INTERIM MANAGEMENT REPORT AT 31 MARCH (Translation from the Italian original which remains the definitive version)

Transcription

1 INTERIM MANAGEMENT REPORT AT 31 MARCH 2011 (Translation from the Italian original which remains the definitive version)

2 CONTENTS 1. GENERAL INFORMATION 1.1. Corporate officers and information 1.2. Group Structure 2. DIRECTORS' OBSERVATIONS ON OPERATING PERFORMANCE 2.1. Landi Group Financial Highlights 2.2. Directors observations 2.3. Significant events after the end of the quarter and likely future developments 3. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 MARCH Consolidated balance sheet 3.2. Consolidated income statement 3.3. Consolidated cash flow statement 3.4. Statement of changes in consolidated equity 4. NOTES TO THE FINANCIAL STATEMENTS 4.1. General preparation criteria and Consolidation Principles 4.2. Notes on the main changes in the interim financial statements as at 31 March 2011 Interim Management Report 1st quarter

3 1. GENERAL INFORMATION 1.1. CORPORATE OFFICERS AND INFORMATION Board of directors Chairperson of the board of directors Stefano Landi Director - Honorary Chairperson Giovannina Domenichini Chief Executive Officer Claudio Carnevale Executive Director Carlo Alberto Pedroni Director Carlo Coluccio Independent Director Alessandro Ovi (**) Independent Director Tomaso Tommasi di Vignano Board of Statutory Auditors Chairman of the Board of Statutory Auditors Standing Auditor Standing Auditor Alternate Auditor Alternate Auditor Luca Gaiani Massimiliano Folloni Marina Torelli Filippo Nicola Fontanesi Filomena Napolitano Committee for Internal Control Chairman Member of the Committee Member of the Committee Carlo Coluccio Alessandro Ovi Tomaso Tommasi di Vignano Committee for Remuneration Chairman Member of the Committee Member of the Committee Carlo Coluccio Alessandro Ovi Tomaso Tommasi di Vignano Surveillance Body pursuant to Legislative Decree 231/01 (*) Chairman Member of the Body Member of the Body Daniele Ripamonti Domenico Aiello Enrico Gardani Independent Auditors KPMG S.p.A. (*) Confirmed by the Board of Directors on 15 March 2011 (**) The Director also holds the office of Lead Independent Director Interim Management Report 1st quarter

4 Registered office and parent details Landi Renzo S.p.A. Via Nobel 2/ Corte Tegge Cavriago (RE) Italy Tel Fax Share Capital: 11,250,000 Tax No. and VAT No. IT The present report is available on the website Interim Management Report 1st quarter

5 1.2. GROUP STRUCTURE Company Name Registered Office Share capital Direct investment Indirect investment Landi Renzo S.p.A. Cavriago (RE) EUR 11,250,000 Parent Company Landi International B.V. Utrecht (The Netherlands) EUR 18, % Eurogas Utrecht B.V. Utrecht (The Netherlands) EUR 36, % (*) Landi Renzo Polska Sp.Zo.O. Warsaw (Poland) PLN 50, % (*) LR Industria e Comercio Ltda Espirito Santo (Brazil) BRL 4,320, % Beijing Landi Renzo Autogas System Co. Ltd Beijing (China) USD 2,600, % L.R. Pak (Pvt) Limited Karachi (Pakistan) PKR 75,000, % Landi Renzo Pars Private Joint Stock Company Teheran (Iran) IRR 8,753,640, % Landi Renzo RO srl Bucharest (Romania) RON 20, % LandiRenzo VE C.A. Caracas (Venezuela) VEF 244, % Landi Renzo USA Corporation Wilmington - DE (USA) USD 18,215, % Baytech Corporation Los Altos - CA (USA) USD 5, % (+) AEB S.p.A. Cavriago (RE) EUR 2,500, % AEB America s.r.l. Buenos Aires (Argentina) ARS 2,030, % ( ) Lovato Gas S.p.A. Vicenza EUR 120, % Lovato do Brasil Ind Com de Equipamentos para Gas Ltda (^) Curitiba (Brazil) BRL 100, % (#) Officine Lovato Private Limited Chennai (India) INR 20,000, % (#) Detailed notes on investments: (*) held by Landi International B.V. (+) held by Landi Renzo Usa Corporation ( ) held by AEB S.p.A. (#) held by Lovato Gas S.p.A. (^) not consolidated because not significant Interim Management Report 1st quarter

