Interim Board of Directors Report Q Interpump Group S.p.A. and subsidiaries

Transcription

1 Interim Board of Directors Report Q Interpump Group S.p.A. and subsidiaries

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3 Contents Page Composition of corporate bodies 5 Interpump Group Organisation Chart at 30 September Interim Board of Directors' Report: - Directors' remarks on performance in 9M Directors' remarks on performance in Q Financial statements and notes 27 This document can be accessed on the Internet at: Interpump Group S.p.A. Registered office in S. Ilario d'enza (Reggio Emilia), Via Enrico Fermi, 25 Paid-up Share Capital: EUR 56,617, Reggio Emilia Companies Register - Tax Code

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5 Board of Directors Fulvio Montipò Chairman and Chief Executive Officer Paolo Marinsek Deputy Chairman Angelo Busani (a) Independent Director Antonia Di Bella Independent Director Franco Garilli (a), (b), (c) Independent Director Lead Independent Director Marcello Margotto (b) Independent Director Stefania Petruccioli (a), (c) Independent Director Paola Tagliavini (a), (c) Independent Director Giovanni Tamburi (b) Non-executive Director Board of Statutory Auditors Fabrizio Fagnola Chairman Federica Menichetti Statutory auditor Alessandra Tronconi Statutory auditor Independent Auditors EY S.p.A. (a) Member of the Audit and Risks Committee (b) Member of the Remuneration Committee and Appointments Committee (c) Member of the Related Party Transactions Committee 5

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9 Interim Board of Directors' Report 9

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11 Directors' remarks on performance in 9M

12 PERFORMANCE INDICATORS The Group uses several alternative measures that are not identified as accounting parameters in the framework of IFRS standards, to allow better evaluation of the trend of economic operations and the Group's financial position; such measures are also tools that can assist the directors in identifying operating trends and in making decisions on investments, resource allocation and other business matters. Therefore, the measurement criterion applied by the Group may differ from the criterion adopted by other groups and hence may not be comparable with it. Such alternative performance measures are constituted exclusively starting from the Group's historic data and measured in compliance with the matters established by the Guidelines on Alternative Performance Measures issued by ESMA/2015/1415 and adopted by Consob with communication no of 3 December These measures refer only to performance in the period illustrated in this Interim Board of Directors' Report and the comparative periods and not to expected performance and must not be taken to replace the indicators required by the reference accounting standards (IFRS). Finally, the alternative measures are processed with continuity and using uniform definition and representation for all the periods for which financial information is included in this Intermediate Board of Directors Report. The performance indicators used by the Group are defined as follows: Earnings/(Losses) before interest and tax (EBIT) Net sales plus Other operating income less Operating costs (Cost of sales, Distribution costs, General and administrative expenses, and Other operating costs); Earnings/(Losses) before interest, tax, depreciation and amortization (EBITDA): EBIT plus depreciation, amortization, writedowns and provisions; Net indebtedness (Net financial position): calculated as the sum of Loans obtained and Bank borrowing less Cash and cash equivalents; Capital expenditure (CAPEX): the sum of investment in property, plant and equipment and intangible assets, net of divestments; Free Cash Flow: the cash flow available for the Group, defined as the difference between the cash flow of operating activities and the cash flow for investments in tangible and intangible fixed assets; Capital employed: calculated as the sum of shareholders' equity and net financial position, including debts for the acquisition of equity investments; Return on capital employed (ROCE): EBIT / Capital employed; Return on equity (ROE): Net profit / Shareholders' equity. The Group's income statement is prepared by functional areas (also called the "cost of sales" method). This form is deemed to be more representative than its type of expense counterpart, which is nevertheless included in the notes to the Annual Financial Report. The chosen form, in fact, complies with the internal reporting and business management methods. The cash flow statement was prepared using the indirect method. 12

13 9M consolidated income statement ( /000) Net sales 953, ,699 Cost of sales (597,048) (505,119) Gross industrial margin 356, ,580 % on net sales 37.4% 38.3% Other operating revenues 14,485 11,818 Distribution costs (86,896) (76,105) General and administrative expenses (99,901) (92,247) Other operating costs (2,103) (2,203) EBIT 182, ,843 % on net sales 19.1% 18.9% Financial income 7,598 10,819 Financial expenses (12,316) (17,315) Badwill 11,907 - Equity method contribution (225) (186) Profit for the period before taxes 189, ,161 Income taxes (51,809) (49,026) Consolidated net profit for the period 137,268 99,135 % on net sales 14.4% 12.1% Pertaining to: Parent company's shareholders 136,583 98,170 Subsidiaries' minority shareholders Consolidated profit for the period 137,268 99,135 EBITDA 219, ,898 % on net sales 23.0% 23.4% Shareholders' equity 845, ,997 Net debt 276, ,937 Payables for the acquisition of investments 43,060 51,797 Capital employed 1,165,284 1,071,731 Unannualized ROCE 15.6% 14.4% Unannualized ROE 16.2% 13.5% Basic earnings per share

