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Carraro Group Interim Financial Report as at 30 June 2014

DISCLAIMER

This document contains forward-looking statements, in particular in the section “Business outlook for the current

year”, in relation to future events and the operating, economic and financial results of the Carraro Group. These

statements by their nature include an element of risk and uncertainty, as they depend on the occurrence of future

events and developments. The actual results may differ, even significantly, from those announced in relation to a

multiplicity of factors.

Interim Financial Report as of 30 June 2014

CARRARO S.p.A.

Head Office in Via Olmo no. 37, Campodarsego (Padua) 35011

Share Capital Euros 23,914,696, fully paid-up.

Tax Code, VAT and Registration Number

In the Padua Companies Register 00202040283 – R.E.A. No. 84033

GENERAL INFORMATION

BOARD OF DIRECTORS ENRICO CARRARO (2) Chairman In office until approval of the 2014 Financial Statements (Appointed, General Meeting 20.04.2012)

TOMASO CARRARO Deputy Chairman ALEXANDER JOSEF BOSSARD Chief Executive Officer ARNALDO CAMUFFO (1) (2) Director * FRANCESCO CARRARO Director ANTONIO CORTELLAZZO (1) (2) Director * GABRIELE DEL TORCHIO Director * MARINA PITTINI (2) (1) Director * MARCO REBOA (1) Director * (1) Members of the Auditing and Risk Committee (2) Members of the Nominations, Human Resources and Remuneration Committee * Independent directors

BOARD OF STATUTORY AUDITORS ROBERTO SACCOMANI Chairman In office until approval of the 2014 Financial Statements (Appointed, General Meeting 20.04.2012)

SAVERIO BOZZOLAN Regular Auditor MARINA MANNA Regular Auditor BARBARA CANTONI Alternate Auditor STEFANIA CENTORBI Alternate Auditor

INDEPENDENT AUDITORS PricewaterhouseCoopers S.p.A. from 2007 to 2015

PARENT COMPANY Finaid S.p.A.

Under the terms and for the purposes of Consob Communication no. 97001574 of 20 February 1997, we state that:

The Chairman Mr Enrico Carraro and Chief Executive Officer Mr Alexander Bossard have separate powers to legally

represent and sign for the company in relations with third parties and in legal actions; they carry out their work within the

limits of the powers conferred on them by the Board of Directors in the meeting of 20 April 2012, in accordance with

applicable legal constraints, in terms of matters which cannot be delegated by the Board of Directors and of responsibilities

reserved for the Board itself, as well as the principles and limits provided for in the Company’s Code of Conduct.


CONSOLIDATED INCOME STATEMENT AS AT 30.06.14

(amounts in Euro thousands) 30.06.14 % 31.12.13 % 30.06.13 % Changes

30.06.14 30.06.13

REVENUES FROM SALES

371,419 100.00% 871,936 100.00% 449,166 100.00% -77,747 -17.31%

Purchases of goods and materials (net of changes in inventories)

-213,928 -57.60% -515,686 -59.14% -265,576 -59.13% 51,648 -19.45%

Services and Use of third-party goods and services

-63,836 -17.19% -146,048 -16.75% -77,003 -17.14% 13,167 -17.10%

Personnel costs -71,155 -19.16% -145,828 -16.72% -76,354 -17.00% 5,199 -6.81% Amortisation, depreciation and impairment of assets

-14,713 -3.96% -32,642 -3.74% -15,494 -3.45% 781 -5.04%

Provisions for risks -7,213 -1.94% -11,003 -1.26% -3,917 -0.87% -3,296 84.15%

Other income and expenses 2,884 0.78% 6,486 0.74% 2,856 0.64% 28 0.98%

Internal construction 1,654 0.45% 4,007 0.46% 1,647 0.37% 7 0.43%

OPERATING COSTS

-366,307 -98.62% -840,714 -96.42% -433,841 -96.59% 67,534 -15.57%

OPERATING PROFIT/(LOSS) (EBIT)

5,112 1.38% 31,222 3.58% 15,325 3.41% -10,213 -66.64%

Income from equity investments 542 0.15% - 0.00% - 0.00% 542 #DIV/0!

Other financial income 1,413 0.38% 2,649 0.30% 979 0.22% 434 44.33%

Financial costs and expenses -9,121 -2.46% -19,695 -2.26% -9,597 -2.14% 476 -4.96%

Net gains/(losses) on foreign exchange -1,905 -0.51% -1,428 -0.16% -384 -0.09% -1,521 396.09%

GAINS/(LOSSES) ON FINANCIAL ASSETS

-9,071 -2.44% -18,474 -2.12% -9,002 -2.00% -69 0.77%

PROFIT/(LOSS) BEFORE TAXES

-3,959 -1.07% 12,748 1.46% 6,323 1.41% -10,282

Current and deferred income taxes -5,670 -1.53% -10,698 -1.23% -5,620 -1.25% -50 0.89%

NET PROFIT/(LOSS)

-9,629 -2.59% 2,050 0.23% 703 0.16% -10,332

Profit/(loss) pertaining to minorities -455 -0.12% -760 -0.09% -551 -0.12% 96 -17.42%

