Eems - Consolidated Quarterly Report as of 30 June 2006 · consolidated quarterly report as of 30...

Consolidated Quarterly Report as of 30 June 2006

CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 GENERAL INFORMATION

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GENERAL INFORMATION.................................................................................................................................................. 3 SIGNIFICANT EVENTS IN THE SECOND QUARTER OF 2006 ............................................................................................ 5 SUMMARY OF RESULTS .................................................................................................................................................... 7 PROFIT AND LOSS ACCOUNT ......................................................................................................................................... 11 PROFIT AND LOSS ACCOUNT ......................................................................................................................................... 12 BALANCE SHEET ............................................................................................................................................................. 13 STATEMENTS OF CASH FLOWS ...................................................................................................................................... 14 STATEMENTS OF SHAREHOLDERS’ EQUITY.................................................................................................................. 15 NOTES TO THE CONSOLIDATED QUARTERLY REPORT.................................................................................................. 16 ECONOMIC, ASSET AND FINANCIAL MANAGEMENT...................................................................................................... 17 SUBSEQUENT EVENTS ..................................................................................................................................................... 24 FUTURE MANAGEMENT DEVELOPMENTS ...................................................................................................................... 24 LIST OF SHAREHOLDINGS .............................................................................................................................................. 25


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General Information Current Group Structure The EEMS Group is as follows:


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Company Officers Parent Company’s Board of Directors The Company’s Board of Directors consists of the following five members:

Position Name Date and place of birth

President Giovanni Battista Nunziante* Salerno, 25 April, 1930

Chief Executive Officer Vincenzo D’Antonio Orta di Atella (formerly Atella di Napoli) (NA), 11 April, 1945

Director Roberto Biondi Magenta (MI), 23 February, 1971

Director Guido Cottini * Cuneo, 15 April, 1942

Director Guido Paolo Gamucci Roma, 8 July, 1952

* Independent Director The current Board of Directors was appointed by the Shareholders’ Meeting of April 28th, 2005 and will remain in office until the approval of the December 31st, 2007 annual report. For purposes of their positions at EEMS, the members of the Board of Directors reside at EEMS’ registered office, located in Viale delle Scienze, 5 Cittaducale, Rieti. Board of Statutory Auditors According with Article 24 of the Articles of Association, the Board of Statutory Auditors is composed of three Regular Auditors and two Alternate Auditors appointed in such a way as to guarantee to the minority shareholders the appointment of one of the Regular Auditors and one of the Alternate Auditors. They are elected for a term of three Financial Years, and may be re-elected. The current Board of Statutory Auditors was appointed by the Shareholders’ Meeting of April 28th, 2005 and will remain in office until the approval of the December 31st, 2007 annual report. The Company’s Board of Statutory Auditors consists of the following five members: Position Name Date and place of birth

Chairman Vincenzo Donnamaria Roma, 4 October, 1955

Auditor Felice De Lillo Senise (PZ), 25 November, 1963

Auditor Francesco Masci L’Aquila, 23 October, 1955

Alternate Auditor Alberto Santi Roma, 13 June, 1965

Alternate Auditor Massimo Pagani Guazzugli Bonaiuti Pesaro, 15 July, 1946

For the purposes of their position, the members of the Board of Statutory Auditors reside at EEMS’ registered office at Viale delle Scienze 5, Cittaducale, Rieti. Independent Auditors Reconta Ernst&Young S.p.A.


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Significant Events in the Second Quarter of 2006 Successful IPO priced, increasing EEMS Italia’s ordinary share capital Following the approval at the Shareholders’ meeting of January 17th, 2006 to execute a capital increase by way of an initial public offering the Company’s Board of Directors priced its initial public offering on 21 April 2006. The Company issued 9,500,000 new ordinary shares at a price of 8.20 Euros per share (with a nominal value of 0,50 Euros), for a total nominal value of 4,750,000 Euros, bringing the share capital to 20,571,925.00 Euros. The company received net proceeds from the offering of Euros 75,x million. From April 27th, 2006, the Company’s shares have been traded on the Mercato Telematico Azionario, Segmento Star, organized and managed by Borsa Italiana SpA. Increase in EEMS Asia’s share capital In June 2006 EEMS Italia subscribed a capital increase of the subsidiary EEMS Asia, for an amount of U.S. Dollars 27.4 millions (equal to Euros 21.7 millions), with the aim to provide the Asian company the necessary financial resources for business development. EEMS Asia in turn uptook these proceeds to subscribe a capital increase for U.S. Dollars 18 millions in EEMS Suzhou, while the remaining in EEMS Test Singapore. Stock market trends After having recorded a very positive performance in the first days of trading following the IPO (up to peak of 11,85 Euros per share), with high volumes traded, the share price has subsequently traded to a level below the IPO price due to the broader weakness we have seen in global equity markets, a lower appetite for risk and technology stocks in general, combined with the effects of the weaker U.S. Dollar against the Euro


