Senza titolo-1 · 2013. 4. 17. · 1 REPORT AND ACCOUNTS 2005 INDEX Group Structure Company Boards Cembre SpA Management Report for the financial year ended December 31, 2005 - Attachments

C O S T R U Z I O N I E L E T T R O M E C C A N I C H E B R E S C I A N E

REPORT and ACCOUNTS 2 0 0 5

Cembre S.p.A.Head Office: Via Serenissima, 9, Brescia, ItalyShare Capital: EUR 8,840,000 (fully paid-up)

Registration no: 00541390175 (Commercial Register of Brescia)

This document contains translations of the officialfinancial statements and managements reports prepared

in the Italian language for the purpose of the Italian law.

1

R E P O R T A N D A C C O U N T S 2 0 0 5

INDEX

Group Structure

Company Boards

Cembre SpA Management Report for the financial year ended December 31, 2005- Attachments

Cembre SpA Financial Statements at December 31, 2005- Balance Sheet- Income Statement- Notes- Attachments- Statutory Auditors report- Auditors report

Cembre Group Management Report for the financial year ended December 31, 2005- Attachment

Consolidated Financial Statements at December 31, 2005- Consolidated Balance Sheet- Consolidated Income Statement- Consolidated Statement of Cash Flows- Statement of changes in the Consolidated Shareholders' Equity- Notes- Attachments- Statutory Auditors report- Auditors report

Abstract of Shareholders General Meeting resolutions

12

18

19

31

69

75

120

Cembre S.p.A. Group headquarters located in Brescia, Italy

2

headqu

arters

* Source Cembre S.p.A.

to the needs of an increasingly demanding market offering high-quality products that are reliable, durable and safe. The wide product range, the capillary and efficient domestic and international

sales network and the strong focus on customer needs repre-sent the strengths of the Cembre Group and ensure a strong competi-tive advantage in a con-tinuously evolving world market.

Cembre is today the leading Italian manufacturer* and one of the largest European manufacturers of electric com-pression connectors and related installa-tion tools. The company’s extensive know-how in the field of electrical con-nectors, strong R&D acti-vity and the continuous innovation in manufactu-ring technologies and pro-duct specifications, allow Cembre to respond quickly

3

Prod

ucts

Cembre designs and manufactu-res a wide range of electrical connectors and tools for their installation. Cembre, in particu-lar, has adopted and developed a ‘com-pression’ connec-tion system that enables it to exploit the hardening pro-perties of selected metals (copper and aluminium), whereby these metals acquire greater strength and resistance when bent by force, thereby guaran-teeing the achievement of better performances by these types of connectors than would have otherwise been obtained by more conventional welding and mechanical clamping (screws and bolts) connec-tion methods.

PRODUCT RANGE

4

5

Compression connectors are characterised by lower electrical resistance and by excellent quality electrical

contact.

Installation tools used for compressing the connectors and cutting the cables enable quick instal-lation and the achievement of easy and safe optimal connections. The range of

tools includes, according to the application, mecha-nical, pneumatic, hydraulic and electrical tools.

Strate

gy

6

The Cembre Group is growing rapidly and inve-sting strongly in the deve-lopment of its product range and the consoli-dation of its sales and distribution network, seeking to increase its presence in the internatio-nal markets.

R&D activities focuse primarily on the development of new products aimed at markets with the highest growth potential such as rail transport, civil and industrial equipment. Implementation of new European Union safety regulations require the adoption of modern connection systems as those manufactured by Cembre Group. Constant attention devoted to trends in demand and the monitoring of customer satisfaction allowed Cembre to develop solutions in line with an increasingly deman-ding market, stretching the use of own technologies to a growing

number of applications.Cembre Group’s expansion of product offer was achieved by launching leading-edge tech-

nology products, including new battery powered hydraulic tools, a new range of professional mecha-nical tools, electrically insulated hydraulic tools, linked cable ter-

minals insulated with halo-gen free material, drills for wooden rail-sleepers etc.

Whole families of already existing products were moreover updated

and improved to enhance user friendliness and qualitative and performance standards.

DEVELOPMENT OF THE PRODUCT RANGE

STRATEGIES

New hydraulic,battery operated

pump

New unit for the insertionand extraction of

“Pandrol FastClip” type clipsfastening rails on

sleepers

The wide knowledge of the sector and the strong presence on the territory allowed Cembre to

identify and understand the needs of the different local markets, adapting products to the specific

require-ments in terms of quality

imposed by safety regulations in the different countries in which it operates.

The Internet site allows the company to interact with customers, provi-ding a number of services such as technical assistance, promotions, the presentation of new products and the possibility to liaise with wholesalers operating in the territory.

7

www.cembre.com

INTERNET SITE

New range of hydraulic battery operated tools

The sections "News" and"Investor Relations"in the internet site

Intern

et

Streng

thenin

g

8

Selection of our current hydraulic,

battery operated tools

Cembre made significant investments in the optimization of its manu-facturing activities and enlarging its production capacity at the Brescia, Birmingham and Bergamo facilities.In Brescia, Cembre have modern numerical control work centres as well as other equipment guaranteeing high flexibility and quality of the produc-tion. The Company has an automated warehouse and its own tinplating department which allows to reduce production time and costs, ensuring tight quality control.

The strengthening of production capacity and efficiency involved also the Birmingham plant, dedicated to the production of particular specific product lines for some markets.

General Marking Srl during the 2003 moved its operating headquarters nearby Bergamo, in a new bigger building suitable to cope with the develop-ment foreseen for the next years.

INCREASE IN PRODUCTION CAPACITY

Quali

tyQUALITYTo ensure a high quality standard, since 1990 Cembre’s Quality System has been certified by the Lloyd’s Register Quality Assurance in accordance with the ISO 9002 standard.Since 1992 the certification of the Quality System was extended also to the design process, in accordance with the ISO 9001 standard.

The activities of the Brescia head office, those of regio-nal offices in Italy and of subsidiaries in the United Kingdom, France, Spain, Norway, Germany and the United States are currently managed according to a sin-gle Quality System. In 1998, this Quality System was successfully audited for compliance with the ISO 9001 standard, following its 1994 successful

audit for certification by the Lloyd’s Register Certification regarding the design, manu-

facture and commercialisation of acces-sories for cables, electric connectors

and related equipment, and for the repair, overhaul and related recali-bration of equipment.

This ensures a high and uniform quality for the products and services

supplied by Cembre to its customers.

9

Multi-site Certificatesattesting the conformity toISO 9001-2000 standardshave been issued relating to the Group’s head office, its regional offices in Italy and its associated companies in the United Kingdom, France, Spain, Norway, Germany and the United States.

CNC Machine Department

Press and high speed press machines department

10 11

Manuf

acturing

Cembre Group’s growth has traditionally been driven by its ability to continually anticipate the evolution of the electrical connectors market, enabling it to develop new products with the highest standards in quality, reliability and safety, as well as to improve the performance of existing products.

MANUFACTURINGCembre quickly developed after its creation in 1969, until it became the leading company* in Italy specialising in the manufacture of electrical com-pression connectors and related installation tools, while gaining important market shares elsewhere in Europe, where it is now recognised as the leading crimping tools manufacturer.

Cembre is currently a group employing 463 persons, with a turnover in 2005 amounting to € 70 million.

Tin platingdepartment

* Source Cembre S.p.A.

The parent company, Cembre S.p.A., is based in Brescia where, on an area of aproximately 47,000 square meters, are the Head Office, sales offices, technical offices, Research & Development, the automated warehouse, production facilities and test laboratories.

View of insulated connectors andterminal blocks assembly department

View of the automated warehouse

10 11

MADRID

PARIS

BIRMINGHAM

MUNICH

STOKKE

BARCELONA

Group companies and branch offices

Main importers

Agents in Italy

VALENCIA

BRESCIA

12

Group

Struc

ture

GROUP STRUCTURE

Cembre España S.L.Madrid (Spain)

Cembre S.a.r.l.Paris (France)

Cembre ASStokke (Norway)

Cembre GmbHMunich (Germany)

Cembre Inc.Edison (USA)

Cembre LtdBirmingham (UK)

Cembre SpABrescia (Italy)

General Marking SrlBrescia (Italy)

The Cembre Group consists of eight companies. The parent company is based in Brescia and is the largest manufacturer of the Group. Other manufacturing companies are the UK subsidiary, based in Birmingham, and Italian subsidiary General Marking, based in Brescia and with manufacturing facilities in Bergamo. The other five subsidia-ries are all commercial companies and are based in Paris, Madrid, Stokke (Norway), Munich, and Edison (New Jersey, USA).Direct presence in important Western European countries allows the Group toeffectively reach individual markets, establishing close contact with its customers and ensuring timely and qualified technical and sales assistance.Cembre operates in Italy through a capillary distribution network, with offices and own warehouses in Milan, Turin, Padua, Bologna and Rome. Other regions in Italy are served by agents trained to provide both technical and commercial assistance and by warehouses providing fast deliveries.The sales network assists customers in the choice of the product and the maintenance of tools, optimizing efficiency and speed of delivery. It also informs management of market trends, national standards and competitors.

Cembre Group is present in the USA market through Cembre Inc. located in Edison (New Jersey).

Marketing Companies

Production Units

13

Participation situation updated to 27.03.2006

Cemb

re Ltd

Test Laboratory

Cembre Ltd is Cembre Group’s second largest manufacturing operation. Since its establishment in 1986, it has enjoyed constant growth and presently benefits from a good positioning in the market.

Cembre Ltd is located in a manufacturing centre on the north-eastern outskirts of Birmingham, England’s second largest city, in the heart of the Midlands region, recognised for its high concentration of manufacturing industries, particularly in the areas of steel and motor vehicles. It therefore provides Cembre with an excellent source of highly trained labour skilled in the advanced mechanical technologies fundamental to Cembre’s manufacturing needs. Its operations cover an area of 8,000 m2, of which 5,100 m2 are occupied by manufacturing facilities and office buildings.

Cembre Ltd is primarily focused on serving the specific needs of the United Kingdom market. In addition, its flexibility enables it to support other Group operations

Cembre LtdBirmingham

Productions Departments

14 15

Oelma Srl was acquired by Cembre in February 1999 and subsequently merged into the parent company from January 1, 2002.

Oelma’s product line consists of over 1,500 articles for industrial and civil applications.

linea

Brass terminal block and cable clamps

Polyamide, nickel plated brass and stainless steel cable glands and accessories

line

14 15

Oelm

aCable glands with increased safety

spiral

line

Gener

al Mark

ing

Manual cable marking systems

Warningand safetysigns

16

Pc-driven ink plotter marker printing system

RINGcablesys

SIGNstick-onsys

General Marking srl was recently incorporated and is a wholly-owned subsidiary of Cembre SpA. The company is active in the sector of industrial marking, manufacturing cable marking equipment and products for the marking of cables and electrical compo-nents. The company has its registered office in Brescia, has operating facilities in Calcinate (Bergamo) and a catalogue of over 12,000 articles.

“Industrial Marking Systems”

Pc-driventhermal transfer marker printing system

17

Our balance sheets are audited by

since 1989.S.p.A.

C e m b r e S. p. A. Cembre SpA Cembre Group

TURN OVER€ (millions)

CASH FLOW€ (millions)

STAFF(n°)

QUOTED ON THE ITALIAN STOCK EXCHANGE

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

4,6 5,8 7,1 8,8 10,9 11,4 14,4 16,4 18 18,5 18,4 20,5 26,7 28,7 33,5 37,8 45 50,4 56 56,9 59,9 65,3 70

0,6 0,8 1 1,4 1,8 1,7 2,2 2,4 2,6 2,3 2,5 2,8 4,5 4,1 5,8 5,5 7 7,5 7,9 7,2 7,5 8,6 10,3

107 122 128 141 142 153 172 174 176 183 183 192 214 216 285 312 353 384 417 453 468 462 463

TURN OVER € (millions)

EXPORT€ (millions)

% of turn over

CASH FLOW€ (millions)

STAFF(N°)

C e m b r e S. p. A. Group

1,5 1,7 2,2 2,1 2,3 2,9 3,7 4,4 5,8 5,9 6,2 7,2 9,3 9,4 14,7 17,3 20,8 24 27,9 29,4 30,1 34 38,8

32 28 30 23 20 24 25.7 26.8 32 32 33.7 34.8 35 32.7 44 45.6 46,2 47,7 49,8 51,7 50,3 52,1 55,4

28,4

25,8

23,2

20,7

18,1

15,5

12,9

10,3

7,7

5,20

31,0

33,6

36,2

38,7

41,3

43,9

46,5

49,1

51,6

54,2

56,8

59,4

62,0

64,6

67,2

��

69,8

72,4

��

5,2

4,1

3,1

2,1

1,0

0

6,2

7,2

8,3

��

9,3

�� 10,3

��

100115130145160175190205220235250265280295310325340355370385

��

400415430445460475

��

DevelopmentCembre has progressed and developed steadily with the dedication and respon-sible attitude of all the staff. We can look forward to the future with confidence and commitment.

18


Attachment C – Cembre SpA Management Report

Company Boards

Board of Directors

Chairman and Chief Executive Officer Carlo Rosani

Vice-Chairman and Managing Director Anna Maria Onofri

Managing Director Giovanni Rosani

Director Sara RosaniDirector Giovanni De VecchiDirector Aldo Bottini BongraniIndependent Director Mario ComanaIndependent Director Paolo Lechi di Bagnolo

Secretary of the Board

Giorgio Rota

Board of Statutory Auditors

Chairman Guido Astori

Statutory Auditor Leone ScuttiStatutory Auditor Andrea Boreatti

Alternate Auditor Maria Grazia LizziniAlternate Auditor Giorgio Astori

The above list reflects the situation at March 27, 2006.The Board of Directors and the Board of Auditors term expires with the approval of the 2005 Financial Statements. The Chairman of the Board of Directors and CEO, Mr. Carlo Rosani, acts as the Company’s legal representative, pursuant to the Company’s by-laws (art. 18). The Board of Directors conferred to the Chairman all executive management powers that may be delegated in accordance with the Law. The Board of Directors conferred to Managing Director Giovanni Rosani all the ordinary management powers not specifically reserved to it by law and exclusive powers over the organization, management and monitoring of the internal control system.In case of absence or impediment of the Chairman and of Managing Director Carlo Rosani, Vice Chair-man and Managing Director Anna Maria Onofri holds all ordinary management powers not reserved to the Board by law, with the exception of the appointment of professionals. All Managing Directors must keep the Board of Directors informed of all relevant transactions concluded in the context of their mandate. The Board of Directors has approved rules that define which particularly relevant transactions may be concluded exclusively by the same.

Cembre SpA Management Report for thefinancial year ended December 31, 2005

20


Cembre SpA Management Reportfor the financial year ended December 31, 2005

To our Shareholders:we submit to Your attention the Financial Statements for the year ended December 31, 2005, in which Cembre SpA reported net profits of €4,867,280. In the present Report we summarise the most significant events and transactions that occurred in the year and describe our Company’s expectations for 2006.Sales of Cembre Spa grew, particularly abroad, where market conditions are better than in the do-mestic market which however showed signs of a recovery in the latter part of the year, allowing the Company to close the year reporting sales in line with 2004. The growth in sales was helped by the steady renewal of the product range and by new products developed by our technical department that allow us to remain competitive and to respond more effectively to the needs of our customers.

Sales by geographical area:

(€’000) 2005 2004

Italy 31,312 31,147

Rest of Europe 17,668 15,743

Rest of the World 4,681 4,225

Total 53,661 51,115

Sales revenues grew by 5.0% from €51,115 thousand in 2004 to €53,661 thousand in 2005 due mainly to a 12.2% growth in sales in other European countries and a 10.8% increase in sales in the rest of the World.

The largest distribution channel continues to be that of electrical supplies wholesalers, accounting both in Italy and abroad to about 60% of overall sales.

To provide a better understanding of the Company’s financial performance for 2005, an Income Statement at December 31, 2005 and a Statement of Cash Flows for 2005 are enclosed respectively as Attachments A and B.

21


21

Net profit for 2004 was affected by nonrecurring €2.9 million positive component due to the elimina-tion of tax-related entries on accelerated depreciation charges. Net of such extraordinary component, net profit for 2004 amounts to €3 million, as compared with a net profit for 2005 of €4.8 million, up 59.6% on comparable terms.

Gross operating profit (EBITDA) amounts to €11,662 thousand, representing a 21.7% margin on sales, up 9.7% on the previous year when it amounted to €10,629 thousand, representing a 20.8% margin on sales. The increase is due to the growth in the overall margin, up from €24,825 thousand (representing a 48.6% margin on sales) to €25,749 thousand (equal to a 48% margin on sales), in addition to the lower weight of personnel costs, declining from 26.9% to 25.9% of sales, and to lower accruals for risks, down from €355 thousand in 2004 to €15 thousand in 2005.

Operating profit (EBIT) grew from €7,424 thousand, representing a 14.5% margin on sales, to €9,025 thousand, representing a 16.8% margin on sales.

The positive balance between financial income and expense, amounting to €321 thousand, up from €261 thousand in 2004, is due to the decline in financial charges and more favourable foreign-exchange rates.

Despite the €551 use of provisions for risks and charges, sources of funds remain high at €7,766 thou-sand, and consist prevalently of funds generated internally, amounting to €8,151 thousand. Uses of funds amounted to €4,793 thousand and include primarily capital increases of subsidiaries, amounting to €1,108 thousand, the payment of €1,698 thousand in dividends, and capital expenditure on fixed assets amounting to €1,253 thousand.

Net financial position:

2005 2004

Cash and short-term financial receivables 3,109,815 4,737,822

Short-term bank debt (291,753) (3,040,942)

Marketable securities 0 291,052

Net financial position 2,818,062 1,987,932

In 2005 the company’s financial position remained positive at €2.82 million. The positive performance is due to the good operating result that generated an increase in the cash flow, coupled with a stable capital expenditure on fixed assets, up slightly from €0.9 million in 2004 to €1.3 million in 2005.

22


Revenues by subsidiary:

Currency Sales Net profit (loss)

2005 2004 2005 2004

Cembre Ltd. (GB) Euro 11,638,004 10,391,598 611,587 639,317

Cembre S.a.r.l. (F) Euro 5,257,476 4,416,880 255,268 288,467

Cembre España S.L. Euro 7,856,861 6,614,180 499,420 188,120

Cembre AS (NOR) Euro 454,314 364,060 37,590 8,756

Cembre GmbH (D) Euro 3,447,402 3,272,249 81,831 67,599

Cembre Inc (Usa) Euro 2,985,559 2,178,716 351,820 115,376

General Marking srl (Ita) Euro 1,294,682 1,148,062 (431,648) (1,036,435)

For a more direct evaluation of the effect of foreign exchange translation, we include below sales figures of companies operating outside the euro area in the respective currency:

Currency Sales Net profit (loss)

2005 2004 2005 2004

Cembre Ltd. (GB) Lst 7,958,023 7,051,232 418,201 433,886

Cembre AS (NOR) Nok 3,638,702 3,047,084 301,069 73,282

Cembre Inc (Usa) Us$ 3,714,306 2,710,105 437,696 143,516

Average exchange rates applied in the translation of the above amounts were:

Currency 2005 2004

British Pound 0,6838 0,6787

US dollar 1,2441 1,2439

Norway Kroner 8,0092 8,3697

Despite a significant improvement on the previous year, General Marking, closed 2005 reporting a loss. An improvement is however expected in the next year. Key financial data obtained from subsidiaries’ last Balance Sheets and Income Statements is included in a table attached to the Notes to the Financial Statements, in accordance with Article 2429 of the Italian Civil Code.

23


ADOPTION OF INTERNATIONAL ACCOUNTING PRINCIPLES (IAS/IFRS)

The Cembre Group adopted IAS/IFRS in the preparation of its consolidated financial statements starting from the 2005 Half-year Report. The parent company opted instead to continue to apply Italian GAAP for the current year, postponing the adoption of IAS/IFRS to 2006, in which their adoption becomes mandatory.

Capital expenditure

In 2005, capital expenditure on fixed assets, gross of depreciation and disposals, amounted to about €1.3 million, as compared with €0.9 million in 2004. Expenditure consisted primarily of investments in plant and machinery, amounting to about €0.6 million, and industrial equipment, amounting to about €0.1 million.

Research & Development

In 2005 Research and Development activities focused in the field of cable terminals, railroad equi-pment, cable glands, hydraulic tools, and cable marking. Research costs were not capitalized, while development costs were instead capitalized. Research activities and projects launched or carried out in the year consist in:- the widening of the product range included in the catalogue with the introduction of new innovative

products until now not available on the market;- the improvement of technologies and the efficiency of the production process;- the enhancement of the company’s presence on foreign markets.

Activities focused on the continuation and completion of projects started in the previous year, and the launch of a new project for the development of innovative products in line with new market trends, in addition to the development of innovative processes.Research costs for the year included €355,377 of personnel costs, €8,145 relating to instruments and equipment, and €59,128 of costs relating to technical advice and the acquisition of know-how. Development costs in the year included €92,074 of personnel costs.

A description of Research and Development activities by sector is included in the section that fol-lows.

Research projects in the field of cable terminals

Work continued on the study and development of a new range of cable terminals and a new cutting machine to produce connectors from metal profile.

Railroad Equipment Research projectsA number of projects in this field were launched or developed further. These include: - a new foreign market version of a railtrack maintenance machine; - connectors for the maintenance of catenary (wires) supplying power to locomotives through pan-

tographs; - a new series of products for the mechanical and electrical connection to railtracks.

Cable glands Research projects

Development of the metric cable glands range continued with the design and manufacturing of the related dies, the development of brass and stainless steel cable glands and the study of the production process and manufacturing of dies and inserts for related components.

24


Hydraulic Tools research projects

The following studies were undertaken in 2005:- new battery-operated tool for the compression of connectors that may be used for different types of

dies for the US market;- a hydraulic head for the compression of connectors;- a battery-operated oil-pressure engine;- a new small-size battery-operated hydraulic tool.

Cable marking research projects

The development of the following products and the related dies for their manufacturing started: - a system for the labelling of pole terminal blocks consisting of labels and related supports;- a new label-marking heat tranfer system.

Relationships with subsidiaries, parent companies and related parties

Transactions concluded between Cembre SpA and its subsidiaries in 2005 were exclusively of a com-mercial nature and are summarized in the table below:

(€) Receivables Payables Revenues Expenses

Cembre Ltd. 1,119,335 25,639 4,939,817 119,966

Cembre S.a.r.l. 252,626 2,190 2,275,203 7,727

Cembre España S.L. 2,374,071 2,121 3,832,954 2,581

Cembre AS 94,564 0 194,889 0

Cembre GmbH 571,097 2,583 1,751,042 35,152

Cembre Inc 704,462 82 1,459,845 138,258

General Marking srl 37,524 163,155 247,555 709,197

TOTAL 5,153,679 195,770 14,701,305 1,012,882

Cembre S.p.A. issued guarantees for loans extended to Cembre Inc. and General Marking, amounting respectively to €169,535 and €2,200,000.Parent company Cembre SpA leased an industrial building to subsidiary General Marking. Lease pay-ments for the building amounted in 2005 to €93 thousand. Among assets leased to Cembre SpA by third parties are an industrial building adjacent to the Company’s registered office measuring a total of 5,960 square meters on three floors, in addition to the Milan, Padua and Bologna sales offices owned by company Tha Immobiliare SpA, with registered office in Bergamo, owned by Anna Maria Onofri, Giovanni Rosani and Sara Rosani. Lease payments for 2005 amount to €327 thousand for the building adjacent to the Company’s head office, €59 thousand for the Sesto S. Giovanni (Milan) office, €49 thousand for the Selvazzano (Padua) office, and €42 thousand for the Bologna office. Rent received is in line with market conditions. It is in the Company’s interest to benefit from the continuity of office space reducing the risk of early termination of leases.With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities.Cembre S.p.A. does not have direct relationships with its parent company Lysne S.p.A. of any other nature than that of the exercise of shareholders’ rights on the part of the parent. Lysne S.p.A. does not carry out any management or coordination activity with respect to Cembre S.p.A.