14 EVENTS IN THE FIRST NINE MONTHS OF 2018 Sales reached 953.6m, up by 16.5% compared to 9M 2017 (+10.3% at unchanged perimeter and +13.8% also net of exchange differences). A breakdown by business sector shows a 21.1% sales increase in the Hydraulic Sector (+11.9% at unchanged perimeter and +15.2% also net of exchange differences) compared with 9M 2017; Water Jetting Sector sales in the same period were up by 8.5% (+7.4% at unchanged perimeter and +11.4% also net of exchange differences). The like-for-like comparison is positively influenced by the fact that the Inoxpa Group (Water Jetting Sector) was only consolidated for eight months in 2017, having been acquired on 3 February, while it is consolidated for nine months in The Group did not eliminate the Inoxpa Group data for January 2018 from the like-for-like consolidation, given the negligible impact of the data for just one month on the consolidation; in addition, that work would have involved considerable effort and cost, which would not have been justified by the more accurate information. For greater clarity, note that the January 2018 sales of the Inoxpa Group amounted to about 5.2m, with profitability in line with that for the period. In geographical terms, growth in Europe including Italy was 19.5%, 7.8% in North America, 22.4% in the Far East and Oceania, and 18.4% in the Rest of the World. The geographical breakdown shows growth (at unchanged perimeter) of 10.3% in Europe, including Italy, 6.4% in North America, 13.9% in the Far East and Oceania and 17.1% in the Rest of the World. EBITDA reached 219.8m, equivalent to 23.0% of sales. In 9M 2017 EBITDA amounted to million euro (23.4% of sales). Accordingly, EBITDA rose by 14.5%. In this regard, the GS Hydro Group was consolidated for the first time in 9M 2018 following its acquisition from court-supervised administration. The companies concerned are being restructured by the Interpump Group and, accordingly, they partially dilute the EBITDA percentage. At unchanged perimeter, EBITDA was 24.1% of sales, with an improvement in profitability of 0.7 percentage points that confirms the ongoing optimisation efforts made by the Group. Net profit in 9M 2018 was million euro (99.1 million euro in 9M 2017), up by 38.5%. The consolidation of GS Hydro in 2018 generated badwill of 11.9m, classified under financial income and equivalent to the difference between the net carrying amount of the assets acquired and the price paid. As mentioned, the GS Hydro Group (Hydraulic Sector), world leader in the design and production of piping systems for the industrial, naval and offshore sectors, was consolidated for the first time in 9M GS-Hydro has revolutionised the piping sector by inventing nonwelding assembly technology. This fast and clean technology not only reduces the environmental impact of the operations, it also guarantees higher technical characteristics and greater ease of use, so it is particularly suitable for continuous or extreme application conditions. Total consolidated sales of the GS Hydro Group in 2017 were 61m. The total agreed price for the acquisition is 9m. The net financial position at 31 December 2017 showed net cash of 2.5m. With respect to 9M 2017, also the following companies were consolidated: Mariotti & Pecini S.r.l. (Water Jetting Sector), purchased in early June 2017 and therefore only consolidated for 14

15 four months in the comparative period, and Fluid System 80 S.r.l. (Hydraulic Sector), purchased in October 2017 and therefore not consolidated at 30 September In addition, Ricci Engineering S.r.l. was purchased in early August 2018 and has been consolidated for 2 months. 15

16 NET SALES Net sales totalled million in 9M 2018, up by 16.5% with respect to sales in the equivalent period of 2017, when net sales were million (+10.3% at unchanged perimeter, +13.8% also net of exchange differences). The following table gives a breakdown of sales by business sector and geographical area: ( /000) Italy Rest of Europe North America Far East and Oceania Rest of the World 9M 2018 Hydraulic Sector 126, , ,860 62,040 67, ,064 Water Jetting Sector 30, , ,110 46,043 23, ,512 Total 157, , , ,083 90, ,576 9M 2017 Hydraulic Sector 114, , ,163 48,400 51, ,478 Water Jetting Sector 28, , ,193 39,891 25, ,221 Total 143, , ,356 88,291 76, , /2017 percentage changes Hydraulic Sector +10.3% +31.6% +9.3% +28.2% +29.8% +21.1% Water Jetting Sector +6.6% +12.1% +5.9% +15.4% -5.2% +8.5% Total +9.6% +24.4% +7.8% +22.4% +18.4% +16.5% Same, at unchanged perimeter Hydraulic Sector +7.8% +13.1% +6.9% +12.7% +28.0% +11.9% Water Jetting Sector -3.0% +11.9% +5.7% +15.3% -5.2% +7.4% Total +5.7% +12.7% +6.4% +13.9% +17.1% +10.3% PROFITABILITY The cost of sales accounted for 62.6% of turnover (61.7% in the first nine months of 2017). Production costs, which totalled 247.2m ( 210.5m in 9M 2017, which however did not include the costs of the GS Hydro Group and Fluid System 80 for nine months, Mariotti & Pecini for five months or Ricci Engineering for two months), accounted for 25.9% of sales (25.7% in the equivalent period of 2017). The purchase cost of raw materials and components sourced on the market, including changes in inventories, was 349.8m ( 294.7m in the equivalent period of 2017, which however did not include the costs of the GS Hydro Group and Fluid System 80 for nine months, Mariotti & Pecini for five months or Ricci Engineering for two months). The incidence of purchase costs, including changes in inventories, was 36.7% compared to 36.0% in the first nine months of Also at unchanged perimeter, distribution costs rose by 7.1% with respect to the first nine months of 2017, but the associated incidence on sales fell by 0.3 percentage points. At unchanged perimeter, General and administrative expenses rose by 1.2% with respect to 9M 2017, but their incidence on sales was 1 percentage point lower. Payroll costs totalled 221.0m ( 193.5m in 9M 2017, which however did not include the costs of the GS Hydro Group and Fluid System 80 for nine months, Mariotti & Pecini for five Total 16