CONSOLIDATED RESULT OF THE GROUP

-10,084 -2.71% 1,290 0.15% 152 0.03% -10,236

EBITDA

19,239 5.18% 61,544 7.06% 30,526 6.80% -11,287 -36.98%


CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AS AT 30.06.14

(amounts in Euro thousands) 30.06.14 31.12.13 30.06.13

Property, plant and equipment 182,503 202,230 202,365

Intangible fixed assets 88,563 89,521 88,010

Real estate investments 707 709 707

Holdings in subsidiaries and associates - - -

Financial assets 6,276 2,867 3,302

Deferred tax assets 27,266 26,375 28,156

Trade receivables and other receivables 4,726 3,596 3,478

NON-CURRENT ASSETS 310,041 325,298 326,018

Closing inventory 155,778 145,849 166,773



Cash and cash equivalents 35,735 72,712 70,872

CURRENT ASSETS 339,975 355,592 418,834

TOTAL ASSETS 650,016 680,890 744,852

Share Capital 23,915 23,915 23,915

Reserves 43,827 41,735 40,088

Foreign currency translation reserve -21,042 -18,180 -11,210

Profit/(Loss) for the period -10,084 1,290 152

Minority interests 6,441 6,103 7,116

SHAREHOLDERS’ EQUITY 43,057 54,863 60,061

Financial liabilities 134,804 180,892 197,625

Trade payables and other payables 1,395 1,814 242

Deferred tax liabilities 1,499 2,297 2,524

Provision for severance indemnity and retirement benefits 18,480 19,349 19,859

Provisions for risks and liabilities 4,975 5,077 2,600

NON-CURRENT LIABILITIES 161,153 209,429 222,850


Trade payables and other payables 241,501 247,742 299,620

Current taxes payables 13,536 5,977 5,079


CURRENT LIABILITIES 445,806 416,598 461,941

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 650,016 680,890 744,852


CASH FLOW AS AT 30.06.14


Opening Net Financial Position -248,150 -213,703 -213,703

Group profit/(loss) -10,084 1,290 152

Profit/(loss) pertaining to minorities 455 760 551

Amortisation, depreciation and impairment of fixed assets 14,127 30,322 15,201

Cash flow before Net Working Capital 4,498 32,372 15,904

Change in Net Working Capital -14,725 -39,420 -44,779

Investments in fixed assets -18,406 -37,539 -13,138

Disinvestments in fixed assets 1,311 2,483 732

Operating Free Cash Flow -27,322 -42,104 -41,281

Other operating flows -9,738 9,273 12,693

Other investing flows 23,669 8,687 -12,141

Other equity flows -2,177 -10,313 -3,758

Free Cash Flow -15,568 -34,447 -44,487

Closing Net Financial Position -263,718 - 248,150 -258,190

ANALYSIS OF NET WORKING CAPITAL AS AT 30.06.14


Trade Receivables 94,190 94,220 129,013

Inventory 155,778 145,849 166,773

Trade Payables - 207,471 -212,297 - 262,655

Net Working Capital (NWC) 42,497 27,772 33,131


The Carraro Group

Carraro is an international industrial Group which is world leader in high-efficiency and eco-compatible power

transmission systems, with headquarters in Italy, in Campodarsego (Padua).

Following the strategic decision to abandon the Light gears business through the strategic sale - in April - of two plants

of the subsidiary Minigears, which is specialised in small-scale components and sintered gears, the Group is now more

focused on technological solutions for its core, sectors and namely off-highway and industrial applications.

The Group operates through three Business Areas:

- Carraro Drive Tech (Transmission systems and components) is specialised in the design, manufacture and sale of

transmission systems (axles, transmissions and drives) mainly for agricultural and construction equipment, and also

markets a wide range of gears for very diverse sectors, from the automotive industry to material handling, agricultural

applications and construction equipment.

- Carraro Divisione Agritalia (Tractors) designs and manufactures special tractors (for vineyards and orchards from 60

to 100 hp) for third-party brands, and namely John Deere, Massey Ferguson and Claas; it also develops engineering

services for the design of innovative tractor ranges.

- Elettronica Santerno (Power electronics) designs, develops, manufactures and markets inverters (electronic power

converters) mainly for the photovoltaic industry and industrial automation (HVAC, water treatment, lifting systems

and large-scale transport).

Reference markets

Agriculture

The first half of 2014 was marked by a market trend which was less positive than expected.

During this period, a decrease in the demand for tractors in central and northern Europe was reported. This trend was

affected by the substantial block in exports of vehicles to eastern European countries (ex CIS) due the crisis in the

Ukraine. Given the seasonal nature of the market for agricultural machinery, we expect to close the year 2014 with a

negative balance compared to the previous year.

Demand in southern European countries has not yet reported significant signs of improvement, even if weak signals of

recovery have been reported, moreover from a very low starting level.

Due to the exceptional amount of rain, the market for agricultural machinery in Turkey sustained a significant decrease

with respect to the same period of 2013. This situation worsened the negative trend which was already underway in the

last part of the past year.

In the United States, on the other hand, sales of this machinery reported a more swinging performance with respect to

the same period of 2013: a weak slowdown in larger vehicles but a significant maintenance of medium to small ones.

No significant changes are expected in this trend until the end of the year.

The first half of 2014 in China closed with a significant slowdown in demand for tractors, even for those with more than

100 horsepower.

In India, following the substantially positive closing of 2013, the market for tractors closed the first half year with a fall

in domestic demand; this was only partially balanced by an increase in exports.

The market for agricultural machinery in South America, particularly in Brazil, reported a significant decrease in

volumes in the first half of the year with respect to the same period in 2013. There are no signs of a significant change

in trends in the future, even though the market has reported a weak recovery.


Construction equipment

The year 2014 began with greater optimism, particularly in the Utility machines segment; the significant slowdown in

the mining machinery sector, on the other hand, has continued but seems to have reached its low point.

In Europe, the "dual track" trend that was already reported in previous periods continued: in central Europe, there are

signs of recovery in demand and greater optimism for medium term prospects while in peripheral countries - despite

there being greater optimism for medium term prospects - maintained rather low levels of demand.

In Turkey, the market for construction equipment reported a significant decrease with respect to the same period of

2013 due to the general slowdown of the economy.

In North America, the recovery in private and residential construction continues to sustain the demand for Utility

machinery for rented vehicle fleets. The strong crisis in the mineral sector continues. Medium to high-end earthmoving

vehicles, on the other hand, are reported signs of inverting trends.

The Chinese market confirmed an additional decrease which was due to the decrease in investments within the

construction sector as well as the excess in production from previous years. The problem of stocks of unsold vehicles -

still present within the plants and the distribution network - continues. In addition, the level of non-performing loans

of the major OEM's remains critical for vehicles sold in past years.

Demand for construction machinery in India has remained weak in this first half of 2014. The change in trend which

was hoped for - following the federal elections - has still not occurred, even though there are now more positive

expectations for a general economic recovery.

In the first half of 2014, Brazil reported a slowdown in demand for construction equipment despite the infrastructural

investment plan which is currently underway. In the second half of the current year, there are forecasts for a

continuation of this trend.

Renewable energy

In the first half of 2014, the photovoltaic market maintained the trend which had occurred during 2013: the decrease in

Europe with the sole exception of the UK. On a global level, the shift in demand from Europe to the Far East,

America's, South Africa and the Middle East continues; these are market which will report significant growth in

upcoming years. At the same time, the subdividing of demand in those countries of the world where growth incentive

plans are starting off have continued.

Within European countries with a strong base of historical installations, the sector for maintenance and assistance of

systems has been growing.

Industrial Automation

The Italian market for automation reported initial signs of recovery; this was more significant in Europe.

In non-EC areas, the negative effect of the appreciation of the Euro with respect to other local currencies has continued

to be significant: Russia, Brazil, Turkey, North America. This leads to a competitive disadvantage with respect to the

primary local competitors or countries with a more favourable exchange rate.


Summary of the first half of 2014

It should be noted that, in the month of April, the transfer of the company branch pertaining to the productive and

operational activities of the Mini Gears Padua plant continued as well as of the entire shareholding held in the

company MG Mini Gears Suzhou Ltd. was implemented. The consolidated data of the Group reported below do not

take into account the effect of the transfer while comparable pro-forma data will be reported in the commentary section

of the Business Area Drivetech.