25


Own shares

All of Cembre SpA’s own shares were sold in the course of 2005. The sale on the market generated revenues amounting to €68 thousand, recorded in the Income Statement among financial income.At year-end Cembre SpA had not acquired, disposed of or owned directly or indirectly through subsidiary companies, trust companies or intermediaries, shares or holdings in companies having a controlling share in the Company.

Risk management and financial instruments

Cembre S.p.A. does not make significant use of derivative instruments to hedge against interest risk and currency exposure. The sole contract in which the Company is currently a counterpart is an interest rate swap having a nominal value of €2.5 million, a final settlement date of July 2006, and an annual rate of interest recognized to the counterpart of 2.81%, against the recognition from the latter of a floating interest rate equal to the 3-month Euribor rate. The hedging instrument was originally entered into to reduce the risk connected with a €2.5 million floating-rate loan. In November 2004 the loan was repaid in full, while the Company opted not to reverse the hedging contract, which must therefore no longer be considered as a hedging instrument, but as a speculative one.

Interest rate risk

Cembre S.p.A. normally stipulates floating rate loan contracts. To hedge against exposure to interest rate fluctuations (cash flow hedge) the company enters into interest rate swap transactions.At December 31, 2005, all existing loans had been repaid in full.

Currency risk

Despite a strong international presence, Cembre S.p.A. does not have a significant exposure to currency risk (on an operating or equity basis), as it operates mainly in the euro area, the currency in which its trade transactions are mainly denominated.The size of transactions involving foreign currencies is not significant in influencing the overall perfor-mance of the Company.

Liquidity risk

As shown by the low recourse to outside financing sources, the exposure of the Group to liquidity risk is not material.

Credit risk

Exposure to credit risk relates exclusively to trade receivables.None of the areas in which the Company operates poses relevant credit risks.Operating procedures limit the sale of products or services to customers who do not possess an adequate credit profile or provide guarantees.

Price risk

The exposure of the Company to price risk is minimal and relates exclusively to market conditions.The book value of financial instruments is in line with their fair market value, as for the most part they have short-term maturities.

Handling of personal information

Cembre S.p.A. (responsible for the handling of personal information) drafted a Privacy Plan through

26


its Director for the Handling of Private Information.

Subsequent events

No event having significant effects on Cembre’s assets or financial performance occurred after the closing of the financial year.

Outlook

The company expects a growth in activity in 2006, both in the domestic market and foreign markets. Profit levels are expected to remain positive.

Secondary offices

The Company has no secondary registered office.

Proposal for the Allocation of the Company’s Net Profit for the 2005 financial year

In order to complete the Company’s planned investments and benefit from self-financed growth, it is advisable that at least a portion of net profit generated be retained. In seeking the approval for our actions by submitting to you the present Financial Statements and Management Report, we also invite you to approve our proposed allocation of net profit for 2005, amounting to €4,867,279.70 (rounded off to €4,867,280) as follows:

- €104,986.93, to the legal reserve that thus reaches 20% of the share capital;

- €0.15 to be distributed to each of the Company’s 17,000,000 shares entitled to dividends, for a total of €2,550,000, payable from May 25, 2006, and an ex-dividend date of May 22, 2006;

- €14,504.38 to the reserve for gains on currency translation;

- the remainder, amounting to €2,197,788.39, to the extraordinary reserve.

Attachments

This Management Report includes four Attachments:Attachment A Reclassified Income Statement of Cembre SpA for the year ended December 31, 2005;Attachment B Statement of Cash Flows of Cembre SpA for the year ended December 31, 2005;Attachment C Company Boards;Attachment D Company shares held by Board Members.

Brescia, March 27, 2006 CHAIRMAN OF THE BOARD OF DIRECTORS CARLO ROSANI

27


ATTACHMENT A - CEMBRE SPA FINANCIAL STATEMENTS

RECLASSIFIED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005

(€) 2005 % 2004 %

Sales 53,660,849 100 51,114,666 100

Other revenues and gains 128,103 116,782

TOTAL REVENUES 53,788,952 51,231,448

Change in work in progress, semi-finished and finished goods inventories: (1,028,892) (1.92) 231,997 0.45

Increase in assets due to internal construction 507,530 0.95 344,636 0.67

TOTAL OPERATING VALUE 53,267,590 99.27 51,808,081 101,36

Materials and services used (27,317,341) (50.91) (26,798,138) (52.43)

Other operating costs (201,529) (0.38) (185,313) (0.36)

VALUE ADDED 25,748,720 47.98 24,824,630 48.57

Personnel costs (13,872,408) (25.85) (13,748,404) (26.90)

Write-down of current receivables and short-term investments (199,501) (0.37) (92,134) (0.18)

Accruals to risk provisions (14,915) (0.03) (355,424) (0.70)

GROSS OPERATING MARGIN (EBITDA) 11,661,896 21.73 10,628,668 20.79

Intangible asset amortization (163,146) (0.30) (162,578) (0.32)

Tangible asset depreciation (2,473,834) (4.61) (3,041,815) (5.95)

OPERATING PROFIT (EBIT) 9,024,916 16.82 7,424,275 14.52

Financial income (expense) 321,131 0.60 (260,774) (0.51)

PROFIT BEFORE EXTRAORDINARY ITEMS 9,346,047 17.42 7,163,502 14.01

Extraordinary items and adjustments to the value of financial assets (NOTE 1) (578,050) (1.08) 2,039,471 3.99

PROFIT BEFORE TAXES 8,767,997 16.34 9,202,973 18.00

Income taxes (3,900,717) (7.27) (3,271,615) (6.40)

NET PROFIT 4,867,280 9.07 5,931,357 11.60

CASH FLOW (net profit plus depreciation and amortization) 7,504,260 13.98 6,202,857 12.14

NOTE 1: the elimination of tax related items in 2004 resulted in extraordinary gains amounting to €4,673,933 and extraordinary charges amounting to €1,741,040, resulting in a positive net effect equal to €2,932,893.

28


ATTACHMENT B - CEMBRE SPA FINANCIAL STATEMENTSSTATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2005

(€)SOURCES OF FUNDS: 2005 2004Net profit 4,867,280 5,931,357 Adjustments for items not having an impact on cash flow: Fixed asset depreciation 2,636,980 3,204,393 Employee severance indemnity 646,261 659,919 Cash flow generated by operating activities 8,150,521 9,795,669 Net book value of assets sold 114,648 81,947 New loans - - Decline in long-term receivables 52,491 565,083 Change in provisions for risks and charges (551,296) 1,554,136 TOTAL SOURCES OF FUNDS 7,766,364 11,996,836

USES OF FUNDS:Increase in intangible assets 137,719 84,721 Acquisition of tangible assets 1,252,796 938,155 Increase in long-term receivables - - Increase in investments 1,108,423 1,263,904 Transfer of current portion of long-term debt - 645,500 Payment of employee termination indemnities 596,018 375,364 Dividends paid 1,698,000 1,223,261 TOTAL USES OF FUNDS 4,792,956 4,530,905

Non-cash changes in balance sheet items:a) Reduction in provision for depreciation as a result of recalculation of depreciation based exclusively on ordinary rates (elimination of tax-related items) - 4,673,933 b) Elimination of accumulated depreciation on land 86,083 - INCREASE (DECREASE) IN WORKING CAPITAL 2,887,324 2,791,998

CHANGES IN WORKING CAPITAL:Current assets: Cash and banks (1,628,007) 2,091,939 Short-term financial assets (291,052) (297,178) Trade receivables 1,432,266 559,551 Other receivables 57,803 144,034 Inventories (843,602) (170,485) Accrued income and prepaid expenses (8,413) 14,763 (1,281,005) 2,342,623 Current liabilities:Bank overdrafts (2,749,189) (2,711,562)Trade payables (955,569) 1,058,858 Taxes and Social Security payables (514,229) 1,192,796 Other payables 73,696 2,087 Accrued expenses and deferred income (23,037) 8,447 (4,168,329) (449,374)

CHANGES IN WORKING CAPITAL 2,887,324 2,791,998

29


AT

TA

CH

ME

NT

D -

CE

MB

RE

SPA

MA

NA

GE

ME

NT

RE

PO

RT

C

OM

PAN

Y S

HA

RES

HEL

D B

Y B

OA

RD

MEM

BER

S

C

OM

PAN

Y SH

AR

ES H

ELD

SH

AR

ES

SHA

RES

SH

AR

ES H

ELD

O

WN

ERSH

IP

OW

NER

SHIP

AT D

EC. 3

1, 2

004

PUR

CH

ASE

D

SOLD

AT

DEC

. 31,

200

5 R

IGH

TS

MET

HO

D

Car

lo R

osan

i C

embr

e Sp

A

1,04

0,00

0

1,

040,

000

full

dire

ctly

Ann

a M

aria

Ono

fri

Cem

bre

SpA

90

0,09

6

90

0,09

6 fu

ll di

rect

ly

Gio

vann

i Ros

ani

Cem

bre

SpA

54

0,00

0

54

0,00

0 fu

ll di

rect

ly

Sara

Ros

ani

Cem

bre

SpA

56

0,00

0

56

0,00

0 fu

ll di

rect

ly

Lysn

e S.

p.A

. (1)

C

embr

e Sp

A

9,07

2,89

2

(13,

000)

9,

059,

892

full

dire

ctly

Gio

vann

i De

Vec

chi

Cem

bre

SpA

30

0,00

0

(20,

000)

28

0,00

0 fu

ll di

rect

ly

Ald

o B

ottin

i Bon

gran

i C

embr

e Sp

A

360,

000

360,

000

full

dire

ctly

Mar

io C

oman

a C

embr

e Sp

A

5,00

0 5,

000

10

,000

fu

ll di

rect

ly

And

rea

Bor

eatt

i C

embr

e Sp

A

1,50

0

1,

500

full

dire

ctly

Stat

utor

y A

udit

ors a

nd D

irec

tors

not

list

ed a

bove

did

not

hol

d C

embr

e Sp

A sh

ares

at D

ecem

ber 3

1, 2

004

and

did

not a

cqui

re C

embr

e Sp

A sh

ares

in 2

005.

(1)

The

shar

e ca

pita

l of L

ysne

S.p

.A.,

Cem

bre

S.p.

A.’s

par

ent c

ompa

ny, i

s hel

d by

Ann

a M

aria

Ono

fri,

Gio

vann

i Ros

ani a

nd S

ara

Ros

ani.

Cembre S.p.A. Financial Statementsat December 31, 2005

32


Cembre S.p.A. Financial Statementsat December 31, 2005

Balance SheetAssets (€) Dec. 31, 2005 Dec. 31, 2004

A) Capital not paid-in - -

B) Fixed assets

I - Intangible assets

2) Research and development costs and advertising expenses 106,165 43,341

3) Industrial patents

and intellectual property rights 38,447 50,650

7) Other 608,758 684,807

Total 753,370 778,798

II - Tangible assets

1) Land and buildings 7,774,664 7,949,591

2) Plant and machinery 4,281,029 5,177,733

3) Equipment 423,450 641,366

4) Other assets 732,802 853,970

5) Work in progress and advances 253,399 92,286

Total 13,465,344 14,714,946

III - Financial assets

1) Investments in:

a) subsidiaries 8,115,406 7,006,983

d) other companies 5,224 5,224

2) Receivables

d) from others

- long-term 10,106 54,890

Total 8,130,736 7,067,097

Total fixed assets 22,349,450 22,560,841

33


C) Current assets Dec. 31, 2005 Dec. 31, 2004

I - Inventories1) Raw materials 3,645,231 3,459,940 2) Work in progress and semi-finished goods 4,758,886 4,626,887 4) Finished goods 5,177,038 6,337,929 Total 13,581,155 14,424,757

II - Receivables1) Trade 14,310,271 12,948,869 2) From subsidiaries 5,153,679 5,082,815 4-bis) Taxes receivables 16,346 16,257 4-ter) Deferred tax assets - short-term 414,727 356,069- long-term 69,273 76,979 Total 484,000 433,048 5) From others- short-term 57,132 58,076 Total receivables 20,021,428 18,539,065

III - Marketable securities5) Own shares (par value�€52,000) - 291,052

IV - Cash and cash equivalents 1) Bank deposits 3,108,799 4,727,449 3) Cash 1,016 10,372 Total cash and cash equivalents 3,109,815 4,737,822

Total current assets 36,712,398 37,992,695

D) Accrued income and prepaid expenses 31,429 39,842

Total assets 59,093,277 60,593,379

34


Liabilities and Shareholders’ Equity Dec. 31, 2005 Dec. 31, 2004

A) Shareholders’ EquityI - Share capital 8,840,000 8,840,000 II - Paid-in capital in excess of par value 12,244,869 12,244,869 III - Revaluation reserve 585,159 585,159 IV - Legal reserve 1,663,013 1,366,445 V - Reserve for own shares - 291,052 VI - Statutory reserves - - VII - Other reserves: Provisions for suspended tax reserves 68,412 68,412 Extraordinary reserve 15,318,482 11,090,640 VIII - Retained earnings - - IX - Net profit 4,867,280 5,931,357 Total Shareholders’ Equity 43,587,215 40,417,935

B) Provision for risks and charges2) Deferred Income taxes 1,352,264 1,566,0743) Other 301,626 639,112 Total provisions for risks and charges 1,653,890 2,205,186

C) Employee termination indemnities 3,855,800 3,805,556

D) Payables4) Bank loans - short-term 291,753 3,040,942 6) Advances 1,907 20,373 7) Trade payables 5,889,641 6,598,245 9) Payables to subsidiaries 195,770 424,270 12) Taxes payable 1,024,349 1,575,388 13) Social security payables 932,406 895,596 14) Other payables 1,660,546 1,586,850 Total payables 9,996,372 14,141,664

E) Accrued expenses and deferred income - 23,037

Total liabilities and Shareholders’ Equity 59,093,277 60,593,379

Commitments

2) Guarantees given 2,475,458 5,539,989 of which in favor of subsidiaries 2,369,535 5,478,132 3) Guarantees received 19,821 19,821

35


Income Statement(€) full year 2005 full year 2004

A) Revenues1) Sales 53,660,849 51,114,666 2) Change in work in progress, semi-finished and finished goods inventories (1,028,892) 231,997 4) Increase in assets due to internal construction 507,530 344,636 5) Other revenues: a) sundry 128,103 104,267 b) contributions received - 12,515 Total operating value 53,267,590 51,808,081

B) Operating costs6) Raw materials (19,504,095) (18,502,227)

7) Services (7,278,705) (7,195,051)

8) Leases and rentals (719,832) (698,378)

9) Personnel

a) Wages and salaries (9,969,071) (9,920,193)

b) Social security (3,137,499) (3,066,704)

c) Employee severance indemnities (714,521) (712,495)

d) Retirement benefits (6,090) (5,414)

e) Other costs (45,227) (43,599)

Total personnel costs (13,872,408) (13,748,404)

10) Depreciation and write-downs

a) Amortization of intangible assets (163,146) (162,578)

b) Depreciation of tangible assets (2,473,834) (3,041,815)

d) Write-down in the value off current assets (199,501) (92,134)

Total depreciation and write-downs (2,836,481) (3,296,527)

11) Change in raw material inventories 185,291 (402,482)

12) Accruals to risk provisions (14,915) (355,424)

14) Other operating costs (201,529) (185,313)

Total operating costs (44,242,674) (44,383,806)

Operating profit (A-B) 9,024,916 7,424,275

36


C) Financial income and expense full year 2005 full year 200416) Other financial income: c) marketable securities (excluding subsidiaries) 68,152 83,974 d) other income 56,905 20,563 17) Interest and other financial charges (57,219) (191,873)17-bis) Foreign exchange gains and losses 253,293 (173,437)Total 321,131 (260,774)

D) Adjustments to the value of financial assets18) Revaluations b) of long-term financial assets - 1,147 c) of marketable securities - 48,982 19) Write-downs a) Investments in subsidiaries (431,648) (692,637)Total adjustments to the value of financial assets (431,648) (642,507)

E) Extraordinary items20) Gains (note 1) 119,280 4,705,228 21) Losses (note 2) (265,682) (2,023,250)Total extraordinary items (146,402) 2,681,978

Profit before taxes (A-B+C+D+E) 8,767,997 9,202,973

22) Income taxes a) current (4,165,480) (3,634,359) b) deferred and prepaid 264,763 362,744 Total income taxes (3,900,717) (3,271,615) 23) Net profit 4,867,280 5,931,357

Brescia, March 27, 2006

CHAIRMAN OF THE BOARD OF DIRECTORS CARLO ROSANI

note 1: the elimination of tax related items in 2004 resulted in extraordinary gains amounting to €4,673,933 note 2: the elimination of tax related items in 2004 resulted in extraordinary charges amounting to €1,741,040

37


Notes to the Financial Statements of Cembre SpAat December 31, 2005

Foreword

To our Shareholders:before commenting upon individual Balance Sheet and Income Statement items for the year ended December 31, 2005, pursuant to Article 2427 of the Italian Civil Code, we illustrate the accounting policies and methods used in the preparation of the Financial Statements.

Valuation principles and methods

The financial statements of Cembre SpA are consistent with provisions contained in Articles 2423 and fol-lowing of the Italian Civil Code. The following criteria were applied in their preparation:- items are valued according to prudent criteria and on the basis of an ongoing concern;- revenues and expenses are recorded under the accrual method;- risks and losses are charged to the year also when their existence becomes known after the date of the financial

statements;- revenues and gains are recorded only when realized at the date of the financial statements, in accordance with

prudent principles;- no exceptional case requiring recourse to exemptions contained in Article 2423 paragraph 4 and Article 2423

bis, paragraph 2 of the Italian Civil Code occurred;- no item of the Balance Sheet or Income Statement was reclassified;- no asset or liability item appears more than once in the Balance Sheet;- amounts recorded in the Financial Statements are consistent with those reported for the previous year. Where

necessary for comparative purposes, figures for the previous year were reclassifiedValuation criteria and methods used are in accordance with those set in Article 2426 of the Italian Civil Code, and consistent with those adopted in the previous financial year.Valuation criteria adopted in the preparation of the Financial Statements are described in the section that follows.

Intangible assets

Intangible assets are recorded at cost, net of amortization calculated on a straight-line basis over their expected useful economic life.

Tangible assets

Tangible assets are recorded at their acquisition or production cost which includes all related costs directly attributable to the assets, all revaluations pursuant to Laws no. 576 of December 2, 1975 and no. 72 of March 19, 1983, and all other revaluations pursuant to Law no. 413 of December 30, 1991, carried out pursuant to applicable regulations, up to their related fair market values.Tangible assets are depreciated on straight-line basis over the expected useful life of the assets, taking into account their residual values.Ordinary maintenance costs are charged to the Income Statement for the year in which they are incurred. Extraordinary maintenance expenses are attributed to the asset to which they relate and are depreciated over the residual useful life of the same.

Investments

Investments in subsidiaries are recorded at the acquisition or underwriting cost, adjusted where necessary for permanent losses in value. Consolidated financial statements have been prepared in accordance with Legislative Decree no. 127, April 9, 1991.

InventoriesInventories are valued at the lower of acquisition or production cost and their expected realisable value, equal

38


to their market value. Raw materials, semi-finished and finished goods inventories are valued using the annual LIFO method. Work in progress inventories are valued at their processing cost, inclusive of raw materials, labour, direct and indirect manufacturing costs, taking into account percentage of completion.

Receivables and Payables

Receivables are recorded at their expected realizable value, taking into account the solvency of debtors, the credit term, litigation in process and guarantees received.The expected realisable value is represented by the difference between the face value of receivables and the amount accrued to the provision for doubtful accounts, deducted from the amount of trade receivables whenever appropriate.Payables are recorded at face value, representative of the value of liabilities accrued.Tax liabilities are based on realistic estimates reflecting the tax expense for the year, adjusted for prepaid and withholding taxes paid. Tax credits are recorded only where there exists reasonable certainty that sufficient taxable income will be generated in future years to cover future tax deductions.Payables and receivables denominated in currencies other than the euro are recorded at the exchange rate at the time of the transaction and translated into euro at the exchange rate at the closing date of the financial statements. Exchange rate gains and losses are credited or debited to the Income Statement.

Marketable securities

Marketable securities are recorded at the lower of cost - represented by the weighted average acquisition cost - and market value. Write-downs are reversed whenever the impairment in value ceases to exist.

Provisions for risks and charges

Provisions for risks and charges are accrued against known or probable liabilities whose amount and timing could not be determined at the date of their recording. Deferred taxes payable, recorded in the related provision, represent taxes payable in future years generated by timing differences.

Provision for employee termination indemnities

The provision for employee termination indemnities reflects the amount owed by the Company at the end of the year to its employees upon termination of their employment, in accordance with labour agreements and laws applicable in Italy. The amount accrued in the year reflects liabilities accrued at year-end.

Accrued income and prepaid expenses, accrued expenses and deferred income

These are determined based on the accrual method.

Income taxes

Current, deferred and prepaid taxes are determined according to applicable tax rates and expected taxable income, keeping into account tax facilitations provided by current regulations.

Revenues and expenses

Revenues for the sale of products are recognized at the time title is transferred, normally identifiable with the delivery or shipping of the goods. Financial revenues are recognized based on the accrual method. Revenues and expenses are reported in accordance with prudent criteria and based on the accrual method. Revenues and expenses, costs and charges are recorded net of returns, discounts, allowances and bonuses.

Commitments

These represent guarantees given to and received from others and commitments made. Guarantees are recorded at face value.

39


Assets

B) NON-CURRENT ASSETS

I - Intangible assets

Balance at Dec. 31, 2005 € 753,370Balance at Dec. 31, 2004 € 778,798

Change € (25,428)

Book value at Increases Amortization Book value at Dec. 31, 2004 expense Dec. 31, 2005

R&D and advertising costs 43,341 92,074 (29,250) 106,165

Industrial patents and intellectual 50,650 45,644 (57,847) 38,447 property rights

Other 684,807 0 (76,049) 608,758

778,798 137,718 (163,146) 753,370

The book value at the beginning of the year is made up as follows:

Gross book Accumulated Net book value value amortisation R&D and advertising costs

54,176 (10,835) 43,341

Industrial patents and intellectual 209,101 (158,451) 50,650 property rights Other 836,256 (151,449) 684,807

1,099,533 (320,735) 778,798

Development costs relate to the widening of the product range with the development of new pro-ducts.Industrial patents and intellectual property rights consist exclusively of open-ended software licen-ses.Other assets are represented by capitalized costs incurred in work relating to a leased industrial building adjacent to the Brescia main complex to adapt it to the specific production needs of the Company.