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Completion of the purchase of minority shareholding in EEMS Asia.

To implement certain agreements entered on March 27, 2006 with certain managers of the EEMS Asia, on May 4 2006 the Company acquired 8% of the share capital of EEMS Asia held by them. The consideration paid for the acquistion was USD 8.3 million. EEMS Italia thus became the sole shareholder of EEMS Asia Pte Ltd. As part of the aforementioned agreement, the managers used up 80% of the proceeds from the sale, to purchase EEMS Italia shares from the Shareholder’s Mallett Sarl and Schroder Associati Srl at the IPO price. These shares are subject to a variable lock-up period between 12 and 24 months. In addition, on May 3, 2006, the consideration for the acquisition of the shares representing 16% of the share capital of EEMS Asia has been paid to Ellipsiz. Compulsory early repayment of syndicated loan On May 9, 2006, in compliance with article 8.1.3 of the financing Contract signed on February 23, 2005, the Company has repaid 11,500,000 Euros to the Syndicate of financing institutions, equivalent to 50% of the debt existing at the listing of the Company’s shares on the Mercato Telematico Azionario. In force as of June 1st, 2006, in order to offset the currency change risk, the remaining of the debt (11,500,000 Euros) was converted into U.S. Dollars, and the referring interest rate changed to Libor instead of Euribor keeping unchanged the applied spread. Following the aforementioned change, on June 8th, 2006, the forward contracts with Banca Intesa and Unicredit Banca Mobiliare to cover interest rate risk (Euribor) were terminated. On the same date other two contracts were signed as a coverage of the new risk rate (Libor), with a notional of 13.000 thousand U.S. Dollars. Such a contract guarantee for a 6 month Libor’s cap at 5,53%.

Summary of Results The following table presents certain selected data from the consolidated profit and loss account: (in thousands of Euro) 2Q ‘06 % 2Q ‘05 %Total revenues and other income 35.306 100,0 24.740 100,0 Ebitda 11.534 32,7 9.406 38,0 Ebit 2.440 6,9 2.172 8,8Income before income taxes 783 2,2 1.441 5,8Net income (loss) 1.983 5,6 (192) (0,8)Attributable to parent company 1.961 5,6 (210) (0,8)Attributable to third parties 22 - 18 - Numbers of shares 41.143.850 - 31.638.600 -Italy number of employees 493 - 625 -Overseas number of employees 809 - 88 - The Group’s total revenues and other income in the second quarter of 2006 was 35.3 million Euros, with a growth of 42,7% compared to the same period of 2005, mainly attributable to the higher turnover generated by the Asian Companies, which were acquired in March 2005. The Asian plants recorded a 60.3% increase in turnover compared to the previous quarter. The increased business of


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the Asian Companies also had a positive impact over the operating result, which went from 2.2 million Euros in the second quarter of 2005 to 2.44 million Euros. The result for the period shows a profit of 2.0 million Euros. (in thousands of Euro) 1st Half ‘06 % 1st Half ‘05 %Total revenues and other income 68.316 100,0 48.061 100,0 Ebitda 23.165 33,9 17.378 36,2 Ebit 4.746 6,9 3.330 6,9Income before income taxes 2.511 3,7 2.365 4,9Net income (loss) 1.799 2,6 106 0,2Attributable to parent company 1.448 2,1 91 0,2Attributable to third parties 351 0,5 15 - Numbers of shares 41.143.850 - 31.638.600 -Italy number of employees 493 - 625 -Overseas number of employees 809 - 88 -

The Group’s total income and revenue in the first half of 2006 was 68.3 million Euros, with a growth of 42,1% over the same period of 2005, mainly attributable to the higher turnover generated by the Asian Companies. The increased business of the Asian Companies also had a positive impact over the operating income, which went from 3.3 million Euros in the first quarter of 2005 to 4.7 million Euros. The result for the period shows a profit of 1.8 million Euros.

