R.E.A. No. 84 - Carraro · 2019. 2. 11. · Carraro Group – Interim financial report for the six...

Carraro Group – Interim financial report for the six months ended 30 June 2003

CARRARO S.p.A. Registered office in Campodarsego, Padua – Via Olmo 37 Share capital Euro 21,840,000 fully paid in Fiscal code, VAT registration and registration with the Companies’ Register in Padua No. 00202040283 R.E.A. No. 84.033

DIRECTORS’ REPORT ON THE INTERIM FINANCIAL REPORT OF CARRARO GROUP

FOR THE SIX MONTHS TO 30 JUNE 2003

If figures for the first six months of 2003 do not differ much from the figures of the corresponding

period of the previous year (which were only fairly good, but then signalled a decided turnaround

from the negative performance of 2001), better is the judgment on the economic performance of the

Group, which appears headed, in the medium term, to recover more suitable positions of

profitability, going back to a growth strategy.

The results are, in short, the following. Sales for the six months to 30 June 2003 were equal to

EUR 199.507m, up 3.7% on the corresponding period of 2002. EBIT, at EUR 10.637m, was equal

to 5.33% of sales, versus 5.15% of June 2002 and 3.55% of December 2002. Net profit went from

EUR 3.437m of the comparative period (when it was influenced by tax benefits) to the present

EUR 2.040m. As a consequence, also cash flow decreased from EUR 15.832m to EUR 13.836m. In

contrast, free cash flow rose to EUR 14.124m.

But the reasons justifying our moderate optimism derive from not negligible considerations

concerning the analysis of the two periods under comparison. Besides the different weight of

exchange differences, it should be noted that performance in the first half of 2002 was affected by

non-recurring items, in part originating from gains on sales of assets for an amount of EUR 0.537m.

But, most of all, EBIT was affected by the exceptional effect of the devaluation of the Argentine

Peso, which in the first part of the year became very heated, gradually returning afterwards to more

rational exchange rates. In 2003, instead, a contribution to results was given also by Carraro India,

with EBIT of 8.20% of sales versus 2.79% of June 2002, and Poland, which went from EBIT equal

to -5.74% of sales to +3.21%. Also our German operation, whose performance for the first six

months worsened (due to a very negative performance in the first few months of the period), has

started to show signs of recovery, which we are confident will be confirmed in the second half of

the year. In one word, and we cannot but feel satisfied, we have been collecting the benefits also in

our foreign operations – at least the most significant ones – of the restructuring measures taken

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starting from 2001, creating prospects for recovery that now seem to apply uniformly to the entire

Group. Missing from the picture are only our US subsidiary (Carraro North America) because of the

depth of the crisis in that market, and Carraro Korea, as its largest customer substantially ceased

trading for some time, since then recovering after a change of ownership.

On the financial side, we continued our efforts to reduce debt, equal to EUR 103.140m as at 30 June

2003, versus EUR 121.133m as at 30 June 2002 and EUR 117.264m posted as at 30 December

2002. The general ratios have tended to improve thanks to effective measures taken on all fronts.

We cannot, in absolute terms, be thrilled for results that are still to be considered modest (higher, at

any rate, than the industry average). However, today we are fully aware that we have taken the right

measures and that, through an innovative business plan, we have the capability of improving our

competitiveness on the various markets, resuming growth. This remains the basic goal of our

Group’s strategy.

To implement the business plan we have appointed as Group managing director Mr. Gabriele Del

Torchio, who joined Carraro in January this year. The essential items of the plan, soon to be

presented to the financial community in its final version (after final approval by the Board) are:

creating strategic business units, focussed on growth and diversified by type of production (Drive

Lines, Drives, Components, Spare Parts); organically co-ordinating Italian and foreign

manufacturing facilities, activating the competencies existing in the various functions and making

the structure more dynamic, with a consequent reduction of overheads; and a policy of alliances to

widen the commercial horizon through a range of complementary products capable of meeting

customers’ increasingly complex needs. This, of course, has involved a radical overhaul of our

organisation structure which, we wish to emphasise, has met with the approval of those in executive

positions within the Group – on the assumption of the need to accelerate changes that we deem

indispensable in order to compete in a changing global economy.

Sales

Consolidated sales for the six months to 30 June 2003 reached EUR 199.507m, versus

EUR 192.407m of the corresponding period of 2002, an increase of 3.69% attributable, in

particular, to Carraro S.p.A., Siap S.p.A., Carraro Argentina S.A., F.O.N. S.A. and O&K

Antriebstechnik GmbH, mainly in relation to the start of new contracts.

A breakdown of sales by segment, with the weight of each segment on total sales and the change in

respect to the first half of 2002, is provided below:

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Breakdown of sales by segment (thousands of Euros)

Segment

Six months to

30 June 2003

%

Six months to

30 June 2002

%

Change

1st half 2003/

1st half 2002

Off-Highway: 148,030 74.20 138,407 71.93 +6.95

Agriculture segment 69,495 34.83 71,101 36.95 -2.26

Construction

equipment segment 78,535 39.37 67,306 34.98 +16.68

On-Highway: 30,730 15.40 32,465 16.87 -5.34

Material handling 11,876 5.95 12,718 6.61 -6.62

Auto & truck 6,157 3.09 7,105 3.69 -13.34

Gears 12,697 6.36 12,642 6.57 +0.44

Stationary

(escalators) 3,738 1.87 3,071 1.60 +21.72

Spare parts 12,829 6.43 11,940 6.21 +7.45

Other 4,180 2.10 6,524 3.39 -35.93

TOTAL 199,507 100.00 192,407 100.00 +3.69

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Sales are broken down by geographical are as follows:

Sales by geographical area (thousands of Euros)

Geographical area

Six months to

30 June 2003

%

Six months to

30 June 2002

%

Change

1st half 2003/

1st half 2002

North America 42,257 21.18 42,072 21.87 +0.44

Germany 28,113 14.09 26,091 13.56 +7.75

UK 20,002 10.03 19,313 10.04 +3.57

France 21,021 10.54 20,256 10.53 +3.78

Korea 2,873 1.44 5,394 2.80 -46.74

Poland 6,197 3.11 2,373 1.23 +161.15

South America 14,270 7.15 11,850 6.16 +20.42

Other non-EU 13,200 6.62 9,607 4.99 +37.40

Other EU 16,633 8.33 16,523 8.59 +0.67

Total abroad 164,566 82.49 153,479 79.77 +7.22

Italy 34,941 17.51 38,928 20.23 -10.24

Total 199,507 100.00 192,407 100.00 +3.69

EBIT

Consolidated EBIT rose by 7.34% to EUR 10.637m (5.33% of sales), versus EUR 9.910m, 5.15%

of sales, of June 2002.

Financial charges

Net financial charges amounted to EUR 3.919m, equal to 1.96% of sales, up on EUR 3.386m

(1.76%) of the first half of 2002.

The interest cover calculated on EBITDA was equal to 4.91, compared with 5.05 of December

2002 (6.63 of 30 June 2002).

Result of operations

After exchange losses due to the depreciation of the US Dollar, profit before tax, equal to 5.977m,

was in line with the first half of 2002 (EUR 6.022m). Net profit for the six months to June 2003

was equal to EUR 2.040m (1.02% of sales), down on the EUR 3.437m (1.79% of sales) of the first

half of 2002 which, we note again, benefited from a lower tax charge.

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Depreciation/amortisation and cash flow

Depreciation/amortisation was recorded for EUR 11.896m (EUR 13.068m for the six months to 30

June 2002). Net cash inflow was equal to EUR 13.836m, versus EUR 15.832m for the six months

to 30 June 2002, a decrease of 12.61%.

Capital expenditure

Gross consolidated capital expenditure, mostly referred to the purchase of assets to upgrade

production facilities and for the launch of new products, amounted to EUR 11.047m (EUR 8.194m

for the first half of 2002).

Research and Innovation

In the six months to 30 June 2003 research and innovation costs were expensed for an amount of

EUR 4.108m, equal to 2.06% of sales, versus EUR 4.349m (2.26% of sales) in the first half of

2002.

Net financial position

The net financial position as at 30 June 2003, debt of EUR 103.140m, improved on 31 March 2003

(debt of EUR 115.886m) and 31 December 2002 (debt of EUR 117.264m).

Gearing, the debt to equity ratio, was equal to 185.29%, versus 214.08% as at 31 March 2003 and

221.5% as at 31 December 2002.

Resources and training

As at 30 June 2003 the Group’s personnel numbered 2,123 (2,101 as at 31 December 2002),

whereof 1,254 working in Italian operations.

The slight increase on the prior year end was due to an increase, particularly at the Italian sites and

in Argentina, in the number of temporary workers, used in order to flexibly meet changes in

production volumes required by the market.

While constant was a careful evaluation of structural requirements, with the aim of improving the

balance between general personnel cost and corporate results, at the same time we initiated in-depth

analyses to define a new Group organisation structure.

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Performance of consolidated companies

We report herebelow the most significant financial information referred to operations of the entities

of Carraro Group.

Carraro S.p.A.

The holding company had sales revenue of EUR 145.535m, up 5.9% on EUR 137.423m for the first

half of 2002.

The increase is attributable to the start of new supplies to a large US customer in the Construction

Equipment segment, together with steady sales in the Agriculture segment.

Exports accounted for 80.94% of sales, versus 77.4% for the first half of 2002. The major sales

areas are: the U.S.A. with 23.7% (22.5% at 30 June 2002) and the European Union (excluding Italy)

with 68.1% (41.6% at 30 June 2002).

EBIT, equal to EUR 8.251m (5.67% of sales), rose by 15.32% on the EUR 7.155m (5.21% of sales)

of 30 June 2002.

Net financial charges amounted to EUR 2.611m (1.79% of sales), up on the EUR 1.998m (1.45% of

sales) of 30 June 2002.

Net profit for the period was equal to EUR 2.310m (1.59% of sales), versus EUR 3.467m for the six

months to 30 June 2002. It should be noted that the figure for last year included a net gain of

EUR 0.537m relating to the sale of the Trenton S.r.l. business and net extraordinary income for a

total of EUR 0.373m.

Depreciation/amortisation was recorded for EUR 5.900m, versus EUR 5.876m of June 2002, and

net cash inflow was equal to EUR 8.210m, versus EUR 9.343m of June 2002.

Gross capital expenditure in the six months to 30 June 2003 amounted to EUR 6.550m, up on the

EUR 4.519m of the same period in 2002, and related mostly to the purchase of machinery to

upgrade production lines. The net financial position improved, with debt decreasing to

EUR 67.872m as at 30 June 2003, versus EUR 79.122m as at 31 December 2002 (EUR 83.360m as

at 30 June 2002).

The headcount as at 30 June 2003 was 862, versus 863 as at 30 June 2002 and 853 as at 31

December 2002.

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SIAP S.p.A.

Work continued on streamlining relationships with customers, focussing on the most profitable

ones, compatible with the installed production capacity. This had a beneficial impact both on sales,

which grew by 4.72% to EUR 29.552m, versus EUR 28.221m of 30 June 2002, and on EBIT,

which showed strong growth (+45.91%) reaching EUR 2.104m (7.12% of sales), versus

EUR 1.442m (5.11% of sales) of 30 June 2002.

Net profit for the period was equal to EUR 0.807m, up on the EUR 0.303m of 30 June 2002.

Depreciation/amortisation, equal to EUR 3.049m, increased slightly on the EUR 2.821m of 30 June

2002, with net cash inflow equal to EUR 3.856m (EUR 3.124m in the same period of 2002).

The entity has made capital expenditure equal to EUR 2.124m (EUR 2.442m in the first half of

2002) to consolidate its production capacity.

The net financial position as at 30 June 2003, debt of EUR 12.127m, improved on the

EUR 16.515m debt as at 31 December 2002 (debt of EUR 17.024m as at 30 June 2002).

The headcount as at 30 June 2003 was 392, versus 394 as at 30 June 2002 (390 as at 31 December

2002).

Carraro India Ltd.

Against substantially stable demand on the Indian market, there was a fall in export sales, in

particular, to Europe. Sales for the first half of the year declined by 2.65% to EUR 6.913m, from

EUR 7.101m for the first half of 2002. The activity towards industrial optimisation has started to

produce the desired effects. EBIT improved, reaching EUR 0.567m, equal to 8.20% of sales, versus

EUR 0.198m (2.79% of sales) of 30 June 2002.

After net exchange losses of EUR 0.173m (EUR 0.900m for the six months to 30 June 2002) and

net financial charges of EUR 0.559m (EUR 0.611m for the six months to 30 June 2002), the loss for

the six months to June 2003 was equal to EUR 0.165m (loss of EUR 1.313m for the six months to

30 June 2002).

Depreciation/amortisation was equal to EUR 0.545m (EUR 0.665m for the six months to 30 June

2002) and net cash inflow amounted to EUR 0.380m (versus a net cash outflow of EUR 0.648m for

the six months to 30 June 2002).

Capital expenditure, made for the sole purpose of maintaining the manufacturing plant, amounted to

EUR 0.116m (EUR 0.233m in the six months to 30 June 2002).

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The net financial position as at 30 June 2003, debt of EUR 11.866m, improved on the

EUR 12.502m debt as at 31 December 2002 (debt of EUR 13.342m as at 30 June 2002).

The headcount as at 30 June 2003 was 124, versus 121 as at 31 December 2002, 116 as at 30 June

2002.

Carraro Argentina S.A.

Supported by the good performance of the South American market, in particular, of Brazil, sales

recorded growth of 7.02%, to EUR 15.147m, versus EUR 14.153m for the six months to 30 June

2002.

In contrast, the partial disappearance of the advantages generated by the currency devaluation of the

currency in 2002 contributed to lowering EBIT, from EUR 2.610m for the six months to 30 June

2002 (18.44% of sales) to EUR 1.308m, equal to 8.64 % of sales, for the first half of 2003.

After currency exchange losses of EUR 0.021m (EUR 3.133m at 30 June 2002) and net financial

charges of EUR 0.116m, the entity reported net profit for the period of EUR 1.147m (versus a loss

of EUR 0.709m for the six months to 30 June 2002).

After depreciation/amortisation of EUR 0.562m (EUR 1.285m in the first half of 2002), net cash

inflow was equal to EUR 1.709m (EUR 0.576m for the six months to 30 June 2002).

Capital expenditure, made to support increased demand, was equal to EUR 0.937m (EUR 0.182m in

the first half of 2002).

The net financial position as at 30 June 2003, assets of EUR 1.198m, improved on the EUR 0.08m

of 31 December 2002 and EUR 0.923m of 30 June 2002.

The headcount as at 30 June 2003 was 256, versus 211 as at 31 December 2002 (181 as at 30 June

2002). The increase is related to the growth of production volumes and the additional staff are hired

on employment term-contracts.