40


Intangible assets are amortised systematically. Development costs are amortized over 5 years, software licenses over 3 years, while leasehold improvements are expensed over the residual term of the lease contract.

II - Tangible assets

Balance at Dec. 31, 2005 € 13,465,344Balance at Dec. 31, 2004 € 14,714,946

Change € (1,249,602)

1) Land and buildings

(€)

Historical cost 10,532,082Revaluation 935,661Elimination of tax-related entries 385,360less: accumulated depreciation (3,903,512)

Balance at Dec. 31, 2004 7,949,591

Elimination of depreciation on land 86,083Uses of provision for depreciation 0Increases 0Depreciation expense (261,010)

Balance at Dec. 31, 2005 7,774,664

In the year, the value of land was separated from that of buildings insisting on it that were purchased together. This resulted in a €86 thousand reversal of depreciation accruals made in the past on the value of land, recording such amount among extraordinary gains.

2) Plant and machinery

(€)

Historical cost 23,394,121Revaluation 131,770Elimination of tax-related entries 3,202,409less: accumulated depreciation (21,550,567)

Balance at Dec. 31, 2004 5,177,733

Increases 643,296Decreases (174,463)Uses of provision for depreciation 168,291Depreciation expense (1,533,828)

Balance at Dec. 31, 2005 4,281,029

Capital expenditure in the year includes mainly internal construction of equipment, amounting to €355 thousand, and internal construction of plant, amounting to €41 thousand. Decreases consist of disposals and equipment decommissioned in the year that did not involve the recording of significant gains or losses.

41


3) Industrial and commercial equipment

(€)

Historical cost 4,550,602Elimination of tax-related entries 525,881less: accumulated depreciation (4,435,117)

Balance at Dec. 31, 2004 641,366

Increases 126,479Decreases (15,235)Uses of provision for depreciation 15,235Depreciation expense (344,395)

Balance at Dec. 31, 2005 423,450

Capital expenditure on equipment relates almost exclusively to the manufacture and purchase of dies, of which €61 thousand were manufactured in-house.

4) Other assets

(€)

Historical cost 3,480,774Revaluation 7,976Elimination of tax-related entries 560,283less: accumulated depreciation (3,195,063)

Balance at Dec. 31, 2004 853,970

Increases 229,622Decreases (188,846)Uses of provisions for depreciation 172,656Depreciation expense (334,600)

Balance at Dec. 31, 2005 732,802

The increase in other assets is due prevalently to the acquisition of hardware and accessories (€82 thousand) and the acquisition of motor vehicles (€100 thousand). Decreases relate to disposals and decommissioning in the year.

5) Work in progress and advances

(€)

Balance at Dec. 31, 2004 92,286

Increases 253,399Decreases (92,286)

Balance at Dec. 31, 2005 253,399

Increases in work in progress and advances are due mainly to the in-house construction of assets. The table enclosed in the present Notes shows changes in property, plant and equipment for the year and represents an integral part of the same.

42


Revaluation of property, plant and equipment carried out in the year

Pursuant to Article 10, Law no. 72/1983, revaluations of property, plant and equipment recorded in the Financial Statements at December 31, 2005 are listed in the table that follows:

Law Law Law Total 576/75 72/83 413/91

Land and buildings 248,220 687,441 935,661

Plant and machinery 2,386 126,737 129,123

Other assets 304 7,664 7,968

2,690 382,621 687,441 1,072,752

Following the merger of Oelma Srl into Cembre SpA in 2002, the building located in San Giuliano Milanese was recorded in the financial statements of Cembre SpA at €993 thousand, a value that includes the €917 revaluation carried out as a result of the allocation of goodwill on the merger.

III - Investments


Change € 1,063,639

1) Investments in:

a) subsidiaries

Subsidiary Dec. 31, 2004 Change Write-downs Dec. 31, 2005

Cembre Ltd 3,437,433 0 0 3,437,433 Cembre Sarl 1,048,197 0 0 1,048,197 Cembre España SL 858,104 951,900 0 1,810,004 Cembre AS 293,070 0 0 293,070 Cembre GmbH 481,508 0 0 481,508 Cembre Inc. 888,671 0 0 888,671 General Marking srl 0 588,171 (431,648) 156,523

Total 7,006,983 1,540,571 (431,648) 8,115,406

Subsidiary General Marking Srl was incorporated in July 2002. The company has its registered office

43


in Brescia and a capital stock equal to €99 thousand. In 2005 it reported a loss of €431,648, as a result of which the investment was written-down in full for an equal amount. In 2005, €588,171 were paid to the subsidiary for the coverage of accumulated losses and its recapitalization.The table that follows shows information on subsidiaries, all held directly by the parent company. Amounts are expressed in euro:

Name and head office Capital Shareholders’ Net profit % stock Equity (loss)

Cembre Ltd (Sutton Coldfield - Birmingham) 2,480,666 7,095,093 611,587 100

Cembre Sarl (Morangis - Paris) 1,071,000 2,504,762 255,268 95(a)

Cembre España SL (Coslada - Madrid) 1,902,000 3,123,554 499,420 95(a)

Cembre AS (Stokke - Norway) 300,564 211,454 37,590 100

Cembre GmbH (Munich - Germany) 512,000 1,208,380 81,831 95(a)

Cembre Inc. (Edison - New Jersey-Usa) 1,220,649 1,274,360 351,820 71(b)

General Marking srl (Brescia - Italy) 99,000 156,523 (431,648) 100

(a) the residual 5% is held through Cembre Ltd(b) the residual 29% is held through Cembre Ltd

Financial data relating to the capital stock, Shareholders’ Equity and net profit for the year are those contained in the Financial Statements for 2005 approved by the respective boards of subsidiaries. The translation of capital stocks expressed in currencies other than the euro was carried out at the exchange rate on the last day of the financial year, while net profits were translated at the average exchange rate for the year.The book value of investments in Cembre AS and Cembre Inc. recorded in the Financial Statements of the parent company, is higher than the share in the Shareholders’ Equity held. Such difference is justified by expected profits, confirmed by profits achieved in 2005 by the subsidiary.In 2005, the capital stock of subsidiary Cembre España S.L. was increased by €951,900, fully paid-in.

b) other companies

Dec. 31, 2005 Dec. 31, 2004

Inn.tec. srl 5,165 5,165Conai 59 59

Total 5,224 5,224

The above represent non-controlling shares in Consorzio Nazionale Imballaggi (National Packa-ging Consortium) and Inn.tec Srl, a technology innovation consortium, with registered head offices at the Brescia Province main office.

44


2) Receivables

d) from subsidiaries

Dec. 31, 2005 Dec. 31, 2004

Guarantee deposits 10,106 12,665

Withholding taxes on employee severance indemnities receivable 0 42,225

Total 10,106 54,890

C) CURRENT ASSETS

I - Inventories

Dec. 31, 2005 Dec. 31, 2004 Change

Raw materials 3,645,231 3,459,940 185,291Work in progress and semi-finished goods 4,758,886 4,626,887 131,999Finished goods 5,177,038 6,337,930 (1,160,892)

Total 13,581,155 14,424,757 (843,602)

Valuation criteria are unchanged from the previous year and are described in the first part of the present Notes. Changes in the provision for slow moving inventory, amounting to €900,000, are shown below:

(€'000) Dec. 31, 2004 Increase Decrease Dec. 31, 2005

Provision for slow-moving inventory 900,000 42,586 (42,586) 900,000

The provision is recorded directly as a reduction in the value of finished products to bring it into line with their expected realisable value. The value of inventories at current prices is approximately €1,331 thousand higher than the reported value, of which €828 thousand relating to finished products, €198 thousand to semi-finished goods, and €305 thousand to raw materials.

II – Receivables


Change € 1,482,363

45


1) Trade receivables

Dec. 31, 2005 Dec. 31, 2004

Gross book value 14,759,586 13,343,891Provision for doubtful accounts (449,315) (395,022)

Trade receivables, net 14,310,271 12,948,869

Trade receivables by area:(€'000) Dec. 31, 2005 Dec. 31, 2004

Italy 12,949 12,379Rest of Europe 1,098 591Oceania 381 192Middle East 137 115North America 32 14Other 163 53

Total 14,760 13,344

Changes in the provision for doubtful accounts are shown below:

(€'000) Dec. 31, 2004 Increase Decrease Dec. 31, 2005

Provision for doubtful accounts 395,022 199,501 (145,208) 449,315

2) Receivables from subsidiaries

Subsidiary Dec. 31, 2005 Dec. 31, 2004

Cembre Ltd (UK) 1,119,335 1,681,382Cembre Sarl (France) 252,626 609,068Cembre Espana SL (Spain) 2,374,071 1,473,115Cembre AS (Norway) 94,564 83,369Cembre GmbH (Germany) 571,097 719,438Cembre Inc. (US) 704,462 432,574General Marking srl (Italy) 37,524 83,869

Total 5,153,679 5,082,815

4-ter) Prepaid taxes

Prepaid tax receivables arising from accruals to the provision for slow-moving inventories described above, those generated by timing differences arising from the amortization of Oelma’s goodwill, arising from the amortization of the write-down relating to the investment in General Marking carried out in 2003, against the accrual to a provision for possible charges on social security litigation (INAIL) and against costs relating to pay increases resulting from the renewal of the national labour contract were recorded. A more detailed description is provided in the note on income taxes below. No receivables are due beyond five years.

46


III – Marketable securities

Balance at Dec. 31, 2005 € 0Balance at Dec. 31, 2004 € 291,052

Change € (291,052)

All of Cembre SpA’s own shares were sold in the course of 2005. The sale on the market generated revenues amounting to €68,152, recorded in the Income Statement among financial income.

IV - Cash and cash equivalents


Change € (1,628,007)

The balance represents cash and cash equivalents at year-end.

D) Accrued income and prepaid expenses


Change € (8,413)

Accrued income and prepaid expenses include income and charges that are either deferred or prepaid with respect to the year in which they accrue. They are made up as follows:

Dec. 31, 2005 Dec. 31, 2004

Prepaid maintenance fees 26,476 29,730Sundry accrued income and prepaid expenses 4,953 10,112

Total 31,429 39,842

All prepaid expenses and accrued income are current.

Liabilities and Shareholders’ Equity A) SHAREHOLDERS’ EQUITY


Change € 3,169,280

The share capital of the company amounts to €8,840,000 and is made up of 17 million ordinary shares of par value €0.52 each, fully underwritten and paid-up.

47


A Statement of Changes in the Shareholders’ Equity is enclosed below as Attachment 2 and con-stitutes an integral part of the present Notes. Changes in all Shareholders’ Equity items in the past three years are detailed.Other reserves consist of suspended-tax reserves amounting to €68,412.The table that follows shows the origin, availability for use and distribution of Shareholders’ Equity items:

Nature Amount Uses allowed (1) Available share

Share capital 8,840,000 Equity reserves: Share premium reserve 12,244,869 A B C 12,139,882Restatement reserve 585,159 A B ---Suspended-tax reserves 68,412 B ---Reserves accrued from profits: Legal reserve 1,663,013 B ---Extraordinary reserve 15,318,482 A B C 15,318,482

Total 38,719,935 27,458,364

Share that may be distributed 2,697,065 Residual share available for distribution 24,761,299

(1) A: capital increases; B: loss coverage; C: distribution to Shareholders

B) PROVISIONS FOR RISKS AND CHARGES


Change € (551,296)

The tax provision, representing deferred taxes on timing differences between depreciation recorded in the financial statements and that reported for tax purposes, was recorded in line with new regulations requiring the elimination of tax-related items. Changes in the provision in 2005 are shown below:

Dec. 31, 2004 Increase Decrease Dec. 31, 2005

Deferred tax provision 1,566,074 180,775 (394,585) 1,352,264

Changes in Other provisions occurred in the year are shown in the table that follows:

Dec. 31, 2004 Increase Decrease Dec. 31, 2005

Customer indemnities 42,140 7,764 0 49,904Fair value valuation of interest rate swap 29,625 8,838 (17,439) 21,024Social security (Inail) litigation 223,548 7,150 0 230,698Loss reported by General Marking 343,799 7,270 (351,069) 0

Total 639,112 31,022 (368,508) 301,626

48


The provision for customer indemnities was made pursuant to the applicable national agent agree-ment. The provision for litigation regarding labour issues was accrued to cover charges that may arise on a different retroactive classification of risk contested by INAIL (Social Security Agency), against whose requests Cembre filed a grounded and substantiated appeal. The provision for the loss reported by General Marking was used up in full in 2005.The Company entered into an interest rate swap transaction for a notional value of €2.5 million, expiring in 2006. The interest rate recognized to the other party in the swap is 2.81%, against an interest rate recognized to the Company equal to the 3-month Euribor rate. The hedging instrument was originally entered into to reduce the risk connected with a €2.5 million floating-rate loan. In November 2004 the loan was repaid in full, while the Company opted not to reverse the hedging contract, which must therefore no longer be considered as a hedging instrument, but as a speculative one. The valuation of the financial instrument at its fair market value resulted in past years in the accrual of a provision which, after changes occurred in 2005 and described in the table above, amounts to €21 thousand.

C) EMPLOYEE SEVERANCE INDEMNITIES

Changes in the year are shown below:

(€)

Balance at December 31, 2004 3,805,556Amounts accrued in the year 646,261Advances paid (409,170)Severance indemnities and Social Security contributions paid (186,847)

Balance at December 31, 2005 3,855,800

Indemnities paid to employees terminating their employment with the company amounted to €21,964. The amount is not included in the accrual for the year. The provision covers in full all amounts accrued by employees at the closing date of the financial statements, net of advances paid.

D) PAYABLES


Change € (4,145,292)

Payables are recorded at face value. Their breakdown by expiration date is reported in the table be-low:

49


Less than 1 year Over 1 year Over 5 years Total

Bank loans 291,753 291,753Advances 1,907 1,907

Trade payables 5,889,641 5,889,641

Payables to subsidiaries 195,770 195,770

Tax payables 1,024,349 1,024,349

Social Security payables 932,406 932,406

Other payables 1,660,546 1,660,546

9,996,372 9,996,372

3) Bank loans

Balance at Dec. 31, 2005 € 291,753Balance at Dec. 31, 2004 € 3,040,942

Change € (2,749,189)

Bank loans include principal amounts, interest accrued and related charges. The item is made up as follows:

Dec. 31, 2005 Dec. 31, 2004

Overdrafts 291,753 395,442Short-term loans (current portion) 0 2,000,000 Medium-term loans (current portion) 0 645,500Medium-term loans (non-current portion) 0 0

Total 291,753 3,040,942

Bank loans are all extended by Italian banks.

6) Trade payables


Change € (708,604)

Trade payables are stated net of trade discounts. Cash discounts are instead recognised only at the time of payment. The book value of such payments is adjusted for returns or discounts (invoicing adjustments), in line with the amount agreed upon with the supplier.

50


Trade payables by geographical area:

Geographical area Dec. 31, 2005 Dec. 31, 2004

Italy 5,274 4,969Rest of Europe 526 1,552America 6 7Oceania 82 65Other 2 5

Total 5,890 6,598

8) Payables to subsidiaries


Change € (228,500)

Trade payables to subsidiaries are shown below:

Subsidiary Dec. 31, 2005 Dec. 31, 2004

Cembre Ltd (UK) 25,639 6,320General Marking (Italy) 163,155 324,630Cembre GMBH (Germany) 2,583 230Cembre España (Spain) 2,121 91,798Cembre Sarl (France) 2,190 1,292Cembre Inc. (USA) 82 0

Total payables to subsidiaries 195,770 424,270

11) Tax payables


Change € (551,039)

The item is made up as follows:

Dec. 31, 2005 Dec. 31, 2004

Taxes withheld on employee remuneration 569,513 566,229Current taxes payable 454,836 1,009,159

Total 1,024,349 1,575,388

The strong decline in current taxes payable is due to the smaller spread between advances paid and tax expense in the previous year.

51


12) Social Security payables


Change € 36,810

The balance represents amounts payable to Social Security institutions relating to employees and agents.

13) Other payables


Change € 73,696

Dec. 31, 2005 Dec. 31, 2004

Payable to employees 634,445 612,303Customer bonuses payable 830,999 784,625Agent fees payable 157,360 148,596Insurance payables 26,581 27,114Statutory Auditors’ compensation payable 11,161 11,211Other payables 0 3,001

Total 1,660,546 1,586,850

E) ACCRUED EXPENSES AND DEFERRED INCOME

Balance at Dec. 31, 2005 € 0Balance at Dec. 31, 2004 € 23,037

Change € (23,037)

The repayment of bank loans thanks to the good operating performance of 2005 resulted in the eli-mination of accrued expenses and deferred income.

Commitments

Dec. 31, 2005 Dec. 31, 2004 Change

Guarantees granted 105,923 61,857 44,066Guarantees in favour of subsidiaries 2,369,535 5,478,132 (3,108,597)Guarantees received 19,821 19,821 0

Guarantees in favour of subsidiaries consist of guarantees given by Cembre S.p.A. against loans ex-tended to Cembre Inc. and General Marking, amounting respectively to €169,535 and €2,200,000.

52


Income StatementBefore commenting items in the Income Statement, we draw your attention on the analysis of costs and revenues contained in the Management Report pursuant to article 2428, first comma, of the Italian Civil Code.The disclosure in the Income Statement of positive and negative component of income, and the notes on the Balance Sheet included above allow to focus the present analysis on significant changes in Income Statement items from the previous year.

A) REVENUES

1) Value of production

2005 € 53,660,8492004 € 51,114,666

Change € 2,546,183


(€’000) 2005 2004 Change

Italy 31,312 31,146 166Rest of Europe 17,668 15,744 1,924Rest of world 4,681 4,225 456

Total 53,661 51,115 2,546

Changes are due to factors described in the Management Report.

5) Other revenues

2005 2004 Change

Capital gains on disposal of assets 27,105 1,996 25,109Rent 93,132 91,976 1,156Operating grants 0 12,515 (12,515)Other 7,866 10,294 (2,428)

Total 128,103 116,781 11,322

53


B) OPERATING COSTS

6) Raw materials, consumables and merchandise

2005 € 19,504,0952004 € 18,502,227

Change € 1,001,868

2005 2004

Raw materials and goods 17,283,798 16,356,749Consumables 2,160,265 2,105,712Transport costs and customs duties 60,032 39,766

Total 19,504,095 18,502,227

7) Services

2005 € 7,278,7052004 € 7,195,051

Change € 83,654

2005 2004

Subcontracted work 1,994,575 2,084,741Transport 942,526 947,205Maintenance and repairs 774,207 798,819Electricity, heating, water 752,484 696,100Consulting services 634,487 682,800Directors’ compensation 379,538 368,535Auditors’ compensation 53,156 52,173Commissions 275,521 220,638Postage and telephone 165,319 133,924Fuel 132,936 111,938Travel and transfers 187,424 177,240Insurance 186,490 166,156Canteen 196,124 194,955Bank expenses 85,885 77,111Personnel training 22,313 13,842Advertising and trade fairs 65,674 49,493Security and cleaning 313,783 303,805Other 116,263 115,576

Total 7,278,705 7,195,051

54


8) Leases and rentals

2005 € 719,8322004 € 698,377

Change € 21,455

Lease and rental costs relate primarily to the lease of buildings owned by third parties and related parties, as described in the Management Report, and by vehicle leasing costs.

9) Personnel costs

2005 € 13,872,4082004 € 13,748,404

Change € 124,004

The item includes personnel costs, including paid leave and accruals made pursuant to the Law and collective labour contracts in force. Employee termination indemnities include accruals at December 31, 2005 and amounts paid to personnel terminating their employment with the company in the year and pension benefits payable to the COMETA Pension Fund.

Average number of employees by category 2005 2004

Management 8 7Administrative and commercial staff 142 144Warehouse workers 171 177

Total 321 328

10) Depreciation and accruals

b) Tangible asset depreciation

Depreciation rates are unchanged from the previous year, and are as follows:

Category Depreciation rate

Buildings and light construction 3% - 10%Plant and machinery 10% - 15,5%Equipment 25%Other assets 12% - 25%

Accelerated depreciation recorded exclusively for tax purposes is not recorded in the Financial Sta-tements and is reported separately. They amount to €485,302 and have a tax effect amounting to €180,775.

55


12) Accrual to provisions for risks and charges


2005 2004

Coverage of losses reported by General Marking 0 343,799Customer indemnities 7,764 6,449Other 7,151 5,176

Total 14,915 355,424

The accrual to the provision for customer indemnities, equal to €7,764, was made in view of possible charges relating to the possible termination of agent contracts.

14) Other operating costs

2005 € 201,5292004 € 185,313

Change € 16,216

Other operating costs:

2005 2004

Donations 40,550 43,116Taxes 134,983 129,132Other 25,996 13,065

Total 201,529 185,313

C) FINANCIAL INCOME (EXPENSE)

2005 € 321,1312004 € (260,774)

Change € 581,905

16) Other financial income

Item c) Financial income from marketable securities represents proceeds from the sale of own sha-res.Item d) Other financial income is made up as follows:

56


2005 2004

Interest on bank deposits 55,534 18,574Other 1,371 1,989

Total 56,905 20,563

17) Interest and other financial expense


31/12/2005 31/12/2004

Bank interest charges 35,792 132,311Interest on loans 12,590 29,937Fair value valuation of interest rate swap 8,837 29,625

Total 57,219 191,873

17-bis) Foreign exchange gains (losses)


Descrizione 2005 2004

Foreign exchange gains 262,096 110,572Foreign exchange losses (23,307) (98,757)Foreign exchange translation gains 14,504 1,277Foreign exchange translation losses 0 (186,529)

Total 253,293 (173,437)

D) WRITE-DOWNS

The €431,648 write-down in the value of investments relates to the write-down in full of the inve-stment in subsidiary General Marking due to the loss reported in 2005.

E) EXTRAORDINARY ITEMS

2005 € (146,402)2004 € 2,681,978

Change € (2,828,380)

57



2005 2004

Extraordinary gains 119,280 31,294Extraordinary losses (71,974) (42,810)Positive effect of elimination of tax-related entries 0 4,673,933Negative effect of elimination of tax-related entries 0 (1,741,040)Returns of goods sold in past years (193,708) (230,825)Other extraordinary charges 0 (8,574)

Total (146,402) 2,681,978

Extraordinary gains include €86 thousand relating to the reversal of accumulated depreciation on land.Returns of goods sold in past years consist of goods returned as a result of agreements reached with customers.