The following table presents selected data from the consolidated balance sheet

(in thousands of Euro) 30.06.2006 31.12.2005TOTAL NON CURRENT ASSETS 176.011 147.892

TOTAL CURRENT ASSETS 91.965 59.109

TOTAL ASSETS 267.976 207.001

Shareholders’ equity

- Attributable to parent company 148.137 73.800

- Attributable to third parties - 10.235

TOTAL SHAREHOLDERS’ EQUITY 148.137 84.035

TOTAL NON-CURRENT LIABILITIES 44.865 58.294

TOTAL CURRENT LIABILITIES 74.974 64.672

TOTAL LIABILITIES 119.839 122.966

TOTAL SHAREHOLDERS’ AND LIABILITIES 267.976 207.001


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Summary data from the cash flow statement

(in thousands of Euro) 30.06.2006 30.06.2005 Net cash provided by operating activities 9.935 27.308 Net cash used in investing activities (55.733) (11.232) Net cash and cash equivalents used in financing activities 72.800 17.946 Effect of change of exchange rate on cash and cash equivalents (738) 2.395 Increase (decrease) in cash and cash equivalent 26.264 36.417


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Management and Control Organisational Model as per Leg. Decree 231/01 The management and control organisational model was introduced in February 2006 according to Legislative Decree 231/01, which also included the regulatory changes introduced by Legislative Decree 61/102. The management and control organisational model adopted consists of a body of rules, tools and conducts aimed at equipping the Company with a system reasonably suitable for identifying and preventing serious criminal conducts according to Legislative Decree No. 231/2001, whether implemented by the company itself or by parties coming under its management and supervision. The Supervisory Body, established in conformity with the regulatory requirements, implements the action plan for monitoring and evaluating the adequacy of the Management and Control Organisational Model adopted. It meets periodically to evaluate the controls and checks performed and to examine the information flows generated by the company’s departments. Processing of personal data Article 34 of Legislative Decree No. 196 of 30 June, 2003 provides that, in the case of the electronic processing of personal data, specific security measures must be adopted, according to what is set forth in the technical regulations in appendix B of the law, which include, under letter g, the maintenance of an updated Security Planning Document (SPD). In compliance with Legislative Decree 196/03, EEMS Italia has revised and updated the SPD that had previously been prepared under the terms of the law.

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CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 PROFIT AND LOSS ACCOUNT

Profit and Loss Account

(in thousands of Euro) 2Q ’06 2Q ‘05Net sales 34.950 24.192Other income 356 548Total revenues and other income 35.306 24.740Raw materials and other 11.963 5.390Services 3.779 2.690Labor 7.198 7.199Other operating expenses 832 55Ebitda 11.534 9.406Depreciation and amortization 9.127 7.055Impairments (33) 179Ebit 2.440 2.172Financial income 282 284Financial expense (1.939) (1.015)Income before income taxes 783 1.441Income taxes (1.200) 1.633Net income (loss) 1.983 (192)Attributable to parent company 1.961 (210)Attributable to third parties 22 18Basic earnings (loss) per share 0,05 (0,006)Diluited earnings (loss) per share 0,05 (0,006)

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CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 PROFIT AND LOSS ACCOUNT

Profit and Loss Account

(in thousands of Euro) 1H ’06 1H ‘05Net sales 67.684 47.443Other income 632 618Total revenues and other income 68.316 48.061Raw materials and other 20.668 10.804Services 7.241 5.177Labor 15.981 14.509Other operating expenses 1.261 193Ebitda 23.165 17.378Depreciation and amortization 18.394 13.726Impairments 25 322Ebit 4.746 3.330Financial income 473 365Financial expense (2.708) (1.330)Income before income taxes 2.511 2.365Income taxes 712 2.259Net income (loss) 1.799 106Attributable to parent company 1.448 91Attributable to third parties 351 15Basic earnings (loss) per share 0,05 0,003Diluited earnings (loss) per share 0,05 0,003

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CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 BALANCE SHEET

Balance Sheet

(in thousands of Euro) 30.06.2006 31.12.2005 NON-CURRENT ASSETS Intangible assets:

- Goodwill 11.254 3.274 - Intangible assets with a defined useful life 276 280 Tangible assets: - - Property, plant and equipment, net 141.175 119.828 - Asset held hunder finance lease 23.140 23.920 Other non-current assets: - Miscellaneous receivables and other non-current assets 166 590 TOTAL NON-CURRENT ASSETS 176.011 147.892 Current assets: - Inventories 6.306 5.582 - Trade receivables 29.359 24.743 - Tax receivables 1.835 1.841 - Cash and cash equivalents 52.884 26.620 - Other current assets 1.581 323 TOTAL CURRENT ASSETS 91.965 59.109 TOTAL ASSETS 267.976 207.001 Shareholder’ equity - Attributable to parent company 148.137 73.800 - Attributable to third parties - 10.235 TOTAL SHAREHOLDERS’ EQUITY 148.137 84.035 Non-current liabilities: - Non-current financial liabilities 24.257 34.442

- Employee severance indemnities (TFR) and other employee-related accruals

7.863 9.489

- Deferred taxes 12.613 14.222 - Provision for future risks and charges 132 141 TOTAL NON-CURRENT LIABILITIES 44.865 58.294 Current liabilities: - Current financial liabilities 25.563 14.847 - Trade payables 40.665 33.855 - Taxes payables 965 798 - Other current liabilities 7.781 15.172 TOTAL CURRENT LIABILITIES 74.974 64.672

TOTAL LIABILITIES 119.839 122.966

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 267.976 207.001

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CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 STATEMENTS OF CASH FLOWS

Statements of Cash Flows

(in thousands of Euro) 30.06.2006 30.06.2005 Net income (loss) 1.799 106Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 18.394 13.726Provision for employee severance indemnities 599 605Interest expense on TFR calculation 209 264Other non-monetary elements 403 282Net change in accrual for risks and charges - (24)Impairment of long-lived assets 25 322Deferred taxes 69 1.715Net gain on asset disposal (592) (205)Employee severance indemnities paid (4.487) (1.018)Change in operating assets and liabilities:

Receivables (5.176) 10.398Inventories (854) 613Account payable net of capital items 4.867 30Tax payables 184 (357)Other (5.505) 851

Net cash provided by operating activities 9.935 27.308Proceeds from sales of property, plant and equipment 1.527 267Payment for the acquisition of subsidiary (18.445) (3.225)Purchase of property, plant and equipment (38.771) (7.996)Purchases of intangible assets (46) (205)Net change in guarantee deposit 2 (73)Net cash used in investing activities (55.733) (11.232)Proceeds from loans 14.196 22.220Repayments of loans (12.140) (544)Principal paid for leased equipment (3.139) (3.693)Other 403 (37)Capital contribution by shareholders 73.480 -Net cash and cash equivalents used in financing activities 72.800 17.946Effect of change of exchange rate on cash and cash equivalent (738) 2.395Increase (decrease) in cash and cash equivalents 26.264 36.417Cash and cash equivalents at the beginning of the year 26.620 5.140Financial change in the scope of consolidation - 3.228Cash and cash equivalents at the end of the year 52.884 44.785 Supplementary information: Taxes paid in the period 162 660Interest paid in the period 1.425 157

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CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH 2006 STATEMENTS OF SHAREHOLDERS’ EQUITY

Statements of Shareholders’ Equity

(in thousands of Euro)

Share Capital

Paid in capital

Legal Reserve

FTA reserve

Other reserves

Retained earnings

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reserve

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the period

Total equityattributable to

group

Equity attributable to

third parties

Total Shareholders’

Equity

Balance as of January 1st, 2005 15.822 210 3.165 1.125 151 51.658 3.569 (1.900) 73.800 10.235 84.035

Reclassification to retained earnings — — — — (1.900) — 1.900 0 — —

Purchase of subsidiary — — — — — — — — — (6.267) (6.267)Paid capital increase 4.750 73.054 — — — — — — 77.804 — 77.804Cost of share quotation (2.691) (2.691) (2.691)Currency translation

reserve — — — — — — (2.294) — (2.294) (1.112) (3.406)

