TURBOMECANICA SA

 

 

 

FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

 

 

PREPARED IN ACCORDANCE WITH

MINISTER OF FINANCE ORDER NO. 2844/2016,

FOR THE APPROVAL OF ACCOUNTING REGULATIONS IN ACCORDANCE WITH

INTERNATIONAL FINANCIAL REPORTING STANDARDS,

with subsequent amendments and clarifications

 

 

 

 

 

28

 

 

CONTENTS:

PAGE:

 

 

 

 

 

 

 

 

 

 

STATEMENT OF COMPREHENSIVE INCOME

1

 

 

STATEMENT OF FINANCIAL POSITION

2

 

 

STATEMENT OF CASH FLOWS

3

 

STATEMENT OF CHANGES IN EQUITY

4 – 5 

 

NOTES TO THE FINANCIAL STATEMENTS 

             6 – 53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

 

December 31,
             2021

 

December 31,
             2020

 

 

 

RON

 

RON

 

 

 

 

 

 

Revenues from contracts with clients 

4

 

131,331,165

 

124,989,037

Changes in inventories of finished goods and work in progress

 

 

2,242,607

 

3,135,957

Raw materials, consumables and utilities

5

 

(41,843,823)

 

(40,424,698)

Employee benefits and salaries

6

 

(53,408,568)

 

(49,784,876)

Depreciation and amortization expenses

11, 12

 

(10,977,081)

 

(8,954,392)

Other operating expenses

7

 

(9,491,455)

 

(8,443,802)

Other operating income

7

 

1,349,869

 

-

Financial costs

8

 

(2,036,616)

 

(2,110,913)

Finance income

8

 

108,129

 

161

Other gains and losses

9

 

(3,070,518)

 

(1,902,451)

 

 

 

 

 

 

Profit before taxation

 

 

14,203,709

 

16,504,022

 

Income tax

10

 

(2,454,482)

 

(3,161,296)

 

 

 

 

 

 

Profit for the year

 

 

11,749,227

 

13,342,726

 

 

 

 

 

 

Other comprehensive income, net of taxation:

 

 

 

 

 

Items which will be reclassified to profit and loss

 

 

 

 

-

Items which will not be reclassified to profit and loss:

Actuarial gain/ (loss) on defined benefits plan, net of deferred tax

21

 

 

534,442

 

(464,404)

Gains from land, buildings and equipment reevaluation, net of tax

 

 

-

 

12,995,206

 

Other comprehensive income for the year

 

 

534,442

 

12,530,802

 

 

 

 

 

 

Comprehensive income for the year

 

 

12,283,669

 

25,873,528

 

 

 

 

 

 

Result per share:

26

 

 

 

 

(RON / share)

 

 

0.032

 

0.037

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

 

CLAUDIA ANGHEL,

 

RADU VIEHMANN,

Economic & Commercial Director                                          

 

CEO

 

TURBOMECANICA SA

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in „RON”, unless otherwise specified)

 

The accompanying notes form an integral part of these financial statements.

This is a free translation from the original Romanian version.

7

 

 

 

Note

 

December 31,

2021

 

December 31,

2020 

 

ASSETS

 

 

RON

 

RON

 

Long-term assets

 

 

 

 

 

 

Property, plant and equipment

11

 

63,583,402

 

71,703,273

 

Intangible assets

12

 

938,549

 

1,329,012

 

Contract Asset

14

 

 

 

12,128,057

 

Other assets

 

 

6,000

 

6,000

 

 

Total long-term assets

 

 

64,527,951

 

85,166,342

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Inventories

13

 

59,341,924

 

31,173,171

 

Trade receivables

15

 

20,270,368

 

12,372,365

 

Contract assets

14

 

11,952,778

 

19,601,829

 

Other receivables

16

 

2,431,143

 

2,717,342

 

Cash and cash equivalents

17

 

18,961,360

 

5,148,791

 

 

 

 

 

 

 

 

Total current assets

 

 

112,957,571

 

71,013,498

 

 

Total assets

 

 

177,485,522

 

156,179,840

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

Issued capital

18

 

36,944,248

 

1,024,571,055

 

Reserves

19

 

82,454,086

 

103,560,022

 

Retained earnings

 

 

1,800,021

 

(1,019,216,389)

 

Own shares

 

 

(599,408)

 

(599,408)

 

 

 

 

 

 

 

 

Total equity

 

 

120,598,947

 

108,315,279

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

Borrowings

20

 

2,055,578

 

4,242,854

 

Deferred tax liabilities

10

 

3,989,086

 

4,634,038

 

Provisions

21

 

1,485,978

 

3,032,342

 

 

Total long-term liabilities

 

 

7,530,642

 

11,909,234

 

Current liabilities

 

 

 

 

 

 

Trade and other liabilities

22

 

5,551,518

 

1,861,529

 

Borrowings

20

 

27,895,049

 

20,424,538

 

Current income tax

10

 

1,927,794

 

1,631,433

 

Provisions

21

 

4,798,822

 

3,708,200

 

Deferred income

23

 

-

 

2,178

 

Other current liabilities

23

 

9,182,750

 

8,327,448

 

 

 

 

 

 

 

 

Total current liabilities

 

 

49,355,933

 

35,955,326

 

 

Total liabilities

 

 

56,886,575

 

47,864,560

 

 

Total equity and liabilities

 

 

177,485,522

 

156,179,840

 

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

CLAUDIA ANGHEL,    

 

RADU VIEHMANN,

Economic & Commercial Director

 

CEO

 

TURBOMECANICA SA

STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 2021

(all the amounts are expressed in „RON”, unless otherwise specified)

 

 

 

 

 

Note

December 31,

2021

 

December 31,

2020

 

 

 

Cash flow from operations:

 

 

 

 

 

Net profit / (loss) of the year

 

 

11,749,227

 

13,342,726

Adjustments for:

Income tax

 

10

2,454,482

 

3,161,296

Depreciation and amortization expenses

11, 12

10,977,081

 

8,810,688

Charge / (Reversal) of provision for receivables

15

101,480

 

(251,065)

Allowances for inventories and contractual assets

13

2,727,590

 

2,270,360

Other provisions

21

180,498

 

(358,010)

Net loss on sale of fixed assets

11, 12

102,305

 

54,396

Financial costs

8

2,036,616

 

2,168,475

Other financial gains

8

(108,129)

 

(141)

Net gains / loss from exchange rate differences

 

(26,976)

 

(9,557)

 

Changes in working capital

 

30,194,174

 

29,189,167

 

(Increase) in trade and other receivables

 

 

(7,686,309)

 

(8,278,984)

(Increase) in contract assets

 

21,843,262

 

(8,339,607)

(Increase) of inventories

 

(34,682,189)

 

(1,223,177)

Increase / (Decrease) in trade and other liabilities

 

5,014,270

 

(3,728,802)

 

Net cash generated by operating activities

 

14,683,208

 

7,618,597

 

Income tax paid

 

 

(2,904,870)

 

(2,418,963)

Interest received

 

108,129

 

-

Interest paid

 

(1,821,691)

 

(2,167,877)

 

Net cash (used in) operating activities

 

10,064,776

 

3,031,757

 

Cash flows from investment activities:

 

 

 

 

 

Purchase of tangible assets*

 

(2,039,759)

 

(5,667,515)

Purchase of intangible assets

 

(666,174)

 

(680,130)

Proceeds from sale of fixed assets

 

 

 

20,437

 

Net cash (used in) investment activities

 

(2,705,933)

 

(6,327,208)

 

Net cash from financing activities:

 

 

 

 

Proceeds from borrowings

25

8,069,666

 

5,887,987

Payments related to leasing obligations*

25

(929,858)

 

(1,210,234)

Dividends paid

25

(686,082)

 

(338,729)

 

Net cash generated from / (used in) financing activities

 

6,453,726

 

4,339,024

 

Net increase / (decrease) of cash and cash equivalents

 

13,812,569

 

1,043,573

 

Cash and cash equivalents at the beginning of the period

 

5,148,791

 

4,105,218

 

Cash and cash equivalents at the end of the period

 

18,961,360

 

5,148,791

* In 2020, the payments related to the leasing obligations in the amount of RO 1,210,234, respectively the tangible fixed assets entries acquired through leasing in the amount of RON 2,294,399 were presented net on the line of loan receipts.

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

CLAUDIA ANGHEL,  

 

RADU VIEHMANN,

Economic & Commercial Director

 

CEO

 

TURBOMECANICA SA

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in „RON”, unless otherwise specified)

 

 

 

 

 

Share

capital

 

Reserves

 

Revaluation

reserve

 

Retained

earnings

 

Total

Balance on January 1, 2021

1,024,571,055

 

55,980,030

 

47,579,992

 

(1,019,815,798)

 

108,315,279

 

 

 

 

 

 

 

 

 

 

Profit of the year

-

 

-

 

 

 

11,749,227

 

11,749,227

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Actuarial gains related to the determined benefits plan, net of deferred tax

-

 

-

 

 

-

 

534,442

 

534,442

Total other comprehensive income for the year

-

 

-

 

-

 

12,283,669

 

12,283,669

 

Realization of revaluation reserves

-

 

-

 

(389,107)

 

389,107

 

 

-

 

Closing the reported result from the adoption of IAS 29 (Note 18)

(987,626,807)

 

(20,716,829)

 

-

 

1,008,343,636

 

-

 

Balance of December 31, 2021

36,944,248

 

35,263,201

 

47,190,885

 

1,200,613

 

120,598,947

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

 

 

 

CLAUDIA ANGHEL,   

 

RADU VIEHMANN,

Economic & Commercial Director

 

CEO

 

 

TURBOMECANICA SA

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in „RON”, unless otherwise specified)

 

 

 

 

 

 

 

Share

capital

 

Reserves

 

Revaluation

reserve

 

Retained

earnings

 

Total

Balance on January 1, 2020

1,024,571,055

 

54,799,281

 

35,182,370

 

(1,032,575,359)

 

81,977,346

 

 

 

 

 

 

 

 

 

 

Profit of the year

-

 

-

 

 

 

13,342,726

 

13,342,726

Other comprehensive income

 

 

 

 

 

 

 

 

 

Increase in revaluation reserves, net of the related deferred tax

-

 

-

 

12,995,206

 

-

 

12,995,206

Total comprehensive income for the year

 

 

 

 

12,995,206

 

13,342,726

 

26,337,932

 

 

 

 

 

 

 

 

 

 

Realization of revaluation reserves

-

 

-

 

(597,584)

 

597,584

 

-

Increases in other reserves

-

 

1,180,749

 

-

 

(1,180,749)

 

-

 

Balance of December 31, 2020

1,024,571,055

 

55,980,030

 

47,579,992

 

(1,019,815,797)

 

108,315,279

 

 

 

 

 

 

 

 

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

 

 

 

 

CLAUDIA ANGHEL,

      

 

RADU VIEHMANN,

Economic & Commercial Director

 

CEO

 

 

 

1. GENERAL INFORMATION

 

TURBOMECANICA SA (“Turbomecanica” or the “Company”) is a joint-stock company, incorporated in 1975, with the main activity the manufacturing of engines, mechanical assemblies and equipment for aircraft. It is a privately owned company whose shares are listed on the Bucharest Stock Exchange. 

 

The main shareholdings is as follows:

 Viehmann Radu – shareholding of 25.91%

Ciorapciu Dana Maria – shareholding of 15.15%

Romanian State Authority through the authority regarding the administration of state assets - 150 shares, shareholding of 0.00004%

Other shareholders – shareholding of 58.94%.

 

The evolution of the Company is as follows: 1975-1977- Engine production company Bucharest; 1978-1990 - Turbomecanica Bucuresti; from 20.11.1990, through GD no. 1213, the joint stock company “Compania Comerciala Turbomecanica SA” was incorporated. After 1991, from Turbomecanica SA two companies were formed: Aeroteh SA and Micron-Turboteh SA.

 

The company has the following revenue streams:

 

a. MRO services for engines and mechanical assemblies for aircrafts and helicopters. The main products serviced by the Company are: Turbo engines, Viper engines, modernization of Puma helicopters, spare parts for Viper, and Turbo engines, spare parts and engines for Rolls-Royce. Turbomecanica is the only producer and approved MRO service provider of gas turbine engines and mechanical assemblies for aircrafts on the Romanian market.

 

b. Revenues from production of customer build to print components and spare parts under de above mentioned lincenses - the entity provides: components for aircraft and rotorcraft engines and/or mechanical assemblies by using client’s tehnical documentation and spare parts for base maintenance activities to the Ministry of Defense

 

c. Income from the sale of materials - the sale of materials that the company has in stock.

 

For more details on revenue recognition policies, see Note 3.

 

The main clients of the Company are on the domestic market - the Ministry of Defense and IAR Barsov, but the company also has transactions with clients located in Europe.

The average number of employees is as follows:

 

 

2021

 

2020

 

 

 

 

 

Average number of employees

 

501

 

495

 

 

 

 

THE IMPACT OF THE COVID PANDEMIC

 

In 2021, the Company's management analyzed the possible effects of COVID 19. The analysis revealed following conclusions :

 

 

The management of the Company was continuously engaged in the full and without exception implementation of the best practices and management policies, to ensure the continuity of economic activity in 2021, both in the interest of investors and in strict accordance with any measures provided by the competent authorities.

 

All the measures taken by the company to mitigate the effects related to COVID19, were mentioned in the Current Reports published at BVB, throughout 2021.

 

TURBOMECANICA SA

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in “RON”, unless otherwise specified)

 

This is a free translation from the original Romanian version.

8

 

 

  1. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

 

  1. Changes in accounting policies and adoption of revised/amended IFRS

The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the Group as of 1 January 2021:

 

In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, completing its work in response to IBOR reform. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). In particular, the amendments provide for a practical expedient when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, to require the effective interest rate to be adjusted, equivalent to a movement in a market rate of interest. Also, the amendments introduce reliefs from discontinuing hedge relationships including a temporary relief from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. There are also amendments to IFRS 7 Financial Instruments: Disclosures to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. While application is retrospective, an entity is not required to restate prior periods. The amendments had no material impact on the financial statements of the Group.

IFRS 16 Leases- C?vid 19 Related Rent Concessions (Amendment) - The amendment applies, retrospectively, to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at 28 May 2020. IASB amended the standard to provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The amendment provides a practical expedient for the lessee to account for any change in lease payments resulting from the covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change was not a lease modification, only if all of the following conditions are met:

 

%1.1%1.2 New standards and amendments to the existing standards issued but not yet effective and not early adopted

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU. 