22) Income taxes

2005 € (3,900,717)2004 € (3,271,615)

Change € (629,102)

The accrual to the tax provision is made in accordance with expected taxable income, taking into account adjustments made to income reported in the statutory accounts.Cembre SpA opted to take advantage for years 2004-2006 of tax consolidation procedures, while subsidiary General Marking chose to participate in the tax consolidation of the parent company. The choice resulted in a benefit for the parent company of €98,535, recorded as a reduction of the current tax expense.The table that follows shows a reconciliation between the theoretical tax expense, calculated at the normal tax rate, and the actual tax expense:

IRES IRAP TOTAL

Profit before taxes 8,767,997 (*) 8,767,997Theoretical tax expense 2,893,439 1,017,245 3,910,684

Tax effect on increases 599,007 675 599,682Tax effect on decreases (463,660) (47,454) (511,114)Effect of tax consolidation (98,535) 0 (98,535)Actual tax expense recorded 2,930,251 970,466 3,900,717

(*) Taxable income for the purposes of IRAP (regional tax on productive activities) amounts to €23,935,173.

58


Origination of deferred taxes:

2005 2004

Timing Tax expense Timing Tax expense differences (at a 37.25% tax rate) differences (at a 37.25% tax rate)

Prepaid taxes: Inventory write-down 900,000 335,250 900,000 335,250Amortization of goodwill 184,297 68,651 200,167 74,562Taxed provision for bad accounts 100,000 33,000 0 0Non-recurrent renewal of national labor contract 84,044 27,734 0 0Amortization of write-down of equity investment 39,600 13,068 59,400 19,602Provision for risks 16,905 6,297 9,754 3,634

Total prepaid taxes 484,000 433,048

Deferred taxes: Accelerated depreciation 3,630,238 1,352,264 4,204,227 1,566,074

There do not exist timing differences or accrual that may give rise to prepaid taxes that are not recorded.

Deferred and prepaid taxes:

2005 2004

Increase in provision for inventory depletion 0 203Goodwill amortization expense (6) (11)Increase in taxed provision for bad accounts 33 0Increase in provision for non-recurrent renewal of national labor contract 28 0Write-down of equity investment (7) (6)Use of deferred tax provision 214 175Other 3 2

Total 265 363

For further information relating to events subsequent to the closing date of the Financial Statements and transactions with related parties we refer to the Management Report.Compensation of Directors and emoluments paid to the Board of Statutory Auditors are reported under item B7 “Costs for services” of the Income Statement. Pursuant to disclosure requirements set by Consob, implementing Legislative Decree no. 58 of 2001, we also include in Attachment 4, that represents an integral part of the present Report, the breakdown of compensation paid to Directors and Auditors of the Company.

The present Notes include the following attachments:no. 1 Changes in tangible assetsno. 2 Statement of Changes in the Shareholders’ Equityno. 3 Summary financial information of subsidiaries, pursuant to Article 2429 of the Italian Civil Codeno. 4 Directors and Auditors’ compensation

The present Financial Statements, that include a Balance Sheet, Income Statement and explanatory Notes, truly and fairly represent the Company’s assets, liabilities and financial position, in addition to its operating performance for the 2005 financial year, and correspond to its accounting records.

59


Supplementary information required by Consob

Pursuant to a CONSOB requirement, the Company’s (Cembre S.p.A) shareholdings over 10% held in limited liability publicly traded companies and unlisted joint-stock companies at December 31, 2005, are shown in the table below. The Company holds full title to the investments listed below.

Capital % held % of Company Head office stock

directly indirectly through total voting

rights

Cembre Ltd Sutton Coldfield Gbp 1,700,000 100% 100% 100% (Birmingham -UK)

Cembre Sarl Morangis Euro 1,071,000 95% 5% Cembre Ltd 100% 100% (Parigi - France)

Cembre Coslada Euro 1,902,000 95% 5% Cembre Ltd 100% 100% España SL (Madrid-Spain)

Cembre AS Stokke Nok 2,400,000 100% 100% 100% (Norway)

Cembre GmbH Munich Euro 512,000 95% 5% Cembre Ltd 100% 100% (Germany)

Cembre Inc. Edison Us $ 1,440,000 71% 29% Cembre Ltd 100% 100% (New Jersey - USA)

General Brescia Euro 99,000 100% 100% 100% Marking (Italy)



60


AT

TA

CH

ME

NT

NO

.1 N

OT

ES

TO

TH

E F

INA

NC

IAL

ST

AT

EM

EN

TS

OF

CE

MB

RE

SPA

AT

DE

CE

MB

ER

31,

200

5C

HA

NG

ES IN

TA

NG

IBLE

ASS

ETS

(IN

EU

RO

)

G

ROSS

BOO

K VA

LUE

D

EPRE

CIAT

ION

N

ET B

OOK

VALU

E

Ba

lance

at

Incre

ases

Decre

ases a

nd

Balan

ce at

Ac

cumu

lated

Depr

eciat

ion

Uses

of pr

ovisi

on fo

r Ac

cumu

lated

Ne

t boo

k valu

e Ne

t boo

k valu

e

Dec.

31, 2

004

wr

ite-d

owns

De

c. 31

, 200

5 de

prec

iation

at

ex

pens

e ac

cumu

lated

de

prec

iation

at

at at

De

c. 31

, 200

4

de

prec

iation

De

c. 31

, 200

5 De

c. 31

, 200

5 De

c. 31

, 200

4

Land

and

build

ings

(2)

11,46

7,743

-

-

11,46

7,743

3,

432,0

69

26

1,010

-

3,69

3,079

7,7

74,66

4 8,

035,6

74

Plan

t and

mach

inery

23

,525,8

92

643,2

96

(174

,463)

23

,994,7

25

18,34

8,159

1,533

,828

(168

,291)

19

,713,6

96

4,28

1,029

5,

177,7

33

Equip

ment

4,

550,6

02

126,4

79

(15,2

35)

4,66

1,846

3,9

09,23

6

344,3

95

(15,2

35)

4,23

8,396

42

3,450

64

1,366

Othe

r asse

ts 3,

488,7

50

229,6

22

(188

,846)

3,

529,5

26

2,634

,780

33

4,600

(1

72,65

6)

2,79

6,724

73

2,802

85

3,970

4

3,03

2,98

7

999

,397

(3

78,5

44)

43,

653,

840

28

,324

,244

2,47

3,83

3

(356

,182

) 3

0,44

1,89

5

13,2

11,9

45

14,

708,

743

Wor

k in

prog

ress

and

92,28

6 25

3,399

(9

2,286

) 25

3,399

253,3

99

92,28

6 ad

vanc

es (1

)

TOTA

L 4

3,12

5,27

3

1,2

52,7

96

(470

,830

) 4

3,90

7,23

9

28,

324,

244

2,47

3,83

3

(356

,182

) 3

0,44

1,89

5

13,4

65,3

44

14,

801,

029

(1) I

ncrea

ses an

d writ

e-dow

ns re

latin

g to w

ork i

n pr

ogres

s and

adva

nces

inclu

de tr

ansfe

rs ma

de.

(2

) Writ

e-dow

n of

accu

mulat

ed de

prec

iation

on la

nd, a

moun

ting t

o €86

.083,

is in

clude

d in

the a

ccum

ulated

depr

eciat

ion at

dece

mber

31, 2

004

61


(1) W

ith re

fere

nce t

o th

e allo

catio

n of

net

pro

fit, i

tem

Tot

al S

hare

hold

ers’

Equi

ty in

clud

es d

ivid

ends

appr

oved

by r

esol

utio

n at

the S

hare

hold

ers’

mee

ting.

Shar

e R

esta

tem

ent

Lega

l R

eser

ve

Extr

aord

inar

y Su

spen

ded

Net

To

tal

(i

n eu

ro)

Shar

e ca

pita

l pr

emiu

m

rese

rve

rese

rve

for o

wn

rese

rve

tax

prof

it Sh

areh

olde

rs’

sh

ares

rese

rve

eq

uity

Bal

ance

at

Dec

. 31,

200

2 8,

840,

000

12,2

44,8

69

585,

159

1,10

9,39

6 46

5,29

6 8,

596,

299

68,4

12

2,69

2,63

2 34

,602

,062

Tran

sfer d

ueto

writ

e-do

wn

of o

wn

122,

935

(122

,935

)

shar

es

Allo

catio

n of

2002

net

profi

t (1)

134,

632

1,

217,

440

(2

,692

,632

) (1

,340

,560

)

Net

prof

it

2,44

8,33

6 2,

448,

336

Bala

nce

atD

ec. 3

1, 2

003

8,84

0,00

0 12

,244

,869

58

5,15

9 1,

244,

028

588,

231

9,69

0,80

4 68

,412

2,

448,

336

35,7

09,8

39

Tran

sfer d

ueto

reva

luat

ion

of o

wn

(297

,178

) 29

7,17

8

shar

es

Allo

catio

n of

2003

net

profi

t (1)

122,

417

1,

102,

658

(2

,448

,336

) (1

,223

,261

)

Net

prof

it

5,93

1,35

7 5,

931,

357

Bala

nce

at

8,84

0,00

0 12

,244

,869

58

5,15

9 1,

366,

445

291,

053

11,0

90,6

40

68,4

12

5,93

1,35

7 40

,417

,935

Dec

. 31,

200

4

Tran

sfer d

ueto

sale

of o

wn

(291

,053

) 29

1,05

3

shar

es

Allo

catio

n of

2004

net

profi

t (1)

296,

568

3,

936,

789

(5

,931

,357

) (1

,698

,000

)

Net

prof

it

4,86

7,28

0 4,

867,

280

Bala

nce

atD

ec. 3

1, 2

005

8,84

0,00

0 12

,244

,869

58

5,15

9 1,

663,

013

0 15

,318

,482

68

,412

4,

867,

280

43,5

87,2

15

AT

TA

CH

ME

NT

NO

.2 N

OT

ES

TO

TH

E F

INA

NC

IAL

ST

AT

EM

EN

TS

OF

CE

MB

RE

SPA

AT

DE

CE

MB

ER

31,

200

5ST

AT

EMEN

T O

F C

HA

NG

ES IN

TH

E SH

AR

EHO

LDER

S’ E

QU

ITY

FOR

TH

E YE

AR

EN

DED

DEC

EMBE

R 3

1, 2

005

62


ATTACHMENT NO.3 NOTES TO THE FINANCIAL STATEMENTS OF CEMBRE SPA AT DECEMBER 31, 2005

FINANCIAL HIGHLIGHTS OF COMPANIES INCLUDED IN THE CONSOLIDATION PURSUANT TO ARTICLE 2429 OF THE ITALIAN CIVIL CODE

Current assets, Total liabilities, Total liabilities and(in euro) Total accruals and Total assets Shareholders’ provisions, accruals Shareholders’ fixed assets prepayments Equity and deferrals Equity

Cembre Ltd 5,335,357 4,598,976 9,934,333 7,095,093 2,839,240 9,934,333

Cembre Sarl 520,126 3,202,548 3,722,674 2,504,762 1,217,912 3,722,674

Cembre Espana SL 978,604 5,682,558 6,661,162 3,123,554 3,537,608 6,661,162

Cembre AS 4,754 334,247 339,001 211,454 127,547 339,001

Cembre GmbH 35,278 1,975,082 2,010,360 1,208,380 801,980 2,010,360

Cembre Inc 208,066 2,040,061 2,248,127 1,274,360 973,767 2,248,127

General Marking srl 1,678,737 1,121,876 2,800,613 156,524 2,644,090 2,800,613

Total operating Operating Financial income Extraordinary Income Net profit value costs (expense) items taxes (loss)

Cembre Ltd 11,624,728 (10,776,624) 27,697 5,118 (269,332) 611,587

Cembre Sarl 5,274,755 (4,871,027) (5,157) 9,425 (152,728) 255,268

Cembre Espana SL 7,857,833 (7,068,819) (41,628) 20,725 (268,692) 499,420

Cembre AS 454,314 (416,337) (387) 0 0 37,590

Cembre GmbH 3,462,537 (3,324,500) (853) 0 (55,353) 81,831

Cembre Inc 2,985,559 (2,558,641) (14,485) (1,100) (59,513) 351,820

General Marking srl 1,369,770 (1,815,622) (76,465) (6,919) 97,588 (431,648)

Figures relate to the Financial Statements at Dec. 31, 2005. The translation of amounts denominated in currencies other than euro was carried out in accordance with the methods described in the notes to the Consolidated Financial Statements at Dec. 31, 2005.



63


(1) T

he ex

pirati

on of

the t

erm co

incid

es wi

th th

e app

rova

l of t

he 20

05 Fi

nanc

ial S

tatem

ents

for bo

th B

oard

of D

irecto

rs an

d Boa

rd of

Stat

utor

y Aud

itors.

(2) M

ade u

p by f

ringe

bene

fits r

epres

ented

by th

e use

of a c

ompa

ny ca

r and

insu

rance

cove

rage.

(3) G

ross r

etribu

tion f

or em

ploym

ent a

moun

ts to €

60,78

4 (up

to Ju

ly 20

05),

emolu

ment

s for p

ositio

ns he

ld in

subsid

iaries

amou

nt to

€12

,000,

fixed

reim

burse

ment

for e

xpen

ses in

curre

d in c

arryin

g out

mand

ate am

ount

to €

5,000

.(4

) Gro

ss ret

ribut

ion fo

r emp

loyme

nt.

(5) G

ross

retrib

ution

for e

mploy

ment

amou

nts t

o €21

,622 (

up to

May

2005

), em

olume

nts f

or po

sition

s held

in su

bsidi

aries

amou

nt to

€6,0

00(6

) App

ointed

on M

ay 12

, 200

5, pu

rsuan

t to a

rt. 23

86 of

the I

talian

Civi

l Cod

e, by

the B

oard

of D

irecto

rs to

repla

ce A

ldo C

opett

a who

resig

ned.

(7) A

ppoin

ted by

the S

hareh

olders

’ Mee

ting o

f May

12, 2

003,

resign

ed fo

r hea

lth re

asons

effec

tive M

ay 12

, 200

5.(8

) App

ointed

by th

e Sha

rehold

ers’ M

eetin

g of M

ay 14

, 200

4 to r

eplac

e Aug

usto

Rezz

ola. H

is ter

m ex

pires

with

the a

ppro

val o

f the

2005

Fina

ncial

Stat

emen

ts.(9

) App

ointed

Man

agin

g Dire

ctor o

n M

ay 12

, 200

5.

AT

TA

CH

ME

NT

NO

. 4 –

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TA

TE

ME

NT

S O

F C

EM

BR

E S

.P.A

.D

IREC

TO

RS

AN

D S

TAT

UT

OR

Y A

UD

ITO

RS’

CO

MPE

NSA

TIO

N

PO

SIT

ION

C

OM

PE

NSA

TIO

N (€

)

Pos

itio

n

Em

olum

ents

N

on-m

onet

ary

B

onus

es a

nd

Oth

er

Ter

m (

1)

for

posi

tion

be

nefit

s (2

) ot

her

ince

ntiv

es

com

pens

atio

n

CARL

O

Chair

man

&

ROSA

NI

Chi

ef Ex

ecut

ive O

ffice

r 2

003-

2005

13

2,60

0

AN

NA

MA

RIA

Vi

ce C

hairm

an &

O

NO

FRI

Man

agin

g Dire

ctor

2

003-

2005

66

,600

GIO

VAN

NI

ROSA

NI

M

anag

ing D

irect

or (

9)

200

3-20

05

39,8

82

3,03

0

27,6

22 (5

)

SARA

RO

SAN

I

Dire

ctor

se

e not

e 6

9,34

7 2,

982

34

,047

(4)

GIO

VAN

NI

DE V

ECCH

I

Dire

ctor

2

003-

2005

14

,400

4,

389

65

,784

(3)

ALD

O B

OTT

INI

BON

GRA

NI

Di

rect

or

200

3-20

05

14,4

00

3,45

8

142,

278

(4)

MA

RIO

CO

MA

NA

Di

rect

or

200

3-20

05

44,8

24

PAO

LO L

ECH

I Di

rect

or

200

3-20

05

14,3

00

ALD

O C

OPE

TTA

M

anag

ing D

irect

or

see n

ote

7 19

,971

GU

IDO

Ch

airm

an o

f the

Boa

rd

AST

ORI

o

f Sta

tuto

ry A

udito

rs 2

003-

2005

21

,755

AN

DREA

BORE

ATTI

St

atut

ory A

udito

r se

e not

e 8

16,5

76

LEO

NE

SCU

TTI

Stat

utor

y Aud

itor

200

3-20

05

14,8

25

64


Report of the Board of Statutory Auditors on the Financial Statementsat December 31, 2005 of Cembre S.p.A. (Pursuant to Article 2429 of

the Italian Civil Code and Article of Legislative Decree No. 58/98)

To our Shareholders: in the year ended December 31, 2005 we carried out monitoring activities in compliance with the Law and the provisions of the By-laws and verified the respect of correct management principles, applying the conduct guidelines for statutory auditors provided by the Italian accounting profession.Among significant information and events in the year we report that:- contrary to the 2004 financial year, net profit for 2005 is not affected by the elimination of tax-

related items;- capital increases in subsidiaries amounted to €1,540 thousand, while losses covered amounted to €431 thousand;

- capital expenditure on tangible assets, net of depreciation and disposals, amounted to €1,253 thou-sand;

- the financial statements of Cembre Spa were prepared under Italian GAAP, while the Group adopted international accounting principles (IAS/IFRS) starting from the 2005 Half-year Report. The adoption of IAS/IFRS for the statutory accounts of the Company was postponed to financial year 2006;

- the value of land was separated from that of buildings, while depreciation on land was reversed;- research costs were not capitalized, while development costs, that included the development of new

products, were capitalized, in agreement with the Board of Statutory Auditors;- all subsidiaries recorded a growth in revenues and reported a profit, with the exception of General

Marking, whose losses were progressively reduced;- guarantees were granted in favor of two subsidiaries against loans extended by banks;- all own shares held were sold, generating financial income;- no relevant event occurred after the closing of the financial year;- the Board of Director prepared a Report on the underwriting of the Code of Conduct for listed

companies, complete with the related Code of Conduct of Cembre, all of which will be submitted to the next Shareholders’ Meeting.

The Code of Conduct will in any case need to be updated in 2006 to make it consistent with the Code of Conduct for listed companies published on March 14, 2006;

- in compliance with disclosure and publication requirements introduced by Consob on March 23, 2006, the renewal of the appointment of independent auditors Reconta Ernst & Young for another three-year tem is possible, in line with the maximum term of 12 financial years.

In pursuit of its mandate, the Board of Statutory Auditors:- monitored compliance with the Law and the By-laws;- attended in 2005 one Shareholders’ Meeting, six meetings of the Board of Directors and two mee-

tings of the Internal Audit Committee, in addition to one to which only its Chairman attended, all carried out pursuant to provisions of the By-laws, Laws and norms that regulate their functioning;

65


- in 2005 the Board of Statutory Auditors met 6 times and held a number of meetings by telephone, in addition to holding 2 meetings with the Company’s independent auditors.

- obtained from the Board of Directors quarterly information on main operations of economic and financial relevance carried out by the Company and its subsidiaries. With this regard, we can reaso-nably state that operations resolved and/or carried out complied with the Law and the provisions of the By-laws, were not imprudent, did not involve an excessive amount of risk, were not in potential conflict of interest or in contrast with Shareholders’ resolutions taken or such as to compromise the integrity of the company’s assets;

- acquired direct knowledge and monitored, to the extent required by our task, the adequacy of the organizational structure of the Company, gathering information from persons in charge of the orga-nization of the Company and through meetings with the independent auditors involving exchange of data and relevant information. To such regard we have no particular comment to make;

- monitored the adequacy of the internal auditing system and of the administrative and accounting system, in addition to the reliability of the latter in providing a fair representation of the Company’s operations, by obtaining information on an ongoing basis from people responsible for each sector, also reviewing company records and the results of work carried out by independent auditors, mo-nitoring the activity of the person in charge of Internal Audit and the Internal Audit Committee.

There did not emerge relevant data and information pursuant to article 150, comma 2 of Legislative Decree no. 58/98 to be disclosed in the present report.We did not encounter any atypical or unusual transaction.

The Board of Statutory Auditors did not receive any report pursuant to article 2408 of the Italian Civil Code or has any knowledge of any other denunciation pursuant to the same received by others.In its monitoring activity and based on information obtained, the Board of Statutory Auditors did not encounter omissions, censurable facts, irregularities or in any case significant events worth reporting to relevant Authorities or of mention in the present report.

Pursuant to article 2429 of the Italian Civil Code and of article 153 of Legislative Decree no. 58/1998, we examined the Financial Statements of Cembre SpA at December 31, 2005, consisting of a Ba-lance Sheet, Income Statement and Notes to the accounts, accompanied by a Report of the Board of Directors on operations, regularly delivered to the Board of Statutory Auditors within the term prescribed together with the related attachments.

The Balance Sheet, reporting a net profit of €4,867,280, is summarized below:

- ASSETS € 59,093,277 - LIABILITIES € (15,506,062) - SHAREHOLDERS’ EQUITY (INCLUDING NET PROFIT) € 43,587,215 - NET PROFIT € 4,867,280 Guarantees granted: € 2,475,458 of which in favour of subsidiaries: € 2,369,535 Guarantees received: € 19,821

66


The Income Statement is summarized below: - PRODUCTION VALUE € 53,267,590 - PRODUCTION COSTS € (44,242,674) - OPERATING PROFIT € 9,024,916 - FINANCIAL INCOME (EXPENSE) € 321,131 - ADJUSTMENTS IN THE VALUE OF FINANCIAL ASSETS € (431,648) - EXTRAORDINARY ITEMS € (146,402) - PROFIT BEFORE TAXES € 8,767,997 - INCOME TAXES € (3,900,717) - NET PROFIT € 4,867,280

The Report of the Board describes also relationships with related parties. We attest that relationships between Group companies are carried out exclusively in the interest of indi-vidual companies involved and are settled at market conditions.The Board of Statutory Auditors therefore proposes to the Shareholders’ Meeting the approval of the Financial Statements, in the form submitted by the Board of Directors and communicated to the Board of Statutory Auditors within the term provided by Law, in addition to the proposed allocation of net profit.In thanking you for the trust bestowed on us, we remind you that the current three-year term of the Board of Statutory Auditors has expired.

Brescia, April 6, 2006

The Chairman of the Board of Statutory Auditors

Dott. Guido Astori Chairman Dott. Andrea Boreatti Auditor Rag. Leone Scutti Auditor

67


Cembre Group Management Report forthe financial year ended December 31, 2005

70


Cembre Group Management Reportfor the financial year ended December 31, 2005

In 2005 sales of the Cembre Group grew by 7.4% to €70 million, up from €65.1 million in 2004.Consolidated domestic sales, amounting to €31.2 million, grew by 0.2%, while exports amounted to €38.8 million, up 14.1% on the previous year. A total of 44.6% of Group sales in 2005 were repre-sented by Italy (as compared with 47.9% in 2004), 46.4% by the rest of Europe (43.7% in 2004), and the remaining 9% by the rest of the World (8.5% in 2004).


(€'000) 2005 2004

Italy 31,239 31,179Rest of Europe 32,486 28,438Rest of the World 6,272 5,532

Total 69,997 65,149

Revenues by Group company (net of intragroup sales):

(€'000) 2005 2004

Parent company 38,943 38,371Cembre Ltd. (UK) 10,867 9,722Cembre S.a.r.l. (France) 5,245 4,409Cembre España S.L. 7,853 6,479Cembre GmbH (Germany) 3,409 3,229Cembre AS (Norway) 454 364Cembre Inc (USA) 2,846 2,169General Marking srl (Italy) 380 406

Total 69,997 65,149

Figures for General Marking Srl include only sales to third parties managed directly by the subsidiary. Part of General Marking’s sales to other Group companies that distribute products in their respective markets are not attributed to General Marking in the table above. Such sales grew by 23.2% from €742 thousand to €914 thousand.