FON S.A.

The effects of the industrial reorganisation of the Polish subsidiary have started to materialise, and

the entity has substantially increased export sales, in particular, to related parties.

Sales, equal to EUR 4.298m, grew by 61.22% on the EUR 2.666m recorded for the six months to

30 June 2002.

Thanks to higher sales, EBIT amounted to EUR 0.138m, equal to 3.21% of sales (versus an

operating loss of EUR 0.153m, -5.74% of sales, for the six months to 30 June 2002).

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After exchange losses of EUR 0.204m (EUR 0.294m in June 2002) and net financial charges of

EUR 0.059m, the net loss for the period was equal to EUR 0.124m (EUR 0.195m for the six months

to 30 June 2002).

Depreciation/amortisation was equal to EUR 0.197m (the same amount of 30 June 2002).

Net cash inflow was equal to EUR 0.073m, versus EUR 0.002m for the six months to 30 June 2002.

Capital expenditure amounted to EUR 0.899m (EUR 0.469m as at 30 June 2002) and was made to

support the industrial transformation activities.

The net financial position as at 30 June 2003, debt of EUR 3.292m, worsened compared with debt

of EUR 2.124m as at 31 December 2002 and EUR 2.463m as at 30 June 2002, as a result of the

capital expenditure mentioned above and a modest growth of working capital.

The headcount as at 30 June 2003 was 234, versus 258 as at 31 December 2002 and 265 as at 30

June 2002.

Carraro Deutschland GmbH

This entity is a financial holding company and owns 100% of the capital stock of O&K

Antriebstechnik. The income statement for the six-month period closed with a loss of EUR 0.011m,

versus profit of EUR 0.331m for the six months to 30 June 2002.

O&K Antriebstechnik GmbH

In spite of the continuing crisis of the German market and the loss of one of the largest high-profit

customers, thanks to the start of new contracts the entity made sales of EUR 22.889m, up 5.92% on

the six months to 30 June 2002 (EUR 21.610m).

Unfortunately, due to delays in the start of certain activities related to the restructuring plan, EBIT

for the first six months of 2003 was an operating loss of EUR 0.125m (EUR 0.065m for the six

months to 30 June 2002) which, after net financial charges of EUR 0.174m, 0.76% of sales

(EUR 0.080m, 0.37% of sales, for the six months to 30 June 2002), resulted in a net loss for the

period of EUR 0.334m, lower than the loss reported for the six months to 30 June 2002, equal to

EUR 1.002m.

Depreciation/amortisation amounted to EUR 0.496m (EUR 0.601m for the six months to 30 June

2002), resulting in net cash inflow of EUR 0.162m (versus a net cash outflow of EUR 0.401m for

the six months to 30 June 2002).

Gross capital expenditure amounted to EUR 0.322m, versus EUR 0.361m as at 30 June 2002.

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The net financial position as at 30 June 2002, debt of EUR 3.707m, worsened compared with the

debt of EUR 2.271m as at 31 December 2002 (EUR 1.623m as at 30 June 2002), due to a temporary

increase in working capital.

The headcount as at 30 June 2003 was 222 (versus 235 as at 31 December 2002, 271 as at 30 June

2002). The decrease is the consequence of the restructuring plan implemented starting from 2002.

Carraro International S.A.

Carraro International S.A., a financial holding company, reported profit of EUR 0.024m for the first

six months of 2003 (versus a loss of EUR 0.46m for the six months to 30 June 2002) as a result of

net financial income of EUR 0.125m. The net financial position as at 30 June 2003 was debt of

EUR 1.581m (EUR 1.680m as at 31 December 2002, EUR 1.504m as at 30 June 2002).

Carraro North America Inc.

Sales to 30 June 2003 amounted to EUR 1.037m (EUR 2.666m at 30 June 2002). EBIT shows an

operating loss of EUR 0.392m, corresponding to -37.80% of sales (versus a loss of EUR 0.036m,

-1.35% of sales, for the six months to 30 June 2002). After net financial charges of EUR 0.039m, or

3.76% of sales (EUR 0.082m, or 3.08% of sales for the six months to 30 June 2002), the net loss for

the period amounted to EUR 0.431m (versus EUR 0.118m for the six months to 30 June 2002).

Depreciation/amortisation amounted to EUR 0.273m (EUR 0.323m at 30 June 2002), with a net

cash outflow of EUR 0.158m (versus a net cash inflow of EUR 0.205m for the six months to 30

June 2002).

The net financial position as at 30 June 2003 was debt of EUR 2.883m, lower than the EUR 3.550m

debt as at 31 December 2002 (EUR 2.239m as at 30 June 2002).

The headcount as at 30 June 2003 was 13 (unchanged from 31 December 2002, 12 as at 30 June

2002).

Carraro Korea Co. Ltd.

This entity’s performance in the first half of 2003 was heavily affected by the crisis of its largest

customer, solved only in late May: sales fell by 51.54% to EUR 2.571m (EUR 5.305m for the six

months to 30 June 2002).

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The resulting EBIT was a loss of EUR 0.643m (versus profit of EUR 0.008m in June 2002).

The net result for the period was a loss of EUR 0.800m (EUR 0.007m for the six months to 30 June

2002).

After depreciation/amortisation of EUR 0.100m (EUR 0.106m for the six months to 30 June 2002),

the entity had a net cash outflow of EUR 0.700m (versus a net cash inflow of EUR 0.099m in the

first half of 2002).

Capital expenditure amounted to EUR 0.103m (EUR 0.017m as at 30 June 2002).

The net financial position, debt of EUR 0.876m, worsened compared with the EUR 0.054m assets

of 31 December 2002 (debt of EUR 0.805m as at 30 June 2002) as a result of an increase in

working capital.

The headcount as at 30 June 2003 was 20, unchanged from 31 December 2002 (22 as at 30 June

2002).

Share price trend

During the first half of 2003, Carraro shares traded at an average official price of EUR 1.432.

In the first few months of 2003, January to March, the share price had small fluctuations, reaching a

low of EUR 1.276 on 1 April 2003, then rallying and continuing to rise, to a high of EUR 1.711 on

5 June 2003 (+12.8%).

Final considerations

The analysis of the figures for the six-month period and the considerations made at the beginning of

this report render us cautiously optimistic about the Group’s operations, comforted by the

effectiveness of the measures taken to ensure a rapid turnaround. We are now more confident of

rendering all the Group’s units efficient, through improvements to be achieved by means of an

organic integration of the operating units located in the various countries of the world. Thus we will

be taking advantage of competencies present in the history of the various entities and of

opportunities that depend on their location. Today, while still in the presence of a stagnant

economy, we are also experiencing some tentative signs of a recovery that should not take long to

materialise. This follows the logic of alternating economic cycles and is also supported by the

slightly more optimistic sentiment of stockmarkets worldwide. We are not favoured at this time by

the Dollar’s exchange rate, but we believe that the effect on our exports to the USA could prove to

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be limited, both because of the type of products we sell and of the fact that ours are completion

supplies, and also because most contracts are already denominated in Euros. Therefore, we expect

fairly good results, which means almost good in the present times. They will be achieved thanks to

the measures taken and strategies adopted. We will certainly receive confirmation of this from the

figures for the second half of 2003, which appear likely to be satisfactory, at least in line with those

for the first half of the year.

It goes without saying that the long hoped-for recovery will act as accelerator. The engine is in

place, and is capable of running smoothly. It is ready to pick up speed as soon as we find ourselves

on the open road. We think this prospect is now entering the field of probabilities. Which, of course,

is what we all wish.

The Chairman of the Board of Directors

(Mario Carraro)

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Transactions of CARRARO S.p.A. Group with related parties for the six months ended 30 June 2003 (as per CONSOB communication DAC/98015375 dated 27 February 1998)

(EUR’000) Finance Trade

Financing

receivables Financing payables

Sales of components, goods and spare parts

Industrial services rendered

Sales of other services and sundry other charges

Commissions and royalties receivable

Interest income

Purchases of plant, machinery and equipment

Purchases of components, goods and spare parts

Purchases of industrial services

Purchases of other services and sundry charges

Commissions and royalties payable

Interest expense

Associated companies Agritalia S.p.A. 6,460 285 506 10Stm S.r.l. 4,387 371 53 110 1,801 5 2 2Elcon S.r.l. 103 1 17 18

Other related parties Fonderie del Montello S.p.A.

1,033 58 18 532 10,590

Maus S.p.A. 22 2,828 75Meccanica del Piave S.p.A.

276 16 14 996 6

Diffusione Europea S.p.A.

4

E.P.S. S.r.l.

Notes: 1. Financing Financing transactions relate to short- and long-term loans. 2. Trade The major trading accounts relate to purchases and sales of raw materials, semi-finished goods, components and equipment for the manufacture of drive systems for self propelling vehicles; purchases of services are mainly referred to manufacturing processes. Purchases from Maus S.p.A. relate to the supply of specific machine tools with the related spare parts and accessories. Major sales of services relate to charges for the use of the central information systems and for organisational support provided by the holding company in the various operating areas. Commissions and royalties relate to specific agency agreements and transfer of rights for the use of industrial know-how. Interest income is generated from loans currently in place.

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Carraro Group Interim consolidated financial report for the six months ended 30 June 2003

Balance sheet ASSETS 30 June 2003 31 December 2002 30 June 2002 A) SHARE CAPITAL ISSUED AND NOT YET PAID B) FIXED ASSETS: I – Intangible assets: 1) Start-up and expansion costs 441,485 658,421 848,027 2) Research, development and advertising expenses 237,682 447,869 470,047 3) Industrial and other patent rights 195,263 227,672 203,881 4) Concessions, licenses, trademarks and similar rights and assets 1,022,324 1,361,658 1,479,830 5) Consolidation difference 4,471,111 5,000,000 13,651,752 6) Assets under construction and advances 1,698,995 1,402,207 395,198 7) Other intangible assets 1,759,784 1,962,136 1,916,678Total Intangible assets 9,826,644 11,059,963 18,965,413II – Tangible assets: 1) Land and buildings 32,393,983 33,526,623 32,108,945 2) Plant and machinery 43,903,039 44,107,057 46,372,774 3) Industrial and commercial equipment 12,202,601 11,953,073 11,927,339 4) Other assets 4,229,598 4,995,727 5,450,212 5) Assets under construction and advances 2,245,156 2,462,250 2,630,101Total Tangible assets 94,974,377 97,044,730 98,489,371III – Financial assets: 1) Equity interests: a) in subsidiaries 589,646 589,646 - b) in associated companies 4,361,448 4,369,009 3,546,004 c) in parent companies - - - d) in other companies 142,783 142,927 108,470 e) advances on equity interests - - 1,331,907 2) Receivables: a) from subsidiaries - - - b) from associated companies 1,408,785 4,000,000 4,000,000 - falling due within one year 1,408,785 - - - falling due after more than one year - 4,000,000 4,000,000 c) from parent companies - - - d) from others 6,414,884 6,954,940 7,197,805 - falling due within one year 1,032,914 1,147,017 1,062,297 - falling due after more than one year 5,381,970 5,807,923 6,135,508 3) Other securities 1,492 1,636 753 4) Own shares - - -Total Financial assets 12,919,038 16,058,158 16,184,939Total Fixed assets (B) 117,720,059 124,162,851 133,639,723

Carraro Group Interim financial report for the six months ended 30 June 2003 1

Carraro Group

Interim consolidated financial report for the six months ended 30 June 2003 Balance sheet 30 June 2003 31 December 2002 30 June 2002 C) CURRENT ASSETS I – Inventory: 1) Raw materials and consumables 38,284,458 34,716,115 35,823,062 2) Work in progress 23,391,911 21,424,296 19,483,944 3) Contracted work in progress - - - 4) Finished products and goods held for resale 10,284,519 10,496,383 9,702,109 5) Advances 529,284 498,089 808,585Total Inventory 72,490,172 67,134,883 65,817,700II – Receivables: 1) Trade debtors 92,143,717 87,991,436 95,635,243 - falling due within one year 92,143,717 87,991,436 95,635,243 - falling due after more than one year - - - 2) Receivables from subsidiaries - - - - falling due within one year - - - - falling due after more than one year - - - 3) Receivables from associated companies 2,727,135 4,013,716 4,518,993 - falling due within one year 2,727,135 4,013,716 4,518,993 - falling due after more than one year - - - 4) Receivables from parent companies - - - - falling due within one year - - - - falling due after more than one year - - - 5) Other debtors 21,673,449 26,073,101 26,538,635 - falling due within one year 19,407,884 22,136,087 22,593,873 - falling due after more than one year 2,265,565 3,937,014 3,944,762Total Receivables 116,544,301 118,078,253 126,692,871III – Short-term investments: 1) Investments in subsidiaries - - 589,646 2) Investments in associated companies - - - 3) Investments in parent companies - - - 4) Other investments - - - 5) Own shares - - - 6) Other securities 62,087,960 53,988,813 40,323,019Total Short-term investments 62,087,960 53,988,813 40,912,665IV – Cash and bank: 1) Bank and postal deposits 14,607,239 13,509,819 20,430,196 2) Cheques on hand 134,423 554,403 119,213 3) Cash in hand 85,217 53,337 50,250Total Cash and bank 14,826,879 14,117,559 20,599,659Total Current assets (C) 265,949,312 253,319,508 254,022,895D) ACCRUED INCOME AND PREPAYMENTS 3,288,946 6,554,393 3,719,577 - Accrued income 1,316,389 5,406,563 1,860,671 - Prepayments 1,972,557 1,147,830 1,858,906 - of amounts falling due within one year 1,900,961 1,046,706 1,779,882 - of amounts falling due after more than one year 71,596 101,124 79,024TOTAL ASSETS 386,958,317 384,036,752 391,382,195