The amendments were initially effective for annual reporting periods beginning on or after January 1, 2022 with earlier application permitted. However, in response to the covid-19 pandemic, the Board has deferred the effective date by one year, i.e. 1 January 2023, to provide companies with more time to implement any classification changes resulting from the amendments. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments.

  1. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) (continued)

 

In November 2021, the Board issued an exposure draft (ED), which clarifies how to treat liabilities that are subject to covenants to be complied with, at a date subsequent to the reporting period. In particular, the Board proposes narrow scope amendments to IAS 1 which effectively reverse the 2020 amendments requiring entities to classify as current, liabilities subject to covenants that must only be complied with within the next twelve months after the reporting period, if those covenants are not met at the end of the reporting period. Instead, the proposals would require entities to present separately all non-current liabilities subject to covenants to be complied with only within twelve months after the reporting period. Furthermore, if entities do not comply with such future covenants at the end of the reporting period, additional disclosures will be required. The proposals will become effective for annual reporting periods beginning on or after 1 January 2024 and will need be applied retrospectively in accordance with IAS 8, while early adoption is permitted. The Board has also proposed to delay the effective date of the 2020 amendments accordingly, such that entities will not be required to change current practice before the proposed amendments come into effect. These Amendments, including ED proposals, have not yet been endorsed by the EU.

IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets as well as Annual Improvements 2018-2020 (Amendments)

The amendments are effective for annual periods beginning on or after 1 January 2022 with earlier application permitted. The IASB has issued narrow-scope amendments to the IFRS Standards as follows:

IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (Amendments)

The Amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. The Amendments have not yet been endorsed by the EU. 

IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (Amendments)

The amendments become effective for annual reporting periods beginning on or after January 1, 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. The Amendments have not yet been endorsed by the EU. 

IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments)

The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. In May 2021, the Board issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12 and specify how companies should account for deferred tax on transactions such as leases and decommissioning obligations. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal. The Amendments have not yet been endorsed by the EU.

IFRS 16 Leases -C?vid 19 Related Rent Concessions beyond 30 June 2021 (Amendment)

The Amendment applies to annual reporting periods beginning on or after 1 April 2021, with earlier application permitted, including in financial statements not yet authorized for issue at the date the amendment is issued. In March 2021, the Board amended the conditions of the practical expedient in IFRS 16 that provides relief to lessees from applying the IFRS 16 guidance on lease modifications to rent concessions arising as a direct consequence of the covid-19 pandemic. Following the amendment, the practical expedient now applies to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022, provided the other conditions for applying the practical expedient are met.

The Company anticipates that the adoption of these new standards and amendments to the existing standards will have no material impact on the financial statements of the Company in the period of initial application.

3.  SIGNIFICANT ACCOUNTING POLICIES

 

The main accounting policies are presented below:

 

The main accounting policies applied in preparing these financial statements are presented below. These policies have been applied consistently throughout all the years disclosed, unless otherwise presented.

 

Statement of compliance

 

The individual financial statements have been prepared in accordance with the Order of the Minister of Public Finance no. 2844/2016 for the approval of the Accounting Regulations compliant with the International Financial Reporting Standards, with the subsequent modifications and clarifications.

 

Minister of Finance no. 2844/2016, as subsequently amended, is in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union, except for IAS 21 The Effects of Changes in Foreign Exchange Rates on Functional Currency on the recognition of revenues from green certificates, except for IFRS 15 Revenues from contracts with customers regarding revenues from connection fees to the distribution network.

 

Basis of preparation

 

The individual financial statements have been prepared on the historical cost basis, except for tangible assets, which are measured at revalued amount, as described in the accounting policies below. The historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The financial statements are presented in Romanian lei ("RON") and all values are rounded to the nearest RON, unless otherwise indicated.

 

Going concern

 

The financial statements of the Company have been prepared on the basis of the principle of continuity of activity which takes into account that the Company will carry out its current activity in the future. In order to evaluate the applicability of this hypothesis, the Company's management analyzed cash flows forecasts resulting from the translation of the existing and future commercial relations. Based on this analysis, which also took into account the subsequent events mentioned in Note 29, the Management considers that the Company will continue to operate in the future and, therefore, the application of the principle of business continuity in preparing the financial statements is justified.

 

In 2021, the Company recorded a profit of RON 11,749,227. The company is currently dependent on working with two main local customers. The turnover with these customers for 2021 represents 90.4% of the total turnover of the company.

However, the management of the Company considers that this aspect does not constitute an impediment, having orders concluded with these partners for the following periods, which ensure sufficient income. The Company also intends to start developing its activity in the civil industry, and in this sense it is considering a series of significant investments.

 

 

Current versus non-current classification

 

The Company presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:

 

 

All other assets are classified as non-current.

 

A liability is current when:

 

It is expected to be settled in the normal operating cycle

It is held primarily for the purpose of trading

It is due to be settled within twelve months after the reporting period, or

There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

 

Fair value measurement

The Company measures and recognizes at fair value certain non-financial assets such land, buildings, equipment’s and furniture. Also, fair values of financial instruments measured at amortized cost are estimated for disclosure purposes.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

The principal or the most advantageous market must be accessible by the Company.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

 

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

The Company’s management determines the policies and procedures for both recurring fair value measurement, such as land, buildings and for non-recurring measurement, such as assets held for sale from discontinued operations.

 

External evaluators are involved for valuation of significant assets, such as land, buildings, equipment. Involvement of external evaluators is decided upon annually by the management. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.

 

At each reporting date, the management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company’s policies by verifying the major inputs applied in the latest valuation and assessing the changes from the previous valuation.

 

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

 

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition

 

IFRS 15 "Revenue from contracts with customers" introduced a comprehensive model for the recognition and measurement of income. Revenue is recognized when the customer acquires control of the goods or services provided, at the amount that reflects the price that the company expects to receive in exchange for those goods or services.

 

Information regarding the reasoning, estimates and significant accounting assumptions regarding the revenues from the contracts with the clients is presented in the section Rationale, estimates and significant accounting assumptions at the end of this note.

 

The company has the following revenue streams:

 

a. Manufacturing of engines and mechanical assemblies for aircrafts and helicopters. The main products provided by the Company are: Turbo engines, Viper engines, modernization of Puma helicopters, spare parts for Viper and Turbo engines, spare parts and engines for Rolls-Royce. Turbomecanica is the only producer of gas turbine engines and mechanical assemblies for aircrafts on the Romanian market.

The revenues are recorded based on approved contract between parties, parties being committed to perform their respective obligations. Each party’s rights and payment terms can be easily identified. The payment terms range from 10 days after the goods are delivered. The contracts have commercial substance and it is probable that the entity will collect the consideration to which will be entitled in exchange for the goods or services transferred to the customer.

 

The performance obligations relate to distinct performance obligations represented by goods (turbines, materials).

 

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods to a customer, excluding those amounts collected on behalf of third parties (e.g. some sales taxes). They include fixed amounts, as agreed between the parties. Both the terms of the contract and the entity’s customary business practices need to be considered in order to determine the transaction price. The Company has distinct transaction price for each turbine delivered. It is also assumed that the goods will be transferred to the customer as promised in accordance with exiting contract.

IFRS 15 requires the transaction price to be allocated to each performance obligation identified in the contract on a relative stand-alone selling price basis. There are no difficulties in allocating the price as they are clearly attributable and negotiated at the contract settlement.

 

For fixed price contracts, the Company recognizes the revenue as it provides production related services, evaluating the stage of completion of projects. The Company transfers control over a good or service over time and, therefore, fulfills an obligation to execute and recognizes revenue over time, as the Company's execution creates or improves an asset that the client controls as the asset is created or improved. . The completion stage is determined, using the input-based method, based on the contractual costs incurred up to the end of the reporting period, as a percentage of the total estimated cost for each contract.

If the outcome of a contract cannot be estimated reliably, the revenue of the contract is recognized only in line with the costs of the contract which are likely to be recoverable. When the result of a service contract can be estimated reliably and the contract is likely to be profitable, the expected profit is recorded in proportion to the degree of performance over the term of the contract. If the total costs of the contract are likely to exceed the total revenues of the contract, the estimated loss is recorded as an expense, in accordance with IAS 37 Provisions, contingent liabilities and contingent assets.

 

The company presents as contractual assets the gross amounts owed by customers, related to the ongoing contracts, for which the costs incurred and the recognized profits (minus the recognized losses) exceed the total invoiced value of the respective contract. If the invoices issued exceed the costs incurred plus the recognized profits (less the recognized losses), the gross amounts due to customers are presented as debts related to contracts.

 

b. Revenues from repair services of engines and mechanical assemblies for aircrafts and helicopters  - the entity provides repair services for turbines sold to Ministry of Defense.

The revenues are recorded based on approved contract between parties, parties being committed to perform their respective obligations. Each party’s rights and payment terms can be easily identified. The payment terms range from 10 days after the services will be provided. The contracts have commercial substance and it is probable that the entity will collect the consideration to which will be entitled in exchange for the goods or services transferred to the customer.

 

The performance obligations relate to distinct performance obligations represented by repairs services satisfied over time.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

 

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised services to a customer, excluding those amounts collected on behalf of third parties (e.g. some sales taxes). They include fixed amounts, as agreed between the parties. Both the terms of the contract and the entity’s customary business practices need to be considered in order to determine the transaction price. The Company has distinct transaction price for each repair service provided. It is also assumed that the services will be transferred to the customer as promised in accordance with exiting contract.

 

IFRS 15 requires the transaction price to be allocated to each performance obligation identified in the contract on a relative stand-alone selling price basis. There are no difficulties in allocating the price as they are clearly attributable and negotiated at the contract settlement.

 

For fixed price contracts, the Company recognizes the revenues as the services are provided, evaluating the completion stage of the projects. The Company transfers control over a good or service over time and, therefore, fulfills an obligation to execute and recognizes revenue over time, as the Company's execution creates or improves an asset that the client controls as the asset is created or improved. The completion stage is determined using the input method, based on the contractual costs incurred up to the end of the reporting period, as a percentage of the total estimated cost for each contract.

If the outcome of a contract cannot be estimated reliably, the revenue of the contract is recognized only in line with the costs of the contract which are likely to be recoverable. When the result of a service contract can be estimated reliably and the contract is likely to be profitable, the expected profit is recorded in proportion to the degree of performance over the term of the contract. If the total costs of the contract are likely to exceed the total revenues of the contract, the estimated loss is recorded as an expense, in accordance with IAS 37 Provisions, contingent liabilities and contingent assets

 

The company presents as contractual assets the gross amounts owed by customers, related to the ongoing contracts, for which the costs incurred and the recognized profits (minus the recognized losses) exceed the total invoiced value of the respective contract. If the invoices issued exceed the costs incurred plus the recognized profits (less the recognized losses), the gross amounts due to customers are presented as debts related to contracts.

 

c. Revenues from the sale of materials, waste materials and other services provided. The revenues are recorded based on approved contract between parties, parties being committed to perform their respective obligations. Each party’s rights and payment terms can be easily identified. The payment terms range from 10 days after the services will be provided. The contracts have commercial substance and it is probable that the entity will collect the consideration to which will be entitled in exchange for the goods or services transferred to the customer.

 

The performance obligations relate to distinct performance obligations represented by sales of materials and are satisfied at point in time, when the delivery takes place.

 

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised materials to a customer, excluding those amounts collected on behalf of third parties (e.g. some sales taxes). They include fixed amounts, as agreed between the parties. Both the terms of the contract and the entity’s customary business practices need to be considered in order to determine the transaction price. The Company has distinct transaction price for each material sold. It is also assumed that the materials will be transferred to the customer as promised in accordance with exiting contract.

 

IFRS 15 requires that the transaction price be allocated to each performance obligation identified in the contract on the basis of the relative independent selling price. There are no difficulties in allocating the price, as these are clearly attributable and negotiated at the conclusion of the contract. The entity recognizes revenue in accordance with the arrangements established at the time of delivery.

 

For the activities performed, mentioned above in points a and b, the Company grants to its clients guarantees of good execution for a period that varies between 12 and 18 months. These fall within the scope of IAS 37 as:

a. the guarantees according to the contract offer the customer the assurance that the product will work;

b. the guarantees do not provide additional services other than the assurance that the good will work according to the agreed specifications;

c. customers do not have the option to purchase the warranty separately.

 

Therefore, these guarantees do not constitute separate performance obligations, but should be recognized as provisions in accordance with IAS 37.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Trade Receivables

 

Trade receivables are recognized at the transaction price determined in accordance with IFRS 15. They are subsequently measured at amortised cost using the effective interest method, less loss allowance. The Company assesses at each balance-sheet date the requirement for an allowance for impairment in trade receivables. When measuring expected credit loss (hereinafter “ECL”) the Company uses reasonable and supportable forward looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Probability of default constitutes a key input in measuring ECL. Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.

 

 

Leases

 

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

Company as a lessee

 

i) Right-of-use assets

 

The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are presented in the statement of financial position at fair value ar revaluation date, less any accumulated depreciation and impairment losses and adjusted for any re-measurement of lease liabilities. The initial cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.

 

Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

 

The right of use of asset relates to rented cars which are depreciated over 3 years, as well as leased equipment amortised over a period between 3 to 20 years.

 

The right-of-use assets are also subject to impairment. Refer to the accounting policies in note 3 Impairment of non-financial assets.

 

ii) Lease liabilities

 

At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company’s exercising the option to terminate.

 

Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re measured if there is a modification, a change in the lease

term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

 

iii) Short-term leases and leases of low-value assets

 

The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.

 

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currency transactions

 

Functional and presentation currency

 

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in RON, which is functional currency of Turbomecanica SA and also the presentation currency.

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are generally recognised in profit or loss.

 

Foreign exchange gains and losses are presented in the statement of comprehensive income on a net basis within other net foreign exchange losses/(gains).

 

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

 

The exchange rates used are EUR 1 = RON 4,9481 (December 31, 2021) and USD 1 = RON 4,3707 (December 31, 2021), average rate 2021 EUR 1 = RON 4,9204.

 

Borrowing costs

 

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

 

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period

 

Employee benefits

 

In the normal course of business, the Company makes payments to the Romanian State on behalf of its employees, for pensions, health and unemployment fund. The cost of these payments is charged to the income statement in the same period as the related salary cost.

 

All employees of the Company are members of the Romanian State pension plan.