17 months nor Ricci Engineering for two months). At unchanged perimeter, payroll costs rose by 5.0% due to an increase of 274 in the average headcount and a 0.1% rise in the per capita cost. The total average headcount of Group employees in 9M 2018 was 6,459 (5,971 like for like) compared to the figure of 5,696 in the equivalent period of The increase in average headcount in 9M 2018, net of the personnel of the newly acquired companies, breaks down as follows: plus 200 in Europe, plus 37 in the US and plus 37 in the Rest of the World EBITDA totalled 219.8m (23.0% of sales) compared to 191.9m in 9M 2017, which represents 23.4% of sales and reflects growth of 14.5%. At unchanged perimeter, EBITDA was 24.1% of sales, with an improvement in profitability of 0.7 percentage points that confirms the ongoing optimisation efforts made by the Group. The following table shows EBITDA by business sector: 9M 2018 /000 % on total sales* 9M 2017 /000 % on total sales* Increase/ Decrease Hydraulic Sector 129, % 112, % +15.5% Water Jetting Sector 89, % 79, % +13.2% Total 219, % 191, % +14.5% * = Total sales include sales to other Group companies, while the sales analyzed previously are exclusively those external to the Group (see Note 2 in the explanatory notes). For comparability, the percentage is calculated on total sales, rather than the net sales shown earlier. EBIT stood at 182.1m (19.1% of sales) compared with 154.8m in 9M 2017 (18.9% of sales), reflecting an increase of 17.6%. The tax rate for the period was 27.4% (33.1% in 9M 2017). Net of the badwill recognized as financial income, which is not taxable since it is only recorded in the consolidated financial statements, the tax rate in 9M 2018 was 29.2%. The decrease versus 9M 2017 was mainly due to the reduction of the tax rate in the USA. Net profit for 9M 2018 was 137.3m ( 99.1m in 9M 2017), with an increase of 38.5%; in this context it should be noted that 9M 2018 benefited from a one-off income of 11.9m arising from the acquisition of GS Hydro. Basic earnings per share rose from EUR in 9M 2017 to EUR in 9M 2018, reflecting growth of 39.0%. Capital employed edged up from 1,085.1m at 31 December 2017 to 1,165.3m at 30 September 2018, mainly due to the acquisition of the GS Hydro Group and the increase in working capital following strong organic growth during the period. Unannualized ROCE was 15.6% (14.4% in the first nine months of 2017). Unannualized ROE was 16.2% (13.5% in 9M 2017). 17

18 CASH FLOW The change in net financial indebtedness breaks down as follows: 9M 2018 /000 9M 2017 /000 Opening net financial position (273,542) (257,263) Adjustment: opening net cash position of companies not consolidated line by line at the end of the prior year (7) - Adjusted opening net financial position (273,549) (257,263) Cash flow from operations 176, ,590 Cash flow generated (absorbed) by the management of commercial working capital (65,132) (40,227) Cash flow generated (absorbed) by other current assets and liabilities (538) 1,436 Investment in tangible fixed assets (43,171) (29,623) Proceeds from the sale of tangible fixed assets Investment in other intangible fixed assets (2,973) (2,312) Received financial income Other 463 (306) Free cash flow 66,105 73,410 Acquisition of investments, including received debt and net of treasury shares assigned (12,164) (84,141) Dividends paid (23,052) (21,783) Outlays for the purchase of treasury shares (36,319) - Receipts from the disposal of assets held for sale 785 2,714 Proceeds from the sale of treasury shares to beneficiaries of stock options 539 2,835 Change in other financial assets (243) 70 Net cash generated (used) (4,349) (26,895) Exchange differences 953 (3,779) Net financial position at period end (276,945) (287,937) Net liquidity generated by operations totalled 176.1m ( 143.6m in 9M 2017), reflecting an increase of 22.6%. Free cash flow was 66.1m ( 73.4m in 9M 2017). The reduction was due to absorption by working capital linked to the strong increase in sales and to greater capital investment. The net financial position, excluding the debts and commitments illustrated below, can be broken down as follows: 30/09/ /12/ /09/ /01/2017 /000 /000 /000 /000 Cash and cash equivalents 147, , , ,891 Bank payables (advances and STC amounts) (15,216) (8,955) (7,354) (2,396) Interest-bearing financial payables (current portion) (181,644) (166,465) (147,505) (124,784) Interest-bearing financial payables (non-current portion) (227,963) (243,060) (286,556) (327,974) Total (276,945) (273,542) (287,937) (257,263) The Group also has contractual commitments for the acquisition of residual interests in subsidiaries totalling 43.1m ( 46.8m at 31 December 2017 and 51.8m at 30 September 2017). Of this amount, 3.7m relates to the acquisition of equity investments ( 4.5m at 31 December 18

19 2017), while 39.4m relates to contractual agreements for the acquisition of residual interests in subsidiaries ( 42.3m at 31 December 2017). CAPITAL EXPENDITURE Expenditure on property, plant and equipment totalled 53.8m, of which 5.0m through the acquisition of equity investments ( 55.2m in 9M 2017, of which 20.1m through the acquisition of equity investments). Certain companies in the Water Jetting Sector classify machinery manufactured and rented to customers as part of property, plant and equipment ( 5.8m at 30 September 2018 and 4.6m at 30 September 2017). Net of these latter amounts, capital expenditure in the strictest sense stood at 43.0m in 9M 2018 ( 30.0m in 9M 2017) and mainly refers to the normal renewal and modernisation of plant, machinery and equipment, with the exception of 6.2m in 2018 ( 2.5m in 2017) related to the construction of new production facilities or their expansion. The difference with respect to the expenditure recorded in the cash flow statement is due to the timing of payments. Increases in intangible assets totalled 3.4m, of which 0.4m through the acquisition of equity investments ( 15.0m in 9M 2017, including 12.6m via the acquisition of equity investments). The 2018 increase refers mainly to expenditure for the development of new products. INTERCOMPANY AND RELATED PARTY TRANSACTIONS With regard to transactions entered into with related parties, including intercompany transactions, these cannot be defined as either atypical or unusual, as they are part of the normal course of activities of the Group companies. These transactions are regulated at arm's length conditions, taking into account the characteristics of the assets transferred and services rendered. Information on transactions carried out with related parties is given in Note 9 of the Interim Consolidated Financial statements at 30 September CHANGES IN GROUP STRUCTURE IN 9M 2018 Apart from the acquisition of the GS Hydro Group, as described at the beginning of this report, the other operations that altered the Group's corporate structure were the absorption in Portugal of STA Portoguesa Maquinas Para Industria Alim by Inoxpa Solution Portugal (both wholly owned), the merger in Russia between Starinox and Inoxrus, with the incorporation of a new company (LTD Inoxpa), the mergers in India between Walvoil Fluid Power (India) and HC Hydraulics Technology (both wholly owned) and between Candriga Vision Process Equipment PVT Ltd and Inoxpa India Private Ltd and, lastly, the absorption in France of SCI Suali by Inoxpa Solution France (both wholly owned). In addition, the residual 33.75% interest in Suministros Tecnicos Y Alimentarios S.L., an Inoxpa Group company, was acquired on 21 February The consideration for this transaction was 62,069 listed shares in Interpump Group S.p.A. The investment, held at 100%, was absorbed by Inoxpa S.A.U on 29 May On 2 August 2018, Interpump Group acquired a 100% interest in Ricci Engineering S.r.l., a start-up operating in the design, construction and installation of equipment for the brewery and wine-making industry. The company mainly works in the promising business of equipment for micro-breweries, which is a new and fast-expanding market; in the space of a few years it has achieved annual sales of around 2m, with 2018 EBITDA predicted to total 10%. The price agreed was 0.6m. 19