Balance sheet LIABILITIES 30 June 2003 31 December 2002 30 June 2002 A) SHAREHOLDERS’ EQUITY I – Share capital 21,840,000 21,840,000 21,840,000II – Share premium reserve 12,406,641 17,833,456 17,833,456III – Revaluation reserve - - -IV – Legal reserve 3,120,088 3,120,088 3,120,088V – Reserve for own shares in portfolio - - -VI – Statutory reserves - - -VII – Other reserves 14,059,084 5,894,518 6,124,637 Extraordinary reserve 272,166 3,223,553 10,428,283 Reserve from accelerated depreciation 6,822,245 6,901,982 8,896,612 Reserve from extraordinary income as per art. 55 - 513,741 513,741 Reserve from translation difference -9,818,131 -10,650,023 -8,689,002 Reserve from merger surplus - 0 8,242,425 Other reserves 16,782,804 5,905,265 -13,267,422VIII – a) Profit/(Loss) carried forward - -IX – b) Consolidated profit/(loss) for the period 2,040,169 1,875,957 3,437,002Total Shareholders’ equity of the Group 53,465,982 50,564,019 52,355,183Minority interests in capital and reserves 2,296,652 3,123,896 4,454,552Minority interests in profit/(loss) for the period -99,809 -747,822 -673,256Total Shareholders’ equity 55,662,825 52,940,093 56,136,479B) PROVISIONS FOR RISKS AND CHARGES 1) Provisions for pensions and similar obligations 3,357,835 3,375,878 3,193,714 2) Provisions for taxes 328,317 317,360 2,355,412 3) Other provisions 9,081,302 9,586,150 12,099,798Total Provisions for risks and charges 12,767,454 13,279,388 17,648,924C) STAFF LEAVING INDEMNITY (T.F.R.) 14,160,332 14,183,392 13,670,348D) PAYABLES 1) Bonds and debenture loans 100,000,000 100,000,000 100,000,000 2) Convertible bonds and debenture loans - - - 3) Bank loans and overdrafts 78,594,944 85,737,485 83,827,739 - falling due within one year 66,716,868 72,651,570 67,709,769 - falling due after more than one year 11,878,076 13,085,915 16,117,970 4) Other financing creditors 694,342 955,310 1,919,786 - falling due within one year 497,116 514,364 1,199,874 - falling due after more than one year 197,226 440,946 719,912 5) Payments on account (advances) 851,596 275,931 896,201 - falling due within one year 851,596 275,931 896,201 6) Trade creditors 97,755,375 86,699,294 89,237,025 - falling due within one year 97,755,375 86,699,294 89,237,025 - falling due after more than one year - - - 7) Secured payables 355,667 236,885 448,282 - falling due within one year 355,667 236,885 348,179 - falling due after more than one year - - 100,103 8) Payables to subsidiaries - - - - falling due within one year - - - 9) Payables to associated companies 999,415 1,997,217 1,711,084 - falling due within one year 999,415 1,997,217 1,711,084 10) Payables to parent companies 18,409 22,272 27,847 - falling due within one year 18,409 22,272 27,847 11) Tax payables 3,131,712 2,915,971 3,518,767 - falling due within one year 3,131,712 2,915,971 3,518,767 - falling due after more than one year - - - 12) Social security payables 1,695,168 2,362,829 1,568,835 - falling due within one year 1,695,168 2,362,829 1,568,835 13) Other creditors 13,882,223 11,450,775 15,483,794 - falling due within one year 9,158,296 6,312,679 10,190,561 - falling due after more than one year 4,723,927 5,138,096 5,293,233Total Payables 297,978,851 292,653,969 298,639,360E) ACCRUED EXPENSES AND DEFERRED INCOME 6,388,855 10,979,910 5,287,084 - Accrued expenses 5,729,399 10,631,157 5,271,169 - Deferred income 659,456 348,753 15,915 - of amounts falling due within one year 659,456 348,753 15,915 - of amounts falling due after more than one year - - -TOTAL LIABILITIES 386,958,317 384,036,752 391,382,195



Memorandum accounts 30 June 2003 31 December 2002 30 June 2002 Risks - Guarantees given on behalf of third parties 14,115,756 13,910,595 26,553,685- Securities deposited as guarantee on behalf of third parties 92,962 2,159,582 2,159,583Total Risks 14,208,718 16,070,177 28,713,268 Commitments - Commitments to repurchase equity interests 1,112,345 1,112,345 1,112,345- Other commitments 103,291 103,291 103,291Total Commitments 1,215,636 1,215,636 1,215,636TOTAL RISKS AND COMMITMENTS 15,424,354 17,285,813 29,928,904 Other Memorandum accounts which do not reflect risks or commitments

- Guarantees received from third parties 2,371,290 2,843,658 3,273,514- Mortgages 6,197,483 6,197,483 6,870,220- Pledges on securities - - -- Guarantees given by third parties on behalf of Carraro 29,394,772 30,751,669 36,107,195- Foreign currency swaps 14,120,185 36,825,274 63,555,493- Interest rate swaps 165,329,138 165,329,138 110,329,138- Forward rate agreements 155,000,000 155,000,000 -- Foreign currency options 60,807,114 22,620,589 73,550,674


Carraro Group

Interim consolidated financial report for the six months ended 30 June 2003 Income statement Six months ended

30 June 2003 Year ended

31 December 2002 Six months ended

30 June 2002 A) VALUE OF PRODUCTION 1) Revenue from sales and services 199,506,850 381,059,268 192,407,044 2) Changes in stocks of work in progress and finished goods 1,782,732 3,948,199 1,206,845 3) Changes in contracted work in progress - - - 4) Own work capitalised 299,076 511,610 179,338 5) Other income 1,987,316 4,460,241 2,505,213 - Grants 43,343 52,319 44,729 - Other 1,943,973 4,407,922 2,460,484Total Value of production (A) 203,575,974 389,979,318 196,298,440B) COST OF PRODUCTION 6) Cost of raw materials, consumables, spare parts and other goods 114,355,356 210,839,610 105,830,834 7) Cost of services 35,338,234 64,299,891 32,583,080 8) Cost of utilisation of third parties’ assets 640,766 1,430,782 709,526 9) Personnel costs: 32,774,713 65,030,699 34,302,428 a) Wages and salaries 23,435,171 45,741,519 24,005,977 b) Social contributions 7,180,053 13,825,245 7,084,634 c) Staff leaving indemnity (T.F.R.) 1,229,872 2,665,956 1,315,766 d) Pensions and similar obligations 213,061 411,001 212,897 e) Other costs 716,556 2,386,978 1,683,154 10) Depreciation and write-downs: 12,156,174 32,955,159 13,929,323 a) Amortisation of intangible assets 1,874,083 3,516,217 1,975,345 b) Depreciation of tangible assets 10,022,380 19,300,731 11,092,526 c) Other write-downs of assets - 8,747,710 - d) Write-downs of receivables included in current assets 259,711 1,390,501 861,452 11) Changes in stocks of raw materials, consumables, spare parts

and other goods -3,583,631 -3,395,242 -2,805,902

12) Accruals for contingencies 1,885 392,044 304,756 13) Other accruals 705,065 3,389,825 770,256 14) Other operating charges 550,566 1,498,031 764,358Total Cost of production (B) 192,939,128 376,440,799 186,388,659Difference between value and cost of production (A - B) 10,636,846 13,538,519 9,909,781 15) Income from participating interests - 10,976 - 16) Other financial income 9,697,601 27,149,106 20,669,484 a) from receivables recorded as fixed assets 10,090 29,584 81,302 other - 66,000 - b) from securities recorded as fixed assets - - - c) from securities recorded as current assets 192,458 297,420 139,534 d) other financial income 9,495,053 26,756,102 20,448,648 whereof: - from subsidiaries - - - from associated companies 110,971 254,087 122,046 from parent companies - - - other 9,384,082 26,502,015 20,326,602 17) Interest and other financial charges 14,285,966 34,346,430 24,135,432 whereof: from subsidiaries - - - from associated companies 2,288 14,408 3,360 from parent companies - - - other 14,283,678 34,332,022 24,132,072Total (15 + 16 – 17) -4,588,365 -7,186,348 -3,465,948


Carraro Group

Interim consolidated financial report for the six months ended 30 June 2003 Income statement Six months ended

30 June 2003 Year ended

31 December 2002 Six months ended

30 June 2002 D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 18) Revaluations: 27,897 108,687 48,459 a) of equity interests 27,897 108,687 48,459 b) of short-term investments - - - c) of securities recorded as current assets - - - 19) Write-downs: 35,412 260,190 202,287 a) of equity interests 35,412 260,190 202,287 b) of short-term investments c) of securities recorded as current assets - - -Total Adjustments (18 – 19) -7,515 -151,503 -153,828E) EXTRAORDINARY INCOME AND EXPENSES 20) Income 116,959 2,244,129 1,551,821 - Extraordinary gains on disposal 11,177 784,831 721,453 - Taxes of prior periods 27 - 275,047 - Other 105,755 1,459,298 555,321 21) Expenses 180,297 3,687,968 1,819,529 - Extraordinary losses on disposal r - - - - Taxes of prior periods 18,494 593,458 176,442 - Other 161,803 3,094,510 1,643,087Total extraordinary items (20 – 21) -63,338 -1,443,839 -267,708PROFIT/(LOSS) BEFORE TAX (A-B+/-C+/-D+/-E) 5,977,628 4,756,829 6,022,297 22) INCOME TAX 4,037,268 3,628,694 3,258,551 23) PROFIT/LOSS) FOR THE PERIOD 1,940,360 1,128,135 2,763,746Minority interests in profit/(loss) for the period -99,809 -747,822 -673,256 26) PROFIT/(LOSS) FOR THE PERIOD OF THE GROUP 2,040,169 1,875,957 3,437,002


Carraro Group

Interim consolidated financial report for the six months ended 30 June 2003 NET FINANCIAL POSITION

30 June 2003 31 December 2002 30 June 2002

Bank loans and overdrafts: - falling due within one year 66,717 72,652 67,710- falling due after more than one year 11,878 13,086 16,118

Other financing creditors: - falling due within one year - - 196- falling due after more than one year - - -- leasing payments falling due within one year 497 514 1,004- leasing payments falling due after more than one year 197 441 720

Debenture loans: - falling due within one year - - -- falling due after more than one year 100,000 100,000 100,000

Secured payables: - falling due within one year 356 237 348- falling due after more than one year - - 100

Net balance of interest prepayments, accruals and deferrals 3,342 4,818 1,851

Less: Cash and bank -14,827 -14,118 -20,600Securities -62,088 -53,988 -40,323Loans given -2,932 -6,378 -5,991Receivables from Factor - - -

Consolidated net financial position

103,140 117,264 121,133



CASHFLOW STATEMENT 30 June 2003 31 December 2002 30 June 2002 Net financial position at beginning of period -125,504 -125,504

Allocation Sources Allocation Sources Allocation Sources

Profit/(Loss) for the period 2,040 1,876 3,437Minority interests in profit/(loss) for the period 100 748 673Depreciation of tangible assets 10,022 19,301 11,093Amortisation of intangible assets 1,874 3,516 1,975Write-downs of fixed assets 0 8,748 Outflow/Inflow of funds 13,836 32,693 15,832CURRENT BUSINESS ACTIVITY Accruals to staff leaving indemnity (T.F.R.) 1,230 2,666 1,316Utilisation of staff leaving indemnity (T.F.R.) 1,253 3,067 2,230Accruals to provision for pensions and similar obligations 213 411 213Utilisation of provision for pensions and similar obligations 160 253 240Accruals to provisions for risks and charges 707 3,781 1,075Utilisation of provisions for risks and charges 1,283 3,017 6,549Accruals to provision for deferred taxes 11 15 559Utilisation of provision for deferred taxes - 1,803 48Change in inventory 5,355 2,426 1,109Change in trade debtors 4,152 8,963 16,607Change in receivables from subsidiaries, associated companies, parent companies 432 641 349

Change in other debtors 4,398 9,103 8,637Change in trade creditors 11,057 7,325 9,863Change in payables to subsidiaries, associated companies, parent companies 1,002 - 830 550

Change in other creditors 2,555 7,663 3,703Change in other than interest prepayments, accruals and deferrals 151 42 224

Outflow/Inflow of funds from current business activity 7,549 2,378 6,515 Total current business activity 21,385 30,315 9,317NON-CURRENT BUSINESS ACTIVITY Accruals/Extraordinary expenses 1,707 1,302Investing activities: - Additions to tangible assets 10,359 16,259 7,636- Investment in intangible assets 688 2,356 558- Net change from disposal and consolidation 2,456 17,190 15,917Equity interests: - Acquisition of equity interests 590 1,922- Accrual for exchange losses from depreciation of Arg. Peso 4,300 - Net revaluation/write-down of interests carried at equity 8 151 154- Commitments to purchase equity interests - Change in ‘other equity interests’ 3Advance payment of employees’ personal income tax (IRPEF) on staff leaving indemnity (T.F.R.) 92 219 151

Change in receivables recorded as fixed assets 449 14 698Outflow/Inflow of funds from non-current business activity 8,042 7,638 8,103

EQUITY MANAGEMENT Net change in consolidation area and minority interests 781 14,437 13,049Dividend payments Outflow/Inflow of funds from equity management 781 14,437 13,049 NET FINANCIAL POSITION AT END OF PERIOD -103,140 -117,264 -121,133


1. Purpose of Group companies

The main corporate purpose of Carraro Group companies is to manufacture and sell drive systems for self propelling vehicles such as agricultural tractors, construction equipment, material handling equipment, light commercial vehicles and cars. 2. Presentation and contents of the consolidated interim financial report

This consolidated interim financial report has been prepared in compliance with the layout and accounting policies laid down in Legislative Decree No. 127/91 and with the guidelines issued by CONSOB, the Italian Stock Exchange Commission. The consolidated interim financial report as of 30 June 2003 has been drawn up on the basis of the interim financial reports prepared by the Directors of Group companies in compliance with the provisions of the Italian Civil Code and comprises a consolidated balance sheet, a consolidated income statement and these notes to the consolidated interim financial report which show amounts relating to the consolidated financial statements as at 31 December 2002 and to the consolidated interim financial report for the six months to 30 June 2002 as comparatives. This interim financial report is drawn up in Euros (EUR). Euro amounts are shown without decimals, as allowed by art. 2423 of the Civil Code as amended, effective 1 January 2002, by art. 16, item 8, letter a) of Legislative Decree No. 213/98. The schedules accompanying these notes are expressed in thousands of Euros. 3. Consolidation area

The Group’s consolidated interim financial report comprises the interim financial report of Carraro S.p.A. and of those companies in which it holds, either directly or indirectly, a majority of voting rights at the annual general meeting. Entities consolidated on a line-by-line basis are the following:

Legal name Registered office Currency Nominal value of capital stock Percentage held

SIAP S.p.A. Maniago (PN) Euro 10,122,616 100%Carraro Deutschland GmbH Hattingen (Germany) Euro 10,507,048 100%Carraro Argentina S.A. Haedo - Buenos Aires (Argentina) Argentine Peso 25,809,288 93.90%Carraro India Ltd. Rajangaon - Pune (India) Indian Rupee 400,000,000 51%F.O.N. S.A. Radomsko (Poland) Polish Zloty 7,058,220 84.788%Carraro International S.A. Luxembourg Euro 9,850,000 99.99%Carraro North America Inc. Calhoun - Georgia (USA) US Dollar 100 100%Carraro Korea Ltd. Ulsan (Republic of Korea) South Korean Won 3,000,000,000 100%O&K Antriebstechnik GmbH &Co. KG Hattingen (Germany) Euro 2,045,168 100% During the period there were no changes in the consolidation area. The following entities have been excluded from the consolidation area due to their immateriality. They are non-operating companies and their only significant assets are parcels of industrial land.

