Sofidel Germany Holding GmbH (vormals: Werra Papier Holding GmbH)

Schmalkalden

Befreiender Konzernabschluss gem. § 291 HGB
zum Geschäftsjahr vom 01.01.2020 bis zum 31.12.2020

Sofidel S.p.A.

Porcari/Italien

Independent auditor's report in accordance with article 14 of Legislative Decree n. 39, dated 27 January 2010

(Translation from the original Italian text)

To the Shareholders of Sofidel S.p.A.

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Sofidel Group (the Group), which comprise the balance sheet as at December 31 2020, the statement of income, the statement of comprehensive income, statement of changes in shareholders' equity and statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31 2020, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We are independent of Sofidel S.p.A. in accordance with the regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

The Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and, within the terms provided by the law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The statutory audit committee ("Collegio Sindacale") is responsible, within the terms provided by the law, for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skepticism throughout the audit. In addition:

―	we have identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; have designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
―	we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
―	we have evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors;
―	we have concluded on the appropriateness of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern;
―	we have evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
―	we have obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We have communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on compliance with other legal and regulatory requirements

Opinion pursuant to article 14, paragraph 2, subparagraph e), of Legislative Decree n. 39 dated 27 January 2010

The Directors of Sofidel S.p.A. are responsible for the preparation of the Report on Operation of Group Sofidel as at December 31 2020, including its consistency with the related consolidated financial statements and its compliance with the applicable laws and regulations.

We have performed the procedures required under audit standard SA Italia n. 720B, in order to express an opinion on the consistency of the Report on Operations, with the consolidated financial statements of Sofidel Group as at December 31 2020 and on its compliance with the applicable laws and regulations, and in order to assess whether it contains material misstatements.

In our opinion, the Report on Operation is consistent with the consolidated financial statements of Sofidel Group as at December 31 2020 and comply with the applicable laws and regulations.

With reference to the statement required by art. 14, paragraph 2, subparagraph e), of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have no matters to report.

Florence, February 26 th 2021

EY S.p.A.

Signed by Lorenzo Signorini

This report has been translated into the English language solely for the convenience of international readers.

Independent auditor's report pursuant to article 14 of Legislative Decree n. 39, dated 27 January 2010

(Translation from the original Italian text)

To the Shareholders of Sofidel S.p.A.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Sofidel S.p.A. (the Company), which comprise the balance sheet as at December 31 2020, and the statement of income, statement of changes in shareholders' equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31 2020, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report.

We are independent of the Company in accordance with the regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Directors and Those Charged with Governance for the Financial Statements

The Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and, within the terms provided by the law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Directors are responsible for assessing the Company's ability to continue as a going concern and, when preparing the financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the financial statements on a going concern basis unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The statutory audit committee ("Collegio Sindacale") is responsible, within the terms provided by the law, for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skepticism throughout the audit. In addition:

―	we have identified and assessed the risks of material misstatement of the financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
―	we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
―	we have evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors;
―	we have concluded on the appropriateness of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
―	we have evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We have communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on compliance with other legal and regulatory requirements

Opinion pursuant to article 14, paragraph 2, subparagraph e), of Legislative Decree n. 39 dated 27 January 2010

The Directors of Sofidel S.p.A. are responsible for the preparation of the Report on Operation of Sofidel S.p.A. as at December 31 2020, including its consistency with the related financial statements and its compliance with the applicable laws and regulations.

We have performed the procedures required under audit standard SA Italia n. 720B, in order to express an opinion on the consistency of the Report on Operations, with the financial statements of Sofidel S.p.A. as at December 31 2020 and on its compliance with the applicable laws and regulations, and in order to assess whether it contains material misstatements.

In our opinion, the Report on Operation is consistent with the financial statements of Sofidel S.p.A. as at December 31 2020 and comply with the applicable laws and regulations.

With reference to the statement required by art. 14, paragraph 2, subparagraph e), of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have no matters to report.

Firenze, February 26 th 2021

EY S.p.A.

Signed by Lorenzo Signorini, partner

This report has been translated into the English language solely for the convenience of international readers.

2020

Annual financial report

Report on operations accompanying the annual financial statements

as at 31 December 2020 annex "E"

The terms "Sofidel", "Sofidel Group" or simply "Group" mean the Group formed of "Sofidel S.p.a." and its direct and/or indirect subsidiary companies.

Letter to stakeholders

Positive results in a difficult year, for a future to be faced with confidence and courage.

With the current Covid-19 pandemic, 2020 was a difficult year worldwide, and indelible traces of suffering and unresolved problems remain.

Despite the heavy impact on health and the economic and social repercussions of the pandemic, Sofidel ended the year positively, in terms of revenues and net operating margins.

There are six factors that have allowed us to achieve this result:

Operating in an industrial sector that remained active at all times, even during lockdowns, in all countries where the Group operates, as it manufactures goods - paper for hygiene and domestic use - that are considered essential for the well-being of people and for hygiene in the home and in the workplace.

The launch, at the end of February 2020, of an efficient and highly cautious "Action plan", coordinated and monitored by a dedicated control room. This plan, which is continually revised according to the directives of individual governments and the international health authorities (WHO) and national health authorities of the different countries, has allowed us to protect the Sofidel offices and plants and to prevent the development of internal outbreaks and the spread of the virus.

The heavy increase in sales on the retail market (Private Labels and Brands), particularly in March and April 2020, during the first wave of the pandemic, when toilet paper and paper towels were literally disappearing from supermarket shelves in various countries, due to panic buying. Growth that compensated for the drop in the Away-From-Home range, which accounts for just over 12% of Sofidel sales and was heavily hit by the emergency.

The new plant at Inola, in Oklahoma, entering into full operation at the end of summer 2020. This is a new-generation greenfield site that, besides increasing production capacity and improving the Group's geographical coverage in the United States, has also significantly strengthened its position and growth potential on the US market.

The cost of cellulose, our main raw material, which, after the increases of the previous years, remained stable and in line with the 2019 values.

Favourable energy and transport prices throughout the whole period, which allowed us to limit production and logistics costs.

In the case of the Covid-19 emergency, we concentrated on three priorities: protecting the health of our employees and our partners, supporting the communities in which we operate and safeguarding continuity of production, in order to guarantee the supply of products and satisfy the needs of our clients and consumers.

In line with our commitment to inclusive, sustainable and lasting development, we promoted a number of initiatives in the territory, to provide support during the health emergency and to help prevent or counter situations of economic and social strain.

The projects related to several hospitals in the areas where our plants are located, to families in need (identified through collaboration with public entities and non-government organisations) and sectors that have been heavily impacted by the periods of lockdown, such as catering.

As far as the commitment to responsible development is concerned, our targets for reduction of climate-altering emissions by 2030 were approved by the Science Based Targets initiative (SBTi). This acknowledgement confirms that the progress we have made is in line with the reductions necessary to limit global warming to below 2°C, as required by the 2015 Paris Agreement.

In 2020, Sofidel reconfirmed the priority of several of the topics already at the centre of its strategy, namely: the absolute importance of digital transformation (with its implications for production, maintenance, supply, logistics, e-commerce and cyber security); the growing demand for innovation in all company areas (product, processes and services); the need for an increasingly shared and multilateral commitment to promote well-being and to create a positive future for mankind and the planet as a whole.

People are focusing more and more on the values that a company expresses. Brands are no longer just asked to develop high-quality products, but also to be authentic and to contribute to the good of society and the planet. During such a complex year, we have asked ourselves what is our company's true purpose and which are the values that guide us. In order to give these thoughts a tangible form, at the end of the year we introduced our purpose at the company: "Clean Living. For your everyday needs. For a healthier planet. For integrity and respect". This proposal, which will guide our future activities, clearly expresses how we want to contribute to the common good.

2020 has ended with the distribution of the first vaccine doses. This is certainly not the time to lower our guard, but it is the time to start looking beyond the emergency, towards recovery based on more balanced and sustainable development models.

Over the short-term, pandemic permitting, we expect market recovery for the Away-From-Home range and a return to more stable and ordinary consumption conditions in the retail channel. Similar considerations also apply for the trend in the cost of cellulose, which is expected to increase.

Against this backdrop, Sofidel will work to further strengthen its own position on the US market (currently the Group's number one market in terms of revenues) and on accelerating on the digital front. We will also continue to promote innovation, in terms of production processes and products, in order to create shared added value along the entire value chain.

Over the medium/long-term, the Group intends to work to assist the "transformational change" needed to create a stronger, fairer company in harmony with the planet.

In a world where the speed of change causes imbalances and uncertainties, Sofidel is working to become a company that anticipates this evolution and navigates through it in the best way possible. It will act in compliance with the major international institutions, according to three cornerstones: environmental transition, technological and digital transformation, inclusion and social cohesion.

This is the direction we intend to take, in 2021 and beyond, together with all our stakeholders.

Luigi Lazzareschi, CEO of Sofidel

Emi Stefani, Chairman of Sofidel

Group profile

Who we are

The Sofidel Group was founded in 1966 with Italian capital, under the ownership of the Stefani and Lazzareschi families. It is a world leader in the production of paper for hygiene and domestic use.

1 Group

2 Continents

14 Countries with Sofidel offices

17 companies

54 years of activity

6,760 employees

1,428 tons/000 of production capacity

The figures refer to the values at 31 December 2020; the source for tons of production capacity is "Sofidel S.p.A."

Board of Directors

In office for the years 2018-2020

Chairman and CEO	Emi Stefani
CEO	Luigi Lazzareschi
Managing Directors	Edilio Stefani
	Lorenza Magazzini
Directors	Paola Stefani
	Cristina Lazzareschi

Board of Statutory Auditors (auditing of administration)

In office for the years 2019-2021

Chairman	Ugo Fava
Statutory auditors	Gabriele Nencini
	Giulio Grossi

Supervisory Board pursuant to Italian Legislative Decree 231/2001

Regular member	Gianfranco Del Grande
Regular member	Simone Ferretti

Auditing firm (statutory auditing of accounts)

In office for the years 2019-2021

Auditing firm

EY S.p.a

"Clean Living" and the strategic business model of the Sofidel Group

We are convinced that a new form of commitment and integrity of companies is needed. An active role, in which companies work alongside institutions to protect our shared home and to leave a heritage based on care and a profound sense of respect to the new generations.

These thoughts led to our response to the "call to action" for the future:

Clean Living. For everyday needs. For a healthier planet. For integrity and respect.

The conduct and actions of Sofidel are based on this idea, as is the entire production process and the products that the Group places on the market. It is the company's raison d'etre and establishes the role of Sofidel in the company and the benefits it intends to bring to people and to the planet. For the Sofidel Group, the concept of "Clean Living" is the foundation of the three cornerstones that represent its way of doing business.

THE PRODUCT

Clean Living is an idea based on the Group products, which are designed and developed to satisfy a basic need: contribute to the hygiene and to the everyday well-being of people and to the cleanliness of the home, the workplace and public spaces. Products in disposable tissue paper, created using cellulose, a raw material of plant origin extracted from wood, a renewable resource that is easy to recycle and reintegrate into the natural life cycle.

THE ENVIRONMENT

This is the focus of the Group's approach to production, based on "environmental transformation" and aiming to boost the transition to a low-carbon economy and reduced consumption of natural resources. The production model is based on responsible procurement of the forest raw material, careful use of water, focus on the energy sources used, on the energy efficiency of our plants, processes and machinery, reduction of waste and limited use of traditional plastic in product packaging.

THE PEOPLE

A sustainable culture of enterprise can only be created in a spirit of collaboration with and respect for the territory and the communities in which Sofidel operates. The relationships that are developed with all stakeholders are based on respect for the values of professionalism, pragmatism, honesty, ethics and transparency and the pursuit of practices of inclusion, sharing, participation and correct information. It is an approach based on propriety and mutual respect, bolstered by courage and the moral strength to imagine, all together, a positive future for humankind and for the planet. And on the need to start building it now.

Culture, ethics and values

The modus operandi of Sofidel is based on values and on work with a strict ethical stance. Sofidel has implemented an operational model in line with the Management by Values method, which focuses on the creation of shared value through the full integration of the social strategy with the competitive strategy, in a multi-purpose vision of enterprise.

Operating with respect for ethical values is an added value to company operations for Sofidel and compatible with its profitability. Sofidel has therefore introduced a Code of Ethics that contains the Group values (such as professionalism, honesty, propriety, humility, ethical conduct and sharing), the principles of behaviour and the principles of conduct with others and a Sustainability Charter that summarises the commitments to sustainability, a key factor for Sofidel in the creation of value.

During this process, the social and competitive strategies are combined to achieve the business objectives. Corporate Social Responsibility is heavily integrated into the company decision-making process, into governance and into everyday operations.

Sofidel has obtained and maintains numerous product, process and system certifications, as it considers them to have a strategic value. This all forms the basis of a broader strategy of organisation of creation of shared value and enhancement of the relationship with stakeholders, part of the entire value chain. It is essential for Sofidel to create a healthy and constructive relationship with stakeholders, as an aspect that is also essential to the development of initiatives to promote and enhance the social and environmental fabric of the communities in which the company lives and operates.

One of the concepts that best explains and summarises the philosophy and culture of the Sofidel Group is "Less is more".

LESS IS MORE.

THE GUIDING PRINCIPLE

Sofidel espouses the Less is More principle, an attitude that characterises all Group operations and that is based on three fundamental concepts:

―	reduce environmental impacts at every level, from procurement to logistics and office activities;
―	reduce waste;
―	promote responsible consumption.

The Group's continual commitment to this principle has allowed it to manufacture products that contain an increasingly lower amount of natural capital, but still perform better in terms of comfort, hygiene and services for the consumer.

This guiding principle has always been an intangible asset of the Group. It is the cultural and industrial basis that has made Sofidel ready to approach the idea of development inherent to the concept of a circular economy in a positive manner.

The tissue production process

The Sofidel manufactures and markets exclusively tissue paper, i.e. paper for hygiene or domestic use, inside and outside the home: toilet paper, paper towel, paper napkins, tissues, tissue paper, towels, etc. The Group carries out the entire production process, from manufacture of the tissue to its processing and creation of the finished product. The entire production chain is characterised by constant compliance with the principles of sustainability, which form the basis of the entire shared value creation system of Sofidel.

The business lines

The tissue product manufacturing and distribution activities of the paper-making companies of the Sofidel Group are divided into four different business lines: Brand, Private Label, Away-From-Home, Rolls.

Consumer - Brand

Toilet paper, paper towel, paper napkins and tissue are the tissue paper products manufactured by Sofidel for the Consumer-brand market. They are characterised by a high level of innovation in both function and appearance and by an excellent price-quantity-quality ratio and are accompanied by a highly targeted advertising activity. These features have resulted in continual loyalty of the reference consumers and have allowed the products to become well-established on the main European markets.

Consumer - Private Label

Sofidel has also successfully established its range of private label products for the Large-Scale Retail Trade chains, with products that focus heavily on the issues of environmental and social responsibility. In the Private Label channel, the Group caters to the high-end market (Premium and Luxury), with innovative products that often use patents registered by Sofidel itself or technologies such as Through Air Drying (TAD).

Away From Home

Bars, restaurants, hotels, spas, fitness centres and communities are the target consumers and, to meet their needs, Sofidel does not simply offer products that satisfy only the need for an optimum price/quality ratio. Thanks to continual research and development and the high quality of the service, the Group can also offer a highly innovative range of tissue paper products, with a high added value in terms of hygiene, comfort and respect for the environment.

In the Away-from-Home channel, Sofidel is present both in Europe and in the USA with the brand called Papernet - Sustainable Hygiene.

E-commerce

The presence of Sofidel in the e-commerce distribution channel serves to satisfy a type of consumption that views the Internet as a source of information and supply, for an increasingly personalised purchasing experience. There is growing demand among consumers for online products, partly as a result of the development of increasingly evolved and secure services and methods of payment.

Reels

This channel relates to sales of large reels to processing companies who do not manufacture their own paper and purchase semi-finished products. The Sofidel Group is perfect to satisfy their needs.

Revenues by Line of Business

Private Label and Contractors	50.2%
Brand and B-Brand	31.5%
Away From Home	11.7%
Reels	6.6%
	100.0%

The brands

REGINA. IN CONSUMERS' HEARTS AND HOMES FOR 30 YEARS

The Regina brand is a European leader in its segment.

The "Paper for People" payoff reflects the dual objective of the brand: on the one hand, help people in the small everyday tasks in the home, on the other, the commitment to developing increasingly innovative and sustainable products.

THE OTHER SOFIDEL BRANDS

In addition to Regina, the Group has acquired or launched a further seven brands in the various European countries: Softis in Germany and Austria, Le Trèfle and Sopalin in France, Cosynel and Nalys in the Benelux area, KittenSoft in Ireland, Forest in Hungary and Lycke in Sweden.

THE B-BRAND RANGE

The B-Brand products - mainly identified with the Nicky brand - are the result of state-of-the-art production technologies and are marketed both in numerous Large-scale Retail Trade (LSRT) chains and in the so-called "Long Distribution Channel". Nicky brand products are distributed mainly in four countries (Italy, United Kingdom, Ireland and Spain), in line with the innovations proposed, the intrinsic creativity of the various sub-brands, the price-quality ratio and the focus on issues of environmental accountability.

In addition to Nicky, Sofidel also supplies other support brands to the distribution chain, namely Valenty, Alis, Florex and Dayly.

Sofidel in the world

At the end of 2020, the Sofidel Group was present in fourteen countries worldwide (Europe and USA), with seventeen companies.

Source: Sofidel SpA - 31/12/2020

Composition of revenues by country

USA	22.1%
United Kingdom	14.7%
Italy	14.0%
Germany	10.3%
France	9.1%
Poland	6.0%
Spain	4.5%
Ireland	2.9%
Belgium	2.9%
Romania	1.9%
Others	11.6%
	100.0%

Branch offices

The parent company Sofidel S.p.a. does not have any branches that are permanent establishments.

Financial and economic relations between the Sofidel parent company and the subsidiary companies

Relations between Group companies, which are summarised below, always take place at market prices and under general market (arm's length) conditions, in a spirit of absolute transparency and cooperation and with a view to individual and group growth.

The company has opted to communicate possession of the transfer pricing documentation referred to in Italian Decree Law no. 78 of 31 May 2010, converted with amendments by Law no. 122 of 30 July 2010. A group Master file has therefore been prepared, indicating the transfer pricing criteria adopted, and also a Country file for each company, which summarises the transactions carried out during the year.

The company has filed an application for a prior agreement procedure for enterprises with international operations, pursuant to Art. 31ter of Italian Presidential Decree (DPR) no. 600/1973, with the Italian Revenue Agency in the past.

Relations between the parent company and the other "Sofidel Group" companies are summarised below:

Financial and sundry relations

Description	Receivables	Payables	Guarantees Commitments
Subsidiaries	516,677	206,426	--
Total	516,677	206,426	--

Trade and sundry relations

Description	Receivables	Payables	Guarantees	Commitments
Subsidiaries	99,095	5,528	-	-
Total	99,095	5,528	-	-
Economic relations
Description			Revenues
		Assets	Services	Other
Subsidiaries		402,094	47,764	(72)
Total		402,904	47,764	(72)
Economic relations
Description			Costs
		Assets	Services	Other
Subsidiaries		1	1,656	8
Total		1	1,670	8

Important events of the year

Covid-19 emergency - The measures to limit internal infections have been successful

After the alarm went out from China in January and the first cases started to appear in Italy at the end of February, Sofidel promptly implemented a "Plan of action to fight the spread of the Covid-19 coronavirus". It simultaneously set up a task force to monitor development of the situation in each individual country, to identify potential problems and to implement the consequent plans. The three priorities were: protect the health of Group employees and their families; ensure production continuity; guarantee the supply of essential products for personal hygiene and environments to clients and consumers. Further initiatives were introduced in September, when a second wave of the pandemic started. The measures taken by Sofidel throughout the year, such as work from home, suspension of business trips, compartmentalisation of personnel, change in production shifts, continuous application of strict hygiene and prevention measures in all areas (use of PPE, use of disinfectants, measurement of body temperature), allowed the occurrence of outbreaks at the company to be avoided.

Covid-19 emergency - New products to respond to the need for hygiene

The crisis caused by the Covid-19 pandemic has refocused the public's attention on how important the use of disposable tissue paper products is for hygiene. Sofidel has sought to respond to the growing demand for hygiene by moving quickly to present innovative solutions on the market. These include

Nicky Defend, the disposable paper towel for the Consumer market, and Papernet Defend Tech, a complete range of products for hygiene in public places and in the workplace.

In a year of major growth of the e-commerce sector, Sofidel has strengthened its digital strategy After following and applying the digital revolution in the production area over the years, based on Industry 4.0, cyber-security and remote maintenance, Sofidel has created a Digital Hub, a new corporate structure that will allow it to exploit the opportunities offered by digital transformation in the Marketing area as well. From e-commerce to data analysis, through organisation of specific training, Sofidel has boosted its presence and activities on line, during a year which, as a result of the Covid-19 emergency, saw exponential growth in use of the Internet. The weight of clients operating in this area on the Sofidel portfolio is growing. The Group is also currently one of the main suppliers of Amazon in Europe, both as the manufacturer of products sold under the platform's brand and of its own products. Digitalisation is destined increasingly to become one of the strategic levers of competitive growth of the Group.

The Sofidel climate-altering emissions reduction targets have been validated by the science Sofidel has obtained the approval of the Science Based Targets initiative (SBTi) for its greenhouse gas emissions reduction targets. The Group targets have been acknowledged as complying with the levels required to achieve the targets of the Paris Agreement and with the actions deemed necessary by the most recent scientific evidence on the climate. The greenhouse gas emission targets of the Sofidel Group (scope 1 and scope 2) are consistent with the reductions necessary to maintain warming at temperatures well below 2°C. In detail, these targets envisage a reduction in scope 1 and 2 and scope 3 carbon dioxide emissions (relating to the production of cellulose pulp by its suppliers) of 40% per ton of paper by 2030, with respect to the base year of 2018. Sofidel is also committed to reducing its own scope 3 emissions by 24% per ton of paper by 2030, with respect to the base year of 2018 (the perimeter of this target includes biogenic emissions and absorption of carbon from the use of energy to manufacture fibrous raw materials). Science Based Targets initiative is a collaboration between the CDP, the United Nations Global Compact (UNGC), the World Resource Institute (WRI) and the WWF.

Sofidel among the top three Italian companies for reputation

Sofidel is among the Italian companies with the best reputation with consumers. This was certified at the 2020 edition of Italy RepTrak ^® . The Group obtained a grade of 78.53 (out of 100), which puts it well above the average (71). It ranked eleventh overall and third among Italian companies. The Italy RepTrak ^® survey measures how companies are perceived by consumers, on the basis of around 40,000 individual interviews.

Sofidel's commitment to more sustainable packaging continues

New packs in Kraft paper, a renewable and easily recyclable material of plant origin, were launched on several European markets. They were presented either as a replacement or in addition to existing products. Replacement of the entire range of Regina Blitz towels in the United Kingdom and Ireland was completed. The Sopalin L'Expert paper towel was launched in France, as an extension of the "Blitz" product concept. In Italy, the polyethylene packs of all formats of the Regina Cartacamomilla product were replaced. Kraft paper packs, in addition to the traditional polyethylene packs, were also introduced for Regina Kamillenpapier toilet paper in Germany and for Regina Rumiankowy toilet paper in Poland. The Regina Camomila toilet paper was launched in Spain, with the Kraft paper packs.

United States, the new production plant at Inola, in Oklahoma, is fully operational

Despite the difficulties caused by the Covid-19 pandemic, the new integrated Group plant at Inola, in Oklahoma, started operating completely according to schedule. The plant, built on a 97-hectare plot of land (240 acres), is located in an area with abundant supplies of water, gas and electricity, as well as a skilled workforce, and lies at a strategic logistics hub with excellent intermodal transport connections (road, rail and water). The plant has two standard Toscotec AHEAD-2.0L tissue machines, for a total production capacity of 120,000 tons/year. For the transformation phase, thirteen converting lines have been installed for manufacture of the finished product for both the Away-From-Home and the Consumer markets. This investment has allowed Sofidel further to improve its geographical coverage and thus its ability to meet the needs of the Large-scale Retail Trade and final consumers in the South Central and West Central United States.

TV début for Regina in the UK and a new Regina Cartacamomilla campaign in Italy and Poland Sofidel has chosen television to present the new range of Regina Seriously Soft and Regina Seriously Strong toilet papers launched in the United Kingdom to British consumers. In Italy, a new Regina Cartacamomilla TV advert is being broadcast, starring Milla the ant. The Regina Rumiankowy advert has also been broadcast on the major television networks in Poland.

Sofidel joins the WWF Italia campaign "Il mondo che verrà" (the world to come)

Sofidel has joined the WWF Italia campaign called "Il mondo che verrà", an initiative to raise awareness and offer guidance for the future, post-Covid19 world. Through a collection of testimonial videos recorded by environmentalists and personalities from the world of culture and enterprise, the campaign invites people to submit proposals for the creation of a "citizen's agenda". Sofidel based its participation on the three principal routes to take to build a positive future for the planet and for people, namely environmental transition, technological and digital transformation, inclusion and social cohesion.

Sofidel America wins the FSC® Leadership Award 2020

Sofidel America has been acknowledged as the leader in the FSC ^® Certified Company category. The award recognised the excellence of Sofidel in the use and promotion of FSC ^® (Forest Stewardship Council) certified products on the North American market, and its commitment to responsible management of forests.

Sofidel among the top ten unlisted Italian companies for the digital ecosystem

Sofidel was mentioned by the Lundquist strategic consultancy agency in the 2020 trust research on company best practices in the corporate digital ecosystem. Sofidel was in the top ten unlisted companies and the only group in the paper sector, ranking alongside major players such as Ferrovie dello Stato, Cassa Depositi e Prestiti and Italcementi. With the "Bronze Class" ranking, the Group improved on the results obtained in the previous edition of the research (2018). The 2020 trust research of Lundquist analysed the activity of eighty-four unlisted Italian firms, including private and state-owned ones, and was carried out at the end of the first Covid-19 emergency lockdown.

Group Highlights 2020 ^*

44,341 hours of training

42% women in the White Collar sector

24.1% reduction of Carbon Intensity (compared with 2009)

7.2 litres water consumption per K/paper

100% purchases of cellulose from certified sources

Net Sales: 2,173 Euro/mln (v. 1,919 Euro/mln in 2019)

EBITDA margin: 418 Euro/mln

Ebitda margin / Net Sales %: 19.25%

Net operating cash flow: 484 Euro/mln (v. 160 Euro/mln in 2019)

Net operating cash flow / Net sales: 22.30% (v. 8.37% in 2019

NFP/EBITDA 2.74 (v. 5.56 in 2019)

NFP/Equity 1.38 (v. 1.92 in 2019)

^* Values and figures as at 31 December 2020. Refer to the specific sections of this document for the calculation methods.

The strategies

Product and customers

The strategy: the constant search for a sustainable and innovative product serving the community in which the Group operates

Improved quality in the technologies used	Search for better protection of the consumer
Through research and development of innovative processes with a lower impact and greater utility for the consumer.	Through extension of the international standards on management of the production processes serving for health and safety self-monitoring and also though external surveys on consumers.
2020 Result The new integrated Group plant at Inola, in Oklahoma, started operating completely according to schedule. The plant has two standard Toscotec AHEAD-2.0L tissue machines, for a total production capacity of 120,000 tons/year. For the transformation phase, fourteen converting lines have been installed for manufacture of the finished product for both the Away-From-Home and the Consumer markets.	2020 Result Seven Group production sites are certified according to BRC or IFS standards. The reduction in the number of certifications compared with 2019 is due to the fact that the certifying entity has been unable to carry out all the renewal audits, due to the Covid-19 pandemic.
2021-2023 Target Introduction and implementation of the best technological standards at the various production sites.	2021-2023 Target Certify the Inola, Green Bay and Las Vegas (USA) sites according to the BRC standard.
	For the remaining plants, it is planned to implement the health and hygiene self-monitoring system in Sweden, in addition to IFS certification in Hungary and Greece.

A safe and high-quality product

The consumer and the business partners lie at the centre of all Group activities and it focuses the utmost attention on developing innovative products and services that satisfy their expectations, as well as on guaranteeing constant quality and the highest level of safety and protection of their health. Three aspects that are an essential value for the Group companies and that are pursued through the application of procedures, training of resources, monitoring of processes and the drive for continual improvement.

Quality, or rather the constant technical features of the products and their suitability for use, is guaranteed through a Quality Management System, whilst safety is monitored, according to the applicable regulations in each country and the requirements of individual customers, by the Health and Hygiene Self-Monitoring System.

Two synergistic management systems with the ultimate objective of satisfying clients and consumers and that allow the entire production chain to be supervised, from suppliers up to delivery of the products, strictly monitoring the production, transformation and storage processes.

The quality and safety policies are testimony to the Group's way of operating, encouraging the pursuit of excellence and continual improvement, in order to be ready to comply with regulations and to anticipate market needs, in terms of consumption and services.

Product quality is monitored through the "product conformity index", a benchmark that considers, in general, all "nonconformities" discovered during production, weighted according to their gravity and placed in proportion to total production. Nonconforming products are those that do not satisfy the requirements of the law and clients and the internal standards of the Group companies.

The Health and Hygiene Self-monitoring System ensures compliance with tissue sector regulations, through the application of the voluntary BRC Global Standard Consumer Products, Personal Care and Household and the International Food Standard (IFS), Household and Personal Care Products for household and personal care products. It also satisfies all the requirements of the main clients in the Large-scale Retail Trade (LSRT). The health and hygiene self-monitoring system is based on assessment of the potential risks of physical, chemical and biological contamination associated with the various stages of the production cycle (such as raw materials, production stages, production and storage facilities); risk analysis is based on the principles of the HACCP (Hazard Analysis and Critical Control Points) method, applying the "Gravity by Probability" algorithm and contributing to identifying the GMP - Good Manufacturing Practices. The control activities include audits, product traceability and withdrawal and a check that all hygiene regulations are correctly applied. Chemical and biological tests are also performed on the products, at accredited external laboratories, in accordance with the principal regulations and guidelines. Planning of the various tests is periodically reassessed on the basis of changes in regulations and specific demands of the reference market. The process guarantees consumer safety, as it reduces product-related risks to a minimum.

At the plants where the health and hygiene self-monitoring system is implemented (88% of the European plants), absolutely all products are subjected to assessment of their impact on consumer health and safety. All production sites adopt the Good Manufacturing Practices.

This year, due to the Covid-19 pandemic, the entity responsible for certification was unable to carry out all the renewal audits for the certifiable voluntary standards, so the number of certified sites fell from seventeen in 2019 (equal to 74.68% of overall production) to seven at the end of 2020 (38.14% of overall production). However, although it was not possible to certify them, all the management systems have been maintained and continued to comply with the product safety and quality standards.

It is planned to obtain BRC certification for the Sofidel America plants at Inola (Oklahoma), Green Bay (Wisconsin) and Las Vegas (Nevada) in 2021. For the European plants, it is planned to implement the Health and Hygiene Self-monitoring System at Sofidel Sweden and IFS certification for Sofidel Hungary and Sofidel Greece.

Product quality from the customer's viewpoint

Customer satisfaction is a continuous stimulus for improvement of dialogue with stakeholders for Sofidel. It means understanding the needs and desires of customers and consequently offering them products that satisfy those needs, which is equivalent to guaranteeing their satisfaction.

The first step in satisfying the needs of consumers and clients is knowing how to listen. Sofidel uses various listening channels to understand a continually evolving market and anticipate new needs and signs of change: the sales force, the Customer Care service, management of feedback, a free phone number, Customer Satisfaction and social media.

The constant search for an "innovative product"

Innovation is a critical factor to the success of the Group, as consumer and customer needs change continually.

Innovations on the Brand range

In 2020, numerous innovations were launched in Europe for the Brand range.

The packaging of Regina Blitz, the paper towels for cleaning windows and shiny surfaces, was renewed, with the new pack in Kraft paper, a renewable and easily recyclable material of plant origin, to replace the previous polyethylene packaging. The packaging was replaced on all product formats and in all European countries where it is sold. Regina Blitz is currently the only "pan-European" tissue product packaged in Kraft paper.

In the United Kingdom and Ireland, where Regina Blitz is the flagship product of the brand, two new products were added to the range of Regina products, namely the Regina Seriously Soft and Regina Seriously Strong toilet papers. Thanks to the mix of cellulose fibres and the unusual weave of the paper, these products offer, respectively, a softness (Soft) and a resistance (Strong) that are unique on the reference market. The packaging is made from Mater-Bi®, a biodegradable and compostable bioplastic containing a large amount of renewable materials, obtained from corn starch. Only electricity from renewable sources, produced at the Sofidel plants, is used in the paper transformation process.

New Kraft paper packaging was also introduced for the Regina Najdluzszy paper towel in Poland and the Sopalin L'Expert one in France, the latter being an extension of the concept of the "Blitz" product. On the French market, an innovation was introduced for the Sopalin Maxi Rouleau paper towel, with hand-sized sheets and double the duration of standard rolls. The product was presented in the white and decorated versions, with packaging containing 80% recycled plastic. Launch of the Le Trèfle Maxi Douceur toilet paper was also completed. In addition to having 50% longer rolls and a new weave with the image of a four-leaf clover (referencing the brand logo), it also has new packaging containing 80% recycled plastic.

The Group's commitment to sustainable packaging was also reflected in replacement of the polyethylene packaging of the entire Regina Cartacamomilla (toilet paper) range with the new Kraft paper packaging. The corresponding toilet papers in Germany (Regina Kamillenpapier) and Poland (Regina Rumiankowy), were launched with the Kraft pack, joining the polyethylene pack already present on those two markets. In Spain, the new Regina Camomila toilet paper, once again with the Kraft pack, was presented in the Large-scale Retail Trade (LSRT) channel.

In Italy, in addition to Regina Cartacamomilla, a new range of Regina large paper towel rolls was launched in addition to the traditional range. A new Kraft paper pack was introduced for the Regina Eco large paper towel rolls, which are manufactured using exclusively electricity from renewable sources, produced at the Sofidel plants. The traditional Asciugoni Regina paper towels were also relaunched in a dual variant, the one with "maxi sheets" for greater absorbency, and the one with "hand-size sheets" (Asciugoni Wish), for consumers who want to reduce waste. The polyethylene pack of this latter product has also been replaced with the new Kraft pack. The graphics of both products were also revised.

The Regina Tiramisù paper napkins were introduced onto the market. These soft and strong napkins are double in size when opened and are both extremely soft and absorbent. The interleaved packaging means the napkins can be extracted one at a time, thus preventing outside contamination of the remaining product. The pack is made from 30% recycled plastic, reflecting the Group's commitment to environmental sustainability.

In conclusion, a new paper towel called Regina Pets was introduced, designed for the hygiene needs of pets. This product is designed as an alternative to a fabric towel or kitchen paper for cleaning the paws and fur of pets or to protect the floor from food stains and residues from their eating bowls. The product has been tested by independent laboratories for skin sensitivity and irritation of the eyes. The "Odor Control" patented technology, which eliminates unpleasant odours, by neutralising them on contact with water, has also been used. The product packaging, which has been presented in the UK and in Eastern Europe, is formed 30% of recycled plastic.

Innovations on the B-Brand range

In the B-Brand segment, 2020 also saw the launch of the Nicky Defend disposable paper towel, specifically designed to ensure correct hygiene of the hands, in response to the specific hygiene needs of consumers, which has intensified during the health emergency caused by the Covid-19 pandemic. Nicky Defend is therefore a valid alternative to the traditional fabric towel for drying hands, thanks to the antibacterial agent it contains. In the "home care" segment, in line with what was done for the Nicky Defend towel, the Nicky Defend single roll was launched, with a weave designed specifically for hygiene in the home. Once again, the antibacterial agent present in the product reduces the growth of microbes on the paper.

In Italy, the range is completed with the Defend tissues in 100% pure cellulose, which contain the same antibacterial agent, to ensure greater personal hygiene.

The Group extended the range, by introducing new large formats into several existing product lines (Elite and Soft Touch). Consumers are now focusing greater attention on products for hygiene in the home. In this regard, the Unlimited roll was presented in the United Kingdom. This product corresponds with the Milleusi roll already present on the Italian market and the Milusos roll sold on the Spanish market. Nicky Nature was also launched with a new Kraft paper pack in the first half of 2020.

Innovations in the Away From Home range

In 2020, Papernet heavily promoted a "circular hygiene" model (The Hygienic Closed Loop), in order to raise awareness of hygiene, focusing attention on people's safety in shared environments and on the need for correct everyday behaviour. The continual research and innovation performed on the brand resulted in the new Defend Tech product range, designed specifically to increase hygiene and cleanliness in public places, workplaces and public bathrooms, for greater satisfaction and safety of the people who use them. The Papernet Defend Tech range comprises disposal paper products containing antibacterial agents (paper towels, interleaved toilet paper, cleaning towel rolls), antibacterial dispensers, spray detergents, hydroalcoholic gels, antimicrobial soaps, antibacterial plastic baskets and hospital sheets. The new range also includes a special "door opener" paper towel, which also contains antibacterial agents, to protect the hands from contact with shared surfaces (such as handles and taps). In conclusion, the range also includes the face wipes treated with Ultraviolet Light Technology, a technology used in various hospitals that reduces the number of germs and bacteria present on paper sheets, to ensure maximum standards of hygiene.

Suppliers

The strategy: ethical control of the supply chain

Promote and enhance "sustainable" management of the supply chain

Through use of the "Sustainable Supply Chain Self-Assessment Platform".