Other representatives of the equity — — — — 70 — — — 70 — 70

Net income — — — — — — — 1.448 1.448 351 1.799Balance as of June 30th,

2006 20.572 70.573 3.165 1.125 221 49.758 1.275 1.448 148.137 0 148.137

CONSOLIDATED QUARTERLY REPORT AT JUNE 30TH, 2006 EXPLANATORY NOTES

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Notes to the consolidated quarterly report Basis of presentation EEMS Group’s consolidated quarterly Financial Statements as of June 30th, 2006 have been prepared in accordance with the provisions of Consob resolution No. 14990 of 14 April, 2005, and in compliance with the provisions set forth in appendix 3D of the Consob Regulation no. 11971/1999 and subsequent modifications. Therefore, the international accounting standard (IAS 34 “Interim reports”) which addresses the preparation of interim financial information has not been adopted. Starting from the Consolidated Financial Statements as of December 31, 2005, the EEMS Group has prepared its Consolidated Interim Financial Statements in accordance with International Financial Reporting Standards (“IFRSs”), as adopted by the European Union. The transition date to IFRSs is January 1, 2004. The Consolidated quarterly financial statements as of June 30th, 2006 have not been audited and have been prepared based on accounting policies consistent with those adopted in the Consolidated Financial Statements for the year ended December 31, 2005. The financial information of the prior period presented for comparison purpose has also been prepared in accordance with the aforementioned accounting policies. The “current/non-current” classification has been adopted for the balance sheet, which is generally applied by industrial and commercial enterprises, while the classification of expenses by nature has been chosen for the income statement. The Cash Flows has been prepared using the indirect method. The Consolidated Financial Statements are presented in Euros and all the values are rounded to thousands of Euros unless otherwise indicated.


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Economic, asset and financial management Analysis of the Group’s economic management Revenue

2Q ‘06 2Q ‘05 (in thousands of Euro) 1H ‘06 1H ‘0534.950 24.192 Net sales 67.684 47.443

356 548 Other income 632 618 35.306 24.740 Total revenues and other income 68.316 48.061

Revenue relates mainly to the assembly and test activities for DRAM, Logic e FLASH memories. The 44.5% increase in the revenue in the second quarter of 2006 in respect of the same period of previous year is mainly attributable to sales generated by the Asian companies. The increase in sales in the second quarter of 2006 has been determined by the increase in the volumes produced partially offset by a lower unit selling prices negotiated with customers as compared with the corresponding period of the previous year. Sales of the Asian companies in the second quarter of 2006 of 16.756 thousand Euros, has increased by 60,3% over the first quarter of 2006. Costs

2Q ‘06 2Q ‘05 (in thousands of Euro) 1H ‘06 1H ‘0535.306 24.740 Total revenues and other income 68.316 48.061 11.963 5.390 Raw materials and other 20.668 10.804 3.779 2.690 Services 7.241 5.177 7.198 7.199 Labor 15.981 14.509

832 55 Other operating expenses 1.261 193 9.127 7.055 Depreciation and amortization 18.394 13.726

(33) 179 Impairments 25 322 32.866 22.568 Total costs 63.570 44.731 2.440 2.172 Operating income 4.746 3.330

The increase in total costs, which were 22.568 thousand Euros in the second quarter of 2005 and became 32.866 thousand Euros in the second quarter of 2006, is mainly attributable to the change in the consolidation scope starting from March 2005. In particular, the increase of the items “raw materials and other” and “services” is due to the increase in volumes of production units which also results from the increase in assembly and test activities at the Suzhou plant. The decrease in “labor” cost of 18% in the second quarter of 2006 compared to the first quarter of the same year, is related to the completion of the restructuring process of the Italian plant. The increase in depreciation is mainly attributable to depreciation of the Asian companies’ machinery and equipment. The change in “Other operating expenses” is mainly attributable to the exchange rate loss of 774 thousand Euros, due to the weakness of U.S. Dollar as already mentioned.