6 2. DIRECTORS' OBSERVATIONS ON OPERATING PERFORMANCE 2.1. LANDI GROUP FINANCIAL HIGHLIGHTS (Amounts in thousands of Euros) 3 MONTHS Var. Diff. % INCOME STATEMENT 302,376 Net Revenues 47,168 93,886-46, % 45,948 Gross Operating Profit -1,111 18,427-19, % 33,227 Operating Profit -4,992 15,783-20, % 31,074 Result Before Tax -6,382 16,381-22, % 19,459 Net Result for the Group -5,323 11,299-16, % 15.2% Gross Operating Profit/Net Revenues -2.4% 19.6% 11.0% Operating Profit/Net Revenues -10.6% 16.8% 6.4% Net Group Result/Net Revenues -11.3% 12.0% CONSOLIDATED BALANCE SHEET INVESTED CAPITAL 149,370 Net tangible and other non-current assets 150, ,684 92,601 Working Capital (1) 95,327 76,573-19,216 Non-current liabilities (2) -19,599-12, ,755 NET CAPITAL EMPLOYED 225, ,694 SOURCES 69,480 Net financial position (opening cash) 78,759 24, ,275 Equity 147, , ,755 BORROWINGS 225, ,694 MAIN INDICATORS 28.6% Working Capital/Turnover (rolling) % -45.3% Net Financial Debt / Equity -53.5% -16.2% 18,333 Gross tangible and intangible investments 4,592 3, Personnel (peak) (1) This is calculated as the difference between Trade Receivables, Inventories, Other Current Assets and Trade Payables, Tax liabilities, Other Current Liabilities; (2) These are calculated by totaling Deferred Tax Liabilities, Defined Benefit Plans and Provisions for Risks and Charges; Interim Management Report 1st quarter

7 2.2. DIRECTORS OBSERVATIONS Summary of the Group's results for the first quarter 2011 The first months of the 2011 have suffered the conflicting signals coming from the global automobile market: good performances in the Asian markets and some South American countries contrast with a downturn in registrations on the European market. Against this general background, the Landi Group continued to pursue its strategy of geographical diversification as far as possible, consolidating the positive growth trend of the CNG line, especially in the Asian area. The LPG line, on the other hand, saw a downturn, primarily in Europe, because of the abolition of ecoincentives in some countries and the slight delay in starting up of Euro V production in some automotive customers. The strategies of the Landi Group for the future and the vision of how the business will evolve remain unchanged; the objective for 2011 foresees the consolidation of current partnerships with Auto Manufacturers, expanding the perimeter in terms of markets, confident that, regardless of what the institutions in the various Countries may decide, alternative fuels will confirm their ecological and economic appeal, not least because of the steep increase in the price of traditional fuels which we have witnessed in recent months. The following table sets out the main economic indicators of the Group for the first quarter of 2011 and the first quarter of CONSOLIDATED INCOME STATEMENT (thousands of Euros) 31-Mar-11 % 31-Mar-10 % Change % Revenues (goods and services) 47,168 93,886-46, % Gross Operating Profit -1, % 18, % -19, % Operating Profit -4, % 15, % -20, % Profit (Loss) before tax -6, % 16, % -22, % Net Profit (Loss) of the Group -5, % 11, % -16, % The Net Revenues of the Group in the first quarter of 2011 were equal to 47,168 thousand ( 93,886 thousand at 31 March 2010), down by 49.8% compared with the same period in 2010 as a result of the contraction recorded in the Italian and European markets, which was not sufficiently offset by the positive growth of the Asian and South American markets. In the first quarter of 2011 Gross Operating Profit (GOP) was negative for 1,111 thousand, a decrease of 19,538 thousand compared with the same period in 2010 (positive for 18,427 thousand). The percentage incidence of the GOP on turnover was equal to -2.4% compared with 19.6% recorded in the first quarter of In the reporting quarter, the Operating Profit was negative for 4,992 thousand compared with a positive Operating Profit of 15,783 thousand posted in the same period of Profit before tax was negative for 6,382 thousand compared with a pre-tax profit equal to 16,381 thousand in the first quarter of Interim Management Report 1st quarter