In the second quarter, the trend in improvement of margins of Carraro Drivetech was confirmed, even in light of

revenue volumes that were lower than expected; this was due to the continued efficiencies of industrial processes as

well as the benefits of important projects that were already initiated since the previous year and concerning the

following: the insourcing of production of components that were previously acquired externally, particularly abroad;

the continued implementation of the investment plan for improving productive processes and the decrease in the

number of suppliers through partnership projects.

Elettronica Santerno - due to the transfer of several important orders in the photovoltaic sector to next year - has seen

a further worsening compared to the first quarter, thereby requiring a structural review of its activities. Beginning in

May, it has launched a new plan to refocus business operations centred on activities in the industrial market and the

service sector while maintaining its presence in the photovoltaic market in a more targeted manner, particularly for

large plants where Santerno continues to be considered one of the major market players. This new approach will allow

for a more accurate appreciation of the skills and quality of products. Given the new strategic perspective, a complete

corporate reorganization was required; this will affect both the number of foreign subsidiaries as well as the central

organizational structure, thereby allowing the company to operate in balanced economic and financial conditions in

order for the purposes of ensuring continuity and growth.

The second quarter for Agritalia was also characterized by the difficulties in starting up the new enterprise resource

planning (ERP) system. This led to the incomplete attainment of forecasted sales volumes, thereby negatively affecting

the margins of the period. The value of the portfolio for the entire year remains confirmed and the Division has

implemented countermeasures for recovering expected revenues and profitability.

Consolidated revenues as of 30 June 2014 were equal to 371,419 million Euro, a 17.3% decrease with respect to the

449,166 million Euro of the first half of 2013. The revenues of the period are affected by a negative exchange rate of 11

million Euro, net of which the decrease would have been equal to 14.9%. When comparing data, it is also necessary to

consider the lower revenue volumes derived from the transfer of Mini Gears activities which would have led to a

smaller decrease in revenues of 12 million Euro (equal to 15%) compared to the same period of 2013.

The Carraro Drivetech business area generated a turnover which was 11.3% lower than the turnover as of 30 June 2013;

net of the effect of the conversion of some local currencies into Euros, mainly Argentine Peso and Indian Rupee, the

contraction would have been equal to 8.3%; Elettronica Santerno realised a turnover which was 71.4% lower, while

Agritalia's was 15.1% lower than the respective turnovers in comparison to the same period of the previous trading

period.

The Group's EBITDA in the first half of 2014 was equal to 19,239 million Euros (5.2% of turnover), with a drop of

37.0% in comparison to 30,526 million Euros (6.8% of turnover) of the first half of 2013. Net of the above-mentioned,

non-recurrent costs, the EBITDA would be equal to 21,578 million Euros (5.8% of turnover).

The EBITDA of the Business Area Drivetech as of 30 June 2014 was equal to 30,831 million Euros, thereby reporting a

slight decrease (1.9%) in absolute terms with respect to the 31,415 million Euros of the first half of 2013, but improving

if measured as incidence on revenues (9.4% compared to 8.5% of revenues).

For the reasons indicated above, Agritalia realised a negative EBITDA of 1,391 million Euros (-3.1% of turnover) in

comparison to the positive value of 1,853 million Euros (3.5% of turnover) as of 30 June 2013, and Elettronica


Santerno realised a negative EBITDA, equal to 7,063 million Euros (-65.7% of turnover) in comparison to the positive

value of 469 thousand Euros (1.3% of turnover) as of 30 June 2013. Net of the non-recurrent costs mentioned above,

the EBITDA would be in the negative for 4,724 million Euros (-44.0% of turnover).

The consolidated EBIT as of 30 June 2014 was equal to 5,112 million Euros (1.4% of turnover), 66.6% less than the

15,325 million Euros (3.4% of turnover) as of 30 June 2013. Net of non-recurrent costs, the EBIT would have been

equal to 7,451 million Euros (2.0% of turnover).

The EBIT of the Drivetech Business Area was equal to 20,160 million Euros (6.2% of turnover), with a slight increase

(5.0%) in comparison to 19,193 million Euros (5.2% of turnover) of the first half of 2013. Agritalia realised a negative

EBIT of 2,051 million Euros (-4.5% of turnover) in comparison to a positive value of 1,251 million Euros (2.4% of

turnover) as of 30 June 2013. Santerno too had a drop in ’EBIT, passing from a negative value of 751 thousand Euros

(-2.0% of turnover) as of 30 June 2013 to a negative value of 8,506 million Euros (-79.2% of turnover) as of 30 June

2014. Net of non-recurrent costs, the EBIT would have been in the negative for 6,167 million Euros (-57.4% of

turnover).

The Group recorded a loss before tax as at 30 June 2014 of 3,959 million Euros (-1.1% of turnover); with taxes for the

period amounting to 5,670 million Euros, a net loss, as expected, was recorded of 10,084 million Euros (-2.7% of

turnover). Net of non-recurrent costs the net result would have been in the negative for 8,285 million Euros (-2.2% of

turnover).

The net financial position of the Group as of 30 June 2014 was negative by 263,718 million Euros compared to the

279,438 million Euros of 31 March 2014 and the 248,150 million Euros of 31 December 2013. The improvement with

respect to the balance of 31 March 2014 is primarily ascribable to the proceeds which were collected from the transfer

of Mini Gears activities.

2014 figures and facts

In the month of January, the integrated Santerno system for the conversion of energy of the Mount Signal Solar

project 1, in Imperial Valley in southern California - one of the largest photovoltaic plants in the world - began regularly

operating.

There was an important novelty in February for the German headquarters of the Group, O&K Antriebstechnik. In

this month, in fact, an agreement was stipulated for the acquisition of a building with adjacent lands of 40,000 square

meters; on this area, a new plant will be constructed in 2015 in order to allow for an adequate development of the

business for drives relative to earth moving and stationary applications.

In March,Carraro Drive Tech renewed its presence in the Conexpo in Las Vegas, one of the most important fairs in

the world dedicated to construction equipment. During this event, a vast range of products for earth moving

applications of medium and small size were presented, thereby demonstrating a solid know-how and experience in

gears for a variety of applications such as excavator loaders, manlifts, compactors and mineral applications.