2020 Result

95% coverage ratio of critical expenditure.

2021-2023 Target

Increase the percentage of the coverage ratio of critical expenditure to 100%.

Guidelines and results of supplier pre-qualification

The strategic objective of the Sofidel Group is to have a totally risk-free supply chain. This objective is pursued in two manners, involving:

―	assessment of the strategies and the sustainability performance of suppliers;
―	adoption of a sustainability model in purchasing.

Risk analysis on sustainability has identified thirteen critical goods categories on the supply chain of the Sofidel Group that define the portfolio of critical suppliers and critical expenditure (meaning the portion of expenditure associated with the critical goods categories).

The tool chosen to assess supplier sustainability performance is the TenP platform developed by the Global Compact Network Italy Foundation. The TenP platform provides a system of pre-qualification that assesses the individual supplier in relation to working conditions, respect for human rights, protection of the environment and the fight against corruption.

The Sofidel Group has created a rating system that allocates a merit ranking to each supplier (green, yellow, red), based on the grade obtained following self-assessment.

The summary indicator adopted to measure efficiency of the monitoring is overall Group expenditure associated with suppliers assessed using the TenP platform (coverage ratio).

The coverage ratio of critical expenditure increased in 2020 and currently stands at 95% (+10 percentage points on 2019).

Sofidel has based its sustainability model in purchasing on the ISO 20400 guidelines and, during 2020, SGS Italia renewed the Group's certification, confirming that the purchasing sustainability model satisfies the criteria of the reference standard.

The SLP module of the Ariba platform is the single interface with which the Group interfaces with its suppliers and the channel through which it collects the information needed for the pre-qualification process in an organised manner.

The integrated pre-qualification process hosted on the SLP module is divided into two separate macrophases, both subject to Group approval: registration and qualification.

In the macro-phase of registration, the supplier profile is outlined and the supplier agrees to adhere to the integrated system of policies defined by the Group to incorporate the principal international standards and guidelines.

The macro-phase of qualification differs according to the goods category to which the supply relates. This is the point of contact between the supplier sustainability assessment and the integrated qualification process, i.e. the link that allows integration between the TenP platform and the Ariba platform.

The result is consolidation of a single process subject to precise and uniform rules.

In order to achieve the objective of a supply chain without reputational risks, Sofidel must continue to monitor and encourage sustainability along the entire supply chain.

Analysis of the current supplier portfolio in terms of sustainability clearly indicates the new challenge facing the Group: help the small and medium enterprises (revenues below Euro 20 mln) on the Group supplier network to move towards sustainability.

A mass training campaign for level one suppliers present on the TenP platform was launched in 2020. The tool chosen to channel the training content is the SAP SuccessFactors platform, through which specific e-learning modules were distributed.

The mass training campaign is due to continue in 2021, in order to support small firms in reducing the gap that separates them from other firms on the Group's supplier network. At the same time, the Group will also need to target the larger firms (with revenues between Euro 5 mln and Euro 20 mln and with revenues higher than Euro 20 mln), in order to contribute to consolidating the results obtained and prevent dangerous regressions.

Personnel costs

The strategy: sustainable management of resources to the benefit of people

Improved safety of the workplace

Through constant monitoring of workplaces, with implementation of the highest safety standards on plant and machinery and with performance of training and information programs.

2020 Result

6,760 Group employees at the end of 2020.

Accident rate of 10.07

Accident severity rate of 0.31

2021-2023 Target

The percentage of the accident rate and the accident severity rate must decrease.

Enhancement of human resources

The approach of the Sofidel Group to management of human resources is focused on enhancement of its employees and their integration into the company organisational culture. These elements are essential to the achievement of features such as innovation and flexibility, which are now decisive factors of competitiveness on a globalised market. The human resources management policy is firmly based on the principles of the Group Code of Ethics and the Group Guidelines for Management of Human Resources, which consider human capital as central to the process of creation of value, as a strategic company asset, and promote equal opportunities and diversity as a source of wealth to be cultivated, together with equal treatment, development of individual abilities, teamwork, open communication and continuous learning.

Development of both technical and management skills is a strategic factor for the Sofidel Group and, in 2020, it provided an average 6.56 hours of training per employee, with the aim of keeping employees updated on the issues of most interest to them, such as health and safety, increasing knowledge of English and transferring established methods and the concept of a results-based approach to the people working at the production plants.

During 2020, due to the Covid-19 pandemic, Home Working was introduced for the very first time at the Group and was used for all office staff and managers of the Sofidel Group. This tool allowed the aforementioned categories of Group employees to continue performing their duties, during the delicate and complex situation created by the series of lockdowns in the various countries where the Group operates, as well as eliminating the risk of infections in the workplace and allowing work to continue remotely.

Home Working was organised at Group level extremely rapidly, starting initially with Italy (the first country to introduce a lockdown, in March 2020), and then extended over the following weeks to the other European and American affiliates of the Sofidel Group. This has been and continues to be a complex process of change, requiring action to be taken on various aspects simultaneously, with careful consideration of objectives, priorities and the technological, cultural and managerial features of the organisation.

This method of working is intended to allow a better balance between quality of life and individual productivity, as well as to protect workers' health during a pandemic, and is therefore also the result of skilful use of digital innovation to support the strategic approaches, which focus on integration and collaboration between people and between organisations in general, in order to continue the company business and allow all employees involved to continue working.

During 2020, the Sofidel Group also continued with specific management policies targeting the two minority age ranges of employees, with participation in the "Lifelong Employability & Company Welfare" workshop promoted by the Sodalitas Foundation, with the aim of identifying efficient solutions of lifelong employability and sustainable management of human resources.

Once again in collaboration with the Sodalitas Foundation, Sofidel also continued to participate in 2020 in the "We 4 Youth" project, focused on the new generations. The first phase of the project, which was started in 2019 and continued in 2020, involved the creation of a benchmarking platform of the partnerships for overarching competences and for orientation of the studies, jointly planned by the participating companies and state-of-the-art schools.

The "Sofidel People" initiative, which was started following a survey into organisational wellness in 2016, also continued during 2020. The three areas of intervention identified relate to improvement of internal communication flows, better disclosure and awareness of company processes and procedures and optimisation of human resources management.

Personnel figures

	2020	2019
Average workforce	6,605	6,364

Distribution by category (workforce at 31/12/2020) ^*

Position	2020	2019
Manager	423	351
White-collar	1,442	1,400
Blue-collar	4,895	4,702
Total	6,760	6,453

It should be noted that:

―	"Manager" means people holding positions with decision-making powers and who are entitled to take autonomous actions or who may take decisions based on instructions from top management (this corresponds with the categories of "Executives", "Middle Managers" and "AS");
―	"White-collar" means office workers without decision-making powers;
―	"Blue-collar" means, workers and all operatives working in production.

Distribution by geographical area

Country	USA	Italy	UK	Germany	France	Poland
Number	1,591	1,314	823	754	696	440

Country	Spain	Romania	Sweden	Hungary	Belgium	Greece
Number	308	244	181	176	173	60

Country	Result
Number	6,70

―	Employees on long-term contracts account for 95.04%.
―	98.31% are on a full-time contract.
―	95% of the senior managers come from the local community, in order always to boost the territory in which the company operates.

The workforce of the parent company at 31 December 2020, divided by category, is as follows:

Description	31/12/2020
Manager	80
White-collar	159
Blue-collar	12
Total	251

The workforce of the parent company divided by category and gender is shown below.

Description	Women	Men	Total
Manager	7	73	80
White-collar	77	82	159
Blue-collar	12	-	12
Total	96	155	251

A safe workplace as a means to creation of value

The Group believes in the promotion of health and safety as one of the critical factors of sustainable development of its people and its business, and also as a significant contribution to improving the health of society as a whole. It has therefore drafted a specific policy, in which occupational health and safety is recognised as a primary value, in the absence of which sustainable, efficient and long-term developments cannot be planned. In order to achieve this objective, it has implemented a health and safety management system complying with the BS OHSAS 18001 standard and, starting from 2019, with the ISO 45001 international standard, through which it undertakes to guarantee the health and safety of its employees and of all the other stakeholders who interact with the company.

During 2020, the plants of Soffass, Sofidel Poland, Sofidel France (Ingrandes and Roanne plants), Sofidel Benelux, Sofidel Spain, Sofidel Romania and Sofidel Germany (Arneburg plant) migrated their management system from the BS OHSAS 18001 standard to the ISO 45001 standard.

The "Leadership in Safety 4.0" project continued in 2020, through the supply of specific training in communication for prevention managers and officers. "Leadership in Safety 4.0" will be extended to all countries where the Group operates over the coming years.

Awareness of health and safety is spread through communication, participation and consultation activities in the workplaces.

The Group offers health and safety training plans to all its companies every year. In 2020, 20,273 hours of health and safety training were provided.

The training sessions dealt primarily, for both new recruits and employees, with binding aspects of national regulations, such as the risks associated with their duties and the consequent sector-specific prevention and protection measures and procedures, use of work equipment, management of emergencies and fires, first aid, organisation of company prevention and the rights and obligations of the various company players. On the job training and safety awareness training programs are also defined at each plant and for each category of workers.

The partnership between Sofidel and the European Agency for Safety and Health at Work (EU-OSHA) continued, through participation in the new two-year campaign (2020-2022) focused on prevention of musculoskeletal disorders, with the objective of raising public awareness and promoting a culture of prevention in the workplace throughout the European Union, and also addressing specific categories of workers.

Health and safety committees were also set up at all companies, formed of representatives of the plant management and workers, in order to ensure the latter are involved in raising awareness and disclosure of the relative policies.

Training

A total of 44,341 hours of training were provided in 2020, with an average per employee of 6.56 hours.

As is the case in many other areas, the spread of the Covid-19 Coronavirus has had a major impact on training courses. The containment measures adopted, such as home working for the majority of office

staff, together with limited access of outside consultants to the company areas and the fact that they are unable to travel due to the restrictions on movement, as well as the impracticability of large gatherings of people in a single place, resulted in the cancellation of many training courses.

The training courses resumed as soon as was possible, at the end of the first lockdown, with priority given to training that requires a practical part, using work tools and equipment, and which must necessarily be performed with the trainees present, such as occupational health and safety training.

The other courses, rather than being cancelled, were transformed, where possible, into remote lessons. Although this method guaranteed the supply of theoretical content and overcame the moment of need, it also highlighted that fact that, for many topics, classroom training would be more effective, particularly due to the possibility of discussions with other colleagues, exchanging experiences and sharing a common space. This is particularly the case for soft skills, for which the presence of the lecturer makes transfer of know-how and its transformation into new behaviours more likely. In the near future, a "combined" method will probably be adopted, alternating individual on-line lessons with encounters with the lecturer and the other participants, in order to ensure the training is as efficient as possible.

For many workers, one of the consequences of social distancing and home working has been the need to deal with the digital world and to gain confidence in the use of on-line communication platforms. This has had an indirect positive effect in terms of their retraining.

Sofidel used the services of qualified external agencies for teaching, together with specific in-house competences already present, which accounted for 55.37% of the total.

Environment

The strategy: commitment to a "cleaner" world

Reduction of CO ₂ emissions into the atmosphere	Reduction of water consumption	Reduction of the impacts associated with use of cellulose
Through investment in new technologies, use of renewable resources and implementation of energy efficiency systems.	Through optimisation of its own industrial processes, by investing in innovative technologies.	Through the purchase of certified cellulose that guarantees environmentally sustainable management of forests.
2020 Result	2020 Result	2020 Result
24.1% reduction of Carbon Intensity compared with 2009	Specific water intake of 7.2 litres per Kg/paper.	100% of cellulose purchased from independent operators with forest certification.
2018-2030 Target	2021-2023 Target	2021-2023 Target
Specific CO ₂ emissions must reach the following targets: - a reduction in scope 1, 2 and scope 3 of 40% per ton of paper by 2030, with respect to the base year of 2018, in the production of cellulose pulp by suppliers; - a reduction in scope 3 emissions of 24% per ton of paper by 2030, with respect to the base year of 2018.	The percentage incidence must decrease.	The percentage must not decrease.

Certifications of the environmental management systems

A strong organisation, based on correctly formalised and periodically revised procedures is necessary to guarantee constant environmental performance and to minimise pollution risks.

Compliance with standard ISO 14001:2015 guarantees the correct management for continual improvement of environmental performance. All Group plants have introduced the review of standard ISO 14001, which provides for an assessment of the company risk based on all aspects associated with the environment (risks linked to reputation, continuity of supply, relations with local communities, the market, etc.). This is a major change that allows the Group to strength the relationship with its external stakeholders.

All the European paper mills and integrated plants have been certified according to this international standard since 2018.

For Sofidel, continual renewal of the environmental certification systems is an absolute priority, as it guarantees the healthiness and protection of not only the environment, but also of all Group stakeholders, inside and outside the organisation, and, indirectly, of all inhabitants of the planet.

Protecting everyone's health is an ambition towards which a global group like Sofidel must strive.

The Group and climate change

2020, a year that was characterised, first and foremost, by the consequences of the Covid-19 pandemic, also saw not only the confirmation, but also the enhancement, of a political intention towards a change in line with the UN Agenda for 2030: for example, with the 2030 Climate Target Plan, the European Commission proposed raising the EU's ambition on reducing greenhouse gas emissions to at least 55% below 1990 levels by 2030, in line with the target of the Paris Agreement of keeping the temperature increase worldwide well below 2°C and continuing with the efforts to keep it below 1.5°C. This is a substantial increase compared to the previous target of at least a 40% reduction. A higher ambition for 2030 gives certainty to policy-makers and investors, so that decisions made in the coming years do not lock in emission levels inconsistent with the EU's goal to be climate-neutral by 2050.

The European Green Deal has, in fact, taken the first steps towards the goal of being climate-neutral by 2050, opening up to support targeted at contributing to mobilising at least Euro 150 billion in the period 2021-2027, in order to reduce the socio-economic impact of transition.

In this situation, larger enterprises, such as the Sofidel Group, necessarily feel invested with an ethical and social responsibility in this new path, which is precisely why it is important to note that the Group participates in the international Science Based Target (SBT) program, an initiative based on cooperation between the international non-profit organisation CDP, the United Nations Global Compact (UNGC), the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).

The Climate Savers initiative of WWF International, in which Sofidel has participated since 2008, recognises the SBT initiative and encourages its own partners to join, as the two programs are perfectly compatible and integrated with each other.

In 2020, the targets for reduction of the climate-altering emissions of the activities of the Sofidel Group (scope 1 and 2) were approved by the Science Based Targets initiative (SBTi) as consistent with the reductions needed to limit global warming well below 2°C, in accordance with the Paris Agreement.

In detail, these targets are:

―	a reduction in scope 1, 2 and scope 3 carbon dioxide emissions of 40% per ton of paper by 2030, with respect to the base year of 2018, in the production of cellulose pulp by suppliers;
―	a reduction in scope 3 emissions of 24% per ton of paper by 2030, with respect to the base year of 2018.

The target perimeter includes biogenic emissions and absorption of carbon from the use of energy to manufacture fibrous raw materials.

The commitment of Sofidel to the milestone of the SBTi targets by 2030 is pursued through a major use of renewable electricity sources and the increasing introduction of energy consumption optimisation systems at its own production sites.

The energy balance

The Covid 19 pandemic has had a major impact on the prices of all energy commodities.

The marked reduction in consumption literally caused the collapse of natural gas and electricity prices, which reached all-time lows in April and May 2020.

This complex situation has caused difficulties for many small and medium sized energy suppliers, who have experienced a major reduction in their revenues. Exports of liquid natural gas to Europe also collapsed, causing consequent difficulties for the entire US shale gas sector.

Prices only began to rise towards the end of the year, boosted by forecasts of a colder than usual winter and the optimism associated with arrival of the first vaccines.

Energy efficiency investments

Industrial investments in 2020 included entry into full operation of the most recent, important production investment that Sofidel has made in the United States, at Inola (Tulsa).

The entire plant has a production capacity of over 120,00 tons per annum, through two production lines with standard technology. This major plant joins the two production lines opened at the US plant in Circleville (Ohio) and the other production line of the plant at Buñuel, in Spain, all of which are equipped with NTT (New Tissue Technology) and started operating between 2018 and 2019.

An ambitious project for modernisation of the electricity and steam combined generation plant at the company "Soffass" commenced in Italy in 2020. The change involves complete replacement of the three existing turbines, which date to the 1990s and will be replaced with an endothermic gas engine. The project will be completed in the 2021-2022 two-year period and will be managed by a company specialising in the supply of energy services.

In addition to the investments in plant alterations to improve efficiency listed above, the Group is also focusing on spreading an environmental culture and on the introduction of Energy Management Systems. The procedure of certification according to the ISO 50001 (Energy Management System) standard, started in 2012 at the German and Swedish plants, has continued, with recognition of the management system for the Sofidel Benelux, Sofidel UK and Soffass plants, and also the Sofidel France plant in Frouard.

Responsible management of water resources

Global use of water has increased sixfold over the last 100 years and continues constantly to increase, at a rate of around 1% per annum, due to an increase in the population, economic development and changes in consumption models. Combined with more irregular and uncertain rainfall, the change in climate will further exacerbate the situation in regions already suffering from water stress and will cause droughts in regions where water resources are currently plentiful. Lack of water is frequently a seasonal event, rather than a chronic one, and it is likely that the climate changes will alter seasonal availability of water, rather than cause an absolute lack of water throughout the year. The effects of climate change associated with water involve risks for enterprise and the production of energy. Water stress has the potential to stop production of goods or energy. Water availability can also influence the procurement of raw materials, with a consequent interruption of supply chains (The United Nations World Water Development Report 2020, Water And Climate Change)

In response to this situation, the Group has been pursuing policies and activities to reduce water consumption for many years, not just to protect the environment, but also to safeguard production continuity, particularly in countries subject to an already high level of water stress. The objective of reducing water consumption is pursued through both operational measures and specific investments, by implementing water consumption rationalisation and reuse of industrial waste water policies.

Although it is possible to list specific activities and investments to reduce water consumption (such as collection and reuse of rainwater at the Sofidel UK Baglan plant and water reuse at Soffass Cartiera via Lazzareschi), the activity that has so far allowed Sofidel to achieve water consumption levels that are well below the average for the sector is optimisation of production cycles and careful design of industrial plants. All production employees have been given proper training in water saving and each plant has its own water consumption target. The specific consumption levels currently reached are an achievement that it will be hard to beat, unless more sophisticated technologies are used.

Protection of forests

The Group carefully assesses procurement of pulp and monitors suppliers through a detailed questionnaire on both performance of the pulp production plants and the origin of the wood used for cellulose extraction.

The Group has put in place a specific policy for protection of forest resources, as the main raw material procured by it. According to said policy:

Sofidel condemns illegal felling practices and the conversion of natural forests into plantations and works to ensure that its suppliers are able to demonstrate the origin of the wood used for cellulose production;

Sofidel undertakes to verify, where possible, the existence of social conflicts in the places of origin of the wood and to avoid purchasing from those areas, from protected areas or from organisms that have been genetically modified;

Sofidel believes in sustainable management of forests, certified according to recognised and credible criteria based on audits by independent agencies;

Sofidel encourages its suppliers to certify the source of their forest resources and favours suppliers who are able to exhibit certificates of good forest management.

The preponderance of a raw material formed of virgin cellulose and the awareness of the role of forests in protecting the global environment and maintaining and enriching biodiversity are the factors that have led the Group to adopt a precise pulp purchasing policy.

During 2020, the Group purchased 1,258 tons/000 ADMT (air dry metric tons) of virgin fibre and confirmed the seriousness of its commitment to responsible procurement of the raw material, as it purchased 100% certified from independent parties with forest management certification. It also aims to exclude areas that are controversial in terms of legality or sustainability, such as South-east Asia.

The Group participated once again this year in the CDP Forests Report: "Deforestation-free supply chains: from commitments to action". Sofidel has achieved a ranking of B, on a scale from A to F, the same result as in 2019 and one that positions it, in 2020, above the European sector average and the one for its own sector.

The Group products present on the European market include the presence of the environmental quality brands, particularly those that certify compliance with good forest management criteria (FSC®, PEFC™). Sofidel has increased the presence of products with forest Chain of Custody certification in the United States as well and therefore stands out in terms of the sustainability and innovation of its products. In 2020, the raw material from forests purchased by Sofidel was fully certified according to the forest chain of custody criteria or had good forest management certification. Over 74% of the cellulose purchased has FSC® certification, marking a significant increase with respect to 2019. This scheme is therefore the most highly represented among Sofidel supplies.

In November 2020, Sofidel America was awarded the FSC® (Forest Stewardship Council) Leadership Award 2020. The award recognises the excellence of Sofidel in the use and promotion of FSC® certified products on the North American market, and its commitment to responsible management of forests. Sofidel America has been acknowledged as the leader in the FSC® Certified Company category.

Eco-label products

In 2016, the year of its fiftieth anniversary, Sofidel made an important commitment in its own brand products, namely to ensure that all the Group's Brand products have the FSC® mark, as a guarantee of sustainable forest management from both an environmental and a social standpoint. This commitment is supported by a raw material procurement policy that has been based on purchasing of certified cellulose. The partnership with FSC® has also been consolidated by entry of the Sofidel Group into the Economic Chamber of FSC® International and FSC® Italia.

In 2020, in line with the commitments made, Sofidel constantly increased the manufacture of eco-label products (FSC®, PEFC™, Ecolabel, Swan Label, Blue Angel), due both to the demand of customers, who are becoming increasingly aware of environmental issues, and through the media pressure that the Group exerts daily through its means of communication and advertising. This growth confirmed the company's commitment to choosing not only raw materials from certified forests, but that also guarantee production processes with a lower environmental impact, with a view to improvement of the life cycle.

The circular economy is considered to be an important driver in EU product policies, but also in the criteria of choice of distribution companies and consumers. Sofidel has decided to invest in its products both to reduce the quantity of packaging and to introduce more recyclable and renewable materials.

The European Green Deal is a new growth strategy aimed at transforming the European Union into a just and prosperous society, with a modern, sustainable and competitive economy with zero greenhouse gas emissions by 2050. The urgent transformation outlined in the Green Deal is a strong appeal to change the way in which we produce, sell and consume.

One of the major contributions of the Green Deal to the 2030 Global Agenda will be related to the sustainable development goals (SDG 12), which aims to achieve a "responsible consumption and production model". One of the cornerstones in achievement of the milestones identified in SDG 12 is the reduction and recycling of packaging waste. In response to this important policy initiative, Sofidel immediately introduced a plan for reduction of consumption of its own plastic packaging, through optimisation measures and the choice of packaging materials with a film of reduced thickness. This activity has been accompanied, over the years, by a plan to replace plastic with alternative materials. Starting from the third and fourth quarters of 2018, we launched product ranges with packaging made from renewable materials, such as Kraft paper and plastics produced using raw materials of plant origin, to replace petroleum-based plastic materials.

Waste management

Waste management at every Sofidel Group plant follows detailed procedures designed to increase division of the materials into homogeneous categories and ensure they are sent for recovery.

The waste produced by paper manufacture is formed mainly of sludge, deriving from the production waste produced by activities using waste paper as a raw material. This type of waste is normally reused in recovery activities, for the production of bricks or environmental recovery of areas where mining has taken place.

The hazardous waste is produced by routine maintenance on industrial plants and includes fluorescent tubes, waste oils, depleted storage batteries, etc.

The operators who perform waste transport and brokerage are also subject to frequent audits on their work, both inside and outside the plants.

Sofidel did not perform any cross-border transport of hazardous waste.

In addition to the waste produced directly by the Group, if a life cycle analysis approach is adopted, it can be confirmed that the activity of reduction in use of the packaging has certainly had a further positive impact in the proportionately lower quantity of waste produced by the final consumer.

Economic and financial aspects

The strategy: economic and financial sustainability through use of an integrated business planning, management and control model

Optimisation of the management model

Integrated Finance Organization

Through the identification and implementation of administrative, accounting and financial procedures at all Group companies.

2020 Result

Start application of the third step of the Integrated Business Planning model to economic and financial planning.

2021-2023 Target

Complete application of the third step of the Integrated Business Planning model to economic and financial planning.

From Integrated Finance Organization (IFO) to Integrated Business Planning (IBP)

Over recent years, the Group has started a process of integration and standardisation of administrative, accounting and financial procedures, on the basis of international best practices, and a single ERP SAP integrated management system is used at all Group companies.

The model used as the basis by the group is known internationally as Integrated Finance Organization (IFO).

Correct functioning of the IFO is preliminary to implementation of the further model, better known as Integrated Business Planning (IBP).

This model is based on the idea that a company (or group of companies) is viewed as a whole and not as a sum of its separate parts.

In practical terms, this means converting Group strategic planning into operational objectives for the achievement of pre-established economic and financial performance indicators.

To be extremely brief, functioning of the model is based on the following steps:

―	strategic planning, called the guidelines;
―	operational planning, the tool through which strategic planning is implemented;
―	economic and financial planning, the consequence of the strategic plan.

Economic and financial sustainability is therefore pursued through the implementation and optimisation of Integrated Business Planning, as an integrated business planning, management and control model.

Economic and financial performance of the Sofidel Group

Global economic performance

2020 will be remembered in history books as the year of the Coronavirus (or Covid-19) pandemic.

The virus, which first appeared in the Chinese city of Wuhan in December 2019, spread rapidly to other countries, and has infected over 100 million people (confirmed cases) in just under twelve months, with over two million deaths.

The virus took the health authorities and governments of many countries by surprise, and they were forced to adopt solutions that were, at times, improvised, as demonstrated by the high number of victims. Since the best solution to slow down the spread of the virus immediately proved to be social distancing, while awaiting a vaccine and effective treatment, the governments of the various countries progressively affected adopted measures to limit movement of people and, in certain cases, a total shut-down of all non-essential activities, schools, universities and public offices.

The immediate effect was a fall in consumption and also certain production activities, and the national GDP accordingly.

As a result, the second quarter of 2020 was witness to the greatest contraction of global gross domestic product (GDP) ever seen in a single quarter. The subsequent recovery, when the restrictive measures were eased, was not sufficient completely to make up for what had been lost.

The International Labour Organisation (ILO) has estimated that 15% of global working hours were lost during the lockdown in the second quarter, equivalent to 500 million jobs.

According to the International Monetary Fund, the global economy will contract by 3.5% in 2020.

In detail, the reduction in the GDP of the United States is expected to be 3.4%, and 5.1% for Japan.

The fall in GDP is expected to be 7.2% for the Eurozone, 9.2% for Italy and, according to the most recent forecasts, 5.4% for Germany.

The United Kingdom, dealing with both the pandemic and Brexit, will end 2020 with a 10% decrease in GDP.

Among the emerging countries, India has recorded a major drop of 8%.

The only major economy to avoid a recession in 2020 is China, with growth - estimated by the International Monetary Fund - of 2.3%, despite being the country where the pandemic started and the tensions with the America of the Trump administration.

(Source: International Monetary Fund, World Economic Outlook Reports, update of 26 January 2021)

Performance of procurement markets

Market prices for the main commodities needed to manufacture paper (cellulose and energy) continued to record a constant trend in line with the one seen in the second part of 2019.

The graphs below show trends in pulp prices (expressed in USD), for both long fibre and short fibre, together with the trend in Euro. (Source "Price Watch Market Pulp PPI").

Long Fibre

Short Fibre

Energy commodity prices also fell significantly. The unprecedented events associated with the Covid-19 emergency at the beginning of the year radically altered the balance between demand and supply on the electricity market, forcing energy prices (and those of all energy commodities in general) down to the lowest levels ever seen.

The excess supply caused by the Covid-19 emergency has gradually been reabsorbed over the last few months, although within the context of a market that is still "long" for most commodities and characterised by continuing fears of further lockdowns throughout Europe.

Group performance by business lines

The analysis below considers the three business lines relating to sale of finished products and disregards the residual part of sale of reels not used in internal processing. Performance in the ecommerce segment is discussed in a separate paragraph.

Private Label

The market share of PL (private label) continued to increase in 2020, thanks to the continual improvement in quality and segmentation of the business proposal, covering both basic needs, with low-price products, and more evolved ones, with state-of-the-art technologies.

The European market

Details of performance on European markets are provided below.

―	UK and Ireland: 2020 recorded major growth in volumes and margins, due to the extraordinary increase in demand for paper for hygiene or domestic use caused by the Covid-19 pandemic. The cost of cellulose remained stable and this greatly benefited the margins.
―	Italy: small local shops made a comeback during lockdown and, as a result of being so close to home, recorded a heavy increase. The discount channel and specialist shops were more heavily penalised. In order to respond to new consumer needs and to support the Large-scale Retail Trade, Sofidel launched a new range with an antibacterial agent and added to the products with paper packaging.
―	Poland: the Private Label range pushed production to the maximum levels during 2020, creating the conditions to place a new transformation machine in operation. A great deal of attention was also focused on sustainability, creating packaging in recycled plastic for a quarter of the products.
―	Scandinavia: 2020 was a year of major growth, taking the plant to its maximum production and logistics capacity. The Sofidel sustainable footprint was marked by introduction of the first products with Kraft paper packaging onto the market.
―	Germany: the already strong collaboration with the Large-scale Retail Trade in Germany, Switzerland and Austria was further strengthened during the pandemic. Sofidel distinguished itself for the impeccable service offered to Top Customers and started a stakeholder engagement project with the Migros Group, in order to increase the presence on the shelves of the well-known Swiss retailer.
―	France: the key distributors introduced unconventional packaging to promote the fight against plastic. Sofidel provided recycled plastic solutions to the French market leaders. It also expanded and differentiated the product range, in order to strengthen relations with its partners.
―	Spain: the pandemic prompted major interest in safeguarding the environment and natural resources, resulting in a change in consumers' purchasing behaviour, as they focus increasingly on hygiene and sustainability. Sofidel achieved double-figure growth by focusing on efficiency and practicality and launching new products with paper and recycled plastic packaging.
―	Hungary: this is a particularly aggressive market, on which competition is price-based. Sofidel focuses on reliability and a high level of service to stand out.
―	Romania: this is a stable market guided primarily by price. Sofidel invests in expanding the range and creating custom solutions for the medium-high bracket in order to stand out.

The United States market

The strong boost in growth that started in recent years continued in the United States. The total volume was 154,000 tons and there was an improvement in the margins. 2020 was a fundamental year for this business line: due to the Covid-19 pandemic, Sofidel America recorded significant increases in volumes on all customers, while simultaneously also reaching new business partners. It is therefore reasonable to assume there will be further growth in 2021. In order to pursue profitable growth over the coming years as well, Sofidel America will continue with the strategy based on the high quality of the paper, on state-of-the-art production technologies and on a focus on sustainability.

Consumer - Brand

With the European leader Regina and other brands acquired over the years, this business segment is particularly focused on satisfaction of consumers and is characterised by the high quality of the products, production innovation and sustainability.

Efforts were focused on reducing the quantity of traditional plastic in the product packaging of all major European brands in this business line in 2020, primarily through the introduction of new Kraft paper packaging in place of the classic polyethylene packaging.

With the support of advertising and continual investment in product quality, Sofidel aimed to exploit the existing notoriety of these brands in the different countries and not to lose the bond already created with consumers.

Advertising contributed to product promotion in the second half of 2020, with the sole exception of several "product placement" activities in Italy in both the first and the second half of the year. Advertising activities were concentrated particularly on a return to brand communication and "historical" products for the Group, such as Regina Asciugoni in Italy, the Sopalin brand in France and the Cosynel brand in Belgium.

Away From Home

The European market

In 2020, the health emergency caused by the Covid-19 pandemic had a devastating effect on the market, with a drop of over 40% in sales in Europe as a whole. In this generalised situation of doublefigure losses, Sofidel managed to maintain volumes that were virtually stable with respect to 2019. On the one hand, the "Cleaning" segment, where the Group is most heavily present, suffered fewer consequences than the catering sector (Ho.Re.Ca.), where the collapse of activities was heavier; on the other, the Away-From-Home (AFH) business line managed to react extremely rapidly, identifying consumers' new hygiene needs. The pandemic did, in fact, alter consumers' everyday habits and behaviour, as increasing attention was focused on personal care and on hygiene in public spaces and the workplace, stimulating a greater interest in hygiene, safety and prevention. In this sense, the effort focused on this business line was development of an even more health-oriented approach, by offering products that guarantee a strong feeling of protection.

The United States market

The Away-From-Home (AFH) business in the US faced numerous challenges in 2020, due to the significant impact of the Covid-19 pandemic on the sector. Many final customers were, in fact, faced with temporary or long-term closure and the entire business model was suddenly turned on its head. Sofidel America responded to this new situation by strengthening the partnerships with clients and ensuring they received supplies throughout the year. Overall, the volume increased slightly with respect to 2019, reaching 79,000 tons, despite the sector suffering an estimated drop in demand of around 25%. Despite this situation, the contribution margin per ton continued to improve greatly and increased by over 20%. Sofidel America concentrated on helping its clients to manage the crisis caused by the health emergency, by supplying unique, added-value products, and this is expected to assist further growth in 2021. The focus on the Papernet brand, on proprietary products and on the strategic partnership with key clients could boost strong growth of this business line in 2021.

Reels

The European market

The parent reels manufactured at the Group plants are also marketed in South America, Central America and North Africa. This year, partly as a result of the health crisis, the reels business suffered a slight drop, but a return to growth is expected next year.

The United States market

Inauguration of the second machine continues at the new plant at Inola, in Oklahoma, and has increased availability of high-quality paper on the US market. The greater availability of paper during the Covid-19 pandemic allowed Sofidel America to satisfy the increased demand for these semi-finished products of clients and transformation companies (paper making) who, in turn, were able to satisfy the increased market demand for tissue paper finished products. The volumes increased by over 200% in 2020.

E-commerce

The Covid-19 pandemic also hastened the process of digitalisation and e-commerce had a record year. The extended lockdown and fear of physical contact radically altered the habits of consumers, who discovered that on-line purchasing is simple and handy.

The growth of e-commerce was greater in the "food" and "personal care" sectors, as they satisfy essential needs that consumers cannot avoid.

According to Nielsen data, during the first lockdown of 2020, while the LSRT in Italy recorded an increase of 4.2%, e-commerce recorded triple-figure growth, with an increase of 144.6%. The numbers are different but the trend is the same in all European countries, with the United Kingdom, where 57% of families habitually make on-line purchases, leading the way. This trend is destined to grow further, not only because an increasing number of people are using e-commerce and will have greater confidence in on-line purchasing, but also because the frequency of purchase is increasing.

Sofidel was the first company in the paper sector to seize the opportunity offered by digital transformation and to focus on the on-line channel. In order to meet the needs of consumers who want the freedom and ease of on-line purchasing, the SofidelShop e-commerce platform was created in 2016, and during 2020 the Group strengthened its presence on the principal marketplaces and websites of the LSRT. In order to support sales, the Group constantly monitors the digital shelf and uses the services of SEO (Search Engine Optimisation) experts to facilitate consumers' on-line searches and to help them find the products.

The Group also involves customers in competitions, promotions and gaming activities to gain loyalty and to increase the quality of the service. A magazine has also been created on the e-commerce site, containing interesting facts, recipes and advice for the home and a better and more sustainable lifestyle. This was all an added resource in dealing with the health emergency and, in 2020, it allowed the Group to increase on-line sales by 87.3%, reaching a peak during the first lockdown, when, on a single day, Amazon sold 1,300 tons of Regina products, the most highly distributed brand on Amazon in the business sector.

Sale price and cost trends

Sale prices

There was a slight decrease in sale prices of the finished product in Europe compared with the levels of the previous year, particularly in the second half of the year, partly due to an exchange effect caused primarily by depreciation of UK Sterling.

The sale prices of the finished product in the USA continue to increase compared with the previous year, as a result of the growth strategy in the Private Label channel, where prices are higher than in the A.F.H. business line.

Operating costs

The Group continued its investment policies in 2020 and completed the Greenfield project in Oklahoma.

The first continuous machine in Inola entered into operation in January 2020 and the second in July 2020. Both start-ups performed well from the very beginning and will guarantee high levels of efficacy and efficiency for the Group over the long term, with extremely competitive operating costs.

As is the case in all new plant start-ups, the operating costs were higher, as a result of higher expenses: - personnel recruited before start-up of the plant for the necessary on-site training;

―	personnel training;
―	production plant start-up costs (energy, raw materials, machinery set up, etc.)
―	materials procurement costs to reorganise logistics;
―	costs of distribution of finished costs for reorganisation of logistics;

Cellulose and energy costs

The trend in the cost of cellulose, the principal raw material of the production cycle, remained favourable throughout 2020 and decreased by 20% on average compared with the previous year.

The Group energy cost also fell by around 20% compared with 2019. The main factor in this decrease was the lower price of the commodity, to which are added the increased efficiency resulting from investments in the US, particularly the cogeneration plant in Circleville, and the low cost of energy and gas utilities in the State of Oklahoma.

Transport costs

The transport costs component fell by around 5% at Group level. The main driver of this reduction is optimisation of logistics in both locations (Europe, USA).

Overheads

The Group exploits the synergies obtained from its size and continues to work towards increasing the efficacy and efficiency of its organisational structure, optimising control of processes and the resources used. However, overheads generally increased in 2020, in order to sustain the costs associated with the Covid-19 emergency and ensure a safe workplace for employees. In the case of business in the USA, the major increase in overheads is strictly linked to the new Greenfield site in Oklahoma and the greater dimensions reached.