Parent company Legal name Registered office Currency Nominal value

of capital stock Percentage held

Carraro S.p.A. Carraro PNH Components India Ltd. Mumbai (India) Indian rupee 10.000.200 99,998%Siap S.p.A. Siap Gears India Ltd. Mumbai (India) Indian rupee 20.000.200 99,999% It should also be noted, with reference to the net equity of the individual consolidated entities, that the following amounts are recorded by way of payment towards capital increase: - USD 7,000,000 for Carraro North America Inc.; - EUR 10,532,613 for Carraro Deutschland GmbH. As for minority interests, we note that: - Simest S.p.A. has a 6% equity interest in Carraro Argentina S.A. which Carraro S.p.A. is committed to

repurchasing within the agreed term.


4. Basis of consolidation and accounting policies

4.1 Basis of consolidation Values are consolidated on a line-by-line basis, i.e. all assets, liabilities, costs and revenues of the individual entities are consolidated regardless of the percentage owned. For the purposes of consolidating foreign-based entities, we have used balance sheet and income statement schedules specially prepared according to the layout of the schedules adopted by the holding company and compiled in application of accounting policies common with those applied by Carraro S.p.A.. Where necessary, to bring the closing dates of foreign entities in line with that of the holding company, the directors prepared interim financial information using the same policies applied for the year-end reporting. The carrying value of consolidated equity interests, owned by Carraro S.p.A. or by other entities included in the consolidation, has been eliminated against the corresponding share of net equity of the subsidiary undertakings. Net equity and profit for the period attributable to minority interests are shown on separate lines, respectively, on the consolidated balance sheet and on the consolidated income statement. The differences between the purchase cost and the value of the corresponding share of net equity of participating interests at the date on which the entities are first included in the consolidation, subject to allocation, where possible, to specific items within assets, are stated on a line called ‘Consolidation difference’ in the assets section of the balance sheet, or directly charged to the consolidated net equity on the line ‘Reserve from consolidation’. Differences originating from the purchase of additional shares or parts (‘quote’), after the first year of consolidation, are stated as contra entry to the ‘Reserve from consolidation’, or charged to the consolidated income statement. Significant transactions between consolidated entities, and accordingly the relevant receivables, payables, costs and revenue, as well as unrealised gains from operations between Group entities, have been eliminated. Financial information expressed in a foreign currency has been translated into Euros at the period-end exchange rate in the case of assets and liabilities, at historical exchange rates for equity components and at the average exchange rate of the period for income statement amounts. Any exchange differences originating from this method are stated on a specific line within net equity called ‘Reserve from translation difference’. The rates applied to translate foreign currency denominated financial information are the following:

Legal name Currency Average exchange rate six months to 30 June 2003

Exchange rate of 30 June 2003

Carraro India Ltd. Indian Rupee 53.2060 53.0970F.O.N. S.A. Polish Zloty 4.2720 4.4775Carraro North America Inc. US Dollar 1.1049 1.1427Carraro Korea Ltd. South Korean Won 1,331.0331 1,364.3800Carraro Argentina S.A. Argentine Peso 3.3160 3.2006

4.2 Accounting principles and policies

In the consolidated interim financial report, for consistency of presentation, the same accounting policies and principles were adopted as those applied in the previous period. The accounting principles used are those applicable to going concerns, which the directors believe to be appropriate in light of what already discussed in the report on operations. The accounting policies and principles applied to the most significant financial statements items are illustrated below. a) Intangible assets Intangible assets, if purchased from third parties, are stated at purchase cost inclusive of directly attributable accessory charges; if self-developed, at the purchase cost of the assets or services used, besides direct and indirect labour and relevant accessory charges. Amounts are shown after amortisation, computed on a straight-line basis with reference to the estimated useful life of the assets b) Tangible assets Tangible assets are stated at purchase, transfer or own work cost, increased by monetary revaluations accounted for in compliance with the law. Cost includes any specific financial charges incurred up to the time the asset goes into service. The costs of improvements, revamping, transformations and extraordinary maintenance are capitalised as increases in the value of the relevant assets. Similar costs that represent ordinary maintenance are expensed as incurred. Fully depreciated assets remain on the balance sheet until scrapped or disposed of.


Depreciation is accounted for at rates suitable to represent the actual depreciation of the asset, on the basis of its estimated economic life. Assets under construction are not depreciated. If, regardless of depreciation already accounted for, an impairment occurs, the asset is written down accordingly; if, in subsequent periods, the reasons for the write-down no longer apply, the original value is reinstated. Finance leases are accounted for by recording the present value of lease payments, including redemption value, within tangible assets. The principal portion of liabilities for lease payments and the redemption amount are stated within liabilities on the line ‘other financing creditors’ falling due within and after one year, depending on the term of the lease. In the income statement, depreciation is accounted for as if the asset had been purchased, and the principal portion of lease payments charged in the statutory financial statements of consolidated entities is eliminated. c) Financial assets Equity interests of 20% or more in entities in which the Group does not exercise control, if significant, are carried at equity; if not significant, they are recorded at cost, adjusted, if necessary, to reflect impairment losses. Receivables recorded within financial assets are carried at estimated realisable value. d) Inventory Stocks are valued at the lower of average purchase or production cost of the year and market. Production cost includes materials, labour, and direct and indirect manufacturing costs. Obsolete or slow-moving stocks are suitably written down. e) Receivables and payables Receivables are stated at estimated realisable value. This corresponds to nominal value adjusted by a specific bad debt provision that covers both accounts that are already known to be uncollectible and doubtful accounts included in the overall balance. Payables are stated at nominal value. Accounts denominated in currencies not belonging to the Euro area are adjusted to the official exchange rate at the period end and the resulting gains or losses are taken to the income statement. Receivables and payables in foreign currency falling due in the medium term are adjusted to period-end exchange rates only if the translation gives rise to a loss. f) Short-term investments Securities held for trading purposes are carried at the lower of cost, including any premium, and market, determined as the average trading price of the last month. Other short-term investments are valued at the lower of cost and market. g) Cash and bank Cash and bank balances are stated at nominal value. h) Prepayments, accruals and deferrals Costs and revenues are accounted for on an accrual basis, with reference to the period to which they relate. i) Provisions for risks and charges Accruals for risks and charges are made to cover losses or liabilities that are certain or probable, the amounts and dates of occurrence of which cannot be determined exactly at the period end. Provisions for taxes include the liability for probable taxes, the amounts and dates of occurrence of which cannot be determined exactly, such as liabilities for probable tax assessments or litigation pending, valued on the basis of their foreseeable outcome. l) Staff leaving indemnity (T.F.R.) Provision is made for the liability towards personnel in compliance with existing legislation and labour contracts. m) Derivative contracts Forward exchange agreements are valued as follows: a) if entered into to hedge for accounts payable and receivable, consistently with the accounting policies applied

to the underlying assets and liabilities; b) if entered into to hedge for projected exports, any exchange differences realised during the period on those

transactions are recorded as adjustments to the value of the relevant revenue as they are considered to be of a commercial nature; the premium or discount accruing on contracts still outstanding at the period end is taken to the income statement and recorded within financial income or charges;

c) if entered into for trading purposes, consistently with the accounting policies applied to the receivables and payables denominated in foreign currency.


Derivative contracts hedging for interest rate risks are valued under the same accounting policies as the liabilities hedged. n) Costs and revenues Costs and revenues are stated in accordance with the principle of prudence, on a accrual basis, and the relevant prepayments, accruals and deferrals are accounted for. Revenue from sales is recognised on transfer of ownership, which generally corresponds to shipment. Revenue from services is recognised at the time the service is rendered. o) Intercompany transactions In compliance with CONSOB’s Recommendations dated 20 February 1997 (DAC/97001574) and 27 February 1998 (DAC/98015375), we state that: a) transactions with Group companies and related parties during the period gave rise to trading, financing or

consulting receivables/payables and were carried out, on an arm’s length basis, in the economic interests of the individual entities involved; and

b) there were no unusual transactions beyond the scope of the ordinary course of business and the interest rates (receivable and payable) and terms applied in financing transactions between the various entities were at arm’s length.

p) Income tax for the period Current income taxes are provided for on the basis of an estimate of taxable income of consolidated entities in compliance with existing legislation and in consideration of applicable exemptions. q) Deferred taxes The individual entities provide for deferred taxes on temporary differences between the result of operations as per statutory accounts and taxable income. The contingent fiscal benefit connected with both temporary differences and losses available for carryforward is accounted for when reasonable certainty exists that sufficient taxable income will be available in future to allow their recovery. Additional deferred taxes (assets and/or liabilities) originate from the tax effect of consolidation adjustments, mainly due to the capitalisation of assets under lease, to intercompany stock and to the amortisation of goodwill, with reference to local tax legislation. Deferred tax liabilities are provided for on a specific line under heading B) of the liability section of the balance sheet, deferred tax assets are recorded within other debtors on line C.II.5 of the assets section.


5. Analysis of financial statements items and changes from previous periods

BALANCE SHEET - ASSETS

B.I. – Intangible assets

As at 30 June 2003 intangible assets totalled EUR 9.83m, versus EUR 18.96m a year earlier. The balance may be analysed as follows

Description Start-up

and expansion

costs

Research and development

expenses

Industrial and other

patent rights

(EUR’000) Concessions

licences, trademarks and

similar rights

Difference from

consolidation

Assets under construction

and advances

Other intangible

assets Total

Historical cost 2,238 1,634 740 4,473 17,630 395 5,645 32,755Accumul. amortisation -1,390 -1,164 -536 -2,993 -3,978 -3,729 -13,790NBV as at 30 June 2002 848 470 1,480 13,652 395 1,916 18,965

nd

Increases 46 185 1,427 66 1,798 -420 0

Amortisation -204 -68 -50 -476 0 -439 -1,541Other changes -5 -33Reclassifications 6 33 39Decreases Write-downs -8,176 -8,176Exchange differences 14

0

204

Movements 2 half of 2002:

74Capitalisation 420

-304-38

-1 13

Historical cost 2,252 1,680 814 4,659 17,630 1,402 6,130 34,567Accumul. amortisation -1,594 -1,232 -586 -3,297 -4,454 - -4,168 -15,331Write-downs - - - - -8,176 - - -8,176NBV as at 31 Dec. 2002 658 448 228 1,362 5,000 1,402 1,962 11,060

Movements 1st half of 2003:

Increases 17 27 121 305 218 688Capitalisation 0Amortisation -187 -223 -60 -457 -529 -418 -1,874Reclassifications 4 -4 0Decreases 0Exchange differences -34 -4 -8 -2 -48NBV as at 30 June 2003 441 238 195 1,022 4,471 1,698 1,760 9,827

Comprising: - Historical cost 2,222 1,693 841 4,776 9,454 1,699 6,346 27,031- Accumul. amortisation -1,781 -1,455 -646 -3,754 -4,983 0 -4,586 -17,205- Write-downs Increases during the period relate mostly to the purchase of software licences, for an amount of EUR 0.121m, and to the development of software applications for the management of purchases, for an amount of EUR 0.218m, both by Carraro S.p.A.. The item ‘Start-up and expansion costs’ may be analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Cost of start-up and amendments to company by-laws 40 54 71Start-up cost of new manufacturing units 401 604 777

Total 441 658 848


‘Cost of start-up and amendments to company by-laws’ relates mainly to costs incurred in 1999 by Carraro International S.A., Carraro Korea Ltd. and Carraro Argentina S.A.. ‘Start-up cost of new manufacturing units’ relates essentially to the costs incurred to start up the manufacturing operations of Carraro India Ltd. and bring them to operate at capacity. Research and development expenses relate to the capitalisation of costs relating to the designing of new product lines developed in connection with similar projects started by customers. Other studies concerning products are still in the design stage and are recorded within assets under construction. The item ‘Difference from consolidation’ shows the value originating from the consolidation entries of O&K Antriebstechnik GmbH & Co. KG., as the difference between the carrying amount of the participating interest and the fair values of the entity’s assets and liabilities. The value shown on the line ‘Write-downs’ among movements in the second half of 2002 relates to the adjustment to the original value of goodwill, also following a revision of business plans. At the same time the remaining useful life of the goodwill was redefined as five years. The net book value as at 30 June 2003 was EUR 4.47m. The amortisation charge for the period amounted to EUR 0.53m. B.II. - Tangible assets

As at 30 June 2002 tangible assets totalled EUR 94.97m, versus EUR 98.49m a year earlier. The balance may be analysed as follows (EUR’000)

Description Land and buildings

Plant and machinery

Industrial equipment Other assets

Assets under construction and

advances Total

Historical cost 42,890 140,612 69,183 21,475 2,630 276,790Accumulated depreciation -10,781 -94,239 -57,256 -16,025 0 -178,301

NBV as at 30 June 2002 32,109 46,373 11,927 5,450 2,630 98,489

Movements 2nd half of 2002: Increases 1,385 2,484 2,611 460 1,701 8,641Decreases -523 -38 -561Capitalisation 240 174 168 -582 0Leases Write-downs -168 -404 -572Depreciation -628 -4,237 -2,457 -886 -8,208Reclassifications 501 -501 0Change in advances -787 -787Exchange differences -80 4 108 10 1 43

Historical cost 44,868 140,106 71,510 21,770 2,462 280,716Accumulated depreciation -11,341 -95,831 -59,153 -16,774 0 -183,099Write-downs -168 -404 -572

NBV as at 31 Dec. 2002 33,527 44,107 11,953 4,996 2,462 97,045

Movements 1st half of 2003: Increases 200 5,473 3,205 389 1,092 10,359Decreases -287 -71 -13 -8 -379Capitalisation 35 2 -37 0Leases Depreciation -742 -5,457 -2,969 -854 -10,022Reclassifications 6 363 50 -297 -122 0Change in advances -1,099 -1,099Exchange differences -597 -296 6 -43 -930

NBV as at 30 June 2003 32,394 43,903 12,203 4,229 2,245 94,974

Comprising: - Historical cost 44,477 143,726 74,524 21,521 2,245 286,493- Accumulated depreciation -12,083 -99,655 -61,917 -17,292 0 -190,947- Write-downs -168 -404 -572


Tangible assets include assets leased for a value of EUR 14.30m, already depreciated for an amount of EUR 12.36m. Increases during the period in ‘Plant and machinery’ relate mostly to the purchase of automated and generic machinery by Carraro S.p.A. and Siap S.p.A.; as for ‘Industrial equipment’, the most significant additions were cast moulds and tooling purchased by Carraro S.p.A. and Siap S.p.A.. The item ‘Other assets’ may be analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Furniture and fixtures 2,181 2,725 2,960Office machines 1,652 1,895 2,132Cars and forklift trucks 396 376 358