 

The Company rewards its employees with retirement benefits according to the collective labor contract. For such pension

plan, the cost of benefits is determined using the projected unit credit method, and actuarial assessments are performed on each balance sheet date. The Company recognizes all actuarial gains and losses arising from defined benefit plans immediately in other comprehensive income and all expenses related to defined benefit plans in personnel expenses in profit or loss.

 

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate, the expected inflation rate and the expected rate of salary increase. Any changes in these assumptions will impact the carrying amount of pension obligations.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Employee benefits (continued)

 

The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high-quality government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based on current market conditions.

 

Benefits for termination of employment contract

 

Benefits for termination of the employment contract may be paid when the Company terminates the employment contract prior to the normal retirement date or any time the employee accepts voluntary redundancy in exchange for such benefits. The Company recognizes the benefits for termination of employment contract either when it clearly undertakes either to terminate the current employees’ employment contracts according to an official plan without the realistic possibility to avoid it; or to offer benefits for terminating the employment contract further to an offer submitted to encourage voluntary redundancy. Benefits owed within more than 12 months from the reporting period are discounted on the reporting date.

 

Taxation

 

Income tax expenses consist of all current taxes payable, and deferred income taxes.

 

Current tax

 

The tax currently payable is based on the taxable income for the year. Taxable income differs from the income reported in the statement of comprehensive income due to items of revenues or expenses that are taxable or deductible in other years, and due to items that are never taxable or deductible. The Company’s current income tax liability is determined by using the taxation rates enacted or substantively enacted by the end of the reporting period.

 

Deferred tax

 

Deferred tax is recognized based on temporary differences between the carrying value of assets and liabilities in the financial statements and the corresponding fiscal base used in calculating taxable income. Deferred tax liabilities are generally recognized for all taxable temporary differences.

 

Deferred tax receivables are generally recognized for all taxable temporary differences if the taxable profits against which the deferred tax receivable can be used are available. No deferred tax receivables or liabilities are recognized if the temporary difference is generated by the initial recognition of goodwill or initial recognition of an asset or liability in a transaction that does not constitute a business combination and does not affect either the accounting income or taxable income upon the conclusion of the transaction (fiscal loss).  

 

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.

 

Deferred tax assets and liabilities are measured at the level of the taxes assumed to apply during the period set for the recovery of the debt or realization of the asset, considering the level of taxes (and tax laws) that are or will be in force until the end of the reporting period. The measurement of deferred assets and liabilities reflect the tax consequences that would arise from the manner in which the Company estimates, at the end of the reporting period, to recover or settle the carrying value of its assets and liabilities.

 

Current and deferred annual tax

 

Current and deferred tax is recognized in profit and loss unless it refers to elements recognized in other comprehensive results or directly in equity, in which case current and deferred tax is also recognized in other global income, or equity.

 

The income tax for the year ended December 31, 2021 was 16% (December 31, 20209: 16%).

 

Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property, plant and equipment

 

Tangible assets used in production or to supply goods or services, or for administrative purposes, are presented in the statement of financial position at fair value at the date of reevaluation less depreciation and any impairment, subsequently accumulated.   Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date.

Any revaluation surplus is recorded in other comprehensive income and is therefore credited to the reserve from the revaluation of equity assets, except to the extent that it includes a reduction in the revaluation of the same asset previously recognized in profit or loss and, in this case, the increase is recognized in the income statement. A revaluation deficit is recognized in the income statement, unless it offsets an existing surplus for the same asset, recognized in the asset revaluation reserve.

The revaluation surplus is transferred to retained earnings as the assets are written off / sold.

 

Tangible assets in progress that will be used in production or in administration are stated at cost less any impairment. Costs include professional fees and, in case of qualifying assets, borrowing costs capitalized in accordance with the Company’s accounting policies. Such assets are classified under such categories of tangible assets when completed or ready for use for the purpose they were intended. The depreciation of such assets, on the same basis as other owned assets, commences when the assets are ready for use as intended by the management.

 

The depreciation periods for tangible assets are:

 

 

 

Years

 

 

 

Buildings

 

10-50

Installations and technological equipment

 

3-20

Furniture and other office equipment

 

3-15

 

Land is not depreciated.

 

Depreciation is charged so as to systematically allocate the cost of the asset less the residual value over its estimated useful life, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

 

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

 

An item of property, plant and equipment is no longer recognized further to its assignment or when no future economic benefits are expected from the continued use of the asset. Any gain or loss resulting from the assignment or disposal of an item of property, plant and equipment is determined as the difference between proceeds from sales and the carrying value of the asset and is recognized in the Company’s profit or loss.

 

Intangible assets

 

Intangible assets acquired separately

 

Intangible assets with determined useful lives and which are acquired separately are reported at cost less any subsequent accumulated amortization and any accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with undetermined useful lives and which are acquired separately, are reported at cost less accumulated impairment losses.

 

The depreciation periods for intangible assets are:

Other intangible assets

 

1-10 ani

De-recognition of intangible assets

 

An intangible asset is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. The gains or losses from the de-recognition of an intangible asset, measured as difference between net proceeds from sale and the asset’s carrying value are recognized in profit and loss when the asset is derecognized.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of tangible and intangible assets other than goodwill

 

At the end of each reporting period, the Company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that that such assets have impaired. Should such indication exist, the Company estimates the recoverable value of the asset to determine the extent of the impairment (if any). Where the recoverable value of a particular asset cannot be estimated, the Company estimates the recoverable value of the cash generating unit to which the asset belongs. Where there can be identified a reasonable and consistent basis of allocation, corporate assets will also be allocated to individual cash generating units or, if not, to the smallest company of cash generating units for which a reasonable and consistent basis of allocation can be identified.

Intangible assets with undetermined useful lives and intangible assets not yet available for use are tested at least annually for impairment or anytime there is an indication that the asset might be impaired.

 

Impairment of tangible and intangible assets other than goodwill (continued)

 

The recoverable value means the highest of fair value minus sale costs and its value in use. When measuring the value in use, estimated future cash flows are discounted at their current value by using a discount rate determined prior to taxation, which reflects the current market assessments of the time value of money and the risks specific to the asset for which the estimates related to future cash flows have not been adjusted.

 

If the recoverable value of an asset (or cash-generating unit) is estimated to be lower than its carrying value, then the carrying value of the asset (or the cash-generating unit) is reduced to the level of the recoverable value. Impairment is recognized immediately in profit or loss, if the relevant asset is not registered at a re-measured value, in which case the impairment is treated as reduction of re-measurement.

 

Where the impairment is reversed, the carrying value of the asset (or the cash-generating unit) is increased at the level of its new estimated recoverable value, only that the increased carrying value must not exceed the carrying value that would have been established should the impairment for the asset (cash-generating unit) had not been recognized in previous years. A reversal of impairment is immediately recognized in profit or loss, except where the asset is accounted at revalued amount, in which case the reversal of the impairment is treated as increase of the revaluation.

 

Inventories

 

inventories, which include raw materials, finished products, semi-finished products, production in progress, are valued at the lower of cost and net realizable value.

 

The cost of inventories includes all costs related to the acquisition and processing, as well as other costs incurred to bring the inventories in shape and in the place where they are located. The cost of finished products and production in progress includes direct production costs, namely: direct materials, energy consumed, direct labor and other direct production costs, as well as the share of indirect production costs rationally is allocated as related to manufacturing. them.

The costs of raw material are determined by the weighted average cost method. The net realizable value represents the estimated selling price during the normal development of the activity, minus the estimated costs for completion and the estimated costs necessary to make the sale.

 

Provisions

 

Provisions are recognized when the Company has a present obligation (legal or implicit) as a result of a past event, and it is probable that an outflow of resources incorporating economic benefits will be required to settle that obligation and a reliable estimate of the value of the obligation may be made.

 

The value recognized as provision is the best estimate of the counter value required to settle the present obligation at the end of the reporting period, considering the risks and uncertainties related to the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, the carrying value thereof is the present value of such cash flows (if the effect of the time value of money is material).

 

When expected that some or all the economic benefits required to settle a provision will be recovered from third parties, then the receivable is recognized as asset if it is almost certain that the repayment will be collected and the value of the receivable can be reliably assessed.

 

Onerous contracts

 

Present obligations generated under onerous contracts are recognized and measured as provisions. A contract is onerous when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Provisions (Continued)

 

Restructurings

 

A provision for restructuring costs is recognized when the Company has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. The measurement of a provision for restructuring includes only direct expenses related to the restructuring, which mean such values that are mandatorily generated by restructuring and are not associated with the Company’s ongoing activities.

 

Guarantees

 

Provisions for estimated costs of guarantee obligations according to local legislation concerning the sale of goods are recognized on the date when the relevant products are sold, at the best estimate made by the management as regards the expenses required to settle the Company’s obligation.

 

Trade and other payables

 

These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. In this category are also included non-trade liabilities such as VAT and social securities recognized at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

 

Financial assets and liabilities

 

Financial assets and financial liabilities are recognized when the Company becomes a party in the contractual provisions of the instrument.

 

Financial assets

 

Initial recognition and measurement

 

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

 

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the entity’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the company has applied the practical expedient, the company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the company has applied the practical expedient are measured at the transaction price.

 

In order for a financial asset to be classified and measured at amortized cost or fair value through the OCI, it must give rise to cash flows that are "excluding principal and interest payments (SPPIs)" of the outstanding principal amount. This assessment is called the SPPI test and is performed at the instrument level. Non-SPPI cash-flow financial assets are classified and measured at fair value through profit or loss, regardless of business model.

 

The Company’s business model for managing financial assets refers to how it manages deal with its financial assets

in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.

 

Subsequent measurement

 

For purposes of subsequent measurement, financial assets are classified in four categories:

 

  1. Financial assets at amortised cost (debt instruments)
  2. Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
  3. Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon de-recognition (equity instruments)
  4. Financial assets at fair value through profit or loss

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

 

Financial assets at amortised cost

 

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest over the relevant period.

 

The Company’s financial assets at amortised cost includes trade receivables.

 

The Company does not hold any financial assets at fair value through OCI or profit or loss.

 

De-recognition

 

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

 

Impairment

 

The Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate.

 

For trade receivables and contract assets, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.

 

The Company performed an assessment at year end and no material difference arise in applying ELC model and current accounting policy by allowing receivables older than 270 days. The company clients operate in state owned companies from public sector, thus there is a remote risk of default and also the average collection is 22 days.

 

Significant increase in credit risk

 

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Company compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Company considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward looking information considered includes the future prospects of the industries in which the Company’s debtors operate, obtained from  economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar organisations,

as well as the consideration of various external sources of actual and forecast economic information that relate to the Company’s core operations.

 

Significant increase in credit risk

 

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

 

Irrespective of the outcome of the above assessment, the Company presumes that the credit risk is remote as the greatest part of company balance of accounts receivables consists of four main clients which are state owned, the average collection period is 20 days, thus there is limited risk of material credit losses.

Despite the foregoing, the Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date.

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

 

A financial instrument is determined to have low credit risk if:

 

  1. the financial instrument has a low risk of default;
  2. the debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and
  3. adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

 

The Company considers a financial asset to have low credit risk when the asset has external credit rating of investment grade in accordance with the globally understood definition or if an external rating is not available, the asset has an internal rating of ‘performing’. Performing means that the counterparty has a strong financial position and there is no past due amounts.

 

For financial guarantee contracts, the date that the Company becomes a party to the irrevocable commitment is considered to be the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there has been a significant increase in the credit risk since initial recognition of a financial guarantee contract, the Company considers the changes in the risk that the specified debtor will default on the contract.

 

The company does not have financial guarantee contracts.

 

The Company regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

 

Definition of default

 

The Company considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable:

 

 

Irrespective of the above analysis, the Company considers that there is limited probability of default for the existing clients, as mentioned above there is a high concentration of three state owned clients, the average number of collection days is 22 days, no default occurred in the last years and few chances to occur as the clients are stated owned acting in defence industry.

 

Credit-impaired financial assets

 

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

 

  1. significant financial difficulty of the issuer or the borrower;
  2. a breach of contract, such as a default or past due event;
  3. the lender of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty,
  4. having granted to the borrower a concession that the lender would not otherwise consider;
  5. it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
  6. disappearance of an active market for that financial asset because of financial difficulties.

 

Write-off policy

 

The Company writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over three years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss within other gains or losses line.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

 

Measurement and recognition of expected credit losses

 

The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Company’s understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.

 

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate. For a lease receivable, the cash flows used for determining the expected credit losses is consistent with the cash flows used in measuring the lease receivable in accordance with IFRS 16.

 

For a financial guarantee contract, as the Company is required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed, the expected loss allowance is the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Company expects to receive from the holder, the debtor or any other party.

 

If the Company has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Company measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which the simplified approach was used.

 

The Company recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognised in other comprehensive income and accumulated in the investment revaluation reserve, and does not reduce the carrying amount of the financial asset in the statement of financial position.

 

De-recognition of financial assets

 

The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another

entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues

to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

 

On de-recognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. In addition, on de-recognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on de-recognition of an investment in an equity instrument which the Company has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.

 

Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

 

The Company’s financial liabilities include trade and other payables and loans and borrowings including short term bank loans and loans from shareholders.

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

 

Subsequent measurement

 

For purposes of subsequent measurement, financial liabilities are classified in two categories:

 

 

Financial liabilities at fair value through profit or loss

 

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9, Financial instruments. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of profit and loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9, Financial instruments are satisfied.

 

The Company has not designated any financial liability as at fair value through profit or loss.

 

Financial liabilities at amortised cost (loans and borrowings)

 

This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of comprehensive income. This category generally applies to interest-bearing loans and borrowings.

 

 

De-recognition

 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.

 

Segment reporting

 

A segment is a part of the Company that is involved in activity segments from which it can obtain revenues and register expenses (including revenues and expenses corresponding to transactions with other parts of the same entity), whose operating results are regularly followed by the Company’s management in order to made decisions on the resources to be allocated to the segment and assess its performances and for which separate financial information is available. Segment information is disclosed regarding the company’s activity segments and are established based on the Company’s management and internal reporting structure.

 

Settlement prices among segments are set objectively.

 

The results, assets and liabilities related to a segment include elements that may be allocated directly to one segment, and elements that may be allocated on a reasonable basis.

 

Capital expenses related to a segment represent the total costs registered over the period for purchasing tangible and intangible assets.