Financial expenses

The total amount of financial expenses, both on the income statement and capitalised in relation to interest charges on short-term and medium-term loans (Euro 44.9 mln), increased by Euro 6.5 mln compared with the previous year. Despite basic stability of the major benchmarks, which had a neutral impact on short-term financial debt, the specific structure of the medium-term loan taken out in 2019 to cover the major investment plan of previous years, signed under less favourable terms and conditions than the Group standards, also contributed to an increase in the value of the financial expenses, of which only a minimum part have been capitalised (Euro 0.8 mln).

Performance of financial management

The activities to strengthen the financial structure recommenced in 2020, through both new mediumterm debt, once again favouring a fixed interest rate, and by increasing the short-term bank credit facilities, also through the use of new lenders. During 2020, the Group took out new medium-/long-term loans for a total corresponding value of Euro 61.5 mln. In the last four months of 2020, the Group repaid early Euro 78 mln of the Euro 320 mln loan originally taken out in 2019.

All medium-/long-term loans were taken out by the Group in 2020 in compliance with the funding policy.

The analysis and reporting of the economic and financial situation of the Group necessary to provide sufficient information to banks to support new loans were increasingly detailed and precise.

Economic and financial performance of the parent company

Corporate activities of the parent company

"Sofidel S.p.a." is the holding company of the "Sofidel Group", which is now one of the largest tissue paper manufacturers in the world.

In addition to performing administration and coordination of its subsidiaries, the company also operates in the commercial sector (by purchasing raw materials for Group companies), in the real estate sector (by managing its own property portfolio) and in the corporate and financial services sector (providing these services to its subsidiaries).

The company has also licensed the Papernet™ trademark to its subsidiaries, for the sale of tissue products on the Away From Home market.

The company summarised its own financial reporting and the reporting of the other Group companies (domestic and foreign) in the consolidated financial statements presented pursuant to Art. 25 et seq. of Italian Legislative Decree no. 127 of 9 April 1991.

The Financial Statements of the company, as well as the consolidated statements of the Group, are audited by "EY S.p.a.".

The company adheres to both the group VAT procedure pursuant to Article 73 of Italian Presidential Decree no. 633 of 26 October 1972 and the national tax consolidation pursuant to Articles 117-129 of Italian Presidential Decree no. 917 of 22 December 1986.

Performance

The financial and economic situation in 2020, compared with 2019, is summarised below.

Description	2020	2019	Changes
Revenues from sales	441,778	500,194	(58,416)
EBITDA	20,336	23,480	(3,144)
EBIT	15,797	19,172	(3,375)
EBT	5,384	62,255	(56,871)
Profit (Loss) for the year	5,106	58,112	(53,006)

Description	31/12/2020	31/12/2019	Changes
Fixed assets	784,445	796,966	(12,521)
Net working capital	31,891	(44,943)	76,834
Net invested capital	749,660	749,319	341
Shareholders' equity	257,078	251,975	5,103
Net financial position (if negative, the financial payables are higher than the financial assets)	(492,582)	(497,343)	4,761
Cash flow generated by operations	(2,105)	101,763	(103,868)

For the sake of completeness, the following information on the activities performed by the company for its subsidiaries is provided.

Supply of services

The results of this activity are revenues of Euro 39.6 million. Development of the quality and quantity of the services, started years ago, continued, together with rationalisation of the various functions performed, in order to optimise this important group resource. As in the past, the costs sustained for performance of the activity, with a fixed mark-up, are charged back to the companies on the basis of the relative uses, determined by applying objective criteria according to the "general service agreement" signed and a ruling agreement reached with the central Italian Revenue Agency at the beginning of the year.

Financing and cash pooling service

Financial receivables posted on the balance sheet at the end of the year totalled Euro 516.7 mln, represented entirely by intercompany current accounts.

Interest income charged to the subsidiaries totalled Euro 13.1 mln and were calculated mainly by applying a fixed spread to the interest rates paid on procurement of the relative funds.

In this case, it should also be noted that collection of funds at the various companies has been continuing for some time, in order to create a cash pooling system.

Trading of raw materials

This activity produced revenues of Euro 404.1 mln.

The prices applied in intercompany relations are determined according to the Group "transfer pricing policy".

Real property management

This activity was based, as always, on management of the properties owned.

Rental income totalled Euro 4.1 mln.

The activity allows all properties to be maintained efficient.

Trademark management

This activity was based, as always, on granting of use of the "Papernet" trademark, which is used in the "A.F.H." sector, to the group companies.

The revenues on this activity in the year totalled Euro 1.4 mln.

Holding activities

Administration and coordination of the subsidiaries is the main activity of the company and serves to support the core business of the group.

This activity continued during the year, as originally planned.

Dividends totalling Euro 13 mln were collected from subsidiaries during the year and no dividends were paid to shareholders.

Use of financial instruments

Information on interest rate hedging contracts (IRS) and forward currency contracts has already been provided in the explanatory notes to the financial statements, to which reference should be made. It is also specified that the forward financial instruments and derivatives are not held for speculative purposes.

Group investments in fixed assets

Group investments during the year are shown below:

Description (values in thousands of Euro)	Amount
Rights and trademarks	1,739
(Intangible) assets in progress	145
Land and buildings	5,626
Investment property	-
Plant and machinery	57,040
Industrial and commercial equipment	378
Other assets (property, plant and equipment)	5,876
Fixed assets (property, plant and equipment) in progress and payments on account	28,780
Total	99,582

Investments during the year related mainly to Sofidel America and to other Group companies to a lesser extent. In detail:

―	at Circleville, in Ohio (USA), construction of the integrated plant was completed in 2019; it has two paper-making machines and various converting machines for conversion of reels into finished products. The paper-making and converting plants were completed in early 2020.
―	At Inola, in Oklahoma (USA), the company had started construction of a new "greenfield" investment for an integrated plant (paper-making and converting) in 2018. The investment relates to the installation of two paper-making machines, with a total production capacity of 120,000 tons per year, and various converting lines.

A large part of the buildings and infrastructures were completed in 2020 and thirteen converting lines also entered into operation. The first paper-making machine entered into operation on 22 January 2020 and the second machine was completed in July 2020.

Generally speaking, all the other investments related to continuous improvement of all production processes, in line with the Group consolidation and growth strategies.

Parent company investments in fixed assets

The investments of the parent company during the year are shown below:

Description	Amounts
Licences, trademarks and similar rights	1,680
(Intangible) assets in progress and payments on account	144
Electronic machines	362
Other assets (property, plant and equipment)	51
Total	2,237

The item "Licences, trademarks and similar rights" includes the costs incurred for the purchase of modules and/or implementations of SAP, VISTEX, Microsoft software and other software programs.

The item "(intangible) assets in progress and payments on account" includes software implemented for the Sales Force project, the Sharepoint project, development of the SEM/BW module, the Success Factor recruitment module, the Jfleet and Jtravel project, the EDI 2020 projects and other minor projects.

Investments in property, plant and equipment relate primarily to the purchase of laptops for home working and renewal of electronic equipment.

Outlook for Group economic and financial performance

In the World Economic Outlook Reports of 26 January 2021, the International Monetary Fund predicted that the global economy would return to 5.5% growth in 2021, an increase of 0.3% on the estimates in October 2020, then settle to 4.2% in 2022.

Discovery of the first vaccines and the start of the vaccination campaigns were decisive factors in this forecast, although the campaigns are proceeding slowly.

An acceleration of the vaccination campaigns will be decisive over the coming months, in order to arrive at a gradual easing of restrictions.

According to the International Monetary Fund, the United States and Japan will return to the levels of activity at the end of 2019 in the second half of 2021, while the Eurozone and the United Kingdom will only re-emerge in 2022.

A 5.1% increase in GDP is expected in the USA in 2021, due to the recovery in the second half of the year and the support measures introduced in December, while also considering the effects of the economic plan of the new Biden administration. For Japan, the International Monetary Fund estimates a 3.1% growth in 2021, once again due to the measures adopted at the end of the year.

The forecasts for the Eurozone are quite different: growth will halt at 4.2% in 2021, as economic activity was further weakened by the rise in infections and a return to lockdowns at the end of 2020, with effects that will continue into the early months of 2021.

A 3% growth is expected for Italy in 2021, but it remains to be seen how the current political scenarios play out.

The most recent forecasts for Germany indicate a 3.5% growth.

A 4.5% growth is expected in the United Kingdom in 2021.

Among the emerging countries, the International Monetary Fund forecasts a 11.5% growth for India and a 8.1% growth for China in 2021.

In this macroeconomic situation, the data in our possession confirms the possibility of further consolidation of the results on the European market and further growth prospects on the US market, although it is still too early to provide forecasts for the entire year, as the results will also depend on the relative economic situation as a whole and on developments in the pandemic in each individual country and in the world as a whole.

The results for 2021 will be positively influenced by the investments in the United States, with both of the two greenfield sites in Circleville and Oklahoma now able to convert the entire production capacity of the relative paper-making plants into finished products.

Therefore, we expect a net improvement in production and logistics efficiency, with consequent optimisation of the economic results as well.

Quite obviously, Group performance will also depend on the cost of raw materials, particularly cellulose, but our consolidated positioning on the European market and growing reputation on the US market leads us to conclude that the Group will be able to face the challenges that the market presents.

Outlook for parent company economic and financial performance

The objectives for 2021 are improvement of the operating results with respect to those achieved in the year that has just ended, mainly as a result of development of raw material trading activities.

The economic and financial numbers of the Sofidel Group in 2020

Terminology and definitions

The management of Sofidel measures Group economic and financial performance, both overall and in the various sectors in which it operates, on the basis of several margins and indicators, the determination of which is not required either by law or by the accounting standards adopted (so-called "No-GAAP Financial Measures").

The methods used to determine these margins and indicators, in accordance with the C.E.S.R. ("Committee of European Securities Regulators") recommendation no. 178/b of October 2005, in order to obtain a better measurement of the economic and financial performance of the Group, are described below.

The EBITDA is not identified as an accounting measurement in the IFRS and should therefore not be considered as an alternative measurement of Group performance. The composition of the EBITDA is not governed by the accounting standards of reference, so the criteria applied by the Group to calculate this figure might not be the same as the one adopted by others and is therefore not comparable with them.

	Description
Net sales	This item refers to typical revenues of the Group (item "Revenues from contracts with customers (net sales)" on the income statement).
Added value	The margin is calculated by summing "Personnel costs" on the income statement with the EBITDA (see below).
EBITDA	The margin is obtained by summing "Amortisation, depreciation and write-downs" and "Provision for risks" on the income statement with the EBIT (see below).
EBIT	The margin coincides with the "Operating profit/loss" margin on the income statement.
EBT	The margin coincides with the "Profit/loss before taxes" margin on the income statement.
Fixed assets	This item relates to the "Total non-current assets" on the "Consolidated balance sheet" of the financial statements (hereinafter, simply B/S), net of financial receivables and "Deferred tax assets"; it does, however, include "assets held for sale".
Employee severance indemnity reserve and provision for risks	This item relates to the total of "Employee severance indemnity reserve and other reserves on employees" and the "Provisions for risks and expenses" recorded in liabilities on the B/S.
Net working capital	This item relates to the algebraic sum of inventories, trade receivables, other current receivables, trade payables and other current payables.
Net Invested capital	The item is obtained by adjusting operating assets with operating liabilities and reserves.
Net financial position or net financial debt	The item is obtained by adjusting financial assets with financial liabilities; it is sometimes abbreviated in the indicators as "NFP".
Net operating cash flow	This item is the equivalent, in financial terms of the operating result of the income statement.
Free-cash flow	The item is obtained by deducting the outflow absorbed by net investments from the "net operating cash flow".
Cash flow generated	The item represents the change in net financial position in the period.
Investments	The item represents total investments in fixed assets (tangible assets and property, plant and equipment), net of the relative disinvestments, where specified.
ROS ("Return on (net) sales")	The indicator is determined by the ratio between the "EBIT" and "Net Sales", as defined above.
ROI ("Return on investment")	The indicator is determined by the ratio between the "EBIT" and "Total assets" according to the Balance Sheet, as defined above.
ROE ("Return on equity")	The indicator is determined by the ratio between "Total net result" and "Total shareholders' equity", as defined above.

Analysis of the economic data Value added income statement.

Description	2020		2019
(values in thousands of Euro)	Absolute values	%	Absolute values	%	Changes
Net sales	2,172,855	100.0%	1,919,460	100.0 %	253,395
Other revenues	31,339		28,874		2,465
Total net revenues	2,204,195		1,948,335		255,860
Consumption of materials and goods	(907,137)	41.75%	(898,371)	46.8%	(8,766)
Services	(446,719)	20.56%	(412,192)	21.47%	(34,527)
Other operating expenses	(59,064)	2.72%	(54,819)	2.86%	(4,245)
Added value	791,275	36.42%	582,953	30.37%	208,322
Personnel costs	(372,985)	17.17%	(324,318)	16.9%	(48,667)
EBITDA	418,290	19.25%	258,635	13.47%	159,656
Amortisation/depreciation and write-downs	(159,114)	7.32%	(151,413)	7.89%	(7,701)
Provisions for risks	(2,177)	0.1%	(2,446)	0.13%	269
EBIT	257,000	11.83%	104,776	5.46%	152,224
Financial income and expenses	(65,813)	3.03%	(49,355)	2.57%	(16,459)
EBT	191,186	8.8%	55,421	2.89%	135,765
Income taxes	(50,136)	2.31%	(12,208)	0.64%	(37,372)
Net profit	141,050	6.49%	43,213	2.25%	98,394

Analysis of equity and financial data

Functional balance sheet:

Description (values in thousands of Euro)	31/12/2020	31/12/2019	Changes
Intangible assets	158,924	170,401	(11,477)
Property, plant and equipment	1,829,658	1,980,229	(150,571)
Equity investments and securities not held for trading	1,848	1,808	40
A. Fixed assets	1,990,430	2,152,439	(162,008)
B. Employee severance indemnity reserve and provision for risks	(21,047)	(21,102)	55
Inventories	392,539	434,785	(42,246)
Trade receivables	112,725	74,779	37,947
Other receivables	141,228	159,233	(18,004)
Trade payables	(427,325)	(451,189)	23,865
Other payables	(179,141)	(136,702)	(42,439)
C. Net working capital	40,026	80,905	(40,878)
D. Net Invested capital (A+B+C)	2,009,409	2,212,241	(202,276)
Liquid funds	81,177	32,680	48,497
Current financial assets and receivables	17,477	6,770	10,707
Medium/long-term financial receivables	9,779	2,981	6,798
Medium/long-term financial payables	(681,861)	(1,158,802)	476,941
Short-term financial payables	(573,227)	(321,655)	(251,572)
E. Net financial position	(1,146,656)	(1,438,026)	291,371
F. Revenues other than contributions to the capital account	(20,035)	(23,768)	3,733
G. Total shareholders' equity	(842,720)	(750,447)	(92,273)
H. Sources of funding (E+F+G)	(2,009,409)	(2,212,241)	202,832

Net financial position:

Description (values in thousands of Euro)	31/12/2020	31/12/2019	Changes
Cash on hand and cheques	111	121	(10)
Bank and post office accounts	81,066	32,559	48,507
A. Cash and equivalents	81,177	32,680	48,497
B. Current financial assets and receivables	17,477	6,770	10,707
Current bank debt (loan c/a)	(103,167)	(102,169)	(998)
Portion of loans due within next year	(414,503)	(198,881)	(215,622)
Payables for right of use, within 12 months	(7,855)	(9,003)	1,148
Other short-term financial payables	(31,869)	(1,429)	(30,440)
Current payables to plant suppliers	(15,834)	(10,173)	(5,661)
C. Gross current financial debt	(573,228)	(321,655)	(251,573)
D. Net current financial debt (or short-term net financial position) (A+B+C)	(474,574)	(282,205)	(192,370)
E. Non-current financial receivables	9,779	2,981	6,798
Payables for right of use - Leasing	(29,196)	(31,279)	2,083
Loans due after next year	(604,420)	(1,055,358)	450,938
Other long-term financial payables	(41)	(30,832)	30,791
Non-current payables to plant suppliers	(48,204)	(41,333)	(6,871)
F. Gross non-current financial debt	(681,861)	(1,158,802)	476,941
G. Net non-current financial debt (or medium/long-term net financial position) (E-F)	(672,082)	(1,155,821)	483,739
H. Net financial debt (or net financial position) (D+G)	(1,146,656)	(1,438,026)	291,370

The net financial position has been prepared, with the appropriate adjustments, in accordance with the recommendation of the C.E.S.R. ("Committee of European Securities Regulators") called "Recommendations for consistent implementation of the European Commission Regulation on Prospectus" of 10 February 2005, paragraph 127 "Capitalisation and indebtedness".

If the "net financial position" is negative, the financial payables are higher than available funds and financial receivables.

Cash flow statement of the net financial position:

Description (values in thousands of Euro)	2020	2019
EBIT	257,000	104,776
Depreciation	159,027	150,874
Provisions	2,264	2,985
Portion of grants (non-monetary revenues)	(8,397)	(8,506)
Other non-monetary items	(6,329)	(3,057)
Gross operating cash flow (A)	403,565	247,072
Change in trade receivables	(37,948)	(31,070)
Change in inventories	42,246	(4,028)
Change in trade payables	(31,918)	(21,650)
Change in other short-term assets/liabilities	52,411	(4,329)
Change in net working capital (B)	24,791	(61,077)
Change in other reserves and deferred tax assets (C)	4,395	(7,311)
Other changes (translation delta) (C)	51,783	(18,082)
D. Net operating cash flow (A+B+C)	484,534	160,602
Investments in intangible assets, net of disinvestments	(1,836)	(778)
Investments in property, plant and equipment, net of disinvestments	(95,830)	(237,846)
Investments in financial fixed assets	(40)	45
Capital gain on sale of assets	2,843	-
Change in payables to suppliers - investments	8,054	(7,645)
Capitalised interest	817	9,235
Cash outflow on investments (E)	(85,992)	(236,989)
F. Free cash flow (D+E)	398,542	(76,387)
Financial income (charges) paid	(43,088)	(37,924)
Current income (charges)	(23,417)	(20,499)
Dividends paid out	-	(1,600)
Taxes	(40,667)	(16,678)
IFRS16 effect		(40,282)
G. Other changes	(107,172)	(116,983)
Cash flow generated (F+G)	291,370	(193,370)
Net financial position at the beginning of the year	(1,438,026)	(1,244,656)
Net financial position at the end of the year ^(a)	(1,146,656)	(1,438,026)

^(a) The resource of reference is the break-even net financial position of the area of consolidation, the composition of which is shown in the table presented above.

Statement of principal indicators

Economic results

	2020	2019
Net sales	2,172,855	1,919,460
EBITDA	418,290	258,635
EBIT	257,000	104,776
EBT	191,186	55,421
Net profit	141,050	43,211

Equity results

	2020	2019
Net Invested capital	2,009,409	2,212,241
Total shareholders' equity	842,720	750,447
Group portion	842,657	750,383
Non-controlling interests	63	64
Net financial position If negative, the financial payables are higher than available funds and financial receivables.	(1,146,655)	(1,438,026)

Results Financial

	2020	2019
Net operating cash flow	484,534	160,582
Free-cash flow	398,542	(76,387)
Net investments in intangible assets (net of disinvestments)	1,836	778
Net investments in property, plant and equipment (net of disinvestments)	95,830	237,826

Employees

	2020	2019
Workforce (average)	6,605	6,364
Workforce (year-end)	6,760	6,453

Indicators

	2020	2019
EBITDA / Net sales	19.25%	13.47%
ROS ("Return on - net - sales")	11.83%	5.46%
ROI ("Return on investment")	9.36%	3.66%
ROE ("Return on equity")	16.74%	5.76%
Net operating cash flow / Net sales	22.30%	8.37%
Free Cash flow / Net sales	18.34%	(3.98%)
Net financial position / EBITDA	2.74	5.56
Net financial position / Total shareholders' equity	1.36	1.92
Net financial position / net operating cash flow	2.37	8.96

^› Values in thousands of Euro
^› For determination of the various margins and indicators shown above, in accordance with the Recommendation of the CESR of 3 November 2005, refer to the paragraph "Terminology and definitions".

Reconciliation statements between shareholders' equity and result for the year of the parent company and the consolidated result

Details of reconciliation of the shareholders' equity of the parent company and consolidated shareholders' equity.

Description	31/12/2020	31/12/2019
Shareholders' equity of the parent company	257,078	251,975
Contribution of the subsidiaries	1,814,872	1,688,497
Write-down of equity investments	7,870	56,719
Calculation of third parties	(64)	(65)
Adjustment to profits on intercompany stock	(1,584)	(1,480)
Effect of reclassification of intercompany sales	(7,988)	(9,264)
Cancellation of equity investments	(1,227,527)	(1,235,999)
Total Group shareholders' equity	842,657	750,383
Minority interests	60	65
Minority share of profits	3	(2)
Total shareholders' equity attributable to non-controlling interests	63	64
Total shareholders' equity pertaining to the Group and to noncontrolling interests	842,720	750,447

Details of reconciliation of the profit for the year of the parent company and the consolidated profit for the year are provided below.

Description	31/12/2020	31/12/2019
Parent company profit	5,106	58,112
Contribution of the subsidiaries	156,429	46,796
Write-down of equity investments	4,500	2,500
Other consolidation adjustments	1,472	(200)
Adjustment to profits on intercompany stock	(104)	654
Payment of dividends	(13,000)	(60,555)
Cancellation of equity investments	(13,300)	-
Effect of reclassification of intercompany sales	(56)	(4,096)
Group share of profit	141,047	43,215
Minority share of profits	3	(2)
Profit (loss) for the year pertaining to the Group and minority interests	141,050	43,213

The economic and financial numbers of Sofidel SpA in 2020

Terminology and definitions

	Description
Net sales	This item refers to typical revenues of the parent company (item "Revenue on sales and services" on the income statement of the parent company).
Added value	The margin coincides with the "Value added" margin on the income statement of the parent company.
EBITDA	The margin coincides with the "Gross operating margin" on the income statement of the parent company.
EBIT	The margin coincides with the "Operating profit/loss" margin on the income statement.
EBT	The margin coincides with the "Profit/loss before taxes" margin on the income statement.
Total applications	The item coincides with the total assets on the B/S of the parent company.
Net working capital	This item relates to the algebraic sum of inventories, trade receivables, other current receivables, trade payables and other current payables.
Net Invested capital	The item is obtained by adjusting operating assets with operating liabilities and reserves.
Net financial position or net financial debt	The item is obtained by adjusting operating assets with operating liabilities.

Analysis of the reclassified economic data

	2020		2019		Changes
Description	Absolute values	%	Absolute values	%
Revenues from sales	441,778	100%	500,194	100%	(58,416)
Other revenues	8,753		9,427		(673)
Total revenues	450,531		509,620		(59,089)
Consumption of materials and goods	(390,964)	(86.8%)	(449,284)	(88.2%)	58,320
Services	(11,907)	(2.6%)	(12,284)	(2.4%)	377
Other operating expenses	(882)	(0.2%)	(851)	(0.2%)	(31)
Added value	46,778	10.4%	47,201	9.3%	(424)
Personnel costs	(26,442)	(5.9%)	(23,722)	(4.7%)	(2,720)
EBITDA	20,336	4.5%	23,480	4.6%	(3,143)
Depreciation	(4,539)	(1%)	(4,308)	(0.8%)	(232)
EBIT	15,797	3.5%	19,172	3.8%	(3,375)
Financial income (expenses)	(3,752)	(0.8%)	58,054	11.4%	(61,806)
Current income (charges)	(6,661)	(1.5%)	(15,000)	(2.9%)	8,339
EBT	5,384	1.2%	62,225	12.2%	(56,842)
Current and deferred taxes	(277)	(0.1%)	(4,114)	(0.8%)	3,836
Profit (Loss) for the year	5,106	1.1%	58,111	11.4%	(53,006)

Analysis of reclassified equity and financial data

Financial reclassification of the balance sheet is shown below:

Description	31/12/2020	31/12/2019	Changes
A. Deferred liquidity	643,322	733,663	(90,341)
A. Immediate liquidity	5,068	9,453	(4,385)
B. Inventories	236	267	(31)
C. Current assets (A+B)	648,626	743,383	(94,757)
D. Intangible assets and property, plant and equipment	53,900	56,071	(2,172)
E. Equity investments and m/l-term receivables	730,547	740,897	(10,350)
F. Non-current assets (D+E)	784,447	796,968	(12,522)
Total applications (C+F)	1,433,072	1,540,351	(107,279)
G. Current liabilities	(759,356)	(409,001)	(350,355)
H. Shareholders' equity	(257,078)	(251,975)	(5,103)
I. Provisions	(3,452)	(3,067)	(385)
L. Medium/long-term payables	(413,186)	(876,308)	463,122
N. Non-current liabilities (H+I+L+M)	(673,717)	(1,131,350)	(457,634)
Total sources (G+N)	(1,433,072)	(1,540,351)	(107,279)

The functional reclassification follows.

Description	31/12/2020	31/12/2019	Changes
Intangible assets	8,343	8,829	(486)
Property, plant and equipment	45,557	47,243	(1,686)
Financial fixed assets	730,545	740,895	(10,350)
A. Fixed assets	784,445	796,966	(12,522)
B. Provisions	(2,894)	(2,704)	(189)
Inventories	236	267	(31)
Receivables from customers	15	84	(68)
Trade receivables from subsidiaries	99,095	94,800	4,295
Trade payables	(127,811)	(139,570)	11,759
Trade receivables from subsidiaries	(5,528)	(3,465)	(2,063)
Other assets	10,971	10,380	591
Other liabilities	(8,869)	(7,438)	(1,431)
C. Net working capital	(31,891)	(44,943)	13,052
D. Net Invested capital (A+B+C)	749,660	749,319	342
E. Net financial position	(492,582)	(497,343)	4,762
G. Shareholders' equity	(257,078)	(251,975)	(5,103)
H. Sources of funding (E+F+G)	(749,660)	(749,319)	(342)

The table below summarised the net financial position at the end of the year:

Description	31/12/2020	31/12/2019	Changes
A. Cash	22	21	1
B. Other cash equivalents (c/a)	5,046	9,432	(4,386)
C. Cash and cash equivalents (A+B)	5,067	9,453	(4,385)
Current intercompany financial receivables	516,677	621,805	(105,127)
Short-term securities and other current financial receivables	16,563	6,594	9,968
D. Current financial receivables	533,240	628,399	(95,159)
E. Non-current payables to banks within 12 months	(367,644)	(161,140)	(206,503)
F. Current payables to banks	(46,792)	(18,450)	(28,342)
G. Current payables to other lenders	(31,844)	-	(31,844)
H. Current intercompany financial payables	(171,426)	(79,299)	(92,127)
I. Current financial payables (E+F+G+H)	(617,706)	(258,890)	(358,816)
L. Net current financial surplus/(debt) (C+D+I)	(79,398)	378,963	(458,361)
Other non-current financial receivables	2	2	-
L. Non-current financial receivables	2	2	-
M. Non-current payables to banks	(378,186)	(801,767)	423,581
N. Non-current intercompany financial payables	(35,000)	(43,750)	8,750
O. Non-current payables to other lenders	-	(30,791)	30,791
P. Non-current financial payables	(413,186)	(876,308)	463,122
Q. Net non-current financial surplus/(debt) (L+O)	(413,184)	(876,306)	463,122
R. Net financial position (L+P)	(492,582)	(497,343)	4,762

If the "net financial position" is negative, this indicates insufficient cash and cash equivalents and funding to cover financial debt, i.e. the company's net exposure to lenders.

The cash flow statement of net immediate liquidity is shown below.

Description	2020	2019
A. Cash flow from operations
Profit (loss) for the year	5,106	58,112
Income taxes	277	4,114
Dividends	(13,000)	(66,203)
Financial expenses (income)	16,305	(3,655)
Expenses (income) on equity investments	447	11,804
1. Profit (loss) for the year before income tax, interest, dividends and gains/losses on disposals	9,136	4,171
Adjustments for non-monetary elements without a balancing entry in NWC
Other adjustments for non-monetary items	(16)	(296)
Amortisation and depreciation	4,539	4,308
2. Cash flow before changes in NWC	13,659	8,183
Changes in net working capital
Changes in inventories	31	(111)
Changes in trade receivables	68	30
Changes in trade payables	(11,759)	(19,304)
Changes in receivables from subsidiaries	(4,295)	49,989
Changes in payables to subsidiaries	2,063	(1,693)
Other changes in short-term assets	(591)	4,118
Other changes in short-term liabilities	848	(1,846)
Portion of investment grants	15	283
3. Cash flow after changes in NWC	39	39,649
Other adjustments
Interest collected/(paid)	(15,252)	3,655
Income taxes (paid)	(90)	(1,852)
Dividends collected	13,000	66,203
Change in provisions	198	(5,892)
Cash flow generated by operations (A)	(2,105)	101,762
B. Cash flow from investments
Fixed assets
(Investments) disinvestments in intangible fixed assets	(1,956)	(6,784)
(Investments) disinvestments in property, plant and equipment	(412)	(314)
Capital gains on fixed assets	1	13
(Investments) disinvestments in financial fixed assets	9,903	(182,353)
Cash flow from investments (B)	7,536	(189,438)
C. Cash flow from financing activity
Debt
Opening of medium/long-term loans	12,000	320,000
Repayments of medium/long-term loans	(228,541)	(104,498)
Change in other loans and intercompany current accounts	217,081	(127,150)
Changes in assets / liabilities on derivatives	(9,854)	1,741
Change in shareholder loans	-	791
Change in right-of-use payables	(499)	4,587
Own funds
Dividends (and advances on dividends) paid	-	(1,600)
Change in reserves	(3)	(303)
Cash flow generated by financing activities (C)	(9,816)	90,085
Decrease) in cash and cash equivalents (A+-B+-C)	(4,385)	2,410
Net cash and cash equivalents at the beginning of the year	9,453	7,043
Net cash and cash equivalents at the end of the year	5,068	9,453

For the composition of "Net cash and cash equivalents", refer to the table at the bottom of the cash flow statement in the financial statements.

Principal results of the direct and indirect subsidiaries

The results of the direct and indirect subsidiaries at the end of 2020 are shown in the table below.

Direct investments

Name	Location	% investment	Value of Shareholders' equity (Euro/000)	Profit (loss) for the year (Euro/000)
Soffass S.p.a.	Porcari (Italy)	100%	332,921	27,854
Sofidel France S.a.s.	Frouard (France)	100%	71,991	17,901
Intertissue L.t.d.	Baglan (U.K)	100%	332	-
Sofidel Spain S.l.u.	Tudela (Spain)	100%	33,358	4,146
Sofidel Germany Holding G.m.b.H.	Schmalkalden (Germany)	70.1%	73,245	206
Sofidel Greece S.a.	Katerini (Greece)	100%	9,693	971
Sofidel UK L.t.d.	Baglan (U.K)	100%	391,073	59,870
Sofidel America Corp.	Florida (USA)	66.67%	515,008	5,659
Sofidel Hungary K.f.t.	Labatlan (Hungary)	100%	8,181	(2,508)

Indirect investments

Name	Location	% investment	Value of Shareholders' equity (Euro/000)	Profit (loss) for the year (Euro/000)
Sofidel Poland Sp.z.o.o.	Ciechanòw (Poland)	100%	81,870	9,719
Sofidel Germany G.m.b.H.	Schmalkalden (Germany)	100%	190,510	14,297
Sofidel Romania S.a.	Calarasi (Romania)	99.854%	27,723	1,024
Sofidel Sweden A.b.	Kisa (Sweden)	100%	53,651	8,843
Sofidel America Corp.	Florida (USA)	100%	515,008	5,659
Sofidel Benelux N.v.	Duffel (Belgium)	100%	25,009	6,464

Company operations were carried out in 2020 to reorganise the German companies and combine the various production plants, which belonged to two separate companies, into a single company.

The data of the various companies always refers to the 2020 Financial Statements approved by the respective governing bodies, the values of which have then been restated according to the IAS-IFRS used by the Parent Company to draw up its Financial Statements.

The exchange rate used is the average rate in 2020 for the income statement data and for the profit of the year, and the historical formation rate for shareholders' equity entries.

Risks and hedging policies

Type of risk	Description of the risk	Risk management policy
Country risk	The economic, financial and equity situation of the Group is influenced primarily by the various political and economic factors that affect macro-economic trends, which are mainly: political and economic instability, the unemployment rate, the level of consumer confidence, disposable income trends of families and therefore private consumption.	As the graph below shows, the Group does not operate in countries that are unstable from a social, political and economic standpoint. Furthermore, the geographical location in several countries across different continents allows the negative economic trends in one country to be compensated with the positive trends in others. Operation on a worldwide scale also allows proximity to the markets where the products are sold, particularly in Europe. This allows considerable economies and also the supply of a service on a "global" scale. Proximity to the markets also allows consumers' needs to be understood better.
		USA	22.10%
		United Kingdom	14.70%
		Italy	14.00%
		Others in Europe	49.20%
			100.0%
Sector risk	The economic, financial and equity situation of the Group is influenced by economic performance in the sector where it operates, which depends mainly on performance of the competition, potential new´entries and the threat of replacement products.	As the graph below shows, the Group has diversified its activities into several sectors (Private Label, Brand, Away From Home and the e-commerce sector), seeking to offer increasingly high-performance and innovative products and dedicating specific in-house resources to each of them.
		Private Label and Contractors	50.2%
		Brand and b-brand	31.5%
		Away From Home	11.7%
		Reels	6.6%
			100.00%
"Unqualified" supply risks	These are the risks of procuring material and services that do not conform with quality standards and environmental sustainability criteria.	The primary objective of the Group is to have a totally risk-free supply chain. This objective is pursued in two manners, involving assessment of the strategies and the sustainability performance of suppliers, on the one hand, and adoption of a sustainability model in purchasing, on the other. The tool chosen to assess supplier sustainability performance is the TenP platform, which provides a system of selfassessment that assesses the performance of the supplier in relation to working conditions, respect for human rights, protection of the environment and the fight against corruption. In 2020, the percentage of "critical" suppliers subject to the pre-qualification procedure reached 95% (+10% on 2019).

Type of risk	Description of the risk	Risk management policy
Supplier dependency risks	These are the risks relating to dependency on suppliers of goods and services.	The interchangeability of suppliers of goods and services, implemented through constant diversification of the suppliers, both domestically and internationally, ensures that the dependency risk is not significant.
Risks associated with availability of cellulose	These are the risks associated with the availability of cellulose, the principal material used in the production process, in terms of both quality and quantity. The entire production cycle can, in fact, be slowed down by shortfalls or delays in delivery of cellulose or the damages caused by its low quality.	In line with its policy, the Group protects itself here: - through careful selection of suppliers, aimed at identifying business partners who are able to guarantee quantities and delivery times, as well as quality of the fibres (intended both as the intrinsic quality of the materials and in terms of the guarantee of environmental sustainability of forest resources); - through supply agreements, including long-term ones, in order to obtain the best financial terms and conditions by using its higher bargaining power as leverage. Purchasing during 2020 related entirely to cellulose from certified or controlled sources.
Risks associated with availability of natural resources (water, wood and its by-products, fuels).	These are the risks associated with reduced availability of many natural resources, several of which are essential to paper making, such as fresh water and wood for production of cellulose or for energy uses, taking account of the fact that climate changes and the increase in global consumption are leading to major changes in availability of these resources.	The Group has made major investments to reduce the quantity of water needed for the production process as far as technically feasible. The current average water intake of the Group is less than half the sector benchmark. The trend over recent years is shown below.
		Annual specific water intake of the Sofidel Group plants	2020	2019	2018
		Intake (m ³ /t paper)	7.2	7.3	7.1
		In the case of forest resources, the purchases of certified goods with chain of custody standards and the decision to favour material from countries with a low forest risk are the principal methods of monitoring management of these potentially critical aspects. The risk of interruption of an unplanned energy supply is mitigated through continuous monitoring of the financial health of energy suppliers and through maintenance and continuous updating of plant to ensure it complies with technical standards in the energy field.
Price change risk	Periodic price fluctuations of the main commodities influence the Group's level of total costs and therefore its profitability.	The risk of changes in the prices of the commodities purchased (cellulose and energy) may impact significantly on the operating and financial results of the Group. In this regard, for the purchase of cellulose, the Group plans procurement that takes account of both the production need and price trends on the cellulose market. In order to mitigate the risk of changes in the prices of electricity and gas, the Group: - select its suppliers from the main sector players, in order to minimise the risks linked to their possible default; - favour index-linked flexible supply contracts, with the possibility of hedging transactions when the market is too volatile; - monitors and participates in all possible opportunities for financial grants in the energy sector. During 2020, the Group started a project with the goal of mitigating the risk resulting from periodic price fluctuations of the main commodities.
Risks linked to digitalisation of systems	These are the risks of dependency on suppliers due to greater use of technologies in the factory and operating systems.	The Group protects itself against this risk: - for the technologies used in the management systems, although it has an integrated ERP management system in all areas (SAP), the Group uses alternative suppliers, also leaders, for accessory programs (Tagetik, Piteco, etc.); - for the part linked to factory systems, the presence of different applications at the individual plants, which are then interfaced at corporate level with the SAP management program, ensures that this risk is considerably reduced.
Production risks	These are the risks of machinery breakage or shut-down, loss of plant efficiency, fire, flooding, theft.	The routine maintenance policy that has been adopted for years and constant technological renewal of plan reduces the risk of sudden machinery breakage or shut-down to a minimum. For the risks associated with loss of plant efficiency and performance quality, a specific corporate function constantly monitors several KPI duly identified at the different plants, in order to take any necessary measures promptly. Both the buildings and the machinery and installations of all the various plants are also insured against the main risks (fire, flooding, theft, etc.) with leading insurance companies operating internationally, with whom the limits of liability are periodically reviewed. For the production part, there are process data collection procedures to monitor inefficiencies and plan the actions to take to eliminate them, and also constant technological renewal of the paper production and converting structure, recently carried out at various Group plants.