Total 4,229 4,996 5,450


B.III. – Financial assets

B.III.1 Equity interests

Changes in equity interests during the second half of 2002 are detailed as follows: (EUR’000)

Description Balance as at 30 June 2002

within net equity

Increases/ Acquisitions

2nd half of 2002Decreases

Revaluations/Write-downs

2nd half of 2002

Change in consolidation

area NBV as at

31 Dec. 2002

Equity interests in subsidiaries: Carraro PNH Components India Ltd. 197 197Siap Gears India Ltd. 393 393Equity interests in associated companies :

STM S.r.l. 2,528 74 2,602Agritalia S.p.A. 846 966 -45 1,767TKM S.r.l. 159 -146 -13 0Elcon S.r.l. 13 -13 0Equity interests in other companies 108 35 143Advances on equity interests 1,332 -1,332 0

Total equity interests 4,986 1,591 -1,478 3 0 5,102 Changes in equity interests during the first half of 2003 are detailed as follows: (EUR’000)

Description Balance as at 31 Dec. 2002 within net

equity

Increases/ Acquisitions

1st half of 2003Decreases

Revaluations/Write-downs

1st half of 2003


area

NBV as at 30 June

2003

Equity interests in subsidiaries: Carraro PNH Components India Ltd. 197 197Siap Gears India Ltd. 393 393Equity interests in associated companies :

STM S.r.l. 2,602 -36 2,566Agritalia S.p.A. 1,767 28 1,795Elcon S.r.l. 0 0Equity interests in other companies 143 143Advances on equity interests 0 0

Total equity interests 5,102 -8 5,094 The columns ‘Revaluations/Write-downs’ show changes originating from the valuation under the equity method. B.III.1.a. – Equity interests in subsidiaries

The balance of EUR 0.59m may be detailed as follows: (EUR’000)

Parent company Legal name Registered office Percentage held Carrying amount

Carraro S.p.A. Carraro PNH Components India Ltd. Mumbai (India) 99.998% 197Siap S.p.A. Siap Gears India Ltd. Mumbai (India) 99.999% 393

These equity interests were first recorded in the first half of 2002, following subscription of share capital effected by means of the conversion of existing receivables from these entities. The investments are carried at subscription cost.


B.III.1.b. – Equity interests in associated companies

• STM S.r.l., with registered office in Maniago (PN), 50% owned by SIAP S.p.A., has been valued at equity, which brings the carrying value to EUR 2.57m.

• Agritalia S.p.A., with registered office in Rovigo, 33.33% owned by Carraro S.p.A., has been valued at equity, which brings the carrying value to EUR 1.80m.

• Elcon Elettronica S.r.l., with registered office in Trieste, owned at 24.9% by Carraro S.p.A., has been written off because its equity became equal to nil due to the losses reported as at 31 December 2002.

B.III.1.d. – Equity interests in other companies

This line relates to minority equity interests held for an amount of EUR 0.08m by Carraro S.p.A., for an amount of EUR 0.01m by SIAP S.p.A., and for an amount of EUR 0.05m by O&K Antriebstechnik GmbH & Co. KG. B.III.1.e. – Advances on the purchase of equity interests

The amount of EUR 1.332m recorded among movements of the second half of 2002 relates to the purchase of the 15% interest held by Simest S.p.A. in Carraro India Ltd.. B.III.2.b. – Receivables from associated companies

(EUR’000)

Description Balance 30 June

2002 Incr. Reval.

Reclass. long-/

short-termRepay-ments

Foreign exchange

adjust-ments

Balance 31 Dec.

2002 Reclass. Repay-

ments

Foreign exchange

adjust-ments

Balance 30 June

2003

Loan to STM S.r.l.: - falling due within one year 0 0 0 0- falling due after more than one year 4,000 4,000 -2,591 1,409

Total Receivables from associated companies 4,000 0 0 0 0 0 4,000 0 -2,591 0 1,409

The balance of receivables from associated companies relates entirely to a loan of EUR 4.0m disbursed in the course of 2001 to STM S.r.l. by SIAP S.p.A. and partly repaid in the course of 2003. B.III.2.d. – Receivables from others

(EUR’000)


2002 Incr. Reval.

Reclass. long-/ short-term

Repay-ments

Foreign exchange

adjust-ments

Balance 31 Dec.

2002 Reval. Decr. Repay-

ments.

Foreign exchange

adjust-ments

Balance 30 June

2003

Loan to Fonderie del Montello: - falling due within one year 1,033 1,033 1,033- falling due after more than one year 0 0 0Total loans 1,033 1,033 1,033Advance on employees’ personal income tax (IRPEF) on staff leaving indemnity (T.F.R.) 842 14 -83 773 10 -101 682Sundry receivables 5,323 89 -263 5,149 -24 -425 4,700Total Receivables from others 7,198 103 -83 -263 6,955 10 -24 -101 -425 6,415 The balance receivable as at 30 June 2003 of the loan originally amounting to EUR 3.62m given by Carraro S.p.A. to the former subsidiary Fonderie del Montello S.p.A. was EUR 1.03m. The advance on employees’ personal income tax (IRPEF) on the staff leaving indemnity (T.F.R.), equal to EUR 0.68m, was computed and utilised in accordance with the law. The balance of EUR 4.70m in sundry receivables relates, for an amount of EUR 4.62m, to an account receivable booked by Carraro North America Inc. and originating from a finance lease on proprietary real estate; the decrease due to foreign exchange adjustment originates from the fluctuation of the exchange rate of the Euro to the US Dollar during the period.


C.I. – Inventory

(EUR’000)


2002

Balance 31 Dec.

2002

Balance30 June

2003

Obsolescence provision

30 June 2002


31 Dec. 2002


30 June 2003

NBV 30 June

2002

NBV 31 Dec.

2002

NBV 30 June

2003 Raw materials 38,111 37,038 39,990 -2,288 -2,322 -1,706 35,823 34,716 38,284 Work in progress 20,676 22,524 24,235 -1,192 -1,100 -843 19,484 21,424 23,392Finished products 10,773 12,121 12,153 -1,071 -1,625 -1,868 9,702 10,496 10,285Total 31,449 34,645 36,388 -2,263 -2,725 -2,711 29,186 31,920 33,677 Goods in transit 809 498 529 0 0 0 809 498 529

Total Inventory 70,369 72,181 76,907 -4,551 -5,047 -4,417 65,818 67,134 72,490

The balance of inventory as at 30 June 2003 was EUR 72.49m, versus EUR 65.82m as at 30 June 2002 (EUR 67.13m as at 31 December 2002). The increase in the first half of 2003 was due to the effect of the purchasing policies applied to meet the requirement generated by new productions. The provision for obsolescence, totalling EUR 4.42m is detailed as follows: EUR 1.71m for raw materials and consumables, EUR 0.84m for work in progress and EUR 1.87m for finished products. The amounts booked do not differ substantially from a valuation at current costs at the period end. C.II. – Receivables

Changes in receivables are analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Trade debtors 92,144 87,991 95,635Receivables from associated companies 2,727 4,014 4,519Other debtors 21,673 26,073 26,539

Total receivables 116,544 118,078 126,693

The change in trade debtors compared to 31 December 2002 is justified by the significant volumes of receivables invoiced in the latter part of the period under consideration. Receivables from associated companies relate to Agritalia S.p.A. for an amount of EUR 1.96m, STM S.r.l. for an amount of EUR 0.61m (whereof EUR 0.39m in financing receivables) and Elcon S.r.l. for an amount of EUR 0.15m (whereof EUR 0.1m in financing receivables). Other debtors include: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Treasury for VAT 7,753 11,519 10,301Treasury for corporation and trade income tax, IRPEG and IRAP (advances) 3,743 2,178 2,822

Treasury for tax withholdings 59 54 57Export incentives 1,457 1,503 2,148Credits for tax paid abroad 0 0 0Deferred tax assets 5,822 7,800 7,742Treasury for other credits 192 207 213Social security institutions 483 127 129Receivables from factors 0 0 0Guarantee deposits 117 114 114Other accounts receivable 1,947 2,471 2,913Registration tax claimed for refund 100 100 100

Total other debtors 21,673 26,073 26,539


Receivables from the Treasury include VAT, which the Italian entities have already applied for refund of, for an amount of EUR 2.22m and VAT credits of foreign companies for an amount of EUR 4.46m. Export incentives receivable relate mostly to Carraro Argentina, for an amount of EUR 1.20m, and Carraro S.p.A., for an amount of EUR 0.49m. Changes in the most significant balances are explained as follows: - VAT credits decreased mainly as a result of refunds received in the first half of 2003; - Credits for IRPEG and IRAP advances were utilised against corporation and trade income tax payable in

respect of 2002, and new accruals were reduced in relation to lower taxable income; - Deferred tax assets decreased due to the utilisation by Carraro S.p.A. (EUR 1.94m); - Other accounts receivable show a net decrease of EUR 0.52m, in part due to the collection by Carraro S.p.A. of

instalments (EUR 0.47m) of the amount receivable for the sale in 2002 of the former Trenton business, in accordance with the agreed repayment plan.

Deferred tax assets, equal to EUR 5.82m, relate to the balances booked by Carraro S.p.A., Carraro Deutschland, O&K Antriebstechnik and Carraro North America for tax paid in advance. The deferred tax assets have been recorded on the assumption that they will be recovered through the reporting of sufficient future taxable income, which is considered probable on the basis of the present business plans. C.III. – Short-term investments

6) Other securities

(EUR’000) Description 30 June 2003 31 December 2002 30 June 2002

Commercial paper 26,919 16,656 4,986Certificates of Credit of the Treasury (CCT) 73 2,162 1,309

Treasury bonds (BTP) 96 171 1,028Other 35,000 35,000 33,000

Total 62,088 53,989 40,323

The balance of EUR 26.92m relates to a short-term investment by Carraro S.p.A. in commercial paper, secured by a bank guarantee. Most government securities are deposited as guarantee in favour of banks which gave guarantees against facilitated loans from special credit institutions to Carraro S.p.A. and its subsidiaries. The change compared with 31 December 2002 relates to the repayment of some securities which had reached maturity. The line ‘Other’ relates to short-term investments by Carraro International in certificates of deposit issued by Société Européenne de Banque. Government securities are valued at the lower of cost, including any premium, and market, determined on the basis of the average price for the month of June 2003. Other investments recorded within current asses are valued at the lower of cost and market. Changes in balances compared with 31 December 2002 reflect the effect of the Group’s treasury management policies in relation to the overall financial position. C.VI. – Cash and bank


Bank deposits 14,607 13,510 20,430Cash on hand 135 555 50Cheques 85 53 120

Total 14,827 14,118 20,600 There were no significant changes in the balance of ‘Cash and bank’ compared with 31 December 2002.


D – Accrued income and Prepayments


Short-term accrued interest income 1,186 5,285 1,777Medium-/long-term accrued interest income 110 101 84Other accrued income 20 20 0Total Accrued income 1,316 5,406 1,861 Short-term interest prepayments 7 21 35Medium-/long-term interest prepayments 9 12 14 Short-term insurance prepayments 711 183 642Medium-/long-term insurance prepayments 10 8 12 Other short-term prepayments 1,184 843 1,103Other medium-/long-term prepayments 52 81 53Total Prepayments 1,973 1,148 1,859Total Accrued income and prepayments 3,289 6,554 3,720

Accrued interest income relates mostly to interest accruing on financing investments made by Carraro International S.A. for an amount of EUR 0.83m, to Carraro S.p.A. (commercial paper and government securities) for an amount of EUR 0.16m, and Siap S.p.A. for an amount of EUR 0.20m, besides the effect of the interest rate swap entered into to hedge interest flows generated by the above-mentioned Eurobond (EUR 0.61m) between Carraro International S.A. and Mediobanca. Other prepayments relate mainly to technical service fees owed in respect of future periods and insurance premiums paid in advance.


BALANCE SHEET – LIABILITIES

A – Shareholders' equity

Movements in net equity in the second half of 2002 are analysed as follows: (EUR’000)

Description Balance as at 30 June

2002

Profit for FY 2001

appropriated to reserves

Profit for FY 2001

appropriated to dividends

Translation difference

Change in consolida-tion area

Increases Other movements

Profit/(Loss) for the

second half of 2002

Balance as at 31 Dec.

2002

I Share capital 21,840 21,840II Share premium reserve 17,833 17,833III Revaluation reserve 0 0IV Legal reserve 3,120 3,120V Reserve for own shares in portfolio 0 0

VI Statutory reserves 0 0VII Other reserves 6,125 -1,905 -22 1,697 5,895VIII Profit/(Loss) carried forward 0 0

IX Consolidated profit/(loss) for the period 3,437 -1,561 1,876

Net equity of the Group 52,355 0 0 -1,905 -22 0 1,697 -1,561 50,564Minority interests in capital and reserves 4,454 -5 -1,325 3,124

Minority interests in profit/(loss) for the period -673 -75 -748

Total net equity 56,136 0 0 -1,910 -1,347 0 1,697 -1,636 52,940

Movements in shareholders’ equity in the first half of 2003 are analysed as follows: (EUR’000)

Description Balance as at 31 Dec.

2002

Profit for FY 2002

appropriated to reserves

Profit for FY 2002

appropriated to dividends

Translation difference

Change in consolida-tion area

Increases Other movements

Profit/(Loss) for the first half of 2003

Balance as at 30 June

2003

I Share capital 21,840 21,840II Share premium reserve 17,833 80 -5,506 12,407III Revaluation reserve 0 0IV Legal reserve 3,120 3,120V Reserve for own shares in portfolio 0 0

VI Statutory reserves 0 0VII Other reserves 5,895 1,876 862 5,426 14,059VIII Profit/(Loss) carried forward 0 0

IX Consolidated profit/(loss) for the period 1,876 -1,876 2,040 2,040

Net equity of the Group 50,564 0 0 862 0 80 -80 2,040 53,466Minority interests in capital and reserves 3,124 -748 -79 2,297

Minority interests in profit/(loss) for the period -748 748 -100 -100

Total net equity 52,940 0 0 783 0 80 -80 1,940 55,663

Share capital Share capital of Carraro S.p.A., fully subscribed and paid in, stands at EUR 21,840,000 and is subdivided into 42,000,000 ordinary shares of EUR 0.52 each. Share premium reserve The amount of EUR 17.83m was generated upon the flotation of Carraro S.p.A. on the Italian Stock Exchange. As per minutes of the annual general meeting of Carraro S.p.A. held on 14 May 2003, the reserve was partly used (for an amount of EUR 5.51m) to replenish the reserve from accelerated depreciation. That reserves was reclassified as share premium reserve for an amount of EUR 0.08m following sales of depreciable assets for which accelerated depreciation had been accounted for in the past.


