related information are irrelevant in providing a true and fair view of the equity and financial position and
operating profit of the Company and the Group.
The recognition and presentation of the financial statement items was performed taking into consideration
the substance of the transaction or contract.
The valuation of item lines was performed according to the general criteria of prudence and competence;
the recording and presentation of items was made taking into account the substance of the transaction or
contract, where compatible with the provisions of the Italian Civil Code and the OIC accounting standards;
More specifically, the following measurement criteria were adopted.
Intangible fixed assets
Intangible fixed assets have been recorded at their purchase or internal production cost, inclusive of directly
related accessory charges.
These amounts were stated net of amortisation, calculated systematically with reference to the rates
indicated below and taking their residual use into account.
58
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
DESCRIPTION RATES OR CRITERIA APPLIED
Start-up and expansion costs 20%
Industrial patents and intellectual property rights 20%
Concessions, licences, trademarks and similar rights 33.33%
Other intangible fixed assets Rates depending on the residual duration of the contract
Special treatment was reserved for investment in the integrated Oracle - JDEdwards management system
implemented by Renco S.p.A. operational from 2017 for which a depreciation rate of 10% was used
considering a very long useful life; a choice corroborated by a market analysis on the main companies of
the international scenario that for decades have been using this ERP system, which in fact turns out to be
one of the most used.
There have been no changes in depreciation rates compared to the previous year.
If an asset suffers lasting impairment independently of the depreciation already entered, the asset will be
written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the assets’
original value will be restored, adjusted to reflect depreciation only.
Development costs incurred for the implementation of new investments are capitalised if technically
feasible investments are implemented from the planned projects, provided that there is the intention to
complete the development project, the resources needed to complete it and the economic costs and
benefits arising from such investments are measurable in a reliable manner. Expenses that are capitalised
include internal and external design costs (including personnel expenses). Capitalised development costs
are considered intangible assets with a finite life and are amortised in relation to the period over which the
economic benefits deriving from them are obtained, generally identified as 5 years, and are adjusted for
any impairment losses that may arise after initial recognition. Other development costs are recognised in
the income statement in the year in which they are incurred.
59
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
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. All other financial expenses are recognised in the
income statement during the year to which they refer.
The amounts are stated net of accumulated amortisation, and calculated systematically with reference to
the rates indicated below, in relation to their remaining useful life in consideration of their use, destination,
and the economic-technical useful life of the assets.
DESCRIPTION RATES APPLIED
Buildings 3%
Plant and machinery 10%
Plant and machinery (photovoltaic systems part related to the system) 9%
Industrial and commercial equipment 12.5%
Other assets:
- Furniture and fixtures 12%
- Electronic office machines 20%
- Cars and motorcycles 25%
- Motor vehicles 20%
There have been no changes in depreciation rates compared to the previous year.
For photovoltaic systems, being complex systems and following the accounting principle OIC 16, the
cost was broken down according to the nature of the related components (component approach) with a
different useful life. Therefore, starting from 2016, the part relating to photovoltaic systems was reclassified
from “Land and buildings” to “Plant and machinery”.
If an asset suffers lasting impairment independently of the depreciation already entered, the asset will be
written down accordingly. If the reasons for the write-down no longer apply in subsequent years, the assets’
original value will be restored, adjusted to reflect depreciation only.
Financial fixed assets
Financial assets consisting of investments in unconsolidated subsidiaries and associated companies have
been valued according to the equity method, adjusted for the intercompany profits/losses, including
ancillary charges, or, in the absence of appropriate information for the correct application of this method, to
the cost method; the recording value in the financial statement is determined on the basis of the purchase
or subscription price or the value attributed to the assets.
60
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Investments that are expected to be sold within one year are classified as current assets under financial
assets other than fixed assets.
Investments in other non-subsidiary and/or associated companies were recorded at their acquisition cost,
adjusted on the basis of the losses recorded by investee companies and therefore exposed to a value less
than their acquisition cost.
Receivables posted under financial fixed assets are recognised in the financial statements according to the
amortised cost criterion,
taking into account the time factor and estimated realisable value. This criterion is applied for receivables
recognised from 1 January 2016, as permitted by OIC 15.
The amortised cost criterion is not applied when the effective interest rate is not significantly different
from the market interest rate or when the effects of applying this criterion are irrelevant compared to the
criterion adopted.
Inventories, securities and financial assets
Inventories, securities and financial assets not held as fixed assets are stated at the lesser purchase cost,
including any directly attributable expenses and the estimated realisable value based on market conditions.
Raw materials, ancillary materials and finished products have been recorded using the specific cost method
because they are not interchangeable and are correlated to the specific nature of the materials used in the
job orders.
Products in progress have been recorded according to the expenses incurred during the year.
Work in progress (projects of duration within the year) are recognised based on the costs incurred during
the year or on the completed contract criterion: the project revenues and margin are recognised only when
the contract is completed, i.e. when the works are completed and delivered.
Works in progress (projects of duration beyond the year) are recognised according to percentage
completion or interim payment certificate criterion: project costs, revenues and margins are recognised
according to effective progress of production activities. For the application of this criterion the cost to cost
method is adopted.
Any reasonably estimated losses on projects have been fully charged to the income statement in the year
in which they become known.
Receivables
Receivables are recognised in the financial statements according to the amortised cost criterion, taking into
account the time factor and estimated realisable value.
In the initial recognition of receivables with the amortised cost criterion, the time factor is complied with
by comparing the effective interest rate with the market interest rates. If the effective interest rate is
significantly different from the market interest rate, the latter is used to discount future cash flows deriving
from the receivable in order to determine its initial recognition value.
At the end of the financial year, the value of receivables measured at amortised cost is equal to the present
value of future cash flows discounted at the effective interest rate. In the event that the contractual rate is
a fixed rate, the effective interest rate determined at the time of initial recognition is not recalculated. If, on
61
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
the other hand, it is a floating rate based on market rates, then the future financial flows are periodically
recalculated to reflect changes in market interest rates, recalculating the effective interest rate.
The discounting of receivables was not made for receivables due within less than 12 months.
With reference to the receivables recognised in the financial statements prior to the financial year starting
from 1 January 2016, these are recognised at their presumed realisable value since, as envisaged by the
accounting standard OIC 15, it was decided not to apply the criterion of amortised cost and discounting.
The nominal value of receivables is adjusted to their estimated realisable value by means of a specific
allowance for doubtful accounts, taking into account the existence of indicators of a permanent loss. The
receivables originally collectible by the end of the year and subsequently turned into long-term receivables
have been listed under financial fixed assets in the balance sheet.
These are taken off the balance sheet when contractual rights on cash flows resulting from the receivable
are extinguished or if all risks related to the liquidated receivable have been transferred.
Securities
Securities held as fixed assets expected to remain in the Group’s portfolio until their maturity are recorded
at acquisition cost. The book value takes into account the directly chargeable related costs.
62
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Liquid funds
The item consists of liquid availability of cash in both national and in foreign currency, stamps and cash
holdings resulting from the accounts held by the company with credit institutions, all expressed at nominal
value, specially converted into the national currency if it concerns accounts in foreign currency.
Accruals and deferrals
Accruals and deferrals were determined on an effective accruals basis.
With regard to accrued expenses and deferred income, steps were taken to verify the retention of the
original registration; necessary changes were made where appropriate.
Treasury shares
Treasury shares held by the parent company in its financial statements are also recognised in the
consolidated financial statements as treasury shares of the group and follow the accounting treatment
envisaged by OIC 28.
Derivative financial instruments
Derivative financial instruments, even if incorporated into other financial instruments, were initially
recognised when the related rights and obligations were acquired; their measurement was made at fair
value both at the initial recognition date and at each financial statements closing date. The changes in fair
value compared to the previous year were recognised in the income statement; in the case of instruments
that hedge the risk of changes in the expected cash flows of another financial instrument or of a planned
transaction and in line with the requirements of OIC 32, the changes were recognised in a positive reserve
in shareholders’ equity.
Derivative financial instruments with a positive fair value were recognised in balance sheet assets. Their
classification in fixed assets or current assets depends on the nature of the instrument itself:
a derivative financial instrument hedging cash flows or the fair value of an asset follows the classification,
under current assets or fixed assets, of the asset hedged;
a derivative financial instrument hedging the cash flows and the fair value of a liability, an irrevocable
commitment or a highly probable planned transaction is classified under current assets;
a non-hedging derivative financial instrument is classified under current assets within 12 months.
Changes in the fair value of the effective component of derivative financial instruments hedging financial
assets were recognised in the reserve for hedging operations for expected financial flows.
Derivative financial instruments with negative fair value were recognised in the financial statements under
provisions for risks and charges.
63
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Provisions for risks and charges
These were allocated to cover known or likely losses or liabilities of a determined or probable nature, the
timing and amount of which cannot be determined at year end.
The value of these provisions is determined on the basis of the general criteria of prudence and the pro
tempore principle, and no generic provisions for risks are set up without economic justification.
Potential liabilities are stated in the financial statements and recorded in the reserves since they are believed
to be probable and the amount of the related charge can be reasonably estimated.
Employee severance indemnities (TFR)
The employee severance indemnity reflects the actual liability of the Company for each employee,
determined in accordance with existing legislation and art. 2120 of the Italian Civil Code and the collective
bargaining agreements and company agreements.
This liability is subject to revaluation using indices.
The provision reflects the total of the individual indemnities accrued in favour of the employees until 31
December 2006, net of any advances paid out, and is equal to that which would have to be paid to the
employees in the event of the termination of the employment contract as of that date.
The provision does not include indemnities matured as from 01 January 2007, destined to additional
pension forms in accordance with legislative decree no. 252 dated 05 December 2005 (namely transferred
to the INPS treasury fund).
Payables
These are recognised according to the amortised cost criterion, taking into account the time factor.
In the initial recognition of payables with the amortised cost criterion, the time factor is complied with by
comparing the effective interest rate with the market interest rates.
At the end of the financial year, the value of payables measured at amortised cost is equal to the present
value of future cash flows discounted at the effective interest rate.
The discounting of payables was not carried out for payables due within less than 12 months {and/or if the
effects are insignificant compared to the discounted value}.
With reference to the payables recognised in the financial statements prior to the financial year starting
from 1 January 2016, these are recognised at their nominal value since, as envisaged by the accounting
standard OIC 19, it was decided not to apply the criterion of amortised cost and discounting.
Translation of foreign currency balances
Receivables and payables originally in foreign currency are converted into Euro at the exchange rates
in force on the day on which they arose. The exchange differences arising from foreign currency debt
payments and the collection of receivables are recorded in the income statement.
As regards receivables in foreign currency existing at the year-end, these were converted into Euros at
64
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
the exchange rate of the closing date of the financial statements; gains and losses on foreign exchange
identified as such were disclosed in the financial statements under the item C.17-bis “Exchange gains/
losses”.
Property acquired and/or held through leasing contracts (so-called Leases)
Properties held under leasing, through which all the risks and benefits of ownership are substantially
transferred to the Group, are presented as Group assets and classified under property, while the
corresponding liability towards the lessor is shown under financial payables; the cost of the leasing fee
is decomposed into its components of financial charges, charged to the income statement, and capital
repayment, recognised as a reduction of the financial payable. The value of the leased asset is determined
on the basis of the fair value of the asset itself.
Capitalised leased assets are depreciated over the estimated useful life of the asset.
Accounting of revenues and costs
Revenues and income are recorded net of returns, discounts, allowances, as well as the taxes directly
associated with the sale of products and the provision of services.
65
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Specifically:
revenues from services are recognised on the basis of the service itself and in accordance with the
relevant contracts. Revenues related to contract work in progress are recorded in proportion to the
progress of the work;
income from the sale of goods is recognised when ownership passes, which normally coincides with the
time of shipment or delivery of the goods;
revenues from increases in fixed assets for internal works are recognised on the basis of the cost
incurred for the construction of the fixed asset;
costs are accounted on an accruals basis;
financial income and expenses are recognised on an accruals basis.
Income taxes
Taxes are allocated on the basis of the pro tempore principle; they therefore represent:
the allocations for taxes paid or to be paid for the year, determined in accordance with current rates
and legislation in force in the individual countries;
the sum total of deferred taxes or prepaid taxes relating to timing differences which have arisen or been
cancelled during the year;
The amount of the deferred and prepaid taxes is also subject to recalculation in the event of changes in the
tax rates originally considered.
66
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
I N F O R M A T I O N O N F I N A N C I A L S T A T E M E N T I T E M S
The following is an analysis of the financial statement items, in compliance with the contents of art. 2427 of
the Italian Civil Code. Figures for the previous year are shown in brackets.
BALANCE SHEET ASSETS
Intangible fixed assets
The item consists of the following.
BALANCE SHEET ITEMS 31.12.2018ACQUISI-
TIONS
RECLAS-SIFICA-
TIONS
TRAN-SLATION
DIFFE-RENCES
AMORTISA-TION AND
DEPRECIA-TION
CHANGE IN THE SCOPE OF CONSO-
LIDATION 31.12.2019
Start-up and expansion costs 9 2 - - (3) - 8
Development costs - 756 - - - - 756
Industrial patent and intellectual property rights
2,063 1,593 844 (2) (492) - 4,006
Concessions, licences, trademarks and similar rights
78 40 (81) - (6) (14) 16
Fixed assets under construction and advances
767 3,514 (787) 22 - 3,516
Other intangible fixed assets 710 8 24 (23) (227) - 492
Total 3,627 5,912 - (3) (729) (14) 8,794
Intangible assets also include the accounting results of the foreign permanent establishments.