Type of risk	Description of the risk	Risk management policy
Risks associated with employees and occupational health and safety.	These are the risks of accidents in the workplace, but also salary claims and transfer of company knowhow to the outside world, due to a higher employee turnover, for example.	Protection of the health of workers, contractors and visitors is ensured through constant monitoring of workplaces, with implementation of the highest safety standards on plant and machinery and with performance of training and information programs. Particular attention is focused on the choice of personal protective equipment (PPE), in order constantly to check its efficiency and continually improve efficacy and thus always guarantee greater levels of protection and safety. During 2020, in response to the health emergency caused by the COVID-19 pandemic, measures to fight the spread of the virus were introduced at Group plants, in accordance with current national protocols, in order to protect and guarantee the health of workers and their families. These safety measures have been continually monitored by the company management. The adoption of all these measures has reduced the risks to a minimum, as confirmed by the results registered in 2020 on the accident rate (IF) and the severity rate (IG):
		ACCIDENT AND SEVERITY RATES ^*
		Rate	Accident rate ^*	Severity rate ²
			10.07	0.31
		The figure refers to December 2020. ^* IF: number of accidents/hours worked x 1,000,000 ^* IG: days of absence for accidents/hours worked x 1,000 The values shown do not take account of accidents during travel or those that cause less then three days of absence of the worker. Only accidents that result in the need to leave the workplace are counted.
Risks associated with environmental regulations or incidents with environmental repercussions.	These are the risks associated with sanctions or restrictions on activities that are the consequence of failing to comply with laws or authorisation, or as a result of incidents that are natural or technical in origin and can cause pollution or alteration of the principal environmental matrices (fires, floods, breakdowns, breakages).	Adoption of Environmental Management Systems certified according to international standards (ISO 14001, EMAS) and the frequent audits (both internal and by external agencies) are the main means of monitoring and preventing risks deriving from failure to comply with regulations or incidents with environmental consequences.
Risks associated with distribution logistics	These are the risks of inefficiencies linked to distribution, which could have repercussions in terms of claims by customers and therefore their dissatisfaction.	The Group operates here through: - careful selection of carriers, choosing from among those that offer greater guarantees in terms of continuity and prompt deliveries; - careful planning of logistics to reduce inefficiencies (which are monitored through specific KPI) to a minimum; - continuous monitoring of performance, through specific KPI (such as the service rate, which measures completeness and promptness of deliveries, and stock reduction, which measures optimisation of stocks); - constant focus on customer requests, through customer care policies. The solutions applied and continual monitoring allowed optimal planning of trade of goods, semi-finished products, raw materials and the finished product between continental Europe and the UK, in the period prior to Brexit.
Customerdependency risks	These are the risks relating to dependency on customers.	The customer-dependency risk is linked mainly to the Private Label sector. It is handled in this sector through a customer portfolio diversification strategy and careful monitoring of the portfolio. The expansion policies in the Brand sector, based on consolidation and development of the Group's brands and also achieved through the launch of innovative products, contribute to mitigating this risk.
Credit risk	The credit risk represents exposure to potential losses due to failure of business and financial counterparts to satisfy the obligations accepted. This risk derives mainly from the potential deterioration of the economic and financial situation of the counterpart or, in extreme cases, their default.	The Group protects itself against this risk in business transactions by: - taking out insurance policies with leading companies operating internationally, with whom the partnership is based on sharing sales targets, collaboration in establishing buyer risk profiles, on transparency of the credit policy and performance, of both the Group and specific functions, on use of customised insurance policies that are innovative in measuring and mitigating the risk; - diversifying the insurance companies from country to country, but also between companies and sales channel; - compliance with the terms of the insurance coverage; - requiring payments in advance where the insurance coverage is not operative; - a policy to reduce concentration of credit to a minimum; - quantification of the risk in the budget, through use of the IFO model and subsequent sharing of the budget data with the insurance companies; - use of the "Grade" issued by insurance companies for customers on whom a facility is being requested as the shortterm solvency indicator; compliance with payment times by suspending orders for customers who are ten days overdue on payments; - compliance with the credit ceiling assigned for the "Line of Business Region", in order to monitor and mitigate the uninsured credit risk. For the financial aspect, the Group is exposed to the credit risk in its current relationship with financial institutions. These risks are represented by: - partial or total revocation of the current uncommitted facilities, which the Group covers through its potential access to a broad range of sources of funding from multiple financial institutions, allowing the per quota exposure risk to be reduced; The Group continues its systematic monitoring of evolution of the European and US banking systems, confirming that what has occurred so far (concentrations, mergers, acquisitions) has not had any repercussions on Group operations; - bail-ins on bank deposits, the risk of which is increasingly mitigated by using current account overdrafts. - lengthier times for access to new credit facilities, even with banks with which it already has a relationship, despite the significant improvement in the Groups' economic and financial situation, as a consequence of the Covid-19 pandemic and the economic and financial difficulties of many of their client companies, to whom the banks are forced to give priority in providing support. Further information is provided in the explanatory notes accompanying the consolidated financial statements.
Exchange rate risk	The exchange rate risk derives from the fact that the Group operates internationally and its transactions are therefore carried out in currencies other than the Euro.	Generally speaking, the Group exchange rate risk can be divided into three different categories: - the economic risk, deriving from fluctuations in exchange rates which may have an effect on the economic result and, therefore, on the company profitability envisaged at the phase of conclusion of the purchase orders. This risk may extend from the time of preparation of the order to the date when it is monetised (i.e. invoicing). The elements subject to hedging mainly concern plant and equipment (assets) and raw materials (i.e. cellulose) which represent future costs in foreign currency. The hedging is mainly carried out by entering into derivative contracts for the forward purchase of foreign currency, based on the estimated dates of the future economic transaction of the elements hedged; - the transaction risk, deriving from fluctuations in exchange rates on balance sheet items in currency recorded on the financial statements. In particular, for the Group, this risk is represented by differences between the exchange rate used to record receivables or payables in foreign currency on the balance sheet and the exchange rate used to record the corresponding collection or payment. Hedging, for this type of exchange rate risk, is carried out by entering into derivative contracts for forward sale or forward purchase of foreign currency, also through the so-called netting between receivables and payables expressed in the same foreign currency. - the translation risk, which emerges during consolidation and derives from translation into Euro of the financial statements of subsidiary companies that are prepared in other currencies. The Group does not hedge this type of exposure. The objective of the Group is therefore to minimise the financial and transactional risk by using financial instruments for hedging purposes, primarily by entering into currency forward contracts. Further information is provided in the explanatory notes accompanying the consolidated financial statements.
Interest rate risk	Fluctuations in interest rates in each country, and also their different value in reference to each currency in which the Group operates, influence cash flows and the level of consolidated net financial expenses.	The Group adopts an active policy for monitoring of the risk associated with changes in interest rates, by assessing the risk profile of its exposures, in order to stabilise net financial expenses: - for medium-/long-term structured financing transactions, the Group favours the application of fixed interest rates, thus ensuring certainty on the financial expenses to be sustained on multi-year loans; - for short-term financing transactions, the Group continues to favour the variable rate (benchmark rate on the specific interbank market of the currency in which the loan is denominated, plus a differentiated spread based on the type of credit facility/market), with the aim of constantly monitoring the interest rate trend on the various markets in the short term. Furthermore, in order to manage/alter the risk profile of its exposure, the Group could also use, as it has done in the past, plain vanilla type derivatives (such as Interest Rate Swap and Interest Rate Option), with no risk or speculative content. Further information is provided in the explanatory notes accompanying the consolidated financial statements.
Liquidity risk	This is the risk that the Group may not be able to meet its payment commitments due to the difficulty of procuring funds (funding liquidity risk) or promptly liquidating assets on the market (asset liquidity risk).	To this end, through careful treasury planning, it seeks to ensure an adequate level of liquidity, minimising its opportunity cost and maintaining a balance in terms of duration and composition of debt. Furthermore, due to its financial stability and its international dimensions, the Group has access to a broad range of sources of funding from multiple financial institutions, which allows the exposure risk to be diversified and reduced. Further information is provided in the explanatory notes accompanying the consolidated financial statements.
Legal / compliance / reputation risk.	Legal/compliance/reputation risks relate to the possibility of sanctions and/or financial losses deriving from violations of the law, secondary regulations, rules, company standards and codes of conduct.	The Group operates at various levels to limit these risks, which are overarching on the various company processes. In particular, the Group pursues these objectives through: - proactive management of intangible assets, aimed at the creation and protection of its credibility and maintaining relationships of trust and collaboration among all those involved (suppliers, customers, consumers); - the decision to integrate sustainability into the business as a strategic line of development. The Group has a specific office that deals with analysis of the compliance risk at all companies. The Italian companies have also adopted the organisational models for prevention of crimes envisaged by Italian Legislative Decree no. 231/2001, with the creation of a supervisory board responsible for this. During the year that has just ended, the Group was not involved in any legal actions relating to substantial unfair competition or monopolistic practices on the market, and it was not subjected to scrutiny by antitrust agencies in the countries where its companies are located. Furthermore, no cases of failure to comply with regulations or codes of conduct on advertising, promotion or sponsorship of its products were found.
The reporting risk.	This relates to reliability of the information provided in the internal and external reporting process, with respect to both financial and non-financial reporting.	The Group has dealt with this risk by implementing in the past and continuing to implement administrative, financial and operating procedures that contribute to keeping its occurrence to a minimum. In particular, the work in progress aims to render economic and financial planning more integrated and efficient, in order to raise the quality of the level of monitoring in all company sectors. The operating tools used include SAP, Bw Sem, Piteco and Tagetik; in particular, the SAP management software has allowed total integration of the various company areas, which can thus be constantly monitored jointly. The Piteco and Piteco CBC (Corporate Banking Communication) platforms allow to manage Company to Bank connectivity in total security, implementing management solutions in the treasury area for management of all payment transactions, complete automation of the authorisation work flows, their traceability and secure management of transaction flows in mobility and with Digital Signature. The issue of cyber security was particularly relevant during 2020, as the area to be covered was expanded as a result of the home working imposed by the Covid-19 emergency. In particular, cooperation with Microsoft was strengthened and a plan was started to improve various aspects linked to availability and security of company data. Another process was also started, resulting in the parent company's I.C.T. system confirming its ISO27001 certification on security of information that was obtained in 2019. Certification of the annual financial statements by a leading auditing form provides a further means of verification of the process.

In addition to the risk management policies indicated in the table, reference is also made to the actions taken, as described in the 2020 integrated report.

Social networks

The Group is present on the most widely used social networks, where it publishes information, images and videos to ensure stakeholders are constantly updated on the Group products and activities, in line with its communication strategy.

https://twitter.com/sofidelsharing

https://www.linkedin.com/company/sofidel

https://www.flickr.com/sofidel/

https://www.youtube.com/SofidelSharing

https://www.facebook.com/SofidelGroup

Disclaimer

This "Annual Financial Report" contains forward-looking statements, relating particularly to future operating performance, growth objectives and performance of projects.

Forward-looking statements are, by nature, subject to an element of risk and uncertainty, since they depend on the occurrence of future events and developments.

The results actually obtained could differ significantly from those announced as a result of a variety of factors, including primarily: general macroeconomic conditions and the relative policies, changes in the economic and regulatory situation in many of the countries where the Group operates, future development of demand, supply and prices of raw materials (cellulose and energy), changes in stakeholder expectations and other changes in business conditions, actions of the competition and actual operating performance.

Thank you for the confidence you have placed in us.

Porcari, 29 January 2021

For the Board of Directors

The CEO

Dr. Lazzareschi Luigi

Consolidated Financial Statements as at 31 December 2020

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheet

Consolidated statement of financial position - Assets

(in thousands of Euro)	Comments	31 December 2020	31 December 2019
NON-CURRENT ASSETS
Property, plant and equipment	1	1,823,047	1,972,540
Investment property	2	6,611	6,820
Goodwill and intangible assets with indef. useful lifetime	3	76,717	83,541
Trademarks and other intangible assets	4	45,086	45,877
Right of use through leasing	5	37,121	40,983
Equity investments	6	1,848	1,808
Other non-current financial assets	7	9,779	2,981
Deferred tax assets	8	113,179	109,213
TOTAL NON-CURRENT ASSETS		2,113,389	2,263,765
CURRENT ASSETS
Inventories	9	392,539	434,785
Trade receivables	10	112,727	74,779
Other current assets	11	20,073	34,887
Tax receivables	12	7,975	15,132
Other current financial assets	13	17,477	6,770
Cash and cash equivalents	14	81,177	32,680
TOTAL CURRENT ASSETS		631,967	599,033
Assets held for sale	1	0	869
TOTAL ASSETS		2,745,356	2,863,666

Consolidated statement of financial position - Liabilities and shareholders' equity

(in thousands of Euro)	Comments	31 December 2020	31 December 2019
SHAREHOLDERS' EQUITY
Share capital		33,000	33,000
Share premium reserve		1,500	1,500
Legal reserve		7,159	7,159
Other reserves		659,951	665,509
Profit (loss) pertaining to the Group		141,047	43,215
Total Group shareholders' equity		842,657	750,383
Capital and reserves attributable to noncontrolling interests		60	65
Result attributable to non-controlling interests		3	(2)
Total shareholders' equity attributable to non-controlling interests		63	64
TOTAL SHAREHOLDERS' EQUITY	15	842,720	750,447
NON-CURRENT LIABILITIES
Employee severance indemnity reserve and other provisions on personnel	16	18,701	18,285
Deferred tax liabilities	17	86,750	70,086
Provisions for risks and expenses	18	2,347	2,817
Non-current financial liabilities	19	652,624	1,127,482
Non-current liabilities for leasing	20	29,196	31,279
Deferred revenues for contributions to the capital account	21	20,035	23,768
Other non-current liabilities	22	41	41
TOTAL NON-CURRENT LIABILITIES		809,693	1,273,758
CURRENT LIABILITIES
Trade payables	23	427,325	451,189
Current financial liabilities	24	103,191	103,598
Current portion of long-term borrowings	25	462,181	209,054
Current liabilities for leasing	26	7,855	9,003
Other current liabilities	27	82,676	56,966
Tax liabilities	28	9,716	9,650
TOTAL CURRENT LIABILITIES		1,092,943	839,461
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES		2,745,356	2,863,666

Consolidated Income Statement

(in thousands of Euro)	Comments	31 December 2020	31 December 2019
Revenues from contracts with customers (net sales)	30	2,172,855	1,919,460
Rent received	31	739	1,017
Other revenues and income	32	30,600	27,857
Total revenues		2,204,195	1,948,335
Purchase of raw materials, finished products and changes in inventories	33	(907,137)	(898,371)
Services	33	(446,719)	(412,192)
Leases and rentals	33	(30,491)	(25,196)
Other operating expenses	33	(28,573)	(29,623)
Personnel costs	33	(372,985)	(324,318)
Gross operating margin		418,290	258,635
Amortisation/depreciation and write-downs	33	(159,114)	(151,413)
Provisions for risks	33	(2,177)	(2,446)
Operating result		257,000	104,776
Financial income	34	1,765	334
Financial expenses	34	(44,162)	(29,190)
Exchange gains and losses	34	(23,417)	(20,499)
Total financial income and expenses		(65,813)	(49,355)
Profit/loss before taxes		191,186	55,421
Current taxes	35	(40,667)	(16,678)
Deferred (prepaid) taxes	35	(9,469)	4,469
Profit (loss) for the year		141,050	43,213
Attributable to:
Third Parties		3	(2)
Group		141,047	43,215

Consolidated statement of comprehensive income

(in thousands of Euro)	Comments	31 December 2020	31 December 2019
Net result of the period (A)		141,050	43,213
Other components of the statement of comprehensive income which will be restated under profit/(loss) for the year:
Translation differences of foreign financial statements	16	(48,504)	13,361
Net profit/(loss) on cash flow hedges	16	1,172	1,829
Tax effect		(117)	(525)
Total other components of the statement of comprehensive income which will be restated under profit/(loss) for the year after taxes (B)		(47,450)	14,665
Other components of the statement of comprehensive income which will not be restated under profit/(loss) for the year:
Actuarial profit / (loss) on defined benefit plans	16	(663)	(1,183)
Tax effect		148	241
(Loss)/ net profit on FTA reserve		(32)	0
Total other components of the statement of comprehensive income which will not be restated under profit/(loss) for the year after taxes (C)		(547)	(942)
Total other components of the statement of comprehensive income after taxes (B+C) (D)		(47,997)	13,723
Total comprehensive profit/(loss) after taxes (A+D)		93,053	56,936
Attributable to: Third Parties		3	0
Group		93,050	56,936

Consolidated statement of changes in shareholders' equity Changes from 1 January to 31 December 2020

	Opening balance 2020	Profit for the year	Other components of the statement of comprehensive income	Total comprehensive profit(loss)	Allocation of the profit (loss) for the year	Dividends
Share capital	33,000
Share premium reserve	1,500
Revaluation reserve	18,250
Legal reserve	7,159
Other reserves	669,819				43,215
Translation difference	(7,280)		(48,505)	(48,505)
FTA IFRS reserve	(12,075)		(32)	(32)
Actuarial reserve - IAS 19	(2,937)		(515)	(515)
Cash Flow Hedge
Reserve - IFRS	(269)		1,054	1,054
Profit (loss) for the year	43,215	141,047		141,047	(43,215)
Group shareholders' equity	750,383	141,047	(47,998)	93,050	0
Capital and reserves attributable to noncontrolling interests	65	0		0	0
Minority share of profit (loss) for the year	(1)	3		3	0
Shareholders' equity attributable to noncontrolling interests	64	3		3	0
Total shareholders'
equity	750,447	141,050	(47,998)	93,053	0

	Other changes	Closing balance 2020
Share capital		33,000
Share premium reserve		1,500
Revaluation reserve		18,250
Legal reserve		7,159
Other reserves	(775)	712,259
Translation difference		(55,785)
FTA IFRS reserve		(12,107)
Actuarial reserve - IAS 19		(3,452)
Cash Flow Hedge
Reserve - IFRS		785
Profit (loss) for the year		141,047
Group shareholders' equity	(775)	842,657
Capital and reserves attributable to noncontrolling interests	(5)	60
Minority share of profit (loss) for the year	0	3
Shareholders' equity attributable to noncontrolling interests	(5)	63
Total shareholders'
equity	(780)	842,720

Changes from 1 January to 31 December 2019

	Opening balance 2019	Profit for the year	Other components of the statement of comprehensive income	Total comprehensive profit(loss)	Allocation of the profit (loss) for the year	Dividends
Share capital	33,000
Share premium reserve	1,500
Revaluation reserve	18,250
Legal reserve	7,159
Other reserves	696,508				(26,066)
Translation difference	(20,641)		13,361	13,361
FTA IFRS reserve	(12,075)
Actuarial reserve - IAS 19	(1,995)		(942)	(942)
Cash Flow Hedge
Reserve - IFRS	(1,574)		1,305	1,305
Profit (loss) for the year	(26,065)	43,215		43,215	26,066
Group shareholders' equity	694,067	43,215	13,724	56,938	0	0
Capital and reserves attributable to noncontrolling interests	70
Minority share of profit (loss) for the year	0	(2)	0	(2)
Shareholders' equity attributable to noncontrolling interests	70		0	(2)
Total shareholders'
equity	694,137	43,213	13,724	56,936	0	0

	Other changes	Closing balance 2019
Share capital		33,000
Share premium reserve		1,500
Revaluation reserve		18,250
Legal reserve		7,159
Other reserves	(623)	669,819
Translation difference		(7,280)
FTA IFRS reserve		(12,075)
Actuarial reserve - IAS 19		(2,937)
Cash Flow Hedge
Reserve - IFRS		(269)
Profit (loss) for the year		43,215
Group shareholders' equity	(623)	750,383
Capital and reserves attributable to noncontrolling interests	(4)	65
Minority share of profit (loss) for the year	1	(2)
Shareholders' equity attributable to noncontrolling interests	(3)	64
Total shareholders'
equity	(626)	750,447

Consolidated cash flow statement

(in thousands of Euro)	Comments	31 December 2020	31 December 2019
Profit (loss) for the year		141,050	43,213
Income taxes	35	50,136	12,208
Financial expenses / income	34	42,271	28,689
1. Profit (loss) for the year before income tax, interest, dividends and gains/losses on disposals		233,457	84,110
Adjustment of non-monetary revenues	32	(14,726)	(11,563)
Amortisation/depreciation	33	159,027	150,874
Provisions	33	2,264	2,985
2. Cash flow before changes in NWC		380,022	226,406
Change in trade receivables		(37,948)	(31,070)
Change in inventories		42,246	(4,028)
Change in trade payables		(21,103)	(10,749)
Change in other short-term assets/liabilities		52,411	(4,329)
3. Cash flow after changes in NWC		415,628	176,230
Change in reserves and prepaid tax receivable		4,395	(7,311)
Income taxes (paid)		(40,667)	(16,678)
Interest paid on lease liabilities		(1,514)	(1,647)
Other changes		56,692	(14,257)
Cash flow generated by operating activities (A)		434,534	136,337
Disposals of property, plant and equipment and intangible assets	1,2,3,4	1,916	2,579
Investments in property, plant and equipment and intangible assets	1,2,3,4	(99,582)	(241,184)
Purchase (sale) of other financial fixed assets		(40)	45
Capitalised interest	34	817	9,235
Change in payables to suppliers - investment		8,054	(7,645)
Gains on disposal of property, plant and equipment		2,843	0
Cash flow from investments (B)		(85,992)	(236,970)
Opening of medium/long-term loans		61,518	365,596
Repayments of medium/long-term loans		(288,023)	(129,245)
Change in short-term loans		1,877	(125,782)
Change to financial assets		(22,006)	(11,075)
Interest collected/(paid)		(43,088)	(37,924)
Dividends (and advances on dividends) paid		0	(1,600)
Capital payments on lease liabilities		(9,302)	(9,253)
Cash flow generated by financing activities (C)		(299,024)	50,718
Increase (Decrease) in cash and cash equivalents (A+B+C)		49,519	(49,915)
Opening cash and cash equivalents		32,680	81,094
Differences in the exchange opening balance		(1,022)	1,501
Closing cash and cash equivalents		81,177	32,680

Explanatory notes

The Sofidel Group

The "Sofidel Group" has been operating for over fifty years (it was founded in 1966). It is formed of seventeen companies operating in fourteen countries (Italy, Spain, Sweden, United Kingdom, Belgium, France, Hungary, Germany, Poland, Romania, Greece, Turkey, USA and Ireland) and is currently Europe's second and the world's seventh largest manufacturer in terms of production capacity in the tissue sector.

Focus on people and communities, commitment to innovation, production and process quality, transparency and adoption of responsible social and environmental behaviour are features that characterise the Group and all its companies in the creation of value.

The Group has an integrated in-house production cycle that ranges from manufacture of the tissue paper reels to their conversion into packaged final products. The four business lines are:

Consumer - brand: products for families, such as toilet paper, paper towels, paper napkins and tissues, marketed with the Group brands and with third-party brands acquired under license for use.

The main brands are: Regina® in Europe, Softis® - used jointly with the Regina® brand - in Germany/Austria, Le Trèfle® e Sopalin® in France; Nalys® and Cosynel® in Benelux; Thirst Pockets® and KittenSoft® in the United Kingdom and Ireland; Soft & Easy® in Poland; Onda® and Volare® in Romania, Lycke® in Scandinavia and Forest® in Hungary.

In addition to the brands mentioned, the Group also has the so-called B-Brands, such as Nicky®, Valenty®, Florex® and Dayly®.

The main brands of third parties under license for use are: WWF™ in Italy and Snowman for the UK market.

Consumer - Private Label: products for families, but marketed with the brand of the Large-Scale Retail Trade.

Away from home: products used in consumption away from home in the Ho.re.ca sectors (hotels, restaurants and collective catering), hospitals, the military, management of public entities, large cleaning firms, such as industrial-size paper towels, hospital sheets, folded towels, jumbo rolls of toilet paper, interleaved toilet paper, face tissues and others, marketed mainly with the Papernet ^® brand and to a lesser extent with third-party brands.

Jumbo roll (parent reels): semi-processed and not used internally, but sold on the market.

The consolidated financial statements for the financial year ending at 31 December 2020 were approved by the Board of Directors of "Sofidel S.p.a." with the resolution of 29 January 2021.

These consolidated financial statements are audited by "EY S.p.a.".

All the figures shown are rounded up to the nearest thousands of Euro, unless indicated otherwise.

Significant events during the year

There were no significant events during the year such as to affect the scope of consolidation or analysis (even comparative) of the consolidated financial statements

REGULATIONS AND ACCOUNTING STANDARDS ADOPTED

Presentation in compliance with IFRS

The consolidated financial statements of Sofidel S.p.A. have been prepared in compliance with International Financial Reporting Standards (IFRS). The term IFRS also refers to all the revised International Accounting Standards ("IAS") and all the interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") included in the standards previously issued by the Standing Interpretation Committee ("SIC").

Changes in the accounting standards

The accounting standards adopted by the Group to draft the consolidated financial statements for the year ending at 31 December 2020 coincide with those used to prepare the 2019 consolidated financial statements, to which reference should be made, with the exception of the adoption of new or revised standards of the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), endorsed by the European Union and applied from 1 January 2020, as described below. The adoption of new standards, amendments and interpretations did not have any significant impacts on the financial position or results of the Group.

The accounting policies adopted and the procedures used for drawing up estimates and assumptions in preparing the consolidated financial disclosure are consistent with those applied in preparing the annual consolidated financial statements of the Group for the year ending at 31 December 2019, with the exception of the adoption of the new standards effective from 1 January 2020. The Group has not opted for an early adoption of any other standard, interpretation or amendment, that has been issued, but is still not yet in force.

Amendments to IFRS 3: Definition of a business

The amendments to IFRS 3 clarify that, in ordered to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Furthermore, it has been clarified that a business may exist without including all the inputs and processes necessary to create an output. These amendments have not had any impact on the Group consolidated financial statements, but could have an impact in future years if the Group were to carry out business combinations.

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest rate benchmark reform The amendments to IFRS9 and to IAS 39 provide a number of practical expedients that are applied to hedging relationships directly impacted by the reform of interest rate benchmark. A hedging relationship that is impacted by the reform is subject to uncertainties over the timing and the amount of the cash flows based on the benchmark for the hedged instrument. These amendments have not impacted on the Group consolidated financial statements, as there are no interest rate hedging transactions.

Amendments to IAS 1 and IAS 8 - definition of material

The amendments provide a new definition of what is material, in which information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

Materiality depends on nature or magnitude of information (or both). The entity assesses whether the information is material on its own or when combined with other information, in the context of the financial statements, considered as a whole.

nformation in financial statements can be obscured if it has a similar effect for primary users to omitting or misstating information. These amendments have not had any impact on the consolidated financial statements and no future ones are expected for the Group.

Conceptual Framework for Financial Reporting issued on 29 March 2018

The Conceptual Framework is not a standard and none of the concepts it contains has precedence over the concepts or requirements of a standard. The objective of the Conceptual Framework is to guide the IASB in developing standards, to assist compilers in developing uniform accounting policies when no standards exist that are applicable in the specific circumstances and to help all parties involved in understanding and interpreting the standards.

The revised version of the Conceptual Framework includes several new concepts, provides revised definitions and revised reporting criteria for assets and liabilities. It also clarifies several important concepts. These amendments have not had any impact on the Group consolidated financial statements.

Amendment to IFRS 16 Covid-19 Related Rent Concessions

On 28 May 2020, the IASB published an amendment to IFRS 16. The amendment allows a lessor not to apply the requirements of IFRS 16 on the accounting effects of the lease modifications for rent concessions granted by lessors that are a direct consequence of the Covid-19 pandemic. The amendment introduces the practical expedient of allowing a lessor to choose not to assess whether a rent concession is a lease modification. A lessor who chooses to use this expedient records these concessions in accounts as if they were not lease modifications within the scope of IFRS 16. The amendments are effective for annual reporting periods beginning on or after 1 June 2020. Early adoption is permitted. These amendments have not had any impact on the Group consolidated financial statements.

FORMAT OF THE FINANCIAL STATEMENTS

Consolidated balance sheet

The format adopted for the consolidated balance sheet is a financial classification with a distinction made between current and non-current assets and current and non-current liabilities, where:

―	non-current assets include balances with realisable cycle after twelve months, as well as intangible assets with defined and indefinite life, property, plant and equipment and equity investments;
―	current assets include balances with realisable cycle within twelve months;
―	non-current liabilities include payables due after twelve months, including financial payables, provisions for risks and expenses and employee benefits;
―	current liabilities include payables due within twelve months, including the short-term portion of medium/long-term loans, provisions for risks and expenses and employee benefits.

Consolidated income statement

The format adopted for the consolidated income statement for the year ending at 31 December 2020 is based on the classification of costs divided by type of expense.

It is noted that the "gross operating margin" (EBITDA) reported on the consolidated income statement is obtained by adding "total amortisation, depreciation and write-downs" and "provisions for risks" to "operating profit/loss" (see below). The "Operating profit/loss" is the difference between revenues and operating costs; the latter are inclusive of amortisation, depreciation and write-downs, as well as of provisions. Lastly, the "Profit before tax" comprises the operating profit/loss, less financial income (expenses) and is the final result including current, deferred and prepaid taxes.

Consolidated statement of comprehensive income

The format of this statement is based on the provisions set out by the revised version of IAS 1; the items included are grouped together based on their possible subsequent reclassification to the income statement.

Consolidated statement of changes in shareholders' equity

This statement includes the total of the statement of comprehensive income, indicating separately the amounts attributable to shareholders of the parent company and the minority interests, and the amounts of relating to transactions with shareholders acting as such. A reconciliation between the opening balance and the closing balance at year-end is presented for each item.

Consolidated cash flow statement

The Cash Flow Statement is prepared based on the indirect method and is presented according to IAS 7, classifying cash flows under operations, investment and financing activities.

The resource to which the consolidated cash flow statement refers is cash and cash equivalents.

CONTENT OF THE CONSOLIDATED FINANCIAL STATEMENTS

General principles, functional currency and reporting date

The consolidated financial statements have been prepared on the basis of the historical cost principle, with the exception of derivative financial instruments, which have been recorded at fair value.

Moreover, they have been prepared on a going concern and on an accrual basis.

The consolidated financial statements are presented in Euro, which is the functional currency of the parent company and the presentation currency of the consolidated financial statements of the Sofidel Group.

All values are rounded to thousands of Euro, unless otherwise indicated.

The reference date of these consolidated financial statements coincides with the date of the annual financial statements of the parent company (31 December 2020), which is also the reporting date of all the companies included in the scope of consolidation.

The annual financial statements approved by the governing bodies of the companies included in the scope of consolidation have been used or, where this was not possible, those prepared for approval by the competent company bodies. The financial statements have been duly adjusted to bring them into line with the IAS-IFRS accounting standards, where necessary.

SCOPE OF CONSOLIDATION

List of consolidated companies

The consolidated financial statements as at 31 December 2020 include the balance sheet, income statement and cash flow statement of the parent company, Sofidel S.p.A., and its Italian and foreign subsidiaries consolidated on a line-by-line basis, identified all together as the Sofidel Group.

The consolidated financial statements as at 31 December 2020 include the 2020 balance sheets of the Group companies prepared adopting the same accounting standards as the parent company.

Subsidiaries are those entities in which the Group has control, or when the Group is exposed to variable returns deriving from its relationship with the entity, or has rights on those returns and the simultaneous capacity to influence them through its own power over the entity. The financial statements of the subsidiaries are included in the consolidated financial statements at the moment when the parent company starts exercising control and up until the date when that control ceases.

In the case of loss of control, the Group eliminates the assets and liabilities of the subsidiary, any previous minority stake in shareholders' equity, including any other component of the statement of comprehensive income relating to that entity. Any profit or loss deriving from loss of control is recorded in the profit/(loss) for the year.

Any equity investment held in the former subsidiary is measured at fair value at the date when control is lost. All the balances and inter-company transactions, including any unrealised profits and losses deriving from operations carried out among Group companies, are eliminated in full. Minority interests represent the part of profits or losses and of the net assets not held by the Group and are recorded under a separate item of the income statement, and in the balance sheet under shareholders' equity components, separately from the Group's shareholders' equity. Acquisitions of subsidiary companies are recorded in accounts using the purchase method, which involves allocation of the cost of business combination to the fair value of the assets, liabilities and potential liabilities acquired at the date of the operation and inclusion of the result of the acquired company accrued up to the date of the operation and until the end of the year.

Changes in the stake of the Group in a subsidiary which do not involve loss of control are recorded as share capital transactions.

The table below summarises the information on subsidiaries as at 31 December 2020, i.e. their name, registered office and the portion of share capital directly and indirectly held by the Group.

Name	Currency	Location reserve	Share capital (Euro/000)	%	Shareholders
Sofidel S.p.a. (parent company)	Euro	Porcari (Italy)	33,000		-
Subsidiary companies consolidated on a line-by-line basis:
Soffass S.p.a.	Euro	Porcari (Italy)	40,000	100%	Sofidel S.p.a.
Sofidel France S.a.s.	Euro	Frouard (France)	20,000	100%	Sofidel S.p.a.
Tasfye Hlinde Sofidel Turkey Kagit Sanayi ve Ticaret Anonim Sirketi	TRY	Honaz/Denizli (Turkey)	17,666	100%	Sofidel S.p.a.
Intertissue L.t.d.	GBP	Baglan, Wales (U.K.)	7	100%	Sofidel S.p.a.
Sofidel Spain S.L. Sofidel Germany Holding	Euro	Bunuel (Spain)	18,000	100%	Sofidel S.p.a.
G.m.b.H.	Euro	Schmalkalden (Germany)	26	70.1%	Sofidel S.p.a.
				29.9%	Soffass S.p.a.
Sofidel Germany GmbH	Euro	Schmalkalden (Germany)	684	100%	Sofidel Germany Holding G.m.b.H.
Sofidel Greece S.A.	Euro	Katerini (Greece)	3,860	100%	Sofidel S.p.a.
Sofidel UK L.t.d.	GBP	Baglan, Wales (U.K.)	306	100%	Sofidel S.p.a.
Sofidel Ireland L.t.d.	Euro	Dublin (Ireland)	0.1	100%	Sofidel UK L.t.d.
Sofidel Poland Sp. z.o.o.	PLN	Ciechanòw (Poland)	40,326	100%	Soffass S.p.a.
Sofidel Romania S.A.	RON	Calarasi (Romania)	19,824	99.85%	Sofidel Poland Sp.z.o.o.
Sofidel Sweden AB	Euro	Kisa (Sweden)	10	100%	Sofidel UK L.t.d.
Sofidel America Corp.	USD	Haines City, Florida (USA)	0.003	33.33%	Sofidel UK L.t.d.
				66.67%	Sofidel S.p.a.
Sofidel Benelux N.v	Euro	Duffel (Belgium)	62	100%	Soffass S.p.A.
Sofidel Hungary kft	HUF	Lablatan (HU)	10	100%	Sofidel S.p.A.

Changes in the scope of consolidation

There were no changes in the scope of consolidation during the year. However, the following operations were carried out within the Group.

Company operations were carried out in 2020 to reorganise the German companies and combine the various production plants, which belonged to two separate companies, into a single company.

On 14 December 2020, the Turkish company Sofidel Turkey (renamed Tasfye Hlinde Sofidel Turkey Kagit Sanayi ve Ticaret Anonim Sirketi) completed the process of liquidation started on 5 November 2019. The company's income statement was consolidated on a line-by-line basis up to the date of liquidation.

Sofidel Ireland L.t.d was incorporated on 9 November 2020 and started importing into Ireland on 1 January 2021.

Consolidation method

The financial statements of the companies included in the scope of consolidation have all been consolidated on a full lineby-line basis.

This consolidation method requires the following adjustments:

―	assets and liabilities and costs and revenues of the companies included in the scope of consolidation are stated in full, regardless of the percentage investment in them;
―	the book value of the equity investments in these companies is eliminated against the corresponding portions of shareholders' equity. Any positive difference between the purchase cost and the shareholders' equity of the investees at the moment when the stake is acquired is allocated to the specific assets of the companies, on the basis of their current value at the acquisition date. The remaining part is recorded in "Goodwill", if the conditions for this are satisfied. In this case, these amounts are not amortised, but subjected to an impairment test, according to the conditions and methods envisaged by IAS 36. Any negative difference that emerges from elimination of the investment is recorded on the income statement;
―	shareholders' equity and the portion of the result for the year of non-controlling interests (i.e. "third parties") are indicated separately. In detail, the portion of shareholders' equity of third parties is stated in a specific item on the consolidated financial statements, while the portion of the result of the year of third parties is recorded on the income statement;
―	profits and losses consequent upon transactions between Group companies still included in assets, other than work in progress on orders, are eliminated, as are receivables, payables, costs, revenues and the effects of all intercompany transactions, even when recorded on the memorandum accounts;
―	any dividends distributed are eliminated from the income statement and allocated to reserves under consolidated shareholders' equity, as is any coverage of losses among companies included in the scope of consolidation and the relative write-downs;
―	value adjustments and provisions made in exclusive application of tax laws, where present, are eliminated, except in cases where they are irrelevant for the reporting purposes of this document;
―	the deferred tax effects (both receivable and payable) consequent upon these adjustments are recorded on the income statement, with the reserves for risks and expenses as a contra entry.