Legal reserve There were no movements in the legal reserve of Carraro S.p.A. in the course of the first half of 2003. Other reserves Heading VII includes, with reference to Carraro S.p.A., the extraordinary reserve of EUR 0.27m and the reserve from accelerated depreciation of EUR 6.82m. Moreover, this heading also includes the reserve from translation differences, equal to EUR -9.79m, due to the effect of the translation into Euros of the financial statements of foreign group entities. The balance EUR 16.75m relates to the consolidation reserve and to other minor reserves. No taxes have been provided for on the tied equity reserves because, as they are not planned to be distributed, at present the requirement for recording the corresponding tax charge is not met. Minority interests in capital and reserves The period-end balance of EUR 2.38m, including the portion for the period equal to EUR 0.75m, represents the interest of the minority shareholder Simest S.p.A. computed with reference to the commitments to repurchase the latter’s interests in the subsidiary Carraro India Ltd., as well as minority interests in Carraro India Ltd. and F.O.N. S.A.. B – Provisions for risks and charges

Movements in provisions for risks and charges in the second half of 2002 are detailed as follows: (EUR’000)


Change in consolidation area

2nd half of 2002

Exchange rate adjustments

2nd half of 2002Reclassifications

2nd half of 2002 Increases

2nd half of 2002 Decreases

2nd half of 2002Balance as at 31 Dec. 2002

B1 – Provision for pensions and similar obligations 3,194 -3 198 -13 3,376B2 – Provisions: - for deferred taxes 1,839 -1,522 317- for tax risks 516 -516 0B3 – Other provisions: - product warranty 5,071 -13 60 2,792 -2,572 5,338- other 7,029 -19 -12 21 -2,771 4,248Total 17,649 0 -35 48 3,011 -7,394 13,279 Movements in provisions for risks and charges in the first half of 2003 are detailed as follows: (EUR’000)

Description Balance as at 31 Dec. 2002

Change in consolidation area

1st half of 2003

Exchange rate adjustments

1st half of 2003 Reclassifications

1st half of 2003 Increases

1st half of 2003 Decreases

1st half of 2003Balance as at 30 June 2003

B1 – Provision for pensions and similar obligations 3,376 -63 -8 213 -160 3,358B2 – Provisions: - for deferred taxes 317 11 328- for tax risks 0 B3 – Other provisions: - product warranty 5,338 11 57 688 -351 5,743- other 4,248 27 0 137 -1,074 3,338Total 13,279 0 -25 49 1,049 -1,585 12,767 The provision for pensions and similar obligations of EUR 3.36m relates to similar provisions booked by F.O.N. S.A. (EUR 0.53m) and O&K Antriebstechnik GmbH & Co. KG (EUR 2.83m). Increases relate to accruals recorded by F.O.N. S.A. (EUR 0.10m) and O&K Antriebstechnik GmbH & Co. KG (EUR 0.12m). Decreases relate to utilisations by F.O.N. S.A. (EUR 0.16m) and O&K Antriebstechnik GmbH & Co. KG (EUR 0.01m). The provision for deferred taxes originates from accruals made by SIAP S.p.A. (EUR 0.28m) and O&K Antriebstechnik GmbH & Co. KG (EUR 0.05m).


As for litigation, with reference to Carraro S.p.A. we draw your attention to the following: • The litigation with INPS, the national social security, started in the course of 1996 for alleged omission to pay

social charges was closed on 5 October 1999 by the Court of First Instance of Padua in favour of Carraro. The proceeding is currently before the Court of Cassation for a final judgement. On the basis of the information currently available, the evaluation of the groundlessness of the claims by the national social security is unchanged and we do not believe, based on our consultants’ opinion, that the risk profile of the litigation has changed.

The product warranty provision was partly utilised, for an amount of EUR 0.35m, for payments to customers and increased, for an amount of EUR 0.69m, with reference to the estimated warranty costs to be incurred in relation to sales made. The period-end balance of ‘Other provisions’ includes the following: • EUR 1.96m for the estimated future charges to be incurred for the implementation of the restructuring plans

initiated at Carraro S.p.A. (EUR 0.85m), SIAP S.p.A. (EUR 0.06m) and O&K Antriebstechnik GmbH & Co. KG (EUR 1.05 Ml).

• The remaining amount includes accruals made by the individual entities for future charges and liabilities, including a provision for exchange losses set up during the period by Carraro Argentina S.A. and other sundry liabilities for charges accruing to O&K Antriebstechnik GmbH & Co. KG.

Utilisations, for an amount of EUR 1.07m, relate mostly to the implementation of the corporate reorganisation plan at O&K Antriebstechnik GmbH & Co. KG (EUR 0.79m), sundry utilisations of EUR 0.11m and utilisations for EUR 0.17m at Carraro Argentina. C – Staff leaving indemnity (T.F.R., Trattamento di fine rapporto di lavoro subordinato)

Movements in the staff leaving indemnity were as follows: (EUR’000)


Increases 2nd half of

2002

Increases 1st half of

2003

Decreases /Transfers

2nd half of 2002

Decreases /Transfers

1st half of 2003

Exchange rate adjustment

2nd half of 2002

Exchange rate adjustment

1st half of 2003

Balance as at 30 June 2003

Workers 9,295 857 768 -582 -943 -3 -4 9,388Clerks and executives 4,375 493 462 -251 -302 -1 -4 4,772

Total 13,670 1,350 1,230 -833 -1,245 -4 -8 14,160

Movements in the staff leaving indemnity (T.F.R.) are recorded in compliance with the law and cover the indemnities earned as at 30 June 2003 by 1,528 workers, 484 clerks and 37 executives. The column ‘Decreases’ relates to advances and indemnities paid out and comprises also amounts earned by employees transferred between Group companies and changes in qualification.


D – Payables

Changes in the balance are analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Bonds and debenture loans 100,000 100,000 100,000 Bank loans and overdrafts (see analysis) - falling due within one year 66,717 72,652 67,710- falling due after more than one year 11,878 13,086 16,118 Other financing creditors (see analysis) - falling due within one year 0 0 196- falling due after more than one year 0 0 0- leases falling due within one year 497 514 1,004- leases falling due after more than one year 197 441 720

Advances 852 276 896 Trade creditors 97,755 86,699 89,237 Secured payables: - falling due within one year 356 237 348- falling due after more than one year 0 0 100 Payables to subsidiaries 0 0 0Payables to associated companies 999 1,997 1,711Payables to parent companies 18 22 28 Tax payables 3,132 2,916 3,519 Social security payables 1,695 2,363 1,568 Other creditors (see analysis) 13,883 11,451 15,484

Total 279,979 292,654 298,639

The amount of ‘Bonds and debenture loans’, equal to EUR 100m, relates to a non-convertible debenture loan, denominated in Euros, issued by Carraro International S.A. on 29 May 2001 and expiring in 2006. The change in the balance of trade creditors as compared with 30 June 2002 is consistent with the trend of purchase volumes of goods and services in the period. Payables to associated companies include EUR 0.84m owed to STM S.r.l., EUR 0.14m owed to Agritalia S.p.A. and EUR 0.02m owed to Elcon S.r.l..


Bank loans and overdrafts may be analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Current accounts and export advance accounts 57,444 63,540 59,827

Exchange rate adjustments to export advances -406 -1,305 -2,950

Short-term loans in other currencies 6,528 6,922 6,998F.R.I.E. 0 0 327Interbanca 163 326 163Medio Credito Centrale as per Law No. 100/90 2,988 2,988 2,988IMI 0 181 357Total short-term 66,717 72,652 67,710 Current accounts and export advance accounts 1,830 0 0

Long-term loans in other currencies 3,490 5,034 6,246Medio Credito Centrale as per Law No. 100/90 5,089 6,583 8,077Interbanca 1,469 1,469 1,795Total medium-/long-term 11,878 13,086 16,118Total Bank loans and overdrafts 78,595 85,737 83,828

Bank loans and overdrafts totalled EUR 78.60m (EUR 1.68m after credit balances and short-term investments), versus EUR 85.74m as at 31 December 2002 (EUR 17.63m after credit balances and short-term investments), which is continued evidence of the effects of careful financial management, with particular reference to the most significant working capital items. Other financing creditors may be analysed as follows: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 ECIP loan (project India) 0 0 196Leases falling due within one year 497 514 1,004Total short-term 497 514 1,200 Leases falling due after more than one year 197 441 720

Total medium-/long-term 197 441 720Total Other financing creditors 694 955 1,920

The decrease in the balance relates mostly to the gradual repayment of payables from leasing operations. Tax payables include: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 VAT owed for settlement 156 4 67Income taxes 1,332 620 1,883Employees’ personal income tax (IRPEF) 1,161 1,839 1,227Other IRPEF withholdings 277 152 236Other tax withholdings 206 301 106

Total 3,132 2,916 3,519


Other creditors include: (EUR’000)

Description 30 June 2003 31 December 2002 30 June 2002 Employees’ remuneration 2,743 1,914 3,315Other amounts payable to employees 5,825 3,715 4,023Amounts owed to employees’ trade unions 15 21 13Amounts payable to corporate boards 274 75 133Dividends payable to shareholders 0 0 0Other 5,025 5,726 8,000

Total 13,882 11,451 15,484

The balance as at 30 June 2003 includes a balance payable by Carraro North America Inc. of EUR 4.62m relating to the purchase of an industrial property at Calhoun (Georgia). Accrued expenses and deferred income


Accrued interest expense – short-term 4,232 10,029 2,912Accrued interest expense – medium-/long-term 0 0 834

Accrued personnel expenses – short-term 1,474 523 1,434Other short-term accrued expenses 23 79 91Total accrued expenses 5,729 10,631 5,271 Deferred interest income – short-term 422 209 15Deferred interest income – medium-/long-term 0 0 0

Deferred income from grants – short-term 0 0 0Deferred income from grants – medium-/long-term 0 0 0

Other short-term deferred income 237 140 1Total deferred income 659 349 16 Total Accrued expenses and deferred income 6,389 10,980 5,287

Accrued interest expense includes interest accruing on the debenture loan issued by Carraro International S.A. for an amount of EUR 0.614m and on a hedge for interest rate risk relating to the same loan for an amount of EUR 3.027m. The remaining amount relates to interest accruing on advances, overdrafts and loans from banks and financial institutions. Accrued personnel expenses relate to the additional months’ salaries owed to workers and clerks.


MEMORANDUM ACCOUNTS

(EUR’000)

Description Carraro S.p.A. SIAP S.p.A. Carraro Argentina S.A.

Carraro International S.A. Total

A) Guarantees given on behalf of third parties 14,116 14,116B) Securities deposited as guarantee on behalf of third parties 93 93Total Risks 14,116 93 14,209C) Commitments - Commitments to repurchase equity interests 1,112 1,112- Other commitments 103 103Total Commitments 1,215 1,215Other: D) Guarantees received from third parties 2,371 2,371E) Mortgages 6,197 6,197F) Guarantees given by third parties on our behalf 29,395 29,395G) Swaps on accounts receivable 13,108 1,012 14,120H) Interest rate swaps 65,329 100,000 165,329 I) Forward rate agreements 110,000 155,000 155,000L) Foreign currency options 30,061 30,746 60,807 RISKS A) Guarantees given on behalf of third parties are given to banks on behalf of subsidiaries against loans given to

the latter. B) Securities deposited as guarantee on behalf of third parties are pledges on government securities in favour of

banks against loans given by them to Carraro subsidiaries or against bank sureties given for facilitated loans obtained by Carraro subsidiaries.

COMMITMENTS C) Commitments to repurchase equity interests as at 30 June 2003 relate to the interest in Carraro Argentina S.A.

owned by Simest S.p.A., in accordance with the terms of contractual agreements. OTHER MEMORANDUM ACCOUNTS WHICH DO NOT REFLECT RISKS OR COMMITMENTS Guarantees received from third parties D) This item relates, for an amount of EUR 1.03m, to the remaining amount of the guarantee received from

FINAID S.r.l. to secure a loan originally of EUR 3.62m granted to Fonderie del Montello S.p.A. and, for an amount of EUR 1.34m, to a guarantee received from Banca Popolare dell’Emilia Romagna to secure the payment of the amount owed for the sale of the former Trenton business by Meccanica Fananese S.r.l. originally amounting to EUR 2.30m.

Guarantees given on our own behalf E) This item relates to a mortgage taken out on an industrial building in Poggiofiorito (formerly DPF S.p.A.) as

collateral for a loan. Guarantees given by third parties on behalf of Carraro F) This item relates to guarantees given by banks, insurance companies and the parent company FINAID S.r.l. to

various institutions, mostly in relation to VAT refunds, building permits, loans or credit facilities and delayed payments.

Exchange rate and interest rate hedges G) Exchange rate hedges: This item relates to swaps and forward agreements relating to sales denominated in foreign currency and forecast for the subsequent months on the basis of the purchasing plans submitted by customers. Contracts are entered into with banks and financial institutions. H/I) Interest rate hedges (interest rate swaps and forward rate agreements): This item relates to contracts entered into with banks to hedge for the risk of interest rate fluctuations on the loans or other debt instruments in place. The most significant amounts is the I.R.S. entered into to hedge for the interest


rate risks originating from the debenture loan issued by Carraro International. In particular, a financial structure was set up comprising two interest rate swaps entered into, respectively, by Carraro International (EUR 100m) and Carraro S.p.A. (EUR 55m) and some forward rate agreements (F.R.A.) entered into by Carraro International (EUR 155m) and Carraro S.p.A. (EUR 110m). L) Currency options: For hedging purposes, Carraro S.p.A. and Carraro Argentina S.A. have entered into currency options worth EUR 30.06m and EUR 30.75m, respectively, as at 30 June 2003.