The partnership between Carraro and Fuchs - a leading company in the market for the independent production of

lubricants with offices and production facilities in more than 40 countries around the world – resulted, in April, in the

creation of Carrarooil, a range of oils designed to provide optimal lubrication and elevated wear and tear protection

for a wide range of products such as transmission units, brakes and clutches. Also in April, and for the first time,

Carraro Drive Tech participated with a stand in the international exhibition Agrishow, the most important event

dedicated to the agricultural market in Latin America; it was held in Ribeirão Preto (Brazil). Considerable interest was

garnered, in particular from the new range of agricultural T10 transmissions.

In addition, and at the end of March, Mini Gears SpA and the German fund Finatem stipulated, at the end of April, an

agreement for the transfer of the activities of miniGears in Padua and Suzhou (China). More specifically, a


agreement was reached that, after this operation, the two productive sites - specialized in the manufacturing of

sintering gears, will collaborate with the company Herzog GmbH - specialized in components and gears, with a

registered office in southern Germany - which is already controlled by Finatem. This agreement is part of the Group's

strategy to focus on its core business and will allow for the current investment plan to be accelerated.

May witnessed the return of Carraro Drive Tech at the CeMAT of Hannover, the most important global fair dedicated

to logistics and material handling. In this niche market, Carraro exhibited innovative integrated transmission systems

for both electric systems and internal combustion machines. In the same month, Elettronica Salerno returned to the

Solarexpo of Milan, the trade fair of reference for the photovoltaic sector in Italy.

For the purposes of developing partnerships, an agreement was stipulate din the month of May between Carraro and

the company GKN Land Systems (suppliers of two-way joints) which aims to further strengthen the current

relationship. Due to this contract, it will be possible to further integrate the two industrial groups for a long-term win-

win relationship.

In the same month, a new plant was opened by Carraro Brasil in Caxias do Sul, a Brazilian city located in Rio Grande

do Sul near some of the primary clients of the Group. This plant strengthens the already significant presence of Carraro

within the Brazilian market, one of the most important in the world for both agricultural machinery as well as

construction equipment, and providing interesting growth opportunities.

In June, Carraro Agritalia reported a new important step in its way of doing business by announcing the OHSAS

18001:2007 certification on the part of TÜV Italia. This certificate represents the standard of reference for the

implementation of system for managing the protection of health and safety within work locations; it aims to guarantee

compliance with specific norms as well as continually improve indicators and performance over time. As of today,

Agritalia is one of the few Italian companies of its sector which has attained this certification and, within its sector, is

one of the pioneers of structure initiatives in this area.

At the same time, the company of Rovigo successfully initiated the production of a new range of “low profile”

tractors; these were highly appreciated by both direct customers in connection with the "three horses" brand as well

as by the primary OEM which requested its insertion within their product offers.

Significant events in the first half of 2014 On 27 March 2014, an agreement between MG Mini Gears SpA and the German fund Finatem was signed for the sale

of the production and operating business unit of the Mini Gears Padova site, and the entire investment in MG Mini

Gears Suzhou Ltd. The total value of the transaction (enterprise value) is equal to approximately 28 million Euros. The

operation was completed on 30 April 2014.

Elettronica Santerno's lower than expected results and the consequent reorganisation impacted on the Group's

medium-term forecasts for economic and financial results. As a consequence, it was necessary to ask the lender banks

for a waiver in relation to the covenants for 30 June 2014 and for the redefinition of the covenants for the December

2014 – June 2016 period. On 27 June 2014 approval from banks was obtained in relation to the request for waiver for

the covenants as of 30 June 2014 and on 25 July 2014 there was the approval for the request of redefinition of the

covenants for the December 2014-June 2016 period.

http://it.wikipedia.org/wiki/Brasile

http://it.wikipedia.org/wiki/Rio_Grande_do_Sul

http://it.wikipedia.org/wiki/Rio_Grande_do_Sul


Share performance

In the first six months of 2014, the share price of Carraro had an up and down trend, in line with the main parameters

of the Stock Exchange (FTSE MIB).

The average official price over the period was 3.0 Euros, with a minimum on 25 July 2014 of 2.48 Euros and a peak of

3.33 Euros on 22 January 2014.

Events subsequent to the balance sheet date

On 15 July 2014 Carraro SpA and Carraro International SA purchased from GE Capital Interbanca SpA the

participating interest held in Carraro Drive Tech SpA (5.47%) consequent to the perfection of the merger by way of

incorporation of Gear World SpA in Carraro Drive Tech SpA.

As GE Capital Interbanca's role in the original investment project ended, the Group decided to re-purchase said

participating interest also in order to continue in a more determined and rapid way with the process of simplification of

the corporate structure with benefits expected in terms of potential development of new organisational structures and

in terms of cost saving.

BUSINESS OUTLOOK FOR THE CURRENT YEAR

In the second half of the year, the Group expects revenues and margins to remain in line with the first half of the year, a

decrease therefore with respect to the previous year.

With regard to the Drivetech Business Area, the continuation of the trend of the first half of the year is expected, both

in terms of revenues as well as margins.

Agritalia, due to the actions implemented for the resolution of problems that occurred in the first half of the year,

particularly in the supply chain, has forecasted a recovery in revenues and margins in the second half of the year.

Following the safety implementation activities, Santerno expects to attain a break even in the second part of the year.


ECONOMIC AND EQUITY DATA Turnover Consolidated Group turnover for the first half of 2014 is expected to be 371,419 million Euro, down 17.3% compared to

the revenues of the first half of 2013, which was 449,166 million Euro.

The following table breaks turnover down by market segment:

(amounts in Euro thousands)

SALES SALES TO THIRD PARTIES INTRA-GROUP SALES

30.06.14 30.06.13 Diff. % 30.06.14 30.06.13 Diff. % 30.06.14 30.06.13 Diff. %

CARRARO DRIVE TECH 326,810 368,415 -11.3 317,587 359,713 -11.7 9,223 8,702 6.0 CARRARO DIV. AGRITALIA 45,164 53,190 -15.1 43,022 51,306 -16.1 2,142 1,884 13.7 ELETTRONICA SANTERNO 10,743 37,575 -71.4 10,727 37,515 -71.4 16 60 -73.3 NON-ALLOCATED BUSINESS 6,592 6,714 -3.0 83 632 -86.9 6,509 6,082 7.0

TOTAL SEGMENTS 389,309 465,894 -16.5 371,419 449,166 -17.3 17,890 16,728 6.9

INTRA-GROUP ELIMINATIONS -17,890 -16,728 -6.9 - - - -

TOTAL CONSOLIDATED 371,419 449,166 -17.3 371,419 449,166 -17.3 17,890 16,728 6.9

The following table breaks down turnover by geographical area:

(amounts in Euro thousands) Geographical Area

30.06.14 % 30.06.13 % difference % '14-'13

North America 45,591 12.3 59,390 13.2 -23.2

Germany 44,770 12.1 53,693 12.0 -16.6

South America 42,949 11.6 53,513 11.9 -19.7

United Kingdom 31,372 8.4 27,378 6.1 14.6

Turkey 27,936 7.5 33,402 7.4 -16.4

India 26,557 7.1 25,972 5.8 2.3

Switzerland 25,422 6.8 22,754 5.1 11.7

France 20,690 5.6 31,866 7.1 -35.1

China 16,837 4.5 29,543 6.6 -43.0

Poland 6,209 1.7 10,565 2.4 -41.2

Other non-E.U. areas. 5,948 1.6 14,250 3.2 -58.3

Other E.U. areas 29,475 7.9 33,800 7.5 -12.8

Total Abroad 323,756 87.2 396,126 88.2 -18.3

Italy 47,663 12.8 53,040 11.8 -10.1

Total 371,419 100.0 449,166 100.0 -17.3

of which:

Total E.U. area 180,179 48.5 210,342 46.8 -14.3

Total non-E.U. area 191,240 51.5 238,824 53.2 -19.9

In analysing turnover by geographic segment, it should be noted that the Group mainly sells to the production sites of

OEMs that may reside in different countries from the nations of end users of their products.


Based on data in previous tables, revenues in all geographic segments have decreased, apart from India (+2.3%), and

Great Britain and Switzerland (+14.6% and +11.7% respectively). The latter two cases refer to sales to specific clients in

these countries but who export to other areas in the world.

EBITDA and EBIT Figures as at 30.06.14

(amounts in Euro thousands) 30.06.14 % of

turnover 30.06.13 % of

turnover Diff. %

EBITDA (1) 19,239 5.2 30,526 6.8 -37.0

Non-recurrent costs(*) 2,339 0.6 -

ADJUSTED EBITDA 21,578 5.8 30,526 6.8 -29.3

EBIT (2) 5,112 1.4 15,325 3.4 -66.6

Non-recurrent costs(*) 2,339 0.6 -

ADJUSTED EBIT 7,451 2.0 15,325 3.4 -51.4

(1) understood as the sum of operating profit/(loss), amortisation, depreciation and impairment of fixed assets (2) understood as operating profit/(loss) in the income statement (*) with comments and details in the Notes to the Condensed Consolidated Interim Financial Statements in shortened form as of 30.06.2014

EBITDA as of 30 June 2014 amounts to 19,239 million Euros (5.2% of turnover) compared to 30,526 million Euros

(6.8% of revenues) in the same period of 2013.

EBIT was equal to 5,112 million Euros (1.4% of revenues) compared to 15,325 million Euros (3.4% of revenues)

achieved as of 30 June 2013.

Net of costs for non-recurrent events related to the reorganisation process of Elettronica Santerno, the EBITDA and

EBIT would have been equal, respectively, to 21,578 million Euros (5.8% of turnover) and 7,451 million Euros (2.0% of

turnover).

Margins in the half year appear to be influenced by the elements cited in the introduction. While the Drivetech

Business Area has maintained margins which were in line with the same period of the previous year (an improvement

if compared with the proforma data of 30 June 2013, net of the effects of the transfer of Mini Gears), Agritalia and

Elettronica Santerno suffered from a serious decrease in profitability with respect to the first half of 2013.

Details of the two ratios are set out below with separate information for the three business areas:

EBITDA 30.06.14 % of turnover 30.06.13 % of turnover Diff. %

Carraro Drive Tech 30,831 9.4 31,415 8.5 -1.9

Agritalia Div. -1,391 -3.1 1,853 3.5 n.r.

Elettronica Santerno -7,063 -65.7 469 1.3 n.r.

EBIT 30.06.14 % of turnover 30.06.13 % of turnover Diff. %

Carraro Drive Tech 20,160 6.2 19,193 5.2 5.0

Agritalia Div. -2,051 -4.5 1,251 2.4 n.r.

Elettronica Santerno -8,506 -79.2 -751 -2.0 n.r.

Net financial expenses Figures as at 30.06.14

(amounts in Euro thousands) 30.06.14 % of turnover 30.06.13 % of turnover Diff. %

Net financial expenses 7,708 2.1 8,618 1.9 -10.6

Net financial charges amount to 7,708 million Euro (2.1% of revenues), a decrease with respect to the 8,618 million

Euro (1.9% of revenues) in the first half of 2013. It should be noted that the financial charges of 30 June 2013 include a

part of the fees paid to banks as a result of the undersigning of the Restructuring Agreement.


Exchange differences Figures as at 30.06.14


Exchange differences -1,905 -0.5 -384 -0.1 n.r.

Exchange differences as of 30 June 2013 were negative by 1,905 million Euro (negative by 384 thousand Euro as of 30

June 2013). This decrease is due to significant effects arising from the devaluation of the Argentinian Peso which only

concern the translation of financial balances. These devaluation effects are not however major risk factors nor are they

repetitive, as revenues and purchases in currency are covered by structured instruments, in accordance with Group

policy.

Net profit/(loss) Figures as at 30.06.14


Net profit/(loss) -10,084 -2.7 152 0.0 n.r. Non-recurrent costs net of the tax effect (*) 1,799 0.5 -

Adjusted net profit/loss -8,285 -2.2 152 0.0 n.r.

(*) with comments and details in the Notes to the Condensed Consolidated Interim Financial Statements in shortened form as of

30.06.2014

(amounts in Euro thousands) 30.06.14 % of turnover 30.06.13

% of turnover Diff. %

Earnings before tax -3,959 -1.1 6,323 1.4 n.r.

Current and deferred income taxes -5,670 -1.5 -5,620 -1.3 0.9

Profit/(loss) pertaining to minorities -455 -0.1 -551 -0.1 -17.4

Net profit/(loss) -10,084 -2.1 152 0.0 n.r.

The first half of 2014 closed with a loss of 10,084 million Euros (-2.7% of turnover) compared to a net income of 152

thousand Euros (0.0% of turnover). The pre-tax result was negative by 3,959 million Euros (-1.1% of turnover)

compared to a positive value of 6,323 million Euros (1.4% of turnover) in the first half of 2013. Santerno Business

Areas contributed to this result, as described in the introduction, while the Drivetech Business Area generated net

income of 6.7 million Euros in the first half of the year, a result in line with 30 June 2013.

Amortisation, depreciation and impairment of assets Figures as at 30.06.14


Amortisation, depreciation and impairment 14,127 3.8 15,201 3.4 -7.1

Investments Figures as at 30.06.14

(amounts in Euro thousands) 30.06.14 30.06.13

Investments 18,406 13,137

Investments as of 30 June 2014, totalling 18,406 million Euros, compared to the 13,137 million Euros for the same

period last year, were generated in the Drivetech Business Area for the support of the re-insourcing project for

activities previously carried out abroad, to maintain the efficiency of, and upgrade plants, and in Headquarters for the

development of the new SAP management system.