In detail, the most significant adjustments may be obtained from the statement of reconciliation of shareholders' equity and profit for the year of the parent company with the consolidated items, as explained in greater detail in the report on operations.

TRANSLATION OF THE FINANCIAL STATEMENTS IN FOREIGN CURRENCY INTO EURO

The consolidated financial statements are presented in Euro.

Each Group company establishes its own functional currency, which it uses to measure the items on the individual financial statements.

The financial statements of the foreign companies expressed in a currency other than the Euro are translated in the following manner:

―	income statement items are translated at the average exchange rates of the period, while items on the statement of financial position are translated at the year-end exchange rates, with the exception of shareholders' equity (including the result of the year);
―	items of shareholders' equity, including the result for the year, are translated at the historic exchange rates upon formation;
―	translation differences deriving from the process of conversion are recorded under consolidated shareholders' equity in the item "Translation reserve", which is classified in "Other reserves";
―	at the moment of disinvestment in a foreign company, the exchange differences accrued in that reserve that relate to the former investee are allocated to the income statement.

The exchange rates used to calculate the corresponding value in Euro of the financial statements in foreign currency of the subsidiaries (currency to Euro 1 exchange rate) are shown in the table below.

Currency	Average exchange rates for the year		Year-end exchange rate at 31/12/2020
	2020	2019	2020	2019
PLN (Polish Zloty)	4.4430	4.2976	4.5597	4.2568
GBP (UK Sterling)	0.8897	0.8778	0.89903	0.8508
TRY (Turkish pound)	8.0547	6.3578	9.1131	6.6843
RON (Romanian Leu)	4.8383	4.7453	4.8683	4.7830
USD (US Dollar)	1.1422	1.1195	1.2271	1.1234
HUF (Hungarian Florin)	351.249	325.297	363.89	330.53

It is specified that:

―	Sofidel Sweden uses the Euro as its functional currency.

DISCRETIONARY MEASUREMENTS AND SIGNIFICANT ACCOUNTING ESTIMATES

Introduction

In preparation of the Group financial statements, directors are required to make discretionary measurements, estimates and assumptions that influence the value of revenues, costs, assets and liabilities, as well as disclosures relating to contingent assets and liabilities at the reporting date.

In the future, if such estimates and assumptions, which are based on the best evaluations currently available and periodically reviewed, differ from the final results, they will be amended accordingly in the period in which the change in circumstances occurs. The effect of any change will be charged to the income statement.

Estimates are used to recognise the items described in detail below.

Impairment of goodwill

Goodwill is subjected to at least an annual impairment test. This test estimates the fair value of the cash generating unit to which the goodwill is attributed, which is based on the discounted cash flow model (DCF). Details of these measurement are provided in note (3) "Goodwill" and in note (4) "Trademarks and other intangible assets".

Deferred tax assets and liabilities

Deferred tax assets are recognised with respect to all temporary differences and all tax loss carry-overs, to the extent that there is likely to be sufficient future taxable income against which such losses may be deducted in future taxation periods. The Directors are required to carry out a significant discretionary assessment to determine the amount of deferred tax assets that can be recorded.

They must estimate the likely time frame of their occurrence and the amount of future taxable income as well as a strategy for planning future taxes.

Deferred tax assets and liabilities are offset, if there is a legal right to offset current tax assets against current tax liabilities, and the deferred taxes relate to the same taxation entity and the same revenue authority.

Employees benefits (employee severance indemnity reserve)

The actuarial measurement is based on hypotheses concerning discount rates, future wage increases, the turnover and mortality rates.

Owing to the long-term nature of these plans, these estimates are subject to a significant degree of uncertainty.

Significant accounting estimates

Estimates are also used to measure provisions for credit risks, slow-moving goods in stock and returns of products, as well as depreciation and amortisation of tangible and intangible assets with defined useful life, the valuing of accrued receivables for services, the invoices to be received for services rendered and income taxes for the year.

Measurement of fair value

The Group measures financial instruments as derivatives at fair value at each reporting date.

The fair value is the price that would be obtained from sale of an asset or which would be paid to transfer a liability in a normal transaction between market operators at the measurement date.

Measurement of fair value assumes that sale of the asset or transfer of the liability takes place:

―	(a) on the principal market for the asset or liability; or
―	(b) if there is no principal market, on the most advantageous market for the asset or liability.

The principal market or the most advantageous market must be accessible to the Group.

The fair value of an asset or liability is measured by adopting the assumptions that market operators would use in determining the price of the asset or liability, based on the assumption that they would act to satisfy their own financial interest.

A fair-value measurement of a non-financial asset considers the capacity of a market operator to produce economic benefits from the highest and best use of the asset, or by selling it to another market operator who would also make full and best use of it.

The Group uses measurement techniques that have been adapted to the circumstances and for which sufficient data is available to measure the fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which the fair value is measured or stated on the balance sheet are categorised according to a fair value hierarchy, as described below:

―	Level 1: prices (unadjusted) that are listed on active markets for identical assets or liabilities to which the entity has access at the measurement date;
―	Level 2: different inputs to the listed prices included in Level 1, directly or indirectly observable for the asset or for the liability;
―	Level 3: measurement techniques for which the input data is not observable for the asset or for the liability.

The measurement of fair value is classified entirely on the same level of the fair value hierarchy as the input of the lowest level of the hierarchy used for the measurement.

For assets and liabilities reported on the balance sheet on a recurrent basis, the Group decides whether there have been transfers between the levels of the hierarchy by reviewing the categorisation (based on the lowest level input, which is significant for measurement of the fair value as a whole) at each reporting date.

The Group Management determines the criteria and procedures for both the recurring measurements at fair value and measurements carried out on a non-recurring basis.

For the measurement of significant assets, such as real estate properties and significant liabilities, external advisers are involved, when necessary.

At each reporting date, the Group Management analyses changes in the values of assets and liabilities for which write-up or recalculation is required by the accounting standards. The main inputs applied in the most recent measurement are checked for this analysis, comparing the information used in the measurement to the contracts and other relevant documents. Also with the support of external advisers, if necessary, the Group carries out a comparison between each change in fair value of each asset and liability and relevant external sources, in order to determine whether the change is reasonable.

The results of the measurements are periodically presented to the board of statutory auditors and to the auditors of the Group. This presentation includes a discussion of the main assumptions used in the measurement. For reporting on fair value, the Group decides the asset and liability classes on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as previously described.

Estimates and assumptions are carried out by directors with the support of the company's departments and, when needed, of independent advisers. These estimates and assumptions are periodically reviewed and the effects of each single change is recognised on the income statement for the period in which these estimates and assumptions differ from reality.

For reporting on fair value, the Company decides the asset and liability classes on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as previously described.

The disclosure regarding the fair value of financial instruments is shown in note (26).

Long-term impairment of property, plant and equipment, investment property and intangible assets with defined useful life

Impairment occurs when the book value of an asset or a cash generating unit exceeds its recoverable amount, which is the higher between the fair value net of the selling costs and its value in use.

At each reporting date, the company evaluates the existence of any indicators of impairment in "Property, plant and equipment", "Investment property" and "Intangible assets with defined useful life".

In this case, the company estimates the recoverable amount.

The recoverable value is determined for each individual asset, except when this asset generates cash flows which are not entirely independent from those generated by other assets or groups of assets. If the accounting value of an asset is greater than its recoverable value, it means that this asset has undergone an impairment loss and is consequently written-down until it reaches its recoverable value.

The calculation of the fair value less the selling costs is based on the data available from sale transactions between free and autonomous parties, concerning similar assets or observable market prices, minus the higher costs for the disposal of the asset.

The value in use is calculated through discounted cash flow models.

Cash flows are taken from corporate plans prepared by each single cash generating unit to which the single assets are allocated. The plans are approved by the Board of Directors and represent the best possible estimate of the set of economic conditions expected in the period analysed. The projections of the plan usually cover five financial years, the long-term growth rate used (g) to estimate the terminal value of the assets is calculated in relation to the inflation expectations for the area (CGU) where the asset is located.

The cash flows do not include either the restructuring activities or significant investments for which the Company does not have an obligation in place, which will increase the return of the assets comprised in the cash generating unit being measured.

In determining the value in use, the company discounts the estimated future cash flows to the current value, using an aftertax discount rate that reflects market assessments of the current value of money and the specific risks of the asset.

Impairment losses suffered by operating assets, including losses on inventories, are recorded on the income statement in the cost categories consistent with the function of the asset that recorded the impairment loss.

With the exception of previously written-up fixed assets, restatement is recorded in accounts on the statement of comprehensive income and classified as a revaluation reserve.

In these cases, the impairment is also recognised on the statement of comprehensive income, up to the value of the previous write-up.

Capital management

The primary objective of the Group's capital management is to maintain a solid credit rating and adequate capital indicators in order to support its activities. The Group manages the capital structure and alters it on the basis of changes in economic conditions.

The Group checks its capital on the basis of a net financial position/shareholders' equity ratio. Reference should be made to the report on operation for a detailed analysis of this indicator and of the equity and financial position.

VALUATION CRITERIA

Property, plant and equipment

Tangible assets are measured at historic cost, including directly attributable ancillary costs that are necessary to commissioning of the asset for its intended use. This cost includes the costs for equipment and plant parts replacement, when incurred, if the recognition criteria are satisfied. The net value (cost less accumulated depreciation and losses for accumulated impairment) of replaced parts of machinery and plants is recognised on the income statement upon replacement.

Maintenance and repair expenses that do not upgrade and/or extend the residual life of assets are recognised in the year in which they are incurred; in the opposite case, they are capitalised provided that the recognition criteria set out in IAS 16 are met.

Tangible assets are recorded net of accumulated depreciation and any impairment losses, determined according to the methods hereinafter described. Depreciation is calculated using the straight line method on the basis of the estimated useful life of the asset for the company.

Useful lives of the main classes of tangible assets are as follows:

	Rate
Property complexes	3%-5.5%
General plant and machinery	9%
Specific converting plant and machinery	appraised residual useful life
Specific paper-making plant and machinery	appraised residual useful life
Sundry industrial equipment	25%
Vehicles and means of transport	20%
Motor vehicles	25%
Electronic machines	20%
Furniture and fixtures	12%
Fixed plumbing works (hydroelectric power plant)	1%
Pressure pipes (hydroelectric power plant)	4%
Machinery (hydroelectric power plant)	7%
Distribution network (hydroelectric power plant)	8%

The residual value of the asset, the useful life and the depreciation methods applied are reviewed periodically and adjusted prospectively, when necessary.

If significant parts of these tangible assets have different useful lives, these components are recorded separately.

Land without buildings on it and land attached to buildings is recognised separately and is not depreciated, as it is considered as an asset with indefinite useful life.

Upon sale, or when there are no estimated future economic benefits for use, the asset is removed from the balance sheet and any loss or gain (calculated as the difference between the sale value and the carrying amount) is recognised on the income statement in the year the asset is eliminated.

Investment property

Fixed assets which are held for investment and not for an instrumental use are classified under the special "Investment property" item, pursuant to IAS 40, and are recorded at cost.

Assets that can be included in this class are land and/or buildings (or portions of buildings) that are held by the owner or the lessee under a financial lease or an operative agreement, and are intended to be rented to third parties, in order to benefit from the corresponding rentals, or from an increase in the value of the asset, unless these buildings:

―	are used for production, supply of goods and services, or administration purposes;
―	are held for sale in the normal course of business.

The useful life of Group investment properties is from 3% to 5.5%.

The book value of investment property is subjected to an impairment test designed to detect any losses in value, when events or changed circumstances indicate that the book value cannot be recovered. Impairment losses are recorded on the income statement under costs for amortisation, depreciation and write-downs. These impairment losses are reversed if the reasons that caused them no longer apply.

Investment property is eliminated from the accounts when sold (i.e. on the date in which the purchaser acquires control of it) or when the investment property is unusable over the long-term and its sale is not expected to provide future economic benefits. The amount of the consideration to be considered for the determination of profit or loss from the cancellation of an investment property is determined in compliance with the requirements for determining the price of the transaction in IFRS 15.

Financial and operating leases

On entering into a contract, the Group assesses whether it is, or contains, a lease agreement. In other words, it assesses whether the contract grants the right to control use of an identified asset for a period of time, in exchange for a payment.

The Group as lessee

The Group adopts a single model of recognition and measurement for all leases, excluding short-term leases and those on assets of a modest value. The Group recognises liabilities relating to lease payments and the right-of-use asset that represents the right to use the asset to which the agreement refers.

Right-of-use assets

The Group recognises right-of-use assets at the date when the lease starts (i.e. the date when the relative asset is available for use). Right-of-use assets are measured at cost, net of accumulated depreciation and impairment, and adjusted for any remeasurement of the lease liabilities. The cost of assets for the right of use includes the sum of lease liabilities recorded, initial direct costs incurred and lease payments made at or before the lease commencement date, minus any incentives received. Right-of-use assets are amortised on a straight-line basis from the commencement date and up to the end of the useful life of the right-of-use asset or the end of the lease, whichever comes first.

If the lease transfers ownership of the underlying asset to the lessee when the lease ends, or if the cost of the asset for the right of use reflects the fact that the lessee will exercise the purchase option, the lessee may amortise the right-of-use asset from the commencement date up until the end of the useful life of the underlying asset.

Right-of-use assets are subject to impairment. Refer to the section on the impairment test.

Lease liabilities

At the lease commencement date, the Group records lease liabilities by measuring them at the current value of payments due for the lease and not paid at that date. Payments due include fixed payments (including fixed payments in substance), minus any lease incentive receivable, variable lease payments that depend on an index or a rate, and the amounts that it is expected will have to be paid as guarantees on the residual value. Lease payments also include the price of exercising the purchase option, if there is reasonable certainty that said option will be exercised by the Group, and the payment of penalties to terminate the lease, if the duration of the lease takes account of exercising of the lease termination option by the Group.

Variable lease payments that do not depend on an index or rate are recorded as costs in the period in which the event or condition that has produced the payment has occurred.

For calculation of the current value of the payments due, the Group uses the incremental borrowing rate at the start date, if the implicit interest rate cannot be easily determined. After the commencement date, the amount of lease liabilities increases to take account of the interest on lease liabilities and decreases to consider the payments made. Furthermore, the book value of lease liabilities is recalculated in the event of changes to the lease or as a result of a review of the contractual terms and conditions for the change in payments. It is also recalculated in the presence of changes in evaluation of the purchase option of the underlying asset or due to changes in future payments deriving from a change in the index or the rate used to calculate said payments. Short-term leases and leases on assets of modest value

The Group applies the exemption for recording short-term leases on machinery and equipment (i.e. those with a lease term of twelve months or less from the commencement date and without any purchase option). The Group has also applied the exemption for leases on assets of a modest value in relation to leases on office equipment considered to be of low value. Payments relating to short-term leases and leases on assets of modest value are recorded as costs on a straight-line basis throughout the lease term.

The Group as lessor

Lease agreements that essentially attribute to the Group all the risks and benefits of ownership of the asset are classified as operating leases. Income on operating leases must be recorded on a straight-line basis throughout the lease term. It is recorded under revenues on the income statement, in view of its operating nature. The initial trading costs are added to the carrying amount of the leased asset and stated based on the duration of the agreement on the same basis as income from leasing transactions. Non-budgeted rentals are recognised as revenues in their accrual period.

Business combinations and goodwill

Business combinations are recorded in accounts by using the acquisition method. This method requires the measurement at fair value of assets that can be identified (including intangible assets with definite and indefinite lives that have not been previously recognised), and also identifiable liabilities (including contingent liabilities, excluding future restructuring) of the acquired company.

Business combinations carried out between entities under joint control do not fall within the scope of application of IFRS 3. In the event that the business combination between entities under joint control is without economic substance and represents a mere company reorganisation, the Company applies the "pooling of interest method" in accounting for the business combination, by aggregating assets and liabilities on a line-by-line basis at their carrying amounts.

The acquired goodwill of a business combination is initially measured at cost, which is the surplus in cost of the business combination compared to the portion attributable to the net fair value of assets, liabilities and identifiable contingent liabilities (of the acquired company). If the consideration is lower than the fair value of the net assets of the acquired subsidiary, the difference is recognised on the income statement.

After the initial recognition, goodwill is valued at cost, net of any accumulated impairment.

In order to assess impairment, the goodwill acquired in a business combination is allocated, from the acquisition date, to each cash-generating unit which is expected to benefit from the synergies of the combination, regardless of the fact that other assets or liabilities of the acquired entity are assigned to such units.

If the business combination takes place in several phases, the Company recalculates the fair value of the equity investment previously held and recognises any resulting profit or loss on the income statement.

Goodwill is tested for impairment at least annually and more frequently when circumstances suggest that the recognition value may be subject to impairment.

Impairment of goodwill is determined by measuring the recoverable value of the cash-generating unit (or group of cash-generating units) to which the goodwill refers. If the recoverable amount of the cash-generating unit is lower than the carrying amount of the cash-generating unit to which the goodwill has been allocated, an impairment loss is recognised. If goodwill has been allocated to a cash-generating unit and the entity disposes of the assets of this unit, the goodwill associated with the disposed asset must be included in the book value of the asset when the gain or loss resulting from the disposal is determined. The goodwill associated with the eliminated asset is determined on the basis of the relative values of the disposed asset and of the portion of the cash-generating unit that is retained.

Intangible assets with defined useful life

Intangible assets with defined useful life are recorded in assets at purchase cost, if it is likely that using the asset will generate future economic benefits and if the cost of the asset may be reliably determined.

Intangible assets acquired through business combination transactions are recognised at fair value, defined on the acquisition date, if this value can be reliably determined.

Intangible assets with defined useful lives are amortised on a straight-line basis over the estimated useful life. The useful life is reviewed annually and any changes are adjusted prospectively, when necessary.

The useful life of the main classes of intangible assets are as follows:

	Useful lifetime
Industrial patents and intellectual property rights Original works	5 years
Trademarks (defined useful life)	10 years
Software	5 years
Right of use	5 years

Development costs

Research costs are recorded on the income statement in the year when they are incurred.

Development costs sustained in relation to a specific project are only capitalised when the Group can demonstrate the technical possibility of completing the intangible asset in a manner to make it available for use or for sale, its intention to complete said asset to use it or sell it, the methods through which it will produce probable future economic benefits, the availability of technical, financial or other resources to complete development and its capacity to measure the cost attributable to the asset during its manner in a reliable manner.

During the development period, the asset is reviewed annually to identify any impairment. After initial recording, the development costs are measured at the cost minus any amortisation or accumulated impairment. Amortisation of the asset starts when development is completed and the asset is available for use. The asset is amortised with reference to the period in which it is expected that the related project will produce revenues for the Group. The asset is examined annually to check for impairment during the period when it is not yet in use.

Concessions, licenses, trademarks and similar rights

This item relates to the rights on the S.A.P. management software licenses and the costs sustained, by "Soffass S.p.a.", for the acquisition in 2013 of the Thirst Pockets ^® , Kittensoft ^® , Nouvelle ^® , Trefle ^® , Softis ^® and Sopalin ^® trademarks. The purchase costs of rights are amortised over the useful life of the asset acquired, which is generally five years for rights and an indefinite useful life for trademarks. The impairment test is carried out at least annually, or whenever circumstances suggest that impairment may have occurred.

Impairment of goodwill is determined by measuring the recoverable value of the cash-generating unit (or group of cash-generating units) to which the trademarks refer. If the recoverable amount of the cash-generating unit is lower than the carrying amount of the cash-generating unit to which the trademark has been allocated, an impairment loss is recognised.

Inventories

Inventories are measured at whichever is lower between purchase and/or production cost, determined by using the weighted average cost method, and estimated net realisable value. The net estimated realisable value comprises the estimated sales price after deducting the estimated completion costs and estimated costs for realising the sale. Raw materials and consumables are recorded at purchase cost, including ancillary charges. Products under process, semifinished and finished products are recorded on the basis of directly attributable production costs and a portion of the indirect production costs sustained during the year and reasonably attributable to the products.

The value of inventories is adjusted, when required, through the recording of a special bad debt provision to take slow-moving goods in stock into account.

Trade receivables

Receivables are initially recorded at fair value, which generally corresponds with the nominal value, and then measured at amortised cost, except when the brief duration of the receivable would lead to the effect of applying the amortised cost being considered as irrelevant. They are reduced in the event of impairment. Moreover, they are adjusted to their estimated realisable value by setting aside a specific adjustment provision.

Receivables in a currency other than the functional currency are recorded at the exchange rate on the transaction date and then translated at the year-end exchange rate. The profit or loss resulting from translation is charged to the income statement.

Cash and cash equivalents

Cash and cash equivalents are recorded at nominal value and include cash on hand, i.e., amounts that are available on demand or within a very short time, have been cleared and are free of collection expenses. Amounts in foreign currency are translated at year-end exchange rates.

Provisions for risks and expenses

Provisions for risks and charges are allocated when the Group must fulfil a current obligation (legal or implicit) resulting from a past event, an outflow of resources is likely to fulfil this obligation and it is possible to carry out an accurate estimate of its amount.

If the Group believes that an allocation to provisions for risks and charges will be partially or entirely reimbursed, for example in the event of risks covered by insurance policies, the indemnity is stated separately from the asset if, and only if, it is practically certain. In this case, the cost of any provision is stated net of the amount recognised for the indemnity on the income statement.

If the effect of discounting of the value of money is significant, the allocations are discounted by applying a pre-tax discount rate which reflects, where appropriate, specific risks pertaining to the liabilities. When discounting is carried out, the increase in the allocation due over time is recognised as a financial charge.

The paragraph "Emission trading" provides details on the accounting treatment of the CO ₂ quotas.

Employee severance indemnity reserve and other provisions on personnel Post-employment benefits are divided into defined contribution plans and defined benefit plans, according to their economic nature.

In defined contribution plans, the legal or implicit obligation of the company is limited to the amount of contributions to be paid: therefore, the actuarial risk and the investment risk are borne by the employee.

In defined benefit plans, the obligation of the company consists of granting and ensuring the benefits granted to employees: therefore, the actuarial and investment risks are borne by the company.

The net obligation of the Group resulting from defined benefit plans is calculated separately for each single plan, by estimating the amount of future benefits that the employees have accrued against the activity performed in the current year and in previous years. These benefits are discounted to calculate the present value (the so-called "Projected Unit Credit Method", P.U.C.M.). Actuarial profits and losses are recognised directly on the statement of comprehensive income, as provided for by IAS 19.

The actuarial valuation of liabilities has been assigned to an independent actuary.

The Group has defined benefit plans in Italy, France, Greece, Turkey and Romania.

Financial instruments

A financial instrument is any contract that results in a financial asset for an entity and a financial liability or an instrument representing capital for another entity.

In IFRS 9, the general principle is that an entity must recognise a financial asset or financial liability in its statement of financial position when, and only when, it becomes party to the contractual clauses of the instrument.

Financial assets

The classification of financial assets at the moment of initial recognition depends on the characteristics of the contractual cash flows of the financial assets and the business model the Group uses to manage them. This valuation of the characteristics of the contractual cash flows is indicated as an SPPI test (so-called "solely payments of principal and interest") and is performed at instrument level. However, identical financial instruments can be analysed in a group, since the outcome of the test would not differ from a case where they were evaluated individually and separately.

The Group business model for management of financial assets refers to the manner in which it manages its financial assets to produce cash flows. The company model determines whether the cash flows will derive from the collection of contractual cash flows, from the sale of financial assets or from both. Based on these characteristics, financial assets are classified into four categories:

―	Financial assets at amortised cost (debt instruments);
―	Financial assets at fair value recognised on the statement of comprehensive income with reclassification of accumulated profits and losses (debt instruments);
―	Financial assets at fair value recognised on the statement of comprehensive income without reversal of accumulated profits and losses upon elimination (equity instruments);
―	Financial assets at fair value recognised on the income statement.

At the time of initial recognition, the Group measures a financial asset at its fair value, plus the transaction costs in the case of a financial asset not recognised at fair value on the income statement. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the price of the transaction according to IFRS 15.

Following initial recognition, the Group measures financial assets at amortised cost, at the fair value recognised on the statement of comprehensive income or at the fair value recognised on the income statement.

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following requirements are satisfied:

―	the financial asset is held within the framework of a business model of which the objective is ownership of financial assets for the purpose of collecting the contractual cash flows;
―	the contractual terms and conditions of the financial asset envisage, on specific dates, cash flows represented solely by payments of principal and interest on the amount of capital to be repaid.

Financial assets at amortised cost are then measured using the criterion of effective interest and are subject to impairment. Profits and losses are recorded on the income statement when the asset is eliminated, altered or written up.

The Group's financial assets at amortised cost include trade receivables and guarantee deposits.

Financial assets recognised at fair value on the statement of comprehensive income (debt instruments)

The Group measures assets from debt instruments at the fair value recorded on the income statement if both the following conditions are satisfied:

―	the financial asset is held within the framework of a business model of which the objective is achieved through both the collection of the contractual cash flows and through the sale of financial assets; and
―	the contractual terms of the financial asset envisage, on specific dates, cash flows represented solely by payments of principal and interest calculated on the amount of capital to be repaid.

For assets from debt instruments recognised at fair value on the statement of comprehensive income, gains and losses are recorded on the statement of comprehensive income, with the exception of the changes due to exchange rate differences and impairment, together with write-backs, which are recorded on the income statement. At the moment of the elimination, the cumulative change in the fair value recognised statement of comprehensive income, is reclassified to the income statement; the amounts that are recognised on the income statement are those that would have been recognised if the financial asset had always been measured at amortised cost.

Investments in equity instruments

All equity instruments, including derivatives on these instruments, must be measured according to IFRS 9 at the relative fair value, with recording on the income statement, given that contractual cash flows such as to pass the SPPI test are not considered to exist for them. However, on initial recognition, the Group may irrevocably choose to classify share investments as equity instruments recorded at the fair value stated on the statement of comprehensive income, when they satisfy the definition of equity instruments according to IAS 32 "Financial instruments: Presentation" and are not held for trading. The classification is determined for each individual instrument.

Equity investments in associates and joint ventures, as required by IAS 28, are measured using the equity method and those in other companies at cost since, as investments in consortia, the cost represents the value of the stake in shareholders' equity held.

An associate is a company over which the Group exerts considerable influence. Considerable influence means the power to participate in deciding the financial and operational policies of the investee, without having control or joint control.

A joint venture is a joint control agreement in which the parties who have joint control have rights on the net assets of the agreement. Joint control means contractually shared control of an agreement, that exists only when decisions on important activities require the unanimous consent of all the parties sharing control.

The assessments made to identify considerable influence or joint control are similar to those needed to establish control of subsidiaries.

As required by IAS 28, following application of the equity method, the Company assesses whether it is necessary to recognise impairment of its equity investment in the associated company or joint venture. At each reporting date, the Company determines whether there is unbiased evidence that a shareholding in an associate or joint venture has suffered impairment. In this case, it calculates the amount of the loss as the difference between the recoverable value of the associate or joint venture and its book value on its own balance sheet, recognising said difference on the statement of profit/(loss) for the year, under "portion of the result of associates and joint ventures".

If there are indications that the cost is no longer recoverable, in full or in part, the carrying amount is reduced to the relative recoverable value, according to the provisions of IAS 36. When this loss subsequently no longer exists or decreases, the book value is increased to the new estimate of recoverable value, which cannot exceed the original cost.

Financial assets at fair value recognised on the income statement

In general, IFRS 9 defines the classification at fair value recognised on the income statement as a residual category to be applied to all those financial assets that, based on their contractual characteristics, are not measured at amortised cost or at fair value in the statement of comprehensive income. However, the Group may decide, at the time of initial recognition, to irrevocably designate a financial asset as measured at fair value recognised on the income statement, if this results in the elimination or significant reduction of an accounting mismatch that would otherwise emerge if the losses or profits on the asset were recorded using a different method. Although this decision may be similar in some ways to an accounting policy choice, it is nonetheless noted that the standard does not require it to be applied consistently to all similar transactions. Financial instruments at fair value with changes recorded on the income statement are recognised on the statement of financial position at fair value and the net changes in fair value are recognised on the statement of profit/(loss) for the year.

Derivatives, including separated derivatives, are classified as financial instruments held for trading, unless designated as effective hedging instruments.

The embedded derivative contained in a non-derivative hybrid contract, in a financial liability or a principal non-financial contract, is separated from the main contract and recorded as a separate derivative, if: its economic characteristics and associated risks are not strictly related to those of the principal contract; a separate instrument with the same terms as the embedded derivative would satisfy the definition of derivative; and the hybrid contract is not measured at fair value recognised on the income statement. Embedded derivatives are measured at fair value, with the changes in fair value recognised on the income statement. It should be noted, as pointed out previously, that the Company uses the option granted by IFRS 9 to continue to apply IAS 39 regarding hedge accounting.

Reclassification

A financial asset is only reclassified in the event of a change in the terms of the contract that significantly alters the cash flows otherwise expected or when the Group changes its business model for managing financial assets. The reclassification must be applied prospectively from the date of reclassification, without the need to restate profits, losses and interest already recognised previously.

Cancellation

A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is cancelled (e.g. removed from the Group statement of financial position) in the first place when:

―

the rights to receive cash flows from the asset have expired, or

―

the Group has transferred the right to receive cash flows from the asset to a third party or has accepted the contractual obligation to pay them entirely and immediately and (a) has substantially transferred all risks and benefits deriving from the ownership of the financial asset, or (b) has neither substantially transferred nor retained all the risks and benefits of the asset, but has transferred the control thereof.

In cases in which the Group has transferred the rights to receive cash flows from an asset or has initialled an agreement whereby it retains the contractual rights to receive cash flows from the asset, but accepts a contractual obligation to pay the cash flows to one or more beneficiaries (pass-through), it assesses whether and to what extent it has retained the risks and benefits of possession. If all risks and benefits from ownership of the financial asset are substantially transferred, the Group eliminates the financial asset from its financial statements and recognises any right or obligation created or retained separately as an asset or liability; in the opposite case, the financial asset continues to be maintained on the financial Statements. In the event in which it has neither substantially transferred nor retained all the risks and benefits or has not lost control of the asset, it continues to be recognised in the Group's financial statements to the extent of its continuing involvement in said asset; if control of the financial asset has not been maintained, the Group eliminates the financial asset from its financial statements and recognises any right or obligation created or retained separately as an asset or liability. The transferred asset and the associated liability are measured in a manner to reflect the Group's remaining rights and obligations.

When the remaining involvement of the entity is a guarantee on the transferred asset, involvement is measured on the basis of whichever is lower between the amount of the asset and the maximum amount of the consideration received that the entity might have to repay.

Impairment of financial assets

The Group records a write-down for expected losses (expected credit loss 'ECL') for all financial assets represented by debt instruments not held at fair value recognised on the income statement. More specifically, the impairment provisions apply to all financial assets designated at amortised cost and at fair value on the statement of comprehensive income, while financial assets measured at fair value recognised on the income statement are excluded. Furthermore, the following types of instruments also fall within the scope of application:

―	Loan Commitments not measured at FVTPL;
―	Financial guarantees within the scope of application of IFRS 9;
―	Leasing receivables falling within the scope of application of IFRS 16;
―	Contract assets falling within the scope of application of IFRS 16.

The ECL are based on the difference between contractual cash flows due according to the contract and all cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The cash flows that the

Group expects to receive depend on the probability of a counterparty default event occurring and how much, in that case, is expected to be recovered; the expected cash flows will also therefore include the cash flows deriving from the enforcement of real collateral or other security on the receivable that are an integral part of the contractual terms and conditions.

According to the general approach set forth in the standard, the method of determination of impairment of financial assets is based on the outcome of the monitoring of the creditworthiness of the counterparties. In the case of credit exposure for which there has been no significant increase in the credit risk since initial entry, it is necessary to record losses on receivables that derive from the estimate of any default events that could occur within the following twelve months (12-month ECL). In the case of credit exposure for which there is a significant increase in the credit risk compared with the initial entry, it is necessary to record in full expected losses that relate to the remaining duration of exposure, regardless of when the default event is expected to occur (''Lifetime ECL'').

Financial liabilities

Financial liabilities are classified and measured at amortised cost using the effective interest rate, with the exception of those financial liabilities that, given they do not meet the requirements to be measured at amortised cost, are classified at fair value recognised on the income statement. Financial liabilities held for trading fall into the latter category. The Group can also choose, at the time of initial recognition, to irrevocably designate the financial liabilities at fair value recognised on the income statement, when this makes it possible to provide a more relevant disclosure, given that:

―	it eliminates or significantly reduces an inconsistency in the measurement or recognition (also defined as "an accounting mismatch") that would emerge from the measurement of the assets or liabilities or from the recognition of the profits or losses on a different basis;
―	a group of financial assets or liabilities is managed and measured at fair value in application of a risk management policy or on the basis of an investment strategy and the disclosure on said group is provided internally to the key executives on said basis.

Derivatives with a negative fair value are also classified and measured at fair value recognised on the income statement, except for derivatives held as effective hedging instruments. It should be noted, as pointed out previously, that the Company uses the option granted by IFRS 9 to continue to apply IAS 39 regarding hedge accounting. All financial liabilities are initially recognised at fair value, to which the directly attributable transaction costs are added in the case of loans and payables. The Group's financial liabilities include trade payables and other payables, mortgages and loans, including the current account overdrafts and derivative financial instruments.

Measurement of financial liabilities depends on their classification, as financial liabilities at fair value on the income statement and loans and financing.

Financial liabilities at fair value recorded on the income statement

Financial liabilities at fair value recorded on the income statement include liabilities held for trading and financial liabilities initially recognised at fair value, with changes recorded on the income statement.

Liabilities held for trading are all those assumed with the intention of extinguishing them or transferring them in the shortterm. This category also includes derivative financial instruments subscribed by the Group that are not designated as hedging instruments in a hedging relationship defined by IFRS 9. Embedded derivatives, separated from the principal contract, are classified as financial instruments held for trading, unless they are designated as effective hedging instruments. It should be noted, as pointed out previously, that the Company uses the option granted by IFRS 9 to continue to apply IAS 39 regarding hedge accounting.

Gains or losses on financial liabilities held for trading are recorded on the statement of profit/(loss) for the year.

Financial liabilities are designated at fair value with changes recorded on the income statement on the date of first-time recognition, only if the IFRS 9 criteria are satisfied. At the moment of initial recognition, the Group did not designate financial liabilities at fair value with changes recognised on the income statement.

Loans and financing

After the initial recognition, these loans are measured using the amortised cost criterion, through the effective interest rate method. Profits and losses are recorded on the income statement when the liability is extinct, as well as through the amortisation process. The amortised cost is calculated by recording the discount or the premium on acquisition and the fees or costs that form an integral part of the effective interest rate. Amortisation at the effective interest rate is included under financial expenses on the table of profit/(loss).

Financial liabilities cannot be reclassified.

Cancellation

A financial liability is cancelled when the underlying obligation is extinguished, cancelled or fulfilled. If an existing financial liability is replaced by another with the same lender, at substantially different conditions, or if the conditions applied to an existing liability are substantially changed, this exchange or change is treated as an accounting derecognition of the original liability and recognition of a new liability, with recognition on the statement of profit /(loss) for the year of any differences in the book value.

Offsetting of financial instruments

A financial asset and a financial liability can be offset and the net balance stated on the statement of financial position if a current legal right exists to offset the amounts entered into accounts and it is intended to extinguish the net remainder, or to realise the asset and simultaneously extinguish the liability.

Measurement of fair value of financial instruments

Derivatives are measured at market value (so-called fair value). The fair value of financial instruments is determined based on prices directly observable on the market, whenever available, or, for unlisted financial instruments, by using special models and valuation techniques (mainly based on the present value) that are generally accepted by market practices which maximise inputs observable on the market.

In accordance with IFRS 13, the Group includes the measurement of the credit risk, both of the counterparty (Credit Valuation Adjustment, or CVA) and its own measurement (Debit Valuation Adjustment, or DVA) in order to carry out the adjustment on the fair value of financial derivatives for the corresponding measurement of the counterparty risk.

Fair value measurement

The Group applies IFRS 13 for all measurements at fair value and the related disclosure, as required or permitted by international accounting standards.

Fair value is defined as the price that would be received for the sale of an asset or that would be paid to transfer a liability in a normal transaction between market operators at the valuation date.

The fair value measurement assumes that the sale of assets, or the transfer of liabilities, is taking place on the main market, i.e. on the market with the highest volume and level of transactions of the asset or liability. In the absence of a main market, the transaction is assumed to take place on the most advantageous market to which the entity has access.

The fair value of an asset or liability is measured by adopting assumptions that market operators would use in determining the price of the asset or liability, while assuming that they act according to their best economic interest.

In measuring the fair value of assets and liabilities, the Group uses measurement methods and models that are appropriate to the situation, and for which sufficient data to measure fair value is available, while maximising the use of relevant inputs observable on the market and limiting the use of non-observable inputs.

Derivative financial instruments

A derivative is a financial instrument or other contract:

―	the value of which changes when there is a change an underlying parameter, such as interest rate, price of a security or a good, foreign exchange rate, price or rate index, rating of a receivable or other variable factor;
―	that requires an initial net investment equal to zero, or lower amount than for other types of contracts that would be expected to have a similar response to changes in market factors;
―	which is settled at a future date.

Derivatives are classified as financial assets or liabilities, according to the positive or negative fair value, and are measured at fair value recognised on the income statement, except for derivatives designated as effective hedging instruments.