Start-up and expansion costs
“Start-up and expansion costs”, equal to 8 thousand Euros, decreased during the year by 1 thousand Euros
due to the amortisation for the period.
Development costs
Capitalisation of development costs amounted to 756 thousand Euros and concerned the activities incurred
by Renco Power for finalisation of the investment in Armpower, whose financial closing with the lending
banks was achieved in June 2019.
67
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Patents and intellectual property rights
The net balance amounts to 4,006 thousand Euros (2,063 thousand Euros), and includes the rights to use
third-party software. The increase of 2,437 thousand Euros in the year just ended mainly relates to the costs
incurred for implementation of the JDE Oracle (“Oracle”) management system in the Armenian and Kazake
businesses, on which the country-specific localisations required to comply with local regulations were also
developed.
The investment in Oracle of previous years made within the scope of improvement of the administrative
structure in Group companies and to make the systems adopted in the main companies homogeneous,
and required, in addition to the use of external consultants, the use of internal resources dedicated to the
project.
Based on the option granted by the OICs, this category of intangible assets is depreciated on a straight-line
basis over a period of 5 years, with the exception of the Oracle JDE ERP system which was depreciated over
a period of 10 years, for the reasons indicated above.
Amortisation for the period amounted to 492 thousand Euros.
Concessions, licences, trademarks and similar rights
The item, equal to 16 thousand Euros, recorded a decrease of 62 thousand Euros due to a reclassification
of 81 thousand Euros and the amortisation recognised in the year of 14 thousand Euros. Capitalisations for
the period amounted to 40 thousand Euros.
Fixed assets under construction and advances
Investments in progress and advances amounted to 3,516 thousand Euros and refer to the costs of
implementing the Oracle management system in Mozambique (355 thousand Euros), with full adoption
from 1 January 2020; to costs for development projects relating to investments (3,161 thousand Euros) in
Mozambique (2,919 thousand Euros), in Armenia (130 thousand Euros), and in Italy (112 thousand Euros).
The reclassification of 787 thousand Euros relates to the costs incurred in 2018 in the Armenian and Kazakh
companies for implementation of the Oracle management system, which, in line with the go live of 1 January
2019, were reflected in the item “Industrial patent rights and intellectual property rights”.
Other intangible fixed assets
The net balance amounts to 492 thousand Euros (710 thousand Euros), and consists of capitalisation of
the ancillary charges for the bond issue in 2015 of the Parent Company Renco Group S.p.A. for the amount
of 68 thousand Euros (177 Euros), capitalisation of the transaction and procedural costs for the medium-
long term bank loans prior to 2016 of Renco S.p.A amounting to 183 thousand Euros (279 thousand Euros)
and the ancillary charges for the purchase of surface rights for the photovoltaic fields by Joint Green,
amounting to 234 thousand Euros. The decrease in the item is due to the depreciation for the period.
68
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Tangible fixed assets
The item consists of the following.
BALANCE SHEET ITEMS LAND AND BUILDINGS
PLANT AND MACHINERY
INDUSTRIAL AND COMMERCIAL
EQUIPMENTOTHER AS-
SETS
ASSETS UNDER CONSTRUCTION AND ADVANCES TOTAL
Balance as of 31.12.2018 183,629 2,667 5,928 5,022 16,344 213,590
Acquisitions for the year 14,333 631 1,397 3,906 893 21,161
Change in the scope of consolidation
(4,259) - (1,696) 198 - (5,757)
Reclassifications 13,152 3,589 (1,807) (1,782) (13,152) -
Disposals/decreases for the year
- (68) (0) (439) - (507)
Amortisation/Depreciation in the year
(6,521) (1,276) (836) (1,033) - (9,666)
Write-downs (1,271) - - - - (1,271)
Translation differences 2,067 12 44 109 22 2,255
Balance as of 31.12.2019 201,129 5,556 3,029 5,982 4,108 219,804
Land and buildings
These amount to 201,129 thousand Euros (183,629 thousand Euros as of 31 December 2018).
The increase deriving from the acquisitions for the year amounts to 14.3 million Euros and consists of:
8.2 million Euros for the work carried out by Renco Capital to complete the new headquarters in Pesaro,
plus 13.1 million Euros reclassified from “Construction in progress and advances” to “Land and buildings”;
2.3 million Euros for the renovation works of the Armenian Park Residence building, necessary to
accommodate the significant number of personnel involved in the work of the Yerevan Power Plant
order, and renovation works of the Italian Embassy;
1.9 million Euros for improvements to facilities in Kazakhstan, where the Group has 3 owned hotels and
59 thousand square metres of residential/office space;
1 million Euros in Rencotek partly related to fit out work carried out on the Pemba Building, necessary
to accommodate the new tenants;
0.9 million Euros for the extraordinary maintenance of the various Group structures aimed at maintaining
production activities.
The decrease of 4.3 million Euros in “Change in the scope of consolidation” during the year is the net effect
of the deconsolidation of 13.8 million Euros of the Zanzibar resort, following the sale during the period,
and the consolidation of Hotel Yerevan, for the amount of 9.5 million Euros. The two operations have been
described in previous paragraphs to which reference is made.
69
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
The write-down of 1.3 million Euros relates to the value of a property in Congo that does not generate
income because it is a property used for charitable purposes.
The depreciation for the period amounts to 6.5 million Euros (5.6 million Euros in 2018).
This item also includes the building area of Residence Viserba S.r.l., reclassified under “Land and buildings”
in 2018. On the basis of the information available to date and the valuations made by the directors, there
are no problems relating to the recoverability of the amounts recorded considering the importance of the
investment which, despite the slowdowns, continues to be considered strategic by the Group.
In accordance with the OIC Accounting Standard No. 16, the value of the land on which the buildings exist
has been spun off and recognised separately.
Plant and machinery
These amount to 5,556 thousand Euros (2,667 thousand Euros in 2018).
The depreciation for the period amounts to 1.3 million Euros (0.3 million Euros in 2018).
The increases for the period equal to 631 thousand Euros are due to the purchase of machinery used to
carry out the orders or for the functionality of the structures. In particular, 243 thousand Euros refer to
Renco Armestate, a company used for the construction of the Yerevan Power Plant, 256 thousand Euros to
Rencotek, 86 thousand Euros to Renco Congo Sarlu, 38 thousand Euros to Villa Soligo S.r.l. and 8 thousand
Euros to JV Renco Terna.
70
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
In Rencotek the value refers to the concrete plant built at Afungi, intended to serve the Group’s investment
activities as well as third party customers involved in the development of the area.
In addition, following the Oracle implementation activities, which involved a review of the chart of accounts
of the companies involved, an amount of 3.6 million Euros was reclassified from “Industrial and commercial
equipment” and from “Other assets”, 2.4 million Euros of which to Renco Congo Sarlu, 0.7 million Euros to
Renco Kat and 0.6 million Euros to Rencotek.
Industrial and commercial equipment
These amount to 3,029 thousand Euros (5,928 thousand Euros as of 31 December 2018).
The increases, equal to 1,397 thousand Euros, are due to the purchase of equipment for the implementation
of the operational contracts under implementation by the Group. In particular, 776 thousand Euros of the
increases refer to Renco S.p.A. for leased assets, 102 thousand Euros to Renco Congo Sarlu, 188 thousand
Euros to Renco Zanzibar, 92 thousand Euros to Renco Property, 77 thousand Euros and 161 thousand Euros
to other Group companies.
The reclassifications following that indicated in the previous paragraph amount to 1,807 thousand Euros.
The decrease of 1,696 thousand Euros refers to the deconsolidation of the Zanzibar resort, the effects of
which were described above.
The depreciation for the period amounts to 836 thousand Euros (1,402 thousand Euros in 2018).
Other assets
These amount to 5,982 thousand Euros (5,022 thousand Euros as of 31 December 2018).
The increase of 3,906 thousand Euro is attributable to the purchase of cars and trucks in Rencotek (1,335
thousand Euros), in Renco Armestate (722 thousand Euros) and in Renco S.p.A. (643 thousand Euros); to
the purchase of technical office equipment in Renco S.p.A. (302 thousand Euros) and in Rencotek (291
thousand Euros), and to other assets for a value of 613 thousand Euros.
The increase of 198 thousand Euros is due to the combined effect of the decrease of 115 thousand Euro,
relating to the deconsolidation of Renco Zanzibar and the increase of 312 thousand Euros relating to the
consolidation of Hotel Yerevan. The effects of both operations have been described above.
The depreciation for the period amounts to 1 million Euros (2 million Euros in 2018).
Fixed assets under construction and advances
These amount to 4,108 thousand Euros (16,334 thousand Euros as of 31 December 2018).
The increase in the item “Assets under construction” is due in part to the capitalisation of internal costs for
the implementation of investment initiatives still in progress and partly to the costs related to investment
initiatives completed during the year. In this second case the amounts were subsequently reclassified to
the asset item in question. The reclassification amounts to 13.1 million Euros and relates to the new Pesaro
headquarters, which were completed in 2019.
71
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Financial fixed assets
The item consists of the following.
DESCRIPTION 31.12.2018 INCREASES DECREASES 31.12.2019
Equity investments in:
b) Subsidiary companies 1,596 25,085 (2,655) 24,026
b) Associated companies 1,341 7 - 1,348
d) other companies 53 - - 53
Receivables from:
a) Subsidiary companies 4,882 1,191 (5,799) 275
b) Associated companies 21,306 2,721 (408) 23,619
d) other companies 1,591 84 (1,584) 91
Derivative asset instruments 814 306 (814) 306
Total 31,583 29,396 (11,260) 49,718
Equity investments
The changes which took place in equity investments are the consequence of the following:
DESCRIPTIONEQUITY INVESTMENTS IN SUBSIDIARY COMPANIES
INVESTMENTS IN ASSO-CIATED COMPANIES
EQUITY INVESTMENTS IN OTHER COMPANIES
Balance as of 31.12.2018 1,596 1,341 53
Increases during the year 25,048 - -
Translation differences 37 - -
Change in the scope of consolidation (6) - -
Decreases during the year (10) - -
Revaluations during the year - 7 -
Write-downs during the year (2,639) - -
Balance as of 31.12.2019 24,026 1,348 53
Subsidiary companies that are not consolidated
The following information relating to the equity investments held directly or indirectly for subsidiary and
associated companies, is provided below (art. 2427, first paragraph, point 5 of the Italian Civil Code).
Changes in investments in non-consolidated subsidiaries are shown in the table below:
72
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
DESCRIPTION 31/12/2018 INCREASES DECREASESEXCHANGE
EFFECTOTHER
ADJUSTMENTS 31/12/2019
CONSORZIO RENCO-LANCIA-ITER
65 - - - - 65
RENCO FOOD S.R.L. - - - - - -
TRADEMARK ITALY LLP 0 - - - - -
REAL MOZ LTD 4 - - - (4) -
ARMPOWER 1,514 25,041 - 38 (2,639) 23,955
ITALSEC MOZAMBICO 2 - - - (2) -
PEMBA BULK TERMINAL - 1 - - - 1
SALINELLA EOLICO - 5 - - - 5
REN TRAVEL 10 - (10) - - -
TOTAL 1,596 25,047 (10) 38 (2,645) 24,026
During the 2019 financial year, the share capital of the subsidiary Armpower Cjsc was increased by a total
of 25 million Euros in order to equip it with the means necessary for the construction of the Yerevan power
plant.
The other adjustments to Armpower, amounting to -2.6 million Euros, derive from the valuation of the
company, presented using the equity method as a result of the shareholders’ agreements, as described in
greater detail in the paragraph “Preparation criteria”, to which reference should be made.
NAMEREGISTERED
OFFICESHARE
CAPITAL
SHAREHOLDERS’ EQUITY AS OF
31.12.2019
PROFIT (LOSS) AS OF
31/12/2019%
OWNERSHIP BOOK VALUE
CONSORZIO RENCO-LANCIA-ITER (1)
ITALY 100 100 - 71.0% 65
RENCO FOUNDATION (1) ITALY 104 78 (26) 100.0% -
SALINELLA EOLICO (1) ITALY 10 10 - 50.0% 5
RENCO FOOD S.R.L. (2) ITALY 100 (239) (339) 100.0% -
PEMBA BULK TERMINAL (2)
MOZAMBIQUE 1 1 - 80.0% 1
ARMPOWER (2) ARMENIA 44,800 39,925 (1,362) 60.0% 23,955
Total 24,026
(1) Measured with the cost method(2) Measured with the equity method
The investment in Renco Food, which is not consolidated, was valued at cost and a provision to cover losses
was recognised as a provision for risks and charges. The provision of 239 thousand Euros (4,732 thousand
Euros) was set aside due to the accumulated losses and the substantial interruption of the subsidiary’s
business, which is in the process of disposing of the business units managed by the subsidiaries involved
in distribution.