Research and Development Even in 2014, the Group confirmed its intention to continue its constant technological innovation. Research and

Development expenses for the first half amounted to 7.9 million Euros (2.1% of turnover) compared with 8.9 million

Euros as of 30 June 2013 (2.0% of revenues).

Net financial position Figures as at 30.06.14


Net financial position* -263,718 -248,150 -258,190

* understood as the sum of amounts payable to banks, short-, medium- and long-term bonds and loans, net of cash and cash

equivalents, negotiable securities and financial receivables.

The net financial position as at 30 June 2014 was negative and equal to 263,718 million Euros compared to the 248,150

million Euros as 31 December 2013 and the 258,190 million Euros as 30 June 2013. If compared with net exposure as

of 31 March 2014, equal to 279,438 million Euros, the improvement was due to the proceeds collected as a result of the

transfer of Mini Gears activities; this was partially compensated by losses of the period as well as by the still negative

(but to a lesser extent) net working capital.

On 27 June 2014, a positive resolution was obtained from banks in relation to the request for waivers of the covenants

of 30 June 2014.

PERSONNEL Workforce trend

Figures as at 30.06.14

30.06.14 31.12.13 30.06.13

Executives 48 50 52

Clerical staff 981 1,035 1,016

Factory workers 2,519 2,964 2,952

Temporary workers 350 314 133

Total 3,898 4,363 4,153

Group personnel as at 30 June 2014 (including temporary contracts, trainees and temporary workers) stands at 3,898

employees against 4,363 operational staff as at 31 December 2013. The decrease in the number of employees was due

to the aforementioned transfer of Mini Gears activites which overall totalled 526 employees.

As of 30 June 2014, 1,663 employees (43% of the total) worked in the Italian production sites of the Group and 2,235

employees (57% of the total) worked in sites abroad.


Performance and results of the

Carraro Group Business Areas


Drivelines & Components - Drive Tech Business Area

The first half of the year of 2014 for the Business Area Drivetech was characterized by a significant improvement - in

percentage terms - in margins. This is the result of a series of targeted operations which aim to continually improve the

efficiency of production plants through both new investments as well as through agreements on labour flexibility. This

was also rendered possible through a new approach with suppliers which aimed to concentrate these through

partnership strategies.

It should be noted that, effective as of 1 May 2014, the transfer of the company branch Mini Gears was completed; this

affects comparisons with the first half year of 2013.

Revenues from sales as of 30 June 2014 overall totalled 326,810 million Euro compared to the 368,415 million Euro of

the first half of 2013, thereby reporting a decrease of 11.3%. This result was influenced by the effect of the exchange rate

of certain local currencies with the Euro, primarily the Argentinian Peso and the Indian Rupee; this effect was overall

evaluated at 11 million Euro.

The overall revenues of the first half of 2013, net of the effect of the transfer, would be equal to 356,248 million Euro,

and therefore the decrease would have been equal to 8.3%.

Revenues from third party customers totalled 317,587 million Euro, equal to 97.2% of total revenues, while the

revenues generated from other companies of the Group (Agritalia: axles and transmissions) were equal to 9,223 million

Euro, 2.8% of total revenues. In the same period of 2013, revenues from third party customers were equal to 359,713

million Euro while revenues from the Group were equal to 8,702 million Euro.

Analysis of revenues by geographical segment shows slightly higher revenues from non-European markets (51.03%)

compared to European markets (48.97%). Germany (13.34%) is still the first European country for revenues, even

though figures decreased compared to the same half year of the previous year (14.20% of turnover), while Italy

accounts for 12.09% of revenues, a slight increase compared to 10.75% recorded for the first half of the previous year.

As regards non-European countries, the United States accounted for 12.67% (10.96% in the first quarter of 2013), and

is the main country for sales of the Drivetech Business Area, followed by Brazil with 10.27% (13.44% in the first half of

2013).

Overall turnover from foreign markets as of 30 June 2014 was 87.91% of the total turnover from the business area,

against 89.25% in the same period of 2013.

Margins compared to the same period of the previous year increased in percentage terms: not only due to the positive

exchange rate effect but also because of activities for improvement of industrial and efficiency processes that continue

to produce the expected results. Industrial costs remained, as on the previous year, essentially in line, in percentage

terms, with those of the first quarter of 2013.

EBITDA, as of 30 June 2014, was equal to 30,831 million Euros (9.4% of revenues) compared to the 31,415 million

Euros (8.5% of revenues) as of 30 June 2013. Net of the effects of the transfer of Mini Gears activites, EBITDA grew by

2.9% (the pro-forma value as of 30 June 2013 was equal to 29,904 million Euros).

EBIT in the first half of 2014 was equal to 20,160 million Euros (6.2% of revenues) compared to the 19,193 million

Euros (5.2% of revenues) of the first half of 2013. Net of the effects of the transfer of Mini Gears, EBIT grew by 7.8%

(the pro-forma value as of 30 June 2013 was equal to 18,647 million Euros).

The pre-tax results as of 30 June 2014 was positive by 13,155 million Euros (4.0% of turnover), a 11.6% growth with

respect to the 11,785 million Euros (3.2% of turnover) of the same period of the previous year. The net result was

positive by 6,734 million Euros (2.1% of turnover) compared to the positive result of 6,830 million Euros (1.9% of

turnover) of 30 June 2013.


The net financial position as of 30 June 2014 was negative by 150,116 million Euros, an improvement with respect to

the 174,438 million Euros on 31 March 2014, the 157,809 million Euros of 31 December 2013 and the 161,730 million

Euros of 3 June 2013. The cash inflow is primarily derived from the transfer of the company branch Mini Gears.