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Financial income and expense The financial income consists of interests accrued on bank accounts. Financial expenses change between second quarter of 2006 and the same period of 2005 is mainly attributable to exchange rate loss on financing, leasing and bank account denominated in foreign currency. It also includes the fair value of the derivative contracts to hedge interest rate and foreign exchange risk related to the Asian subsidiaries. Income taxes The main components of income taxes are as follows

2Q ‘06 2Q ‘05 (in thousands of Euro) 1H ‘06 1H ‘05(1.314) 1.373 Deferred taxes 69 1.715

114 260 Current taxes 643 544

(1.200) 1.633 Total income taxes 712 2.259

The positive impact, during the second quarter, is mostly due to the release of the accruals for the CFC (Controlled Foreign Company) taxation related to the subsidiary EEMS Test Pte. Ltd. as a result of the positive feedback from the Italian tax authorities, and to the release of deferred tax liabilities for anticipated depreciation . Profit (loss) per share The amount of the profit per share is 0.05 Euro, where the numerator and the denominator are respectively 1.983 thousand Euros and 38.399.406 shares. Listed in table there are the values used for to calculate the weighted average of the ordinary shares: N. of shares N. Days Number of shares as at April 1st, 2006 31.643.850 26 Increase of the period 9.500.000 64 Total number of shares 41.143.850 - Weighted average number of shares 38.399.406 - The amount of the profit per share in the first quarter of 2006 is 0.05 Euro, where the numerator and the denominator are respectively 1.799 thousand Euro and 35.021.628 shares. Listed in table there are the values used for to calculate the weighted average of the ordinary shares: N. of shares N. Days Number of shares as at January 1st, 2006 31.643.850 116 Increase of the period 9.500.000 64 Total number of shares 41.143.850 - Weighted average number of shares 35.021.628 - As of June 30 2006, 2,507,335 warrants are exercisable, representing approximately 6.1% of the total share capital. The warrants were granted to company’s employees and consultants.


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Analysis of the Group’s asset structure Goodwill On March 8th, 2006 EEMS acquired from Ellipsiz the shares held by the latter in EEMS Asia (16% of the share capital) for an amount of USD 14 million (equivalent to 11,751 thousand Euros). On May 4th, 2006 EEMS acquired the shares held by some Asian managers (equivalent to 8% of the share capital) for an amount of USD 8.3 million (equivalent to 6.662 thousand Euros). The excess of the purchased price over the asset acquired (equal to 8.171 thousand Euros) has been recorded as a goodwill and is subject to an annual impairment test in accordance with the provisions of IAS 36. Property, plant and equipment The following table shows the net balances of property, plants and machinery: (in thousands of Euro) 30.06.2006 31.12.2005 Land 326 326Building 3.527 2.747Plant and machinery 117.285 107.944Industrial and commercial equipment 32 36Other fixed assets 2.105 1.788Assets under construction and advance paid 17.900 6.987Total 141.175 119.828 The loan agreement entered during 2005 (further information on this financing is included in note 21 of the Consolidated Financial Statements as at December 31, 2005), is secured by liens on the EEMS Italia Spa existing and future property, plant and equipment, with an acquisition value exceeding 1,000 thousand Euros. EEMS Suzhou and EEMS Test have given some production machinery to the financing banks as a guarantee on the draw down of the credit lines. On June 30th, 2006 the Group had commitments to purchase machinery amounting to around 12.466 thousand Euros. Assets held under finance lease

During the first half of 2006, 4 new hire purchase contracts were stipulated for a total of USD 2,510 thousand. The new contracts have a duration of 48 months. The contract provide for financing the purchase of machinery for a value between 65% and 70% of the original cost of the machinery, provide for the transfer of the title at the end of the contract at no price and a fixed interest rate, defined in each contract (between 5% and 7%).


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Current assets

(in thousands of Euro) 30.06.2006 31.12.2005

Inventories 6.306 5.582 Trade receivables 29.359 24.743 Tax receivables 1.835 1.841 Cash and cash equivalents 52.884 26.620 Other current assets 1.581 323 TOTAL 91.965 59.109