20 EVENTS OCCURRING AFTER THE CLOSE OF 9M 2018 No atypical or unusual transactions have been carried out subsequent to 30 September 2018 that would call for changes to the consolidated financial statements at 30 September

21 Directors' remarks on performance in Q

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23 Q3 consolidated income statement ( /000) Net sales 310, ,948 Cost of sales (194,126) (161,277) Gross industrial margin 116,022 98,671 % on net sales 37.4% 38.0% Other operating revenues 5,011 3,705 Distribution costs (28,002) (23,547) General and administrative expenses (32,033) (29,148) Other operating costs (546) (831) EBIT 60,452 48,850 % on net sales 19.5% 18.8% Financial income 1,967 4,533 Financial expenses (3,584) (5,664) Badwill Equity method contribution (67) (221) Profit for the period before taxes 59,052 47,498 Income taxes (16,043) (14,623) Consolidated profit for the period 43,009 32,875 % on net sales 13.9% 12.6% Pertaining to: Parent company's shareholders 42,768 32,546 Subsidiaries' minority shareholders Consolidated profit for the period 43,009 32,875 EBITDA 72,957 61,135 % on net sales 23.5% 23.5% Shareholders' equity 845, ,997 Net debt 276, ,937 Payables for the acquisition of investments 43,060 51,797 Capital employed 1,165,284 1,071,731 Unannualized ROCE 5.2% 4.6% Unannualized ROE 5.1% 4.5% Basic earnings per share

24 The scope of consolidation in Q includes the GS Hydro Group, Fluid System 80 and 2 months of Ricci Engineering S.r.l., none of which were present in Q NET SALES Net sales in Q totalled 310.1m, up by 19.3% on the 259.9m of Q (+13.1% at unchanged perimeter and +13.8% also net of exchange differences). Net sales in Q3 are shown in the following breakdown by business sector and geographical area: ( /000) Italy Q Rest of Europe North America Far East and Oceania Rest of the World Hydraulic Sector 36,853 75,165 46,281 21,099 22, ,127 Water Jetting Sector 9,456 42,170 34,055 14,633 7, ,021 Total 46, ,335 80,336 35,732 30, ,148 Q Hydraulic Sector 35,845 56,590 39,449 16,357 16, ,634 Water Jetting Sector 11,111 33,822 28,705 14,442 7,234 95,314 Total 46,956 90,412 68,154 30,799 23, , /2017 percentage changes Hydraulic Sector +2.8% +32.8% +17.3% +29.0% +38.7% +22.8% Water Jetting Sector -14.9% +24.7% +18.6% +1.3% +6.5% +13.3% Total -1.4% +29.8% +17.9% +16.0% +28.8% +19.3% Same, at unchanged perimeter Hydraulic Sector +0.1% +13.0% +16.3% +10.9% +36.8% +13.2% Water Jetting Sector -17.0% +24.7% +18.6% +1.3% +6.5% +13.1% Total -3.9% +17.4% +17.3% +6.4% +27.5% +13.1% PROFITABILITY The cost of sales accounted for 62.6% of turnover (62.0% in Q3 2017). Production costs, which totalled 75.0m ( 66.7m in Q3 2017, which however did not include the acquisition costs of the GS Hydro Group and Fluid System 80 for three months and Ricci Engineering for two months), accounted for 25.9% of sales (25.6% in the equivalent period of 2017). The purchase cost of raw materials and components sourced on the market, including changes in inventories, was 113.9m ( 94.6m in the equivalent period of 2017, which however did not include the costs of the GS Hydro Group and Fluid System 80 for three months or Ricci Engineering for two months). The incidence of purchase costs, including changes in inventories, was 36.7% with respect to 36.4% in Q At unchanged perimeter, distribution costs rose by 12.0% with respect to Q3 2017, while the associated incidence on sales fell by 0.1 percentage points. Again at unchanged perimeter, general and administrative expenses rose by 3.3% with respect to the third quarter of 2017, although their incidence on sales fell by 1 percentage point. Total 24