73
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Associated companies
Changes in investments in associated companies are shown in the table below:
DESCRIPTION 31/12/2018 INCREASES DECREASESEXCHANGE
EFFECTOTHER
ADJUSTMENTS 31/12/2019
RENCO IREM COSTRUCOES - - - - - -
RENCO NIGERIA 8 - - - - 8
RENCO QATAR 43 - - - - 43
REAL ESTATE MANAGEMENT 9 - - - - 9
DARIN CONSTRUCTION 642 - - - - 642
TOLFA CARE 638 - - - 7 646
TRADEMARK ITALY LLP - - - - 0 0
NIASSA SANCTUARY - - - - - -
VELOFIRMA - - - - - -
TOTAL 1,341 - - - 8 1,348
The other Tolfa Care adjustments, amounting to a positive 7 thousand Euros, derive from the valuation of
the company using the equity method.
NAMEREGISTERED
OFFICESHARE
CAPITAL
SHAREHOLDERS’ EQUITY AS OF
31.12.2019
PROFIT (LOSS) AS OF
31/12/2019% OWNER-
SHIPBOOK
VALUE
DARIN CONSTRUCTION (1) (4) KAZAKHSTAN 44 (2,502) 616 25.0% 642
REAL ESTATE MANAGEMENT (1) (3) ITALY 10 918 496 30.0% 9
RENCO IREM COSTRUCOES (2) MOZAMBIQUE 203 (187) (40) 31.3% -
RENCO NIGERIA (1) AFRICA na na na 49.0% 8
TRADEMARK ITALY LLP (1) KAZAKHSTAN 0 na na 50.0% 0
RENCO QATAR (1) QATAR 52 4,195 383 49.0% 43
TOLFA CARE (2) ITALY 813 1,507 77 47.6% 646
VELOFIRMA (1) (3) ARMENIA 7 (4,751) (735) 58.1% -
Total 1,348
(1) Measured with the cost method(2) Measured with the equity method.(3) Values as of 31.12.2018(4) Values as of 31.12.2016
It should be noted that, should it be impossible to obtain the information necessary for application of the
equity measurement method required by Article 36 of Legislative Decree 127/91, the cost method was used.
In this case, the value of the booking in the financial statements is determined on the basis of the purchase
or subscription price.
74
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
The cost as described above is reduced in the event that impairment is ascertained; should the reasons for
the adjustment cease to exist, the value of the investment shall be reset within the limit of the acquisition
cost.
In compliance with Art. 2426 paragraph 2 of the Italian Civil Code, the recording of the following investments
at a higher value than the corresponding share of equity is justified as specified below.
Darin Construction
Darin Construction is a vehicle company for the development of a real estate operation in the centre of
Almaty, the economic capital of Kazakhstan, consisting of a multifunctional complex. The complex was
completed in 2018 and is spread over 11 floors above ground and 3 floors underground for a total gross
area of 51 thousand square metres divided into two blocks. The first block is dedicated to a 4-star hotel
affiliated with the Accor brand, which went into operation in 2018 and occupies a total area of 8,287 square
metres. The second block, dedicated to the executive and commercial part, contains a shopping centre,
apartments, executive offices, a sky restaurant on the top floor and underground car parks on which the
company is carrying out fit-out work as the spaces are rented. The percentage occupancy of the office part
in April 2020 was 78%.
The investment will be fully operational in 2020/2021, years in which the first economic returns of the
investment are expected.
75
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
The higher recognition value of the investment is mainly justified by the higher value of the fixed assets
owned by the investee company. Once the investments are fully operational, it is expected that the company
will develop cash flows that will rebalance its economic and financial situation. To date, the company is still
in the advanced start-up phase of the management and rental of the property, therefore the directors
consider the impact in the consolidated financial statements of the failure to adjust the equity investment
to shareholders’ equity to be insignificant, given its insignificance in the current operations of the Group.
Velofirma
Velofirma is a vehicle company for the development of an important buildable lot near the historical centre
of the capital of Armenia, Yerevan. The company that owns the lot completed the first development phase
in 2015 with the inauguration of the Yerevan City Center hotel associated with the Double Tree by Hilton
chain. The higher recognition value of the investment is mainly justified by the higher value of the fixed
assets owned by the investee company. Once the investments are fully operational, it is expected that the
company will develop cash flows that will rebalance its economic and financial situation.
Note also that the company Velofirma is not consolidated since the Group, based on the shareholders’
agreements with the other shareholders, does not control said investee company. Furthermore, the
agreements provide for the gradual acquisition of the majority by the local partners and the permanence
of the Renco Group with a 20% interest.
For the Renco Nigeria companies, at the date of preparation of this document no definitive data were
available. However, based on the information in their possession, the directors consider that the impact on
the consolidated financial statements of the failure to adjust the equity investment to shareholders’ equity
is insignificant in view of its irrelevance in the current operations of the Group.
Other companies
Changes in investments in other companies are shown in the table below:
DESCRIPTION 31/12/2018INCREA-
SESDECREA-
SES
EXCHAN-GE EF-
FECT
OTHER ADJUSTMEN-
TS 31/12/2019
CEDECORP SA-CAMERUN 23 - - - - 23
PROM INVEST ENGIN ATYRAU 0 - - - - 0
CONAI INVESTMENT 0 - - - - 0
JSC Astanaenergoservic 30 - - - - 30
TOTAL 53 - - - 53
76
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Receivables
DESCRIPTION RECEIVABLES FROM SUB-
SIDIARY COMPANIESRECEIVABLES FROM AS-
SOCIATED COMPANIESRECEIVABLES FROM
OTHERS
Balance as of 31.12.2018 4,882 21,306 1,591
Increases during the year 1,191 2,721 84
Decreases during the year (5,799) (408) (1,584)
Balance as of 31.12.2019 275 23,619 91
Receivables from non-consolidated subsidiaries, amounting to 275 thousand Euros (4,882 thousand Euros
as at 31 December 2018), consist of receivables from the subsidiary Renco Food S.r.l. for the amount of 275
thousand Euros (4,701 thousand Euros as at 31 December 2018). The Group has set aside a provision to
cover losses of 275 thousand Euros, for which reference should be made to the section “Unconsolidated
subsidiary companies” for further information.
The increase of 1,191 thousand Euros is due to the disbursements for the period, 660 thousand Euros to
Renco Food and 531 thousand Euros to Armpower. The decrease of 5,799 thousand Euros is due to the
reimbursements received from Armpower, amounting to 713 thousand Euros, to the coverage of previous
losses of the investee company Renco Food by waiving the receivable of 4,732 thousand Euros and to the
write-down of the financial receivable from Renco Food during the period of 354 thousand Euros.
Receivables from associated companies, equal to 23,619 thousand Euros (21,306 thousand Euros) consist of:
receivables from the associate company Velofirma claimed by the company Renco Valore S.r.l. for
6,510 thousand Euros (6,311 thousand Euros as of 31 December 2018), which increased only due to
the exchange rate effect; the directors consider the receivable to be fully recoverable by virtue of the
investments made and the new initiatives relating to the investee company, already described in the
paragraph relating to equity investments;
receivables from the associated company Real Estate Management S.r.l. amounting to 1,744 thousand
Euros (1,644 thousand Euros as of 31 December 2018) claimed by Renco Real Estate S.r.l. The
administrators consider this position to be completely recoverable due to the expected cash flows of
the Hotel Palazzo Castri 1874 in Florence;
receivables from the associated company Darin Construction amounting to 13,286 thousand Euros
(12,783 thousand Euros as of 31 December 2018) claimed by Renco Valore S.r.l. The Group owns 25%
of Darin Construction and the financial loan was disbursed in order to finance the pertinent portion of
the real estate development transaction, as better described in the paragraph “Associated companies”
of these notes, whose cash generation will also be used for the repayment of loans received from
shareholders;
receivables due from the associate companies Trade Mark Italy LLP, amounting to 1,155 thousand Euros,
and Niassa Sanctuary LTD, amounting to 111 thousand Euros, disbursed during the period to support the
start-up phase of the companies;
receivables due from the company Renco Irem Construcoes amounting to 813 thousand Euros (568
thousand Euros as at 31 December 2018), of which 359 thousand Euros to Rencotek and 454 thousand
Euros to Renco S.p.A.
Changes in the item “Receivables from associated companies” are as follows:
77
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
BALANCE SHEET ITEMS 31.12.2018
NEW DISBUR-
SEMENTSREPAY-MENTS
EXCHAN-GE EF-
FECTWRITE-
DOWNSOTHER
CHANGES
CHANGE IN THE SCOPE OF CONSO-
LIDATION 31.12.2019
Due from parent companies
4,882 1,186 (686) 5 (354) (4,745) (14) 275
Due from associated companies
21,306 2,415 (408) 205 - 101 - 23,619
Due from others 1,591 84 - - - (1,210) (375) 90
Total 27,779 3,686 (1,094) 210 (354) (5,854) (389) 23,984
Receivables from others, equal to 91 thousand Euros (1,592 thousand Euros 31 December 2018), consist of
security deposits.
The decrease in this item of 1,584 thousand Euros is due to repayments received during the period,
amounting to 479 thousand Euros, and to the closure of the receivable subject to seizure at the request
of a supplier, amounting to 1,105 thousand Euros. The position was closed by using the provision for legal
disputes, which had been set aside in the previous period for a similar amount.
The breakdown of receivables as of 31.12.2019 by geographic area, is shown in the following table (Article
2427, first paragraph, no. 6, of the Italian Civil Code).
BALANCE SHEET ITEMS ITALY EUROPEAFRICA AND
MIDDLE EASTREST OF THE
WORLD TOTAL
Due from parent companies 275 - - - 275
Due from associated companies 1,744 - 7,435 14,441 23,619
Due from others 21 24 9 36 90
Total 2,039 24 7,444 14,477 23,985
Other securities and derivative asset instruments
DESCRIPTION OTHER SECURITIESDERIVATIVE ASSET
INSTRUMENTS
Balance as of 31.12.2018 - 814
Increases during the year - 306
Decreases during the year - (814)
Balance as of 31.12.2019 306
The item derivative asset instruments, amounting to 306 thousand Euros, represents the valuation of
derivatives as of 31 December 2019. For a more detailed description of derivative instruments, please refer
to the appropriate section of these explanatory notes.
78
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
CURRENT ASSETS
Inventories
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Inventories:
1) Raw and ancillary materials and consumables 4,059 7,601 3,542
2) Products under construction and semi-finished products 229 22 (207)
3) Contract work in progress 206,851 367,356 160,505
4) Finished products and goods 8,456 9,235 779
5) Advances 843 24 (819)
Total 220,438 384,238 163,800
The measurement criteria adopted are consistent with those used in the previous year, as described in the
initial part of these explanatory notes.
As for the work in progress of a multi-year duration, it should be noted that as outlined in the first part
of the explanatory notes, they are measured according to their percentage of completion. The progress
payments and advances received from clients are recorded under liabilities in the balance sheet under item
6 of class D; advances for work to be performed amounted to 24 thousand Euros (843 thousand Euros).
On the acquisition of contracts, the Group undertakes to release both bank guarantees that insurance
guarantees for clients for the completion of said contracts; the extent of the commitments undertaken by
the Group is shown in the “Off balance sheet commitments, guarantees and contingencies”, paragraph of
these explanatory notes.
The increase in inventories is mainly due to progress in the production of job orders already acquired during
the previous financial year and in part to the acquisition of new job orders. A significant contribution to the
change in inventories is given by the progress of activities on the TAP Greece and Albania job orders for
which work has exceeded 90% completion.
The order portfolio as of 31 December 2019 with reference to work in progress of the Infrastructure and
Industrial Plant Divisions amounts to 1,038.6 million Euros of which 563.7 million Euros to be produced.
Finished products and goods for sale include a building located in Rome with a value of 5,900 thousand
Euros (5,900 thousand Euros as of 31 December 2018), used as a residential building, purchased for resale
by Renco Real Estate S.r.l. in May 2015; the property was granted to third parties on the basis of a rent to
buy contract. The asset is recorded at its estimated realisable value, corresponding to the amount agreed
in the rent-to-buy contract in the event the purchase option is exercised.
With regard to the progress of job orders in progress and the related valuation of inventories, it should
be noted that the national and international situation created by the pandemic could have consequences;
according to the reference standards, Covid-19 has been correctly considered by the Group as a “non-
adjusting event” and, consequently, the related potential effects will be recognised in the 2020 financial
statements. The directors constantly monitor developments in the situation and it should be noted that the
Coronavirus had limited effects only on the timing of completion of certain projects, as better specified in
the section “Foreseeable business outlook” in the Management Report, to which reference should be made.
79
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
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 31.12.2018 31.12.2019 CHANGES
Receivables
1) Trade receivables 50,541 35,010 (15,531)
2) to subsidiary companies 7,534 217 (7,317)
3) to associated companies 2,877 3,975 1,098
5-bis) Tax receivables 22,172 19,199 (2,973)
5-ter) Prepaid taxes 7,184 5,237 (1,947)
5-quater) Others 14,360 17,898 3,538
Total 104,668 81,536 (23,132)
The balance is divided up according to due dates (Article 2427-bis, point 6 of the Italian Civil Code).