 

3.  SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets and liabilities (continued)

Financial assets (continued)

 

Contingent assets and liabilities

A contingent liability is:

 

 

Contingent liabilities are not recognized in the Company’s financial statements, but disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

 

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company.

 

A contingent asset is not recognized in the Company’s financial statements, but disclosed when an inflow of economic benefits is probable.

 

Subsequent events

Events occurring after the reporting date 31 December 2021, which provide additional information about conditions prevailing at the reporting date (adjusting events) are reflected in the financial statements. Events occurring after the reporting date that provide information on events that occurred after the reporting date (non-adjusting events), when material, are disclosed in the notes to the financial statements.

 

Critical accounting judgements 

 

Events occurring after the reporting date, respectively 31 December 2021, which provide additional information on the conditions prevailing at the reporting date (events requiring adjustments) are reflected in the financial statements. Events occurring after the reporting date that provide information about events that occurred after the reporting date (events that do not require adjustments), when significant, are presented in the notes to the financial statements.

 

Other information regarding the Company's exposure to risks and uncertainties is included in:

• Risk management policies (Note 25);

• Information on sensitivity analyzes (Note 25).

 

The following are the critical reasoning that management has made in the process of applying the Company's accounting policies and which have a significant effect on the carrying amounts recognized in the financial statements.

 

i) Recognition of contract revenues

 

As presented above, in the Revenue Recognition section, IFRS 15 has introduced a comprehensive model for revenue recognition and measurement, which requires critical reasoning as well as significant estimates. The critical reasonings made by the Company's management are

- on the one hand, related to the determination of the method of income recognition for the activities carried out.

Following a comprehensive analysis, the Company determined that the revenues related to the main activities consisting in the manufacture and repair services of engines and mechanical assemblies are recognized as the assumed obligations, is performed, fand for the other activities recognition at the time of delivery of the obligation. The reasoning applied is presented in the section Revenue recognition IFRS 15. Also, as part of this analysis, the Company's management determined that the use of the input-based method in determining the degree of satisfaction of the assumed obligations is adequate, taking into account the specific activities.

- on the other hand, related to the identification of contracts that meet the criteria for recognizing IFRS 15.

3.  SGNIFICANT ACCOUNTING POLICIES (continued)

Critical accounting judgements (Continued)

 

Thus, based on the analysis performed, it was established that collaboration protocols and framework contracts concluded with the main clients do not meet, individually, the criteria and definitions of a contract according to IFRS 15, but only together with other subsequent agreements. The company also analyzed the accounting treatment applied to the activities carried out in anticipation of future contracts and the costs incurred with the manufacture or repair of mechanical assemblies until the contractual agreements meet the criteria established by IFRS 15. Based on this analysis, it was determined that these costs falls within the scope of the IAS 2 Inventories standard, and therefore the eligible costs mentioned in the Inventories section are capitalized in the production in progress until the beginning of the contract. At the beginning of the contract, these costs are recognized in income on a cumulative basis, thus reflecting the work already performed.

 

The following describes significant estimates and assumptions about future events and other sources of uncertainty at the reporting date, which present a major risk of leading to significant adjustments to the carrying amount of assets or liabilities during the next financial year. The company bases its estimates and assumptions on the parameters available at the date of preparation of the financial statements. However, existing circumstances and assumptions regarding future periods may be subject to change in the context of changes in market conditions or other factors beyond the Company's control. Such changes are reflected in the assumptions as they occur. The basic estimates and assumptions are constantly reviewed. Revisions to accounting estimates are recognized prospectively.

 

In the process of applying the Company's accounting policies, the management used the following significant estimates and assumptions:

 

i) Revenue recognition - the degree of fulfillment of the obligations assumed in the contracts with the clients

 

The company recognizes the revenues from manufacturing and repair services depending on the degree of fulfillment of the obligations assumed by the individual contracts. The degree of fulfillment of the assumed obligations is determined by reporting the cost incurred until the end of the reporting period on each individual execution obligation to the estimated total cost of the project. Management's estimate of total budgeted costs is based primarily on pre-calculations performed by the technical department at the beginning of the project and subsequently revised, as appropriate, to the effect of significant changes indicated by the project managers. Given the nature of the activities carried out, the date on which the contractual activity begins and the date on which the activity is completed are usually within different accounting periods. Starting with 2021, the Company periodically analyzes and revises the estimation of contractual revenues and costs, both in the calculation prepared for each individual contract, as the contract progresses. In 2021, the Company recognized in revenue RON 3,644,565 in correspondence with the contractual assets, representing the net margin related to the contracts in progress on December 31, 2021, calculated based on the degree of fulfillment of the assumed obligations, as well as provisions for onerous contracts in the amount of 676,153 RON. In previous years, contractual assets were recognized only at the level of costs incurred.

 

ii) Lifetime of tangible and intangible fixed assets

 

The Company reviews the estimated useful lives of tangible and intangible assets at the end of each annual reporting period. Lifespans are shown below. In 2021, there were no changes in the useful lives of tangible and intangible assets.

 

iii) The fair value of property, plant and equipment

 

The company reflects the land, buildings and equipment held at fair value. It is reviewed with sufficient regularity to ensure that the net carrying amount does not differ materially from the fair value of those assets. The valuation of tangible assets is usually performed with the help of independent experts, the last valuation taking place on December 31, 2020.

 

The fair value is determined using the market value method for real estate and movable property for which there is a market on which they can be traded, and the net replacement cost method for specialized assets for which there is no market on which they can be capitalized. For specialized real estate, two methods were considered, the determination of the new cost, adjusted with the related wear and tear, as well as the income approach. When applying the income approach, the value of the asset in question is determined by discounting the cash flows that could reasonably be obtained from the operation. The main assumptions for performing the valuation, using the discounted value method, are represented by the estimated cash flows and their discount rate. In 2021, based on the evolution of the real estate and furniture market, it was not considered necessary to update the valuation for tangible fixed assets.

 

iv) Inventory provisions

 

At the end of each reporting period, the Company considers whether the provisions for slow-moving stocks are sufficient. The policy for the provision of slow-moving stocks is detailed in Note 13. The assumptions and depreciation rates applied were determined by the company's management based on analyzes performed by the Company's technicians and engineers. Note 13 shows the movements in the value of provisions for inventories during the year.

3.  SGNIFICANT ACCOUNTING POLICIES (continued)

Critical accounting judgements (Continued)

 

v) Obligations related to pensions

 

The present value of pension obligations depends on a number of factors established on an actuarial basis using a number of assumptions. Any modification of these assumptions, presented in detail in Note 21, will influence the book value of the pension obligations. The obligations related to pensions as of December 31, 2021 are in the amount of RON 1,150,356. (December 31, 2020: RON 1,800,095). The value was determined by Gelid Actuarial Company S.R.L. based on the contract for consulting and provision of actuarial services concluded in 2021.

 

vi) Profit tax and deferred tax

 

The company is subject to corporate income tax in one jurisdiction (Romania). There are many transactions and calculations for which the final determination of the tax is uncertain. The company records provisions, if any, for possible future consequences of tax inspections. If the final fiscal result of these aspects is different from the amounts initially registered, the respective differences will have an impact on the receivables and debts regarding the current and deferred profit tax in the period in which the respective difference appears.

 

The company also calculates deferred tax, as set out in Note 10. The company has not recorded deferred tax in connection with value adjustments on inventories, considering, based on the analysis performed, that they do not generate a temporary difference, according to the standard. The company has old stocks of components, specific for helicopters and airplanes. These include special materials, whose scrapping / sale requires the observance of very strict procedures; these are difficult to acquire from the market, and considering the specific activity of the Company, the management does not intend to capitalize on them by selling / scrapping and may need them in future works.

 

4. INCOME FROM CONTRACTS WITH CLIENTS

 

Below, an analysis of the Company’s income for the financial year:

 

 

December 31,

2021

 

 

December 31,

2020

 

RON

 

RON

Recognised over the time

 

 

 

Income from the sale of finished products

39,417,810

 

36,827,898

Incomes from rendering of repair services

90,120,845

 

85,931,742

Recognised at delivery moment

Income from the sale of merchandise

124,718

 

780,468

Income from services provided

1,365,210

 

1,307,855

Income from other activities

1,513

 

1,513

Income from the sale of residual products

301,069

 

139,561

 

Total

131,331,165

 

124,989,037

 

 

During 2020, the revenues related to the partially fulfilled execution obligations were recognized at cost. Starting with 2021, the Company performed an analysis of the contracted obligations, which allowed it to recognize these revenues at cost plus the associated margin.

 

The price allocated to the unfinished execution obligations (unsatisfied or partially unsatisfied) related to the revenues from the manufacturing and repair contracts at the end of the reporting period is RON 47,250,144. The remaining performance obligation is expected to be recognized within one year of the end of the reporting period.

 

 

5. RAW MATERIALS, CONSUMABLES AND UTILITIES

 

 

December 31,

2021

 

 

December 31,

2020

 

 

 

 

Expenses with raw materials

32,497,885

 

31,265,637

Expenses with utilities

3,361,973

 

2,795,452

Expenses with auxiliary materials

3,585,858

 

3,340,622

Other material expenses

2,235,245

 

2,337,043

Packaging expenses

59,112

 

57,466

Cost of goods sold

103,750

 

628,478

 

Total

41,843,823

 

40,424,698

 

 

 

  1. EMPLOYEE BENEFITS

 

 

December 31,

2021

 

 

December 31,

2020

 

 

 

 

Salaries

51,126,046

 

47,757,668

Social security contributions

2,282,522

 

2,027,208

 

Total

53,408,568

 

49,784,876

 

 

7. OTHER OPERATING EXPENSES AND INCOME, NET

 

 

December 31,

2021

 

 

December 31,

2020

 

RON

 

RON

 

Services provided by third parties

3,462,342

 

3,931,136

Other operating expenses

2,010,271

 

748,795

Other operating income

(1,349,869)

 

-

Duties and taxes

926,064

 

984,995

Repairs

1,401,585

 

1,042,411

Advertising, publicity and protocol

496,017

 

378,484

Insurance premiums

155,671

 

350,156

Secondment

91,180

 

66,920

Rental expenses

89,152

 

53,686

Employee training

85,189

 

672,070

Transport expenses

773,984

 

215,149

 

Total, net

8,141,586

 

8,443,802

 

 

8. NET FINANCIAL COSTS

 

 

December 31,

2021

 

 

December 31,

2020

 

 

 

 

Interest expense

1,657,579

 

1,736,687

Bank commissions

63,089

 

70,255

Other financial expenses

315,948

 

294,614

Other financial income

-

 

9,357

Interest income

(108,129)

 

(161)

 

Total

1,928,487

 

2,110,752

 

 

9. GAINS AND LOSSES FROM SALE OF ASSETS AND OTHER GAINS AND LOSSES

 

 

December 31,

2021

 

 

December 31,

2020

 

RON

 

RON

 

Net gain on foreign exchange

26,975

 

(9,557)

Movement of provisions, for current assets, employee benefits, and other provisions

(3,009,568)

 

(1,661,284)

Other gains and losses, net

14,380

 

(197,628)

 

 

Other gains and losses from sale of assets

(102,305)

 

(33, 982)

 

Total

(3,070,518)

 

(1,902,451)

 

 

The change in provisions is mainly influenced by the change in the stock provision (RON 2.7 million). 

 

10. INCOME TAX

 

In 2021 and 2020, the income tax rate was 16%.

 

The income tax recognized in profit or loss:

 

 

December 31,

 

December 31,

 

2021

 

2020

 

 

 

 

Income tax

3,201,232

 

3,161,296

Deferred income tax

(746,750)

 

-

 

 

 

 

Total

2,454,482

 

3,161,296

 

Reconciliation of current income tax:

 

 

December 31,

 

December 31,

 

2021

 

2020

Profit before taxation

 

14,203,708

 

16,504,022

 

Income tax (16%)

2,272,593

 

2,640,644

Non-deductible expenses/ Non-taxable income

657,167

 

973,704

Tax deductions

(475,278)

 

(453,052)

 

Income tax expense

2,454,482

 

3,161,296

 

Effective tax rate

17.28%

 

19.15%

 

 

 

 

 

 

Non-deductible expenses mainly include non-deductible depreciation and provisioning expenses. Non-deductible income consists mainly of reversals of provisions.

 

 

TURBOMECANICA SA

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in “RON”, unless otherwise specified)

 

This is a free translation from the original Romanian version.

1

 

 

10. INCOME TAX (continued)

 

The deferred income tax in 2021 and 2020 is as follows:

 

 

Balance as at January 1,

2020

 

Recognized through

profit or loss

 

Recognized through other comprehensive income

 

Balance as at December 31,

2020

 

Recognized through

profit or loss

 

Recognized through other comprehensive income

 

Balance as at December 31,

2021

 

Tangible assets

(2,158,761)

 

-

 

(2,475,277)

 

(4,634,038)

 

 

 

-

 

(4, 634,038,)

Obligations related to employee benefits

 

 

 

 

 

 

 

 

 

 

(101,798)

 

(101,798)

Provisions

 

 

 

 

 

 

 

 

746,750

 

 

 

746,750

 

Net tax asset/(liability)

(2,158,761)

 

-

 

(2,475,277)

 

(4,634,038)

 

746,750

 

(101,798)

 

(3,989,086)

 

 

In 2021, the Company recorded a deferred tax related to earnings from pension provisions recorded through comprehensive income and a deferred income tax related to provisions for bonuses, unpaid leave, guarantees and valuable aids from customers. In 2020, the Company recorded a deferred tax related to revaluation reserves in the amount of RON 2,475,277. No deferred tax was recognized for inventories, based on the reasoning set forth in Note 3.

 

Deferred tax consists of:

 

 

Assets

 

Liabilities

 

Net

 

 

31-Dec-21

31-Dec-20

 

 

31-Dec-21

31-Dec-20

 

 

31-Dec-21

 

31-Dec-20

 

Tangible assets

-

-

 

(4,634,038)

(4,634,038)

 

(4,634,038)

(4,634,038)

Employee benefits liabilities

-

-

 

(101,798)

-

 

(101,798)

-

Provisions

746,750

-

 

 

-

 

746,750

-

 

Net tax (asset)/liability

746,750

-

 

(4,735,836)

(4,634,038)

 

(3,989,086)

(4,634,038)

 

 

Deferred tax liabilities and assets are expected to be recovered over a period longer than 12 months.