8 The Net Result of the Group in the first quarter of 2011 showed a loss of 5,323 thousand compared with 11,299 thousand in the same period for Breakdown of sales by business segment The following table provides a breakdown of the item Revenues (Goods and Services) by business segment for each of the periods in question. Based on these figures, and given the insignificance of the sales of alarm systems and Sound, the group s sole business segment can be said to be the production of LPG and CNG fuel supply systems. Considering that the principal source of risks and benefits is connected with the activity carried out and that the structure of the internal reporting uses a single activity segment, it is not considered necessary to provide further specifications regarding the Gas Sector since it coincides substantially with those of the entire company. (Thousands of Euros) At 31/03/2011 % of revenue At 31/03/2010 % of revenue change % Gas sector - LPG line 24, % 75, % -51, % Gas sector - CNG line 19, % 17, % 2, % Total revenues - GAS sector 44, % 93, % -49, % Alarm systems, Sound, Other 3, % % 2, % Total revenues 47, % 93, % -46, % Revenue from the sale of LPG systems decreased 67.8% from 75,710 thousand to 24,413 thousand during the reference quarter. On the other hand, revenue from the sale of natural gas systems increased 13.1% from 17,396 thousand to 19,680 thousand. Geographical distribution of sales (Thousands of Euros) At 31/03/2011 % of revenue At 31/03/2010 % of revenue change % Italy 7, % 45, % -38, % Europe (excluding Italy) 12, % 29, % -17, % South-west Asia 15, % 9, % 6, % America 3, % 2, % 1, % Rest of the World 7, % 6, % % Total revenues 47, % 93, % -46, % (*) Note that the revenues of South-West Asia consist of the sales realized in the following countries: Pakistan, Iran, Turkey. Analyzing the geographical distribution of revenues, during the first quarter of 2011 the Landi Group realized 83.4% of its consolidated revenues abroad (26.2% in Europe and 57.2% outside Europe). The main factors with a negative impact on the first quarter of 2011 in the Italian market, which decreased by 82.9% compared with same quarter in 2010, are related both to the abolition of state eco-incentives and to the end of production of Euro IV engines. We point out that (UNRAE figures) initial registrations petrol/lpg - petrol/cng bifuel vehicles dropped from 205,097 units in the period January-March 2010 (equal to 20.8% of the market) to 23,532 units in January-March 2011 (equal to 4.58% of the market), a decrease of 88.5% compared with an overall contraction of the automotive Interim Management Report 1st quarter

9 market equal to 23.8% over the periods compared. The data produced by ECOGAS relating to the after-market channel LPG segment, for the reporting quarter, indicate a market share for the Landi Group equal to 30.2%. The revenue trend in Europe saw a drop of 58.5% compared with the same quarter in 2010; in France following the definitive abandonment of the eco-incentives programme, in Germany due to market repositioning of high end vehicles, normally not bi-fuel at registration, and in the Netherlands due to the continuing unfavorable economic situation. A slow-down in demand, especially in the LPG segment, was also recorded in Eastern European market for the quarter in question. In the reporting quarter, the South East Asian market recorded an increase of 74.3% compared with the first quarter of 2010 confirming the significant growth trend that began in the second half of The excellent result obtained in Iran and Pakistan was the result both of favorable market conditions and the company's ability to effectively take advantage of new commercial opportunities. In the Latin American markets and increase of 45.8% was recorded compared with the previous year as a result of a particularly sustained trend in demand, especially in the Brazilian and Colombian markets, in which the Group has maintained a strong and constant presence. The markets of the Rest of the World recorded an increase of 13.7% compared with the same quarter in 2010 as a result of the excellent trend in demand for CNG systems in Thailand and China and the good performance of the Indian market where the Group is increasing penetration as a result of its direct presence. Net financial position Economic and financial situation (Thousands of Euros) 31/03/ /12/ /03/2010 Trade receivables 66,555 80, ,360 Inventories 71,212 66,980 64,195 Trade Payables -55,251-64, ,524 Other current 12,811 9,552-1,458 Net operating capital 95,327 92,601 76,573 Property, plant and equipment; 37,613 38,551 29,573 Intangible assets 100, ,058 73,237 Other non-current assets 11,647 9,761 9,874 Fixed capital 150, , ,684 TFR and other provisions -19,599-19,216-12,563 Net capital employed 225, , ,694 Financed by: Net Financial Position 78,759 69,480 24,689 Group shareholders equity 146, , ,399 Minority interests Borrowings 225, , ,694 Indices 31/03/ /12/ /03/2010 Interim Management Report 1st quarter