BALANCE SHEET ITEMS WITHIN 12 MONTHS BEYOND 12 MONTHS BEYOND 5 YEARS TOTAL
Receivables
1) Trade receivables 35,010 - - 35,010
2) to subsidiary companies 217 - - 217
3) to associated companies 3,975 - - 3,975
5-bis) Tax receivables 19,199 - - 19,199
5-ter) Prepaid taxes 5,237 - - 5,237
5-quater) Others 10,172 7,487 239 17,898
Total 73,810 7,487 239 81,536
Receivables are broken down as follows, according to the geographical areas of operation of the debtor
(art. 2427, paragraph 6 of the Italian Civil Code).
DESCRIPTION 31.12.2018 31.12.2019
Italy 25,332 13,192
European Union 22,551 25,987
Russia and former USSR countries 11,710 19,965
Africa 16,633 20,423
Middle East 26,949 1,697
Other 1,493 271
Total 104,668 81,536
Finally, a detail of the most significant receivable items is provided.
80
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Trade receivables
The item “Trade receivables” amounting to 35,010 million Euros (50,541 million Euros) is shown net of the
bad debt provision amounting to 2,341 thousand Euros (2,005 thousand Euros), which decreased in the
course of 2019 by the amount of 1,135 thousand Euros and increased by 1,471 thousand Euros compared to
the previous year.
The change in trade receivables is attributable to the closure of the receivable from the purchaser of the
Hotel Yerevan Ojsc, which came about as a result of enforcement of the right of lien by the Renco Group. The
receivable amounted to 15 million Euros and the enforcement action was necessary due to the insolvency
of the counterparty which did not comply with the payment terms.
It is also pointed out that in the first months of 2020, despite the situation resulting from the Covid-19
pandemic, collection of receivables from customers has not had any problems.
The adjustment of the presumed nominal loan value has been obtained by means of a specific provision for
credit depreciation, that has been affected as follows during the year:
DESCRIPTION 31.12.2018 USE PROVISIONSTRANSLATION DIFFERENCES
CHANGE IN THE SCOPE OF CON-
SOLIDATION 31.12.2019
Provision for credit depreciation of current receivables
2,005 (456) 1,469 2 (679) 2,341
The provision, set up on 31 December 2019, is deemed appropriate to cover both specific situations, which
have already seen write-offs in the current period, as well as implicit risks implicit in uncollectable in bonis
receivables.
Receivables from subsidiary companies that are not consolidated
The item “Receivables from subsidiary companies that are not consolidated”, equal to 217 thousand Euros
(7,534 thousand Euros as of 31 December 2017), consist of trade receivables and include 144 thousand
Euros (7,490 thousand Euros) in receivables from the subsidiary Armpower and 73 thousand Euros (43
thousand Euros) in receivables from the subsidiary Renco Food; both receivables are owed to Renco SpA.
Receivables from associated companies
The item “Receivables from associated companies”, equal to 3,975 thousand Euros (2,877 thousand Euros
as of 31 December 2018), consists exclusively of receivables of a commercial nature and specifically:
receivables from the associated company Velofirma of 950 thousand Euros (917 thousand Euros as
of 31 December 2018) claimed by the subsidiary Renco Armestate for the amount of 895 thousand
Euros (858 thousand Euros as of 31.12.2018), by Renco S.p.A. for the amount of 52 thousand Euros (55
thousand Euros as of 31.12.2018) and by Italsec Armenia for the amount of 4 thousand Euros;
receivables from the associated company Renco Nigeria amounting to 1,096 thousand Euros (1,293
81
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
thousand Euros the previous year). During the year, Renco received from the associated company 975
thousand Euros and turnover of 778 thousand Euros;
receivables from the associated company Tolfa Care S.r.l. amounting to 40 thousand Euros (49
thousand Euros the previous year) claimed by Renco Health Care S.r.l.;
receivables from the associated company Darin Construction for the amount of 1,123 thousand Euros
(204 thousand Euros previous year), of which 541 thousand Euros from Renco Valore S.r.l. and 582
thousand Euros from Renco Kat;
receivables from the associated company Real Estate Management S.r.l. of 18 thousand Euros (304
thousand Euros last year) due to Renco Valore S.r.l. for 305 thousand Euros and Renco SpA for 7
thousand Euros;
receivables from the associated company Renco Irem Costrucoes Lda for 41 thousand Euros (65
thousand Euros) due to Renco SpA for 39 thousand Euros and Rencotek Lda for 1 thousand Euros;
receivables from the associated company Trademark Italy for 706 thousand Euros, due to Renco SpA
for 513 thousand Euros, Renco Kat for 66 thousand Euros and Renco Property for 127 thousand Euros.
82
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Tax receivables
The item “tax receivables” amounting to 19.2 million Euros (22.2 million Euros at 31.12.2018) is made up as
follows.
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Tax receivables
Foreign tax receivables 7,005 908 (6,097)
Corporate tax receivables 3,863 1,983 (1,880)
VAT receivables 10,493 14,468 3,975
Other tax receivables 811 1,840 1,029
Total 22,172 19,199 (2,973)
The item foreign tax receivables is solely attributable to Renco Group S.p.A. and refers to taxes paid abroad
through the operational branches of the subsidiary. The decrease in the year is attributable to the effect of
the transformation of the Congolese branch of Renco S.p.A. into a Congolese company, Renco Congo Sarlu,
which became necessary in compliance with local legislation. The transaction resulted in the loss of the tax
receivable with an impact on the income statement of 5.7 million Euros.
The item tax receivables includes the amount of 173 thousand Euros relating to IRES advances in excess
of the amount to be paid as the balance for the 2019 financial year on the income taxed for transparency
relating to the subsidiaries falling under the “CFC” regulations referred to in art. 167 of the Income Tax
Consolidation Act.
Receivables for prepaid taxes
Receivables for prepaid taxes of 5,237 thousand Euros (7,184 thousand Euros as of 31 December 2018)
refer to temporary differences deductible also on tax losses carried forward, for a description of which
reference should be made to the appropriate paragraph in the last part of these Explanatory Notes. They
are considered to be recoverable with reasonable certainty through future taxable profits.
BALANCE SHEET ITEMS 31.12.2018 PROVISIONS USES
TRANSLATION DIFFERENCES
OTHER CHANGES 31.12.2019
Receivables for prepaid taxes
7,184 172 (1,349) 317 (1,088) 5,237
Receivables from others
The item “receivables from others” amounting to 17,898 thousand Euros (14,360 thousand Euros at 31
December 2018) is made up as follows.
83
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Receivables from others
Advances to suppliers 1,437 3,241 1,804
Receivables from employees 1,211 1,667 456
Deposits 168 319 151
Receivables for sale of equity investments 5,080 5,178 98
Receivables for rent-to-buy 3,106 2,731 (375)
Loan receivables 1,399 1,420 21
Receivables from social security institutions 8 25 17
Receivables from Terna 1,192 3,013 1,821
Other receivables 759 304 (455)
Total 14,360 17,898 3,538
The receivables for disposals of equity investments, equal to 5,178 thousand Euros (5,080 thousand Euros),
consist of receivables deriving from the sale of 50% of the Kazakh investee company Renco Kat, which took
place during 2015; compared to the previous year, the aforementioned receivables did not change and the
only differences refer to exchange differences. According to the contractual agreements, the receivable will
be collected by bank transfers equal to a determined percentage of the profits distributed to the buyer as
shareholders of Renco Kat for a number of years such as to allow total payment of the selling price. As a
result of Renco Kat’s development plans and the agreements in place, the directors do not currently have
any critical issues with regard to the recoverability of these receivables.
Receivables for rent-to-buy of 2.7 million Euros (3.1 million Euros) are recorded under Renco Real Estate
and relate to the amendment made to the rent-to-buy contract in 2016. Amendment which provides for
a further down payment by the buyer for the part of consideration agreed for the sale of the property,
assuming the amount of 3.7 million Euros. Since this is an external assumption with the consent of the bank
but not constituting a release, already in 2016 the amount of 3.7 million Euros was recognised among other
receivables and other payables, an amount that was reduced to 2.7 million Euros over the years;
Receivables from Terna of 3 million Euros (1.2 million Euros) relate to the trade receivable from the Renco
Terna JV. The company is consolidated using the proportional method and the trade receivable still
outstanding after the consolidation elimination entry was reclassified among receivables from others.
Loan receivables of 1.4 million Euros are recorded in Grapevine and relate to receivables from minority
shareholders.
Financial assets not classified as fixed assets
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Financial assets not classified as fixed assets
Other securities 52 - (52)
Total 52 - (52)
84
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
As of 31 December 2018, the Group held shares in Banca Monte dei Paschi di Siena S.p.A., amounting to 52
thousand Euros, which during the period were donated to the Renco Not-For-Profit Foundation.
Liquid funds
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Liquid funds
Bank and post office deposits 72,194 97,826 25,632
Cash and equivalents in hand 283 303 20
Total 72,477 98,129 25,652
The balance represents liquid funds in existence as of the end of the year.
Accrued income and deferred expenses
These represent the connecting items for the accounting period reckoned on an accruals basis. The
composition of the caption is analysed as follows.
DESCRIPTION 31.12.2018 31.12.2019 CHANGE
Accrued income 140 176 36
- Bank interest income 6 19 13
GSE contribution 134 157 23
Prepaid expenses 2,988 3,956 968
- Rents and leases 378 191 (187)
- Insurance 257 147 (110)
- Bank commissions and factoring 30 38 8
- Derivatives 94 85 (9)
- Software licences 273 160 (113)
- Surety charges 194 1,729 1,535
- Villa Molaroni lease fees 252 192 (60)
- others 1,510 1,414 (96)
Total 3,128 4,132 1,004
These represent income and expense whose pertinence is advanced or deferred with respect to the cash
and/or documental manifestation and are irrespective of the date of payment or collection of the related
income and expense spanning two or more accounting periods which can be spread over time.
85
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
BALANCE SHEET LIABILITIES
Shareholders’ equity
Shareholders’ equity pertaining to the Group
BALANCE SHEET ITEMS 31.12.2018 INCREASES DECREASES 31.12.2019
Group shareholders’ equity
Share capital 9,013 - - 9,013
Share premium reserve 25,988 - - 25,988
Revaluation reserve 4,696 - - 4,696
Legal reserve 1,281 86 - 1,367
Other reserves 25,595 3,099 (1,101) 27,593
Cash flow hedge accounting reserve 398 388 (2,013) (1,227)
Profit (loss) carried forward and other reserves
86,963 7,035 - 93,998
Reserve for the purchase of own shares (3,609) - - (3,609)
Group profit/(loss) for the year 8,755 8,017 (8,755) 8,017
Total 159,078 17,561 (10,806) 165,834
The item Other Reserves is broken down as follows
BALANCE SHEET ITEMS 31.12.2018 INCREASES DECREASES 31.12.2019
Other reserves
Extraordinary or optional reserve 20,198 1,487 - 21,685
Payments towards capital 25,026 15 - 25,041
Conversion reserves from foreign consolidation
(23,942) - (1,063) (25,005)
Consolidation reserve 4,313 1,597 (38) 5,872
Total 25,595 3,099 (1,101) 27,593
The translation reserve from foreign consolidation includes the effect of consolidation of foreign subsidiary
companies, with financial statements in currencies other than the Euro, and is determined according to the
consolidation criteria indicated above.
At the balance sheet date, there were 901,250 ordinary shares outstanding with a nominal value of 10
Euros each.
86
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Shareholders’ equity pertaining to minority interest
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Minority interest
Capital and reserves 4,218 896 (3,322)
Profit (loss) for the year (2,655) 71 2,726
Total 1,563 967 (596)
The statement of changes in shareholders ‘equity and the statement of reconciliation between the net
profit and the shareholders’ equity of the consolidating company and the respective values resulting from
the consolidated financial statements are shown in Annexes 3 and 4 to these Explanatory Notes.
Provision for risks and charges
BALANCE SHEET ITEMS 31.12.2018 INCREASES DECREASES 31.12.2019
Provisions for risks and charges
2) Provisions for taxes, including deferred taxes 13,457 2,485 (2,162) 13,779
3) Derivative financial liability instruments 280 1,841 (91) 2,030
4) Others 7,183 280 (6,389) 1,074
Total 20,920 4,606 (8,642) 16,883
The provision for taxes, equal to 13,779 thousand Euros (13,457 thousand Euros), includes 13,779 thousand
Euros (12,847 thousand Euros) for the temporary differences recorded in Group companies as well as
the tax effects deriving from the consolidation entries; all described in detail in the specific paragraph
“deferred/prepaid tax” of these Explanatory Notes.
Changes to this provision are as follows:
BALANCE SHEET ITEMS 31.12.2018PROVI-SIONS USES
TRANSLA-TION DIF-
FERENCESOTHER
CHANGES 31.12.2019
Provisions for taxes, including deferred
Provision for tax disputes 610 - (610) - - -
Deferred tax provision 12,847 1,404 (1,552) 28 1,053 13,779
Total 13,457 1,404 (2,162) 28 1,053 13,779
87
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
The changes during the year were the following:
use of the tax provision for the amount of 610 thousand Euros for settlement of the dispute for the years
2013 and 2014 with the tax authorities;
change of a total of 932 thousand Euros in the provision for deferred taxes. In the section of this
explanatory note on the exposure of the effects of deferred taxes, details related to deferred tax liabilities
are provided.