The increase in trade receivables is mainly due to the increase in sales as compared with the fourth quarter of previous financial year. The increase in cash and cash equivalents in mainly due to the proceeds of quotation (Euro 75 millions net of bank fees). The increase in “other current assets” is mainly attributable to the modification of the syndicate loan contract, that has determined the charge of a prepaid for the up front fee amount connected with the revolving credit line and unutilized amount as at June 30th, 2006, for a net value of 478 thousand Euros, and to the increase in insurance costs of the Asian companies. Shareholders’ Equity As of June 30th, 2006 EEMS’ share capital is made up of 41,143,850 shares with a nominal value of 0.50 Euro each. The Company does not hold any of its own shares. After the Company’s share quotation on Mercato Telematico Azionario organized and managed by Borsa italiana SpA, as of April, 27th, 2006 the shareholder’ equity were increased of 77.080 thousand Euros, of which 4.750 thousands as increase of share capital, and 73.054 thousand Euros as paid in capital reserve. The latter reserve was afterwards reduced of the quotation costs net of tax shield, of 4.323 thousand Euros and 1.632 thousand Euros respectively. Stock Options On January 17, 2006 at an extraordinary meeting, the shareholders authorized the Board of Directors to increase the authorized share capital by a further euro 500,000, or 1,000,000 shares, waiving pre-emption rights with a nominal value of €0.50 (cents) to cover one or more Stock Option Plan(s) to be granted to the Company’s employees and certain technical consultants at a price determined as the average trading price of the Company’s shares on the Mercato Telematico Azionario in the month before granting the option to the employees and consultants. The Board of Directors was also authorised to give effect to this Stock Option Plan, including the identification of the beneficiaries and their entitlements. On March 21, 2006 the Board of Directors resolved to issue a maximum of 9,500,000 of shares for the purpose of the Italian public offering to the retail market and to professional Italian and foreign institutional investors. On January 17, 2006 the Board of Directors approved the rules pertaining to the Stock Option Plan reserved for executive directors and other managers of the company. The Plan was created with the aim of enabling part of the remuneration to Company's executive directors' and other managers to pre-determined personal objectives correlated to certain economic results achieved by the Company. The beneficiaries of the Plan are: the Chief Executive Officer, the Research and Development Manager, the Operations Manager, the Administration and Finance Manager, the


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Information Systems Manager, the Human Resources Manager, the Purchasing Manager, the Plant Services Manager and the Production Manager. As a consequence of the aforementioned plan, the Board of Directors on February 22, 2006 resolved to increase the share capital by a maximum of 200,000 shares at the nominal value of 0.5 Euros to be dedicated to the plan. For further information on shareholders’ equity see note 20 of the consolidated financials statement for the year ended December 31, 2005 On May 27, 2005 the Shareholders’ of EEMS Asia, resolved to increase the authorized share capital by No. 18,000,000 shares to service a stock option plan in favour of the employees of the Asian company. The options are exercisable in four instalments and give rights to purchase EEMS Asia shares at a price of United States dollar 0.10 (ten cents). Number of options Exercise price Conditions for fulfilment

9,000,000 0.10$

• Still employed one year after the grant date for the first instalment, two years for the second installment, three years for the third installment and four years for the fourth installment..

2,700,000 0.10$

• Still employed for the first instalment and two years after grant date for the second installment. Achieving certain economic and financial targets.

Each instalment is divided into two tranches, the first of No. 2,250 options, can be exercised if the recipient is still employed by EEMS ASIA or any other Company of the Group at the vesting date. The second tranche, which equals to 10%, 20%, 30% and 40%, respectively, of the total options assigned in each installment, will vest if certain economic and financial targets are met and if the recipient is still employed by EEMS ASIA or any other Group Company at the vesting date. The aforementioned targets have been defined and approved only for 2005 and 2006 and not for 2007 and 2008. Consequently, in accordance with IFRS 2, these options (No. 6,300,000 options) have been deemed as if not granted. The vesting period of the options is subject to changes, should the actual economic and financial performances of the company be lower or higher compared to the pre-defined economic and financial targets. As of June, 30th 2006, N° of 3,251,250 options are exercisable The total costs accounted for in 2006 for the stock option plan was 70 thousand Euros, included in labor cost.


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Non-current liabilities

(in thousands of Euro) 30.06.2006 31.12.2005

Non-current financial liabilities 24.257 34.442 Employee severance indemnities (TFR) and other employee-related accruals 7.863 9.489 Deferred taxes 12.613 14.222 Provision for future risk and charges 132 141 TOTAL 44.865 58.294

The decrease in the “non-current financial liabilities” item is mainly attributable to the repayment of 11,500 thousand Euros to the Banks, as stated in February’s agreements. The decrease of the “Employee severance indemnities and other employee-related accruals” item is related to the Labor Force reduction program ended in the second quarter 2006. Moreover, during the first quarter of 2006, EEMS Test company received a new loan of 3,395 thousand Euros, granted by United Overseas Banks. This loan has duration of 4 years and will be repaid in 48 monthly instalments from April 2006 with variable interest rate that is currently at 5%. This loan is guaranteed by 4 production machines. Current liabilities