INCOME STATEMENT

The main changes in consolidated income statement amounts are illustrated below. A) Value of production

(EUR’000)

Description Six months ended 30 June 2003

Year ended 31 December 2002

Six months ended 30 June 2002

1) Revenue from sales and services Traditional axles 110,240 208,090 103,841Light vehicle axles 4,494 8,019 4,060Bogie axles 11,863 25,328 12,672‘Power shuttle’ transmissions 10,478 19,561 9,176Tractor transmissions 7,943 14,544 6,831Cam phaser devices 1,998 5,285 2,898Friction clutches 766 1,644 818Gears 12,697 24,203 12,642Spare parts 12,829 22,357 11,940Escalator systems 3,738 6,152 3,071Final & Swing drivers 8,959 18,646 9,779Other components 9,322 16,247 9,528Sundry revenue 4,180 10,983 5,151Total 1) 199,507 381,059 192,407 2) Change in stocks of work in progress and finished products

- Opening stocks (excluding goods in transit) -34,645 -31,602 -31,602- Changes in consolidation area, translation differences and reclassifications 26 1,421 1,414

- Adjustment to provision for obsolescence 14 -516 -54- Closing stocks (excluding goods in transit) 36,388 34,645 31,449Total 2) 1,783 3,948 1,207 3) Change in contracted work in progress 0 0 0 4) Own work capitalised 299 512 179 5) Other income - grants 43 52 45- export incentives 755 1,695 828- ordinary gains 302 853 494- other 887 1,860 1,138Total 5) 1,987 4,460 2,505Total Value of production 203,576 389,979 196,298

Sales for the first half of 2003 show growth of 3.69% on the corresponding period of the previous year, mostly due to Carraro S.p.A., Siap S.p.A., O&K Antriebstechnik GmbH & Co. KG, Carraro Argentina S.A. and F.O.N. S.A., mainly in relation to the start of new contracts. The value of sales has been adjusted for the reclassification of exchange gains for an amount of EUR 5.95m. Additional comments on the sales performance are set out in the directors’ report on operations. Revenue may be broken down by territory as follows:

(EUR’000)




Italy 34,951 76,295 38,928EU 85,759 161,082 82,183North America 42,257 84,377 42,072Other foreign sales 36,540 59,305 29,224

Total 199,507 381,059 192,407

Foreign sales as a percentage of the total rose to 82.48%, versus 79.77% for the corresponding period a year earlier. Sales within the EU amounted to EUR 120.71m, those outside the EU amounted to EUR 78.80m. Carraro Group Interim financial report for the six months ended 30 June 2003 29

B) Cost of production

(EUR’000)




6) Raw materials, consumables and goods for resale

- Raw material purchases 111,908 206,283 103,583- Raw material returns -964 -1,353 -668Total 110,944 204,930 102,915Other cost of production: - Miscellaneous consumables 604 1,072 544- Consumable tooling 1,711 3,462 1,692- Maintenance material 827 1,759 743- Materials and services for resale 497 504 237- Volume rebates and discounts -228 -887 -300Total 3,410 5,910 2,916Total 6) 114,355 210,840 105,8317) Cost of services Outsourced production services: - Processing 13,311 23,578 11,384- Maintenance 2,209 3,942 1,772- Other industrial services 2,843 4,735 2,206- Freight, transportation and customs 2,416 4,750 2,235- Temporary workshop workers 926 1,450 343Total 21,705 38,455 17,940Sundry supplies (utilities) 2,482 4,640 2,456General overheads: - Refund of travel expenses 1,015 1,909 940- Stationery 208 370 202- Postage and telephone 418 892 395- Miscellaneous external services 1,461 2,696 1,636- Long-term car rentals 175 314 147- Temporary office workers 48 29 11- Consulting 1,302 3,482 2,210- Directors’ emoluments 733 1,338 674- Statutory auditors’ emoluments 110 213 103- Company policies 583 1,270 646- Technical service fees 959 1,775 1,052- Sundry company expenses 448 538 342Total 7,460 14,826 8,358Marketing costs: - Advertising 43 90 61- Trade fairs 83 38 49- Other 103 238 163Total 229 366 273Selling expenses: - Payments under warranty 1,091 2,518 942- Freight, transportation and customs 2,203 5,193 2,333- Utilisation of product warranty provision -47 -2,336 0- Commissions and royalties 110 259 88- Packaging and other selling expenses 105 379 193Total 3,462 6,013 3,556Total 7) 35,338 64,300 32,5838) Cost of utilisation of third parties’ assets - Rent 552 1,254 626- Royalties payable 89 177 84- Other 0 0 0Total 8) 641 1,431 710


9) Personnel costs - Wages 14,123 27,345 14,280- Salaries 9,311 18,396 9,726- Social contributions on wages 4,624 8,837 4,463- Social contributions on salaries 2,556 4,989 2,621- Staff leaving indemnity (T.F.R.) .- workers 769 1,671 814- Staff leaving indemnity (T.F.R.) – clerks and executives 462 994 501

- Accruals for pensions and similar obligations 213 411 213- Company canteen 309 583 285- Other personnel costs 408 1,805 1,399Total 9) 32,775 65,031 34,30210) Depreciation and write-downs - Amortisation of intangible assets 1,874 3,516 1,975- Depreciation of tangible assets 10,022 19,301 11,093- Write-downs of fixed assets 0 8,748 0- Write-downs (losses on bad debts) 260 1,390 861Total 10) 12,156 32,955 13,92911) Changes in stocks of raw materials - Opening stocks (excluding goods in transit) 37,038 36,925 36,925- Changes in consolidation area, translation differences and reclassifications 37 -3,495 -1,799

- Adjustment to provision for obsolescence -616 213 179- Closing stocks (excluding goods in transit) -39,990 -37,038 -38,111Total 11) -3,531 -3,395 -2,80612) Accruals for contingencies 2 392 30513) Other accruals - Product warranty 689 3,390 598- Scheduled maintenance 0 0 172- Other risks 16 0 0Total 13) 705 3,390 77014) Other operating charges - Association dues 73 187 98- Cost of institutional reporting of listed companies 86 148 100- Taxes and other duties 274 804 434- Ordinary losses 20 187 17- Other operating charges 97 171 115Total 14) 551 1,497 764Total Cost of production 192,899 376,441 186,389

Changes during the period, as for production costs, with reference to the most significant variances, may be summarised as follows: - The cost of purchases of goods and services increased from EUR 103.58m to EUR 111.91m in relation to the

purchasing policies mentioned above which resulted in added stocking; - Cost of services rose from EUR 32.58m (16.9% of total sales) to EUR 35.34m (17.7% of total sales). The

increase, both in absolute terms and as a percentage of total sales, relates in particular to outsourced processing work, industrial services and temporary workers, and is the consequence of the reorganisation of production at some manufacturing sites accompanied by headcount reductions started in 2001;

- Personnel costs decreased by EUR 1.53m (-4.45%) on the corresponding period of 2002 as a result of the personnel downsizing plans under way since 2001;

- General overheads declined from EUR 8.36m to EUR 7.46m as a result of lower costs incurred for external consulting during the period;

- Depreciation decreased as a result of lower capital expenditure in recent periods.


C) Financial income and charges

C15) Income from participating interests

(EUR’000)




Other Income from participating interests 0 11 0

Total 0 11 0 C16) - Other financial income

(EUR’000)




a) from receivables recorded as fixed assets 10 96 81 c) from securities recorded as current assets 192 297 139 d) other financial income: - from subsidiaries 0 0 0- from associated companies 111 254 122- from parent companies 0 0 0 Other: - interest income on loans 18 44 22- interest income on bank and postal deposits 611 940 205- interest income from the Treasury 17 160 26- other interest income 4,704 8,695 4,703- income from hedging operations 106 375 92- exchange gains 3,929 16,288 15,279Total d) 9,495 26,756 20,449

Total 9,698 27,149 20,669 C17) – Interest and other financial charges

(EUR’000)




Interest expense on loans from associated companies 2 14 0

Interest expense on bank deposits 257 800 303Interest expense on bank overdrafts 1,471 2,067 937Interest expense on loans 7,137 14,440 7,254Interest expense on leases 0 0 32Financial charges on hedging operations 0 17 -26Commission and other bank charges 199 223 95Exchange losses 4,705 16,519 15,425Other 515 266 115

Total 14,286 34,346 24,135 Net financial charges, the balance of lines C16 and C17, amounted to EUR 4.59m, versus EUR 3.47m for the six months ended 30 June 2002. If we exclude net exchange losses (EUR 0.78m) and net income from hedging operations (EUR 0.11m), net financial charges amounted to EUR 3.92m, versus EUR 3.44m for the six months ended 30 June 2002. Net exchange losses amounted to EUR 0.78m, versus EUR 0.146m of 30 June 2002. Financial charges less exchange losses as a percentage of sales were equal to 1.96%, versus 1.76% in the first half of 2002.


D) Adjustments to the value of financial assets

The revaluation of equity interests of EUR 0.027m represents the contra entry in the income statement of the equity valuation of Carraro’s interest in Agritalia S.p.A.. The write-down of EUR 0.035m relates to STM S.r.l.. E) Extraordinary income and expenses

E20) – Extraordinary income (EUR’000)




Gains on disposal 11 724 722Income from participating interests 0 61 0 Taxes of prior periods 0 0 275 Extraordinary income 53 1,103 296Other extraordinary income 53 356 259Total 106 1,459 555

Total E20) 117 2,244 1,552

As at 30 June 2002, ‘Gains on disposal’ included a gain of EUR 0.717m relating to the sale of the former Trenton S.r.l. business and ‘Extraordinary income’ included refunds from INAIL, the national industrial accident insurance, for an amount of EUR 0.164m. E21) – Extraordinary expenses (EUR’000)




Losses on disposal 0 0 0 Taxes of prior periods 18 593 176 Extraordinary expenses 114 410 175Other extraordinary expenses 48 2,685 1,469Total 162 3,095 1,644

Total E21) 180 3,688 1,820

As at 30 June 2002, ‘Other extraordinary expenses’ included extraordinary costs to be incurred for the integration and completion of the personnel reorganisation programme at O&K Antriebstechnik GmbH & Co. KG for an amount of EUR 1.3m. Income tax for the period

The tax charge for the period comprises the following: (EUR’000)




Current taxes 2,054 3,915 1,962Deferred taxes 1,983 -286 1,297

Total 4,037 3,629 3,259


The value of current taxes includes IRPEG (corporate income tax) of SIAP S.p.A. for an amount of EUR 0.542m, IRAP (trade income tax) of Carraro S.p.A. for an amount of EUR 1.171m and of SIAP S.p.A. for an amount of EUR 0.341m. Deferred taxes are the balance of deferred tax liabilities of EUR 1.952m booked by the individual entities and EUR 0.031m originating from consolidation entries. Headcount

The number of employees shown below relates solely to the entities consolidated on a line-by-line basis and is broken down by category:

Category As at 30 June 2002


area

Movements during 2nd half of

2002

As at 31 December

2002

Movements during 1st half of

2003 As at

30 June 2003

Executives 31 2 33 3 37Clerks 505 -24 481 -65 484Workers 1,528 8 1,536 -111 1,481Total employees 2,064 0 -14 2,050 -173 2,002Temporary workers 60 -9 51 109 121

Total headcount 2,124 0 -23 2,101 -64 2,123

Reconciliation with annual financial statements

A reconciliation between the profit for the period and net equity of the Group resulting from the consolidated interim financial report and the profit for the period and shareholders' equity of Carraro S.p.A. is as follows: (EUR’000)

Description Profit/(Loss) for the current six-month

period

Net equity for the current six-month

period Profit/(Loss) at

31.12.2002 Net equity at

31 December 2002

Profit for the period and shareholders' equity of Carraro S.p.A. 2,310 45,376 (8,972) 43,066

Profit for the period and net equity of participating interests 111 72,271 (16,696) 71,377

Aggregate 2,421 117,647 (25,668) 114,443Elimination of carrying value of participating interests - (68,721) 34,448 (68,721)

Consolidation adjustments (481) 6,737 (7,652) 7,218Minority interests 100 (2,197) 748 (2,376)

2,040 53,466 1,876 50,564Profit for the period and net equity of the Group

Consolidation adjustments relate mostly to finance leases, to the determination of the ‘intercompany stock profit’, to the equity valuation of associated companies and subsidiaries not included in the consolidation, and to value adjustments to goodwill, as well as to deferred taxes on those entries. This consolidated interim financial report, comprising a balance sheet, an income statement and notes presents fairly the consolidated financial position and result of operations for the first six months of 2003.

The Chairman (Mario Carraro)


Interim financial report for the six months ended 30 June 2003 of Carraro S.p.A.

Balance sheet

31 December 2002 30 June 2002

30 June 2003

ASSETS A) SHARE CAPITAL ISSUED AND NOT YET PAID B) FIXED ASSETS: I – Intangible assets: 1) Start-up and expansion costs -

24,892 242,279 249,248 3) Industrial and other patent rights 195,263 227,672 203,881 4) Concessions, licenses, trademarks and similar rights and assets 981,136 1,278,749 1,428,567 5) Goodwill - - - 6) Assets under construction and advances 1,525,859 1,238,538 395,198 7) Other intangible assets 1,572,306 1,802,434 1,745,920Total Intangible assets 4,299,456 4,789,672 4,022,814II – Tangible assets: 1) Land and buildings 11,533,575 11,781,593 10,198,291 2) Plant and machinery 13,179,966 12,028,410 13,021,990 3) Industrial and commercial equipment 6,742,639 6,731,705 6,655,100 4) Other assets 1,983,164 2,181,173 2,344,784 5) Assets under construction and advances 769,805 1,507,257 1,482,540Total Tangible assets 34,209,149 34,230,138 33,702,705III – Financial assets 1) Equity interests: a) in subsidiaries 51,683,091 51,683,091 66,822,327

2,830,935 2,830,980 c) in parent companies - - - d) in other companies 85,841 85,841 51,397 e) advances on equity interests - - 1,331,907 2) Receivables: a) from subsidiaries - - - b) from associated companies - - - c) from parent companies - - - d) from others 1,605,526 1,684,277 1,738,686 - falling due within one year 1,032,914 1,032,914 1,032,914 - falling due after more than one year 572,612 651,363 705,772 3) Other securities - - - 4) Own shares - - -Total Financial assets 56,205,393 56,284,189 71,821,586Total Fixed assets (B) 94,713,998 95,303,999

- - 2) Research, development and advertising expenses

b) in associated companies 1,877,269

109,547,105



Balance sheet

30 June 2003

C) CURRENT ASSETS:


I – Inventory:

19,569,064 2) Work in progress 10,572,629 8,727,188 7,834,217 3) Contracted work in progress - - - 4) Finished products and goods held for resale 9,709,522 9,030,417 8,961,522 5) Advances - - -

152,774 369,902Total Inventory 39,994,593 36,148,412 34,192,676II – Receivables: 1) Trade debtors 64,471,551 65,470,979 67,191,017 - other, falling due within one year 64,455,178 65,434,631 67,177,373 - related parties, falling due within one year 16,373 36,348 13,644

26,151,727 27,828,759 30,599,367 - falling due within one year 26,151,727 27,828,759 30,599,367 - falling due after more than one year - - -

2,120,985 - falling due after more than one year - - - 4) Receivables from parent companies - - - - falling due within one year - - - - falling due after more than one year - - -