25 EBITDA totalled 73.0m (23.5% of sales) compared with 61.1m in Q3 2017, which also accounted for 23.5% of sales, with an increase of 19.3%. At unchanged perimeter EBITDA stood at 24.6%, with an improvement of 1.1 percentage points. The following table shows EBITDA by business sector: Q /000 % on total sales* Q /000 % on total sales* Increase/ Decrease Hydraulic Sector 41, % 36, % +14.8% Water Jetting Sector 31, % 25, % +25.8% Total 72, % 61, % +19.3% * = Total sales include sales to other Group companies, while the sales analyzed previously are exclusively those external to the Group (see Note 2 in the explanatory notes). For comparability, the percentage is calculated on total sales, rather than the net sales shown earlier. EBIT stood at 60.5m (19.5% of sales) compared with 48.9m in Q (18.8% of sales), reflecting an increase of 23.8%. Q3 closed with a consolidated net profit of 43.0m ( 32.9m in Q3 2017), reflecting growth of 30.8%. Basic earnings per share were ( in Q3 2017), reflecting a 32.2% increase. BUSINESS OUTLOOK Considering the short span of time covered by the Group's order portfolio and difficulties and uncertainties concerning the current world economic situation, it is impractical to formulate reliable forecasts for 2018 as a whole, although positive results are predicted in terms of both sales and profitability. The Group will continue to devote special attention to controlling costs and to finance management in order to maximize the generation of free cash flow to be allocated to internal and external growth and to the remuneration of shareholders. Sant Ilario d Enza (RE), 7 November 2018 For the Board of Directors Fulvio Montipò Chairman and Chief Executive Officer Pursuant to the terms of section 2 article 154-(2) of the Italian Consolidated Finance Act, the manager in charge of preparing the company's accounting documents, Carlo Banci, declares that the accounting disclosures in this document correspond to the documentary evidence, the company books and the accounting entries. Sant Ilario d Enza, 7 November 2018 Carlo Banci Executive in charge of preparing the company's accounting documents 25

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27 Financial statements and notes 27

28 Consolidated statement of financial position ( /000) Notes 30/09/ /12/2017 ASSETS Current assets Cash and cash equivalents 147, ,938 Trade receivables 271, ,761 Inventories 4 353, ,701 Tax receivables 22,719 15,410 Other current assets 12,597 8,302 Total current assets 808, ,112 Non-current assets Property, plant and equipment 5 339, ,833 Goodwill* 1 426, ,991 Other intangible assets 35,773 38,096 Other financial assets 2,313 1,145 Tax receivables 1,715 1,770 Deferred tax assets 27,239 24,909 Other non-current assets 2,336 2,582 Total non-current assets 835, ,326 Assets held for sale Total assets 1,643,987 1,514,223 * 2017 data remeasured in 2018 as required by IFRS 3. 28

29 ( /000) Notes 30/09/ /12/2017 LIABILITIES Current liabilities Trade payables 159, ,975 Payables to banks 15,216 8,955 Interest-bearing financial payables (current portion) 181, ,465 Tax payables 34,749 18,541 Other current liabilities 73,146 54,038 Provisions for risks and charges 4,080 3,610 Total current liabilities 467, ,584 Non-current liabilities Interest-bearing financial payables 227, ,060 Liabilities for employee benefits 19,977 20,044 Deferred tax liabilities 41,007 41,504 Other non-current liabilities* 38,656 46,946 Provisions for risks and charges 3,238 3,156 Total non-current liabilities 330, ,710 Liabilities held for sale Total liabilities 798, ,494 SHAREHOLDERS' EQUITY 6 Share capital 55,198 55,805 Legal reserve 11,323 11,323 Share premium reserve 89, ,228 Reserve from remeasurement of defined benefit plans (5,722) (5,722) Translation reserve (1,613) (2,475) Other reserves 692, ,006 Group shareholders' equity 840, ,165 Minority interests 4,780 5,564 Total shareholders' equity 845, ,729 Total shareholders' equity and liabilities 1,643,987 1,514,223 * 2017 data remeasured in 2018 as required by IFRS 3. 29

30 9M consolidated income statement ( /000) Notes Net sales 953, ,699 Cost of sales (597,048) (505,119) Gross industrial margin 356, ,580 Other net revenues 14,485 11,818 Distribution costs (86,896) (76,105) General and administrative expenses (99,901) (92,247) Other operating costs (2,103) (2,203) Ordinary profit before financial expenses 182, ,843 Financial income 7 7,598 10,819 Financial expenses 7 (12,316) (17,315) Badwill 11,907 - Equity method contribution (225) (186) Profit for the period before taxes 189, ,161 Income taxes (51,809) (49,026) Consolidated profit for the period 137,268 99,135 Pertaining to: Parent company's shareholders 136,583 98,170 Subsidiaries' minority shareholders Consolidated profit for the period 137,268 99,135 Basic earnings per share Diluted earnings per share

31 9M comprehensive consolidated income statement ( /000) M consolidated profit (A) 137,268 99,135 Other comprehensive profit (loss) that will be subsequently reclassified to consolidated profit Accounting for exchange risk hedging derivatives recorded in accordance with the cash flow hedging method: - Profit (Loss) on derivative financial instruments for the period Minus: Adjustment for reclassification of profits (losses) to the income statement Minus: Adjustment for fair value recognition of reserves in the prior period - 33 Total - 33 Profits (Losses) arising from the translation to euro of the financial statements of foreign companies 722 (32,420) Profits (Losses) of companies carried at equity (17) (6) Related taxes - (9) Total other profit (loss) that will be subsequently reclassified in consolidated profit for the period, net of tax effect (B) 705 (32,402) Other comprehensive profit (loss) that will not be subsequently reclassified to consolidated profit Profit (Loss) deriving from the remeasurement of defined benefit plans - - Related taxes - - Total other comprehensive profit (loss) that will not be subsequently reclassified to consolidated profit (C) - - 9M comprehensive consolidated profit (A) + (B) + (C) 137,973 66,733 Pertaining to: Parent company's shareholders 137,445 66,135 Subsidiaries' minority shareholders Comprehensive consolidated profit for the period 137,973 66,733 31

32 Q3 consolidated income statement ( /000) Net sales 310, ,948 Cost of sales (194,126) (161,277) Gross industrial margin 116,022 98,671 Other net revenues 5,011 3,705 Distribution costs (28,002) (23,547) General and administrative expenses (32,033) (29,148) Other operating costs (546) (831) Ordinary profit before financial expenses 60,452 48,850 Financial income 7 1,967 4,533 Financial expenses 7 (3,584) (5,664) Badwill Equity method contribution (67) (221) Profit for the period before taxes 59,052 47,498 Income taxes (16,043) (14,623) Consolidated net profit for the period 43,009 32,875 Pertaining to: Parent company's shareholders 42,768 32,546 Subsidiaries' minority shareholders Consolidated profit for the period 43,009 32,875 Basic earnings per share Diluted earnings per share