10 Net operating capital 95,327 92,601 76,573 Net operating capital/turnover 36.0% 28.6% 23.5% Net capital employed 225, , ,694 Net capital employed/turnover 85.4% 68.8% 54.3% Net Financial Position (thousands of Euros) 31/03/ /12/ /03/2010 Cash and cash equivalents 22,757 26,297 46,499 Bank overdrafts and short-term loans -36,920-28,407-19,889 Short-term loans Net short term indebtedness -14,671-2,670 26,440 Medium-Long term loans -64,088-66,810-51,129 Net medium-long term indebtedness -64,088-66,810-51,129 NET FINANCIAL POSITION -78,759-69,480-24,689 The cash flow from operational activities at 31 March 2011, as shown in the Cash Flow Statement, was negative and equal to 3,771 thousand, a decrease compared with 31 March 2010, when it was positive and equal to 23,300 thousand. The increased cash absorption compared with 31 December 2010 can be ascribed to the increase in net working capital, which rose by 2,726 thousand, especially as a result of payment at due date of trade payables contracted at the end of 2010 and the increase in closing stocks due to reduced rotation, also because of the drop in sales recorded for the quarter. The net financial position at 31 March 2011 is negative for 78,759 thousand compared with a negative net financial position at 31 December 2010 equal to 69,480 thousand. Medium-long term net financial indebtedness decreased by 2,722 thousand compared with 31 December 2010 following repayment of the loans taken out by the Italian companies of the Group; investment activities absorbed liquidity totalling 5,400 thousand. Investments At 31 March 2011 the Group's investments in fixed assets amount to 3,167 thousand ( 3,120 thousand in the first quarter of 2010) and refer primarily to moulds and testing and control tools purchased by the Parent Company and to machinery purchased by the subsidiaries LR Pak and AEB S.p.A. Investments in intangible assets were equal to 1,425 thousand ( 611 thousand in March 2010) and refer mainly to the capitalization, by the Parent Company, of costs for development projects meeting the requirements imposed by IAS 38 in order to be stated under the net assets, to the capitalization of costs for the purchase of licenses for SAP management software, implemented by the subsidiary AEB S.p.A and the Polish subsidiary Results of the consolidated companies The net result of Landi Renzo S.p.A. at 31 March 2011 was negative and equal to 4,712 thousand compared with a positive result equal to 4,745 thousand at 31 March At March 31, 2011 Equity was equal to 130,750 thousand compared with 135,472 thousand at December 31, Interim Management Report 1st quarter