Hedge Accounting

Derivative contracts are initially measured at fair value at the negotiation date of the contract and subsequently measured again at their fair value.

The method of recognition of profits and losses on a derivative depends on its designation as a hedging instrument and, on the element being hedged.

Hedge accounting is applied to derivative contracts signed in order to reduce risks (e.g. interest rate, exchange rate, etc.), when the criteria envisaged by IAS 39 are fulfilled.

At inception of the transaction, the Group supplies documentation on the ratio between hedging instruments and hedged elements, as per its strategy and risk management targets. Moreover, at inception and then systematically, the Group reports its measurement on whether the hedging instruments are highly effective to offset changes in fair value and in cash flows related to hedged elements.

According to the nature of risks to which it is exposed, the Group chooses derivatives as hedging instruments in one of the following hedging relationships:

―	fair value hedge, or
―	cash flow hedge.

For further details on the type and extent of the risks resulting from financial instruments to which the Group is exposed, refer to the special section of this document on financial risks.

Fair value hedges

A fair value hedge is used by the Group to hedge exposure to the risk of a change in fair value of assets, liabilities or irrevocable commitments, which are attributable to a specific risk and might impact the income statement.

Changes in fair value of derivatives that are classified and designated as hedging instruments are recognised on the income statement, consistently with changes in fair value of the hedged element that are attributable to the hedged risk. If the hedging no longer meets the hedge accounting application criteria, adjustment of the book value of the hedged element, for which the effective interest rate method is used, is amortised on the income statement over the residual useful life of the hedged element.

Cash flow hedges

The Group uses cash flow hedging to mitigate the exposures to the risk of changes in expected cash flows associated with an asset, a liability or a highly probable transaction that will affect the income statement. These changes are attributable to a specific risk and could impact the income statement.

The Group applies the cash flow hedge accounting regime, for example, with reference to exposure to the interest rate risk resulting from loans at variable rate or with reference to exposure to the exchange rate risk resulting from purchase orders of raw materials in foreign currency.

The effective portion of changes in the fair value of derivatives, which are designated and classified in a cash flow hedge regime, is recognised in shareholders' equity under a special reserve (Cash Flow Hedge Reserve). The profit or loss associated with the ineffective portion is immediately recognised on the income statement.

The amounts recognised in shareholders' equity are charged to income statement in the period in which the hedged element economically impacts the income statement (e.g. when the hedged future purchase transaction occurs).

Upon maturity of the hedging instrument, or upon its sale, or when the hedging no longer satisfies the criteria for application of hedge accounting, the accumulated profits and losses recognised in shareholders' equity up to that moment are still recognised in shareholders' equity and will be recognised on the income statement when the future transaction is definitively recognised on the income statement.

When a planned transaction is no longer considered probable, the profits or losses recorded in shareholders' equity are immediately charged to the income statement.

Revenues from contracts with customers

The revenues from contracts with customers are recognised when control of the goods and services is transferred to the customer for an amount that reflects the consideration that the Group expects to receive in exchange for said goods and services. Revenues from contracts with customers are therefore recorded net of promotional costs, consideration to be paid to the customer and penalties.

The Group considers whether there are other promises in the contract that constitute performance obligations to which part of the transaction must be allocated (such as warranties). In establishing the price of the sale transaction of the equipment or asset, the Group considers the effects of the presence of a variable consideration, significant loan components and non-monetary consideration.

Costs

Costs are recognised when they relate to goods and services sold or consumed in the financial year or by systematic allocation or when their future utility cannot be determined.

Costs are recorded according to their nature, considering the applicable standards of the IFRS.

Public grants

Public grants are recognised when there is a reasonable certainty that they will be received and that all the conditions referring to them are fulfilled.

When the grants are related to cost components (contributions to the capital account), they are recognised as revenues in the periods, in order to ensure they are commensurate to the costs they are intended to compensate.

If the grant is connected with an asset (contributions to the capital account), the asset and the relative deferred revenue for contributions to the capital account are recorded separately under assets and liabilities, at their nominal values and charging to the income statement takes place gradually over the expected useful life of the asset, on a straight-line basis.

Emission trading

For recording in accounts of the expenses deriving from regulatory obligations on C02 emissions quotas, the Group applies the so-called "net liability approach". According to this accounting treatment, the environmental certificates received free of charge, and intended to ensure compliance, are recorded at nominal value (zero). Furthermore, the expenses sustained to purchase on the market (or obtain for a valuable consideration) the missing certificates needed to satisfy the obligation are charged to the income statement, on an accruals basis, under other operating costs. The "Emission trading risks reserve" is set aside against emissions of "CO ₂ " that are higher than the quotas assigned by the Ministry. In contrast, grants for production of energy from renewable sources (the so-called green/yellow certificates) are recognised as intangible assets, measured at fair value, and as other revenue on the income statement when the energy is produced.

Financial income and expenses

Financial income and expenses are recognised on an accruals basis, according to interest accrued on the net value of the corresponding financial assets and liabilities, using the effective interest rate.

Dividends

Income from dividends is recognised when shareholders are eligible to receive payment, which is made upon approval of distribution by the shareholders' meeting.

Income taxes

Current taxes

Taxes reflect a realistic estimate of the tax burden, determined by applying the regulations in force in the countries where the Group operates; payables for current taxes are recorded on the statement of financial position, net of any prepaid taxes.

Deferred taxes

Deferred taxes are calculated on the temporary differences at the reporting date between the tax values for assets and liabilities used as a reference and the values reported on the financial statements.

Deferred tax liabilities are recorded against all taxable temporary differences, except in the following cases:

when the deferred tax liabilities derive from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, does not impact either the profit for the period, calculated for reporting purposes, or the profit or the loss calculated for tax purposes;

with reference to the temporary taxable differences associated with investments held in subsidiaries, associates and joint ventures, if the reversal of the temporary differences can be controlled and if its future occurrence is unlikely.

Deferred tax assets are recognised against all deductible temporary differences and for the tax assets and liabilities carried forward, to the extent that the existence of adequate future taxable profits is likely and may involve the use of deductible temporary differences as well as tax assets and liabilities carried forward, except when:

―	the deferred tax asset associated with the deductible temporary differences derives from the initial recognition of an asset or a liability in a transaction that is not a business combination and that, at the time of the transaction, does not impact either the profit for the period, calculated for reporting purposes, or the profit or loss calculated for tax purposes;
―	with reference to temporary taxable differences associated with equity investments in subsidiaries, associates and joint ventures, the deferred tax assets are recognised only to the extent that it is likely that the temporary differences will reverse in the near future and that there are adequate taxable profits against which the related temporary differences can be used.

The amount to be recognised in the financial statements for deferred tax assets is reassessed at each financial statement date and reduced to an extent by which it is no longer likely that sufficient taxable profits will be available in the future so as to enable the full or partial use of this receivable. Non-recognised deferred tax assets are periodically reassessed on an annual basis at the close of the financial statements, and are recognised to the extent that it is likely that the taxable profit is sufficient to enable these deferred taxes assets to be recovered.

Deferred tax assets and liabilities are measured based on tax rates that are expected to be applied to the period when the receivables are realised or the liabilities are settled, based on the current rate or the rates and those issued or essentially issued at the reporting date.

Deferred tax assets have been reclassified separately with respect to deferred tax liabilities if the conditions envisaged by IAS 12 are not satisfied.

Income taxes relating to items that are directly recognised under shareholders' equity are also directly recognised under shareholders' equity and not on the income statement.

Value added tax

Revenues, costs and assets are recognised net of VAT, except when this tax applied on the purchase of goods or services is non-deductible, in which case it is recorded as part of the purchase cost of the asset or part of the cost item recorded on the income statement.

The net amount of indirect taxes on sales which can be recovered from or paid to the Italian Revenue Agency is included on the financial statements under other current assets or liabilities, depending on whether it is a positive or negative balance.

BUSINESS COMBINATION

Business combinations and acquisition of minority interests

There were no new acquisitions of companies or company units during the year.

COMMENTS ON THE MAIN ENTRIES ON THE CONSOLIDATED BALANCE SHEET

Note (1): Property, plant and equipment

Changes in the historical cost, the accumulated depreciation and the net book value of "Property, plant and equipment" as at 31 December 2020 and as at 31 December 2019, are shown in the table below:

Changes in the historical cost	Land and buildings	Plant and machinery	Industrial and commercial equipment	Other assets	Assets under construction and advances	Total
Balance at 31/12/2019	1,090,347	1,924,694	31,080	65,075	297,658	3,408,854
Reclassifications	129,695	154,496	1,346	3,059	(285,301)	3,295
Increases	5,626	57,039	378	5,876	28,780	97,699
Translation differences	(53,432)	(71,975)	(204)	(1,732)	(4,976)	(132,319)
Decreases	(1,802)	(3,316)	(219)	(1,403)	(593)	(7,334)
Other changes	(11)	(23)	9	9	(3)	(19)
Reclass. under assets held for sale	1,666	0	0	0	0	1,666
Balance at 31/12/2020	1,172,089	2,060,915	32,390	70,884	35,565	3,371,842

Depreciation and impairment	Land and buildings	Plant and machinery	Industrial and commercial equipment	Other assets	Assets under construction and advances	Total
Balance at 31/12/2019	(365,666)	(997,624)	(22,627)	(50,397)	0	(1,436,314)
Depreciation for the year	(43,756)	(94,561)	(2,364)	(5,969)	0	(146,650)
Write-downs	0	0	0	0	0	0
Disposals	707	3,201	212	1,345	0	5,465
Translation difference	7,486	20,884	173	953	0	29,497
Reclassifications	(0)	(0)	(12)	(1)	0	(13)
Other changes	11	6	(3)	0	0	15
Reclass. under assets held for sale	(798)	0	0	0	0	(798)
Balance at 31/12/2020	(402,016)	(1,068,094)	(24,620)	(54,067)	0	(1,548,798)

Net book value	Land and buildings	Plant and machinery	Industrial and commercial equipment	Other assets	Assets under construction and advances	Total
Balance at 31/12/2019	724,681	927,070	8,453	14,678	297,658	1,972,540
Historical cost	1,172,089	2,060,915	32,390	70,884	35,565	3,371,842
Accumulated depreciation	(402,016)	(1,068,094)	(24,620)	(54,067)	-	(1,548,796)
Balance at 31/12/2020	770,074	992,821	7,770	16,817	35,565	1,823,047

The item "reclassifications" also contains the transfers from inventories to fixed assets due to capitalisation of stocks of spare parts.

Investments during the year related for around 60% to Sofidel America and the remainder to other Group companies. In detail:

―

at Circleville, in Ohio (USA), construction of the integrated plant was completed in 2019; it has two paper-making machines and various converting machines for conversion of reels into finished products. The paper-making and converting plants were completed in early 2020.

―

At Inola, in Oklahoma (USA), the company had started construction of a new "greenfield" investment for an integrated plant (paper-making and converting) in 2018. The investment relates to the installation of two papermaking machines, with a total production capacity of 120,000 tons per year, and various converting lines. A large part of the buildings and infrastructures were completed in 2020 and thirteen converting lines also entered into operation. The first paper-making machine entered into operation on 22 January 2020 and the second machine was completed in July 2020.

Generally speaking, all the other investments related to continuous improvement of all production processes, in line with the group consolidation and growth strategies.

In detail:

―	land and buildings are industrial property complexes owned by the various Group companies, excluding those held as investments, which are reclassified as "investment properties";
―	plant and machinery are generic and specific plant, with the latter referring to the tissue reel production lines and the converting lines used to transform them into finished products;
―	industrial and commercial equipment are mainly the various supporting equipment of the production plants;
―	other assets consist primarily of electronic machines, motor vehicles and internal means of transport, furniture and furnishings, located at Group companies that perform production and/or converting activities;
―	fixed assets in progress and payments on account refer mainly to investments being carried out.

The "land" item includes the foundations of the plants and the land on which they are built.

Financial expenses that are directly attributable to the acquisition, construction or production of an asset that justifies capitalisation have been capitalised as part of the cost of that asset. Financial expenses represent the interest charges and other expenses sustained by the firm t obtain loans.

Further details are provided in the financial income and expenses section of this document.

In past years, the Group has benefited from national public grants on tangible assets.

Property, plant and equipment are recorded at purchase value and the value of the grant is rediscounted on deferred revenues for contributions to the capital account, the balance of which was Euro 20,035 at 31 December.

The part attributable to the year was subsequently charged to the income statement on a straight-line basis over the expected useful life of the asset concerned.

As envisaged by the analysis procedure of impairment indicators adopted by the Group, the presence of impairment indicators, which might be traceable through internal and external information sources, was evaluated at year's end.

Typical external sources might consist of changes in the technological, economic and legal context in which the Group operates, while internal sources consist of corporate strategies that may or may not change the intended use of assets.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

Assets held for sale

At 31 December 2019, "Assets held for sale", totalling Euro 869 thousand, was formed exclusively of the land and buildings owned by the company in liquidation Tasfye Hlinde Sofidel Turkey Kagit Sanayi ve Ticaret Anonim Sirketi, which were subsequently sold in 2020, obtaining a significant gain, as described in the notes on other revenues.

Note (2): Investment property

Changes in the historical cost, the accumulated depreciation and the net book value of "Investment property" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	Balance at 31/12/2019	Changes in the historical cost -2020	Depreciation - 2020	Balance at 31/12/2020
Historical cost Depreciation and impairment	11,813			11,813
	(4,993)		(209)	(5,202)
Net book value	6,820		(209)	6,611

The fair value of the individual properties included in this item is well above the net book value.

The rental income produced by the individual properties totalled Euro 739.

As envisaged by the analysis procedure of impairment indicators adopted by the Group, the presence of impairment indicators, which might be traceable through internal and external information sources, was evaluated at year's end.

Typical external sources might consist of changes in the technological, economic and legal context in which the Group operates, while internal sources consist of corporate strategies that may or may not change the intended use of assets.

No impairment indicators emerged from the analysis performed on this balance-sheet item.

Note (3): Goodwill

Changes in the historical cost, the accumulated amortisation and the net book value of "Goodwill" as at 31 December 2020 and as at 31 December 2019 are shown in the table below.

Changes in the historical cost

Balance at 31/12/2019	91,080
Increases	-
Decreases	-
Translation difference	(7,508)
Balance at 31/12/2020	83,571
Depreciation and impairment
Balance at 31/12/2019	(7,538)
Translation difference	684
Balance at 31/12/2020	(6,854)

Net book value

Historical cost	91,080
Accumulated amortisation	(7,538)
Balance at 31/12/2019	83,541
Historical cost	83,571
Accumulated amortisation	(6,854)
Balance at 31/12/2020	76,717

Reference is made to note (4), and the paragraph "Impairment test on goodwill and trademarks with indefinite useful life" for the content of this item.

Goodwill and other assets with an indefinite useful life recorded on the balance sheet are subjected to an annual impairment test.

Note (4): Trademarks and other intangible assets

Changes in the historical cost, the accumulated amortisation and the net book value of "Trademarks and other intangible assets" as at 31 December 2020 and as at 31 December 2019, are shown in the table below.

Changes in the historical cost	Licences, trademarks and similar rights	Assets under construction	Other Intangible assets	Customer list	Total
Balance at 31/12/2019	70,193	244	1,153	6,556	78,146
Reclassifications	117	(117)	0	0	0
Increases	1,739	145	0	0	1,883
Translation difference	(644)	0	(77)	(112)	(832)
Decreases	(277)	(23)	0	0	(300)
Other changes	17	0	0	0	17
Balance at 31/12/2020	71,145	248	1,077	6,445	78,915

Amortisation and impairment	Licences, trademarks and similar rights	Assets under construction	Other Intangible assets	Customer list	Total
Balance at 31/12/2019	(25,212)	-	(1,120)	(5,936)	(32,268)
Amortisation for the year	(1,840)	-	(172)	0	(2,012)
Disposals	253	-	0	0	253
Translation difference	39	-	161	10	211
Other changes	(8)	-	54	(56)	(11)
Balance at 31/12/2020	(26,769)	-	(1,077)	(5,983)	(33,828)

Net book value	Licences, trademarks and similar rights	Assets under construction	Other Intangible assets	Customer list	Total
Historical cost	71,145	248	1,077	6,445	78,915
Accumulated depreciation	(26,769)		(1,077)	(5,983)	(33,828)
Balance at 31/12/2020	44,376	248	0	462	45,087

The item "Licenses, trademarks and similar rights" is formed almost entirely of the costs sustained for purchase of trademarks with an indefinite useful life and those relating to purchase of software licenses and for purchase and/or registration of patents.

The item "Other intangible assets" is formed mainly of customer lists acquired over the years.

Impairment test on goodwill and trademarks with indefinite useful life

The book values at the reporting date of the items recorded on the balance sheet and their allocation to specific Cash Generating Units ('CGU') are listed below:

	31/12/2020	31/12/2019
CGU United Kingdom goodwill and trademarks	5,171	5,489
CGU America goodwill and trademarks	75,048	81,984
CGU Hungary goodwill and trademarks	1,109	1,200
CGU Italy trademarks	33,203	33,188
CGU Poland trademarks	1,848	1,983

As required by IAS 36, the Group must check whether impairment of intangible assets with indefinite useful life has occurred.

In particular, the recoverability of the residual value of "Goodwill" and "Trademarks" was assessed to ensure that they were not recorded on the financial statements at a higher value than the recoverable one.

In application of the method envisaged by IAS 36 ("Discounted Cash Flow Estimate", or D.C.F.), the criterion to determine the recoverable amount is based on the discounting of future cash flows of the CGUs under evaluation, with respect to a specific period, as well as on the discounting of a continuous cash flow ("Terminal Value").

The Terminal Value is the current value of all cash flows expected after the specific projection period, and it is determined with the perpetuity growth method, by using a long-term growth rate ("g").

The Discounted cash-flow analysis is based on cash flows resulting from plans approved by the Board of Directors of the parent company, "Sofidel S.p.a.".

These plans reflect the expectations of management on performance of the reference market. They represent the best estimate available on economic conditions expected over the period of the plan, which is generally five to seven years. A ten-year plan was used for the CGU America, as it reflects in full the effects of development planned by the management and the high investments made over recent years that will only produce incoming cash flows from 2021.

The individual CGU are examined separately below.

Goodwill of the CGU United Kingdom

The goodwill of the CGU United Kingdom derives from two acquisitions during 2013.

The goodwill that emerged from said business combinations was allocated to the corresponding "CGU United Kingdom". This allocation derives from the fact that this goodwill was paid in both cases to obtain benefits in terms of better margins on the finished products, after the synergies between the paper-making and the converting divisions in the UK area in general had been improved, as the two companies are closely interlinked.

The main assumptions used to calculate the recoverable value are shown below:

	31/12/2020	31/12/2019
Growth rate g	0.38%	0.38%
WACC	4.27%	5.30%

No impairment emerged from the impairment test.

The CGU United Kingdom satisfies the requirements of IAS 36, which allows use of calculation of the most recent recoverable value of the CGU to which the trademarks or goodwill have been allocated. The performance of an impairment test was considered on the basis of this analysis and no impairment emerged from it.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

CGU America goodwill and trademarks

The goodwill present in the CGU America derives from acquisitions during 2012 and 2015. In detail, Sofidel America merged the previously acquired company "Celline Corp." in 2012, with goodwill totalling USD 65,826 (equal to Euro 52,197 at 1 September 2012); during 2015 it acquired a business unit (G.B.C.) that resulted in goodwill measured as USD 34,391 (equal to Euro 32,626 at 31 December 2017), through a Purchase Price Allocation drafted on 15 December 2017.

The main assumptions used to calculate the recoverable value are shown below:

	31/12/2020	31/12/2019
Growth rate g	1.70%	2.16%
WACC	5.18%	6.14%

No impairment emerged from the impairment test.

The sensitivity analysis performed on the recoverable value of the CGU at 31 December 2020, on a change in the WACC, confirmed that the recoverable value remains higher than the book value; in particular, the conditions for an "impairment loss" would be satisfied with a WACC higher than 7.11% or, alternatively, with a reduction of the Ebit of 38.84% for the entire period of the plan.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

CGU Italy trademarks

The "Softis" ^® , "Le Trefle" ^® , "Sopalin" ^® , "Thirst Pockets" ^® , "KittenSoft" ^® and "Nouvelle" ^® trademarks, purchased externally, are allocated to the CGU Italy, as it is considered to be the smallest CGU that produces independent cash flows.

The main assumptions used to calculate the recoverable value are shown below:

	31/12/2020	31/12/2019
Growth rate g	1.25%	0.78%
WACC	5.18%	5.73%

No impairment emerged from the impairment test.

The sensitivity analysis performed on the recoverable value of the CGU at 31 December 2020, on a change in the WACC, confirmed that the recoverable value remains higher than the book value; in particular, the conditions for an "impairment loss" would be satisfied with a WACC higher than 11.56% or, alternatively, with a reduction of the Ebit of 62.67% for the entire period of the plan.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

CGU Poland trademarks

The "Soft&Easy" ^® trademark, purchased externally, is allocated to the "CGU Poland", as it is considered to be the smallest CGU that produces independent cash flows.

The main assumptions used to calculate the recoverable value are shown below:

	31/12/2020	31/12/2019
Growth rate g	1.49%	1.49%
WACC	5.03%	6.54%

No impairment emerged from the impairment test.

The CGU Poland satisfies the requirements of IAS 36, which allows use of calculation of the most recent recoverable value of the CGU to which the trademarks or goodwill have been allocated. The performance of an impairment test was considered on the basis of this analysis and no impairment emerged from it.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

CGU Hungary goodwill and trademarks

The goodwill present in the CGU Hungary derives from acquisitions during 2017. In detail, on 4 March 2017, Sofidel Hungary completed purchase of a business unit through a single operation performed with two Hungarian companies.

The business unit is formed of machinery, inventories, business relations, trademarks and other intellectual property (owned by "Forest Papir Kft") and an industrial property located in Piszke (owned by the company "Start 2006 Kft"), as well as the personnel operating at the production sites and all the permits for performance of production activity.

The acquisition resulted in goodwill of HUF 163,696 (equal to Euro 529 at 31 December 2017).

The main assumptions used in calculating the recoverable value are shown below:

	31/12/2020	31/12/2019
Growth rate g	2.50%	0.74%
WACC	6.79%	6.72%

The sensitivity analysis performed on the recoverable value of the CGU at 31 December 2020, on a change in the WACC, confirmed that the recoverable value remains higher than the book value over a significantly broad range; in particular, the conditions for an "impairment loss" would be satisfied with a WACC higher than 7.87% or, alternatively, with a reduction of the Ebit of 23.30% for the entire period of the plan.

The directors have concluded that any reasonable change in the other key hypotheses would not result in the book value being higher than the recoverable value.

Note (5): Right of use through leasing

The balances of and changes in "Right of use through leasing" as at 31 December 2020 and 31 December 2019 are shown in the table below:

	Terreni e fabbricati	Veicoli	Attrezzature e altri	Totale
Saldo al 31/12/2019	33.229	1.678	6.076	40.983
Incrementi	4.325	1.817	3.329	9.471
Ammortamenti	(6.865)	(1.208)	(2.109)	(10.155)
Altri movimenti	(408)	(21)	(75)	(503)
Differenze traduzione	(2.168)	(109)	(396)	(2.647)
Saldo al 31/12/2020	28.113	2.157	6.852	37.121

The increases relate to new lease agreements signed during 2020

Note (6): Equity investments

The balances of "Equity investments" as at 31 December 2020 and as at 31 December 2019, are shown in the table below:

	31/12/2020	31/12/2019
Equity investments in associates and joint ventures	-	-
In other ventures	1,848	1,808
Total	1,848	1,808

For affiliates/joint ventures, there was write-down of Euro 126 in the value of Experteasy srl, as a result of operating losses that resulted in the company being placed in liquidation and then closed in December 2020.

Equity investments in "other enterprises" refer to the investments in consortia/local companies. However, disclosure is not significant for the purpose of this document.

Note (7): Other non-current financial assets

The balances of "other non-current financial assets" as at 31 December 2020 and as at 31 December 2019, are shown in the table below:

	31/12/2020	31/12/2019
Guarantee deposits after 12 months	9,038	2,240
Other financial receivables after 12 months	741	741
Other securities and non-current assets	0	0
Total	9,779	2,981

The guarantee deposits relate to payments to various companies for long-term contracts, such as utilities and similar.

The increase during the year is due primarily to a deposit paid by Sofidel America as security on a legal dispute with a supplier of installations at the greenfield plant in Inola.

Note (8): Deferred tax assets

The balances of "deferred tax assets" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Sofidel America Corp.	93,842	86,460
Sofidel Spain S.L.	10,195	10,649
Soffass S.p.a.	8,307	7,945
Sofidel Poland	411	522
Other individual companies	424	3,638
Total	113,179	109,213

The recognition on the financial statements of deferred taxes was duly adjusted to take account of their estimated possibility of realisation and reflect two situations:

―

tax credit relating to tax losses. The losses on which prepaid taxes have been set aside derive from clearly determined and identified circumstances and are reasonably recoverable according to current tax laws in the countries where the companies that produced them are located, as demonstrated by the multi-year economic plans drafted and periodically reviewed. The various tax plans prepared on the basis of the future profits established in the business plans also used for the impairment test have demonstrated recoverability over a period of at least ten years.

―

the net tax effect of the temporary differences between the value on the balance sheet and the tax base of the assets and liabilities and relating in part to the differences in statutory accounting-fiscal value (mainly due to the differences on amortisation).

Examining the individual companies specifically, it basically emerges that:

―	deferred tax assets relating to the subsidiary Sofidel America Corp., totalling USD 93.8 mln are partly ensured by future taxable profits due to reversal of the temporary differences on amortisation. These losses can be used within a time-limit of twenty years for those arising up to 31.12.17 and without limits for those arising subsequently;
―	for Sofidel Spain, these are tax losses of the 2019 and 2020 financial years, with which the tax credit received in the form of a grant deriving from the huge production investment made in 2019 must be summed, in addition to those already entered into accounts in past years on previous production investments;
―	for Soffass S.p.a., these are normal prior differences between the balance sheet value and the taxable base;
―	for the part relating to the individual companies, this is use of prior losses relating to sofidel france and werra

Papier (now called Sofidel Germany), which were used in their entirety in 2020.

Note (9): Inventories

The balances of "inventories" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Raw materials, auxiliaries and consumables	207,995	190,632
Finished products and goods	184,544	244,153
Payments on account	0	0
Total	392,539	434,785

Since these are fungible goods, the purchase cost of raw materials, subsidiaries, consumables and maintenance, and the production cost of finished products, have been calculated adopting the "Weighted Average Cost" method, excluding cellulose batches still en route at the end of the year and canvases and felts, for which the relative specific costs have been used for calculation.

The increase in the values of inventories relates primarily to an increase in the stock of physical quantities, concurrently with the various production start-ups in the United States during the year, partially offset by an average purchase cost that is lower than the one for the previous year.

The high sales of semi-finished and finished products significantly reduced both average and year-end stocks compared with the previous year.

Specific provisions have been set aside for adjustment of the values of inventories to the (lower) market value, present in certain companies, the individual and total amount of which is, in any case, not significant.

Note (10): Trade receivables

The balances of "Trade receivables" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Trade receivables	114,855	77,700
Bad debt reserve	(2,129)	(2,921)
Total	112,727	74,779

The breakdown of receivables from customers as at 31 December 2020 by the main geographic areas is shown below.

	31/12/2020	%
USA	33,119	29.4%
Poland	21,166	18.8%
Italy	19,053	16.9%
Spain	7,523	6.7%
Others of an insignificant unit value	34,004	28.3 %
Total	114,855

For non-performing receivables of doubtful recoverability, a specific provision for doubtful accounts has been set aside totalling Euro 2,129, which is considered sufficient to covered doubtful accounts known at the reporting date.

Changes in the bad debt provisions are shown below:

Opening balance of the provision for doubtful accounts	2,921
Increases	87
Decreases	(857)
Exchange differences	(22)
Closing balance of the provision for doubtful accounts	2,129

The provision in question has been calculated on the part of trade receivables not covered by insurance, grouping together customers based principally on the Grade assigned to them by insurance companies, which represents the probability of default of a company in the short term, assigning a percentage provision to each category.

There are no significant receivables in a currency other than the national currency for the individual consolidated companies that are not subject to exchange rate hedging.

Note (11): Other current assets

The balances of "Other current assets" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Advances to suppliers	970	18,300
Accrued income and prepaid expenses	5,051	5,038
VAT credit	5,749	3,147
Expenditure funds	151	216
Others of an insignificant unit value	8,152	8,187
Total	20,073	34,887

The decrease is due substantially to closure of advances to suppliers in the first six months of the year.

Note (12): Tax receivables

The balances of "Tax credit" as at 31 December 2020 and as at 31 December 2019 relate to credit for current income tax

	31/12/2020	31/12/2019
Sofidel S.p.a.	7,228	9,255
Sofidel France S.a.s.	-	3,234
Other companies	747	2,643
Total	7,975	15,132

The higher amount relates to Sofidel S.p.a and refers mainly to the residual WHT at the end of the year, advances on direct taxes paid during the year and tax credit due to reimbursements of taxes paid in previous years.

Note (13): Current financial assets

The balances of "Current financial assets" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Financial assets on derivatives	17,318	6,769
Other short-term financial receivables	159	1
Total	17,477	6,770

The item "financial assets on derivatives" indicates the measurement at fair value at year's end of derivatives that were in place and stipulated by the Group for the management of the exchange rate risk.

Note (14): Cash and cash equivalents

The balances of "Cash and cash equivalents" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Bank and post office accounts	81,066	32,559
Cash and other cash equivalents in hand	111	121
Total	81,177	32,680

There are no significant funds in foreign currency other than the accounting currency of the individual subsidiaries.

The changes with respect to the previous year are related to other changes in working capital.

The significant different compared with the previous year reflects the good operating cash flow due to the excellent results obtained. The high level of liquidity was, however, reduced in the subsequent weeks and absorbed by the lower use of current bank liabilities within twelve months.

Note (15): Shareholders' equity
Share capital

The share capital of the parent company, "Sofidel S.p.a.", amounts to Euro 33,000 and is fully paid-up. It is represented by 6,600,000 shares with a nominal value of Euro 5 each.

Share premium reserve

The share premium reserve, equal to Euro 1,500, relates entirely to the parent company.

Legal reserve

The legal reserve, equal to Euro 7,159, was set up in previous years and relates entirely to the parent company. Italian law requires 5% of the net profit for the year to be allocated to the legal reserve, until this reserve reaches 20% of the share capital. The amount up to Euro 6,600 is not distributable.

Other reserves

The details of "other reserves" are provided below.

	31/12/2020	31/12/2019
Extraordinary reserve	305,567	229,463
Profits (losses) carried forward	259,497	310,113
Other reserves	145,739	128,789
Revaluation reserves	18,251	18,251
Reg. Grant under Italian Law 10/91, Art. 111	936	936
Cash Flow Hedge Reserve - IFRS	786	(269)
Unrealised foreign exchange gains reserve	478	478
Reg. Grant under Italian Law no. 10/91	28	28
(46/89)
6% fund, pursuant to Art. 15 of Italian Law no. 130/83	10	10
Reg. Grant EEC 2088	4	4
Actuarial reserve - IAS 19	(3,452)	(2,938)
FTA IFRS reserve	(12,107)	(12,076)
Translation difference	(55,785)	(7,280)
Total	659,951	665,509

Translation difference

The translation difference of Euro (55,785) reflects the change in value of the Group portion of shareholders' equity of the consolidated companies, due to changes in the exchange rates of the functional currencies of this companies with respect to the currency in which the consolidated financial statements are presented. The change is mainly the result of the change in the exchange rate of the US Dollar, the UK Sterling and other currencies secondarily.

The amounts are net of tax effects, where applicable. The change for the year is recorded on the statement of comprehensive income of Euro (48,504).

Actuarial reserve - IAS 19

The actuarial reserve according to IAS 19 of Euro (3,452) is determined in measurement of actuarial gains and losses charged to shareholders' equity, as set forth in IAS 19, and is reported net of the tax effect. The change for the year is recorded on the statement of comprehensive income of Euro (515).

This measurement was assigned to an independent actuary.

Cash Flow Hedge Reserve - IFRS

The cash flow hedge reserve, amounting to Euro 786, is determined by measuring financial instruments defined as cash flow hedges as at 31 December 2020, for the hedging of exchange rate and interest rate risks, and it is recorded net of the tax impact.

The other changes in the components of shareholders' equity that occurred during 2020 and 2019 are indicated on the related tables.

Note (16): Employee severance indemnity reserve and other provisions on personnel

The balances of "Employee severance indemnity reserve and other provisions on personnel" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Fondo di trattamento di fine rapporto di lavoro subordinato	15.009	14.982
Fondo di trattamento di fine mandato amministratori	2.919	2.508
Fondo prepensionamento	773	796
Totale	18.701	18.285

The individual analysis of the two items is provided below.

Employee severance indemnity reserve

As regards reporting on the financial statements of the "Employee severance indemnity reserve" (TFR) envisaged by Art. 2120 of the Italian Civil Code, this provision is included in the defined benefit plans, as it is considered as a defined benefit obligation and, as such, it is accounted for in compliance with IAS 19, which requires the measurement of the related liabilities based on actuarial techniques.

The main assumptions adopted for the actuarial calculation of the employee severance indemnity reserve of the Italian companies of the Group are summarised in the tables below.

Summary of technical economic bases

	31/12/2020	31/12/2019
Annual discount rate	(0.02)%	0.37%
Annual rate of inflation	0.80%	1.00%
Rate of increase in employee severance indemnity reserve (TFR)	2.10%	2.25%

Summary of technical and demographic basis

	Source
Death	RG48 mortality tables, published by the General Accounting Office of the State
Disability	INPS tables by age and gender
Retirement	100% at fulfilment of AGO requirements

Table of annual frequency of turnover and advances on employee severance indemnity reserve

Turnover frequency	Frequencies of advances
2.00%	2.50%

The appointed adviser has also carried out a sensitivity analysis, by assuming reasonable changes in key assumptions at the reporting date, the outcome of which did not indicate any significant changes in the item being examined.

The same assumptions were used to calculate the item relating to defined benefit plans at other Group companies, not reported here as they are insignificant.

It is also specified that the item includes the "early retirement reserve", which is calculated by multiplying the cost per employee by the number of months remaining until the legal retirement date (sixty-five years of age).

In accordance with the IFRS, the Group has identified the current value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the liability. The discount rate applied is 0.70%.

The following table shows the change for the years ending at 31 December 2020 and at 31 December 2019 in the employee severance indemnity reserve and early retirement reserve for all Group companies:

	31/12/2020	31/12/2019
Current value of the obligation at the beginning of the year	15,778	15,468
Cost of current services provided	263	240
Financial expense	72	141
Transfers	-	-
Benefits disbursed/advances	(860)	(1,013)
Recognised actuarial loss (gain)	529	942
Current value of the obligation at the end of the year	15,782	15,778

Directors' end-of-service indemnity reserve

This end-of-service indemnity (TFM) has characteristics similar to those of the employee severance indemnity reserve (TFR) pursuant to Art. 2120 of the Italian Civil Code and is granted to members of the board of directors of the Italian companies of the Group.

The main assumptions adopted for actuarial calculation of the TFM of the Italian companies of the Group are summarised in the tables below:

Summary of technical economic bases

	31/12/2020	31/12/2019
Annual discount rate	(0.02)%	0.77%
Revaluation rate of annual remuneration	1.50%	1.50%

Summary of technical and demographic basis

	Source
Death	RG48 mortality tables, published by the General Accounting Office of the State
Disability	INPS tables by age and gender
Retirement	100% at fulfilment of AGO requirements
Revocation frequency of the mandate	0.50%

The appointed adviser has also carried out a sensitivity analysis, by assuming reasonable changes in key assumptions at the reporting date, the outcome of which did not indicate any significant changes in the item being examined.

The following table shows the change for the years ending at 31 December 2020 and at 31 December 2019 in the existing employee severance indemnity reserve of all Group companies:

	31/12/2020	31/12/2019
Current value of the obligation at the beginning of the year	2,508	1,957
Cost of current services provided	311	290
Financial expense	9	24
Transfers	0	0
Benefits disbursed/advances	0	0
Recognised actuarial loss (gain)	92	237
Current value of the obligation at the end of the year	2,919	2,508

Workforce

The following table shows the number of Group employees at year's end:

	31/12/2020	31/12/2019	Changes
Manager	423	351	72
White-collar	1,442	1,400	42
Blue-collar	4,895	4,702	193
Total	6,760	6,453	395

The average workforce of the Group, expressed in full-time equivalents, is shown in the table below:

	31/12/2020	31/12/2019	Changes
Manager	363	352	11
White-collar	1,434	1,390	44
Blue-collar	4,809	4,623	186
Total	6,605	6,364	241

The employment contract applied to the employees of the Italian companies of the Group is the contract for the papermaking sector, while the subsidiaries use the collective employment contracts envisaged by current laws or agreements in the respective countries.

In this regard:

―	"Manager" means people who may take decisions based on instructions from top management (in Italy, this corresponds with the categories of "Executives", "Middle Managers" and "AS");
―	"White Collar" means office staff, and therefore staff members of the technical and administrative offices;
―	"Blue-collar" means, workers and all operatives working in production.

Note (17): Deferred tax liabilities

The balances of "Deferred tax liabilities" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Sofidel America Corp.	65,799	53,961
Soffass S.p.a.	7,566	6,740
Sofidel Sweden	6,883	6,641
Others of an insignificant unit value	6,502	2,744
Total	86,750	70,086

The "reserves for taxes, including deferred taxes" is formed of deferred taxes calculated on the differences between the value of an asset and a liability for statutory and fiscal accounting purposes and those originating from consolidation operations.