11. PROPERTY, PLANT AND EQUIPMENT

 

Land

 

Buildings

and other constructions

 

Technical installations and machinery

 

Furniture, equipment, office supplies, protective equipment

 

Tangible

Assets

in progress

 

Total

COST 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2020

18,794,996

 

12,008,084

 

35,390,687

 

219,967

 

344,779

 

66,758,513

Additions

-

 

-

 

2,294,495

 

-

 

4,956,754

 

7,251,249

Transfers

-

 

1,220,454

 

2,011,812

 

39,518

 

(3,271,784)

 

-

Disposals

-

 

-

 

(241,717)

 

(383)

 

-

 

(242,100)

Additions pending supply

-

 

-

 

-

 

-

 

-

 

-

Increases/(reductions) from revaluation, in correspondence with the reserve from valuation, respectively through the global income situation

(2,152,085)

 

2,050,228

 

15,311,491

 

63,357

 

 

 

15,272,991

Elimination of depreciation on revaluation

-

 

(1,635,235)

 

(15,606,956)

 

(95,188)

 

-

 

(17,337,379)

Additions / (disposals) from revaluation

(2,152,085)

 

414,993

 

(295,465)

 

(31,831)

 

-

 

(2,064,388)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

18,642,911

 

13,643,530

 

39,159,811

 

227,271

 

2,029,751

 

71,703,273

Additions

-

 

96,181

 

125,817

 

-

 

3,763,062

 

3,985,061

Transfers

-

 

-

 

2,911,443

 

304,461

 

(3,215,904)

 

-

Disposals

-

 

-

 

(2,227,594)*

 

(3,610)

 

-

 

(2,231,204)

Additions pending supply

-

 

-

 

 

 

-

 

-

 

-

Additions / (disposals) from revaluation

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

16,642,911

 

13,739,711

 

39,969,477

 

528,122

 

2,576,909

 

73,457,130

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2020

-

 

912,851

 

10,319,739

 

60,503

 

-

 

11,293,093

Depreciation for the year

-

 

722,384

 

5,454,133

 

35,035

 

-

 

6,211,551

Accumulated depreciation related to outflows

-

 

-

 

(166,915)

 

(351)

 

-

 

(167,266)

Disposals due to revaluation

-

 

(1,635,235)

 

(15,606,956)

 

(95,188)

 

-

 

(17,337,378)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

-

 

-

 

-

 

-

 

-

 

-

Depreciation for the year

-

 

583,280

 

9,230,538

 

106,626

 

-

 

9,920,444

Accumulated depreciation related to outflows

-

 

 

 

(46,716)

 

 

 

-

 

(46,716)

Disposals due to revaluation

-

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

-

 

583,280

 

9,183,822

 

106,626

 

-

 

9,873,728

 

NET BOOK VALUE

-

 

-

 

-

 

-

 

-

 

-

 

December 31, 2020

16,642,911

 

13,643,531

 

39,159,811

 

227,272

 

2,029,751

 

71,703,273

December 31, 2021

16,642,911

 

13,156,431

 

30,785,655

 

421,496

 

2,576,909

 

63,583,402

  1.  
  2. PROPERTY, PLANT AND EQUIPMENT (continued)

 

* Disposals from technical installations include equipment in the amount of RON 1,856,572, which was returned to the supplier because it did not work properly. This is a non-cash outflow for the cash flow statement. Also, during the year, two equipments were transferred from stocks in the amount of RON 1,719,692

 

Fair value measurement of the Company’s freehold land and buildings

 

The Company’s freehold land, buildings, equipment’s and furniture are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of the Company’s freehold land and buildings as at 31 December 2020 were performed by Neoconsult Valuation, independent valuation consultant not related to the Company. Neoconsult Valuation are members of the Institute of Valuers of Romania, and they have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm’s length terms for similar properties.

 

The valuation report has been drawn up for the land, buildings, plant, equipment, vehicles, furniture and human and material protection equipment located in the same place. The valuation techniques used were market approach and for specialised properties where the market information available was insufficient, the Company used the net replacement cost method. To determine the final value, the valuer also used the cost and income approach

 

The categorization per level of fair value as per IFRS 13 is as follows:

 

Level 1 – no asset can be included in this category, as there is no active market (transactions) for identical assets where unadjusted prices can be used and accessed by the entity and the appraiser at the valuation date  

Level 2 – not used, as it could be determined any inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – land, buildings and equipment’s were valued using income and cost approach.

 

For land and buildings, cost and income approach were used. Regarding cost approach it was estimated a gross replacement cost. The replacement cost was determined using the guidance established by Cornel Schiopu in the valuation guide "Reconstruction costs - replacement costs, industrial, commercial and agricultural buildings" Ed. Iorval, 2010 adjusted with updated indexes for August 2020- July 2021. The gross replacement cost was diminished by the estimated accumulated depreciation.

 

Income approach supposed estimation of gross operational result, estimating the capitalization rate related to net operating income, conversion of gross operational result to buildings value using formulae: Gross operational result / capitalization rate related to net operating income. The estimation of the gross operating income was made as follows:

 

 

 

The cost approach was used for the equipment.

 

Underlying the cost approach is the principle of substitution: a prudent buyer will not pay more for a property, a machine than the cost of acquiring a replacement property or equivalent machine.

 

The principle can be applied to either an individual asset or a machine, an entirely complex installation.

 

11. PROPERTY, PLANT AND EQUIPMENT (continued)

 

The principle of the method consists in correcting the replacement value (again) with the real degree of depreciation, the stages necessary to be covered being:

 

 

Determining the replacement value (according to the definition: The replacement value is the value in undiminished condition of a fixed means, at the place of use, ready to be put into operation. It includes all expenses that should be incurred at the date of evaluation for the replacement of equipment considered in a new state, with technical-economic characteristics similar to the one to be evaluated) by one of recommended methods (estimate, cost-capacity, index).

 

 

The replacement value was obtained through a capacity cost assimilation starting from the quotation again and by the index method. For some of the equipment (of those with a more active market) quotations of market were taken from the bids attached to the report.

 

 

Details of the Company’s freehold land and buildings and information about the fair value hierarchy as at the end of the reporting period are as follows:

 

 

Level 3

 

Fair value as at

31/12/2021

 

RON

 

RON

 

 

 

 

Land

16,642,911

 

16,642,911

Buildings

13,156,431

 

13,156,431

Technical installations and machinery

30,785,655

 

30,785,655

Equipment’s and vehicles

421,496

 

421,496

 

 

Pledged or mortgaged assets

 

As of December 31, 2021, the Company has pledged or mortgaged depreciable tangible assets in the net book value of RON 21,646,953 (December 31, 2020: RON 12,719,882) and land in the amount of RON 16,020,708 (December 31, 2020: RON 16,020,708).

 

The right to use certain assets

 

Included in the tangible fixed assets presented are also assets representing the right to use some machines and equipment in the amount of RON 5,208,283 as of December 31, 2021 (December 31, 2020: RON 7,459,540); the depreciation expense for the year 2021 was RON 443,716 (December 31, 2020: RON 248,153). See Note 25 for movements in leasing liabilities.

 

13. INTANGIBLE ASSETS

 

 

Other

intangible

assets

 

Intangible

assets

in progress

 

Total 

COST

 

 

 

 

 

 

As at December 31, 2019

20,600,192

 

67,109

 

20,667,301

 

 

 

 

 

 

Additions

1,522,211

 

25,688

 

1,547899

Disposals

(842,082)

 

-

 

(842,082)

 

As at December 31, 2020

21,280,321

 

92,796

 

21,373,118

 

 

 

 

 

 

Additions

-

 

666,173

 

666,173

Disposals

758,971

 

(758,971)

 

-

 

As at December 31, 2021

22,039,292

 

-

 

22,039,292

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED AMORTISATION

 

 

 

 

 

 

As at December 31, 2019

17,301,265

 

-

 

17,301,265

 

Amortization for the year

2,742,841

 

-

 

2,742,841

Accumulated amortization related to outflows

-

 

-

 

 

 

As at December 31, 2020

20,044,106

 

-

 

20,044,106

 

Amortization for the year

1,056,637

 

-

 

1,056,637

Accumulated amortization related to outflows

 

 

 

 

 

 

As at December 31, 2021

21,100,743

 

-

 

21,100,743

 

 

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2020

1,236,215

 

92,796

 

1,329,012

 

 

 

 

 

 

As at December 31, 2021

938,549

 

-

 

938,549

 

 

 

 

Intangible assets are represented by:

1. SAP-ERP software. The payback period for these software programs is 3 years. The net book value of ERP as of December 31, 2021 is RON 415,282 (December 31, 2020: RON 446,405).

2. Assets related to leasing rights in accordance with IFRS16, value remaining at 31.12.2021: RON 47,901 (December 31, 2020: RON 191,606), remaining life 4 months.

3. IT licenses, value remaining on 31.12.2021: 420,411 RON (31 December 2020: 465,928 RON) with useful lives of 12 - 36 months.

4. Commercial licenses, the value remaining on 31.12.2021: 54,953 RON (31 December 2020: 92,797 RON) with a lifespan of 12 months.

  1.  
  2. INVENTORIES

 

 

December 31,
             2021

 

December 31,
             2020

 

RON

 

RON

 

 

 

 

Raw materials

40,169,839

 

30,741,426

Consumables

2,529,041

 

2,223,863

Packaging

30,324

 

33,611

Finished goods

5,296,567

 

1,583,010

Work in progress

15,424,099

 

-

Semi-finished goods

13,551,886

 

9,467,657

Residual products

151,132

 

141,275

Merchandise

449

 

-

Inventory allowances

(17,811,415)

 

(13,017,671)

 

Total

59,341,922

 

31, 173,171

 

* In the financial statements for the year ended December 31, 2020, the value of semi-finished products was included in the line of raw materials.

 

In 2020, the Company presented the production in full execution on the line of contracted assets, including the related provision. Following a comprehensive analysis conducted in 2021, it was established that this classification was not applicable to the entire production in progress. The change was made only prospectively, a restatement of the previous balances requiring a detailed analysis of the production component in stock, which could not be performed until the date of these financial statements.

 

Obsolete raw materials were adjusted as follows: by 100% inactive inventories in the last 5 years (or more), by 70% inactive inventories in the last 4 years and by 50% inactive inventories in the last 3 years. Inactive inventories in the last 2 years have not been adjusted since most manufactured products have long cycle of use. To adjust slow moving inventories, only those materials that registered outflows in 2021 have been taken into account, and inventories as at 31.12.2020 and 31.12.2021 were different from zero. The rate was calculated as the ratio between the average inventories (as at 31.12.2020 and 31.12.2021) and 2020 outflows. The adjustments were calculated according to the size of rate: 30% for a rate equal to 3, 70% for a rate equal to 4 and 100% for a rate equal to 5 (and higher).

 

Inventories of raw materials and consumables managed by DPPV – Finished parts VIPER; DPRP – Repaired parts; DPMP – hazardous materials, intended only for the manufacturing and repair or VIPER 632-41 aircraft parts and engines, were 100% provisioned.

The Company also assessed and recorded, as appropriate, any adjustments to determine net realizable value in accordance with IAS 2.

The movement of allowances for inventory impairment is as follows:

 

 

December 31,
             2021

 

December 31,
             2020

 

RON

 

RON

 

 

 

 

Balance at the beginning of the year

(13,017,671)

 

(11,732,851)

 

Increase/Decrease of allowances in profit or loss

(1,949,587)

 

(1,284,820)

 

Balance at the end of the year

(14,967,258)

 

(13,017,671)

 

 

The increase in allowance per types of inventories can be presented as follows for 2021:

 

Inventory type

Variation in allowance 2021

Variation in allowance 2020

 

Raw materials

1,756,879

1,780,583

Consumable

254,590

143,320

Finished goods and Residuals products

52,779

(709,725)

Packages

(114,661)

70,642

 

Total

 

1,949,587

1,284,820

13. INVENTORIES (continued)

 

The movement within the adjustments for the depreciation of the stocks related to the production in progress is the following:

 

 

 

December 31,2021

 

December 31,2020

 

RON

 

RON

 

 

 

 

Balance at the beginning of the year

-

 

-

Transfer of contractual assets

(2,066,371)

 

-

Provision increase recognized in profit and loss

(777,786)

 

 

Balance at the end of the year

(2,844,157)

 

-

 

 

15. CONTRACT ASSETS

 

 

December 31,2021

 

December 31,2020

 

RON

 

RON

 

 

 

 

Repairs and production contracts

11,952,778

 

33,796,257

Loss allowance

-

 

(2,066,371)

 

Total

11,952,778

 

31,729,886

 

 

Non-current

-

 

12,128,057

Current

11,952,778

 

19,601,829

 

 

Amounts relating to contract assets are balances due from customers under repairs contracts that arise when the Company enters in repairs agreement with customers. Any amount previously recognized as a contract asset is reclassified to trade receivables at the point at which it is invoiced to the customer.

 

 

Payment for repairs services is not due from the customer until the repairs services are complete and therefore a contract asset is recognized over the period in which the repairs services are performed to represent the entity’s right to consideration for the services transferred to date.

 

 

The loss allowance related to contract assets is recognized at an amount equal to lifetime ECL, simplified approach and taking into account historical default experience.

 

 

Based on historical experience, given the specialized nature of the services offered, the limited number of customers and the fact that the main customers are state-owned companies, their credit risk is very low, therefore the related depreciation is considered insignificant. The depreciation presented in 2020 represents the depreciation registered for production in progress older than 3 years. In 2021, they were reclassified into stocks

 

 

16. TRADE RECEIVABLES 

 

 

December 31,
2021

 

December 31,
             2020

 

RON

 

RON

 

 

 

 

Trade receivables

20,520,299

 

12,534,851

Clients - invoices to be issued

90,382

 

76,346

Allowance for doubtful debts

(340,313)

 

(238,832)

Total

20,270,368

 

12,372,365

 

 

 

  1. TRADE RECEIVABLES (continued)

 

The movement of allowances for impairment of trade receivables is as follows:

 

 

December 31,
2021

 

December 31,
2020

 

 

 

 

Balance at the beginning of the year

238,832

 

489,897

 

(Decrease) / Increase of allowance in profit or loss

101,481

 

(251,065)

 

Balance at the end of the year

340,313

 

238,832

 

 

 

The company allowed in proportion of 100% the receivables which exceed 270 days because the historical experience indicated that these receivables are generally not recoverable.

 

The company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade receivables are over two years past due, whichever occurs earlier. None of the trade receivables that have been written off is subject to enforcement activities.