Other reserves for risks and charges
The balance amounts to 7,183 thousand Euros (1,377 thousand Euros) and is made up as follows:
BALANCE SHEET ITEMS 31.12.2018USE FOR THE
YEARPROVISION FOR
THE YEAR 31.12.2019
Other provisions
Provision for legal disputes 1,105 (1,105) - -
Provision for warranties on plant orders 1,300 (551) - 749
Provision to cover losses on equity investments
4,778 (4,733) 280 325
Total 7,183 (6,839) 280 1,074
Provision for legal disputes
The provision for legal disputes was used during the year to close the credit position with a Congolese
customer, which was cancelled following the closure of the dispute.
Provision for warranties on plant orders
The warranty fund takes into account updated contractual practices for orders for industrial plants. It
represents an estimate of the costs to be incurred for service under warranty between the issue of the
Preliminary Acceptance Certificate (“PAC”) and the Final Acceptance Certificate (“FAC”). The PAC is the
moment in which the ownership of the plant passes to the customer and the warranty period commences
(established on a contractual basis which usually lasts 24 months), and the FAC is issued at the end of the
warranty period. The provision is calculated on the basis of the historical incidence of warranty costs for
similar job orders. This provision was used for the amount of 551 thousand Euros to cover the costs incurred
during the warranty period.
Provision to cover losses on equity investments
The change during the year refers to the use of 4,733 thousand Euros to cover the loss of Renco Food, and to
allocations for a total of 280 thousand Euros relating to the value of the negative shareholders’ equity of Renco
Food (239 thousand Euros), Renco Irem Construcoes (58 thousand Euros) and Niassa Sanctuary (28 thousand
Euros). Additional information about the position of Renco Food is provided in the section of these Notes
entitled “Subsidiary companies that are not consolidated” and “Receivables” under Financial fixed assets.
88
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Employee severance indemnity
DESCRIPTION OPENING BALANCE
TFR PAID DURING THE
YEAR PROVISIONS
CHANGE IN THE SCOPE OF
CONSOLIDA-TION
OTHER CHAN-GES (+/-)
CLOSING BA-LANCE
Employee severance indemnity
2,412 (155) 628 - - 2,885
The provision allocated represents the amount effectively payable by the Group as of 31.12.2019 to its
employees in the workforce as of that date, net of any advances paid.
Payables
The breakdown and changes in the individual items are shown in the table below (Article 2427, paragraph
4 of the Italian Civil Code).
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Payables
1) Bonds 44,368 44,530 162
3) Payables to shareholders for loans 6,201 5,701 (500)
4) Payables to banks 93,670 60,837 (32,833)
5) Payables to other lenders 1,665 13,853 12,188
6) Advances 230,260 398,886 168,626
7) Trade payables 61,483 98,431 36,948
9) Payables to subsidiary companies that are not consolidated
1,925 54 (1,871)
10) Payables to associated companies 2,126 2,742 616
12) Tax payables 6,871 12,826 5,955
13) Payables to social security and welfare institutions 1,759 1,987 228
14) Other payables 13,833 19,020 5,187
Total 464,161 658,867 194,706
The tables relating to the breakdown of payables by due date and by geographical areas, respectively,
based on the combined provisions of art. 2427, point 6 of the Italian Civil Code are provided below.
89
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
BALANCE SHEET ITEMS WITHIN
12 MONTHSBEYOND
12 MONTHSBEYOND 5 YEARS TOTAL
Payables
1) Bonds 10,000 34,530 - 44,530
3) Payables to shareholders for loans 5,701 - - 5,701
4) Payables to banks 29,442 20,906 10,489 60,837
5) Payables to other lenders 979 999 11,875 13,853
6) Advances 223,227 175,659 - 398,886
7) Trade payables 98,431 - - 98,431
9) Payables to subsidiary companies that are not consolidated
54 - - 54
10) Payables to associated companies 2,742 - - 2,742
12) Tax payables 11,676 1,150 - 12,826
13) Payables to social security and welfare institutions
1,987 - - 1,987
14) Other payables 16,419 2,362 239 19,020
Total 400,658 235,606 22,603 658,867
DESCRIPTION 31.12.2018 31.12.2019
Italy 238,226 258,408
European Union 147,663 187,272
Russia and former USSR countries 21,106 123,789
Africa 50,400 88,348
Middle East 4,702 463
Other 2,063 586
Total 464,160 658,866
Bonds
The item “bonds” refers to the following bond issues:
bond issued on 13 August 2015 by the parent company Renco Group S.p.A. for the nominal amount of 10
million Euros consisting of 100 bonds of 100,000 Euros each and maturing on 13 August 2020, admitted
to trading on the professional segment ExtraMOT PRO, interest rate 5%;
bond issued on 23 November 2017 by the parent company Renco Group S.p.A. for the nominal amount
of 35 million Euros consisting of 350 bonds of 100,000 Euros each and maturing on 23 November 2023,
admitted to trading on the professional segment ExtraMOT PRO, interest rate 4.75%.
It should be noted that the regulations of the bond issues contain the following financial covenants that
must be respected at group level. At the closing date of the financial year the envisaged covenants were
respected.
90
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
FINANCIAL EQUILIBRIUM RATIOS COVENANT CONSOLIDATED RESULT
NFP/Equity ≤ 1.5 0.0
Net financial position
------------------------
Shareholders’ Equity
NFP/EBITDA ≤ 3.5 0.1
Net financial position
------------------------
EBITDA
Interest Coverage Ratio (ICS) ≥ 4.5 8.4
EBITDA
------------------------
Financial charges
Payables to shareholders for loans
Amounts due to shareholders for loans consist of the conversion in 2009 of the total coupon on bonds
matured in favour of the shareholders of the Parent Company Renco Group S.p.A. at 31 December 2008
and not yet paid by the company. The loan expiring on 31 December 2014 has been extended from time to
time until 21 December 2020. As a result of new guarantees given by the Parent Company to the subsidiary
Renco SpA, the shareholder loans were supplemented by a subordination clause valid until 31 December
2020. During the year, 500 thousand Euros were reimbursed.
Payables to banks
The balance of payables to banks as of 31.12.2019 equal to 60.8 million Euros (93.7 million Euros), inclusive
of loans, represents the effective liability in terms of principal, interest and related charges accrued and due.
During the year, the Group took out new loans of 23.5 million Euros (10.4 million Euros as of 31 December
2017), of which 7.6 million Euros related to loans obtained for the new Group headquarters in Pesaro, 7 million
Euros for a medium/long-term loan and 8.9 million Euros in the form of a credit line contracted by Renco
Kat. The average weighted duration of the new loans acquires is 73 months. Some of the loans granted to
the Company envisage the observance of covenants which, as of the balance sheet date, were observed.
It should be noted that during the previous and current year, the subsidiary and consolidated Renco Capital
S.r.l. obtained the following loans for the construction of the new headquarters:
Floating rate loan of 1 million Euros maturing on 30 June 2025, indexed to the 6-month Euribor interest
rate and with a spread of 1.85% and fully disbursed in the previous year;
Floating rate loan of 2 million Euros maturing on 30 June 2022, indexed to the 6-month Euribor interest
rate and with a spread of 1.75% and fully disbursed in the previous year;
Mortgage loan up to 12 million Euros with maturity on 30 June 2032, indexed to the 6-month Euribor
interest rate and a spread of 2.3%. The amount disbursed as of 31 December 2018 amounted to 5.16
million Euros. During the current year the remaining part was disbursed.
91
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
As of 31.12.2019, there were no payables for loans in foreign currency.
The balance of payables to banks beyond 12 months totalling 31.4 million Euros is broken down as follows:
5.5 million Euros (6.3 million Euros) is represented by a mortgage credit line granted to the subsidiary
Residence Viserba S.r.l. in view of the start of construction work for the area located in Viserba (Rimini);
1.3 million Euros (1.7 million Euros) is represented by the residual payable with maturity beyond 12
months of the loans to Joint Green S.r.l.;
11.5 million Euros (34.9 million Euros) is represented by the residual payable with maturity beyond 12
months of the loans to Renco S.p.A.
13.1 million Euros (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 10.5 million Euros, represents
the outstanding balance of the loan owed to Renco Capital S.r.l. (7.9 million Euros) and Residence Viserba
S.r.l. (2.6 million Euros).
The company is currently in line with the payment of overdue instalments.
Payables to other lenders
The item “Payables to other lenders” amounting to 13.9 million Euros (1.7 million Euros at 31.12.2018) comprises:
payables of 1.9 million Euros (1 million Euros at 31.12.2018) to leasing companies. The payable of the
previous year referred exclusively to the leasing contract in the name of Renco Capital S.r.l. of a property
located in Pesaro for which there is a residual amount of 907 thousand Euros as at 31.12.2019. During the
current year, Renco S.p.A. contracted new leases for equipment and cranes for work in Mozambique for
a total value of 1.3 million Euros.
payables to the previous shareholders of Villa Soligo S.r.l. of 0.7 million Euros (position in the name of
Villa Soligo S.r.l. and already present before the acquisition). The amount was paid in 2020.
payables of 11 million Euros to Simest. During the year, a share capital increase in Renco Power Cjsc was
carried out by Simest S.p.A. and the Venture Capital Fund through the subscription of a shareholding
corresponding to 22.37% of the share capital. In compliance with the reference accounting standards
and in consideration of Renco S.p.A.’s commitment to repurchase the shares subscribed by Simest and
FVC, to be carried out by 30 June 2026, this share capital increase was represented as a payable to
other lenders.
Advance payments
The balance of the item “Advance payments” includes advances already collected from customers when
ordering, advances received from customers on job orders in progress and advances relating to the rent-
to-buy contract. Specifically, advances amount to 2.9 million Euros (6.5 million Euros), advances on job
orders in progress amount to 388 million Euros (219 million Euros), advances to others relating to the rent-
to-buy contract stipulated in 2015 amount to 5.8 million Euros (5.8 million Euros). The increase in the item
“Advance payments” is linked in particular to the invoicing of advance payments on job orders in progress.
The amount of foreign currency advances is USD 137.5 million, LYD 10.5 million and AMD 933 million.
92
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Trade payables
“Trade payables” amounting to 98,431 thousand Euros (61,483 thousand Euros as of 31.12.2018) are
recognised net of commercial discounts; cash discounts, on the other hand, are recognised at the time
of payment. The nominal value of these payables has been adjusted, at the time of returns or allowances
(invoicing adjustments), to an extent corresponding to the amount agreed with the counterpart.
Payables to subsidiary companies that are not consolidated
Payables to subsidiary companies that are not consolidated, equal to 54 thousand Euros (1,925 thousand
Euros as of 31.12.2018). The balance of the previous year included 1.5 million Euros owed by Renco Power
CJSC to the non-consolidated subsidiary Armpower CJSC for unpaid share capital resolved in December.
Renco Power made the payment during 2019.
93
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Payables due to associated companies
The item payables to associated companies of 2,742 thousand Euros (2,126 thousand Euros as of 31.12.2018)
includes short-term positions that are frequently transacted with Group companies. In particular, these are
payables to the associated companies Real Estate Management S.r.l. for 15 thousand Euros (9 thousand
Euros as of 31.12.2018), Renco Qatar for 2,523 thousand Euros (2,065 thousand Euros as of 31.12.2018) and
to the company Renco Irem Costrucoes for 161 thousand Euros.
Tax payables
The item “Tax payables” amounting to 12,826 thousand Euros (6,781 thousand Euros as of 31.12.2018) includes
only those payables representing certain taxes of known amount, as tax liabilities which are probable or
uncertain in amount or due date and deferred taxes are entered under item B.2 in the liabilities (Provisions
for taxes).
In particular, tax payables include:
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Tax payables
Payables for withholding taxes 1,065 1,598 533
Corporate tax liabilities 1,877 2,877 1,000
Disputes tax payables 1,407 1,747 340
Payables for VAT 1,436 6,492 5,056
Other tax payables 1,086 112 (974)
Total 6,871 12,826 5,955
Other payables
The balance of “Other payables” includes the following items:
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Payables to others
Payables to employees 5,394 5,617 223
Payables for rent-to-buy 2,958 2,584 (374)
Payables for the purchase of equity investments 1,077 5,194 4,117
Dividends payable 500 500 -
Payables to factoring companies 3,130 4,920 1,790
Other sundry payables 774 205 (569)
Total 13,833 19,020 5,187
94
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Amounts due to employees represent the payable for wages and salaries and holidays accrued by
employees.
The item “Payables for rent-to-buy” refers to the rent-to-buy contract stipulated in 2015 and
relates to the property in question included in the inventories. In this regard, it should be noted that in
2016 a deed amending the rent-to-buy contract was signed. With the amendment to the contract, the
buyer paid a further advance for the portion of the consideration agreed for the sale of the property,
taking over the amount of 3,729 thousand Euros of the remaining portion of the mortgage loan taken out
with MPS bank. Since this is an external transaction with the bank’s consent but not in full discharge of its
obligations, the increase in advances paid and the cancellation of the loan payable to the bank were offset
by the recognition of the amount of 3,729 thousand Euros under other receivables and payables (amounts
reduced in 2019 as a result of the payment of loan instalments due during the year). In fact, in the event
of default by the buyer, the bank could request performance directly from Renco Real Estate S.r.l. as it is
obliged to do so on a subsidiary basis.