33 Q3 comprehensive consolidated income statement ( /000) Q3 consolidated profit (A) 43,009 32,875 Other comprehensive profit (loss) that will be subsequently reclassified to consolidated profit Accounting for exchange risk hedging derivatives recorded in accordance with the cash flow hedging method: - - Profit (Loss) on derivative financial instruments for the period Minus: Adjustment for reclassification of profits (losses) to the income statement Minus: Adjustment for fair value recognition of reserves in the prior period - - Total - - Profits (Losses) arising from the translation to euro of the financial statements of foreign companies (2,230) (10,071) Profits (Losses) of companies carried at equity (23) 21 Related taxes - - Total other profit (loss) that will be subsequently reclassified in consolidated profit for the period, net of tax effect (B) (2,253) (10,050) Other comprehensive profit (loss) that will not be subsequently reclassified to consolidated profit Profit (Loss) deriving from the remeasurement of defined benefit plans - - Related taxes - - Total other comprehensive profit (loss) that will not be subsequently reclassified to consolidated profit (C) - - Q3 comprehensive consolidated profit (A) + (B) + (C) 40,756 22,825 Pertaining to: Parent company's shareholders 40,650 22,553 Subsidiaries' minority shareholders Comprehensive consolidated profit for the period 40,756 22,825 33

34 9M consolidated cash flow statement ( /000) Cash flow from operating activities Pretax profit 189, ,161 Adjustments for non-cash items: Capital losses (gains) from the sale of fixed assets (2,052) (2,465) Depreciation and amortization 36,399 35,996 Costs recognized in the income statement related to stock options that do not involve monetary outflows for the Group 1,407 1,318 Loss (profit) from equity investments Net change in provisions for risks and employee benefits Outlays for tangible fixed assets destined for hire (5,843) (4,604) Proceeds from the sale of fixed assets granted for hire 5,980 6,047 Financial expenses (Income), net (7,189) 6, , ,315 (Increase) decrease in trade receivables and other current assets (35,245) (36,269) (Increase) decrease in inventories (51,611) (26,804) Increase (decrease) in trade payables and other current liabilities 21,186 24,282 Interest paid (2,406) (2,539) Currency exchange gains (1,363) (2,078) Taxes paid (38,428) (43,108) Net cash from operating activities 110, ,799 Cash flows from investing activities Outlay for the acquisition of equity investments, net of received cash and including treasury shares assigned (11,201) (77,121) Capital expenditure on property, plant and equipment (42,734) (29,126) Proceeds from the sale of tangible fixed assets Proceeds from the disposal of assets held for sale 785 2,714 Capital expenditure on intangible assets (2,973) (2,312) Received financial income Other 571 (153) Net liquidity used in investing activities (54,172) (105,146) Cash flows from financing activities Disbursals (repayments) of loans 1,058 (28,063) Dividends paid (23,052) (21,783) Outlays for purchase of treasury shares (36,319) - Assignment of treasury shares to pay for equity investments - 3,685 Proceeds from the sale of treasury shares to beneficiaries of stock options 539 2,835 Disbursals (repayments) of loans from (to) shareholders - (50) Loans repaid (granted) by/to non-consolidated subsidiaries (200) - Change in other financial assets (43) 70 Payment of finance leasing installments (principal portion) (1,602) (1,731) Net liquidity generated (used by) financing activities (59,619) (45,037) Net increase (decrease) in cash and cash equivalents (3,385) (45,384) 34

35 ( /000) Net increase (decrease) in cash and cash equivalents (3,385) (45,384) Exchange differences on translation of liquidity of non-eu companies 71 (3,987) Opening cash and equivalents of companies consolidated for the first time using the line-by-line method (7) - Cash and cash equivalents at beginning of period 135, ,495 Cash and cash equivalents at end of period 132, ,124 Cash and cash equivalents can be broken down as follows: 30/09/ /12/2017 /000 /000 Cash and cash equivalents from the balance sheet 147, ,938 Payables to banks (current account overdrafts and advances subject to collection) (15,216) (8,955) Cash and cash equivalents from the cash flow statement 132, ,983 35

36 Statement of changes in consolidated shareholders' equity Share capital Legal reserve Share premium reserve Reserve for valuation of hedging derivatives at fair value Reserve for restatement of defined benefit plans Translation reserve Other reserves Group shareholde rs' equity Minority interests Total 36 Balances at 1 January ,431 11, ,386 (24) (5,022) 33, , ,744 3, ,538 Recognition in the income statement of the fair value of stock options assigned and exercisable - - 1, ,318-1,318 Sale of treasury shares to the beneficiaries of stock options 250-2, ,835-2,835 Assignment of treasury shares to pay for equity investments 187-3, ,685-3,685 Purchase of Inoxpa Group ,320 2,320 Purchase of residual interests in subsidiaries (257) (150) Dividends paid (21,356) (21,356) (427) (21,783) Dividends declared by third parties (499) (499) Total comprehensive profit (loss) for 9M (32,059) 98,170 66, ,733 Balances at 30 September ,868 11, ,787 - (5,022) 1, , ,468 5, ,997 Recognition in the income statement of the fair value of stock options assigned and exercisable Sale of treasury shares to the beneficiaries of stock options (296) Assignment of treasury shares to pay for equity investments (109) (78) Purchase of Inoxpa Group (29) (29) Purchase of residual interests in subsidiaries (270) (236) Total profit (loss) for Q (700) (3,913) 36,272 31, ,993 Balances at 31 December ,805 11, ,228 - (5,722) (2,475) 579, ,165 5, ,729 Recognition in the income statement of the fair value of stock options assigned and exercisable - - 1, ,407-1,407 Purchase of treasury stock (686) - (35,633) (36,319) - (36,319) Sale of treasury shares to the beneficiaries of stock options Assignment of treasury shares to pay for equity investments 32-1, ,763-1,763 Purchase of residual interests in subsidiaries (869) (869) (894) (1,763) Inoxpa Russia merger operation (100) (100) Dividends paid (22,526) (22,526) (518) (23,044) Dividends declared (6) (6) (6) Total comprehensive profit (loss) for 9M , , ,973 Balances at 30 September ,198 11,323 89,225 - (5,722) (1,613) 692, ,499 4, ,279 Interim Board of Directors' Report at 30 September Interpump Group