The reserve relates for the most part to the differences present in the US between amortisation/depreciation in the statutory accounts and those for fiscal purposes.

Concerning provisions to the tax reserve, mention should be made of the following situation relating to the subsidiary Sofidel Germany Gmbh: following the tax audit on the years from 2007 to 2011, which resulted in a request for payment of corporate taxes totalling Euro 7.3 mln, plus interest of Euro 2.4 mln, and a further audit on the period 2012-2014, for which the final notice of assessment has not been issued yet, but in which the German revenue authorities took the same stance as in the previous audit, a settlement agreement was reached in November 2020 between Sofidel Germany Gmbh and the competent German revenue authorities, for a sum, including taxes and interest, of Euro 1.9 mln, by way of settlement of the entire dispute.

The Group expects to receive the final documentation over the coming months and to pay the sum indicated above.

Note (18): Provisions for risks and expenses and potential liabilities

The balances of "Provisions for risks and expenses" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	01/01/2020	Diff. Di conversione	Acc.ti	Utilizzi	31/12/2020
Trattamento quiescenza e obblighi simili	610	-	558	(614)	554
Altri fondi	2.207	-	360	(775)	1.792
Totale	2.817	-	918	(1.389)	2.347

The item "pensions and similar obligations" includes the supplementary customer indemnity provision of the Group's agents.

The discount rate used is 0.40% at 31 December 2020.

The item "Other reserves" is formed mainly of provisions to ongoing disputes, including around Euro 1.5 mln in provisions for final closure of the UK plant in Horwich, for which operations ceased in the first part of 2020, but for which other expenses are likely to be sustained.

There are no other risks for losses or liabilities that are possible or probable but cannot be objectively estimated, other than those indicated in the financial statements and necessarily reported here.

Note (19): Non-current financial liabilities

The balances of "Non-current financial liabilities" as at 31 December 2020 and as at 31 December 2019 are shown in the table below.

This item includes the part due after twelve months of loans and bank loans, payables to suppliers for plant and payables to leasing companies for purchase of property, plant and equipment.

	31/12/2020	31/12/2019
Loans beyond 12 months	404,276	810,586
Loans beyond 5 years	200,144	244,771
Payables to suppliers, beyond 12 months	48,204	41,333
Payables to other lenders, beyond 12 months	0	30,791
Non-current financial liabilities	652,624	1,127,482

Reference is made to the consolidated cash flow statement for the amount of medium-long-term loans disbursed during the year.

The main information on the amount falling due of current medium/long-term loans at 31 December 2020 is detailed in the table below (data expressed net of the ancillary charges recorded in accounts with the amortised cost method):

	Due date >1 year <3 years	Due date >3 years <5 years	Due date >5 years
Loans	272,014	132,262	200,144
Trade payables	32,213	15,991

It is specified that, as reported in the financial statements as at 31 December 2019, in order to seek the financial resources needed to support the cycle of investments established by the industrial plan of the SOFIDEL Group for the years 20182019, the parent company entered into a medium-term loan with its main Italian and foreign relationship banks, for a total of Euro 320 million, all disbursed in 2019.

Under the loan contract, as is standard practice in Loan Market Association loans, the Group has accepted a set of obligations, including, but not limited to, the following:

(i) periodically provide lenders with updates on the operating performance and the accounts on a consolidated basis; (ii) act in compliance with applicable laws; (iii) maintain an appropriate value of the margins, including EBITDA and total net debt, again on a consolidated basis; (iv) subordinate existing payables to shareholders and other lenders of Euro 30 million to full repayment of the line under the Loan Agreement; (v) inform the lenders of any extraordinary transactions that exceed the margins for action already agreed contractually.

Violation of the commitments accepted and the occurrence of certain major events, including, but not limited to, (i) a declaration of insolvency of one of the members of the Sofidel Group, (ii) a substantial change in the structure of the Sofidel Group that could prejudice its ability to continue as a going concern, will result in the application of the payment acceleration clause for the Company, with the request for immediate repayment of the sums disbursed up to that moment and still not repaid.

At 31 December 2020, the Company complied with the obligations of a sufficient value of the margins required by the Loan Agreement, including the EBITDA and net financial debt on a consolidated basis.

The collateral on the above loan, which is enforceable solely and exclusively in the case of default, also includes the shares of Sofidel America Corp.

In the case of the other loan agreements, it is specified that these are unsecured loans without real collateral and loans on which collateral has been provided. Details are provided in a specific paragraph of the explanatory notes.

The cost of debt is parametrised mainly at fixed rates and, in certain cases, the market rate of the period (reference rate on the specific interbank market of the currency in which the loan is denominated), plus a spread differentiated on the basis of the type of credit facility.

The Group proceeded, during the second part of the year, with early repayments totalling Euro 78 mln, leaving Euro 242 mln in residual debt at the end of the year.

It is also noted that, in order further to support development and completion of the new greenfield in Oklahoma, the parent company agreed the start of "supplier's credit" transactions with several suppliers of production assets.

Further details on the guarantees that secure said financial liabilities are provided in the specific paragraph of these explanatory notes.

Note (20): Non-current liabilities for leasing

The balances of "Non-current financial liabilities" as at 31 December 2020 are shown in the table below.

The item includes the part due beyond twelve months of the payables for right of use reclassified according to the new IFRS 16 accounting standard.

	31/12/2020	31/12/2019
Non-current liabilities for	18,258	19,016
leasing beyond 12 months Non-current liabilities for	10,938	12,263
leasing beyond 5 years Total non-current financial liabilities	29,196	31,279

Note (21): Deferred revenues for contributions to the capital account

The item "Deferred revenues for contributions to the capital account", totalling Euro 20,035 at the end of the year and Euro 23,768 at 31 December 2019, is formed of deferred income on the contributions due according to law, received on production investments.

Note (22): Other non-current liabilities

The balances of "Other non-current liabilities" as at 31 December 2020 and as at 31 December 2019 are shown in the

	31/12/2020	31/12/2019
Other payables beyond 12 months	41	41
Total	41	41

The item is formed of residual financial payables.

Note (23): Trade payables

The balances of "Trade payables" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Payables to suppliers within 12 months	427,131	451,124
Advances within 12 months	195	65
Total	427,326	451,189

Note (24): Current financial liabilities

The balances of "Current financial liabilities" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Payables to banks within 12 months	100,724	99,087
Payables to other lenders within 12 months	24	1,429
Financial liabilities on derivatives	2,204	2,415
Accrued liabilities for financial interest	239	667
Total	103,191	103,598

The item also includes "hedging derivatives" and indicates the measurement at fair value at year's end of derivatives that were in place and signed by the Group for management of the exchange rate and interest rate risk.

The disclosure required by IAS 7 regarding the changes in liabilities deriving from financial assets is shown below.

	31/12/2019	Cash flows (repayments and new loans)	Change in fair value	Other	31/12/2020
Loans	1,254,239	(239,325)		4,009	1,018,923
Other loans (suppliers)	51,506	12,820		(288)	64,038
Derivatives	2,415	212	(2,628)	2,204	2,204
Total	1,308,160	(226,293)	(2,628)	5,925	1,085,165

For loans and other loans, the item "Other" refers to the effects of the change in exchange rates and entry into accounts of the amortised cost.

For derivatives, the item "Other" recognises the fair value of the new exchange risk derivatives opened at 31 December 2020.

Note (25): Current portion of medium/long-term borrowings

The balances of "Current portion of medium/long-term loans" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Loans (within 12 months)	414,503	198,881
Payables to other lending suppliers (within 12 months)	15,834	10,173
Loans to shareholders and other loans (within 12 months)	31,844	-
Total	462,181	209,054

The significant change in the short-term portion relates to maturity of the medium-term loan agreement with the main Italian and foreign correspondent banks, for a total of Euro 320 million, all disbursed in 2019, and with a residual Euro 242 mln at the end of the year, as well as the normal maturities of the other current loans.

Note (26): Current liabilities for leasing

The balance of "Current liabilities for leasing" at 31 December 2020 includes the part due beyond twelve months of the payables for right of use reclassified according to the new IFRS 16 accounting standard. First application of the standard is illustrated in the paragraph on the accounting standards adopted.

	31/12/2020	31/12/2019
Liabilities for leasing within 12 months	7,855	9,003

Note (27): Other current liabilities

The balances of "Other current liabilities" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Employees	39,575	25,017
VAT payables	26,509	16,538
Payables to pension and social security institutions within 12 months	7,061	6,700
Sundry payables	2,424	2,160
Accrued liabilities for 14th month (holiday bonus) salary	2,869	2,769
Accruals of an insignificant unit value	1,469	1,328
Other deferrals of an insignificant unit value	2,767	2,453
Total	82,676	56,966

The change in payables to employees is due primarily to the one-off bonus on results for the year, which will be paid at a later date.

Note (28): Tax liabilities

The balances of "Tax payables" as at 31 December 2020 and as at 31 December 2019 are shown in the table below:

	31/12/2020	31/12/2019
Corporate income taxes	6,217	6,038
Irpef income tax of directors and employees	3,242	3,447
Others of an insignificant unit value	257	165
Total	9,716	9,650

Virtually all payables for direct taxes relate to the Italian company.

Note (29) Measurement at fair value of individual assets and liabilities

The measurement hierarchy of fair value for individual assets and liabilities as at 31 December 2020 and as at 31 December 2019 is shown below. For short-term financial assets and liabilities, in view of their nature, the book value is considered to be a reasonable approximation of the fair value. This is why they are not shown in the table below.

Figures as at 31 December 2020

	Total	Prices listed on an active market (Level 1)	Significant observable inputs (Level 2)	Significant non-observable inputs (Level 3)
Assets
Financial assets on derivatives in hedge accounting	17,113	-	17,113	-
Financial assets on derivatives not in hedge accounting	205	-	205	-
Financial receivables from third parties	742	-	742	-
Deposits	9,258	-	9,258	-
Liabilities
Financial liabilities on derivatives in hedge accounting	(614)	-	(614)	-
Financial liabilities on derivatives not in hedge accounting	(1,590)	-	(1,590)	-
Financial payables to banks	(1,085,600)	-	(1,085,600)	-
Financial payables to third parties	(138,545)	-	(138,545)	-

Figures as at 31 December 2019

	Total	Prices listed on an active market (Level 1)	Significant observable inputs (Level 2)	Significant non-observable inputs (Level 3)
Assets
Financial assets on derivatives in hedge accounting	6,566	-	6,566	-
Financial assets on derivatives not in hedge accounting	203	-	203	-
Financial receivables from third parties	742	-	742	-
Deposits	2,243	-	2,243	-
Liabilities
Financial liabilities on derivatives in hedge accounting	(1,145)	-	(1,145)	-
Financial liabilities on derivatives not in hedge accounting	(1,270)	-	(1,270)	-
Financial payables to banks	(1,339,071)	-	(1,339,071)	-
Financial payables to third parties	(128,307)	-	(128,307)	-

Level 2 in the specific case was determined on the basis of observable market inputs. In particular, the calculation of the fair value of derivatives held by the Company is based on the determination of the present value (NPV), through the discounting of all future expected cash flows of said instruments in place on a certain date, by discounting them using consistent interest rate curves in terms of nature and maturity. From a conceptual point of view, the calculation is based on the formula of the net present value:

Present Value = CF1 / (1+r)^1 + CF2 / (1+r)^2 + CFn / (1+r)^n

The "CF" represent the expected cash flows on the financial transactions for future periods, and "r" are the interest rates relating to various future periods, obtained from the appropriately determined interest rate curve.

There were no changes in the valuation methods adopted with respect to previous years, nor transfers from one level to another of the hierarchy of assets and liabilities measured at fair value.

COMMENT ON THE MAIN ENTRIES ON THE CONSOLIDATED INCOME STATEMENT

Note (30): Revenues from contracts with customers (net sales)

The breakdown of the item "Revenues from contracts with customers" as at 31 December 2020 and 2019 is shown in the table below:

	31/12/2020	31/12/2019
Sales of Brand and B-Brand Finished Product	759,564	670,014
Sales of Private Label Finished Product	1,219,319	994,775
Sale of the AFH Finished Product	284,269	296,002
Sales of Reels	162,394	175,196
Gross sales of finished products and reels	2,425,546	2,135,987
Promotional costs	(264,718)	(230,260)
Sales of cellulose	9,706	11,978
Other sales	2,322	1,755
TOTAL	2,172,856	1,919,460

The table below shows division by geographical area of the main categories of revenues from contracts with customers as at 31 December 2020 and as at 31 December 2019

Sales of Brand and B-Brand Finished Product	31/12/2020	31/12/2019
Italy	249,929	225,379
United Kingdom	154,639	135,715
Poland	64,035	61,186
France	60,560	46,802
Belgium	49,710	41,146
Germany	37,911	33,486
Other	142,781	126,300
TOT	759,564	670,014

Sales of Private Label Finished Product	31/12/2020	31/12/2019
USA	348,355	218,234
United Kingdom	192,223	190,360
Germany	162,010	140,311
France	142,656	130,925
Poland	72,175	58,978
Spain	59,477	42,052
Other	242,423	213,915
TOT	1,219,319	994,775

Sale of the AFH Finished Product	31/12/2020	31/12/2019
USA	153,516	155,969
Germany	39,120	36,597
Italy	27,478	32,922
France	14,716	16,007
United Kingdom	8,281	8,246
Czech Republic	4,698	5,552
Other	36,462	40,709
TOT	284,269	296,002

Sales of Reels	31/12/2020	31/12/2019
Greece	39,728	44,464
USA	36,157	16,404
United Kingdom	10,531	11,550
Italy	10,440	17,850
Germany	10,034	15,669
Spain	8,376	10,348
Other	47,128	58,911
TOT	162,394	175,196
Promotional costs
TOT	(264,718)	(230,260)

Sales of cellulose	31/12/2020	31/12/2019
Italy	9,393	7,423
Sweden	-	2,076
USA	222	1,136
Other	92	1,343
TOT	9,707	11,978

Sales of other raw materials	31/12/2020	31/12/2019
TOT	2,322	1,755
Total	2,172,856	1,919,460

As far as concerns the division by entry date ("At point in time" and "Over the time"), it is specified that all types of revenues from contracts with customers are to be considered as "At point in time", with the exception of a small part of sales in the USA of Private Label and AFH finished product. Details are provided below.

	Over the point in time
	2020	2019
Away From Home	-	3,112
Private Label	14,825	12,346

Note (31): Rent received

Rental income refers to income on leasing of properties owned by the Italian companies and the breakdown is as follows

	31/12/2020	31/12/2019
Rent received	739	1,017

Note (32): Other revenues and income

Other revenues and income refer to income other than the income defined in the specific revenues streams of the Group detailed above. More specifically:

	31/12/2020	31/12/2019
Sale of electricity, gas and rec. Possible interruption	5,627	4,691
Insurance reimbursements	3,076	7,117
Extraordinary income	1,489	1,803
Sundry monetary revenues	4,435	1,806
Others of a minor amount	1,248	878
Total monetary revenues	15,875	16,294
Contributions on the investments	8,397	8,506
Capital gains	2,843	159
Reductions of reserves and adjustments of previous years	3,486	2,897
Total non-monetary revenues	14,726	11,563
Total	30,601	27,857

Note (33): Operating costs

The composition and changes compared to the previous year are shown below.

	31/12/2020	31/12/2019	Changes
Purchase of raw materials, finished products and changes in inventories	907,137	898,371	8,766
Services	446,719	412,192	34,527
Leases and rentals	30,491	25,196	5,295
Other operating expenses	28,573	29,623	(1,050)
Wages and salaries	270,790	237,518	33,272
Welfare and social security contributions	55,829	50,488	5,341
Employee severance indemnity reserve	4,451	4,153	298
Pensions and similar obligations	558	479	79
Other costs	38,399	28,745	9,654
Remuneration of directors	2,957	2,935	22
Amortisation of Intangible assets	12,169	12,478	(309)
Amortisation of Property, plant and equipment	146,858	138,396	8,462
Write-down of current receivables	87	539	(452)
Provisions for risks	2,177	2,446	(269)
Total	1,947,195	1,843,559	103,636

Purchase of raw materials, finished products and change in inventories

This item is formed of all costs relating to purchases of raw materials, mainly cellulose and wadding, used in the production cycle, or auxiliaries and consumables used in production.

Services

This item is formed of costs relating to acquisition of services in ordinary company activities, consisting primarily of costs for electricity, methane gas, maintenance, commission, consulting and transport.

Leases and rentals

This item is formed of all costs deriving from use of third-party assets excluded from application of IFRS 16. Reference should be made to the paragraph on the impacts of IFRS 16 for analysis of deviations with respect to the previous year

Other operating expenses

This item includes all other operating expenses that cannot be allocated to aforementioned items, and also costs for taxation other than income taxes, membership fees and social utility expenses.

Personnel costs

This item includes total expenditure for employed personnel, including promotions by merit, upgrading, automatic cost-of-living increases, costs for holidays accrued and not taken and provisions imposed by law and pursuant to collective labour agreements.

The "employee severance indemnity reserve" includes - in addition to the amount set aside during the period - the amount accrued and paid out to employees hired and dismissed during the same period, as well as the amount paid to external retirement benefit plans.

Total depreciation, amortisation and write-downs

The item "total amortisation, depreciation and write-downs" includes amortisation/depreciation carried out during the year according to the methods already described and write-downs of current receivables.

Provisions for risks

The item "provision for risks" is formed of provisions for specific risks made by the Group companies.

Note (34): Financial income and expenses

The composition and changes compared to the previous year are shown below:

	31/12/2020	31/12/2019	Changes
Financial income	1,891	501	1,390
Write-down of investments	(126)	(167)	41
Financial expenses	(44,162)	(29,190)	(14,972)
Exchange gains (losses)	(23,417)	(20,499)	(2,918)
Total	(65,813)	(49,355)	(16,459)

Write-down of investments refers to write-down of the investee in the Experteasy joint venture, as explained in detail in the relative part of the balance sheet.

The composition and changes in "financial income" compared with the previous financial year are as follows:

	31/12/2020	31/12/2019	Changes
Interest income from customers	199	61	138
Bank interest income	63	200	(137)
Derivatives interest income	1,626	233	1,393
Other income	3	7	(4)
Total	1,891	501	1,390

In detail, the composition and changes in "financial expenses" compared with the previous financial year are as follows:

	31/12/2020	31/12/2019	Changes
Loan interest expenses	31,614	17,354	14,260
Bank interest charges	5,617	7,791	(2,174)
Other interest expenses	4,488	2,386	2,109
Interest expenses payable to suppliers	1,382	205	1,177
Interest charges on loans of shareholders
and other lenders	1,053	1,084	(31)
Differential on swap	0	7	(7)
Allowances and rounding off	8	370	(362)
Total	44,162	29,190	14,972

As already described in the part on fixed assets, the Group has capitalised financial charges relating to the loan on production investments in the year.

The capitalised interest on the investments in the following companies is listed in detail below:

	31/12/2020	31/12/2019	Changes
Sofidel America	742	8,256	(7,514)
Sofidel Spain	0	900	(900)
Sofidel Poland	75	80	(5)
Total	817	9,235	(8,419)

In detail, the composition and changes in "exchange gains and losses" compared with the previous financial year are as follows:

	31/12/2020	31/12/2019	Changes
Realised exchange gains (losses)	(18,308)	(21,687)	3,378
Unrealised exchange gains and (losses)	(5,086)	1,340	(6,426)
Exchange differences costs and revenues	(22)	(152)	130
Total	(23,417)	(20,499)	(2,918)

Note (35): Current, deferred and prepaid taxes

The composition and changes compared to the previous financial year are as follows:

	31/12/2020	31/12/2019	Changes
Current taxes	40,667	16,678	23,990
Deferred taxes	9,469	(4,469)	13,938
Total	50,136	12,208	37,928

The reconciliation between the theoretical tax burden and the actual tax burden is shown below:

Description	31/12/2020	31/12/2019
Result of the Group before Taxers	191.186	55.421
Italian Tax rate	24%	24%
Theoretical fiscal costs	(45.885)	(13.301)
Different tax incidence of Group companies	1.399	207
Permanent differences	684	100
Fiscal incentives	584	3.141
Tax on Revaluation of assets	(2.008)	0
Deferred tax income	(1.663)	(525)
Tax related to previous years	(416)	1.160
Change in tax rates	129	(427)
IRAP and other local taxes	(4.593)	(1.083)
Fiscal consolidation	1.331	0
Other differences on consolidation adjustments	301	(1.480)
Total of differences	(4.251)	1.093
Total taxes in Profit and Loss	(50.136)	(12.208)
Actual rate	(26,22)%	(22,03)%

OTHER INFORMATION

Relations with related parties

The Group did not enter into any significant transactions with related parties.

Information pursuant to Art. 1(125) of Law no. 124 of 4 August 2017

The table below shows the amounts and information on grants, subsidies, benefits, contributions or aid, in cash or in kind, that are not general in nature or fees, payment or compensation, received during the year from the public administrations, referred to in Article 1, paragraph 2, of Italian Legislative Decree no. 165 of 30 March 2001, and from the parties referred to in Article 2-bis of Italian Legislative Decree no. 33 of 14 March 2013, , in accordance with the provisions of Art. 1, paragraph 125-bis, of Law no. 124/2017.

Name of disbursing entity	Name and tax code of recipient entity	Sum collected for each individual underlying legal relationship	Year of collection	Reason
	Sofidel S.p.A. (tax code 01256000462)
REVENUE AGENCY		28	2020	Credit for COVID-19 sanitisation and PPE ^**
FONDIRIGENTI - tax code 97141810586		8	2020	Fondodirigenti training plans
FONDIMPRESA - tax code 97278470584		20	2020	fondo Impresa training plans
REGIONE TOSCANA - tax code 01386030488		5	2020	Tuscany Region training apprenticeships
	Tot sofidel SPA	61
	Soffass S.p.a. (tax code 01829730462)
Q8 QUASER SRL tax code 00295420632		44	2020	excise duty on diesel ^*
GSE SPA - tax code		15	2020	Thermal account GSE Tassignano,
05754381001				Capannori, Lucca
GSE SPA - tax code		8	2020	Thermal account Tassignano, Capannori,
		8	2020
05754381001				Lucca
GSE SPA - tax code 05754381001		1	2020	Grin convention
ERARIO		28	2020	Credit for COVID-19 sanitisation and PPE ^**
FONDIMPRESA - tax code 97278470584		171	2020	fondo impresa training plans
GSE SPA - tax code 05754381001		1.134	2020	photovoltaic incentive rate
REGIONE TOSCANA - tax code 01386030488		2	2020	Tuscany Region training apprenticeships
	Tot Soffass Spa	1.635

^* Considered as collected because it has been offset against invoices received from the supplier
^** Offset part

Pursuant to Article 1, paragraph 125-quinquies, of Law no. 124 of 4 August 2017, it is specified that the Government aid and de minimis aid for which publication on the "National Register of Government Aid" is obligatory are not indicated on the table above, as they are already recorded on said register, to which reference should be made.

Remuneration of directors, auditors and the auditing firm

The remuneration paid to directors, auditors and the auditing firm of the parent company, for performance of their office in the companies included in consolidation as well:

Beneficiaries	Type of remuneration	At the parent company	At other Group companies	Total
Directors	Remuneration Provision to the end-of-service indemnity	1,550	1,000	2,550
Directors Board of Statutory		233	143	375
Auditors	Remuneration	56	20	76
Auditing firm	Remuneration	373	734	1,106
		2,212	1,896	4,108

Financial risk management

Objectives and management criteria of financial risks

In performing its business, the Sofidel Group is exposed to a variety of financial risks, such as:

―	the market risk (interest rate and exchange rate);
―	the liquidity risk;
―	the credit risk.

During the year, the Group operated to control these financial variables by implementing the appropriate policies to minimise the aforesaid risks, also through the use of instruments offered by the market.

In particular, as regards the use of derivatives, two types of hedging can be identified:

―	transactions that, in compliance with risk management policies, meet the requirements set out by the accounting standards for hedge accounting, and are intended for hedging;
―	transactions that, although performed with the aim of hedging business, do not meet the requirements of the accounting standards and are therefore not classified under "hedge accounting".

It is noted that Group stipulated no derivatives for speculative purposes.

Exchange rate risk management

The exchange rate risk for the Sofidel Group derives from the fact that, as it operates in an international context, its business activities are also conducted in currencies other than the Euro.

Generally speaking, the exchange rate risk for the Sofidel Group can be divided into three different categories:

the economic risk, deriving from fluctuations in exchange rates which may have an effect on the economic result and, therefore, on the company profitability envisaged at the phase of conclusion of the purchase orders, on the basis of a reference exchange rate defined at the time of preparation of the order itself. This risk may therefore extend from the time of preparation of the order to the date it when it is monetised (i.e. invoicing). The elements subject to hedging mainly concern plant and equipment (assets) and raw materials (i.e. cellulose) which represent future costs in foreign currency. The hedging is mainly carried out by entering into derivative contracts for the forward purchase of foreign currency, based on the estimated dates of the future economic transaction of the elements hedged;

the transaction risk, deriving from fluctuations in exchange rates on balance sheet items in currency recorded on the financial statements. In particular, for the Sofidel Group, this risk is represented by differences between the exchange rate

used to record receivables or payables in foreign currency on the balance sheet and the one used to record the corresponding collection or payment. This risk therefore extends from the date of recording of the balance sheet item on the financial statements to its settlement. Hedging, for this type of exchange rate risk, is carried out by entering into derivative contracts for forward sale or forward purchase of foreign currency, also through the so-called netting between receivables and payables expressed in the same foreign currency.

the translation risk, which emerges during consolidation and derives from translation into Euro of the financial statements of subsidiary companies that are prepared in other currencies. The Sofidel Group does not hedge this type of exposure.

The objective of the Sofidel Group is therefore to minimise the financial and transaction risks by using financial instruments for hedging purposes, primarily by entering into currency forward contracts.

Sensitivity analysis of the exchange rate risk

The following table shows the exchange risk sensitivity analysis of the Group in relation to its trade receivables and payables, deriving from appreciations (+10%) and depreciations (-10%) of the Euro at 31 December 2020 against the foreign currencies to which the Group companies with Euro as the functional currency are exposed and with reference to exposures in foreign currency held by Group companies with a functional currency other than the Euro. The table also shows the results of the sensitivity analysis on the exchange risk of the Group, carried out with reference to derivative deriving from fluctuations in the exchange rates of reference of those instruments of + 10%/-10% as at 31 December 2020. The table provides a comparison with respect to the same analysis carried out as at 31 December 2019.

	Income statement				Shareholders' equity
	Shock up		Shock down		Shock up
Local currency exchange
risk / FX - Sensitivity analysis	31/12/2020	31/12/2019	31/12/2020	31/12/2019	31/12/2020	31/12/2019
Assets
Derivatives in hedge accounting	46,348	53,242	(56,579)	(64,992)	314	24
Derivatives not in hedge accounting	1,160	1,100	(1,364)	(1,370)	-	-
Current and non-current financial assets	-	-	-	-	-	-
Trade receivables	503	66	(483)	(37)	-	-
Cash and cash equivalents	(235)	(220)	247	228	-	-
Non-current assets held for sale	-	-	-	-	-	-
Liabilities
Derivatives in hedge accounting	(3,727)	(6,209)	4,566	7,624	(22)	636
Derivatives not in hedge accounting	(5,338)	(8,504)	6,516	10,394	-	-
Current and non-current financial liabilities	(6,873)	(5,203)	6,867	5,195	-	-
Trade payables	6,379	4,798	(8,141)	(6,773)	-	-
Non-current liabilities held for sale	-	-	-	-	-	-

	Shareholders' equity
	Shock down
Local currency exchange
risk / FX - Sensitivity analysis	31/12/2020	31/12/2019
Assets
Derivatives in hedge accounting	(147)	16
Derivatives not in hedge accounting	-	-
Current and non-current financial assets	-	-
Trade receivables	-	-
Cash and cash equivalents	-	-
Non-current assets held for sale	-	-
Liabilities
Derivatives in hedge accounting	90	(494)
Derivatives not in hedge accounting	-	-
Current and non-current financial liabilities	-	-
Trade payables	-	-
Non-current liabilities held for sale	-	-

+ Assets/Income

- Liabilities/Expenses

Interest rate risk management

Fluctuations in interest rates in each country, and also their different value in reference to each currency in which the Group operates, influence cash flows and the level of consolidated net financial expenses.

The Sofidel Group adopts an active policy for monitoring of the risk associated with changes in interest rates, by assessing the risk profile of its exposures and managing and changing it by entering into derivatives contracts, in order to stabilise net financial expenses. The derivatives contracts used by the Group are of the plain vanilla type (e.g. Interest Rate Swap and Interest Rate Option), with no risk or speculative content, and also characterised by structures which make it possible, in the short-term, to benefit from the reduction in financial expenses.

Under the Interest Rate Swap contracts, the Group agrees to exchange with the counterparty, at specific time intervals, the difference between fixed and variable rates, both calculated on the same notional value of reference. Under the Interest Rate Option contracts, the achievement of pre-established threshold values (so-called strike), an interest differential is paid periodically, calculated on a notional value of reference. These threshold values result in a maximum rate (so-called cap) or minimum rate (so-called floor) at which the debt will be index-linked as a result of hedging. It is also possible to implement hedging strategies using a combination of options (so-called collar), which allow the minimum rate and the maximum rate to be set simultaneously.

Sensitivity analysis of the interest rate

The sensitivity analysis of the interest rate to which Group is exposed has been performed by considering balance-sheet items that generate interest at a variable rate and assuming parallel increases or decreases in the curves of the reference rates.

With reference to 2020, in view of the continuing low market rates, it was decided to assume increases and decreases equal to +0.5% and -0.05% of the reference parameters, continuing the approach adopted in previous years.

This analysis was performed with specific reference to impacts generated on flows of instruments at variable rate (cash flow sensitivity) and on the carrying amount of instruments recorded at fair value (fair value sensitivity). The table provides a comparison with respect to the same analysis carried out as at 31 December 2019.

Interest rate risk

	Income statement
Interest Rate Risk - Exposure and cash flow sensitivity analysis	Shock up ^*		Shock down ^*
	31/12/2020	31/12/2019	31/12/2020	31/12/2019
Assets
Derivatives in hedge accounting	-	-	-	-
Derivatives not in hedge accounting	-	-	-	-
Current and non-current financial assets	-	-	-	-
Non-current assets held for sale	-	-	-	-
Liabilities
Derivatives in hedge accounting	-	-	-	-
Derivatives not in hedge accounting	-	-	-	-
Current and non-current financial liabilities	(5,914)	(6,576)	591	658
Non-current liabilities held for sale	-	-	-	-

+ Assets/Income

- Liabilities/Expenses

Interest Rate Risk	Income statement				Shareholders' equity
- Exposure and Fair value sensitivity analysis	Shock up ^*		Shock down ^*		Shock up ^*
	31/12/2020	31/12/2019	31/12/2020	31/12/2019	31/12/2020	31/12/2019
Assets
Financial assets on derivatives in hedge accounting	-	-	-	-	-	-
Financial assets on derivatives not in hedge accounting	-	-	-	-	-	-
Other current securities	-	-	-	-	-	-
Non-current assets held for sale	-	-	-	-	-	-
Liabilities
Financial liabilities on derivatives in hedge accounting	-	-	-	-	-	-
Financial liabilities on derivatives not in hedge accounting	-	-	-	-	-	-
Non-current liabilities held for sale	-	-	-	-	-	-

Interest Rate Risk	Shareholders' equity
- Exposure and Fair value sensitivity analysis	Shock down ^*
	31/12/2020	31/12/2019
Assets
Financial assets on derivatives in hedge accounting	-	-
Financial assets on derivatives not in hedge accounting	-	-
Other current securities	-	-
Non-current assets held for sale	-	-
Liabilities
Financial liabilities on derivatives in hedge accounting	-	-
Financial liabilities on derivatives not in hedge accounting	-	-
Non-current liabilities held for sale	-	-

+ Assets/Income

- Liabilities/Expenses

Liquidity risk management

Liquidity risk is the risk that the Group may not be able to meet its payment commitments due to the difficulty of procuring funds (funding liquidity risk) or promptly liquidating assets on the market (asset liquidity risk).

To this end, through careful treasury planning, it seeks to ensure an adequate level of liquidity, minimising its opportunity cost and maintaining a balance in terms of duration and composition of debt. Furthermore, due to its financial stability and its international dimensions, the Group has access to a broad range of sources of funding from multiple financial institutions, which allows the exposure risk to be diversified and reduced.

The following table summarises the time profile of financial liabilities held by the Group, based on non-discounted contractual payments: for the sake of completeness, the analysis also includes positive flows generated by interest rate derivative contracts that represent financial liabilities.

The following table summarises the same analysis as at 31 December 2019.

Analysis of due dates as at 31 December 2020

Liabilities	Total cash flow	< 1 year	1 - 2 years	2 - 5 years	> 5 years
Financial liabilities on derivatives in hedge accounting	(614)	(614)	-	-	-
Financial liabilities on derivatives not in hedge accounting	(1,590)	(1,590)	-	-	-
Bonds	-	-	-	-	-
Financial payables to banks	(1,153,566)	(504,811)	(184,771)	(250,829)	(213,155)
Financial payables to third parties	(142,301)	(57,942)	(23,705)	(47,465)	(13,190)
Current accounts - third parties	(28,530)	(28,530)	-	-	-
Other non-current liabilities	(41)	(41)	-	-	-
Payables to third parties	(426,468)	(426,468)	-	-	-
Non-current liabilities held for sale	-	-	-	-	-
Exposure as at 31 December 2020	(1,753,110)	(1,019,995)	(208,476)	(298,294)	(226,345)

Analysis of due dates as at 31 December 2019

Liabilities	Total cash flow	< 1 year	1 - 2 years	2 - 5 years	> 5 years
Financial liabilities on derivatives in hedge accounting	(1,145)	(1,145)	-	-	-
Financial liabilities on derivatives not in hedge accounting	(1,270)	(1,270)	-	-	-
Bonds	-	-	-	-	-
Financial payables to banks	(1,413,261)	(283,059)	(512,812)	(353,748)	(263,642)
Financial payables to third parties	(135,414)	(23,263)	(54,214)	(43,082)	(14,855)
Current accounts - third parties	(40,992)	(40,992)	-	-	-
Other non-current liabilities	(41)	(41)	-	-	-
Payables to third parties	(462,572)	(462,572)	-	-	-
Non-current liabilities held for sale	-	-	-	-	-
Exposure as at 31 December 2019	(2,054,693)	(812,341)	(567,026)	(396,830)	(278,497)

Credit risk management

The credit risk represents exposure to potential losses due to failure of business and financial counterparts to satisfy the obligations accepted.

This risk derives mainly from the potential deterioration of the economic and financial situation of the counterpart or, in extreme cases, their default.

The Group protects itself against this risk in business transactions by:

―	taking out insurance policies with leading companies operating internationally;
―	diversifying the insurance companies from country to country, but also between companies and sales channel;
―	compliance with the terms of the insurance coverage;
―	requiring payments in advance where the insurance coverage is not operative;
―	a policy to reduce concentration of credit to a minimum;
―	quantification of the risk in the budget, through use of the IFO model and subsequent sharing of the budget data with the insurance companies.

For the financial aspect, the Group is exposed to the credit risk in its current relationship with financial institutions. These risks are represented by:

―	partial or total revocation of the current uncommitted facilities, which the Group covers:
―	as it potentially has access to a broad range of sources of funding from multiple financial institutions, which allows the per quota exposure risk to be reduced;
―	by developing use of "Revolving Credit Facilities" and "committed" lines lasting over one year, which are flexible enough to be used to stabilise coverage of current financial needs.

The Group continues its systematic monitoring of evolution of the European banking system, confirming that what has occurred so far (concentrations, mergers, acquisitions) has not had any repercussions on Group operations; bail-ins on bank deposits ("Bail-in" operative from 1 January 2016), the risk of which is mitigated and contained by using current account overdrafts.

Changes in the cash flow hedge reserve

In order to check the efficacy of its hedging, the Sofidel Group periodically carries out prospective and retrospective tests, preparing the appropriate documentation both when the transaction starts and periodically (at least at every annual and interim reporting date). This effectiveness is measured by comparing changes in fair value (or intrinsic value in the case of optional instruments) of the derivative or the underlying transaction. Both are measured at the reporting date, based on final figures (retrospective test), and determined under market shock conditions (prospective test).

Prospective tests are intended to prove that, at the beginning and for the entire duration of the hedging, the hedging instrument is highly effective in offsetting changes in fair value or in cash flows of the underlying transaction generated by the hedged risk.

Retrospective tests are instrumental to assessment of the effective high effectiveness of the hedging relationship, ideally quantified in a range between 80% and 125%.

Changes in the cash flow hedge reserve during 2020 and 2019, divided by hedging on the interest rate risk and hedging on the exchange rate risk, are shown below:

Cash flow hedges

Cash flow hedge reserve - Interest rate risk	31/12/2020	31/12/2019
Opening balance	-	(6)
Positive (+)/negative (-) changes in CFH reserve for recognition of new hedge effectiveness	-	(5)
Positive (+)/negative (-) changes for reverse of the negative/positive effectiveness from shareholders' equity and charging of financial income/expenses to the income statement	-	11
Closing balance	-	-

Cash Flow Hedge Reserve - exchange risk	31/12/2020	31/12/2019
Opening balance	(299)	(2,122)
Positive (+)/negative (-) changes in CFH reserve for recognition of new hedge effectiveness	257	(1,471)
Positive (+)/negative (-) changes for reverse of the negative/positive effectiveness from shareholders' equity and charging of financial income/expenses to the income statement	915	3,294
Closing balance	873	(299)

The figures in the table do not consider the tax impact.