“Payables for the purchase of equity investments” of the previous year refer to the purchase of the equity
investment in Villa Soligo, whose debt due beyond one year has been appropriately discounted at a rate
of 4.41%. The payable increased during the year by 4.8 million Euros in relation to the repurchase of the
investment in Hotel Yerevan by Renco S.p.A., the balance of which was paid at the beginning of 2020.
Accrued liabilities and deferred income
These represent the connecting items for the accounting period reckoned on an accruals basis, and are
comprised as follows:
DESCRIPTION 31.12.2018 31.12.2019 CHANGE
Accrued expenses 1,000 725 (275)
- Interest expense and commissions 613 380 (233)
- Bond interest 345 345 -
- Derivatives 24 - (24)
- Others 18 - (18)
Deferred income 432 192 (240)
- Revenues from asset management 150 - (150)
- Others 282 192 (90)
Total 1,432 917 (515)
These represent income and expense whose pertinence is advanced or deferred with respect to the cash
and/or documental manifestation and are irrespective of the date of payment or collection of the related
income and expense spanning two or more accounting periods which can be spread over time.
95
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
INCOME STATEMENT
Value of production
Indication is made of the composition of the value of production, as well as the changes in the individual
items, with respect to the previous year:
ITEM 31.12.2018 31.12.2019 CHANGE CHANGE %
Sales of goods and services 253,639 98,372 (155,267) (61.22)
Changes in inventories of work in progress, (451) 99 550 na
Change in contract work in progress (44,443) 160,463 204,906 na
Increases for in-house works 19,999 17,348 (2,651) (13.26)
Other revenues and income 14,538 38,893 24,355 na
Total 243,282 315,175 71,893 29.55
Revenues by category of activity
Below we provide the breakdown of value of production by production division.
ITEM 31.12.2018 31.12.2019 CHANGE CHANGE %
Services division 49,155 47,704 (1,451) (2.95)
Infrastructure Division 36,447 58,566 22,119 60.69
Asset Management Division 58,902 78,090 19,188 32.58
Industrial Plant Division 98,778 130,815 32,037 32.43
Total 243,282 315,175 71,893 29.55
The Renco Group achieved a “Value of Production” of 315,175 thousand Euros in 2018 (243,282 thousand
Euros in the same period of 2018) with an increase of 71,893 thousand Euros (+29.5%).
The increase in the value of production was supported by the contribution of all Group Divisions: the
Infrastructure Division with an increase of 22.1 million Euros, the Asset Management Division with an
increase of 19 million Euros and the Industrial Plant Division with an increase of 32 million Euros.
For a complete analysis of the business performance, please refer to the Management Report.
Revenues by geographic area
Below we provide the breakdown of value of production by geographical area.
96
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
GEOGRAPHIC AREA 31.12.2018 31.12.2019 CHANGE CHANGE %
Italy 35,722 48,568 12,846 35.96
European Union 73,332 74,537 1,205 1.64
Russia and former USSR countries 55,901 98,031 42,130 75.37
Africa 63,927 79,600 15,673 24.52
Middle East 7,400 6,572 (828) (11.18)
Other 7,000 7,867 867 12.38
Total 243,282 315,175 71,893 29.55
The table above shows the absolute value and the percentage weight of production by geographical area.
For a more in-depth analysis of the foreseeable evolution of operations and on the industrial and commercial
strategies, reference should be made to the Management Report.
Other revenues and income
The balance of “Other revenues and income” includes the following items:
ITEM 31.12.2018 31.12.2019 CHANGE
Other revenues and income
Capital gains from disposal of assets 13,272 35,586 22,314
Income from insurance 33 48 15
Use/Release of provisions 381 - (381)
Revenues for contributions 478 676 198
Income from staff secondment 115 275 160
Other sundry revenues 259 2,308 2,049
Total 14,538 38,893 24,355
The item “Capital gains from asset disposals” mainly consists of the capital gain from the sale of the
Zanzibarian company Renco Zanzibar during the period, which owns the Gemma dell’Est resort. The sale
was completed on 30 June 2019 on the basis of a price of USD 56 million, fully collected during 2019. The
transaction generated a capital gain of 35.1 million Euros at the consolidated level.
Cost of production
Indication is made of the composition of the production costs, as well as the changes in the individual items,
with respect to the previous year:
97
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Cost of production
Raw, ancillary and consumable materials 61,203 87,029 25,826
Services 76,765 103,261 26,496
Use of third party assets 4,589 5,831 1,242
Wages and salaries 46,206 49,087 2,881
Social security contributions 8,311 10,088 1,777
Employee severance indemnity 1,372 1,711 339
Other personnel costs 588 295 (293)
Amortisation/depreciation of intangible fixed assets 705 729 24
Amortisation/depreciation of tangible fixed assets 9,323 9,666 343
Other amounts written off fixed assets 248 1,271 1,023
Write-down of receivables included in current assets 1,469 1,469 -
Change in raw material inventories 2,254 (4,762) (7,016)
Provision for risks 199 - (199)
Other provisions 1,300 - (1,300)
Other operating expenses 3,534 15,670 12,136
Total 218,066 281,435 63,279
Costs of raw materials
The item “Costs of raw materials” includes the following items:
ITEM 31.12.2018 31.12.2019 CHANGE
Raw, ancillary and consumable materials
Raw materials 54,911 77,625 22,714
Production components and materials 2,396 1,190 (1,206)
Capital goods valued less than €516 50 458 408
Miscellaneous tools and equipment (repair parts, spare parts, building materials, etc.)
359 3,686 3,327
Fuel 1,048 2,166 1,118
Stationery and printed matter 923 323 (600)
Working clothes 285 423 138
Customs clearance materials 1,189 1,189 1
Other costs for raw materials 43 (32) (75)
Total 61,203 87,029 25,825
The item “Raw, ancillary and consumable materials and goods”, equal to 87 million Euros, consists of 70
million Euros of costs incurred by Renco S.p.A. The increase in raw material purchase costs is attributable
to the greater incidence of procurement activity recorded in 2019 by the Company.
98
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Service costs
“Costs for Services” includes the following items:
ITEM 31.12.2018 31.12.2019 CHANGE
Services
Works performed by third parties and general services 40,860 61,976 21,116
Project collaborations 9,802 10,270 468
Transport costs 2,316 2,903 587
Property maintenance and repair 201 153 (48)
Motor vehicle maintenance and repair 510 228 (282)
Cleaning costs 228 327 99
Lighting 1,317 1,237 (80)
Other utilities 691 593 (98)
Postal and telephone charges 977 1,088 111
Security expenses 1,216 754 (462)
Technical and commercial consulting 4,063 5,748 1,685
Legal, administrative and tax consulting 1,832 2,253 421
Insurance 837 1,193 356
Travel expenses 3,885 4,262 377
Reimbursement of expenses 73 16 (57)
Other maintenance and repair 193 318 125
Advertising and promotional expenses 655 543 (112)
Personnel refresher courses 416 345 (71)
Software licenses and production licenses 1,242 1,356 114
Remuneration of corporate bodies 399 282 (117)
Company canteen 500 824 324
Health services 1,181 1,731 550
Bank commission 2,554 3,348 794
Other costs for services 818 1,515 697
Total 76,765 103,261 26,496
The amount for the financial year mainly includes 23 million Euros relating to the TAP Greece and TAP
Albania contracts of the Renco Terna Joint Venture and 71.4 million Euros relating to contract costs of
Renco SpA and 11.2 million Euros relating to costs incurred by Reno Congo Sarlu.
Costs for use of third party assets
The balance of “Costs for use of third party assets” includes the following items:
99
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
ITEM 31.12.2018 31.12.2019 CHANGE
Use of third party assets
Rental of premises and offices 2,705 2,984 279
Rental of vehicles and equipment 1,752 2,771 1,020
Other lease and rental expenses 133 76 (57)
Total 4,589 5,831 1,241
The amount mainly consists of rents for offices and warehouses and rental costs, of which 3.3 million Euros
for Renco S.p.A. and 1.4 million Euros incurred by the Renco Terna JV.
Personnel costs
“Personnel costs”, which totalled 61.2 million Euros (56.5 million Euros), mainly includes the personnel costs
of Renco S.p.A. (26.2 million Euros) and Renco Congo Sarlu (19.2 million Euros).
Below is the average number of employees of companies included in the consolidation with the line-by-line
method broken-down according to category.
DESCRIPTION 31.12.2018 31.12.2019 CHANGE AVERAGE NUMBER
Executives and Managers 59 72 13 66
Ordinary employees 706 651 (55) 679
Workers 2,467 2,569 102 2,518
Other 47 68 21 58
Total 3,279 3,360 81 3,320
Other operating expenses
The balance of “Other operating expenses” includes the following items:
ITEM 31.12.2018 31.12.2019 CHANGE
Other operating expenses
Miscellaneous taxes 2,277 1,929 (347)
Membership fees 64 93 29
Rounding down 3 9 6
Administrative sanctions 159 616 457
Losses on receivables not covered by a specific provision
459 253 (207)
Capital losses on disposal of assets 25 25 (0)
Other sundry expenses 548 12,746 12,198
Total 3,534 15,670 12,135
100
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
The item “Other taxes” is mainly made up of 0.5 million Euros for the land occupation tax paid by the
company Renco Kat relating to the TCO field (whose construction was completed at the end of 2017), 0.8
million Euros for the non-deductible VAT of Baytree LLC on intercompany invoicing with Renco Zanzibar
and 0.4 million Euros for the taxes on real estate of the various Group companies.
The sub-item “Other sundry expenses “ amounts to 12.7 million Euros and contains the total charge of 11.3
million Euros deriving from the repurchase of 100% ownership of the Armenian company, which owns the
Hotel Yerevan.
Financial income and expenses
The item consists of the following:
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Financial income and charges
Income from equity investments due from subsidiary companies
4 418 418
Income other than the above 622 1,855 1,233
(Interest and other financial expenses) (6,652) (7,014) (362)
Exchange gains (losses) (2,280) (1,710) 570
Total (8,306) (6,451) 1,859
101
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
The item Interest and other financial charges equal to 7,014 thousand Euros includes interest of 5,597
thousand Euros of interest charges on the financial payable.
With regard to foreign exchange losses of 1.7 million Euros (exchange losses of 2.3 million Euros as of 31
December 2018), it should be noted that these include both the monetary changes on the items closed
during the year as well as “Unrealised exchange gains and losses” since they relate to transactions not yet
closed at the end of the period.
The economic result relating to realised and unrealised exchange differences reflects the trend of the
foreign exchange market that characterised 2019. In fact, with regard to the average exchange rates for the
period there was a consolidation of the Euro against the Kazakh Tenge which again this year negatively
impacted the exposure in these currencies of Group companies present in these markets.
“Exchange gains (losses)” can be broken down as follows:
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Exchange gains 8,640 9,104 (464)
Exchange losses (11,909) (8,569) (3,340)
Unrealised exchange gains 1,670 1,811 (141)
Unrealised exchange losses (681) (4,056) 3,375
Total (2,280) (1,710) (570)
Value adjustments to financial assets and liabilities
The item consists of the following:
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Revaluations 36 108 72
Of equity investments 36 7 (29)
Of financial fixed assets - 101 101
Write-downs (4,868) (3,391) 1,477
Of equity investments (4,667) (2,919) 1,748
Of financial fixed assets (101) (354) (253)
Of securities recorded as current assets (84) - 84
Of derivative financial instruments (16) (118) (102)
Total (4,832) (3,283) 3,098
For a note on the write-down of equity investments, reference should be made to the section on equity
investments in subsidiaries and associated companies.
102
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
Income taxes for the period
BALANCE SHEET ITEMS 31.12.2018 31.12.2019 CHANGES
Income tax for the year
Current taxes 5,970 6,966 996
Taxes relating to previous years 2,605 6,901 4,296
Deferred/(prepaid) taxes (1,794) 2,547 4,341
Expenses (Income) from adhering to the tax consolidation
(803) (403) 400
Total 5,978 16,011 10,033
The item Income taxes amounts to a total of 16,011 thousand Euros (5,978 thousand Euros), with a tax rate
of 66% (49% in the previous period). The tax rate for the year was influenced by income and losses from
equity investments benefiting from the PEX (Participation Exemption), as well as losses on receivables
for taxes paid abroad of 5,751 thousand Euros arising from the transformation of the Congolese branch of
Renco S.p.A. into a Congolese company, which in fact cancelled the tax entity for which the receivables
were recognised. The tax rate normalized by this effect is 43%.
Deferred/prepaid taxation
Deferred taxation is stated by the allocation to the tax provision, amounting to 13.8 million Euros (12.8
million Euros in the previous year). Deferred taxes are calculated in accordance with the overall allocation
approach, taking into account the cumulative sum of all the timing differences on the average rates expected
as of such time as these timing differences shall reverse.
Prepaid taxes have been recorded since reasonable certainty exists regarding the occurrence – in the years
in which the deductible timing differences will reverse, against which prepaid taxes have been recorded – of
taxable income no lower than the total of the differences which will be cancelled.
The main timing differences which led to the reporting of deferred and prepaid taxes are indicated in the
following table together with the related effects.