37 Notes to the consolidated financial statements General information Interpump Group S.p.A. is a company domiciled in Sant'Ilario d'enza (Reggio Emilia, Italy) and incorporated under Italian law. The company is listed on the Milan stock exchange in the STAR segment. The Group manufactures and markets high and very high-pressure plunger pumps, very highpressure systems, power take-offs, hydraulic cylinders, valves and directional controls, hydraulic hoses and fittings and other hydraulic products. The Group has production facilities in Italy, the US, Germany, China, India, France, Portugal, Brazil, Bulgaria, Romania and South Korea. Sales are not affected by any significant degree of seasonality. The consolidated financial statements include Interpump Group S.p.A. and its directly or indirectly controlled subsidiaries (hereinafter "the Group"). The consolidated financial statements at 30 September 2018 were approved by the Board of Directors on this day (7 November 2018). Basis of preparation The consolidated financial statements at 30 September 2018 were drawn up in compliance with the international accounting standards (IAS/IFRS) endorsed by the European Union for interim financial statements (IAS 34). The tables were prepared in compliance with IAS 1, while the notes were prepared in condensed form in application of the faculty provided by IAS 34 and therefore they do not include all the information required for annual financial statements drafted in compliance with IFRS standards. Therefore, the consolidated financial statements at 30 September should be consulted together with the annual consolidated financial statements for the year ending 31 December The accounting standards and criteria adopted in the interim report at 30 September 2018 may conflict with IFRS provisions in force on 31 December 2018 due to the effect of future orientations of the European Commission with regard to the approval of international accounting standards or the issue of new standards, interpretations or implementing guidelines by the International Accounting Standards Board (IASB) or the International Financial Reporting Interpretation Committee (IFRIC). Preparation of an interim report in compliance with IAS 34 "Interim Financial Reporting" calls for judgments, estimates, and assumptions that have an effect on assets, liabilities, costs and revenues and on information regarding potential assets and liabilities at the report reference date. We draw your attention to the fact that estimates may differ from the effective results, the magnitude of which will only be known in the future. We further draw your attention to the fact that some evaluation processes, notably those that are more complex, such as the determination of any impairments of non-current assets, are generally performed in a comprehensive manner only at the time of drafting of the annual financial statements when all the necessary information is available, except in cases in which indicators of impairment exist, calling for immediate evaluation of any losses in value. Likewise, the actuarial evaluations required for determination of liabilities for benefits due to employees are normally processed at the time of drafting of the annual financial statements. 37

38 The consolidated financial statements are presented in thousands of euro. The financial statements are drafted according to the cost method, with the exception of financial instruments, which are measured at fair value. Accounting standards The accounting standards adopted for preparation of the condensed interim consolidated financial statements are consistent with those used to prepare the consolidated financial statements at 31 December 2017, except for the adoption of the new standards and amendments in force from 1 January The Group did not opt for early adoption of any new standard, interpretation, or amendment issued but not yet in force. The Group has applied IFRS 15 Revenue from contracts with customers and IFRS 9 Financial instruments for the first time, although they had no impact on the Group's condensed interim consolidated financial statements at 30 September a) Accounting standards, amendments and interpretations in force from 1 January 2018 and adopted by the Group As from 2018 the Group has applied the following new accounting standards, amendments and interpretations, reviewed by IASB: IFRS 2 Share-based payments. On 21 June 2016 IASB published amendments to the standard with a view to clarifying the accounting for certain operations involving share-based payments. The changes concern: (i) the effects of vesting conditions and non-vesting conditions in relation to the measurement of payments based on shares and settled in cash; (ii) payment transactions based on shares with a net settlement function for the withholding tax obligations and (iii) an amendment of the terms and conditions of a payment based on shares that changes the classification of the transaction from a settlement in cash settlement to a payment of capital. The amendments to IFRS 2, some of which affect the Interpump Group, did not result in any adjustments to economic or financial balances in IFRS 9 Financial instruments. On 12 November 2009 IASB published the following standard, which was subsequently amended on 28 October 2010 and again in mid-december The standard constitutes the first part of a process in stages aimed at replacing IAS 39 and introduces new criteria for the classification and measurement of financial assets and liabilities, and for derecognition of financial assets from the financial statements. The new standard is designed to simplify interpretation of financial statements and understanding of the amounts, the times and the uncertainty of the cash flows, by replacing the different categories of financial instruments provided for by IAS39. In fact, all financial assets are initially recognized at fair value, adjusted by the transaction costs, if the instrument is not recognized at fair value through profit and loss (FVTPL). However, trade receivables that do not have a significant financial component are initially measured at their transaction price, as defined by the new IFRS 15 - Revenue from contracts with customers. Debt instruments are measured on the basis of the contractual cash flows and the business model on the basis of which the instrument is held. If the instrument envisages cash flows exclusively for the payment of interest and the capital portion, it is recognized in compliance with the amortized cost method, while if, in addition to the foregoing cash flows, it involves the exchange of financial assets, it is measured at fair value in Other Comprehensive Income, with subsequent reclassification in the income statement (FVOCI). Finally, there exists an express option for recognition at fair value (FVO). Likewise, all equity instruments are initially measured at FVTPL, but the entity has an irrevocable option on each instrument for recognition at FVTOCI. All the other classifications and measurement rules 38