71


In 2005, Group companies reported the following results, before the consolidation:

Sales Net profit(€'000) 2005 2004 2005 2004

Parent company 53,463 50,878 4,739 2,806Cembre Ltd. (UK) 11,638 10,392 612 639Cembre S.a.r.l. (France) 5,257 4,417 255 288Cembre España S.L. 7,857 6,614 499 188Cembre AS (Norway) 454 364 38 9Cembre GmbH (Germany) 3,447 3,272 82 68Cembre Inc (USA) 2,986 2,179 352 115General Marking Srl (Italy) 1,295 1,148 (435) (1,036)

For a more direct evaluation of the effect of foreign exchange translation, we include below sales figures of companies operating outside the euro area in the respective currency:

Currency Sales Net profit (loss) 2005 2004 2005 2004

Cembre Ltd. (UK) Lst 7,958 7,051 418 434Cembre AS (Norway) Nok 3,639 3,047 301 73Cembre Inc (USA) Us$ 3,714 2,710 438 144

La crescita del fatturato della Cembre Gmbh evidenzia la ripresa del mercato tedesco, manifestatasi negli ultimi mesi dell’esercizio.

The growth in sales registered by German subsidiary Cembre GmbH highlights the recovery of the German market in the last months of the year.To provide a better understanding of the Company’s financial performance for 2004, a Reclassified Consolidated Income Statement for the year ended December 31, 2005 is enclosed as Attachment A.Consolidated gross operating profit amounts to €14,718 thousand, representing a 21% margin on sales, up 20.8% on the previous year when it amounted to €12,187 thousand, representing a 18.7% margin on sales. The improvement is due to a higher operating efficiency and efforts to reduce costs.Consolidated operating profit amounted to €11,023 thousand, representing a 15.8% margin on sales, up 44% from €7,656 thousand in 2004, when it represented an 11.8% margin on sales.Pre-tax profit amounted to €11,192 thousand, representing a 16% margin on sales, up from €7,263 thousand in 2004, when it represented an 11.1% margin on sales. The improvement is due, in addition to the good operating performance, to the lower interest expense resulting from the improvement in the net financial position from a net indebtedness of €2.1 million at December 31, 2004, to positive €2.8 million at December 31, 2005, in addition to a more favorable foreign-exchange performance.Net profit for the year amounted to €6,605 thousand, equal to 9.4% of sales, improving from €3,830 thousand in 2004, when it represented a 5.9% margin on sales.

72


The Group’s activity is not affected by cyclical or seasonal factors, with the exception of a slowdown in August for the summer holidays and in December for the Christmas holidays.

Capital expenditure

Capital expenditure, net of depreciation and disposals amount in 2005 to �1.9 million, down sharply from �3.1 million in 2004. The reduction is due to the fact that strong investments were made in 2004 with additions to industrial buildings and the purchase of plant and industrial equipment.

Research & Development

Group companies participate actively in product development and research. R&D activities. Ac-tivities are however concentrated at the parent company’s main site due to the larger technical staff and stronger experience. Such activities are described in the parent company’s management report.

Related Parties

For details regarding transactions with related parties, please refer to the notes to the accounts.

Own shares

All of Cembre SpA’s own shares were sold in the course of 2005. At year-end Cembre SpA had not acquired, disposed of or owned directly or indirectly through subsidiary companies, trust companies or intermediaries, shares or holdings in companies having a controlling share in the Company.

Subsequent events

No event having significant effects on assets of the Cembre Group or its financial performance occurred after the closing of the financial year.

Outlook

The Group expects a growth in activity in 2006, both in the domestic market and foreign markets. Profit levels are expected to remain positive.


THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A. CARLO ROSANI

73


ATTACHMENT A TO THE REPORT ON OPERATIONS OF THE GROUPCOMPARATIVE CONSOLIDATED INCOME STATEMENT

(€'000) 2005 % 2004 % Change %

Revenues from sales and services provided 69,997 100 65,149 100 7.4% Other revenues 105 208

TOTAL REVENUES 70,102 65,357

Cost of goods and marchandise (22,599) (32.3) (21,102) (32.4) 7.1%Cost of services received (10,395) (14.9) (10,414) (16.0) -0.2%Lease and rental costs (1,014) (1.4) (963) (1.5) 5.3%Personnel costs (20,579) (29.4) (20,208) (31.0) 1.8%Other operating costs (470) (0.7) (320) (0.5) 46.9%Change in inventories (605) (0.9) (349) (0.5) 73.4%Increase in assets due to internal construction 508 0.7 345 0.5 47.2%Write-down of current assets (209) (0.3) (141) (0.2) 48.2%Accruals to provisions for risks and charges (21) 0.0 (18) 0.0 16.7%

GROSS OPERATING PROFIT 14,718 21,0 12,187 18,7 20.8%

Tangible assets depreciation (3,364) (4.8) (3,869) (5.9) -13.1%Intangible assets amortization (104) (0.1) (257) (0.4) -59.5%Write-down of long-term assets (227) (0.3) (405) (0.6)

OPERATING PROFIT 11,023 15.8 7,656 11.8 44.0%

Financial income (expense) (142) (0.2) (297) (0.5) -52.2%Foreign exchange gains (losses) 311 0.4 (96) (0.1)

PROFIT BEFORE TAXES 11,192 16.0 7,263 11.2 54.1%

Income taxes (4,587) (6.6) (3,433) (5.3) 33.6%

NET PROFIT FROM ORDINARY ACTIVITIES 6,605 9.4 3,830 5.9 72.5%

NET PROFIT FROM ASSETS HELD FOR DISPOSAL 0 0

NET PROFIT 6,605 9.4 3,830 5.9 72,5%

Consolidated Financial Statementsat December 31, 2005

76


Consolidated Financial Statementsat December 31, 2005

Consolidated Balance Sheet

Notes 2005 2004

(€'000)

ASSETS

A) NON-CURRENT ASSETS

Tangible assets 1 28,204 29,636

Intangible assets 2 154 344

Financial assets available for sale 3 5 5

Other non-current assets 4 100 145

Deferred tax assets 13 1,633 1,520

TOTAL NON-CURRENT ASSETS 30,096 31,650

B) CURRENT ASSETS

Inventories 5 19,746 20,103

Trade receivables 6 21,676 19,474

Tax receivables 7 0 47

Other receivables 8 166 311

Cash and cash equivalents 6,026 6,507

TOTAL CURRENT ASSETS 47,614 46,442

C) NON-CURRENT ASSETS AVAILABLE FOR SALE 0 0

TOTAL ASSETS(A+B+C) 77,710 78,092

LIABILITIES AND SHAREHOLDERS’ EQUITY

A) SHAREHOLDERS’ EQUITY

Capital stock 9 8,840 8,840

Reserves 9 37,237 34,460

Net profit 9 6,605 3,830

TOTAL SHAREHOLDERS’ EQUITY 52,682 47,130

77


B) NON-CURRENT LIABILITIES

Non-current financial liabilities 10 89 282

Employee Severance Indemnity and other personnel benefits 11 4,478 4,253

Provisions for risks and charges 12 295 281

Deferred tax liabilities 13 4,054 4,205

TOTAL NON-CURRENT LIABILITIES 8,916 9,021

C) CURRENT LIABILITIES

Current financial liabilities 10 3,139 8,320

Liabilities on derivative instruments 14 21 30

Trade payables 15 7,017 7,424

Tax payables 16 1,851 2,121

Other payables 17 4,084 4,046

TOTAL CURRENT LIABILITIES 16,112 21,941

D) LIABILITIES ON ASSETS HELD FOR DISPOSAL 0 0

TOTAL LIABILITIES (B+C+D) 25,028 30,962

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (A+B+C+D) 77,710 78,092

Consolidated Income Statement

Notes 2005 2004

(€'000)

Revenues from sales and services provided 18 69,997 65,149

Other revenues 19 105 208

TOTAL REVENUES 70,102 65,357

Cost of goods and merchandise (22,599) (21,102)

Cost of services received 20 (10,395) (10,414)

Lease and rental costs 21 (1,014) (963)

Personnel costs 22 (20,579) (20,208)

Other operating costs 23 (470) (320)

Change in inventories (605) (349)

Increase in assets due to internal construction 508 345

Write-down of receivables (209) (141)

78


Accruals to provisions for risks and charges (21) (18)

GROSS OPERATING PROFIT 14,718 12,187

Tangible asset depreciation (3,364) (3,869)

Intangible asset amortization (104) (257)

Write-down of long-term assets (227) (405)

OPERATING PROFIT 11,023 7,656

Financial income (expense) 24 (142) (297)

Foreign exchange gains (losses) 311 (96)

PROFIT BEFORE TAXES 11,192 7,263

Income taxes 25 (4,587) (3,433)

NET PROFIT FROM ORDINARY ACTIVITIES 6,605 3,830

NET PROFIT FROM ASSETS HELD FOR DISPOSAL 0 0

NET PROFIT 6,605 3,830

BASIC EARNINGS PER SHARE 26 0.39 0.23

Consolidated Statement of Cash Flows

2005 2004

(€'000)

A) CASH FLOW FROM OPERATING ACTIVITIES

Net profit for the period 6,605 3,830

Depreciation, amortization and write-downs 3,697 4,531

(Gains)/Losses on disposal of assets (32) 9

Net change in Employee Severance Indemnity 225 704

Net change in provisions for risks and charges 14 (105)

Operating profit (loss) before change in working capital 10,509 8,969

(Increase) Decrease in trade receivables (2,202) (1,275)

(Increase) Decrease in inventories 357 531

(Increase) Decrease in other receivables and deferred tax assets 79 (603)

Increase (Decrease) of trade payables (407) 638

Increase (Decrease) of other payables and deferred tax liabilities (383) 1,598

79


Change in working capital (2,556) 889

NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES 7,953 9,858

B) CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure on fixed assets:

- intangible (142) (112)

- tangible (1,910) (3,092)

Proceeds from disposal of tangible, intangible, available-for-sale financial assets 9 333

NET CASH FLOW (USED IN)/FROM INVESTING ACTIVITIES (2,043) (2,871)

C) CASH FLOW FROM FINANCING ACTIVITIES

(Increase) Decrease in other non current assets 45 60

Increase (Decrease) in bank loans and borrowings (5,406) (3,645)

Increase (Decrease) in other loans and borrowings 32 39

Increase (Decrease) in derivative instruments (9) 30

Change in reserves 645 201

Dividends distributed (1,698) (1,223)

NET CASH FLOW (USED IN)/FROM FINANCING ACTIVITIES (6,391) (4,538)

D) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) (481) 2,449

E) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,507 4,058

F) CASH AND CASH EQUIVALENTS AT END OF PERIOD (D+E) 6,026 6,507

CASH AND CASH EQUIVALENTS AT END OF PERIOD 6,026 6,507

Current financial liabilities (3,139) (8,320)

Non current financial liabilities (89) (282)

Liabilities on derivative instruments (21) (30)

NET CONSOLIDATED FINANCIAL POSITION 2,777 (2,125)

INTEREST PAID IN THE PERIOD (194) (326)

BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD

Cash 9 18

Banks 6,017 6,489

6,026 6,507

80

R E P O R T A N D A C C O U N T S 2 0 0 5St

atem

ent o

f Cha

nges

in th

e C

onso

lidat

ed S

hare

hold

ers’

Equ

ity fo

r th

e Ye

ar 2

005

(€'0

00)

Capi

tal

stock

Shar

e pr

emiu

m

rese

rve

Lega

l re

serv

e

Rese

rve

for o

wn

shar

es

Susp

en-

ded-

tax

rese

rves

Cons

olid

a-tio

n re

serv

eCo

nver

sion

diffe

renc

esEx

traor

di-

nary

rese

rve

IAS/

IFRS

Fi

rst t

ime

adop

tion

rese

rve

Reta

ined

ea

rnin

gsN

et p

rofit

Tota

l Sha

-re

hold

ers’

Equi

ty

Bal

ance

at

Janu

ary

1, 2

004

8,84

012

,245

1,24

4(5

88)

681,

896

(265

)17

,042

3,84

044

,322

Con

vers

ion

diffe

renc

es(2

9)(1

20)

(149

)

Elim

inat

ion

of o

wn

shar

es29

729

7

Allo

catio

n of

net

pr

ofit

122

540

(1,8

85)

(1,2

23)

Sale

of o

wn

shar

es53

53

Net

pro

fit fo

r 20

043,

830

3,83

0

Bal

ance

at

Dec

embe

r 31

, 200

48,

840

12,2

451,

366

(291

)68

2,40

7(3

85)

15,2

103,

840

03,

830

47,1

30

Con

vers

ion

diffe

renc

es(6

5)37

631

1

Elim

inat

ion

of o

wn

shar

es29

129

1

Allo

catio

n of

net

pr

ofit

297

1,02

581

0(3

,830

)(1

,698

)

Sale

of o

wn

shar

es43

43

Oth

er c

hang

es41

(41)

0

Net

pro

fit fo

r 20

056,

605

6,60

5

Bal

ance

at

Dec

embe

r 31

, 200

58,

840

12,2

451,

663

068

3,36

7(9

)16

,104

3,79

90

6,60

552

,682

81


Notes to the consolidated accountsI. CORPORATE INFORMATION

Cembre S.p.A. is a joint-stock company with registered office in Brescia, Via Serenissima 9.Cembre S.p.A. and its subsidiaries (hereinafter referred to jointly as “the Cembre Group” or “the Group”) are active primarily in the manufacturing and sale of electrical connectors and related tools.The publication of the Consolidated Financial Statements of Cembre S.p.A. from the year ended December 31, 2005 was authorized by a resolution of the Board of Directors dated March 27, 2006.Cembre S.p.A. is controlled by Lysne S.p.A., a holding company based in Bergamo.

II. FORM AND CONTENT OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements at December 31, 2005 were prepared in compliance with international accounting principles (IAS/IFRS).The Cembre Group adopted international accounting principles starting with financial year 2005, with a transition date of January 1, 2004. Consequently, figures for 2004 provided for comparative purposes were restated under IFRS.For a review of the effects of the application of international accounting principles on the 2004 Ba-lance Sheet we refer to note 32 of the present document “Impact of the application of IAS/IFRS”. The same note describes also the effect of the adoption of IFRS on the Consolidated Balance Sheet of the Group at the transition date (January 1, 2004) and choices made upon the first-time application of the same.Criteria adopted in the preparation of the present Consolidated Financial Statements are those formally approved by the European Union, applicable from December 31, 2005. The Company opted for the application of IAS 39 (Financial instruments: recording and valuation), and IAS 32 (Financial instru-ments: disclosure in the financial statements and additional information) starting with January 1, 2004.The table that follows contains a list of international accounting principles and interpretations ap-proved by the IASB and the European Union for their adoption, whose application is mandatory after December 31, 2005.

Accounting principle EU approval

Publication on EU Official

Gazette Effective from

Amendments to IAS 19 ‘Employee Benefits’: Actuarial Gains and Losses, Group Plans and Disclosures

8 Nov. 2005 24 Nov. 2005 1 Jan. 2006

IFRIC 4 Determining whether an arrangement contains a lease

8 Nov. 2005 24 Nov. 2005 1 Jan. 2006

IFRS 6 Mineral Resources 8 Nov. 2005 24 Nov. 2005 1 Jan. 2006

IFRIC 5 Interests in Decommissioning Funds 8 Nov. 2005 24 Nov. 2005 1 Jan. 2006

Amendment to IAS 39: The Fair Value Option 15 Nov. 2005 16 Nov. 2005 1 Jan. 2006

Amendment to IAS 39: Cash Flow Hedge Accounting 21 Dec. 2005 22 Dec. 2005 1 Jan. 2006

Amendments to IAS 39 and IFRS 4: Financial Guaran-tee Contracts

11 Jan. 2006 27 Jan. 2006 1 Jan. 2006

IFRS 7 Financial Instruments: Disclosures 11 Jan. 2006 27 Jan. 2006 1 Jan. 2007

82


The application, where appropriate, of the above accounting principles and interpretations will not have a significant impact on the valuation of assets, liabilities, costs and revenues of the Group.Consolidated Balance Sheet items were recorded in accordance with the historical cost, with the exception of derivative financial instruments, recorded at fair value.Unless otherwise indicated, amounts reported in the financial statements and the related notes are expressed in thousands of euro. Cembre SpA prepared its statutory accounts at December 31, 2005 under Italian GAAP, postponing the adoption of IAS/IFRS to the 2006 financial year, in which their application will become mandatory.

Principles of consolidation

The Consolidated Financial Statements of the Cembre Group include the statutory accounts at December 31, 2005 of Cembre SpA and of its subsidiaries. Accounting principles adopted in the preparation of the financial statements of subsidiaries are consistent with those of the parent company. The closing date of the financial statements of all subsidiaries coincides with that of the financial statements of the parent company.In the consolidated financial statements, assets, liabilities, costs and revenues of consolidated companies are consolidated line-by-line. The book value of investments in subsidiaries is netted against the respective share in the Shareholders’ Equity held, inclusive of adjustments to the fair value of the related assets and liabilities at the date of their acquisition. The residual difference is attributed to goodwill.The following companies were consolidated at December 31, 2005:

% held

1. Cembre Ltd (UK) 100% 2. Cembre Sarl *(France) 100% 3. Cembre España SL *(Spain) 100% 4. Cembre AS (Norway) 100% 5. Cembre Gmbh*(Germany) 100% 6. Cembre Inc**(US) 100% 7. General Marking Srl (Italy) 100% * 5% share held through Cembre Ltd**29% share held through Cembre Ltd

The consolidation area is unchanged with respect December 31, 2004.

III. CONSOLIDATION PRINCIPLES AND VALUATION CRITERIA

Form of the financial statements

The financial statements are prepared as follows:- current and non-current assets and liabilities are reported separately in the balance sheet;- the analysis of costs in the income statement is carried out based on the nature of the same;- the statement of cash flows is prepared by applying the indirect method.

83


Consolidation principles

The Consolidated Financial Statements of the Cembre Group include the statutory accounts at December 31, 2005 of Cembre SpA (the parent company) and those of its subsidiaries. The financial statements of consolidated subsidiaries are consolidated under the line-by-line method, thus including all items, irrespective of the share held by the Group, of the elimination of intragroup transactions and of unrealized gains on transactions with third parties.The book value of investments was netted against the related share in the shareholders’ equity of consolidated companies, attributing to assets and liabilities the respective current value at the time control was acquired and recording contingent liabilities, where appropriate. Where positive, the residual amount was recorded among non-current assets as goodwill. Negative residual differences were recorded in the income statement.All subsidiaries are wholly-owned and in no case therefore have minority interests been recorded.

Translation of financial statements expressed in currencies other than the euro

The functional currency of the Group is the euro.Financial statements denominated in functional currencies other than the euro are translated according to the following criteria:- assets and liabilities are translated at the exchange rate applicable at the date of the financial state-

ments;- income statement items are translated at the average exchange rate for the year or the period;- foreign-exchange translation differences are recorded in a specific Shareholders’ Equity reserve.

At the time at which a foreign subsidiary is disposed of, accumulated foreign-exchange differences re-corded under Shareholders’ Equity relating to the same are taken to the Income Statement.Exchange rates applied in the translation of financial statements of subsidiaries are shown in the table below:

Currency Exchange rate at Dec. 31, 2005 Average exchange rate for 2005

British pound (€/£) 0.6853 0.6838

US dollar ($/€) 1.1797 1.2441

Norway kroner (NOK/€) 7.9850 8.0092

Tangible assets

Tangible assets are recorded at the historical cost and carried in the balance sheet net of the related provision for accumulated depreciation and write-downs.Maintenance and repair costs are not capitalized and are recorded in the income statement in the year in which they are incurred.Depreciation commences when the asset is available for use and is calculated on a straight line basis over the estimated residual useful life of the asset.Depreciation rates applied reflect the useful life generally attributed to the various classes of assets and are unchanged from the previous year. These are:

- Buildings and light installations 2% - 10%- Plant and machinery 5% - 25%- Industrial and commercial equipment 6% - 25%- Other assets 6% - 33%

84


Land has an undetermined useful life and is therefore not subject to depreciation. Assets acquired in the year are depreciated on the basis of actual usage.The book value of tangible assets is subjected to impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the depreciation schedule originally set. Whenever there exists such an indication, the assets or cash generating units are written down to reflect their expected realizable value.The residual value of assets, their useful life and methods applied are reviewed annually and adjusted, where necessary, at the end of each year.Tangible assets are eliminated from the Balance Sheet at the time of their sale or when there no longer exists the expectation of future economic benefits from its use or disposal. Losses and gains (calculated as the difference between net revenues from the disposal and book value of the asset) are recorded in the Income Statement in the year in which they are disposed of.

Leased assets

Assets held under a financial lease, through which all risks and benefits relating to ownership are transferred to the Group, are recorded under assets at the lower of their current value and the present value of minimum lease payments due according to the contract, including the bullet payment due at the end of the lease to exercise the repurchase option.The liability corresponding to the lease contract is recorded under financial liabilities.Leased asset are classified under the respective category among buildings, plant and equipment, and depreciated over the shorter period between the term of the lease and the expected residual useful life of the asset.Lease contracts in which the lessor holds all risks and enjoys all benefits deriving from the leased asset are classified as operating leases and recorded as costs in the Income Statement over the term of the contract.

Intangible assets

Intangible assets are recorded under assets, as provided by IAS 38 (Intangible assets), whenever it is probable that future economic benefits are generated through use and when the cost of the intangible asset can be determined in a reliable manner.Intangible assets acquired separately are initially capitalized at cost, while those acquired through mergers are capitalized at their fair value at the time of acquisition.With the exception of development costs, assets constructed internally cannot be recorded as intangible assets.After the initial recording, intangible assets are carried in the balance sheet at cost, net of accumulated amortization calculated on a straight-line basis over their expected useful economic life, and of write-downs carried out as a result of durable losses in value. Intangible assets having an indefinite useful life are not amortized and subjected periodically to an impairment test to assess possible loss in value.

The useful life generally attributed to the various classes of assets is the following:

- concessions and licenses: 5 to 10 years- development costs: 5 years - trademarks: 10 to 20 years

85


Amortization commences when the asset is available for use, that is, when it is in a position and in the necessary condition to operate in the manner intended by the management of the company.The book value of intangible assets is subjected to impairment test whenever events or changes occurred indicate that the book value of the same can no longer be retrieved in line with the amortization schedule originally set. Whenever there exists such an indication and the book value of the asset exceeds its realizable value, the value of the asset is written-down to its expected realizable value.

Financial assets

Financial assets are initially recorded at cost, inclusive of accessory purchase costs, representing the fair value of the price paid. After the initial recording, financial assets are valued in accordance with their final purpose as described below.