SUBCONSOLIDATED INCOME STATEMENT AS AT 30.06.14

CARRARO DRIVE TECH BUSINESS AREA

(amounts in Euro thousands) 30.06.14 % 31.12.13 % 30.06.13 % Changes 30.06.14 30.06.13

REVENUES FROM SALES

326,810 100.00% 714,724 100.00% 368,415 100.00% -41,605 -11.29%


-186,487 -57.06% -419,010 -58.63% -218,055 -59.19% 31,568 -14.48%


-55,875 -17.10% -118,523 -16.58% -61,402 -16.67% 5,527 -9.00%

Personnel costs -53,878 -16.49% -113,060 -15.82% -59,027 -16.02% 5,149 -8.72%

Amortisation, depreciation and impairment of assets

-10,953 -3.35% -24,907 -3.48% -12,364 -3.36% 1,411 -11.41%

Provisions for risks -3,120 -0.95% -8,410 -1.18% - 2,171 -0.59% -949 43.71%

Other income and expenses 2,419 0.74% 4,103 0.57% 2,887 0.78% -468 -16.21%

Internal construction 1,244 0.38% 2,316 0.32% 910 0.25% 334 36.70%

OPERATING COSTS

-306,650 -93.83% -677,491 -94.79% -349,222 -94.79% 42,572 -12.19%

OPERATING PROFIT/(LOSS)(EBIT)

20,160 6.17% 37,233 5.21% 19,193 5.21% 967 5.04%

Income from equity investments 542 0.17% - - - - 542

Other financial income 1,314 0.40% 2,434 0.34% 952 0.26% 362 38.03%

Financial costs and expenses -7,076 -2.17% -15,978 -2.24% -8,207 -2.23% 1,131 -13.78%

Net gains/(losses) on foreign exchange

-1,785 -0.55% -1,580 -0.22% -153 -0.04% -1,632 1066.01

%


-7,005 -2.14% -15,123 -2.12% -7,408 -2.01% 403 -5.44%

0!


13,155 4.03% 22,110 3.09% 11,785 3.20% 1,370 11.62%

Current and deferred income taxes -6,334 -1.94% -9,751 -1.36% -4,778 -1.30% -1,556 32.57%

NET PROFIT/(LOSS)

6,821 2.09% 12,359 1.73% 7,007 1.90% -186 -2.65%

/0!

Profit/(loss) pertaining to minorities -87 -0.03% -93 -0.01% -177 -0.05% 90 -50.85%

CONSOLIDATED RESULT OF THE BUSINESS AREA

6,734 2.06% 12,266 1.72% 6,830 1.85% -96 -1.41%

EBITDA

30,831 9.43%

61,715 8.63%

31,415 8.53%

-584 -1.86%


SUBCONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

30.06.14 CARRARO DRIVE TECH BUSINESS AREA




Real estate investments 167 170 168

Holdings in subsidiaries and associates - - -









CURRENT ASSETS 276,508 289,462 320,334

TOTAL ASSETS 488,365 516,090 552,835

Share Capital 30,102 30,102 30,102

Reserves 50,850 37,478 35,502

Foreign currency translation reserve -22,367 -19,300 -12,186

Profit/(Loss) for the period 6,734 12,266 6,830

Minority interests 2,871 2,796 3,823



Trade payables and other payables 1,215 1,603 20

Deferred tax liabilities 1,740 2,482 2,724 Provision for severance indemnity and retirement benefits

15,746 16,717 17,172





Current taxes payables 12,642 5,295 4,479



TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES

488,365 516,090 552,835


CASH FLOW AS AT 30.06.14 FOR THE CARRARO DRIVE TECH BUSINESS AREA



Group profit/(loss) 6,734 12,266 6,830

Profit/(loss) pertaining to minorities 87 93 177


Cash flow before Net Working Capital 17,492 36,841 19,229

Change in Net Working Capital -5,875 -36,664 -28,819

Investments in fixed assets -15,732 -29,227 -9,070

Disinvestments in fixed assets 1,307 1,717 378

Operating Free Cash Flow -2.808 -27,333 -18,282

Other operating flows -11,235 7,405 -1,936

Other investing flows 23,709 12,626 2,914

Other equity flows -1,973 -9,852 -3,771

Free Cash Flow 7,693 -17,154 -21,075

Closing Net Financial Position -150,116 -157,809 -161,730

ANALYSIS OF NET WORKING CAPITAL AS AT 30.06.14

CARRARO DRIVE TECH BUSINESS AREA



Inventory 125,249 127,071 135,349

Trade Payables -168,831 -176,003 - 204,118



Business Area Vehicles – Agritalia

Revenues of the first half of 2014 were equal to 45,164 million Euro, with sales of 1,656 tractors and 32 powertrain, a

decrease of 8,026 million Euro (15.1%) compared to the same period of the past year which reported sales of 1,916

tractors and 151 powertrain.

Productive output, despite installed capacity being consistent with demand, was not satisfactory for both the reasons

outlined in the report introduction as well as for the operational problems linked to the operational startup of new

ranges of tractors, thereby generating a backlog, as of 30 June, of 371 tractors, and with forecasts of recovery in the

second part of the year.

Spare Parts and Engineering sales were in line with those of the same period of the past year.

The difficulties reported above negatively affected the margins of the half-year which worsened with respect to the

same period of the previous year, and whose EBIT was negative by 2,051 million Euro (-4.5% of revenues) compared to

a positive value of 1,251 million Euro (2.4% of revenues) as of 30 June 2013. EBITDA was negative by 1,391 million

Euro (-3.1% of revenues) compared to the 1,853 million Euro (3.5% of revenues) of the first half of 2013.

The result is a net loss as of 30 June 2014 amounting to 1,767 million Euros (-3.9 % of turnover) compared to a profit of

1,103 million Euros (+2.1% of turnover) of 30 June 2013.

The net financial position as of 30 June 2014 was positive by 9,047 million Euro, a slight improvement with respect to

the 8,363 million Euro on 31 March 2014 but a decrease with respect to the 16,878 million Euro of 31 December 2013

and the 14,875 million Euro of the first half of 2013; this was primarily due to the increase in warehouse stock caused

by both a lack in revenues and the start-up of new products.


SUBCONSOLIDATED INCOME STATEMENT AS AT 30.06.14

CARRARO DIVISIONE AGRITALIA BUSINESS AREA


30.06.14 30.06.13

REVENUES FROM SALES 45,164 100.00% 102,987 100.00% 53,190 100.00% -8,026 -15.09%


-33,218 -73.55% -75,518 -73.33% -39,292 -73.87% 6,075 -15.46%

Services and Use of third-party goods and services -4,930 -10.92% -9,116 -8.85% -4,629 -8.70% -302 6.53%

Personnel costs -7,221 -15.99% -12,539 -12.18% -6,563 -12.34% -658 10.03%

Amortisation, depreciation and impairment of assets -672 -1.49% -1,264 -1.23% -609 -1.14% -63 10.34%