YEAR 31/12/2018 YEAR 31/12/2019
VALUE OF TEMPORARY
DIFFERENCES TAX EFFECTVALUE OF TEMPORARY
DIFFERENCES TAX EFFECT
Prepaid taxes
Unrealised exchange losses 45 11 364 87
Real estate lease instalments referring to land
94 27 107 31
Real estate depreciation referring to land 196 56 196 56
Maintenance costs 41 10 21 5
Entertainment expenses
Provisions for risks and charges 2,552 706 897 244
103
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
Prepaid taxes foreign financial statements 19,759 3,952 16,562 3,312
ACE 9 2 10 2
Prepaid taxes on reserve for expected derivative flows
280 67 1,927 463
Tax losses that can be carried forward 392 94 436 105
Provision for credit depreciation 1,444 347 1,444 347
Other 26 6 7 2
Elimination of intercompany margins (*) 6,832 1,906 2,089 583
Total deferred tax assets 24,838 7,184 21,971 5,237
Deferred taxes 0 0 0 0
Unrealised exchange gains 2,393 574 1,308 314
Reserve to cover cash flows 806 193 306 73
PO issue costs 632 152 470 113
Villa Soligo property greater value 538 150 538 150
Leasing accounting (equity method) (*) 1,673 467 1,637 457
Deferred taxes foreign financial statements 8,307 1,661 14,918 2,984
Eliminations of intercompany margins (*) 2,892 694 2,806 673
Other consolidation entries (*) 0 0 911 219
Recognition of greater values 35,057 8,955 34,297 8,796
Recognition of Renco Kat greater value (*) 8,369 1,674 7,823 1,565
Recognition of Res. Viserba greater value (*)
22,043 6,150 22,043 6,150
Recognition of Renco Property greater value (*)
2,090 418 1,954 391
Recognition of Villa Soligo greater value (*) 2,555 713 2,477 691
Total deferred taxes 50,284 12,847 56,281 13,779
Net deferred tax liabilities (assets) 25,447 5,663 34,309 8,542
(*) These tax effects derive from the consolidation entries
OTHER INFORMATION
Disclosure on the fair value of derivative financial instruments
It should be noted that the Group decided to conclude derivative contracts to hedge the interest rate risk,
connected with part of the bank loans.
The detailed information required by Article 2427 bis, paragraph 1, no.1 of the Italian Civil Code is presented
as follows.
104
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
DESCRIPTION
FAIR VALUE
31/12/20182018 TAX
EFFECT
FAIR VALUE
31/12/20192019 TAX
EFFECT
CHANGE IN INCOME
STATE-MENT
CHANGE IN SE NATURE
NOTIONAL IN THOU-
SANDS
INTEREST RATE SWAP
(170) 41 (102) - (102) 129
Derivative hedging on the risk of oscillating interest rates
25,000
CAP 8 - 1 - 7 -
Derivative hedging on the risk of oscillating interest rates
10,000
IRS PLAIN VANILLA
(43) 10 (31) 7 - 9
Derivative hedging on the risk of oscillating interest rates
1,445
IRS PLAIN VANILLA
(43) 10 (31) 7 - 9
Derivative hedging on the risk of oscillating interest rates
1,445
INTEREST RATE SWAP
(24) 6 (112) 27 - (67)
Derivative hedging on the risk of oscillating interest rates
8,500
INTEREST RATE SWAP
- - (106) 25 - (80)
Derivative hedging on the risk of oscillating interest rates
12,000
FLEXIBLE USD/EURO FORWARD CONTRACT
- - (117) 28 - (89)
Derivative hedging on exchange rates for future transactions
9,550 USD
USD/EURO FORWARD CONTRACT
- - (1,530) 367 - (1,163)
Derivative hedging on exchange rates for future transactions
163,600 USD
USD/EURO EXCHANGE OPTIONS
- - 306 (73) 232
Derivative hedging on exchange rates for future transactions
37,785 USD
EURO/USD EXCHANGE OPTIONS
806 (193) - - - (613)
Derivative hedging on exchange rates for future transactions
39,075 USD
Total 535 (126) (1,723) 389 (95) (1,632)
As at 31.12.2109, the Group had the following financial derivative instruments of the “Cash flow hedge” type
to hedge financing transactions or expected cash flows from contracts in USD and for which the following
hedging relationship is present:
notional 25,000 thousand Euro IRS maturing on 11/10/2021 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative of 102 thousand Euros was
recognised in the “Reserve for hedging operations for expected financial flows” net of deferred
105
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
taxation and offset in item B 3) “Derivative financial liability instruments” for the amount of 102
thousand Euros;
notional 10,000 thousand Euro interest rate cap maturing on 31/12/2021 with the frequency of quarterly
payment to hedge a loan for the same amount. The fair value of the derivative of 1 thousand Euros was
entered under item B III) 4) “Derivative financial asset instruments”;
notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment to
hedge the loan for the same amount. The fair value of the derivative of 31 thousand Euros was recognised
in the “Reserve for hedging operations for expected financial flows” net of deferred taxation and offset
in item B 3) “Derivative financial liability instruments”;
notional 1,445 thousand Euro IRS maturing on 07/08/2023 with the frequency of half-yearly payment to
hedge the loan for the same amount. The fair value of the derivative of 31 thousand Euros was recognised
in the “Reserve for hedging operations for expected financial flows” net of deferred taxation and offset
in item B 3) “Derivative financial liability instruments”;
notional 8,500 thousand Euro IRS maturing on 30/06/2025 with the frequency of half-yearly payment
to hedge the loan for the same amount. The fair value of the derivative of 112 thousand Euros was
recognised in the “Reserve for hedging operations for expected financial flows” net of deferred taxation
and offset in item B III) 4) “Derivative financial asset instruments”;
Flexible forward contracts on USD/Euro exchange rates, notional value of USD 9,550 thousand expiring
on 29 January 2020, to hedge the cash flow in USD that the Group will collect for the construction
contract for the CCS field in Mozambique. The fair value of the derivative of 117 thousand Euros was
recognised in the “Reserve for hedging operations for expected financial flows” net of deferred taxation
and offset in item B 3) “Derivative financial liability instruments”;
Forward contracts on USD/Euro exchange rates, notional value of USD 163,600 thousand expiring on
30/07/2021, to hedge the cash flow in USD that the Group will collect for the construction contract
for the Yerevan Power Plant in Armenia. The fair value of the derivatives of 1,530 thousand Euros was
recognised in the “Reserve for hedging operations for expected financial flows” net of deferred taxation
and offset in item B 3) “Derivative financial liability instruments”;
Options on Euro/USD exchange rates, notional value of USD 39,075 thousand last expiring on 15/10/2021
and six-monthly settlement, to hedge the cash flow in USD that the Group will collect for the construction
contract for the CCS field in Mozambique. The fair value of the derivatives of 306 thousand Euros was
recognised in the “Reserve for hedging operations for expected financial flows” net of deferred taxation
and offset in item B III) 4) “Derivative financial asset instruments”
Related party transaction disclosure
(Ref. Art. 38, first paragraph, lett. o-quinquies), Italian Legislative Decree No. 127/1991)
Transactions with related parties at normal market conditions were put in place. These transactions relate
to business activities carried out for long-standing clients, which have produced profitability in line with
corporate income parameters.
The table below summarises both commercial and financial transactions with related parties broken down
by category.
106
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
COMPANY REVENUES COSTS
FINANCE INCOME
(EXPENSES)TRADE RE-CEIVABLES
TRADE PAYABLES
ADVANCE PAYMENTS
FINANCIAL RECEI-
VABLESFINANCIAL PAYABLES
Unconsolidated subsidiaries 177 6 217 54 83,041 275 -
ARMPOWER 177 - - 144 3 83,041 - -
RENCO FOOD - - - 73 16 - 275 -
CONSORZIO RENCO LANCIA ITER
- 6 - - 31 - - -
SALINELLA - - - - 4 - - -
Associated companies 1,845 4,125 158 3,975 2,742 1,781 23,619
DARIN CONSTRUCTION
275 - 158 1,123 40 - 13,286 -
VELOFIRMA 426 - - 950 1 - 6,511 -
REAL ESTATE MANAGEMENT
245 - - 18 15 - 1,744 -
TRADEMARK - - - 705 - - 1,155 -
NIASSA SANCTUARY
1 - - 1 1 - 111 -
RENCO IREM COSTRUCOES
1 - - 40 161 1,781 813 -
RENCO NIGERIA 778 - - 1,097 1 - - -
TOLFA CARE S.R.L.
119 - - 40 - - - -
RENCO QATAR - 4,125 - - 2,523 - - -
Other related parties 775 283 207 5,701
ISCO S.R.L. - 775 - 283 207 - - -
SHARE HOLDERS - - - - - - - 5,701
TOTAL 1,845 4,900 158 4,258 2,949 23,619 5,701
Information on significant events subsequent to the end of the financial year
Pursuant to Article 2427 no. 22 quater) of the Italian Civil Code, the following should be noted:
Starting from the end of February, the COVID 19 novel virus was declared to be on the increase, with an
epidemic that quickly spread to many countries worldwide, defined by the World Health Organization as a
“pandemic situation”.
At the date of issue of this report, Italy is one of the countries most affected. This has led to significant
pressure on the country’s health system and consequent enactment by the government authorities of a
series of measures aimed at containing the risk of further expansion of the virus among the Italian population.
The Renco Group Board of Directors does not believe that the COVID-19 emergency is likely to have any
107
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
effect on the regular and ordinary performance of the company’s activities, despite the mitigating actions
already promptly implemented by the Group and aimed primarily at preserving production continuity while
ensuring full protection of workers’ health and safety. In this regard, it considered that the trend of the
emergency accompanied by uncertainties related to further developments in terms of impact on public
health and, consequently, on the productive, economic and social fabric of the country does not, as things
stand, allow any approximation of quantification of the effects on the 2020 performance of the company.
The impact of the COVID-19 emergency will be constantly monitored by the Directors in its evolution and
considered in the Group’s accounting estimates during 2020, including those relating to the recoverability
of the value of assets recognised in the financial statements.
Moreover, the Board of Directors believes that what is happening does not change the medium/long-term
outlook, also in terms of confirming the existence of the going concern assumption.
Off balance sheet commitments, guarantees and contingencies
Below is the total amount of commitments, guarantees and potential liabilities not shown in the balance
sheet, with indication of the nature of the collateral provided; the existing commitments on retirement
and similar commitments, as well as the commitments entered into with subsidiary companies, associated
companies, parent companies and companies subject to the control of the latter are indicated separately:
108
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
DESCRIPTION 31.12.2018 31.12.2019 CHANGES
Memorandum accounts of third-party risks 92,247 160,725 68,478
Memorandum accounts of commitments undertaken 185 173 (12)
Total 92,432 160,898 68,466
The following section provides information on the composition and nature of commitments and other
memorandum accounts, knowledge of which is useful for assessing the financial position of the company,
with specific indication of those relating to subsidiary companies, associated companies, parent companies
and partner companies.
The total amount of sureties issued by the Group at 31 December 2019 was 160.7 million Euros (92.2 million
Euros in 2018). The detail of sureties is provided below:
147.8 million Euros (79.3 million Euros in 2018), guarantees issued by Renco S.p.A. to clients, against the
commitments assumed by Group companies for the proper execution of acquisitions. The item consists
of performance bonds of 75.3 million Euros (42.1 million Euros in 2018), advance payment bonds of 40.9
million Euros (29.2 million Euros in 2018), retention bonds and stand by letters of 15.4 million Euros (4.3
million Euros in 2018) and other guarantees of 16.1 million Euros (3.8 million Euros in 2018);
12.9 million Euros relate to the insurance guarantee issued by Residence Viserba S.r.l. to the city of Rimini
to guarantee the subsequent free transfer to the latter of the urbanisation works in the Viserba area.
With reference to the commitments taken, it should be noted that 173 thousand Euros refer to the
commitment taken by the subsidiary Joint Green Srl, with the acquisition of the fixed-term (22 years) rights
on the Fossombrone area, to pay an annual instalment until the expiry of the right of the same.
Disclosure regarding off balance sheet agreements
(Ref. Art. 38, first paragraph, letter o-sexies), Italian Legislative Decree No. 127/1991)
The Group has no agreements in place not resulting from the Balance Sheet.
Information on the fees due to the independent auditor
(Ref. Art. 38, first paragraph, lett. o-septies), Italian Legislative Decree No. 127/1991)
In accordance with the law, please note the fees for the year for services provided by the statutory
independent auditing firm and entities belonging to its network to the Group:
fees due for the statutory audit of the consolidated accounts: 167 thousand Euros.
Other information
In accordance with the law, please note the total fees due to the directors, the members of the Board
of Auditors of the parent company including those due for the performance of these tasks also in other
businesses included in the consolidation.
109
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
POSITION RENCO GROUP S.P.A. RENCO S.P.A REMUNERATION
Directors 145 78 223
Board of Statutory Auditors 17 70 87
Supervisory body 18 - 18
Total 180 148 327
These consolidated financial statements, comprising the balance sheet, income statement and explanatory
notes, provide a true and fair view of the equity and financial situation as well as the economic result,
and are consistent with the underlying accounting records of the parent company, and the information
provided by the companies included in the consolidation.
Attachments to the consolidated financial statements:
list of companies included in the consolidation using the line-by-line method in accordance with Art. 26
of Italian Legislative Decree 127/91;
list of companies included in the consolidation using the proportional method in accordance with Art.