 

The company carried out the assessment on the ECL approach and no significant difference was found because the company operates in the defense industry, where the main customers are state-owned companies that do not have payment problems. The average number of collection days is 22. The increase in the balance of receivables at the end of the year is due to the completion of a large number of orders by the end of the year that were invoiced in the last month. These were subsequently collected as there was no risk regarding the increased balance as of December 31, 2021.

 

 

16. OTHER RECEIVABLES

 

 

December 31,
             2021

 

December 31,
             2020

 

 

 

 

Sundry debtors

45,911

 

154,781

Prepaid expenses

272,940

 

406,997

Advances to suppliers

907,417

 

1,142,156

Other receivables

1,204,875

 

1,013,408

 

 

 

-

 

Total

2,431,143

 

2,717,342

 

 

 

17. CASH AND CASH EQUIVALENTS

 

 

December 31,
             2021

 

December 31,
             2020

 

 

 

 

Cash in banks

18,902,135

 

5,133,632

Petty cash

16,220

 

14,582

Other cash equivalents

42,411

 

-

Cash equivalents

594

 

577

 

Total

18,961,360

 

5,148,791

 

 

18. SHARE CAPITAL

 

The share capital is fully paid in:

 

 

No. of shares

 

Share capital

 

 

 

RON

 

 

 

 

Share capital as at December 31, 2020

369,442,475

 

36,944,248

 

Effect of inflation on the share capital

987,626,807

 

987,626,807

 

 

 

 

 Share capital as at December 31, 2020

1,024,571,055

 

1,024,571,055

 

 

 

 

Closing  the reported result from the adoption of IAS 29

-

 

(987.626.807)

 

 

 

 

Share capital as at December 31, 2021

369,442,475

 

36.944.248

 

 

The share capital of the Company was inflated until December 31, 2003, the date from which the Romanian economy was no longer considered inflationary.

Following the OGMS Decision 3 / 26.08.2021, in TRIM III, it was decided to close the reported result from the adoption of IAS 29 - debtor by reducing the corresponding amount of capital and reserves.

As a result of this operation, the following items will be presented in the financial statements as follows:

a) The company's own capital in the financial statements will be of RON 36,944,248, the paid subscribed capital, registered at the Trade Register.

b) The legal reserve will be reduced by RON 8,302,633

c) Other reserves will be reduced by RON 12,414,196

d) The reported result will decrease by RON 3,280

e) Also, the above adjustments are closed with the amounts previously registered in the result carried forward in the amount of RON 1,008,346,916.

 

When these amounts were registered (2012) they did not have any impact on the company's patrimony, respectively on the own capitals, these remaining at the value before making these registrations, because the respective amounts are canceled each other.

Now (2021) when this inflation is canceled, the equity will not be changed, for the same reasons: the respective amounts are mutually canceled.

 

 

19. RESERVES

 

 

December 31,
             2021

 

December 31,
             2020

 

 

 

 

Legal reserves

7,388,850

 

15,691,483

Revaluation reserves

47,190,885

 

47,579,992

Other reserves

27,874,351

 

40,288,547

 

Total

82,454,086

 

103,560,022

 

The movements in reserves during 2021 are mainly represented by the closing of the result carried foreward from IAS29 adoption (note 18).

Revaluation reserves are related to revaluations performed on property, plant and equipment and cannot be distributed to shareholders until they are realized.

In 2021, no legal reserve was established, as it has been established since 2017 in the amount of 20% of the share capital.

In 2020, reserves were set up for the amount of reinvested profit amounting to RON 1,180,748, representing fiscal facilities.

Other reserves also include the tax deductions granted for exports in the years 2000-2003 in the amount of RON 4,957,578 (their inflated value being RON 6,100,419). If the management decides to change their destination, they will be charged. Management has decided not to use these reserves so no deferred tax has been imposed on them.

 

 

 

20. BORROWINGS

 

 

December 31,
             2021

 

December 31,
             2020

 

 

 

 

  1. Short-term debts from shareholders

4,880,000

 

4,880,000

Interest payable to shareholders

4,880,000

 

4,880,000

 

b) Loans from banking institutions and lease entities

 

 

 

 

Secured loans

 

 

 

Short-term loans

21,909,394

 

13,839,726

Long-term loans

 

 

 

Short-term leasing debts

1,105,655

 

1,704,812

Long-term leasing debts

2,055,578

 

4,242,854

 

Total loans from banking institutions and leasing entities

25,070,627

 

19,787,392

 

 

 

 

Total loans

29,950,627

 

24,667,392

Short-term loans

27,895,049

 

20,424,538

 

 

 

a)  Amounts owed to shareholders

 

At the end of March 2009, the Company concluded loan contracts with shareholders to finance its operating activity as follows:

 

Viehmann Radu: RON 4,580,000 of which RON 4,500,000 according to Contract 178/2009 and the subsequent addenda  and RON 80,000 according to short-term contract no. 538/2011, non-interest bearing.

 

Ciorapciu Dana Maria: RON 300,000 according to Contract 867/2012 and the subsequent addenda.

 

These are extended annually, by additional documents, during the year the interest related to these contracts is paid.

 

Thus, in January 2020, the 2 contracts were extended until 31.01.2021 and additional documents were concluded, respectively AA 11 / 27.01.2020 and AA 7 / 27.01.2020. The related interest is 6.35%.

 

In 2020, the interest due for 2020 to Mr. Viehmann Radu in the amount of 258,102 lei and to Mrs. Ciorapciu Dana Maria in the amount of 17,202 lei was paid.

In January 2021, the two contracts were extended and additional documents were concluded as follows: AA 12 / 28.01.2022 and contract 178/2009 and respectively, AA 8 / 28.01.2022 to contract 867/2012.

Both additional documents extend the validity of the 2 contracts until 31.01.2022, and the gross interest rate is 5.80% / year, which includes the percentage related to the investment income tax, which currently, according to the Fiscal Code, is 10%. In 2021, the interest due for 2021 to Mr. Viehmann Radu in the amount of 236,809 lei and to Ms. Ciorapciu Dana Maria in the amount of 15,786 lei was paid.

 

In January 2022, the two contracts were extended and additional documents were concluded as follows: AA 13 / 28.01.2022 to contract 178/2009 and AA 9 / 28.01.2022 to contract 867/2012, respectively.

Both additional documents extend the validity of the 2 contracts until 31.01.2023, and the gross interest rate is 5.46% / year, which includes the percentage related to the investment income tax, which currently, according to the Fiscal Code, is 10%.

  1. BORROWINGS (continued)

 

b)  Amounts owed to credit institutions

 

Contract

December, 31 

2021

 

December, 31 

2020

 

(A) BRD
– Working Capital no. 103 BIS/28.04.2006

14,572,012

 

5,982,312

(D) Banca Transilvania 
– Working Capital no. 186/24.06.2009

7,337,382

 

7,857,414

 

 

21,909,394

 

13,839,726

 

 

(A)  BRD – Credit facility no. 103 BIS/28.04.2006

 

The company has a credit line and a SGB issuance facility and the opening of letters of credit with BRD which has been extended over time by additional documents.

- By the Additional Act no. 60 / 22.08.2019, in addition to other modifications of the contractual terms and conditions, the bank waived the financial conditions that had to be met by the Company.

- Additional act no. 62 / 28.08.2020 extended the validity period of the global financing ceiling of facility A, multi-options, non-binding, until 31.08.2021, and for facility B until 31.12.2021.

- Additional act no. 63 / 25.08.2021 extended the validity period of the global financing ceiling of facility A, multi-options, non-binding, until 31.08.2022, and for facility B until 31.12.2022.

All other provisions of the Credit Agreement remain unchanged, including those relating to guarantees, interest, commissions.

As of 31.12.2021, the loan balance is 14,572,011.77 lei (31.12.2020: 5,982,311.45 lei)

 

The value of the letters of guarantee issued from the credit ceiling and valid in 2020 is 1,000,014 lei, of which 609,126 lei are valid on January 1; during the year, SGBs worth 390,999 lei were issued. On 31.12.2020, 4 GBS in the amount of 910,966 lei expired at maturity, the difference of 89,048.60 lei expires on 30.06.2021.

On 31.12.2020, the approved limit is 19,365,000 lei, of which 5,982,311.45 lei are used through the credit line and 89,048.60 lei through the Bank Guarantee Letters, the limit available for use on 31.12.2020 is 13,293. 639 lei.

 

The value of the letters of guarantee issued from the credit ceiling and valid on 01.01.2021 is 89,048.60 lei, maturing on 30.06.2021. On 28.12.2021, a Letter of Good Performance Bank Guarantee was issued in favor of the client UM01836 in the amount of 641,312.49 lei with maturity on 31.08.2022.

On 31.12.2021, the approved limit is 19,365,000 lei, of which 14,572,011.77 lei are used through the credit line and 641,312.49 lei through Bank Guarantee Letters, the available limit to be used being 4,151,675 lei.

 

(A1) BRD - Factoring contract 539/04.05.2006

 

In 2006 the Company concluded a factoring contract, the factoring contract no. 539 / 04.05.2006, which was successively extended.

By addendum No.5 to the Factoring Contract no. 539 / 04.05.2019, the financing ceiling of 500,000 Eur was established, for covering the risk of non-payment of 500,000 Eur. The factoring commission is 1.1% + VAT and 9 EUR / document + VAT

Annual financing commission rate: EURIBOR / 3M + 4% margin p.a. + VAT.

On 31.08.2020, the addendum no. 6 to the Factoring Contract no. 539 / 04.05.2006 came in force, by which it was agreed to increase the factoring ceiling, so the Special Conditions no. 1 have been completely rewritten.

The financing ceiling is 500,000 Eur, being eligible for financing and covering the risk of non-payment, receivables with a payment term of maximum 120 days from the date of their issuance. The amount financed will not exceed the amount resulting from the application of the percentage of financing to the approved financing ceiling.

The validity term of the financing ceiling is 31.08.2021.

  1. -BORROWINGS (continued)

b)  Amounts owed to credit institutions (continued)

 

The percentage of financing of the approved receivables is: 90%, and the difference of 10% of the approved receivables representing the reserve. No time limit applies for the rejection of claims. The validity term of the non-payment risk coverage ceiling is 31.08.2021.

On 31.08.2021 the factoring contract was not renewed. The Company waived the assignment of receivables for the customer of GE Hungary.

At the maturity date, the balance of the assigned receivables was EUR 11,690, with a maximum maturity of 03.11.2021. Upon the full collection of the invoices from the balance, the factoring contract no. 539 / 04.05.2006 concluded between

 

BRD -Group Societe General and Turbomecanica is automatically terminated according to notification no. 6187 / 08.09.2021 transmitted by BRD

 

(B) Banca Transilvania – Loan contract no. 186/24.06.2009

 

On 18.05.2020, the Additional Act no. 26/186, whose object is the modification of the guarantees, the extension of the credit limit amounting to 9,400,000 lei until 08.09.2020. The period of use is until 07.09.2020.

The following have been established: the interest rate is variable of 5.88%, being made up of ROBOR 6M, calculated on 31.03.2020, to which is added the bank's margin of 3.25% (6-month ROBOR index calculated on 31.03.2020 is 2.63%), the penalty interest being 15% / year, the extension commission of 0.15% applicable to the loan amount, to be paid on the extension date, the non-use is 1% / year, calculated on the daily amount left unused from the amount of the loan, the administration fee is 0.05% / month of the average monthly balance of the loan, to be paid monthly, the early repayment fee is 1% of the amount repaid in advance, to be paid on the date of the advance repayment.

 

On 18.05.2021, the Additional Act no. 29/186, the object of which is to modify the following conditions: extension of the credit facility until 18.05.2022; the value of the loan 9,400,000 lei; Multiple shots.

Use period: until 17.05.2022. Expires 18.05.2022

Interest rate. The annual interest rate is 4.98% variable and consists of the 6-month ROBOR index, calculated on 31.03.2021, to which is added the Bank's margin of 3.25%. The ROBOR index is 1.73%, but in all cases where the value of the reference index falls below zero, in order to calculate the interest, the value zero is used. The annual interest rate will be updated Quarterly on the first working day of the calendar quarter with the official level of the 6-month ROBOR index calculated on the last working day of the previous calendar quarter.

 

On 21.07.2021, the Additional Act no. 30/186 by which the interest margin decreased from 3.25% to 2.5%, starting with 15.08.2021.

On 12.10.2021, the Additional Act no. 31/186 which modifies the structure of guarantees by eliminating the buildings with cadastral numbers 233974 and 229339 based on an evaluation report provided that the remaining guarantee has a degree of coverage of 85%.

The following guarantees are maintained:

- first real estate mortgage on objectives 6,8,11 and 10, land of 583 sqm, free urban land of 684 sqm and real movable guarantee on receipts and the balance of the current account and sub-accounts opened at BT, with no. 186 / CES / 02 / 06.06.2012, amended and supplemented by AA 01/186 / CES / 02 / 21.05.2019.

- movable mortgage on the existing goods for 18 equipments, eliminating, unlike the previous contract, the Maxicut transmission machine.

The guarantees on the existing goods for 18 equipments are maintained, in accordance with the Movable Mortgage Agreement for the existing goods determined no. 186 / GAJ / 01.27.02.2014, amended and supplemented by Additional Act no. 04/186 / GAJ / 01 / 18.05.2020.

According to the standard contractual clauses, the customer undertakes to submit to the bank for analysis all the documents necessary for the extension of the credit facility at least 45 days before the expiration of the facility.

Turbomechanics has the obligation to make a BT turnover of min. 33% of turnover. Running condition has been met The special clauses of the facility are maintained and remain unchanged.

The credit balance on 31.12.2021 is RON 7,337,381 (31.12.2020: RON 7,857,414).

 

20 --BORROWINGS (continued)

b)  Amounts owed to credit institutions (continued)

 

(C) Leasing contracts

 

In 2017, the company concluded Leasing Contracts 4003351 and 4003350 with UNICREDIT LEASING, amounting to EUR 174,132.

 

In 2019, these contracts were subject to IFRS 16 “Leasing Contracts”. As of January 1, 2019, the accounting standard IAS 17 “Leases”, as well as all interpretations issued in its application have been replaced by a new standard issued by the international body, namely IFRS 16 “Leases”. The major changes brought by the new standard refer primarily to the accounting at the level of tenants (users), in which case the differentiation established based on the old rules, respectively financial leasing - operational leasing will no longer be relevant. Based on the new principles of IFRS 16, the right of use becomes essential, and the principle of economic prevalence over legal acquires a more accentuated applicability in the case of tenants.