11,793,169 8,826,452

- falling due after more than one year 147,815 1,015,447 149,440101,532,741 107,213,892 115,673,382

196,550 196,550 196,550

- 3) Investments in parent companies - - - 4) Other investments - - - 5) Own shares - - - 6) Other securities 26,992,041 18,890,738 7,223,912Total Short-term investments 27,188,591 19,087,288 7,420,462

1) Bank and postal deposits 5,572,795 3,988,308 7,496,126 2) Cheques on hand 317 - 670 3) Cash in hand 53,669 31,042 27,965Total Cash and bank 5,626,781 4,019,350 7,524,761

174,342,706 166,468,942 D) ACCRUED INCOME AND PREPAYMENTS 1,073,452 697,663

179,072 307,698 109,767 Prepayments 894,380 389,965 928,820 - of amounts falling due within one year 858,108 328,858 882,778

36,272 61,107 46,042TOTAL ASSETS 270,130,156 262,470,604 275,396,973

1) Raw materials and consumables 18,238,033 17,027,035

6) Goods in transit 143,378

2) Receivables from subsidiaries

3) Receivables from associated companies 1,935,196 2,120,985 3,046,692 - falling due within one year 1,953,196 3,046,692

5) Other debtors 14,836,306 - falling due within one year 10,777,722 14,686,866

Total Receivables III – Short-term investments: 1) Investments in subsidiaries 2) Investments in associated companies - -

IV – Cash and bank:

Total Current assets 164,811,2811,038,587

Accrued income

- of amounts falling due after more than one year



Balance sheet

30 June 2003 31 December 2002 30 June 2002

LIABILITIES A) SHAREHOLDERS’ EQUITY: I - Share capital 21,840,000 21,840,000 21,840,000

12,406,641 17,833,456-

IV - Legal reserve 3,120,088 3,120,088 - -

VI - Statutory reserves - - - VII - Other reserves 5,698,981 9,243,846 26,390,882

272,1665,426,815 5,506,552 7,206,433

Reserve from extraordinary income as per art. 55/917 - 513,741 513,741- -

VIII – a) Profit/(Loss) carried forward - - -17,147,036IX - a) Profit/(Loss) for the period 2,309,944 -8,971,680 3,467,414Total Shareholders’ equity 45,375,654 43,065,710 55,504,804B) PROVISIONS FOR RISKS AND CHARGES: 1) Provision for pensions and similar obligations - - - 2) Provision for taxes - - 516,456 3) Other provisions 4,423,492 4,136,096 3,929,069Total Provisions for risks and charges 4,423,492 4,136,096 4,445,525

10,722,811 10,507,037

1) Bonds and debenture loans 55,000,000 55,000,000 55,000,000 2) Convertible bonds and debenture loans - -- 3) Bank loans and overdrafts 58,779,567 65,771,225 61,671,159

53,690,401 53,593,8606,583,233

- 195,515 - falling due within one year - - 195,515 - falling due after more than one year - - 5) Payments on account (advances) 846,087 270,422 890,692 - falling due within one year 846,087 270,422 890,692 6) Trade creditors 71,858,219 61,792,647 65,361,104 - Third parties, falling due within one year 71,794,106 61,743,208 65,310,825 - Related parties, falling due within one year 64,113 49,439 50,279 7) Secured payables - - - - falling due within one year - - -

11,003,829 10,206,378 9,296,392 - falling due within one year 11,003,829 10,206,378 9,296,392 9) Payables to associated companies 160,177 304,247 281,468 - falling due within one year 160,177 304,247 281,468 10) Payables to parent companies 18,949 22,272 27,847 - falling due within one year 18,949 22,272 27,847 11) Tax payables 2,368,154 1,534,022 2,382,386 - falling due within one year 2,368,154 1,534,022 2,382,386 - falling due after more than one year - - - 12) Social security payables 1,139,750 1,470,184 1,009,445

1,139,750 1,470,184 1,009,445 13) Other creditors 5,399,658 4,073,880 6,606,476

5,296,367 3,970,589 6,606,476

Total payables 206,574,390 200,445,277

II - Share premium reserve 17,833,456 III - Revaluation reserve - -

3,120,088V - Reserve for own shares in portfolio -

Extraordinary reserve 3,223,553 10,428,283 Reserve from accelerated depreciation

Reserve from merger surplus 8,242,425

C) STAFF LEAVING INDEMNITY (T.F.R.) 10,884,442 D) PAYABLES:

- falling due within one year 59,187,992 - falling due after more than one year 5,089,166 8,077,299 4) Other financing creditors -

8) Payables to subsidiaries

- falling due within one year

- falling due within one year - falling due after more than one year 103,291 103,291

202,722,484



Balance sheet

30 June 2003


E) ACCRUED EXPENSES AND DEFERRED INCOME 3,033,809 3,939,079 2,217,1232,936,862 3,939,079 2,215,771

96,947 - 1,35296,947 - 1,352

270,130,156 262,470,604 275,396,973

Accrued expenses Deferred income - of amounts falling due within one year - of amounts falling due after more than one year - - -TOTAL LIABILITIES

Memorandum accounts

31 December 2002

Risks

30 June 2003 30 June 2002

- Guarantees given on behalf of third parties 14,115,756 13,910,593 26,526,737- 2,066,620 2,066,620

28,593,357

1,112,345 1,112,345 1,112,345- Assets leased - - -- Leases on buildings under construction - - 501,337

103,2911,215,636 1,215,636 1,716,973

15,331,392

2,371,290 2,843,658 3,273,514-

- - - Guarantees given by third parties on behalf of Carraro S.p.A. 29,394,772 30,565,999 35,049,542- Swaps on accounts receivable 13,107,648 36,649,888 63,555,493- Interest rate swaps 65,329,138 65,329,138 10,329,138- Foreign currency options 30,061,476 22,620,589 73,550,674

- Securities deposited as guarantee on behalf of third parties Total Risks 14,115,756 15,977,213 Commitments - Commitments to repurchase equity interests

- Other commitments 103,291 103,291 Total Commitments TOTAL RISKS AND COMMITMENTS 17,192,849 30,310,330

Other memorandum accounts which do not reflect risks or commitments - Guarantees received from third parties - Mortgages - 672,738- Pledges on securities -



Income statement

30 June 2003 31 December 2002 30 June 2002 A) VALUE OF PRODUCTION: 1) Revenue from sales and services 145,535,107 273,092,795 137,423,385

2,524,544 1,926,702 964,838 3) Changes in contracted work in progress - - - 4) Own work capitalised 215,614 333,258 75,029 5) Other income 768,763 2,012,158 1,243,894 a) Other 768,763 2,009,454 1,242,542 b) Grant - 2,704 1,352Total Value of production 149,044,028 277,364,913 139,707,146B) COST OF PRODUCTION: 6) Cost of raw materials, consumables, spare parts and other goods 95,982,031 174,440,070 85,924,271 7) Cost of services 21,404,926 39,205,041 20,974,542 8) Cost of utilisation of third parties’ assets 37,797 75,420 36,784 9) Personnel costs: 18,028,035 35,865,951 19,292,873 a) Wages and salaries 12,571,906 24,275,147 12,810,355 b) Social contributions 4,179,293 8,059,668 4,231,615 c) Staff leaving indemnity (T.F.R.) 905,601 1,986,290 1,007,181 d) Pensions and similar obligations - - - e) Other costs 371,235 1,544,846 1,243,722 10) Depreciation and write-downs: 6,085,046 10,940,534 6,063,110 a) Amortisation of intangible assets 1,062,352 1,746,098 969,181 b) Depreciation of tangible assets 4,837,583 8,857,358 4,907,168 c) Other write-downs of assets - - - d) Write-downs of receivables included in current assets 185,111 337,078 186,761 11) Changes in stocks of raw materials, consumables, spare parts and

other goods -1,331,031 -1,824,829 -613,834

12) Accruals for contingencies - - 258,228 13) Other accruals 287,396 2,849,263 240,170 14) Other operating charges 298,488 586,484 376,048Total Cost of production 140,792,688 262,137,934 132,552,192Difference between value and cost of production (A - B) 8,251,340 15,226,979 7,154,954C) FINANCIAL INCOME AND CHARGES: 15) Income from participating interests - - - Whereof: dividend from subsidiaries - - - dividend from associated companies - - - 16) Other financial income 2,768,418 8,686,211 5,673,366 a) from receivables recorded as fixed assets 10,091 25,462 15,303 b) from securities recorded as fixed assets - - - c) from securities recorded as current assets 15,973 89,997 43,973 d) other financial income 2,742,354 8,570,752 5,614,090 Whereof: from subsidiaries 549,985 1,159,425 658,530 from associated companies 1,291 3,320 1,665 from parent companies - - - from related parties - - - other 2,191,078 7,408,007 4,953,895 17) Interest and other financial charges -5,599,567 -11,877,040 -7,487,423 Whereof: from subsidiaries -1,476,695 -3,298,365 -1,614,766 from associated companies - - - other -4,122,872 -8,578,675 -5,872,657Total (15 + 16 - 17) -2,831,149 -3,190,829 -1,814,057

2) Changes in stocks of work in progress and finished goods



Income statement

30 June 2003 31 December 2002 30 June 2002 D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS: 18) Revaluations: - - -

- - - - -

19) Write-downs: - -16,484,002 - a) of equity interests - -16,484,002 - b) of short-term investments - - - c) of securities recorded as current assets - - -Total Adjustments (18 – 19) - -16,484,002

85,958 1,824,601 1,374,230363,473

b) Extraordinary gains on disposal 11,177 737,332 735,710 c) Taxes of prior periods - 275,047

-83,930 -988,893 a) Other -65,436 -571,841 -188,888

- - c) Taxes of prior periods -18,494 -417,052 -Total extraordinary items (20 – 21) 2,029 835,708 1,185,342PROFIT/LOSS) BEFORE TAX (A – B +/- C +/- D +/- E) 5,422,219 -3,612,144 6,526,23922) TAXES ON INCOME -3,112,275 -5,359,536 -3,058,82523) PROFIT/(LOSS) FOR THE PERIOD 2,309,944 -8,971,680 3,467,414

a) of equity interests - - - b) of short-term investments - c) of securities recorded as current assets

-E) EXTRAORDINARY INCOME AND EXPENSES: 20) Income a) Other 74,781 1,087,269

21) Expenses -188,888

b) Extraordinary losses on disposal -


Carraro S.p.A.

Capital stock

CARRARO S.p.A. SCHEDULE OF EQUITY INTERESTS EXCEEDING 10% AS AT 30 JUNE 2003 (art.126 of Draghi regulations as per CONSOB deliberation No. 11971/’99) 1) DIRECTLY HELD INTERESTS

Legal name Registered office

Currency Amount

Total number of shares

/parts (‘quote’)

Number of shares/ parts

(‘quote’) owned

Total voting rights

Voting rights held

Profit/(Loss) for the six months ended

30 June 2003 (EUR equivalent)

with ref. to Legislative Decree

No. 127/91

Net equity as at 30 June 2003

(EUR equivalent) with ref. to Legislative

Decree No. 127/91

% held as at

30 June 2003

Carrying value (EUR)

SIAP SPA 100.00% MANIAGO, PN (ITALY) EUR 10,122,616 10,122,616 10,122,616 10,122,616 10,122,161 806,890 23,991,972 11,747,161

CARRARO DEUTSCHLAND GmbH HATTINGEN (GERMANY) EUR 10,507,048 1 1 1 1 (11,496) 8,881,601 100.00% 8,893,090

CARRARO INDIA Ltd. PUNE (INDIA) INR 400,000,000 40,000,000 20,400,000 40,000,000 20,400,000 (165,202) 1,832,447 51.00% 2,833,000

CARRARO PNH COMPONENTS INDIA Ltd. MUMBAI (INDIA) INR 10,000,200 1,000,020 1,000,000 1,000,020 1,000,000 185,057 99.99% 196,550

CARRARO ARGENTINA S.A. HAEDO (ARGENTINA) ARS 25,809,288 25,809,288 24,234,922 25,809,288 24,234,922 1,146,723 19,176,920 93.90% 19,221,840

CARRARO INTERNATIONAL S.A. LUXEMBOURG EUR 9,850,000 9,850 9,849 9,850 9,849 23,565 7,726,181 99.99% 7,718,000

F.O.N. S.A. RADOMSKO (POLAND) PLN 7,058,220 705,822 598,452 901,214 793,844 (123,981) 1,226,655 84.79% 1,270,000

AGRITALIA SPA ROVIGO (ITALY) EUR 6,680,648 12,847,400 3,390,291 12,847,400 3,390,291 123,821 6,804,470 33.33% 2,830,979

ELCON S.r.l. (*) TRIESTE (ITALY) EUR 52,000 100,000 24,900 100,000 24,900 (21,549) 2,637 24.90% 1

(*) amounts as at 31 December 2002

Carraro S.p.A.

2) INDIRECTLY HELD INTERESTS

Held through Capital stock

Legal name Registered office (immediate parent)

Currency Amount

Total number of

shares /parts

(‘quote’)

2003 Number of shares /parts

(‘quote’) owned

Total voting rights

Voting rights held

Profit/(Loss) for the six months

ended 30 June

(EUR equivalent)

with reference to Legislative

Decree No. 127/91

Net equity as at 30

June 2002 (EUR

equivalent) with

reference to Legislative Decree No.

127/91

% held as at

30 June 2003

Carrying value (EUR)

STM S.r.l. MANIAGO, PN (ITALY) SIAP S.p.A. EUR 1,549,080 1,549,080 774,540 1,549,080 774,540 (86,300) 5,068,703 50,00% 769,263

O&K Antriebstechnik & Co. GmbH KG HATTINGEN (D) CARRARO

DEUTSCHLAND GmbH EUR 2,045,168 1 1 1 1 (333,801) 2,706,514 100.00% 8,040,315

CARRARO KOREA Ltd. ULSAN (Republic of KOREA)

CARRARO INTERNATIONAL S.A. KRW 3,000,000,000 600,000 600,000 600,000 600,000 (800,462) 895,208 100.00% 2,060,600

CARRARO NORTH AMERICA Inc. CALHOUN (GA, USA) CARRARO

INTERNATIONAL S.A. USD 100 100 100 100 100 (431,131) 5,833,086 100.00% 6,936,649

SIAP GEARS INDIA Ltd. MUMBAI (INDIA) SIAP S.p.A. INR 20,000,200 2,000,020 2,000,000 2,000,020 2,000,000 372,513 99.99% 393,096

NOTE: Net equity and result of operations of foreign companies listed in the preceding schedules have been converted into EUR with the same criteria as those applied for the preparation of the

consolidated financial statements.

R.E.A. No. 84 - Carraro · 2019. 2. 11. · Carraro Group – Interim financial report for the six...

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