Financial assets valued at fair value, whose change is recorded in the Income Statement

These are financial assets held for trading, acquired for the purpose of obtaining a profit from short-term fluctuations in price. Unless specifically designated as effective hedging instruments, derivatives are classified as financial assets held for trading purposes. Gains and losses on financial assets held for trading purposes are recorded in the income statement.

Financial assets held to maturityThese are financial assets other than derivatives that generate fixed financial flows or flows that may be determined, that have a set maturity and which the Group intends to and is capable of holding to maturity.

Financial assets that the Group decides to hold for an indefinite period of time do not fall under this category.

Long-term financial investments held to maturity, such as bonds, after their initial recording are accounted for at the amortized cost, using the effective rate of interest method, representing the rate at which estimated future payments or collections over the expected useful life of the asset are discounted to their present value.

The amortized cost is calculated keeping into account discounts and premiums, amortized over the term of the financial asset.

Loans extended and receivablesLoans and receivables are non-derivative financial assets providing for fixed payments or payments that may be determined, not listed on an active market. Such assets are recorded at the amortized cost using the actual discount rate method. Gains and losses are recorded in the Income Statement whenever loans extended and receivables are eliminated from the accounts or they experience losses in value, in addition to the amortization process.

Financial assets available for saleThe caption includes financial assets that do not fall under the above categories. After the initial recording, these are accounted for at fair value, while gains and losses are recorded under a specific Shareholders’ Equity reserve until the assets are not sold or a loss in value is ascertained. In such case, gains and losses accrued are charged to the income statement.In the case of securities widely traded on a regulated market, the fair value is determined with reference to the listed price at the closing of trading on the date of the financial statements. In the

86


case of financial assets for which there does not exist an active market, the fair value is determined through valuation techniques based on the price recorded in recent transactions between unrelated parties or on the basis of the current market value of a similar instrument, or on discounted cash flows or option pricing models. Investments in other companies fall in this category.

Loss in value of financial assetsThe Group verifies at least yearly the possible loss in value of individual financial assets. These are recorded only at the time when there exists objective evidence, at the occurrence of one or more events, that the asset has experienced a loss of value with respect to its initial recorded value.

Own shares

Own shares are recorded as a reduction of Shareholders’ Equity in a specific reserve. The purchase, sale, issue or cancellation of own shares does not determine the recording of any gain or loss in the Income Statement.

Inventories

Inventories are valued at the lower of cost and their expected realizable value, represented by their normal sale price, net of completion and selling costs.The cost of inventories includes the acquisition cost, the transformation cost and other costs incurred to take inventories to their current location and state.The cost of inventories is determined under the weighted-average method, inclusive of the cost of beginning inventories.

Payables and receivables

Receivables are recorded initially at fair value and subsequently carried at the amortized cost, written-down in case of permanent loss in value. Payables are valued at the amortized cost.

Cash and cash equivalents

Cash and cash equivalents are recorded at face value.

Loans

Loans are initially recorded at cost, corresponding to the fair value of the amount received, net of accessory costs incurred in the extension of the loan. After the initial recording, loans are valued at the amortized cost, using the effective interest method.

Translation of amounts denominated in currencies other than the euro

Transactions denominated in currencies other than the euro are initially accounted for in euro at the exchange rate at the date of the transaction. Currency translation differences arising at the time at which foreign currency receivables are collected and payables are paid out, are recorded in the income statement.At the date of the financial statements, monetary assets and liabilities denominated in currencies other than the euro - consisting of cash on hand or assets and liabilities to be received or paid out, whose amount is set and may be determined - are translated into euro at the exchange rate at the date of the financial statements, recording in the income statement the currency translation difference where appropriate.Non-monetary items denominated in currencies other than the euro are translated into euro at

87


the exchange rate at the time of the transaction, representing the historical exchange rate. Non-monetary elements recorded at fair value are instead translated into euro at the date at which their fair value is determined. When a gain or loss on a non-monetary element is recorded directly under Shareholders’ Equity, each currency component of the gain or loss must also be recorded directly under Shareholders’ Equity. On the contrary, when a gain or loss on a non-monetary element is recorded in the income statement, each currency component of the gain or loss must be recorded in the income statement.Functional currencies adopted by Cembre Group companies correspond to the currencies of the countries in which the registered offices of the same are located.

Provisions for risks and charges

Provisions for risks and charges are accrued against known liabilities whose amount and expiration cannot however be determined at the date of the financial statements. Accruals are made when the existence of a current obligation, legal or implicit, deriving from a past event, the fulfillment of which is expected to require the use of resources whose amount can be reliably estimated, is probable.Provisions are valued at the fair value of liabilities. When the financial effect and the timing of the cash outflow can be estimated in a reliable manner, provisions include the interest component, recorded in the Income Statement among financial inco-me (expense). Provisions accrued are reviewed at each accounting date and adjusted to bring them into line with the best estimate available at that date.

Employee benefits

Post-employment benefits falling under the category of defined benefit plans and other long-term benefits are subject to actuarial valuations. The resulting liability recorded in the financial statements is represented by the current value of the related liability of the Group, net of assets set aside to service post-employment benefit plans.Under IAS 19, the Employee Severance Indemnity is classified among defined benefit plans.It is to be noted that the Group opted not to use the so-called corridor approach and to record gains and losses resulting from changes in actuarial assumptions directly in the income statement.

Elimination of financial assets and liabilities

Financial assets are eliminated when the Group ceases to hold rights to receive financial flows deriving from the same or when such rights are transferred to another entity, that is when risks and benefits of the financial instrument cease to have an effect on the financial position and operating performance of the Group.A financial liability is written-off exclusively when the related obligation is cancelled, fulfilled or expired. Any material change in the contractual terms relating to the liability result in its cancellation and in the recording of a new liability. Any difference between the book value and the amount paid to extinguish the liability is recorded in the Income Statement.

Revenues

Revenues are valued at the current value of the amount received or receivable.

Disposal of assetsThe revenue is recognized when the Group has transferred the risks and benefits connected with the ownership of the good, and ceases to exercise the activity associated with ownership and the actual

88


control over the asset sold.

Services renderedRevenues are recorded based on the stage of completion of the operation at the date of the financial statements. When the result of the service rendered cannot be reliably estimated, revenues are recorded only to the extent of retrievable costs.The stage of completion is determined by valuing work carried out or by determining the proportion between costs incurred and total estimated costs to completion.

InterestInterest is recorded in the period in which it accrues, using the effective interest method.

DividendsDividends are recorded when the right of shareholders to receive them arises.

Grants

Grants are recorded when there exists a reasonable certainty that the same will actually be received and the company meets the conditions for the entitlement to the grant.Grants linked to cost components (e.g. operating grants) are recorded under “other revenues” and amortized over several years so that revenues match the costs they are intended to compensate.For grants linked to assets (e.g. grants on the purchase of plant and equipment or grants for capitalized R&D costs), its fair value is suspended under long-term liabilities and released to the income statement under “other revenues” over the useful life of the asset to which it relates, thus in the period over which the depreciation expense relating to the asset is charged to the income statement.

Financial charges

Financial charges are recorded as a cost in the period in which they accrue.

Cost of goods purchased and services

The cost of goods purchased and services received is recorded in the income statement based on the accrual method.

Income taxes (current, prepaid and deferred)

Current taxes are determined based on a realistic estimate of the tax expense for the period in accordance with tax regulations applicable in the respective countries in which Group companies operate.The Group records deferred and prepaid taxes arising from temporary differences between the book value of assets and liabilities and the related values reported for tax purposes, in addition to differences in the value of assets and liabilities generated by consolidation adjustments.Prepaid taxes are recorded only where there exists reasonable certainty of their retrieval through future profits within the term in which tax benefits are enjoyed. Deferred tax assets are recorded also where there exist deductible losses or tax credits whenever it is deemed probable that sufficient future profits will be generated in the medium-term (3 to 5 years). Financial derivatives

Derivative financial instruments are valued at market value (fair value). A derivative financial instrument can be acquired for trading or hedging purposes.Gains and losses on financial instruments acquired for trading purposes are charged to the income

89


statement.Derivatives acquired for hedging purposes may be accounted for under the hedge accounting method - offsetting the recording of the derivative in the income statement with adjustments to the value of assets and liabilities hedged - only when derivatives meet specific criteria.Hedge derivatives are classified as “fair value hedges” when they are acquired to hedge against the risk of fluctuations in the market value of the underlying asset or liability or fluctuations in the financial flows deriving from the same, both in the case of existing assets and liabilities or those deriving from a future transaction.In the case of fair value hedges, gains and losses on the restatement of the market value of a derivative instrument are taken to the income statement.With regard to the hedging of financial flows, gains and losses on the hedge instrument are recorded under Shareholders’ Equity when they relate to the portion of the hedge considered effective, while the portion not hedged is recorded in the income statement.

Earnings per share

Earnings per share are calculated by dividing net profit of the Group by the weighted average of the number of shares in circulation for the period.For the purposes of the calculation of diluted earnings per share, the weighted average of the number of shares in circulation is adjusted by assuming the conversion into shares of all stock options relating to shares having a diluting effect.

IV. INFORMATION BY SECTOR

Cembre adopted, as its primary reporting focus, information by geographical area based on the location in which the operations of the company are based or the production process takes place.Information by sector of activity is not provided, as the Cembre Group operates in a single sector denominated “Electric connectors and related tools”.As required under IAS 14, sector information by geographical area, based on the location in which the operations of the company are based or the production process takes place is provided below:

2005 ItalyRest of Europe

Rest of World

Elimination of intragroup transactions

Total

Revenues Sales to customers 39,323 27,828 2,846 69,997Sales to other Group companies 15,523 826 139 (16,488) 0Revenues by sector 54,846 28,654 2,985 (16,488) 69,997

Operating profit by sector 8,379 2,217 427 11,023

Overhead costs not assigned 0

Operating profit 11,023Financial income (expense) 169Income taxes (4,587)Net profit 6,605

90



Rest of World

Elimination of intragroup transactions

Total

Revenues Sales to customers 38,777 24,203 2,169 65,149Sales to other Group companies 13,367 814 10 (14,191) 0Revenues by sector 52,144 25,017 2,179 (14,191) 65,149 Operating profit by sector 5,764 1,749 143 7,656

Overhead costs not assigned 0

Operating profit 7,656Financial income (expense) (393)Income taxes (3,432)

Net profit 3,831

As the breakdown of sales by geographical area is different from that of the related Group activities, a breakdown of sales by geographical area of customers is shown below.

2005 2004Italy 31,239 31,179Europe 32,486 28,438Rest of World 6,272 5,532 69,997 65,149

The breakdown of assets and liabilities is shown below:


Rest of World

Total

Assets and Liabilities Assets of the sector 49,054 21,867 2,228 73,149Unassigned assets 4,561Total assets 77,710

Liabilities of the sector 18,120 3,958 232 22,310Unassigned liabilities 2,718Total liabilities 25,028

Other information by sector Capital expenditure: - Tangible assets 1,328 481 101 1,910- Intangible assets 138 4 0 142

Depreciation and amortization: - Tangible assets 2,764 573 27 3,364- Intangible assets 87 17 0 104

Write-downs 227 0 0 227

No. of employees 336 118 9 463

91



Rest of World

Total

Assets and Liabilities Assets of the sector 51,252 20,291 1,709 73,252Unassigned assets 4,840Total assets 78,092

Liabilities of the sector 23,255 4,929 496 28,680Unassigned liabilities 2,282Total liabilities 30,962

Other information by sector Capital expenditure: - Tangible assets 1,034 2,018 40 3,092- Intangible assets 81 31 0 112 3,204Depreciation and amortization: - Tangible assets 3,294 552 23 3,869- Intangible assets 226 31 0 257

Write-downs 405 0 0 405

No. of employees 343 112 7 462

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. TANGIBLE ASSETS

Land and buildings

Plant and machinery

Equip-ment

Other assets

Leased assets

Work in progress

Total

Historical cost 23,671 25,879 6,198 5,466 220 92 61,526

Accumulated depreciation (4,082) (19,282) (4,444) (3,973) (109) 0 (31,890)

Balance at Dec. 31, 2004 19,589 6,597 1,754 1,493 111 92 29,636

Increases 55 864 142 509 86 254 1,910

Currency differences 106 19 0 15 0 0 140

Depreciation (438) (1,735) (539) (598) (54) 0 (3,364)

Net divestments 0 (6) 0 (20) 0 (92) (118)

Reclassifications 0 (2) 2 2 (2) 0 0

Balance at Dec. 31, 2005 19,312 5,737 1,359 1,401 141 254 28,204

92


Land and buildings

Plant and machinery

Equip-ment

Otherassets

Leased assets

Work in progress

Total

Historical cost 22,312 25,560 5,802 5,270 183 90 59,217

Accumulated depreciation (3,762) (17,239) (3,731) (3,624) (106) 0 (28,462)

Balance at Jan. 1, 2004 18,550 8,321 2,071 1,646 77 90 30,755

Increases 1,571 397 398 547 87 92 3,092

Currency differences (2) 4 0 2 0 0 4

Depreciation (430) (2,122) (651) (614) (52) 0 (3,869)

Net divestments (100) (3) (64) (88) (1) (90) (346)

Balance at Dec. 31, 2004 19,589 6,597 1,754 1,493 111 92 29,636

Capital expenditure for 2005 consists primarily of purchases made by the parent company for the scheduled replacement of obsolete assets.Leased assets consist exclusively of motor vehicles acquired by the Spanish subsidiary.

2. INTANGIBLE ASSETS

Development costs Software Licenses Other intangible

assets Total

Historical cost 54 2,324 0 310 2,688

Accumulated amortization (10) (2,251) 0 (83) (2,344)

Balance at Dec. 31, 2004 44 73 0 227 344

Increases 92 49 0 0 141

Write-downs 0 0 0 (227) (227)

Amortization (30) (74) 0 0 (104)

Reclassifications 0 (4) 4 0 0

Balance at Dec. 31, 2005 106 44 4 0 154

At December 31, 2004, the non-competition agreement signed by General Marking was classified under “Other intangible assets”. As a result of the widening of the product range and changes in market conditions, it was decided to expense such cost entirely in 2005.

3. FINANCIAL ASSETS AVAILABLE FOR SALE

These are made up by equity investments in Consorzio Nazionale Imballaggi and Inn.tec. Srl, a tech-nology innovation consortium, both with registered office at the Brescia Province main office.In view of the immateriality of amounts and the difficulty in determining the fair value of the above at the date of the financial statements, these assets are valued at cost.

93


4. OTHER NON-CURRENT ASSETS

The item includes primarily security deposits and receivables on withholding taxes on employee severance indemnities of the parent company.

Dec. 31, 2005 Dec. 31, 2004 Change

Security deposits and other receivables 100 102 (2)

Receivables on prepaid withholding taxes on employee severance indemnities 0 43 (43)

Total 100 145 (45)

5. INVENTORIES

Dec. 31, 2005 Dec. 31, 2004 Change

Raw materials 4,405 4,056 349

Work in progress and semi-finished goods 4,986 4,754 239

Finished goods and merchandise 10,355 11,293 (938)

Total 19,746 20,103 (357)

The value of finished goods inventories is adjusted through a provision for slow-moving stock amounting approximately to €1,499 thousand. In 2005, the provision grew by €13 thousand due to currency tran-slation differences and accruals amounting to €89 thousand, while uses amounted to €48 thousand.

6. TRADE RECEIVABLES

Dec. 31, 2005 Dec. 31, 2004 Change

Gross trade receivables 22,181 20,006 2,155Provision for doubtful accounts (505) (532) 47

Total 21,656 19,474 2,202

Trade receivables by geographical area:

Dec. 31, 2005 Dec. 31, 2004 Change

Italy 13,008 12,448 560Europe 8,422 6,761 1,641North America 40 414 (374)Oceania 389 195 194Middle East 137 117 20Other 185 71 114Total 22,181 20,006 2,155

As shown in the table above, the increase in sales resulted in a parallel increase in trade receivables,

94


particularly in the European market. Average collection time remained however stable, growing from 109 days in 2004 to 113 days in 2005.

7. TAX RECEIVABLES

Dec. 31, 2005 Dec. 31, 2004 Change

Tax receivables 0 47 (47)Total 0 47 (47)

At December 31, 2005, all tax receivables had been received.

8. OTHER RECEIVABLES

Dec. 31, 2005 Dec. 31, 2004 Change

Receivable from employees 32 20 12VAT receivables 93 106 (13)Other 41 185 (144)Total 166 311 (145)

Item “Other” includes prevalently advances to suppliers and bills receivable. In the previous year the item included €130 thousand relating to extraordinary gains on the settlement of legal proceedings.

9. SHAREHOLDERS’ EQUITY

At December 31, 2005, the capital stock of the Parent Company, fully underwritten and paid-up, amounted to €8,840,000, made up of 17 million ordinary shares of par value €0.52 each, fully unde-rwritten and paid-up. No own shares were held by the Company at the end of the year.Adjustments relating to the consolidation process resulted in the following differences between the Balance Sheet of the parent company at December 31, 2005, and the Consolidated Balance Sheet at the same date:

Reconciliation between the statutory accounts of the parent company and the consolidated accounts

Sharehol-ders’ Equity Net profit

Shareholders’ Equity and profit of the parent company under IAS/IFRS 47,458 4,739 Elimination of Cembre GmbH provision for product warranty (*) 13 1 Elimination of write-down in the value of the equity investment in subsidiary General Marking Srl 432 432

Difference between book value and Shareholders’ Equity and share in net profit 6,439 1,403 Elimination of unrealized intra-group gains included in the value of inventories (*) (1,660) (20)Currency translation differences on elimination of intra-group payables and receivables 0 50 Group Shareholders’ Equity and net profit 52,682 6,605 (*) Amounts are stated net of tax effects.

Changes in individual items of Shareholders’ Equity are shown in the Statement of Changes in the Shareholders’ Equity included in the Consolidated Financial Statements.

95


The consolidation reserve is made up as follows: Dec. 31, 2005 Dec. 31, 2004

Elimination of book value of consolidated companies 5,045 3,801Elimination of unrealized intra-group gains included in the value of inventories (1,640) (1,280)Elimination of Cembre GmbH provision for product warranty 12 12Currency translation differences on elimination of intra-group payables and receivables (50) (126) 3,367 2,407

10. FINANCIAL LIABILITIES

Effective interest rate (%)

MaturityDec. 31,

2005Dec. 31,

2004

Bank overdrafts 2.5 on demand 303 416loans extended to: Cembre SpA 2.7 12/2005 0 2,646General Marking 3 01/2006 2,200 3,000Cembre Ltd (£ 242 thousand) 6 02/2006 354 138Cembre Inc (US $ 200 thousand) 4.22 03/2006 170 478Cembre España 3.04 03/2005 0 1,500 2,724 7,762

Leasing Spain (short-term portion) 2.97-4.18 2006 59 47Deferrals 53 95

CURRENT FINANCIAL LIABILITIES 3,139 8,320loans extended to: Cembre Ltd (£50 thousand) 6 06/2006 0 213Leasing Spain (long-term portion) 2.97-4.18 2007-2009 89 69

NON-CURRENT FINANCIAL LIABILITIES 89 282

The present value of minimum lease payments discounted using an average rate based on lease con-tracts currently held by the Company is shown in the table that follows:

Year Cash flow No. of days Current value2006 59 365 572007 45 730 422008 29 1,095 262009 15 1,460 13Total 148 138

Difference 10

Discounting rate 3.65%

96


Leasing commitments by maturity:

2007 2008 2009 Total

Minimum lease payments 45 29 15 89

Present value 42 26 13 81

The parent company granted guarantees against loans provided to subsidiaries Cembre Inc. and Ge-neral Marking srl.

11. EMPLOYEE SEVERANCE INDEMNITY AND OTHER RETIREMENT BENEFITS

The item includes the Employee Severance Indemnity accrued for employees of Italian companies. Special retirement benefits, due in accordance with French regulations to people employed in France at the time of retirement, are also included in the provision.As required under IAS 19, Employee Severance Indemnity liabilities were discounted to their present value through recognized actuaries. The table that follows shows changes in the provision occurred in 2005 and the actuarial effect recorded under personnel costs.

Dec. 31, 2005 Dec. 31, 2004

Beginning balance 4,253 3,549

Accruals 675 685

Uses (603) (387)

Actuarial effect 153 406

Closing balance 4,478 4,253

Actuarial calculations are based on the following assumptions:- life expectancy statistics relating to the probability of death or inability of employees, were

obtained by confronting INPS studies and ISTAT figures on the Italian population;- the discounting rate, inflation rate and revaluation rate applied to expected personnel retributions

and to the Employee Severance Indemnity are shown in the table below:

Dec. 31, 2005

Dec. 31, 2004

Annual discounting rate 4.00% 4.25%

Annual inflation rate 2.00% 2.00%

Real annual rate of increase in retributions due to career dvancements 1.00% 1.00%

Total annual rate of increase in retributions 3.00% 3.00%

Gross annual rate of increase in Employee Severance Indemnity 3.00% 3.00%

97


12. PROVISIONS FOR RISKS AND CHARGES

Changes in the provision for risks and charges in 2005 are shown in the table below:

Social Security

(INAIL) litigationSupplementary

customer indemnityOther Total

At December 31, 2004 224 42 15 281Accruals 7 8 0 15Uses 0 0 (1) (1)At December 31, 2005 231 50 14 295

13. DEFERRED TAX LIABILITIES AND ASSETS

Deferred tax liabilities and assets at December 31, 2005 are shown below: Dec. 31, 2005 Dec. 31, 2004Deferred tax liabilities Average cost valuation of inventories of the parent company (259) (200)Accelerated depreciation (1,500) (1,710)Elimination of Cembre GmbH product warranty provision (8) (8)Elimination of land depreciation (32) (32)Fair value of land (2,255) (2,255)

Gross deferred tax liabilities (4,054) (4,205)

Deferred tax assets Elimination of unrealized intra-group gains included in the value 985 974Write-down of inventories 335 335Amortization of goodwill 69 74Write-down of investment 13 20Discounting of Employee Severance Indemnity 164 113Provision for risks 6 4Other 61 0

Gross deferred tax assets 1,633 1,520Net deferred tax liabilities (2,421) (2,685)

14. FINANCIAL LIABILITIES ON DERIVATIVE INSTRUMENTS Dec. 31, 2005 Dec. 31, 2004 ChangeFair value Interest Rate Swap 21 30 (9)

The parent company is a party in an interest rate swap having a nominal value of €2.5 million. The swap terminates in July 2006 and until such date the company pays a fixed interest of 2.81% and receives a floating interest equal to the 3-month Euribor rate at each settlement date. Such financial instrument cannot be considered as a hedging instrument since the underlying loan was repaid in full

98


in 2004. The instrument was accounted for at fair value, which at December 31, 2005 was equal to negative €21 thousand (negative €30 thousand at December 31, 2004).