37 of Italian Legislative Decree 127/91
list of other equity investments in subsidiary and associated companies not consolidated;
list of other equity investments;
reconciliation table between the financial statements of the parent company and the consolidated
financial statements;
statement of changes in consolidated shareholders’ equity accounts.
Pesaro 20.05.2020
On behalf of the Board of Directors
The Chairman
Giovanni Gasparini
110
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
A T T A C H M E N T 1 T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A S O F 3 1 / 1 2 / 2 0 1 9
List of companies included in consolidation using the line-by-line method in accordance with Art. 26 of Italian Legislative Decree 127/91 as of 31/12/2019
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL
SHAREHOL-DERS SHARE PROP. SHARE CONS.
RENCO S.P.A. ITALY EUROS 60,000,000RENCO GROUP S.P.A.
99.51% 99.51%
RENCO VALORE S.R.L. (previously RENCO REAL ESTATE S.R.L.)
ITALY EUROS 100,000 RENCO S.P.A. 100.00% 99.51%
RENCO HEALTH CARE S.R.L.
ITALY EUROS 100,000 RENCO S.P.A. 90.00% 89.56%
JOINT GREEN S.R.L.
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 ASSET MANAGEMENT S.R.L.
ITALY EUROS 100,000RENCO GROUP S.P.A.
99.51% 99.51%
RENCO IMMOBILIARE S.R.L.
ITALY EUROS 100,000RENCO GROUP S.P.A.
99.51% 99.51%
VILLA SOLIGO S.R.L.
ITALY EUROS 93,080RENCO REAL ESTATE S.R.L.
100.00% 99.51%
RENCO ARMESTATE LTD
ARMENIA DRAM 500,992,000 RENCO S.P.A. 100.00% 99.51%
ARMENIA GESTIONE
ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
RENCO ARMENIA VALORE LLC (previously PIAZZA GRANDE LLC)
ARMENIA DRAM 500,000,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
NUOVO VELODROMO
ARMENIA DRAM 50,000RENCO REAL ESTATE S.R.L.
100.00% 99.51%
ITALSEC ARMENIA
ARMENIA DRAM 100,000 ITALSEC S.R.L. 100.00% 89.56%
111
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL
SHAREHOL-DERS SHARE PROP. SHARE CONS.
RENCO POWER CJSC
ARMENIA DRAM 100,000 RENCO S.P.A. 100.00% 99.51%
HOTEL YEREVAN OJSC
ARMENIA DRAM 510,000,000 RENCO S.P.A. 100.00% 99.51%
RENCO-KAT S.R.L.
KAZAKHSTANTENGE KAZAKHSTAN
74,600,000 RENCO S.P.A. 50.00% 49.76%
RENCO PROPERTY LLP
KAZAKHSTANTENGE KAZAKHSTAN
74,600,000 RENCO S.P.A. 100.00% 99.51%
GEODELTA CORP
KAZAKHSTANTENGE KAZAKHSTAN
100,000 RENCO S.P.A. 60.00% 59.71%
INTERRENKO LTD.
RUSSIA RUSSIAN RUBLE 134,500 RENCO S.P.A. 100.00% 99.51%
SOUTHERN CROSS LLC
RUSSIA RUSSIAN RUBLE 37,256,408 GRAPEVINE 100.00% 49.76%
RENCO SAKH LLP
RUSSIA RUSSIAN RUBLE 233,278,000RENCO REAL ESTATE S.P.A.
100.00% 99.51%
BAYTREE PORTUGAL EUROS 5,000 RENCO S.P.A. 100.00% 99.51%
GRAPEVINE PORTUGAL EUROS 5,000 BAYTREE 50.00% 49.76%
RENCO TANZANIA LTD
TANZANIA SHILLING 20,000,000 RENCO S.P.A. 99.00% 98.52%
ITALSEC MOZAMBICO
MOZAMBIQUE METICAL 250,000 ITALSEC S.R.L. 62.50% 55.97%
REAL MOZ LDA MOZAMBIQUE METICAL 250,000
RENCO REAL ESTATE S.R.L.
99.00% 98.51%
RENCO S.P.A. 1.00% 1.00%
RENCO MOZAMBICO LTP
MOZAMBIQUE METICAL 250,000
RENCO REAL ESTATE S.R.L.
94.50% 96.53%
RENCO S.P.A. 2.50% 96.53%
RENCOTEK LDA MOZAMBIQUE METICAL
10,000,000 RENCO S.P.A. 99.00% 99.51%
RENCO REAL ESTATE S.R.L.
1.00% 99.51%
RENCO ENERGIA LDA
MOZAMBIQUE METICAL 250,000 RENCO S.P.A. 62.50% 62.19%
MOZESTATE LDA
MOZAMBIQUE METICAL 250,000
RENCO REAL ESTATE S.R.L.
99.00% 98.51%
RENCO GROUP S.P.A.
1.00% 1.00%
CAPO DELGADO PROPERTIES SA
MOZAMBIQUE METICAL 100,000 RENCO S.P.A. 63.00% 62.69%
RENCO GESTION IMMOBILIERE
CONGOAFRICAN FRANC
10,000,000RENCO REAL ESTATE S.R.L.
70.00% 69.66%
RENCO CONGO SARLU
CONGOAFRICAN FRANC
10,000,000 RENCO S.P.A. 100.00% 99.51%
RENCO CONGO VALORE
CONGOAFRICAN FRANC
611,910,337RENCO REAL ESTATE S.R.L.
100.00% 99.51%
112
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ Renco Group Spa
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL
SHAREHOL-DERS SHARE PROP. SHARE CONS.
ITALSEC CONGO
CONGOAFRICAN FRANC
10,000,000 ITALSEC S.R.L. 100.00% 89.56%
ANGORENCO LDA
ANGOLAREADJUSTADO KWANZA
750,000RENCO GROUP S.P.A.
1.00% 99.52%
RENCO S.P.A. 99.00% 99.52%
RENCO MAR MOROCCOMOROCCAN DIRHAM
1,000,000 RENCO S.P.A. 97.00% 96.53%
RENCO ENERGIES SA
MOROCCOMOROCCAN DIRHAM
300,000 RENCO MAR 59.70% 57.63%
RENCO ALGERIA
ALGERIAALGERIAN DINAR
1,000,000 RENCO S.P.A. 100.00% 99.51%
BAYTREE LLCUNITED STATES OF AMERICA
US DOLLAR 12,482 BAYTREE 100.00% 99.51%
RENCO CANADA
CANADACANADIAN DOLLAR
100 RENCO S.P.A. 100.00% 99.51%
List of companies included in consolidation using the net equity method in accordance with Art. 26 of
Italian Legislative Decree 127/91 as of 31/12/2019
COMPANY NAME
REGISTERED OFFICE CURRENCY
SHARE CAPITAL
SHAREHOL-DERS SHARE PROP. SHARE CONS.
ARMPOWER CJSC
ARMENIA DRAM 24,156,540,000RENCO POWER CJSC
60.00% 59.71%
RENCO FOOD S.R.L.
ITALY EUROS 100,000 RENCO S.P.A. 100.00% 99.51%
Chairman of the Board of Directors:
Giovanni Gasparini
113
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
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 9
List of companies included in consolidation using the proportional method in accordance with Art. 37 of Italian Legislative Decree 127/91 as of 31/12/2019
COMPANY NAME
REGISTERED OFFICE SHARE CAPITAL SHAREHOLDERS SHARE PROP. SHARE CONS.
Currency Amount % %
TERNA GREECE JV
GREECE EUROS 0 RENCO S.P.A. 50.000 50.000
114
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ 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 9
List of other equity investments in subsidiary companies (not consolidated) and associated companies
COMPANY NAMEREGISTERED OFFICE CURRENCY SHARE CAPITAL SHAREHOLDERS
SHARE PROP.
SHARE CONS.
VELOFIRMA (1) ARMENIA DRAM 4,100,000NUOVO VELODROMO
58.00% 57.72%
CONSORZIO STABILE RENCO LANCIA GAMMA (2)
ITALY EUROS 100,000 RENCO S.P.A. 71.00% 70.65%
RENCO FOUNDATION (2)
ITALY EUROS 104,537 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%
REAL ESTATE MANAGEMENT S.R.L.
ITALY EUROS 10,000RENCO REAL ESTATE S.R.L.
30.00% 29.85%
SALINELLA EOLICO S.R.L.
ITALY EUROS 10,000 RENCO S.P.A. 50.00% 49.76%
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
MOZAMBIQUE METICAL 100,000 REAL MOZ 50.00% 49.76%
PEMBA BULK TERMINAL (2)
MOZAMBIQUE METICAL 100,000CAPO DELGADO PROPERTIES SA
80.00%
TRADEMARK ITALY LLP
KAZAKHSTANTENGE KAZAKHSTAN
240,500
RENCO S.P.A. 50.00% 49.76%
RENCO IREM CONSTRUCOES LDA
MOZAMBIQUE METICAL 10,000,000 RENCO S.P.A. 31.25% 31.10%
REASONS FOR EXCLUSION
Company exempt from consolidation since not controlled based on contractual agreements
Company excluded since insignificant
Chairman of the Board of Directors:
Giovanni Gasparini
115
Renco Group Spa ⏐ EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019
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 9
Figures are given in thousands of Euros
Statement reconciling the net result and shareholders’ equity of the consolidating company with the respective values resulting from the consolidated financial statements
The group consolidated shareholders’ equity and consolidated economic results as of 31/12/2019 are
reconciled with those of the parent company as follows:
SHAREHOLDERS’
EQUITY RESULT
Shareholders’ equity and period result as recorded in the financial year of the parent company
80,905 1,436
Effect of adjustments made in application of the accounting standards 50 41
a) Adoption of IAS 17 (70) (26)
b) Valuation of non-consolidated associated and subsidiary companies using the equity method
120 67
Elimination of the book value of consolidated investments: 93,045 9,529
a) Net effect of elimination of the book value of the consolidated shareholdings with the relative shareholders’ equity and results
32,355 3,867
b) Reversal of write-downs/revaluations of equity investments 35,231 3,805
c) Reversal of intercompany dividends, investee companies - (21,282)
d) Value of net capital gains attributions at the acquisition date of investee companies net of the related tax effect
25,459 (602)
e) Elimination of capital gains from disposal of equity net of the related tax effect - 23,742
Other consolidation entries net of the related tax effect (7,199) (2,918)
a) Elimination of intercompany profits net of the related tax effect (5,288) 9
b) Other consolidation entries net of the related tax effect (1,911) (2,927)
Consolidated shareholders’ equity and period result 166,801 8,088
Chairman of the Board of Directors
Giovanni Gasparini
116
EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31/12/2019 ⏐ 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 9
Amounts are shown in Euros.
Consolidated group statement of changes in shareholders’ equity
SH
AR
E C
AP
ITA
L
SH
AR
E P
RE
MIU
M R
ES
ER
VE
RE
VA
LU
AT
ION
RE
SE
RV
E
LE
GA
L R
ES
ER
VE
EX
TR
AO
RD
INA
RY
RE
SE
RV
E
CA
PIT
AL
CO
NT
RIB
UT
ION
S
NE
GA
TIV
E R
ES
ER
VE
FO
R T
RE
A-
SU
RY
SH
AR
ES
IN
PO
RT
FO
LIO
RE
SE
RV
E F
OR
HE
DG
ING
OP
ER
A-
TIO
NS
FO
R F
INA
NC
IAL
FL
OW
S
CO
NS
OL
IDA
TIO
N R
ES
ER
VE
TR
AN
SL
AT
ION
DIF
FE
RE
NC
ES
PR
OF
IT (
LO
SS
) C
AR
RIE
D
FO
RW
AR
D
PE
RIO
D R
ES
UL
T
TO
TA
L
MIN
OR
ITY
IN
TE
RE
ST
S
TO
TA
L S
HA
RE
HO
LD
ER
S’ E
QU
ITY
Balance as of 31.12.2017 9,013 25,988 4,802 1,168 18,058 25,026 (3,609) (591) 5,910 (25,728) 87,544 707 148,288 4,124 152,412
Allocation of net income for the year
- - - 113 2,140 - - - - - (1,546) (707) - - -
Dividends paid - - - - - - - - - - - - - (19) (19)
Fair value measurement of reserve to hedge expected financial flows
- - - - - - - 986 - - - - 986 5 991
Other changes - - (106) - - - - 3 (1,597) 1,786 965 - 1,051 108 1,159
Result for the current year
- - - - - - - - - - - 8,755 8,755 (2,655) 6,100
Balance as of 31.12.2018 9,013 25,988 4,696 1,281 20,198 25,026 (3,609) 398 4,313 (23,942) 86,963 8,755 159,080 1,563 160,643
Allocation of net income for the year
- - - 86 1,635 - - - - - 7,034 (8,755) - - 148
Dividends paid - - - - (148) - - - - - - - (148) (19) (167)
Fair value measurement of reserve to hedge expected financial flows
- - - - - - - (1,625) - - - - (1,625) (8) (1,633)
Other changes - - - - - 15 - - 1,559 (1,063) - - 361 (640) (278)
Result for the current year
- - - - - - - - - - - 8,017 8,017 71 8,088
Balance as of 31.12.2019 9,013 25,988 4,696 1,367 21,685 25,041 (3,609) (1,227) 5,872 (25,005) 93,997 8,017 165,833 967 166,801
Chairman of the Board of Directors
Giovanni Gasparini