(in thousands of Euro)

30.06.2006 31.12.2005Current financial liabilities 25.563 14.847 Trade payables 40.665 33.855 Taxes payables 965 798 Other current liabilities 7.781 15.172 TOTAL 74.974 64.672

The increase in current financial liabilities is due to the use of credit lines (with annual duration) which were available as of December 31, 2005 and a new credit line granted in the first half of 2006 for an amount of USD 13,000 thousand (10,226 thousand Euros), by China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank. The interest rates applied is the Libor plus a variable spread between 70 and 80 bps. A part of the credit lines used are guaranteed by property assets. In “Current financial liabilities” are included the negative fair values of the forward currency contracts entered by EEMS Suzhou, for an amount of 342 thousand Euros. The increase in “trade payables” is mainly connected with the purchase of equipment for the investment programs under way in Asia. The decrease in “Other current liabilities” is due to the disbursement for the severance indemnities for the employees leaving the Company during the first half of the year, and to the reimbursement of the customer advances received from EEMS Test during the previous financial year.


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Net financial debt

(in thousands of Euro) 30.06.2006 31.03.2006 31.12.2005

Cash and cash equivalents (52.884) (16.509) (26.620)

Short-term debt owed to banks 18.617 17.879 8.465

Short-term lease obligations 6.416 5.768 5.985

Total short-term net debt (27.851) 7.138 (12.170)

Long-term debt owed to banks 15.644 27.129 23.994

Long-term lease obligations 8.613 10.855 10.317

Total long-term net debt 24.257 37.984 34.311

Total net debt (3.594) 45.122 22.141

The total net debt as of June 30th, 2006, is 3,594 thousand Euros, and has an increase by 25,735 thousand Euros compared to December 31st, 2005. As already mentioned, this increase is attributable to the IPO proceeds. Cash flows Cash flow provided by operating activities The cash flow generated by operating activities in the first 6 months of 2006 is 9,935 thousand Euros, compared to 27,308 thousand Euros for the corresponding period of 2005. The decrease of 17,373 thousand Euros is the result of the decrease in working capital due to strong increase in revenues and to the disbursement related to the restructuring program. Cash flow used in investing activities The cash flow used in investing activities in the first 6 months of 2006 is 55,733 thousand Euros, compared to 11,232 thousand Euros for the corresponding period of 2005. This increase is mainly attributable to EEMS Suzhou and EEMS Test investments in plant and machinery. Moreover it includes the investment for the acquisition by EEMS Italy of remaining 24% of EEMS Asia’s share capital.


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Cash flow used in financing activities The cash flow used in investing activities for the first 6 months of 2006 is 72.800 thousand Euros, compared to 17,946 thousand Euros for the same period last year. As already mentioned, this increase is due to the IPO proceeds.

Subsequent events On July 3rd, 2006, the beneficiaries of the stock option plan of EEMS Asia had exercised the first trance of fulfilled options, as stated in the agreement, for a number of 3,903,750, for a nominal value of USD 390 thousands. To keep unchanged the EEMS Asia shareholders base, EEMS Italia bought the shares coming from the increase in share capital from the single owners, for a total worth of USD 810 thousands.

Future management developments The Company deems that this year's trend can bring an overall growth in revenue and profit in comparison with last year, also made possible by the contribution of the production plants located in Asia.


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List of Shareholdings Below is a list of subsidiary companies as of June 30th, 2006:

Company Name

Location

Share Capital

Functional

Currency

Interest %

Shareholders

EEMS Asia Pte Ltd Singapore 77.400.000 Usd USD 100% EEMS Italia

S.p.A.

EEMS China Pte. Ltd. Singapore 2 Usd USD 100% EEMS Asia Pte

Ltd

EEMS Suzhou Co. Ltd. Cina 48.104.594 Usd Yuan

(Rrnmimbi) 100%

EEMS China

Pte. Ltd.

EEMS Test Singapore Pte.

Ltd. Singapore 23.800.000 Usd USD 100%

EEMS Asia Pte

Ltd

EEMS Singapore Pte Ltd Singapore 11.138.000 Sgd SGD 100% EEMS Italia

S.p.A.

For the Board of Directors,

The President

Giovanni Battista Nunziante

Eems - Consolidated Quarterly Report as of 30 June 2006 · consolidated quarterly report as of 30...

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