The balance of these leasing contracts as of 31.12.2021 is RON 52,050 (31.12.2020: RON 204,895), DAE 8.77%.

The assets related to these contracts have been presented in Note 12.

 

Subsequently, the company concluded leases for equipment with BT Leasing for a period of 60 months and with Gleason -Pfauter Maschinenfabrik Gmb for a period of 36 months, with an interest rate of 3.9%. Their balance as of December 31, 2021 is RON 3,109,183 (December 31, 2020: RON 5,742,771).

 

The assets related to these leases are presented in note 11.

 

All lease debts are due in a period of up to 5 years.

 

 

21. PROVISIONS

 

Provisions for post-employment benefits

Other provisions related to personnel

Provisions for Guarantees

Provisions for onerous contracts

Total

Balance as of 01.01.2021

1,800,095

3,708,200

1,232,247

-

6,740,542

Additions

247,859

3,098,207

 

676,153

4,022,219

Used

(261,358)

 

 

 

(261,358)

Reversal through profit and loss

 

(2,683,738)

(896,625)

 

(3,580,363)

Actuarial gain – other comprehensive income

(636,240)

 

 

 

(636,240)

Balancce as of 31.12.2021

1,150,356

4,122,669

335,622

676,153

6,284,800

 

 

Provisions for guarantees and post-employment benefits have been classified as long-term.

 

“Other provisions related to staff” include the following: provision for performance bonuses for 2021 to be granted in 2022, provision for rest leave not taken on December 31, 2021, provision for tax obligations related to gift vouchers granted to employees during 2016 - 2019.

 

The company provides the following benefits to its employees:

a) Retirement benefits in the amount of two basic salaries in the month preceding retirement;

b) Assistance in case of death of the employee: 5 minimum salaries per company plus 25% of this amount of each dependent child;

c) Upon termination of the activity from the company's initiative as a result of the restriction of its activity, compensatory payments of up to 6 individual salaries, representing 20% ??of the individual salary of the month preceding the termination of the collaboration.

The most recent actuarial valuation of the provision for post-employment benefits was performed on December 31, 2021, by GELID ACTUARIAL COMPANY. The present value of the benefit obligation determined the costs related to the current services and the cost of the past service, were measured using the Projected Credit Factor Method (MFCP). These benefits will be paid in large in the next 5-15 years.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

 

Demographic assumptions on the future characteristics of employees eligible for receiving benefits:

21. PROVISIONS (continued)

 

Mortality of employees and their family members.

 

Romanian Mortality Table for 2018 men and women issued by the National Institute of Statistics.

Rate of employee turnover

In 2021, the employee turnover rate was 10.9%. For this exercise, the average of the last three years was considered to be 8.9% p.a. Based on the age structure of the staff, the staff turnover rate model takes into account the number of years remaining until retirement and results in a number of employees who would leave and be replaced equal to 8.9% of the total number of employees. The employee turnover rate is:

- 23.9% pa for employees who are over 35 years old until retirement

- Linearly decreasing to 0% for employees with a number of years until retirement between 35 and 5 years;

For the last 5 years until retirement, I considered that employees are no longer looking to change jobs and that they have gained enough experience not to be replaced for disciplinary reasons. 

 

Rate of dismissals

For the period after December 2021, the Company did not communicate a personnel redundancy plan.

 

Financial assumptions

 

Discount rate

 

As regards the discount rate, the Company took into account the yields of bonds on the active market at the end of December 2010. The available residual terms until maturity were 1 - 10 years and 13-14 years. For the other terms, the Company estimated the discount rate using the Smith-Wilson method. The long-term assumptions were:

 

– estimated long-term inflation rate 2% pa

– estimated long-term real yield of government bonds 1.6% pa

– liquidity premium for Romania 0%.

 

Thus, a balancing forward rate of 3.60% pa was considered.

The method ensures compatibility between the discount rate and inflation rate.

The weighted average discount rate is 5

% p.a.

 

Inflation rate

 

Based on the statistics issued by INSSE and the NBR forecast, the Company estimated an inflation rate of:

 

– 8.2% for 2021

– 5.9% for 2022

– 3.2% for 2023

– 3.0% for 2024

– 2.8% for 2025

  • 2.5% for 2026 - 2031 and following a declining trend in the following years

Wage growth rate

The Company estimates an average growth of maximum 4,02% in 2022. For 2023 and the following years, the Company estimated that salaries will increase by an average of the consumer price index of each year

The components of defined benefit costs recognized in profit or loss are as follows:

.

 

Change the present value of the obligation

December 31,

2021

December 31,

2020

 

 

 

Present value of obligation

1,800,095

1,609,323

Interest cost

42,729

60,341

Cost of current service

205,130

200,717

Payments from provisions during year

(261,358)

(534,690)

Actuarial (Gain)/Loss of the year

(636,240)

464,404

Past service costs

-

-

Present value of the obligation

1,150,356

1,800,095

 

21. PROVISIONS (continued)

 

Components of defined benefit costs recognized in profit or loss are as follows:

 

Service cost:

December 31,

2021

 

December 31,

2020

 

Current service cost

205,130

 

200,717

Interest cost

42,729

 

60,341

Past service cost

-

 

-

Benefits paid

247,859

 

261.358

 

 

Amounts recognized in the comprehensive income in respect of these defined benefit plans are as follows:

 

Re-measurement of the net defined benefit liability:

December 31,

2021

 

December 31,

2020

 

Actuarial gains and losses from changes in financial assumptions

(636.240)

 

464,404

 

TOTAL

(636.240)

 

464,404

 

 

Change in provision

December 31,

2021

December 31,

2020

Opening Balnce – January 1st

1,800,356

1,609,323

Expenditure/ (Income) related to the period

(388,381)

725,462

Payments

(261,358)

(534,690)

Total provision

1,150,536

1,800,095

 

Significant actuarial assumptions for determining the defined obligation are the following: discount rate, projected salary increases and mortality.

 

Benefit Payment Maturity Analysis 2021

 

 

 

Maturity of obligations with defined benefits

 

 

Retirement benefits

 

Employee death benefits

 

Total obligations with defined benefits

 

Pana la 1 year

89,286

43,786

133,072

1 – 2 year

90,502

45,566

136,067

2 – 5 year

329,945

127,039

456,984

5 – 10 year

1,065,073

156,428

1,221,501

Peste 10 year

1,144,334

129,978

1,274,312

 

 

Sensitivity analysis 2021

 

 

Hypotheses

          December, 31 2021

Post-employment benefits

December, 31 2020

Post-employment benefits

PVDBO at 31.12.2021 (RON)

1,150,356

1,800,095

Discount rate +1%

1,077,350

1,699,573

Discount rate -1%

1,231,281

1,912,386

Wage growth rate +1%

1,232,899

1,912,409

Wage growth rate -1%

1,074,679

1,697,795

Increased longevity by 1 year

1,143,928

1,792,949

 

 

As mentioned in Note 3, for contract revenues, the Company offers its customers a guarantee between 12-18 months. The management of the Company makes an analysis of the historical costs with the repairs under warranty. Based on this analysis, the Company determined that the level of expenses for warranty works, which is on a decreasing trend, was at a level of 0.26% of turnover, a percentage used in determining the provision for guarantees.

22. TRADE AND OTHER LIABILITIES

 

 

December 31,

2021

 

December 31,

2020

 

 

 

 

Trade liabilities

4,273,032

 

1,338,180

Liabilities on invoices to be received

1,265,915

 

523,349

Other creditors

12,571

 

-

 

Total

5,551,518

 

1,861,529

 

 

 

23. OTHER CURRENT LIABILITES AND DEFERRED INCOME

 

Other current liabilities

 

December 31,

2021

 

December 31,

2020

 

 

 

 

Salaries

1,942,787

 

1,848,588

Salary taxes

2,531,620

 

2,439,069

VAT payable

3,249,763

 

1,800,475

Other creditors

159,882

 

192,118

Other taxes

222,421

 

77,009

Advances from clients

12,459

 

207,830

Dividends

1,076,277

 

1,762,359

 

Total

9,182,750

 

8,327,448

 

24. SEGMENT REPORTING

 

Operating segments of the Company are driven by the main products and services delivered, as it is shown below: manufacturing of aircraft parts, repairs of engines and other. The geographical segmentation of the operations derives from the country of origin for the main customers of the Company. 

The Company's management does not monitor the business at the level of these segments, only the registered revenues. Owned assets serve all segments presented. Therefore, the Company cannot present profitability and CAPEX at the individual segment level.

 

 

 

Segment revenues 

 

December 31,

2021

 

December 31,

2020

 

Manufacturing of aircraft parts

38,512,607

 

36,827,898

Repairs of engines

90,120,845

 

85,931,742

Others, including the production of parts for the industrial sector

2,697,713

 

2,229,397

Total

131,331,165

 

124,989,037

 

Geographic information

 

The company revenue form external customers and information about its segment assets (non-current assets excluding financial instruments, deferred tax assets and other financial assets by geographical location are detailed below:

 

 

Location

2021

Revenues

 

2020 Revenues

 

EUROPA

131,228,370

 

124,821,002


Out of which Romania

121,530,133

 

110,722,333


USA

87,128

 

152,843


ASIA

15,667

 

15,192


 

TOTAL

131,331,165

 

124,989,037


 

25. FINANCIAL INSTRUMENTS

 

  1. Capital risk management

 

The Company manages its capital so as to make sure that it will continue its business along time with the maximization of the shareholders’ wealth, by optimizing the balance of liabilities and equity.

The Company’s capital consists of debts, which include the borrowings disclosed in Note 19, cash and cash equivalents and equity.

Own equity comprises share capital, reserves and retained earnings, as disclosed in Notes 16 and 17.

The Company monitors capital based on the gearing ratio. Such ratio is calculated as ratio between the net debt and total capital. The net debt is calculated as total borrowings (including both long and short-term loans) less cash and cash equivalents.

The total capital is calculated as “capital and reserves” as reported in the balance sheet.

The gearing ratio as at December 31, 2021 and December 31, 2020 is as follows:

 

December 31,

2021

 

December 31,

2020

 

 

 

 

Total borrowings

29,950,627

 

24,667,387

Cash and cash equivalents

(18,961,360)

 

(5,148,791)

 

Net debt

10,989,267

 

19,518,596

 

 

 

 

Total capital and reserves

120,598,947

 

108,649,087

Gearing ratio

9%

 

18%

 

 The change in the degree of indebtedness is due to the increase in cash and cash equivalents as of December 31, 2021.

 

 

b) Credit risk management

 

The company is subject to a credit risk due to its trade receivables and other types of receivables. The company has policies designed to ensure that sales are made to customers with appropriate references regarding their creditworthiness. The maturity date of the debts is closely monitored and the amounts due after the deadline are promptly tracked. Trade receivables (customers) are presented net of adjustments for impairment of uncertain receivables. The company develops policies that limit the value of credit exposure to any financial institution. The company does not request collateral deposits but in some limited cases, it requires advances from customers.

 

The concentration of trade receivables and revenue from contracts is as follows:

 

 

 

 

Trade

receivables as of

31 December

2021

Contractual Assets as of

31 December

2021

Revenue from

contracts with

customers 2021

 

Trade

receivables as of

31 December

2020

Revenue from

contracts with

customers 2020

 

Top 3 clients

15,824,791

 

10,764,873

123,215,826

 

11,135,042

113,882,629

Others

4,445,577

1,187,905

8,115,339

 

1,237,323

11,106,408

 

Total

20,270,368

 

11,952,778

131,331,165

 

12,372,365

124,989,037

 

 

25 - FINANCIAL INSTRUMENTS (continued)

b) Credit risk management (continued)

The main 3 clients according to sales are represented by 2 entities with majority state participation, clients that fall into a low risk category and Leonardo S.p.a Helicopters Division, an external entity with a very good creditworthiness. There are also income and their income in each period. As of December 31, 2020, the division of contract assets could not be provided.

Cash is held in financial institutions that are valued at minimal risk of default. These are BRD and Banca Transilvania.

The book values ??represent the maximum exposure of the Company to the credit risk related to the existing receivables.

On this basis, the provision for loss on December 31, 2021, December 31, 2020 was determined by the provision of receivables older than 270 days.

The company assumes that the credit risk is low, as most of the company's balance of receivables consists of 2 main customers that are held by the state, with an average collection period of 20 days, so there is a limited risk of significant losses of credit and Leonardo Spa Helicopters Division, customer with good creditworthiness.

25. FINANCIAL INSTRUMENTS (continued)

 

c) Foreign currency risk management

 

The Company is exposed to foreign currency fluctuations in commercial and financing transactions. Foreign currency risk arises from recognized trade assets and liabilities, borrowings inclusively, expressed in foreign currency. Due to high associated costs, the Company’s policy is not to use financial derivatives to mitigate such risk.

 

The carrying amounts of the Company’s currencies expressed in monetary assets and liabilities as at the reporting date are the following:

 

2021

EUR

 1 EUR = RON 4,8694

 

USD

1 USD = RON 3,9660

 

GBP

1 GBP = RON 5,4201

 

CHF

1 CHF = RON 4,4997

 

RON

1 RON = RON

 

TOTAL

December 31,

2021

 

 

 

 

 

 

 

RON

 

RON

 

RON

 

 

 

RON

 

RON

ASSETS

Cash and cash equivalents

3,745,707

 

48,664

 

7,199

 

1,854

 

15,157,936

 

18,961,360

Receivables and other current assets

3,353,123

 

12,079

 

-

 

-

 

16,905,166

 

20,270,368

Contract assets

-

 

-

 

-

 

-

 

11,952,778

 

11,952,778

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Trade and other liabilities

71,594

 

143,684

 

-

 

 

 

5,336,240

 

5,551,518

Short and long-term loans

3,161,235

 

-

 

-

 

-

 

26,789,393

 

29,950,628

 

 

 

 

 

 

 

 

 

 

 

 

Net balance exposure (assets - liabilities)

3,866,001

 

(82,941)

 

7,199

 

1,854

 

11,890,247

 

15,682,360

 

2020

EUR

 1 EUR = RON 4,7793

 

USD

1 USD = RON 4,2608

 

GBP

1 GBP = RON 5,6088

 

CHF

1 CHF = RON 4,4033

 

RON

1 RON = RON

 

TOTAL

December 31,

2020

 

 

 

 

 

 

 

RON

 

RON

 

RON

 

 

 

RON

 

RON

ASSETS

Cash and cash equivalents

4,913,769

 

25,073

 

34,728

 

4,073

 

155,951

 

5,133,594

Receivables and other current assets

3,495,143

 

11,330

 

-

 

-

 

9,028,378

 

12,534,851

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Trade and other liabilities

73,970

 

119,630

 

3,954

 

 

 

1,625,769

 

1,823,323

Short and long-term loans

5,947,662

 

-

 

-

 

-

 

18,719,725

 

24,667,387

 

 

 

 

 

 

 

 

 

 

 

 

Net balance exposure (assets - liabilities)

2,387,280

 

(83,227)

 

(30,774)

 

4,073

 

(11,161,165)

 

(8,822,265)

 

25. FINANCIAL INSTRUMENTS (continued)

c) Foreign currency risk management (continued)

 

Sensitivity analysis

 

The Company is mainly exposed in respect of the exchange rate of the EUR vs. RON. The following table details the Company’s sensitivity to a 10% increase in the main currencies the company has monetary items.