11 The net result of Lovato Gas S.p.A. at 31 March 2011 was positive and equal to 432 thousand compared with a negative result equal to 484 thousand at 31 March Equity at March 31, 2011 is equal to 16,827 thousand (according to the international accounting principles applied in preparing the consolidated financial statements). The net result of AEB S.p.A., consolidated as of 1 July 2010, was positive at 31 March 2011 and equal to 674 thousand. Equity is equal to 34,679 thousand (according to the international accounting principles applied in preparing the consolidated financial statements). The foreign subsidiaries of the Group, whose percentage weight in terms of revenue was 30% lower than consolidated turnover, recorded an overall positive Gross Operating Profit, influenced to a large extent by the optimal performance of the subsidiaries located in Pakistan and China Transactions with related parties The Landi Group deals with related parties at market conditions considered to be normal in the markets in question, taking account of the characteristics of the goods and the services supplied. Transactions with related parties listed below include: - the relationships for supply of services between Gireimm S.r.l. and Landi Renzo S.p.A. for rent of the property used as the operational headquarters of the Parent Company, - the relationships for supply of services between Gestimm S.r.l., a company in which a stake is held through the parent company Girefin S.p.A. and the company AEB S.p.A. for rent of the property used as the operational headquarters of the subsidiary - the relationships for supply of services between Bynet di Vecchi e Turini S.n.c., a company subject to considerable influence by the manager with strategic responsibilities, and the company AEB S.p.A. for the supply of computer services, - the relationships for supply of goods to the Pakistani company AutoFuels (held by a minority shareholder of the Pakistani subsidiary LR PAK). Interim Management Report 1st quarter

12 2.3. SIGNIFICANT EVENTS AFTER THE END OF THE QUARTER AND LIKELY FUTURE DEVELOPMENTS The significant events after the end of the quarter closed on March 31, 2011, and up to May 13, 2011 are outlined below, as well as the most significant likely future developments for the current year: On 29 April 2011 the Shareholders' Meeting resolved, amongst other things, the following: the distribution of a dividend of per share gross of statutory deductions, for a total amount of 6,187; renewal of authorization for the purchase and disposal of treasury shares; the amendment of articles 5, 10, 11, 14, 18, 22 and 23 of the Articles of Association. On 10 May 2010, the Corporate University of Landi Renzo has received an important award from Global Leadership Congress on Philadelphia, in start-up category, for the structuring of newfangled methodologies to support the growth of the group. Among the finalists there are important companies as McDonald s, AT&T, Cisco and Alstom. We point out that (ANFIA figures) the Italian registration of vehicles in Italy dropped from 828,940 units in the period January-April 2010 to 671,788 units in January-April 2011, an overall contraction of 19.0%, resulting in slight improvement respect the first quarter, when was a decrease of 23.8%. Likely future developments The performance of the first three months of 2011 recorded results in line with expectations. Particular attention will be placed on the trend of costs trying the improvement of production and commercial synergies between the companies. Moreover are being new commercial actions aimed at finding new sales opportunities with the development of Business to Consumer (B2C). The financial solidity of the Landi Group, the product portfolio and the progress of strategic plans undertaken, allow us to predict, for the year 2011, substantial confirmation of the results achieved in the year 2010, as indicated in the Report on Operating Performance included with the 2010 financial statements. Cavriago, 13 May 2011 The Chairperson of the Board of Directors Stefano Landi Interim Management Report 1st quarter

13 3. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 MARCH CONSOLIDATED BALANCE SHEET ASSETS (thousands of Euros) 31-Mar Dec Mar-10 Non-current assets Property, plant and equipment 37,613 38,551 29,573 Development expenditure 5,763 5,563 4,381 Goodwill 66,225 66,225 51,961 Other intangible assets with finite useful lives 28,988 29,270 16,895 Other non-current financial assets Deferred tax assets 11,366 9,473 9,679 Total non-current assets 150, , ,684 Current assets Trade receivables 65,653 80, ,302 Trade receivables - related parties Inventories 71,212 66,980 64,195 Other receivables and current assets 25,120 21,348 11,344 Current financial assets Cash and cash equivalents 22,757 26,297 46,499 Total current assets 185, , ,535 TOTAL ASSETS 336, , ,219 EQUITY AND LIABILITIES (thousands of Euros) 31-Mar Dec Mar-10 Group shareholders equity Share capital 11,250 11,250 11,250 Other reserves 140, , ,850 Profit (loss) for the period -5,323 19,459 11,299 Total equity attributable to the shareholders of the parent 146, , ,399 Minority interests TOTAL EQUITY 147, , ,005 Non-current liabilities Bank loans 64,016 66,637 50,834 Other non-current financial liabilities Provisions for risks and charges 4,987 4,753 3,424 Defined benefit plans 3,139 3,153 2,588 Deferred tax liabilities 11,473 11,310 6,551 Total non-current liabilities 83,687 86,026 63,692 Current liabilities Bank overdrafts and short-term loans 36,920 28,407 19,889 Other current financial liabilities Trade payables 55,097 64, ,292 Trade payables - related parties ,232 Tax liabilities 4,495 4,345 7,132 Other current liabilities 7,963 7,582 5,807 Total current liabilities 105, , ,522 TOTAL LIABILITIES AND EQUITY 336, , ,219 Interim Management Report 1st quarter