15. TRADE PAYABLES

Dec. 31, 2005 Dec. 31, 2004 ChangeTrade payables 7,015 7,404 (389)Advances 2 20 (18)Total 7,017 7,424 (407)

Trade payables by geographical area: Dec. 31, 2005 Dec. 31, 2004 ChangeItaly 5,399 5,062 337Europe 1,518 2,247 (729)America 21 25 (4)Oceania 82 65 17Other 2 5 (3)Total 7,022 7,404 (382)

16. TAX PAYABLES

Tax payables are made up as follows:

Dec. 31, 2005 Dec. 31, 2004 ChangeEmployee withholding taxes payable 830 839 (9)Current taxes payable 977 1,256 (279)Other taxes payable 44 26 18Total 1,851 2,121 (270)

17. OTHER PAYABLES

Other payables are made up as follows: Dec. 31, 2005 Dec. 31, 2004 ChangePayables to employees 825 786 39Bonuses owed to customers 1,452 1,301 151VAT and similar foreign taxes payable 428 593 (165)Commissions payable 157 148 9Payable to Statutory Auditors and similar foreign boards 50 69 (19)Social security payables 1,153 966 187Other 19 183 (164)Total 4,084 4,046 38

99


18. REVENUES FROM SALES AND SERVICES PROVIDED In 2005, revenues grew by 7.4% as compared to the previous year. Domestic sales represented 44.6% of total sales, up 0.2% on 2004, while sales in the rest of Europe represented 46.4% of the total, up 14.2% on the previous year. Sales in the rest of the world grew by 13.4% and represented 9% of total sales.

19. OTHER REVENUES

Other revenues are made up as follows: Dec. 31, 2005 Dec. 31, 2004 ChangeCapital gains 54 29 25Uses of provisions 16 0 16Other 35 166 (131)Operating grants 0 13 (13)Total 105 208 (103)

At December 31, 2004, item Other included a gain of €130 thousand resulting from a legal settlement.

20. COST OF SERVICES

The item is made up as follows: Dec. 31, 2005 Dec. 31, 2004 ChangeSubcontracted work 2,040 2,144 (104)Electricity, heating and water 868 775 93Transport of goods sold 1,682 1,593 89Fuel 242 205 37Traveling expenses 595 524 71Maintenance and repair 964 974 (10)Consulting 808 1,009 (201)Advertising and promotion 302 321 (19)Insurance 414 386 28Boards’ compensation 624 599 25Postage and telephone 344 316 28Commissions 299 242 57Security and cleaning 352 339 13Other 861 987 (126)Total 10,395 10,414 (19)

Item Other includes prevalently bank charges and employee canteen costs.

100


21. LEASES AND RENTALS

The item is made up as follows: Dec. 31, 2005 Dec. 31, 2004 ChangeRent and related costs 655 643 12Vehicle leasing 359 319 40Total 1,014 962 52

Rent relates to office space leased in Padua, Milan and Bologna, in addition to a building adjacent to the Company’s registered office. All buildings are owned by Tha Immobiliare. Further information is provided on the note on Related parties.

22. PERSONNEL COSTS Personnel costs are made up as follows:

Dec. 31, 2005 Dec. 31, 2004 ChangeWages and salaries 15,338 14,851 487Social security contributions 4,178 4,056 122Employee severance indemnity 896 1,139 (243)Retirement benefits 76 11 65Other costs 91 151 (60)Total 20,579 20,208 371

Employee termination indemnities at December 31, 2005 include €154 thousand of costs relating to the discounting of the provision to its present value. The average number of employees by category is shown in the table below: Dec. 31, 2005 Dec. 31, 2004 ChangeManagers 16 16 0Administrative and commercial staff 222 229 (7)Workers 225 217 8Total 463 462 1

23. OTHER OPERATING COSTS

Other operating costs are made up as follows: Dec. 31, 2005 Dec. 31, 2004 ChangeSundry taxes 231 205 26Losses on receivables 25 16 9Capital losses 21 1 20Donations 41 43 (2)Other 152 55 97Total 470 320 150

Item Other includes prevalently property taxes paid by the UK subsidiary.

101


24. FINANCIAL INCOME (EXPENSE)

Dec. 31, 2005 Dec. 31, 2004 Change

Loans and bank overdrafts (194) (326) 132Other financial charges (20) (52) 32 (214) (378) 164

Interest earned on bank account balances 70 29 41Other financial income 2 3 (1) 72 32 40

Financial income (expense) (142) (346) 204

25. INCOME TAXES

Income taxes: Dec. 31, 2005 Dec. 31, 2004 ChangeCurrent (4,849) (4,016) (833)Deferred 262 583 (332) (4,587) (3,433) (1,154)

In the table that follows we provide a reconciliation between the theoretical tax expense, calcula-ted applying the tax rate of the parent company (Ires+Irap = 37.25%), and the actual tax expense recorded in the Consolidated Financial Statements.

2005 2004 amount tax rate amount tax rateProfit before taxes 11,192 7,263 Theoretical tax expense 4,169 37.25% 2,706 37.25%Effect of non-deductible costs 902 8.06% 1,435 19.76%Effect of revenues not taxed and deductions (887) -7.93% (1,597) -21.99%Effect of losses of subsidiaries (346) -3.09% (214) -2.95%Effect of different taxable income for the purposes of IRAP (local taxes) 623 5.57% 693 9.54%Effect of different foreign tax rates 126 1.13% 410 5.65%Total tax expense in the Consolidated Financial Statements 4,587 40.98% 3,433 47.26%

The table that follows shows temporary differences and accumulated losses that could give rise to the recording of prepaid taxes. Such taxes were not recorded as their retrieval is not deemed probable:

Subsidiary Accumulated losses Tax rate Amount Prepaid taxes

General Marking: Losses carried forward 33% 901 297 Temporary differences on intangible asset amortization 33% 436 144 Non-deductible accruals 33% 200 66

Cembre AS: Losses carried forward 28% 89 25

Accumulated losses of General Marking date from years prior to 2004 and cannot therefore be set against profits of parent company Cembre SpA for the purposes of the tax consolidation. Such losses may be carried forward indefinitely due to the fact that they relate to the first two years of activity of the company. Losses of Norwegian subsidiary Cembre AS may also be carried forward indefinitely for tax purposes.

102


Deferred and prepaid taxes are made up as follows:

2005 2004Deferred tax liabilities Valuation of parent company’s inventories at average cost (59) (72)Accelerated depreciation 210 147Reversal of depreciation on land 0 (7)

151 68Deferred tax assetsElimination of unrealized intra-group gains included in the value of inventories 11 213Write-down of inventories 0 203Amortization of goodwill (5) (11)Write-down of investment (7) (6)Discounting of Employee Severance Indemnity 51 134Provision for social security (INAIL) charges 2 0Other 61 2

113 535

Previous years’ taxes (6) (20)Foreign-exchange differences 4 0

Deferred tax assets accrued in the period 262 583

26. EARNINGS PER SHARE

Earnings per share are calculated by dividing net profit by the weighted average number of shares in circulation for the period, excluding own shares. 2005 2004Consolidated net profit (€‘000) 6,605 3,830 No. of ordinary shares (‘000) 17,000 16,900 Earnings per share (€) 0.39 0.23

27. DIVIDENDS

On May 26, 2005 (with ex-dividend date May 23) the company distributed a dividend amounting to €1,698 thousand on net profit for the year ended December 31, 2004, equal to €0.1 for each share entitled to dividends. 2005 2004Resolved and paid in the year Balance due for 2004 dividend: €0.1 (2003: €0.073) 1,698 1,223

Proposal submitted to the Shareholders’ Meeting (not recorded as liability at December 31) Balance due for 2005 dividend: €0.15 (2004: €0.1) 2,550 1,698

Proposed dividends submitted for approval to the Shareholders’ Meeting (not recorded as a liability at December 31) amount to €2,550 thousand.

103


28. COMMITMENTS AND RISKS

At December 31, 2005, guarantees granted by the Cembre Group were:

Dec. 31, 2005 Dec. 31, 2004 ChangeGuarantees granted 108 62 46

29. RELATED PARTIES

Transactions concluded between Cembre SpA and its subsidiaries in 2005 are summarized in the table below:

Receivables Payables Revenues ExpensesCembre Ltd. 1,119 26 4,940 120Cembre S.a.r.l. 253 2 2,275 8Cembre España S.L. 2,374 2 3,833 3Cembre AS 95 0 195 0Cembre GmbH 571 3 1,751 35Cembre Inc. 704 0 1,460 138General Marking srl 38 163 248 709Total 5,154 196 14,702 1,013

Cembre S.p.A. leased an industrial building to subsidiary General Marking S.r.l.. The yearly rent for the building for 2005 amounts to €93 thousand.Among assets leased to Cembre S.p.A. by third parties are an industrial building adjacent to the Com-pany’s registered office, measuring a total of 5,960 square meters on three floors, in addition to the Milan, Padua and Bologna sales offices owned by company Tha Immobiliare SpA, with registered office in Bergamo, controlled by Anna Maria Onofri, Giovanni Rosani and Sara Rosani, directors of the parent company Cembre S.p.A.. Lease payments for 2005 amount to €326 thousand for the building adjacent to the Company’s head office, €59 thousand for the Sesto S. Giovanni (Milan) office, €49 thousand for the Selvazzano (Padua) office, and €42 thousand for the Bologna office. Rent received for 2005 is in line with market conditions. It is in the Company’s interest to benefit from the continuity of office space reducing the risk of early termination of leases. At the end of 2005, all amounts due to Tha Im-mobiliare had been settled.With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities.Cembre S.p.A. does not have direct relationships with its parent company Lysne S.p.A. of any other nature than that of the exercise of shareholders’ rights on the part of the parent. Lysne S.p.A. does not carry out any management or coordination activity with respect to Cembre S.p.A.

Boards’ compensation

In 2005, compensation for the Board of Directors and the Board of Statutory Auditors amounted to:

Emoluments as directors of Cembre SpA 409Emoluments as directors of subsidiaries 18Retribution as employees 252Non-monetary benefits 14

Non-monetary benefits relate to the use of a company car and insurance policies underwritten on their behalf. The breakdown of Board compensation is provided in Attachment A of the present document.

104


30. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

The Group does not make significant use of derivative instruments to hedge against interest risk and currency exposure. At December 31, 2005, the sole hedging contracts were:

- an interest rate swap having a nominal value of €2.5 million stipulated by the parent company, and- two currency (€) forward purchase agreements stipulated by UK subsidiary Cembre Ltd, amounting to a total of €500 thousand, expired and reimbursed on February 10, 2006.

Interest rate risk

Cembre S.p.A. normally stipulates floating rate loan contracts. To hedge against exposure to interest rate fluctuations (cash flow hedge) the company enters into interest rate swap transactions.At December 31, 2005, no loan remained outstanding.

Currency risk

Despite a strong international presence, Cembre S.p.A. does not have a significant exposure to currency risk (on an operating or equity basis), as it operates mainly in the euro area, the currency in which its trade transactions are mainly denominated.Exposure to currency risk is determined mainly by sales in US dollars, British pounds and Norway kroners. The size of these transactions is not significant in influencing the overall performance of the Company. To hedge part of the risk deriving from purchases of supplies in euro from the parent company, UK subsidiary Cembre Ltd entered into forward currency purchase agreements to acquire euro, as described in the table that follows.

Date of contract

Amount in euro

Forward exchange-rate (€/£)

£amount Expiration

Actual exchange-rate (€/£)

Forward £ amount Effect

Nov. 10, 2005 250,000 1.4737 169,641 Feb. 2, 2006 1.4622 170,975 1,334Dec. 20, 2005 250,000 1.4703 170,033 Feb. 2, 2006 1.4622 170,975 942

As apparent, the hedge resulted in a £2 thousand (€3 thousand) gain at the expiration date.

Liquidity risk

The exposure of the Group to liquidity risk is not material.

Credit risk

Exposure to credit risk relates exclusively to trade receivables.None of the areas in which the Group operates poses relevant credit risks.Operating procedures limit the sale of products or services to customers who do not possess an adequate credit profile or provide guarantees.

Price risk

The exposure of the Company to price risk is minimal and relates exclusively to market conditions.The book value of financial instruments is in line with their fair market value, as for the most part they have short-term maturities.

105


31. SUBSEQUENT EVENTS

No event having significant effects on the Group’s financial position or operating performance occurred after the closing of the financial year.

32. IMPACT OF THE APPLICATION OF IAS/IFRS

As a result of the coming into operation of EU Regulation 1606/2002 issued by the European Parliament and the European Council in July 2002, companies whose securities are admitted to listing in a regulated market of a Member State of the European Union, are required to prepare from 2005 their consolidated financial statements under international accounting principles (IAS/IFRS) issued by the International Accounting Standard Board (IASB) and approved by the European Commission.Consequently, the consolidated financial statements of Cembre S.p.A. at December 31, 2005 will be prepared under IAS/IFRS which require, among other things, the preparation of comparative financial statements at December 31, 2004 under international accounting principles.The Cembre Group has appointed independent auditors Reconta Ernst & Young to audit the opening IAS/IFRS balance sheet at January 1, 2004 and the IAS/IFRS Shareholders’ Equity at December 31, 2004 and net profit for the year ended at the same date.

First-time application of international accounting standards (IFRS 1)

As required under IFRS 1, at the date of transition to the new accounting principles (January 1, 2004), the company prepared a consolidated balance sheet in which:

- all and exclusively assets and liabilities whose recording is allowed under the new accounting principles were recorded;

- items previously reported in the financial statements in a manner different from that required under IFRS were reclassified;

- IFRS were applied in the valuation of all assets and liabilities recorded.

The effect of the adjustment to new accounting principles of beginning balances of assets and liabilities was recorded under Shareholders’ Equity in a specific retained earnings reserve, net of the related tax effect recorded each time in the deferred tax provision or under deferred tax assets.Upon the first-time application of IAS/IFRS, it has been necessary to make choices among exemptions allowed under IFRS 1.The most significant choices made by the Cembre Group were:

- aggregations of companies carried out before the transition date were not reviewed retrospectively by restating both assets and liabilities in line with their current value at the time of their acquisition by the Group;

- the fair value criteria was used instead of cost in the valuation of land.

The Group did not opt for the postponement of the transition date for the classification and valuation of financial assets and liabilities, consequently, IAS 32 and 39 were adopted from January 1, 2004. Other exemptions allowed under IFRS 1 are not applicable for the Cembre Group.

Effect of the adoption of IFRS on the balance sheet at January 1, 2004

A summary consolidated balance sheet at the date of transition, reclassified by separating current and non-current assets and liabilities is provided below.

106


Balance Sheet at January 1, 2004

(€ ‘000)Reclassified

Italian GAAP

Reclassification due to adoption of

IAS/IFRS

Effect of adoption of IAS/IFRS

IAS/IFRS

Note Amount Note Amounts

ASSETS

A) NON-CURRENT ASSETS

Tangible assets 23,872 3 761 6-7 6,122 30,755 Intangible assets 1,345 1-3 (451) 0 894 Financial assets available for sale 5 0 0 5 Other non-current assets 793 2 (588) 0 205 Deferred tax assets 1,013 0 0 1,013

TOTAL NON-CURRENT ASSETS 27,028 (278) 6,122 32,872

B) CURRENT ASSETS

Inventories 20,634 0 0 20,634 Trade receivables 18,199 0 0 18,199 Tax receivables 194 4 (129) 0 65 Other receivables 547 1-4 (350) 0 197 Cash and cash equivalents 4,058 0 0 4,058

TOTAL CURRENT ASSETS 43,632 (479) 0 43,153

C) NON-CURRENT ASSETS AVAILABLE FOR SALE

TOTAL ASSETS (A+B+C) 70,660 (757) 6,122 76,025



Capital stock 8,840 0 0 8,840 Reserves 32,187 2 (588) 5-6-7 3,883 35,482 Net profit 0 0 0 0

TOTAL SHAREHOLDERS’ EQUITY 41,027 (588) 3,883 44,322


Non-current financial liabilities 2,707 0 0 2,707 Employee Severance Indemnity and other personnel 3,611 0 5 (62) 3,549 Provisions for risks and charges 386 0 0 386 Deferred tax liabilities 1,994 0 5-6-7 2,301 4,295

TOTAL NON-CURRENT LIABILITIES 8,698 0 2,239 10,937


Current financial liabilities 9,410 1 91 0 9,501 Liabilities on derivative instruments 0 0 0 0 Trade payables 6,818 1 (32) 0 6,786 Tax payables 1,417 1-4 (476) 0 941 Other payables 3,290 1-4 248 0 3,538

TOTAL CURRENT LIABILITIES 20,935 (169) 0 20,766

D) LIABILITIES ON ASSETS AVAILABLE FOR SALE

TOTAL LIABILITIES (B+C+D) 29,633 (169) 2,239 31,703

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 70,660 (757) 6,122 76,025

107


NOTES

Reclassifications

1. In line with IFRS, the residual amount relating to the non-competition agreement signed by subsi-diary General Marking in the context of the acquisition of a business unit operating in the industrial marking sector (with a residual value of €310 thousand), formerly classified among prepaid expenses, was reclassified among intangible assets.

As international accounting standards do not provide for the recording under Shareholders’ Equity of accrued income, prepaid expenses, accrued liabilities and deferred income, in the balance sheet prepared under IAS/IFRS, amounts previously recorded under current assets among “Other payables” (amounting to a residual value of €156 thousand), and under current liabilities among “Other paya-bles” (amounting to €164 thousand), were reclassified among other current liabilities items according to their nature.

2. Under Italian GAAP, own shares are recorded among assets and against such recording a reserve is accrued under Shareholders’ Equity. Under IAS/IFRS own shares are instead recorded as a reduction of the Shareholders’ Equity using, also in this case, a specific reserve.

The different accounting treatment reduces, at January 1, 2004, the Shareholders’ Equity by €588 thousand, against the elimination from assets of an equivalent amount relating to own shares, and the simultaneous recording of a negative reserve of the same amount (see “Statement of Changes in the Shareholders’ Equity”).

3. Costs relating to improvements made to assets leased (€761 thousand, net of the related accumulated depreciation), that meet the requirement of being identifiable and distinct from the asset to which they relate, were reclassified from “Intangible assets” to “Tangible assets”.

4. VAT receivables, amounting to €129 thousand, and VAT payables, amounting to €474 thousand, were reclassified among “Other receivables and “Other payables”, because, according to international standards, items “Tax receivables” and “Tax payables” include only direct taxes.

Value adjustments

5. Italian GAAP require the recording of the liability for the Employee Severance Indemnity on the basis of the nominal amount due at the date of the financial statements. IAS 19 classifies the Employee Severance Indemnity among post-employment benefits as a defined benefit plan. Such classification requires the liability accrued to be valued according to actuarial criteria, using the projected unit credit method which consists in the projection of future outflows on the basis of historical data and the population curve, in addition to the discounting of these flows on the basis of a market interest rate.

The application of such valuation method resulted in a €62 thousand reduction in the value of the Employee Severance Indemnity at January 1, 2004, and a corresponding increase in the Sha-reholders’ Equity, net of the related tax effect, of €41 thousand.

6. In compliance with IAS 16, the Group reported land separately from buildings, also in case these were acquired jointly. Land has in fact as a norm an unlimited useful life and is therefore not su-bjected to depreciation.In particular:

- the value of land was separated from buildings and amounts to €611 thousand. Such value was determined through an expert opinion;

- the value at January 1, 2004 of accumulated depreciation relating to land, equal to €68 thousand, was eliminated.

The adjustment, net of the related tax effect, resulted in a €43 thousand increase in the Sharehol-ders’ Equity at January 1, 2004.

108


7. Having assessed through an independent survey that the value of land recorded in the financial statements differed significantly from the market value of the same, as allowed under IFRS 1, in the transition to IAS, land was recorded at its fair value at the date of the transition in place of cost.

The resulting increase in the value of land is equal to €6,054 thousand, while the effect on the Shareholders’ Equity, net of taxes, is equal to €3,799 thousand..

8. Adjustments to item “Deferred tax liabilities” are determined net of the deferred tax effect genera-ted by increases in assets or decreases in liabilities resulting from the introduction of IAS/IFRS.

Total adjustments amount to €2,301 thousand and consist of:

Employee benefits – Employee Severance Indemnity (note 5) 21Elimination of accumulated depreciation on land (note 6) 25Fair value valuation of land (nota 7) 2,255Total 2,301

Effect of the introduction of international accounting principles on the consolidated Shareholders’ Equity: summary

The table that follows shows main changes in the consolidated Shareholders’ Equity at January 1, 2004:

RECONCILIATION OF CONSOLIDATED SHAREHOLDERS’ EQUITY AT JAN. 1, 2004(€ ‘000) Note SHAREHOLDERS’ EQUITY UNDER ITALIAN GAAP 41,027 Reclassification of own shares 2 (588)Discounting of Employee Severance Indemnity 5 62Elimination of accumulated depreciation relating to land 6 68Revaluation of land 7 6,054 Tax effect 8 (2,301) SHAREHOLDERS’ EQUITY UNDER IAS/IFRS 44,322

Effect of the adoption of IFRS on the balance sheet and income statement at December 31, 2004

INCOME STATEMENT FOR THE YEAR ENDED DEC. 31, 2004

Below we report a reconciliation of the income statement for the year ended December 31, 2004 prepared under Italian GAAP and IAS/IFRS.As a result of reclassifications and adjustments shown in the income statement reconciliation that follows, revenues decline from €65,310 thousand to €65,149 thousand, the operating profit from €8,024 thousand to €7,656 thousand, and net profit from €4,144 thousand to €3,830 thousand.

109


The income statement that follows was prepared under IFRS 1:

Income Statement for the year ended December 31, 2004

(€)Reclassified

Italian GAAP

Reclassification due to adoption

of IAS/IFRS

Effect of adoption

of IAS/IFRSIAS/IFRS

Note Amount Note Amount Revenues from sales and services 65,310 2 (161) 0 65,149 Other revenues 238 2 (30) 0 208 TOTAL REVENUES 65,548 (191) 0 65,357 Cost of goods and merchandise (21,105) 2 3 0 (21,102) Cost of services received (10,496) 2-3 82 0 (10,414) Lease and rental costs (962) 2 (1) 0 (963) Personnel costs (19,796) 2 (6) 6 (406) (20,208) Other operating costs (520) 2 200 0 (320) Change in inventories (349) 0 0 (349) Increase in assets due to internal 345 0 0 345 Write-down of receivables (141) 0 0 (141) Accruals to provisions for risks and charges (18) 0 0 (18) GROSS OPERATING PROFIT 12,506 87 (406) 12,187 Tangible asset depreciation (3,826) 1-2 (61) 5 18 (3,869) Intangible asset amortization (251) 1-3 (6) 0 (257) Write-down of long-term assets (405) 0 0 (405) OPERATING PROFIT 8,024 20 (388) 7,656 Financial income (expense) (213) 4 (84) 0 (297) Foreign exchange gains (losses) (96) 0 0 (96) PROFIT BEFORE TAXES 7,715 (64) (388) 7,263 Income taxes (3,571) 2-4 11 5-6 127 (3,433) NET PROFIT 4,144 (53) (261) 3,830

NOTES

Reclassifications

1. The reclassification of leasehold improvement costs from “Intangible assets” to “Tangible assets”, resulted in the reclassification from the related amortization and depreciation amounting to €77 thousand.