 

10% is the sensitivity rate used when reporting foreign currency risk internally to senior management and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.

 

A negative number below indicates a decrease in profit, when there is a 10% weakening of the RON. For a 10% strengthening of RON against the currencies the company has the monetary items denominated there would be an equal and opposite impact on the profit and equity and the balance would be positive.

 

 

10% strengthening of RON against EUR  

- impact on the result as at:

 

December 31,
2021

 

December 31,
2020

 

 

 

 

EUR

386,600

 

238,728

USD

(8,294)

 

(8,322)

GBP

(720)

 

(3,077)

CHF

185

 

407

 

 

d) Liquidity and interest risk management

 

A prudent liquidity risk management requires maintaining sufficient cash and available credit lines, by continually monitoring the estimated and actual cash flow and by correlating the maturities of financial assets and liabilities.

 

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s operating cash flows are impacted mainly by the changes in interest rates, due to the borrowings with variable interest rates contracted from internal credit institutions. The Company has significant borrowings with variable interest rates that expose the Company to significant cash flow risk. The Company is on ongoing negotiation process with the bank to renegotiate repayment terms and interest. 

 

Sensitivity analysis – interest

 

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the reporting date was outstanding for the whole year.

 

Part of interest the company pays to lease companies, where the interest is fixed, thus no impact on fluctuations of interest rates.

For the short term loan, the interest has a volatile component (ROBOR) and is about 5-6% per month.

 

For the short-term loan, the interest rate has a volatile component (ROBOR) and is about 5-6% per month.

Assuming a 2% increase, which historically is an increase in ROBOR rates, the impact on the profit and loss account will be insignificant.

 

 

 

 

 

 

25.  FINANCIAL INSTRUMENTS (continued)

d) Liquidity and interest risk management (continued)

 

2021

Interest rate

Less than 1 month

Less than 1 year

1 to 5 years

More than 5 years

Total

Trade and other current liabilities

 

5,031,328

520,190

-

-

5,551,518

Long and short-term borrowings (of which):

 

 

29,613,560

2,055,579

 

31,669,139

Short term borrowings in lei – BRD

ROBOR 3M +3.50%

 

14,572,012

 

 

14,572,012

Related interest - BRD 

 

 

988,416

 

 

988,416

Short term borrowings -  Banca Transilvania

ROBOR 6M+2.25%

 

7,337,381

 

 

7,337,381

Interest – Banca Transilvania

 

 

448,929

 

 

448,929

Leasing BTRL

 

 

1,105,656

2,055,579

 

3,161,235

Shareholder loans

5.80%

 

4,880,000

 

 

4,880,000

Interest – shareholder loans

 

 

281,166

 

 

281,166

Total Liabilities

 

5,031,328

30,133,750

2,055,579

-

37,220,657

 

 

2020

Interest rate

Less than 1 month

Less than 1 year

1 to 5 years

More than 5 years

Total

Trade and other current liabilities

 

1,619,166

204,157

 

 

1,823,323

Long and short-term borrowings (of which)

 

 

21,654,746

4,242,852

 

25,897,598

Short term loans in lei -  BRD

ROBOR 3M +3,50%

 

5,982,311

 

 

5,982,311

Interest - BRD

 

 

914,899

 

 

914,899

Short term loans Banca transilvania

ROBOR 6M+3,25%

 

7,857,414

 

 

7,857,414

Interest Banca transilvania

 

 

466,840

 

 

466,840

Leasing BTRL

 

 

1,704,810

4,242,852

 

5,947,662

Shareholder loans

6,35%

 

4,880,000

 

 

4,880,000

Interest - Shareholder loans

 

 

268,628

 

 

268,628

Total liabilities

 

1,619,166

21,858,903

4,242,852

 

27,720,921

 

 

 

 

 

 

25.  FINANCIAL INSTRUMENTS (continued)

d) Liquidity and interest risk management (continued)

 

Changes in liabilities arising from financing activities

 

1-Jan-2021

 

Encashment

 

Payments

 

Other variations*

 

Foreign

exchange

movement

 

New

leases

 

Dividends

granted

 

31-Dec-2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

18,719,725

 

8,069,668

 

 

 

-

 

-

 

-

 

-

 

26,789,393

Leasing

5,947,666

 

-

 

929,858

 

1,856,573

 

-

 

-

 

-

 

3,161,235

Dividends

1,762,359

 

-

 

686,000

 

-

 

-

 

-

 

-

 

1,076,277

 

Total financial liabilities

26,429,750

 

8,069,668

 

1,615,858

 

1,856,573

 

-

 

-

 

-

 

31,026,905

 

* During 2021, as mentioned in Note 11, one of the leased equipment was returned to the supplier.

 

 

 

 

 

 

 

 

1-Jan-2020

 

Encashment

 

Payments

 

Overdraft

 

Foreign

exchange

movement

 

New

leases

 

Dividends

granted

 

31-Dec-2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

12,831,738

 

5,887,987

 

 

 

-

 

-

 

-

 

-

 

18,719,725

Leasing

4,863,396

 

-

 

1,210,234

 

-

 

-

 

2,294,494

 

-

 

5,947,666

Dividends

2,101,088

 

-

 

338,629

 

-

 

-

 

-

 

-

 

1,762,359

 

Total financial liabilities

19,796,222

 

5,887,987

 

-

 

-

 

-

 

2,294,494

 

-

 

26,429,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25.  FINANCIAL INSTRUMENTS (continued)

 

e) Fair value of financial instruments

 

  1. Financial assets and liabilities carried at fair value

 

As at December 31, 2021, December 31, 2020 the Company does not hold any financial instruments carried at fair value.

 

2. Non-financial assets carried at fair value

 

The table below analyses the Company’s assets and liabilities carried at fair value, by valuation method. As of 31 December 2021, 31 December 2020 there have been no transfers between fair value levels

 

The different levels are defined as follows:

 

 

31-Dec-2021

 

 

 

 

 

Assets

Level 1

 

Level 2

 

Level 3

 

Land

-

 

-

 

16,642,911

Buildings

-

 

-

 

13,156,431

Equipment

-

 

-

 

31,207,151

 

31-Dec-2020

 

 

 

 

 

 

Assets

Level 1

 

Level 2

 

Level 3

 

Land

-

 

-

 

16,642,911

Buildings

-

 

-

 

13,643,530

Equipment

-

 

-

 

39,387,082

 

 

3. Assets and liabilities not carried at fair value but for which fair value is disclosed

 

 

The assets and liabilities of the Company are carried at amortised cost; their carrying values are a reasonable approximation of fair value.

 

Trade receivables include the contractual amounts for settlement of trades and other obligations due to the Company.

 

Trade and other payables and borrowings represent contract amounts and obligations due by the Company.

 

26. EARNINGS PER SHARE

 

(a)  Basic

 

The basic result per share is calculated by dividing the shareholders’ profit to the weighted average number of ordinary shares issued during the year, except for ordinary shares purchased by the Company and kept as treasury shares.

 

2021  2020

 

Company shareholders result  11.749.227  13.342.276

Weighted average number of ordinary shares issued 363.448.395 363.448.395

Basic earnings per share  0.032  0.037

 

 (b)  Diluted

 

The diluted result per share is calculated by adjusting the weighted average of existing shares to take into account the translation of all potentially diluted shares. The Company did not register convertible debts or share issuance options which may be converted to ordinary shares that may adjust the weighted average number of shares.

 

 

In year 2020 and 2021, the Company did not distribute dividends.

 

 

 

 

27. RELATED PARTIES

 

The company has loans received from related parties as per below illustration:

 

 

December 31,
2021

 

December 31,
2020

 

 

 

 

Total

4,880,000

 

4,880,000

 

Radu Viehmann

4,580,000

 

4,580,000

Maria Ciorapciu

300,000

 

300,000

 

 

Terms and conditions of transactions with related parties:

 

Outstanding balances at the year-end are unsecured, interest free and settlement occurs in cash or by compensation. There have been no guarantees provided or received for any related party loans.

 

Key management employees

 

Please see below key management employee benefits disclosure. During years ended 31 December 2020 and 31 December 2019 there were no transactions concluded between the company and key management employees.

 

During 2021, the Company paid benefits to the key members of the management consisting of the members of the Board of Directors (“C.A.”) of Turbomecanica SA and the General Manager, as follows:

 

31 December

2020

 

31 December

2020

 

 

 

 

Board of Directors and General Director

2,774,108

 

2,750,401

 

Total

 

 

 

 

As of December 31, 2021, the company does not grant advances for settlement to the directors / members of the board of directors

 

 

At 2021 and 2020 year end, there were no guarantees or future obligations assumed by the Company on behalf of the directors.

 

27 - RELATED PARTIES (continued)

 

During 2020, dividends granted in previous years were paid in the amount of RON 72,718, of which annual dividends:

- 2016 in the amount of RON 1,237

- 2017 in the amount of RON 22,076

- 2018 in the amount of RON 49,405.

 

The value of dividends was prescribed for 2016, it was recorded on income in 2020, amounting to RON 263,011

 

 

During 2021, dividends were paid in previous years in the amount of RON 42,323, of which dividends per year:

- 2017 in the amount of RON 1,272

- 2018 in the amount of RON 38,076

 

The value of dividends was prescribed for 2017, this was recorded on income in 2021, amounting to RON 643,758

 

 

28. COMMITMENTS AND CONTINGENCIES

 

The Company has no commitments related to the acquisition of tangible or intangible assets as of December 31, 2021 and December 31, 2020.

 

The company issued bank letters of guarantee in favor of suppliers and customers on December 31, 2021 in the amount of RON 641,312.49 - (December 31, 2020: RON 89,048.46)

 

Liabilities related to leasing liabilities are presented in Note 20.

 

Contingencies

 

Taxation

 

Taxation system in Romania is still developing trying to consolidate and harmonize with the European legislation. In this respect, there still are various interpretations of the tax laws. In certain cases, tax authorities may treat differently certain aspects and calculate supplementary taxes and levies and related interests and penalties.

 

In 2020, the interest value is 0.02% for each day of delay; the delay penalties are 0.01% for each day of delay.

 

In Romania, the fiscal year stays open for verifications during 5 years. In the last 5 years there have been no tax inspections on the profit tax.  The management estimates that the tax liabilities included in these financial statements are adequate.

 

In accordance with the provisions issued by the Ministry of Public Finance, which regulate the tax regime of items of equity which have not been subject to income tax as at their accounting registration, due to their nature, should the Company change the destination of revaluation reserves (by covering losses or allocation to shareholders), it will incur additional income tax liabilities.

 

Environmental matters

 

Environmental regulations are developing in Romania, and the Company did not register any liabilities as at December 31, 2021 or December 31, 2020 for any estimated costs, including legal and consulting fees, site surveys, the design and implementation of recovery plans as regards the environment.  Conducerea Societatii considera ca nu sunt necesare provizioane cu privire la obligatiile de mediu.

 

Inventories held in custody

 

As at December 31, 2021, the Company did not hold inventories in custody.

29. SUBSEQUENT EVENTS

 

In 2022, the loan contracts of Mr. Viehmann Radu (Additional Act No. 13 authenticated under No. 130 / 14.02.2022 and of Ms. Ciorapciu Dana Maria (Additional Act 9, authenticated under No. 129 / 14.02) were extended .2022) until 31.01.2023 and the interest rate was set at 5.46%.

 

On 28.02.2022, the Additional Act no. 32/186 between Banca Transilvania and Turbomecanica was concluded, by which it was agreed to modify the guarantees, as well as to update the guarantees with their description following the successive attachments and / or detachments.

On 03.03.2022, the Additional Act no. 3 to the Mortgage Agreement no. 186 / IPO / 01 / 24.06.2009, amended based on the additional act no. 1/86 / IPO / 01 / 10.06.2010 and by the additional act no. 2 / 24.07.2017, between Banca Transilvania and Turbomecanica. The clause implies the modification of the guarantee structure by eliminating the buildings with no. cadastral 233974 and 229339 based on an evaluation report provided that the remaining guarantee has a degree of coverage of 85%. The other terms of the contract remain unchanged.

 

In the context of the conflict between Russia and Ukraine, which began on February 24, 2022, the European Union, the US, the UK and other countries have imposed numerous sanctions against Russia, including financial restrictions on Russian banks and state-owned companies, and sanctions against a number of individuals. Considering the geopolitical tensions, starting with February 2022, there was an increase in the volatility of the financial markets and the pressure on the depreciation of exchange rates.

These events are expected to affect activity in many sectors of the economy and could lead to a further rise in energy prices in Europe and a high risk of delays in the supply chain.

The company does not have direct exposure to the affiliated party and / or key customers or suppliers in these countries.

The Company considers these events to be non-adjustable events that occurred after the balance sheet date, the effect of which cannot be estimated at this time. At this time, the Company's management is analyzing the possible effects of the change in micro and macro-economic conditions on the Company's financial position and results.

 

No other events took place after the balance sheet date.

 

 

 

The financial statements were approved by the Board of Administration and authorized for issuance on March 24, 2022.

 

 

 

CLAUDIA ANGHEL,

 

RADU VIEHMANN,

Economic & Commercial Director

 

CEO

 

TURBOMECANICA SA

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in „RON”, unless otherwise specified)

 

The accompanying notes form an integral part of these financial statements.

This is a free translation from the original Romanian version.

52

 

 

 

 

TURBOMECANICA SA

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in “RON”, unless otherwise specified)

 

TURBOMECANICA SA

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

(all the amounts are expressed in “RON”, unless otherwise specified)

 

This is a free translation from the original Romanian version.

54