14 3.2. CONSOLIDATED INCOME STATEMENT INCOME STATEMENT (thousands of Euros) 31-Mar Mar-10 Revenues (goods and services) 46,545 93,797 Revenues (goods and services) - related parties Other revenue and income Cost of raw materials, consumables and goods and change in inventories -22,920-34,216 Cost of raw materials - related parties 0-1,868 Costs for services and use of third party assets -14,486-28,573 Cost for services and use of third party assets - related parties Personnel expenses -10,147-9,390 Accruals, impairment losses and other operating expenses ,277 Gross Operating Profit -1,111 18,427 Amortization, depreciation and impairment losses -3,881-2,644 Operating Profit -4,992 15,783 Financial income Financial expenses Exchange rate gains and losses ,105 Profit (Loss) before tax -6,382 16,381 Taxes 981-4,759 Net profit (loss) for the Group and minority interests, including: - 5,401 11,622 Minority interests Net Profit (Loss) of the Group -5,323 11,299 Basic earnings (loss) per share (calculated on 112,500,000 shares) Diluted earnings (loss) per share OVERALL INCOME STATEMENT (thousands of Euros) 31-Mar Mar-10 Net profit for the Group and minority interests -5,401 11,622 Exchange rate differences from conversion of foreign operations Other Equity movements from foreign operations Profits/Losses recorded directly to Equity net of tax effects Total overall result for the period -6,069 12,257 Profit for Shareholders of the Parent Company -5,953 11,763 Minority interests Interim Management Report 1st quarter

15 3.3. CONSOLIDATED CASH FLOW STATEMENT CASH FLOW STATEMENT (thousands of Euros) 31-Mar Dec Mar-10 Opening cash and cash equivalents -2,110 12,943 12,943 Opening cash and cash equivalents AEB S.p.A., Baytech Corporation and AEB America 0 10,264 0 Profit (Loss) before tax (less minority interests) -6,304 30,360 16,058 Amortization, depreciation and impairment losses 3,881 12,458 2,644 Impairment of intangible assets related to Lovato development costs Net financial income and charges including exchange rate differences 1,407 2, Accruals to provisions for employee benefits 413 1, Utilization of provisions for employee benefits Other accruals less utilization 234 2,575 1,246 Net change in deferred taxes 0 4,004 0 Current taxes , (Increase) decrease in current assets: Inventories -4,232-4,496-5,360 trade receivables 14,153 29,228-2,498 trade receivables - related parties receivables due from others and other assets -3,790-11,555-1,676 (Increase) decrease in current liabilities: trade payables -9,377-27,361 8,976 trade payables - related parties , payables to others and other liabilities 531 4,012 4,536 payables to others and other liabilities related parties Cash flow from (for) operating activities -3,771 27,504 23,300 Changes in non-current assets: Investments in intangible assets -1,425-4,379-1,611 Disposals of intangible assets Investments in property, plant and equipment -3,975-10,047-5,357 Disposals of property, plant and equipment Investments in other non-current financial assets Cash flow from (used in) financing activities -5,348-13, Outlay for acquisition of AEB S.p.A. net of liquidity 0-34,500 0 Outlay for acquisition of Baytech Corporation net of liquidity 0-10,742 0 Cash flow for acquisition of equity investments 0-45,242 0 Dividends paid in the period 0-6,975 0 Change in equity attributable to the shareholders of the parent and minority interests Loans obtained/repaid to/from banks and other financial backers during the period -2,775 13,157-2,786 Payments for reduction of payables for financial leasing Cash flow from (used in) financing activities -2,934 6,032-2,633 Total cash flow -12,053-25,317 13,667 Closing cash and cash equivalents -14,163-2,110 26,610 This statement, as required by IAS 7 paragraph 18, was prepared using the indirect method; the items posted in the current year were uniformly included in the previous year's statement. The opening and closing cash and cash equivalents reflect the difference between cash and cash equivalents and bank overdrafts and short-term loans. Interim Management Report 1st quarter