2. As provided by IAS 1, extraordinary items, amounting under Italian GAAP to negative €29

110


thousand, were reclassified as follows:

- Revenues: €161 decline;- Other operating revenues: €30 thousand decline;- Raw materials and consumables: €3 thousand decline;- Personnel costs: €6 thousand decline;- Cost of services received: €1 thousand increase; - Leases and rentals: €1 thousand increase;- Other operating costs: €200 thousand decline;- Tangible asset depreciation: €16 thousand decline;- Taxes: €20 thousand increase;

3. The reclassification of the non-competition agreement underwritten by subsidiary General Marking among intangible assets, resulted in the reclassification of €83 thousand corresponding to the share for the period from “Cost of services received” to “Intangible asset amortization”.

4. Under IAS 32, revenues from the sale of own shares were netted from the income statement and recorded directly as an increase to the Shareholders’ Equity.

This reclassification, equal to €84 thousand, resulted in a €53 thousand reduction in the profit for the year, net of the related tax effect.

Value adjustments

5. Under IAS 16, the value of land must be separated from that of buildings, as, contrary to the latter, land has an unlimited useful life and is not therefore subject to depreciation. The Group has therefore eliminated the depreciation expense relating to land for the year. The adjustment resulted in a €18 thousand reduction in tangible asset depreciation and a €7 thousand increase in taxes, representing the related tax effect.

6. The different accounting treatment of employee benefits involving the recalculation of the Em-ployee Severance Indemnity using actuarial techniques, resulted in a €406 thousand increase in personnel costs, and a €134 thousand decline in taxes, representing the related tax effect.

Effect on consolidated net profit for 2004: summary

The table that follows shows main changes occurred in the consolidated net profit. Adjustments are classified by type, in line with the table above.

RECONCILIATION OF CONSOLIDATED NET PROFIT FOR 2004

(€ ‘000) Note

NET PROFIT UNDER ITALIAN GAAP 4,144 Recording of revenues from sale of own shares under Shareholders’ Equity 4 (84)Elimination of land depreciation 5 18Discounting of Employee Severance Indemnity 6 (406) Tax effect of recording of revenues from sale of own shares under Shareholders’ Equity 4 31Tax effect of elimination of land depreciation 5 (7)Tax effect of discounting of Employee Severance Indemnity 6 134 NET PROFIT UNDER IAS/IFRS 3,830

111


BALANCE SHEET AT DECEMBER 31, 2004

A summary consolidated balance sheet at December 31, 2004, reclassified by separating current and non-current assets and liabilities is provided below.

Balance Sheet at December 31, 2004

(€ ‘000)Reclassified

Italian GAAP

Reclassification due to adoption of

IAS/IFRS

Effect of adoption of IAS/IFRS

IAS/IFRS

Note Amount Note Amount

ASSETS

A) NON-CURRENT ASSETS Tangible assets 22,805 3 691 7-9 6,140 29,636 Intangible assets 807 1-3 (463) 0 344 Financial assets available for sale 5 0 0 5 Other non-current assets 436 2 (291) 0 145 Deferred tax assets 1,407 0 8 113 1,520

TOTAL NON-CURRENT ASSETS 25,460 (63) 6,253 31,650

B) CURRENT ASSETS Inventories 20,103 0 0 20,103 Trade receivables 19,474 0 0 19,474 Tax receivables 153 6 (106) 0 47 Other receivables 577 1-6 (266) 0 311 Cash and cash equivalents 6,507 0 0 6,507

TOTAL CURRENT ASSETS 46,814 (372) 0 46,442

C) NON-CURRENT ASSETS AVAILABLE FOR SALE

TOTAL ASSETS(A+B+C) 72,274 (435) 6,253 78,092



Capital stock 8,840 0 0 8,840 Reserves 30,815 2-5 (238) 7-8-9 3,883 34,460 Net profit 4,144 3,830

TOTAL SHAREHOLDERS’ EQUITY 43,799 (238) 3,883 47,130


Non-current financial liabilities 282 0 0 282 Employee Severance Indemnity and other personnel benefits 3,909 0 8 344 4,253 Provisions for risks and charges 311 4 (30) 0 281 Deferred tax liabilities 1,918 0 7-9 2,287 4,205

TOTAL CURRENT LIABILITIES 6,420 (30) 2,631 9,021


Current financial liabilities 8,225 1 95 0 8,320 Liabilities on derivative instruments 0 4 30 0 30 Trade payables 7,471 1 (47) 0 7,424 Tax payables 2,717 1-6 (596) 0 2,121 Other payables 3,642 1-6 404 0 4,046

TOTAL CURRENT LIABILITIES 22,055 (114) 0 21,941

D) LIABILITIES ON ASSETS AVAILABLE FOR SALE

TOTAL LIABILITIES (B+C+D) 28,475 (144) 2,631 30,962

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (A+B+C+D) 72,274 (382) 6,514 78,092

112


NOTES

Reclassifications

1. In compliance with IFRS, the residual amount relating to the non-competition agreement signed by subsidiary General Marking srl in the context of the acquisition of a business unit operating in the industrial marking sector (with a residual value of €227 thousand), formerly classified among prepaid expenses, was reclassified among intangible assets.

As international accounting standards do not provide for the recording under Shareholders’ Equi-ty of accrued income, prepaid expenses, accrued liabilities and deferred income, in the balance sheet prepared under IAS/IFRS, amounts previously recorded under current assets among “Other receivables” (amounting to a residual value of €62 thousand), and under current liabilities among “Other payables” (amounting to €150 thousand), were reclassified among other current liabilities items according to their nature.

2. Under Italian GAAP, own shares are recorded among assets and, against such recording, a reser-ve is accrued under Shareholders’ Equity. Under IAS/IFRS own shares are instead recorded as a reduction of the Shareholders’ Equity using, also in this case, a specific reserve.

The different accounting treatment reduces, at December 31, 2004, the Shareholders’ Equity by €291 thousand, against the elimination from assets of an equivalent amount relating to own shares, and the simultaneous recording of a negative reserve of the same amount (see “Statement of Changes in the Shareholders’ Equity”).

3. Costs incurred in improvements made to assets leased (€691 thousand, net of the related accu-mulated depreciation), that meet the requirement of being identifiable and distinct from the asset to which they relate, were reclassified from “Intangible assets” to “Tangible assets”.

4. The risk provision on interest rate swaps, amounting to €30 thousand, was reclassified under a specific item denominated “Financial liabilities on derivative instruments”. This reflects the current value of the spread between cash flows from hedged loans and those from the hedging instrument.

5. As provided under IAS 32, revenues from the sale of own shares held are netted from the income statement and recorded directly as an increase in the Shareholders’ Equity. This reclassification, net of the related tax effect, resulted in a reduction of the profit for the period of €53 thousand, while it had no effect on the Shareholders’ Equity.

6. VAT receivables, amounting to €106 thousand, and VAT payables, amounting to €593 thousand, were reclassified among “Other receivables and “Other payables”, because, according to interna-tional standards, items “Tax receivables” and “Tax payables” include only direct taxes.

Value adjustments

7. In compliance with IAS 16, the Group reported land separately from buildings, also in case these were acquired jointly. Land has in fact as a norm an unlimited useful life and is therefore not su-bjected to depreciation.

In particular:

- the value of land was separated from buildings and amounts to €611 thousand;- the value at December 31, 2004 of accumulated depreciation relating to land, equal to €86

thousand, was eliminated. The adjustment, net of the related tax effect, resulted in a €54 thou-sand increase in the Shareholders’ Equity at December 31, 2004.

8. Italian GAAP require the recording of the liability for the Employee Severance Indemnity on the basis of the nominal amount due at the date of the financial statements.

IAS 19 classifies the Employee Severance Indemnity among post-employment benefits as a defi-ned benefit plan. Such classification requires the liability accrued to be valued based on actuarial

113


criteria, using the projected unit credit method which consists in the projection of future outflows on the basis of historical data and the population curve, in addition to the discounting of these flows on the basis of a market interest rate.

The application of such valuation method resulted in a €344 thousand increase in the value of the Employee Severance Indemnity at December 31, 2004, and a corresponding decrease in the Shareholders’ Equity, net of the related tax effect, of €231 thousand.

9. Having assessed through an independent survey that the value of land recorded in the financial statements differed significantly from the market value of the same, as allowed under IFRS 1, in the transition to IAS land was recorded at its fair value at the date of the transition in place of cost.

The resulting increase in the value of land is equal to €6,054 thousand, while the effect on the Shareholders’ Equity, net of taxes, is equal to €3,799 thousand.

10. Adjustments to item “Deferred tax assets” are determined by the deferred tax effect generated by decreases in assets or increases in liabilities resulting from the introduction of IAS/IFRS.

Total adjustments amount to €113 thousand (€134 thousand on the 2004 income statement and negative €21 million as initial effect at January 1, 2004) and relate to the tax effect of the increase in the Employee Severance Indemnity resulting from its discounting.

11. Adjustments to item “Deferred tax liabilities” are determined by the deferred tax effect generated by increases in assets or decreases in liabilities resulting from the introduction of IAS/IFRS.

Total adjustments amount to €2,287 thousand and consist of:

Elimination of accumulated depreciation on land (note 7) 32Fair value valuation of land (note 9) 2,255Total 2,287

Effect of the adoption of IAS/IFRS on the Consolidated Shareholders’ Equity: summary.

The table that follows shows main changes in the Consolidated Shareholders’ Equity at December 31, 2004:

RECONCILIATION OF CONSOLIDATED SHAREHOLDERS’ EQUITY AT DECEMBER 31, 2004 (€ ‘000) Note SHAREHOLDERS’ EQUITY UNDER ITALIAN GAAP 43,799 Reclassification of own shares 2 (291)Elimination of accumulated depreciation relating to land 7 86Discounting of Employee Severance Indemnity 8 (344)Valuation of land at fair value 9 6,054 Tax effect of elimination of accumulated depreciation relating to land 7 (32)Tax effect of discounting of Employee Severance Indemnity 8 113Tax effect of valuation of land at fair value 9 (2,255) SHAREHOLDERS’ EQUITY UNDER IAS/IFRS 47,130

114


Effect of the adoption of IAS/IFRS on the net financial position at January 1, 2004 and December 31, 2004: summary

The table that follows shows the effect of the adoption of IAS/IFRS commented above on the consolidated financial position of the Group at January 1, 2004 and December 31, 2004:

RECONCILIATION OF NET FINANCIAL POSITION Jan. 1, 2004 Dec. 31, 2004 NET FINANCIAL POSITION UNDER ITALIAN GAAP (7,471) (1,709)

NETTING OF OWN SHARES (588) (291)RECLASSIFICATION OF DISCOUNTED BILLS (91) (95)RECLASSIFICATION OF EMPLOYEE SEVERANCE INDEMNITY 0 (30)

NET FINANCIAL POSITION UNDER IAS/IFRS (8,150) (2,125)

The effect on the opening net financial position (at January 1, 2004) is due to the netting of own shares (€588 thousand) and the reclassification of discounted bills (€91 thousand).

33. CONSOLIDATED COMPANIES

The consolidation area is unchanged from December 31, 2004. Companies consolidated line-by-line are:

Company Registered office Share capitalShare held at

Dec. 31, 2005

Share held at Dec. 31,

2004

Cembre LtdSutton Coldfield (Birmingham)

£ 1,700,000 100% 100%

Cembre Sarl Morangis (Paris) € 1,071,000 100% (*) 100% (*)

Cembre España SL Coslada (Madrid) € 1,902,000 100% (*) 100% (*)

Cembre AS Stokke (Norway) NOK 2,400,000 100% 100%

Cembre GmbH Monaco (Germany) € 512,000 100% (*) 100% (*)

Cembre IncEdison

(New Jersey - Usa)US $ 840,000 100%(**) 100%(**)

General Marking srl Brescia (Italy) € 99,000 100% 100%

(*) of which 5% held through Cembre Ltd.(**) of which 29% held through Cembre Ltd.


THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A. CARLO ROSANI

115


Att

achm

ent

A –

Not

es t

o th

e C

onso

lidat

ed F

inan

cial

Sta

tem

ents

of

Cem

bre

S.p.

A.

DIR

EC

TO

RS

AN

D S

TA

TU

TO

RY

AU

DIT

OR

S’ C

OM

PE

NSA

TIO

N

PO

SIT

ION

C

OM

PEN

SAT

ION

(€

)

Posi

tion

Te

rm (

1)Em

olum

ents

fo

r pos

itio

nN

on-m

onet

ary

bene

fits (

2)B

onus

es a

nd

othe

r inc

enti

ves

Oth

erco

mpe

nsat

ion

CA

RLO

RO

SAN

IC

hairm

an &

Chi

ef E

xecu

tive

Offi

cer

200

3-20

0513

2,60

0

AN

NA

MA

RIA

ON

OFR

IV

ice

Cha

irman

& M

anag

ing

Dire

ctor

200

3-20

0566

,600

GIO

VA

NN

I RO

SAN

I M

anag

ing

Dir

ecto

r (9)

200

3-20

0539

,882

3,03

027

,622

(5)

SAR

A R

OSA

NI

Dir

ecto

rse

e no

te 6

9,34

72,

982

34,0

47 (

4)

GIO

VA

NN

I DE

VEC

CH

I D

irec

tor

200

3-20

0514

,400

4,38

965

,784

(3)

ALD

O B

OT

TIN

I BO

NG

RA

NI

Dir

ecto

r 2

003-

2005

14,4

003,

458

142,

278

(4)

MA

RIO

CO

MA

NA

Dir

ecto

r 2

003-

2005

44,8

24

PAO

LO L

ECH

ID

irec

tor

200

3-20

0514

,300

ALD

O C

OPE

TTA

Man

agin

g D

irec

tor

see

note

719

,971

GU

IDO

AST

OR

IC

hairm

an o

f the

Boa

rd o

f Sta

tuto

ry

200

3-20

0521

,755

AN

DR

EA B

OR

EAT

TI

Stat

utor

y A

udit

orse

e no

te 8

16,5

76

LEO

NE

SCU

TT

ISt

atut

ory

Aud

itor

200

3-20

0514

,825

(1)

The

exp

irat

ion

of th

e te

rm c

oinc

ides

wit

h th

e ap

prov

al o

f the

200

5 Fi

nanc

ial S

tate

men

ts fo

r bot

h B

oard

of D

irec

tors

and

Boa

rd o

f Sta

tuto

ry A

udit

ors.

(2)

Mad

e up

by

frin

ge b

enef

its r

epre

sent

ed b

y th

e us

e of

a c

ompa

ny c

ar a

nd in

sura

nce

cove

rage

.(3

) G

ross

retr

ibut

ion

for e

mpl

oym

ent a

mou

nts t

o €

60,7

84 (

up to

July

200

5), e

mol

umen

ts fo

r pos

itio

ns h

eld

in su

bsid

iari

es a

mou

nt to

€12

,000

, fix

ed re

imbu

rsem

ent

fo

r exp

ense

s inc

urre

d in

car

ryin

g ou

t man

date

am

ount

to €

5,00

0.(4

) G

ross

retr

ibut

ion

for e

mpl

oym

ent.

(5)

Gro

ss re

trib

utio

n fo

r em

ploy

men

t am

ount

s to €

21,6

22 (

up to

May

200

5), e

mol

umen

ts fo

r pos

itio

ns h

eld

in su

bsid

iari

es a

mou

nt to

€6,

000.

(6)

App

oint

ed o

n M

ay 1

2, 2

005,

pur

suan

t to

art.

2386

of t

he It

alia

n C

ivil

Cod

e, b

y th

e B

oard

of D

irec

tors

to re

plac

e A

ldo

Cop

etta

who

resi

gned

.

(7)

App

oint

ed b

y th

e Sh

areh

olde

rs’ M

eeti

ng o

f May

12,

200

3, re

sign

ed fo

r hea

lth

reas

ons e

ffect

ive

May

12,

200

5

(8)

App

oint

ed b

y th

e Sh

areh

olde

rs’ M

eeti

ng o

f May

14,

200

4 to

repl

ace

Aug

usto

Rez

zola

. His

term

exp

ires

wit

h th

e ap

prov

al o

f the

200

5 Fi

nanc

ial S

tate

men

ts.

(9)

App

oint

ed M

anag

ing

Dir

ecto

r on

May

12,

200

5.

116


Report of the Board of Statutory Aditors on the Cembre GroupConsolidated Financial Statements at December 31, 2005

To our Shareholders:the Consolidated Financial Statements for the 2005 financial year delivered by the Board of Directors to the Board of Statutory Auditors within the term provided, close reporting a consolidated net profit of €6,605 thousand. Total assets amounted to €77,710 thousand, while the Consolidated Shareholders’ Equity was equal to €52,682 thousand, of which net profit represented €6,605 thousand.The comparison with figures for the previous year shows significant increases, signalling strong activity of the parent company and its subsidiaries.The Consolidated Financial Statements consist of a Consolidated Balance Sheet, Consolidated Income Sta-tement, Consolidated Statement of Cash Flows and Statement of Changes in the Consolidated Shareholders’ Equity, in addition to the Notes to the consolidated accounts prepared by the Board of Directors of the parent company. They are accompanied by a Report on operations for 2005 and an annexed Reclassified Consoli-dated Income Statement. Said documents comply with current regulations and were prepared on the basis of the financial statements of group companies approved by the respective Boards and subject to the verifications of auditing boards, where existing, and in any case to an audit by independent auditors.We attest that the Consolidated Financial Statements were prepared under IAS/IFRS, approved by the Eu-ropean Union and applicable from December 31, 2005. The Company opted for the application of IAS 39 and 32 in the reconciliation at January 1, 2004.The effect of the adoption of these accounting principles is described in the notes to the Consolidated Finan-cial Statements. Limited to financial derivatives, the Consolidated Balance Sheet was prepared in accordance with the fair value principle. Land, including that ancillary to buildings, is considered as having an unlimited useful life and is not subjected to depreciation. Tangible and intangible assets, financial assets and the provi-sion for risks and charges are subjected to an impairment test to assess possible permanent losses in value and, where appropriate, subsequently written down to their expected realizable value.Employee severance indemnities are calculated according to actuaries.As the Group operates solely in the sector of “Electrical connectors and related tools”, primary information by geographical area was reported on the basis of the geographical location of activities or of the production process. Adequate and transparent information on related parties was provided.With regard to risk management, the nature and relevance of risks relating to financial instruments, interest rates, currency, liquidity, credit and prices are reported. The Consolidated Financial Statements were audited, as apparent from the Auditing Report issued by the Brescia branch of independent auditors Reconta Ernst & Young.Accounting principles and valuation criteria adopted by consolidated companies are consistent with those of the parent company and in compliance with current regulations.The consolidation area, unchanged from the previous year, includes the parent company and all subsidiaries consolidated applying the line-by-line method.Transactions with related parties were carried out in the interest of individual companies involved and at current market conditions.The consolidation area and methods adopted are consistent with the provisions of applicable regulations and are in line with Italian and international accounting practice.A summary Reclassified Consolidated Balance Sheet and Income Statement in thousands of euro is provided below:

RECLASSIFIED CONSOLIDATED BALANCE SHEET- Assets 77,710- Liabilities 25,028- Group Shareholders’ Equity (including net profit) 52,682- Consolidated net profit 6,605

117


RECLASSIFIED CONSOLIDATED INCOME STATEMENT- Consolidated revenues 70,102 - Gross operating profit 14,718- Operating profit 11,023- Profit before taxes 11,192 - Income taxes (4,587) - Consolidated net profit 6,605

The date of the above Consolidated Financial Statements is December 31, 2005 and the financial year coincides with that of all consolidated companies and of the parent company, namely the period from January 1, 2005 to December 31, 2005. Financial statements of consolidated companies were reclassified and adjusted as neces-sary to perform the consolidation and, where necessary, adjusted to bring them into line with the accounting principles adopted by the Group. Receivables and payables between consolidated companies and revenues and expenses arising from transactions between consolidated companies were eliminated. The Notes to the consoli-dated accounts provide a detail of Balance Sheet and Income Statement items and illustrate valuation criteria applied in the determination of the same. The Board of Statutory Auditors also acknowledges the following:- similarly to the practice adopted in the Consolidated Financial Statements for the previous year, inventories of consolidated companies were valued at the average cost, while inventories of the parent company, valued at Lifo and review annually, were adjusted to average cost. The effects of the application of IAS/IFRS are described in paragraph V, sub 33, of the Notes to the consolidated accounts, with the inclusion of income statements and related notes on reclassifications and value adjustments.The effects on the consolidated net profit and net financial position at December 31, 2004 were also indicated.Information on the operating performance of the Cembre Group for the 2005 financial year was reviewed by the Board of Statutory Auditors to ascertain that the same is consistent with the Consolidated Financial Statements and that it provides clear and correct information, consistent with the Consolidated Financial Statements.The Board of Statutory Auditors acknowledges that criteria provided by Law and currently applicable accoun-ting principles were followed in the preparation of the Consolidated Financial Statements, and therefore deems that the same were prepared in a correct manner and that the amounts reported fairly represent the accounting records of the parent company and information provided by its subsidiaries.In particular, the Board of Statutory Auditors’ verifications included:

- the internal auditing system adopted by the Group;- commercial and financial transactions between Group companies;- methods for appraising normal conditions in transactions with related parties;- the state of subsidiaries;- auditing standards adopted by independent auditors in the auditing of the Consolidated Financial Statements;- consolidation records;- auditing records kept by Reconta Ernst & Young

Finally, the Board of Directors acknowledges that information supplied by the Board of Directors in the Report on Operations regarding transactions with Group companies and related parties, detailed and motivated in the same, is complete. The Board of Statutory Auditors did not encounter any atypical or unusual transaction or elements that suggest the need to express exceptions on such issues.The Auditing Report does not contain comments or exceptions. In our judgement the said Consolidated Fi-nancial Statements correctly reflect the financial position and profits of the Cembre Group for the year ended December 31, 2005, in line with norms that regulate the preparation of consolidated financial statements.

Brescia, April 6, 2006

The Chairman of the Board of Statutory Auditors

Dott. Guido Astori Chairman Dott. Andrea Boreatti Auditor Rag. Leone Scutti Auditor

118


119


120


Abstract of 15 May 2006 Shareholders General Meeting resolutions regarding the Financial Statement for the year ending 31 December 2005

- Shareholders General Meeting approved the parent company Financial Statement for the financial year ending 31 December 2005 and the documents annexed. Shareholders General Meeting appro-ved the allocation of the Company’s 2005 financial year net profit of €4,867,279.70 (rounded of to €4,867,280 in Financial Statement) as follows:

- to legal reserve, in order to reach 20% of the Share Capital € 104,987

- dividend payments to shareholders, in the amount of €0.15 for each of the Company’s 17,000,000 outstanding shares € 2,550,000

- to the reserve for gains on currency translation € 14,504

- to the extraordinary reserve € 2,197,789

The dividend is payable from 25 May 2006 with a date of record of 22 May 2006.

The consolidated financial statement for the financial year ending 31 December 2005 and documents annexed have been presented to Shareholders General Meeting.

Via Serenissima, 9 - 25135 Brescia (Italy)Phone: 030 3692.1

Telefax: 030 3365766P.O. Box 392 - 25100 Brescia (Italy)

www.cembre.comE-mail: [email protected]

Documents

Senza titolo-1 · 2013. 4. 17. · 1 REPORT AND ACCOUNTS 2005 INDEX Group Structure Company Boards Cembre SpA Management Report for the financial year ended December 31, 2005 - Attachments