39 contained in IAS39 have been included in the new standard IFRS 9. With regard to impairment, the IAS39 model based on losses sustained has been replaced by the ECL model (Expected Credit Loss). Finally, several new aspects are introduced in relation to Hedge Accounting, with the facility to perform a prospective efficacy and qualitative test, measuring the components of risk autonomously, if they can be identified. Application of the new standard has had a very limited effect on the Group. IFRS 15 Revenue from contracts with customers. The new standard replaces the previous IAS11 Construction contracts, IAS18 Revenue, IFRIC13 Customer loyalty contracts, IFRIC15 Agreements for the Construction of Real Estate, IFRIC18 Transfers of Assets from Customers, SIC31 Barter Transactions Involving Advertising Services and is applicable to all revenues from contracts with customers, unless the contracts are included within the scope of other standards. The new standard introduces a new model for recognition of revenues deriving from contracts with customers based on five steps: (i) identification of the contract with the customer; (ii) identification of the contractual performance obligations to be transferred to the customer in exchange for the transaction price; (iii) determination of the transaction price; (iv) allocation of the transaction price to the individual performance obligations; (v) recognition of the revenue when the associated performance obligation is fulfilled. IFRS 15 requires recognition of revenues for an amount that reflects the consideration to which the entity considers it is entitled in exchange for the transfer of goods or services to a customer. The standard requires the exercise of a judgment by the entity, that takes account of all the facts and significant circumstances in the application of each step to the model to contracts with its customers. The standard also specifies recognition of the incremental costs linked to obtaining a contact and the costs directly linked to fulfillment of a contract. Application of the new standard, using the modified retrospective method, did not have a significant impact on the consolidated economic and financial position and cash flows for 2017 that would have made restatement necessary. The Group manufactures and markets high and very high pressure plunger pump, power take-offs, hydraulic cylinders, valves and directional controls, hydraulic hoses and fittings and other hydraulic products, and the Group contracts concerning the sale of goods generally include a single obligation. The Group has concluded that revenues from the sale of goods are recognized in the specific moment wherein control of the asset is transferred to the customer, which generally coincides with the moment delivery of the goods. The adoption of IFRS 15 thus had no impact the revenues recognition times, because the revenues occur at a specific moment. b) Accounting standards, amendments and interpretations taking effect as from 1 January 2018 but not relevant for the Group IFRS Annual improvements Cycle On 8 December 2016 IASB issued several minor changes to IFRS 1 First-Time Adoption of IFRS and IAS 28 Investments in Associates and Joint Ventures as well as an IFRIC interpretation Interpretation 22 Foreign Currency Transactions and Advance Consideration The aim of the annual improvements is to address necessary matters related to inconsistencies found in IFRSs or for clarifications of terminology, which are not of an urgent nature but which reflect issues discussed by IASB during the project cycle. Among the main amendments we bring your attention to IFRIC 22, which provides guidance on the use of exchange rates in transactions in which the foreign currency considerations are paid or received in advance. 39

40 Applying IFRS 9 - Financial Instruments with IFRS 4 Insurance Contracts The amendments introduced provide two options for entities that issue insurance contracts in the framework of standard IFRS 4: (i) an option that allows reclassification, from profit and loss to other components of the comprehensive income statement, of part of the income or expenses deriving from designated financial assets ("overlay approach") and (ii) a temporary and optional exemption from the application of IFRS 9 for entities whose primary activity is the issue of contracts in the framework of application of IFRS 4 ("deferral approach"). c) New accounting standards and amendments not yet applicable and not adopted early by the Group IFRS 16 Leasing On 13 January 2016, IASB published the new standard that replaces IAS 17. IFRS 16 is applicable from 1 January The scope of application of the new standard concerns leasing contracts, with certain exceptions. A leasing contract grants the right to use an asset (the underlying asset ) for a certain period of time in return for the payment of a consideration. The method of recognition of all leasing contracts reflects the model proposed by IAS 17, although excluding leasing contacts concerning an asset of small value (such as computers) and short term contracts (i.e. less than 12 months). On the date of recognition of the leasing contract also the liability for the leasing installments and the asset that the entity is entitled to use must be booked, with separate recording of the financial expenses and amortization amounts concerning the asset. The liability can be subject to re-measurement (e.g. to reflect a change in the contractual terms or a change in the indices to which the payment of the leasing instalments is linked) and the resulting change must be recognized on the underlying asset. Finally, from the standpoint of the lessor the accounting model is substantially unchanged with respect to the provisions of the current IAS17. The standard must be applied with the modified retrospective method, while early application is simultaneously allowed for IFRS15. The Group has started to perform an analysis of the potential impacts that application of the new standard may have on the economic and financial situation and on the information given in the financial statements. The Group is making a detailed assessment of the effects of adopting the new standard. At 31 December 2017, the Group had commitments for rentals of 49,907k, including 13,424k due in 2018, as indicated in Note 34 to the latest approved Annual Report. IFRS 17 Insurance contracts. On 18 May 2017, IASB published a new standard to replace IFRS 4, which was issued in The new standard seeks to improve the understanding of investors and others about the risk exposure, profitability and financial position of insurers. IFRS 17 is applicable from 1 January 2021, although early adoption is permitted. IFRIC 23 Uncertainty over Income Tax Treatments On 8 June 2017 IASB published interpretation IFRIC 23, which clarifies the application of the requirements for recognition and measurement in IAS 12 Income taxes in the case of uncertainty concerning income tax treatment. Specifically, the interpretation concerns: (i) the case wherein an entity considers uncertain tax treatments independently, (ii) the assumptions that an entity makes in relation to taxation authorities examinations, (iii) how an entity determines its taxable profit (or tax loss), tax bases, unused tax losses, unused tax credits and tax rates, and (iv) the way in which an entity deals with changes in facts and circumstances. The Interpretation does not add any new information requirements, although it underscores the existing requirements of IAS 1 concerning information on judgments, information on assumptions made and other estimates and information 40