16 3.4. STATEMENT OF CHANGES IN CONSOLIDATED EQUITY Balance at 31 December 2009 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY (in thousands of Euros) Share capital Legal Reserve Statutory Reserve Extraordinary and Other Reserves Share Premium Reserve Profit for the period Equity attributable to the shareholders of the parent Profit (Loss) attributable to minority interests Capital and reserves attributable to minority interests Total equity 11,250 2, ,380 46,598 22, ,637 (195) ,747 Allocation of profit 80 22,158 (22,238) (195) 0 Bonus issue 0 0 Translation difference (3) 175 Distribution of reserves (6,975) (6,975) (6,975) Reclassification of reserves 0 0 Other changes 0 0 Other share capital increases (64) 153 Profit for the period 19,459 19, ,173 Balance at 31 December ,250 2, ,959 46,598 19, , ,275 Balance at 31 December ,250 2, ,958 46,598 19, , ,275 Allocation of profit 19,459 (19,459) 0 (715) Bonus issue 0 0 Translation difference (631) (631) (38) (669) Distribution of reserves 0 0 Reclassification of reserves 0 0 Other changes 0 0 Other share capital increases 0 0 Profit for the period (5,323) (5,323) (78) (5,401) Balance at 31 March ,250 2, ,787 46,598 (5,323) 146,562 (78) ,205 Interim Management Report 1st quarter

17 4. NOTES TO THE FINANCIAL STATEMENTS 4.1. GENERAL PREPARATION CRITERIA AND CONSOLIDATION PRINCIPLES Premise The interim management report as at 31 March 2011, not submitted to auditing, was prepared in compliance with the provisions of Legislative Decree no. 58 of 24 February 1998 and subsequent modifications, as well as by the Issuer Regulations issued by CONSOB. Therefore, the provisions of the international accounting principle relating to infra-annual financial information (IAS 34 Intermediate Financial Statements) were not adopted. The interim management report at March 31, 2011 was prepared in accordance with international accounting standards (IAS/IFRS). To this end, the separate interim financial statements of the Italian and foreign subsidiaries have been reclassified and adjusted accordingly They are consolidated on a line-by-line basis to include all assets and liabilities in their entirety. The accounting policies adopted to prepare the interim consolidated financial statements for the first quarter closed on 31 March 2011 are the same as those used for the 2010 annual consolidated financial statements closed at 31 December As well as the interim values at 31 March 2011 and 2010, the financial statement data for the period closed on 31 December 2010 are shown for the sake of comparison. The functional and presentation currency is the Euro. Figures in the schedules and tables herein are in thousands of Euros Consolidation procedures and Accounting policies The preparation of the interim management report requires the directors to apply accounting standards and methods that are sometimes based on difficult and subjective assessments and estimates based, in turn, on past experience and assumptions that are considered reasonable and realistic given the circumstances. Application of these estimates and assumptions affects the amounts presented in the financial statements, such as the balance sheet, income statement, overall income statement, cash flow statement and disclosures. Estimates are used in recognizing goodwill, impairment of non-current assets, development expenditure, taxes, provisions for bad debts and inventories, employee benefits and other accruals and provisions. Estimates are used in recognizing goodwill, impairment of non current assets, development expenditure, taxes, provisions for bad debts and inventories, employee benefits and other accruals and provisions. The Group performs activities that do not on the whole present significant seasonal or cyclical variations total sales over the course of the year, except for the signing of new supply contracts on the OEM channel which may provide for planned and differing delivery schedules in the individual quarters. The policies and principles of the Landi Renzo Group for the identification, management and control of risks related to the activity are described in detail in the Consolidated Financial Statements at 31 December 2010, to which to which you may refer for a more complete description of such aspects. Interim Management Report 1st quarter