It is specified that, while the interest rate hedging contracts (IRS) are also designated as hedging instruments according to the various accounting standards applied by the individual companies, even when not present at 31/12/2020, forward exchange rate hedging contracts are designated as hedging instruments.

According to these standards, they are treated as such from an accounting standpoint both when they relate to irrevocable purchase commitments, such as for orders (Cash Flow Hedge), and when they are entered into for receivables and payables that are financial in nature and hedged in a Fair Value Hedge. In all other cases, although hedges operatively speaking, they cannot be considered as such, since they lack the relative designation from a statutory and accounting viewpoint.

Guarantees and commitments

Payables secured against Group assets

Payables secured by real collateral on Group company assets are indicated below, with the related security:

	Residual principal	Original mortgage guarantee	Maturity
"Sofidel S.p.a." payables with mortgage guarantee on "Sofidel America Corporation" assets:	137,000	150,700	2030
"Sofidel Poland Sp.z.oo" payables with mortgage guarantee on its own assets:	50,061	82,242	2031
"Sofidel Spain S.L." payables with mortgage guarantee	23,528	34,375	2029
on its own assets:	15,999	23,375	2029
	5,041	7,366	2029
	3,428	5,009	2029
"Sofidel S.p.a." payables with mortgage guarantee on	43,750	88,500	2023
"Soffass S.p.a." assets:	52,000	115,700	2027
"Sofidel S.p.a." payables with mortgage guarantee on "Sofidel Germany G.m.b.H." assets:	31,000	97,750	2023
"Sofidel UK Ltd" payables with mortgage guarantee on "Intertissue Ltd" assets	22,246	19,774	2028

Guarantees issued by third parties on Group payables

There were no guarantees issued by third parties on Group payables at year's end.

Commitments (security provided)

There are bank guarantees/insurance policies of an insignificant single amount provided by the various Group companies in exchange for precise fulfilment of contractual obligations, totalling Euro 10,977.

There were no other commitments, significant risks or third-party assets that need to be reported herein at the reporting date.

Dividend policy

As a result of the policy of huge and demanding production investments of recent years, no dividends have been distributed to shareholders.

In this regard, reference is made to the tables in the explanatory notes commenting on shareholders' equity in the financial statements of the parent company.

Subsequent events

Information on other insignificant events after the end of the year is provided in the report on operations accompanying the consolidated financial statements as at 31 December 2020.

These consolidated financial statements, formed of the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in shareholders' equity, the cash flow statement and the explanatory notes, give a true and fair view of the economic and financial position and the results of operations for the year of the group of companies formed of "Sofidel S.p.a." and its subsidiaries.

Thank you for the confidence you have placed in us.

Porcari, 29 January 2021

For the Board of Directors

The CEO

Dr. Lazzareschi Luigi

"The person who signs this document with a digital signature declares that this electronic document corresponds with what has been transcribed into and signed in the company books." Sworn affidavit made pursuant to Art. 21, paragraph one, Art. 38, paragraph two, Art. 47, paragraph three, and Art. 76 of DPR no. 445/2000, as subsequently amended and supplemented.

"Stamp duty paid using the virtual system, in accordance with the authorisation of the Revenue Agency - Regional Directorate of Tuscany - no. 26656 of 30/06/2014".

2020 ANNUAL FINANCIAL REPORT

Financial statements and notes

Financial statements

Balance Sheet

ASSETS

Comments	31/12/2020	31/12/2019
NON-CURRENT ASSETS
Property, plant and equipment
Plant and machinery	51,605	61,154
Industrial and commercial equipment	135,308	144,900
Other assets	1,138,965	1,402,932
(1) Total property, plant and equipment	1,325,878	1,608,986
(2) Investment property	44,230,730	45,633,746
Other intangible assets
Rights of us through leasing
Concessions, licenses, trademarks and similar rights	4,054,800	4,024,733
Assets in progress and payments on account	247,918	244,299
(3) Trademarks and other intangible assets	8,343,234	8,828,762
(4) Equity investments	730,544,864	740,894,735
Other non-current financial assets
Receivables:
Others	2,040	2,040
Total receivables	2,040	2,040
(5) Total other non-current financial assets	2,040	2,040
(6) Deferred tax assets	127,822	106,288
Total non-current assets	784,574,567	797,074,557
CURRENT ASSETS
(7) Inventories	236,018	266,902
Trade receivables
Trade receivables	15,328	83,657
Trade receivables from subsidiaries	99,095,075	94,799,924
(8) Total trade receivables	99,110,403	94,883,581
Other current assets
Other current assets	3,615,569	1,019,230
(9) Total other current assets	3,615,569	1,019,230
(10) Tax receivables	7,227,884	9,254,671
Current financial assets
Financial receivables from subsidiaries	516,677,363	621,804,626
Receivables from other lenders	216,244	521
Other current securities	16,346,433	6,593,849
(11) Total current financial receivables	533,240,040	628,398,997
Cash and cash equivalents
Bank and post office accounts	5,046,101	9,432,210
Cash in hand	21,715	21,035
(12) Total liquid funds	5,067,817	9,453,246
Total current assets	648,497,731	743,276,626
TOTAL ASSETS	1,433,072,298	1,540,351,183
LIABILITIES
	31/12/2020	31/12/2019
Capital	33,000,000	33,000,000
Share premium reserve	1,500,288	1,500,288
Revaluation reserves	1,900,626	1,900,626
Legal reserve	7,158,618	7,158,618
Extraordinary reserve	206,214,851	148,103,024
6% fund, pursuant to Art. 15 of Italian Law no. 130/83	9,919	9,919
Reg. Grant under Italian Law no. 10/91	27,889	27,889
(46/89)
Reg. Grant under Italian Law 10/91, Art. 111	935,511	935,511
Reg. Grant EEC 2088	4,207	4,207
Profits (Losses) carried forward	154,280	154,280
Other reserves	2,036,799	2,036,799
FTA IFRS reserve	(545,467)	(545,467)
Actuarial reserve - IAS 19	(423,234)	(355,509)
Cash flow hedge reserve	(2,080)	(66,715)
Total other reserves	208,412,675	150,303,937
Profit (loss) for the year	5,106,227	58,111,828
13) TOTAL SHAREHOLDERS' EQUITY	257,078,433	251,975,297
NON-CURRENT LIABILITIES
14) Employee severance indemnity reserve and other provisions on personnel	2,893,541	2,696,816
15) Deferred tax liabilities	558,693	362,462
Provisions for risks and expenses	-	7,621
16) Non-current financial liabilities	413,185,981	876,308,012
Total Non-current Liabilities	416,638,216	879,374,911
CURRENT LIABILITIES
Trade payables
Payables to suppliers within 12 months	127,811,345	139,570,437
Trade payables to subsidiaries within 12 months	5,527,992	3,465,417
17) Total trade payables	133,339,338	143,035,855
18) Current financial liabilities	214,073,900	82,255,067
Current portion of long-term borrowings
Financial payables to subsidiaries within 12 months	4,143,937	15,494,026
Portion of loans due within the year	367,643,838	161,140,414
Loans to shareholders and other loans (within 12 months)	31,843,973	-
19) Total current portion of long-term loans	403,631,748	176,634,440
20) Other current liabilities	7,622,826	6,344,074
21) Tax liabilities	687,838	731,541
Total Current Liabilities	759,355,649	409,000,976
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	1,433,072,298	1,540,351,183

Income statement

Comments	Income statement	31/12/2020	31/12/2019
	Revenues
(24)	Revenues from contracts with customers (net sales)	443,442,634	502,382,546
(25)	Rent received	4,122,277	4,144,935
(25)	Other revenues	2,966,255	3,092,996
	Total revenues	450,531,166	509,620,476
	Operating costs
	Purchase of raw materials, finished products and changes in inventories	(390,964,258)	(449,284,296)
	Services	(11,905,642)	(11,851,258)
	Leases and rentals	(1,608)	(432,843)
	Other operating expenses	(881,832)	(850,683)
(26)	Total operating costs	(403,753,340)	(462,419,080)
	ADDED VALUE	46,777,826	47,201,396
	Personnel costs
	Wages and salaries	(17,576,574)	(15,654,840)
	Welfare and social security contributions	(5,238,887)	(4,556,358)
	Employee severance indemnity reserve	(1,052,453)	(1,077,614)
	Other personnel costs	(2,277,749)	(2,275,281)
	Extraordinary personnel costs	(295,982)	(157,726)
(26)	Total personnel costs	(26,441,645)	(23,721,819)
	GROSS OPERATING MARGIN	20,336,181	23,479,577
	Amortisation/depreciation and write-downs
	Amortisation of intangible assets	(2,441,561)	(2,177,791)
	Depreciation of property, plant and equipment	(2,097,903)	(2,130,137)
(26)	Total depreciation, amortisation and write-downs	(4,539,464)	(4,307,927)
	OPERATING RESULT	15,796,717	19,171,650
	Financial income and expenses
	Income and expenses on equity investments	12,553,000	54,399,163
	Financial income	13,121,594	28,269,277
	Financial expenses	(29,426,598)	(24,614,253)
	Foreign exchange gains and losses	(6,661,002)	(15,000,389)
(27)	Total financial income and expenses	(10,413,005)	43,053,798
	RESULT BEFORE TAXES	5,383,712	62,225,448
	Current taxes	(90,279)	(1,851,789)
	Deferred (prepaid) taxes	(187,206)	(2,261,831)
(28)	Total income taxes	(277,485)	(4,113,620)
	Profit (loss) for the year	5,106,227	58,111,828
	Discontinuing operations
	Net profit (loss) for the year	5,106,227	58,111,828

Other components of the statement of comprehensive income	2020	2019
Net profit (loss) for the year	5,106,227	58,111,828
Other components of the statement of comprehensive income which will be restated under profit/(loss) for the year:
(13) Translation differences of foreign financial statements
(13) Net profit/(loss) on cash flow hedges	52,125	(83,844)
Tax effect	12,510	6,895
Total other components of the statement of comprehensive income which will be restated under profit/(loss) for the year after taxes	64,635	(76,949)
Other components of the statement of comprehensive income which will not be restated under profit/(loss) for the year:
(13) Actuarial (loss)/gain on defined-benefit plans	(67,725)	(225,991)
Tax effect	-	-
Actuarial (loss)/gain on defined-benefit plans related to available-for-sale assets	-	-
Tax effect	-	-
Total other components of the statement of comprehensive income which will not be restated under profit/(loss) for the year after taxes	(67,725)	(225,991)
Total other components of the statement of comprehensive income, after taxes	(3,090)	(302,941)
Total comprehensive profit/(loss), after taxes (A+D)	5,103,137	57,808,887

Statement of changes in shareholders' equity

Note (13)	Opening balance 2019	Profit for the year	Other components of the statement of comprehensive income	Total comprehensive profit (loss)	Allocation of the profit (loss) for the year	Dividends Closing balance 2019
Share capital	33,000,000	-	-	-	-	- 33,000,000
Share premium reserve	1,500,288	-	-	-	-	- 1,500,288
Revaluation reserve	1,900,626	-	-	-	-	- 1,900,626
Legal reserve	7,158,617	-	-	-	-	- 7,158,617
Other reserves	148,610,254	-	-	-	2,661,375	151,271,629 -
FTA IFRS reserve	(545,467)	-	-	-	-	(545,467)
Actuarial reserve - IAS 19	(129,516)		(225,991)	(225,991)	-	- (355,507)
Cash Flow Hedge Reserve -IFRS	10,234	-	(76,949)	(76,949)	-	- (66,715)
Profit (loss) for the year	2,661,375	58,111,828	-	58,111,828	(2,661,375)	- 58,111,828
Total shareholders' equity	194,166,411	58,111,828	-	57,808,888	-	251,975,298 -

Note (13)	Opening balance 2020	Profit for the year	Other components of the statement of comprehensive income	Total comprehensive profit (loss)	Allocation of the profit (loss) for the year	Dividends
Share capital	33,000,000	-	-	-	-	-
Share premium reserve	1,500,288	-	-	-	-	-
Revaluation reserve	1,900,626	-	-	-	-	-
Legal reserve	7,158,617	-	-	-	-	-
Other reserves	151,271,629	-	-	-	58,111,828
FTA IFRS reserve	(545,467)	-
Actuarial reserve - IAS 19	(355,507)	-	(67,725)	(67,725)	-
Cash Flow Hedge Reserve -IFRS	(66,715)	-	64,635	64,635	-
Profit (loss) for the year	58,111,828	5,106,227	-	5,106,192	(58,111,828)
Total shareholders' equity	251,975,298	5,106,227	-	5,103,102	-	-

Note (13)	Closing balance 2020
Share capital	33,000,000
Share premium reserve	1,500,288
Revaluation reserve	1,900,626
Legal reserve	7,158,617
Other reserves	209,383,457
FTA IFRS reserve	(545,467)
Actuarial reserve - IAS 19	(423,232)
Cash Flow Hedge Reserve -IFRS	(2,080)
Profit (loss) for the year	5,106,227
Total shareholders' equity	257,078,433

Cash flow statement

Description	31/12/2020	31/12/2019
A. Cash flow from operations Profit (loss) for the year	5,106,227	58,111,828
(28) Income taxes	277,485	4,113,620
(27) Dividends	(13,000,000)	(66,202,716)
(27) Financial (income) expenses	16,305,003	(3,655,024)
(27) Expenses (income) from write-downs of equity investments	447,000	11,803,553
1. Profit (loss) for the year before income tax, interest, dividends and gains/losses on disposals	9,135,715	4,171,261
Non-monetary adjustments with no counter-entry in NWC
(25) Other adjustments for non-monetary items	(15,907)	(295,855)
(26) Amortisation and depreciation of fixed assets	4,539,464	4,307,927
2. Cash flow before changes in NWC	13,659,273	8,183,333
Changes in net working capital
(7) (Increase) decrease in inventories	30,884	(110,872)
(8) (Increase) decrease in trade receivables	68,329	29,947
(17) Increase (decrease) in trade payables	(10,412,491)	(18,698,453)
(9) (Increase) decrease in intercompany receivables	(4,295,151)	49,988,988
(17) Increase (decrease) in intercompany payables	2,062,575	(1,693,244)
(9) Increase (decrease) in other short-term assets	(1,763,179)	(2,146,049)
(20) Increase (decrease) in other short-term liabilities	847,671	(1,846,100)
(25) Portion of investment grants	15,447	282,565
3. Cash flow after changes in NWC	213,357	33,990,115
Other adjustments
(27) Collected/(paid) interest	(15,195,754)	3,781,208
(28) (Income taxes)	(90,279)	(1,851,789)
(27) Dividends collected	13,000,000	66,202,716
Interest paid on lease liabilities	(56,372)	(63,092)
change in reserves and deferred tax assets	198,129	372,004
Cash flow generated by operations (A)	(1,930,919)	102,431,162
B. Cash flow from investments
Fixed assets
(3) (Investments) disinvestments in intangible assets	(1,956,033)	(2,224,177)
(1-2) (Investments) disinvestments in property, plant and equipment	(411,779)	(314,352)
(25) Capital gains on fixed assets	460	13,290
(5) (Investments) disinvestments in financial fixed assets	9,902,871	(182,352,743)
Cash flow from investments (B)	7,535,519	(184,877,982)
C. Cash flow from financing activity
Debt
(16) Opening of medium/long-term loans	12,000,000	320,000,000
(16) Repayments of medium/long-term loans	(228,541,010)	(104,498,828)
(18) New short-term loans	0	(7,500,000)
(16) Payables to others on medium/long-term loans	0	7,500,000
(17) Change in other loans and intercompany current accounts	217,081,212	(127,150,441)
(11) Changes in financial assets on derivatives	(9,752,584)	(3,014,760)
(20) Change in financial liabilities on derivatives	(101,256)	1,274,203
(18) Payables to shareholder on short-term loans	-	(22,500,000)
(17) Payables to shareholders on medium/long-term loans	-	23,291,098
Capital payments on lease liabilities	(673,300)	(641,445)
Own funds
(13) Dividends (and advances on dividends) paid	-	(1,600,000)
(13) Change in reserves	(3,091)	(302,941)
Cash flow generated by financing activities (C)	(9,990,029)	84,856,886
Increase (Decrease) in cash and cash equivalents (A+B+-C)	(4,385,428)	2,410,066
Net cash and cash equivalents at the beginning of the year	9,453,246	7,043,180
Net cash and cash equivalents at the end of the year	5,067,817	9,453,246

NET FINANCIAL POSITION	31/12/2020	31/12/2019	Changes
A. Cash	21,715	21,035	680
B. Other cash equivalents (c/a)	5,046,101	9,432,210	(4,386,109)
C. Cash and cash equivalents (A+B)	5,067,817	9,453,246	(4,385,429)
Current intercompany financial receivables	516,677,363	621,804,626	(105,127,263)
Short-term securities and other current financial receivables	16,562,677	6,594,370	9,968,307
D. Current financial receivables	533,240,040	628,398,997	(95,158,957)
E. Non-current payables to banks within 12 months	(367,643,838)	(161,140,414)	(206,503,424)
F. Current payables to banks	(46,791,868)	(18,450,067)	(28,341,801)
G. Current payables to other lenders	(31,843,973)	-	(31,843,973)
H. Current intercompany financial payables	(171,425,969)	(79,299,026)	(92,126,943)
I. Current financial payables (E+F+G+H)	(617,705,648)	(258,889,507)	(358,816,141)
L. Net current financial surplus/(debt) (C+D+I)	(79,397,791)	378,962,735	(458,360,526)
Non-current intercompany financial receivables
Other non-current financial receivables	2,040	2,040	-
L. Non-current financial receivables	2,040	2,040	-
M. Non-current payables to banks	(378,185,981)	(801,766,916)	423,580,934
N. Non-current intercompany financial payables	(35,000,000)	(43,750,000)	8,750,000
O. Non-current payables to other lenders	-	(30,791,096)	30,791,096
P. Non-current financial payables	(413,185,981)	(876,308,012)	463,122,031
Q. Net non-current financial surplus/(debt) (L+O)	(413,183,941)	(876,305,972)	463,122,031
R. Net financial position ^* (L+P)	(492,581,733)	(497,343,237)	- 4,761,504

^* If the "net financial position" is negative, this indicates insufficient cash and cash equivalents and funding to cover financial debt, i.e. the company's net exposure to lenders.

Explanatory notes

Introduction

"Sofidel S.p.a." is the holding company of the "Sofidel Group", which is now one of the largest tissue paper manufacturers in the world.

The table from page 30 onwards summarises the information on subsidiaries as at 31 December 2020, i.e. their name, registered office and the portion of share capital directly and indirectly held by the Company.

In addition to performing administration and coordination of its subsidiaries, the Company also operates in the commercial sector (by purchasing raw materials for Group companies), in the real estate sector (by managing its own property portfolio) and in the corporate and financial services sector (providing these services to its subsidiaries). The Company has also licensed the Papernet™ trademark to its subsidiaries, for the sale of tissue products on the Away From Home market.

The Financial Statements of the Company, as well as the consolidated statements of the Group, are audited by "EY S.p.a.".

The Company adheres to both the group VAT procedure pursuant to Article 73 of Italian Presidential Decree no. 633 of 26 October 1972 and the national tax consolidation pursuant to Articles 117-129 of Italian Presidential Decree no. 917 of 22 December 1986.

All the figures shown are rounded up to the nearest thousands of Euro, unless indicated otherwise.

The Financial Statements for the financial year ending at 31 December 2020 were approved by the Board of Directors of the Company with the resolution of 29 January 2021.

Allocation of the profit (loss) for the year

We propose to the shareholders' meeting to allocate the profit for the year, amounting to Euro 5,106,226.88, entirely to the extraordinary reserve.

Presentation in compliance with IFRS

The Financial Statements of Sofidel S.p.A. have been prepared in compliance with International Financial Reporting Standards (IFRS). The term IFRS also refers to all the revised International Accounting Standards ("IAS") and all the interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") included in the standards previously issued by the Standing Interpretation Committee ("SIC").

Changes in the accounting standards

The accounting standards adopted by the Company to draft the Financial Statements for the year ending at 31 December 2020 coincide with those used to prepare the 2019 Financial Statements, to which reference should be made, with the exception of the adoption of new or revised standards of the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), endorsed by the European Union and applied from 1 January 2020, as described below. The adoption of new standards, amendments and interpretations did not have any significant impacts on the financial position or results of the company.

The accounting policies adopted and the procedures used for drawing up estimates and assumptions in preparing the financial disclosure are consistent with those applied in preparing the annual Financial Statements for the year ending at 31 December 2019, with the exception of the adoption of the new standards effective from 1 January 2020. The company has not opted for an early adoption of any other standard, interpretation or amendment, that has been issued, but is still not yet in force.

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest rate benchmark reform

The amendments to IFRS9 and to IAS 39 provide a number of practical expedients that are applied to hedging relationships directly impacted by the reform of interest rate benchmark. A hedging relationship that is impacted by the reform is subject to uncertainties over the timing and the amount of the cash flows based on the benchmark for the hedged instrument. These amendments have not impacted on the financial statements of Sofidel spa, as there are no interest rate hedging transactions.

Amendments to IAS 1 and IAS 8 - definition of material

The amendments provide a new definition of what is material, in which information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

Materiality depends on nature or magnitude of information (or both). The entity assesses whether the information is material on its own or when combined with other information, in the context of the financial statements, considered as a whole. Information in financial statements can be obscured if it has a similar effect for primary users to omitting or misstating information. These amendments have not had any impact on the financial statements of Sofidel spa and no future impact is expected either.

Conceptual Framework for Financial Reporting issued on 29 March 2018

The Conceptual Framework is not a standard and none of the concepts it contains has precedence over the concepts or requirements of a standard. The objective of the Conceptual Framework is to guide the IASB in developing standards, to assist compilers in developing uniform accounting policies when no standards exist that are applicable in the specific circumstances and to help all parties involved in understanding and interpreting the standards.

The revised version of the Conceptual Framework includes several new concepts, provides revised definitions and revised reporting criteria for assets and liabilities. It also clarifies several important concepts. These amendments have had no impact on the financial statements of Sofidel spa.

Amendment to IFRS 16 Covid-19 Related Rent Concessions

On 28 May 2020, the IASB published an amendment to IFRS 16. The amendment allows a lessor not to apply the requirements of IFRS 16 on the accounting effects of the lease modifications for rent concessions granted by lessors that are a direct consequence of the Covid-19 pandemic. The amendment introduces the practical expedient of allowing a lessor to choose not to assess whether a rent concession is a lease modification. A lessor who chooses to use this expedient records these concessions in accounts as if they were not lease modifications within the scope of IFRS 16.

The amendments are effective for annual reporting periods beginning on or after 1 June 2020. Early adoption is permitted. These amendments have had no impact on the financial statements of Sofidel spa.

Format of the financial statements

Balance Sheet

The format adopted for the balance sheet is a financial classification with a distinction made between current and noncurrent assets and current and non-current liabilities, where:

a) non-current assets include balances with realisable cycle after twelve months, as well as intangible assets with defined and indefinite life, property, plant and equipment and equity investments;

b) current assets include balances with realisable cycle within twelve months;

c) non-current liabilities include payables due after twelve months, including financial payables, provisions for risks and expenses and employee benefits;

d) current liabilities include payables due within twelve months, including the short-term portion of medium/long-term loans, provisions for risks and expenses and employee benefits.

Income statement

The format adopted for the income statement for the year ending at 31 December 2020 is based on the classification of costs divided by type of expense.

It is noted that the "Gross Operating Margin" (EBITDA) reported on the income statement is obtained by adding "Total amortisation, depreciation and write-downs" and "Provisions for risks" to "Operating profit/loss" (see below). The "Operating profit/loss" is the difference between revenues and operating costs; the latter are inclusive of amortisation, depreciation and write-downs, as well as of provisions. Lastly, the "Profit before tax" comprises the operating profit/loss, less financial income (expenses) and is the final result including current, deferred and prepaid taxes.

Statement of comprehensive income

The format of this statement is based on the provisions set out by the revised version of IAS 1; the items included are grouped together based on their possible subsequent reclassification to the income statement.

Statement of changes in shareholders' equity

This statement includes the total amount of the statement of comprehensive income, with separate reporting of amounts relating to transactions with shareholders acting as such. A reconciliation between the opening balance and the closing balance at year-end is presented for each item.

Cash flow statement

The Cash Flow Statement is prepared based on the indirect method and is presented according to IAS 7, classifying cash flows under operations, investment and financing activities.

The reference source of the Cash Flow Statement is cash and cash equivalents, net of bank overdrafts payable on demand.

General principles, functional currency and reporting date

The Financial Statements have been prepared on the basis of the historical cost principle, with the exception of derivative financial instruments, which have been recorded at fair value.

Moreover, they have been prepared on a going concern and on an accrual basis.

The Financial Statements are presented in Euro, which is the functional currency.

All values are rounded to thousands of Euro, unless otherwise indicated.

The reference date of these Financial Statements is 31 December 2020.

Discretionary measurements and significant accounting estimates

Introduction

In preparation of the Financial Statements, directors are required to make discretionary evaluations, estimates and assumptions that influence the value of revenues, costs, assets and liabilities, as well as disclosures relating to contingent assets and liabilities at the reporting date. In the future, if such estimates and assumptions, which are based on the best evaluations currently available and periodically reviewed, differ from the final results, they will be amended accordingly in the period in which the change in circumstances occurs. The effect of any change will be charged to the income statement.

Estimates are used to recognise the items described in detail below.

Deferred tax assets and liabilities

Deferred tax assets are recognised with respect to all temporary differences and all tax loss carry-overs, to the extent that there is likely to be sufficient future taxable income against which such losses may be deducted in future taxation periods.

The Directors are required to carry out a significant discretionary assessment to determine the amount of deferred tax assets that can be recorded.

They must estimate the likely time frame of their occurrence and the amount of future taxable income as well as a strategy for planning future taxes.

Deferred tax assets and liabilities are offset, if there is a legal right to offset current tax assets against current tax liabilities, and the deferred taxes relate to the same taxation entity and the same revenue authority.

Employees benefits (employee severance indemnity reserve)

The actuarial measurement is based on hypotheses concerning discount rates, future wage increases, the turnover and mortality rates.

Owing to the long-term nature of these plans, these estimates are subject to a significant degree of uncertainty.

Significant accounting estimates

Estimates are also used to measure provisions for credit risks, slow-moving goods in stock and returns of products, as well as depreciation and amortisation of tangible and intangible assets with defined useful life, the valuing of accrued receivables for services, the invoices to be received for services rendered and income taxes for the year.

Measurement of fair value

The Group measures financial instruments, such as derivatives, at fair value at each reporting date.

The fair value is the price that would be obtained from sale of an asset or which would be paid to transfer a liability in a normal transaction between market operators at the measurement date.

Measurement of fair value assumes that sale of the asset or transfer of the liability takes place:

a) on the principal market for the asset or liability;

b) if there is no principal market, on the most advantageous market for the asset or liability.

The principal market or the most advantageous market must be accessible to the company.

The fair value of an asset or liability is measured by adopting the assumptions that market operators would use in determining the price of the asset or liability, based on the assumption that they would act to satisfy their own financial interest.

A fair-value measurement of a non-financial asset considers the capacity of a market operator to produce economic benefits from the highest and best use of the asset, or by selling it to another market operator who would also make full and best use of it.

The company uses measurement techniques that have been adapted to the circumstances and for which sufficient data is available to measure the fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which the fair value is measured or stated on the balance sheet are categorised according to a fair value hierarchy, as described below:

Level 1: prices (unadjusted) that are listed on active markets for identical assets or liabilities to which the entity has access at the measurement date;

Level 2: different inputs to the listed prices included in Level 1, directly or indirectly observable for the asset or for the liability;

Level 3: measurement techniques for which the input data is not observable for the asset or for the liability.

The measurement of fair value is classified entirely on the same level of the fair value hierarchy as the input of the lowest level of the hierarchy used for the measurement.

For assets and liabilities reported on the balance sheet on a recurrent basis, the company decides whether there have been transfers between the levels of the hierarchy by reviewing the categorisation (based on the lowest level input, which is significant for measurement of the fair value as a whole) at each reporting date.

The Company Management determines the criteria and procedures for both the recurring measurements at fair value and measurements carried out on a non-recurring basis.

For the measurement of significant assets, such as real estate properties and significant liabilities, external advisers are involved, when necessary.

At each reporting date, the Company analyses changes in the values of assets and liabilities for which write-up or recalculation is required by the accounting standards. The main inputs applied in the most recent measurement are checked for this analysis, comparing the information used in the measurement to the contracts and other relevant documents. Also with the support of external advisers, if necessary, the Company Management carries out a comparison between each change in fair value of each asset and liability and relevant external sources, in order to determine whether the change is reasonable.

The results of the measurements are periodically presented to the Board of Statutory Auditors and to the Company auditors. This presentation includes a discussion of the main assumptions used in the measurement. For reporting on fair value, the Company decides the asset and liability classes on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as previously described.

Estimates and assumptions are carried out by directors with the support of the company's departments and, when needed, of independent advisers. These estimates and assumptions are periodically reviewed and the effects of each single change is recognised on the income statement for the period in which these estimates and assumptions differ from reality.

For reporting on fair value, the Company decides the asset and liability classes on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as previously described.

The disclosure regarding the fair value of financial instruments is shown in note (23).

Impairment of property, plant and equipment, investment property and intangible assets with defined useful life and equity investments

Impairment occurs when the book value of an asset or a cash generating unit exceeds its recoverable amount, which is the higher between the fair value net of the selling costs and its value in use.

At each reporting date, the Company evaluates the existence of any indicators of impairment in "Property, plant and equipment", "Investment property" and "Intangible assets with defined useful life" and "Equity investments".

In this case, the Company estimates the recoverable amount.

The recoverable value is determined for each individual asset, except when this asset generates cash flows which are not entirely independent from those generated by other assets or groups of assets. If the accounting value of an asset is greater than its recoverable value, it means that this asset has undergone an impairment loss and is consequently written-down until it reaches its recoverable value.

The calculation of the fair value less the selling costs is based on the data available from sale transactions between free and autonomous parties, concerning similar assets or observable market prices, minus the higher costs for the disposal of the asset.

The value in use is calculated through discounted cash flow models.

Cash flows are taken from corporate plans prepared by each single cash generating unit to which the single assets are allocated. The plans are approved by the Board of Directors and represent the best possible estimate of the set of economic conditions expected in the period analysed. The projections of the plan usually cover five financial years, the long-term growth rate used (g) to estimate the terminal value of the assets is calculated in relation to the inflation expectations for the area (CGU) where the asset is located.

The cash flows do not include either the restructuring activities or significant investments for which the Company does not have an obligation in place, which will increase the return of the assets comprised in the cash generating unit being measured.

In determining the value in use, the Company discounts the estimated future cash flows to the current value, using an after-tax discount rate that reflects market assessments of the current value of money and the specific risks of the asset. Impairment losses suffered by operating assets, including losses on inventories, are recorded on the income statement in the cost categories consistent with the function of the asset that recorded the impairment loss.

Capital management

The primary objective of the company's capital management is to maintain a solid credit rating and adequate capital indicators in order to support company activities. The Company manages the capital structure and modifies it based on changes in economic conditions.

The Company checks its capital on the basis of a net financial position/shareholders' equity ratio. Please refer to the Management Report for a detailed analysis of this indicator and of the equity-financial position.

Valuation criteria

Property, plant and equipment

Tangible assets are measured at historic cost, including directly attributable ancillary costs that are necessary to commissioning of the asset for its intended use. This cost includes the costs for equipment and plant parts replacement, when incurred, if the recognition criteria are satisfied. The net value (cost less accumulated depreciation and losses for accumulated impairment) of replaced parts of machinery and plants is recognised on the income statement upon replacement.

Maintenance and repair expenses that do not upgrade and/or extend the residual life of assets are recognised in the year in which they are incurred; in the opposite case, they are capitalised provided that the recognition criteria set out in IAS 16 are met.

Tangible assets are recorded net of accumulated depreciation and any impairment losses, determined according to the methods hereinafter described. Depreciation is calculated using the straight line method on the basis of the estimated useful life of the asset for the company.

The depreciation rates of the main classes of property, plant and equipment are as follows:

Description	Rate
Investment property	3%
General plant and machinery	9%
Sundry industrial equipment	25%
Motor vehicles	20%
Electronic machines	20%
Furniture and fixtures	12%

The residual value of the asset, the useful life and the depreciation methods applied are reviewed periodically and adjusted prospectively, when necessary.

If significant parts of these tangible assets have different useful lives, these components are recorded separately.

Land without buildings on it and land attached to buildings is recognised separately and is not depreciated, as it is considered as an asset with indefinite useful life.

Upon sale, or when there are no estimated future economic benefits for use, the asset is removed from the balance sheet and any loss or gain (calculated as the difference between the sale value and the carrying amount) is recognised on the income statement in the year the asset is eliminated.

Investment property

Fixed assets which are held for investment and not for an instrumental use are classified under the special "Investment property" item, pursuant to IAS 40, and are recorded at cost.

Assets that can be included in this class are land and/or buildings (or portions of buildings) that are held by the owner or the lessee under a financial lease or an operative agreement, and are intended to be rented to third parties, in order to benefit from the corresponding rentals, or from an increase in the value of the asset, unless these buildings: are used for production, supply of goods and services, or administration purposes;

―	are held for sale in the normal course of business.

The useful life of investment property is established as thirty-three years.

The book value of investment property is subjected to an impairment test designed to detect any losses in value when events or changed circumstances indicate that the book value cannot be recovered. Impairment losses are recorded on the income statement under costs for amortisation, depreciation and write-downs. These impairment losses are reversed if the reasons that caused them no longer apply.

Investment property is eliminated from the accounts when sold (i.e. on the date in which the purchaser acquires control of it) or when the investment property is unusable over the long-term and its sale is not expected to provide future economic benefits. The amount of the consideration to be considered for the determination of profit or loss from the cancellation of an investment property is determined in compliance with the requirements for determining the price of the transaction in IFRS 15.

Financial and operating leases

On entering into a contract, the Company assesses whether it is, or contains, a lease agreement. In other words, it assesses whether the contract grants the right to control use of an identified asset for a period of time, in exchange for a payment.

The Company as lessee

The Company adopts a single model of recognition and measurement for all leases, excluding short-term leases and those on assets of a modest value. The Company recognises liabilities relating to lease payments and the right-of-use asset that represents the right to use the asset to which the agreement refers.

Right-of-use assets

The Company recognises right-of-use assets at the date when the lease starts (i.e. the date when the relative asset is available for use). Right-of-use assets are measured at cost, net of accumulated depreciation and impairment, and adjusted for any remeasurement of the lease liabilities. The cost of assets for the right of use includes the sum of lease liabilities recorded, initial direct costs incurred and lease payments made at or before the lease commencement date, minus any incentives received. Right-of-use assets are amortised on a straight-line basis from the commencement date and up to the end of the useful life of the right-of-use asset or the end of the lease, whichever comes first.

If the lease transfers ownership of the underlying asset to the lessee when the lease ends, or if the cost of the asset for the right of use reflects the fact that the lessee will exercise the purchase option, the lessee may amortise the right-of-use asset from the commencement date up until the end of the useful life of the underlying asset.

Right-of-use assets are subject to impairment. Refer to the section on the impairment test.

Lease liabilities

At the lease commencement date, the Company records lease liabilities by measuring them at the current value of payments due for the lease and not paid at that date. Payments due include fixed payments (including fixed payments in substance), minus any lease incentive receivable, variable lease payments that depend on an index or a rate, and the amounts that it is expected will have to be paid as guarantees on the residual value. Lease payments also include the price of exercising the purchase option, if there is reasonable certainty that said option will be exercised by the Company, and the payment of penalties to terminate the lease, if the duration of the lease takes account of exercising of the lease termination option by the Company.

Variable lease payments that do not depend on an index or rate are recorded as costs in the period in which the event or condition that has produced the payment has occurred.

For calculation of the current value of the payments due, the Company uses the incremental borrowing rate at the start date, if the implicit interest rate cannot be easily determined. After the commencement date, the amount of lease liabilities increases to take account of the interest on lease liabilities and decreases to consider the payments made. Furthermore, the book value of lease liabilities is recalculated in the event of changes to the lease or as a result of a review of the contractual terms and conditions for the change in payments. It is also recalculated in the presence of changes in evaluation of the purchase option of the underlying asset or due to changes in future payments deriving from a change in the index or the rate used to calculate said payments.

Short-term leases and leases on assets of modest value

The Company applies the exemption for recording short-term leases on machinery and equipment (i.e. those with a lease term of twelve months or less from the commencement date and without any purchase option). The Company has also applied the exemption for leases on assets of a modest value in relation to leases on office equipment, considered to be of low value. Payments relating to short-term leases and leases on assets of modest value are recorded as costs on a straight-line basis throughout the lease term.

The Company as lessor

Lease agreements that essentially attribute to the Company all the risks and benefits of ownership of the asset are classified as operating leases. Income on operating leases must be recorded on a straight-line basis throughout the lease term. It is recorded under revenues on the income statement, in view of its operating nature. The initial trading costs are added to the carrying amount of the leased asset and stated based on the duration of the agreement on the same basis as income from leasing transactions. Non-budgeted rentals are recognised as revenues in their accrual period.

Business combinations