18 Consolidation scope The consolidation scope includes the parent company Landi Renzo S.p.A. and the companies over which the latter exercises direct and indirect control. Control exists when the parent has the majority voting rights or when, despite not holding such rights, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidation scope has not changed compared with 31 December NOTES ON THE MAIN CHANGES IN THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS AT 31 MARCH Income statement highlights of the Landi Group for the first quarter 2011 Revenues (goods and services) Net sales in the first quarter of 2011 were equal to 47,168 thousand, a decrease of 49.8% compared with the same period in 2010, when they amounted to 93,886 thousand. Revenue from the sale of LPG systems decreased 67.8% from 75,710 thousand to 24,413 thousand during the reference quarter. On the other hand, revenue from the sale of natural gas systems increased 13,1% from 17,396 thousand to 19,680 thousand. Gross Operating Profit Purchases of raw materials, consumables and goods and the costs for services and use of third party assets dropped overall from 64,877 thousand in the first quarter of 2010 to 37,795 thousand in the first quarter of 2011, recording a decrease of 27,082 thousand in absolute value as a result of the drop in sales volumes. In the reporting quarter, personnel expenses rose from 9,390 thousand at 31 March 2010 (10.0% of revenues) to 10,147 thousand at 31 March 2011 (21.5% of the revenues), recording an increase of 757 thousand. This increase is directly related to the consolidation of the subsidiary AEB S.p.A., which represents 2,162 thousand of the total cost, and of the subsidiary Baytech Corporation, which accounts for 289 thousand of the total cost; in fact, neither company was included in the consolidation scope at 31 March We also point out that compared with 31 March 2010 the Group has made less use of temporary workers, thus limiting the increase in staff costs. The number of Group employees was equal to 868 units at 31 March 2011, compared with 702 units at 31 March Accruals and other operating expenses groups increased from 1,277 thousand at 31 March 2010 to 548 thousand at 31 March 2011, with a decrease of 729 thousand. This decrease can be attributed to the lower allocation to the provision for product warranties as a direct consequence of reduced sales volumes. In the first quarter of 2011, therefore, the Group s Gross Operating Profit (GOP) was negative and equal to 1,111 thousand, a decrease ( 18,427 thousand) compared with the GOP of 19,538 thousand recorded in the Interim Management Report 1st quarter

19 same period of The percentage incidence of the GOP on turnover was equal to -2.4% compared with 19.6% recorded in the first quarter of Operating Profit Amortizations for the first quarter of 2011 amount to 3,881 thousand, compared with 2,644 thousand at 31 March This increase is directly related to the consolidation of the subsidiary AEB S.p.A., which represents 676 thousand of the total cost, that was not included in the consolidation scope at 31 March 2010, and to new assets that entered into operation during 2010 and in the reporting quarter. Operating Profit was, therefore, negative for 4,992 thousand compared with a positive Operating Profit of 15,783 thousand posted in the same period of Profit before Tax Profit before tax is negative for 6,382 thousand compared with a pre-tax profit equal to 16,381 thousand in the first quarter of Net profit for the Group The Net Result of the Group in the first quarter of 2010 showed a loss of 5,323 thousand compared with 11,299 thousand in the same period for Interim Management Report 1st quarter

20 STATEMENT PURSUANT TO ARTICLE 154-bis, PARAGRAPH 2, OF LEGISLATIVE DECREE NO. 58 DATED 24 FEBRUARY 1998 Subject: Interim Management Report for the first quarter of 2011 I the undersigned, Paolo Cilloni, Officer in charge of preparing the corporate Financial Statements of Landi Renzo S.p.A., declare pursuant to article 154-bis, paragraph 2 of the Consolidated Financial Law (Testo Unico della Finanza) that the accounting information contained in the Interim Management Report at 31 March corresponds to the documentary evidence and to the information in the accounting books and records. Cavriago, 13 May 2011 Officer in charge of preparing the corporate financial statements Paolo Cilloni Interim Management Report 1st quarter