Provisions for risks -1,302 -2.88% -1,420 -1.38% -819 -1.54% -483 58.7%

Other income and expenses 128 0.28% -38 -0.04% -27 -0.05% 156 -342.86%

OPERATING COSTS -47,215 -104.54% -99,895 -97.00% -51,939 -97.65% 4,724 -9.10%

OPERATING PROFIT/(LOSS)(EBIT) -2,051 -4.54% 3,092 3.00% 1,251 2.35% -3,302

Other financial income - 0.00% - 0.00% - 0.00% -

Financial costs and expenses -46 -0.10% -101 -0.10% -64 -0.12% 18 -28.13%

Net gains/(losses) on foreign exchange -2 0.00% -2 0.00% -4 -0.01% 2 -50.00%

GAINS/(LOSSES) ON FINANCIAL ASSETS -48 -0.11% -103 -0.10% -68 -0.13% 20 -29.41%

PROFIT/(LOSS) BEFORE TAXES -2,099 -4.65% 2,989 2.90% 1,183 2.22% -3,282

Current and deferred income taxes 332 0.74% -372 -0.36% -80 -0.15% 412


-1,767 -3.91% 2,617 2.54% 1,103 2.07% -2,870 -

EBITDA -1,391 -3.08% 4,340 4.21% 1,853 3.48% -3,244


SUBCONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AS AT 30.06.14

CARRARO DIVISIONE AGRITALIA BUSINESS AREA



Intangible fixed assets 190 246 283


Trade receivables and other receivables 8 7 8




Financial assets 4 7 6


CURRENT ASSETS 33,760 30,172 35,537

TOTAL ASSETS

47,754 43,583

48,528

Share Capital - - -

Reserves 11,982 9,442 9,435

Profit/(Loss) for the period -1,767 2,617 1,103


Trade payables and other payables -1 - 1

Deferred tax liabilities -11 18 15

Provision for severance indemnity and retirement benefits 1,284 1,186 1,227

Provisions for risks and liabilities 1,312 615 715


Financial liabilities 10 - -


Current taxes payables 53 53 30





CASH FLOW AS AT 30.06.14 CARRARO DIVISIONE AGRITALIA BUSINESS AREA


Opening Net Financial Position 16,878 13,001 13,001

Group profit/(loss) -1,767 2,617 1,103

Amortisation, depreciation and impairment of fixed assets 660 1,248 602

Cash flow before Net Working Capital -1,107 3,865 1,705

Change in Net Working Capital -7,610 1,504 -54

Investments in fixed assets -565 -1,743 -562

Disinvestments in fixed assets - 27 -

Operating Free Cash Flow -9,282 3,653 1,089

Other operating flows 1,528 224 790

Other investing flows - - 1

Other equity flows -77 - -6

Free Cash Flow -7,831 3,877 1,874

Closing Net Financial Position 9,047 16,878 14,875

ANALYSIS OF NET WORKING CAPITAL AS AT 30.06.14 CARRARO DIVISIONE AGRITALIA BUSINESS AREA



Inventory 16,218 9,456 11,744

Trade Payables -29,492 -25,503 - 31,540

Net Working Capital (NWC) -5,147 -12,757 - 11,199


Business Area Electronics – Elettronica Santerno

The structural changes within the photovoltaic market in which Santerno operates - confirmed by the events in the first

part of the year pertaining to the contractualization and start schedules of major work orders - required a radical

change in the business model resulting in a re-organization plan for the division concentrated on:

- valorizing the sector of industrial applications

- valorization of the plant service and maintenance sector (plants installed and supplied by third parties)

- valorization of activities within the photovoltaic sector pertaining to projects for major plants and commercial

roofs within international markets in addition to the strengthening of revamping activities.

The above-mentioned plan provides for the definition of a streamlined division-based structure and for the

identification of a level of fixed costs adequate to the achievement of profitability capable of ensuring the ongoing

business and development of the Business Area. To this end, adequate provisions were allocated in the balance sheet.

Photovoltaics

Within the photovoltaic market, Santerno has decided to focus its commercial actions on major customers and on

certain specific countries where the company has already realized important ground plants. In these areas, Santerno is

increasingly targeting the service sector which continues to present important growth opportunities.

The decrease in revenues within the renewable energy business line - compared to the first half of the previous year -

reflects the failure to initiate important work orders which have already been stipulated into contracts (Chile) and

others which are in the process of being finalized (South Africa); economic effects will begin as of 2015.

Additional concrete opportunities are being defined within the north and south American markets for the supply of

panels to be used to construct major photovoltaic plants.

Growth opportunities in the service and maintenance sectors are also confirmed.

Industrial applications

Within the sector of industrial applications, Santerno has continued its commercial development operations within

Italy and abroad; the actions it has taken have resulted in an overall increase in orders with respect to the first half of

the previous year.

As of the second half of the year, a specific plan will be implemented in order to increase revenues of the sector with

both targeted actions for the development of new products that will be proposed to the market as well as with

commercial operations which aim to strengthen the network of Santerno dealers at an international level.

The slightly lower revenue levels compared to the previous year were also due to the exchange rate effect, particularly

the Russian and Brazilian markets.

Revenues as of 30 June 2014 were equal to 10,743 million Euro, down by 71.4% compared to 37,575 million Euro for

the first half of 2013.

EBITDA as of 30 June 2014 was negative, amounting to 7,063 million Euros (-65.7% of turnover) compared to a

positive value of 469 thousand million Euros (+1.2% of turnover) as of 30 June 2013.

EBIT for the first half of 2014 was negative in the amount of 8,506 million Euros (-79.2% of turnover) compared to a

negative value of 751 thousand million Euros (-2% of revenues) as of the first half of the year 2013.


Net of costs for non-recurrent events, the EBITDA and EBIT would have been negative, respectively, for 4,724 million

Euros (-44.0% of turnover) and 6,167 million Euros (-57.4% of turnover).

The net result is a loss of 8,407 million Euros as compared to the loss of 1,393 million Euros in the first half of 2013.

Net of the costs for non-recurrent events, the net result would have been negative for 6,608 million Euros.

The net financial position as of 30 June 2014 reported a negative value of 15,614 million Euros compared to the 17,379

million Euros as of 30 June 2013, the 5,110 million Euros as at 31 December 2013 and the 13,861 million Euros as of 31

March 2014.


SUBCONSOLIDATED INCOME STATEMENT AS AT 30.06.14 ELETTRONICA SANTERNO BUSINESS AREA


30.06.14 30.06.13

REVENUES FROM SALES

10,743 100.00% 74,424 100.00% 37,575 100.00% -26,832 -71.41%


-5,036 -46.88% -40,928 -54.99% -18,181 -48.39% 13,145 -72.30%


-4,447 -41.39% -21,284 -28.60% -12,333 -32.82% 7,886 -63.94%

Personnel costs -5,745 -53.48% -12,283 -16.50% -6,320 -16.82% 575 -9.10% Amortisation, depreciation and impairment of assets

-1,570 -14.61% -4,455 -5.99% -1,363 -3.63% -207 15.19%

Provisions for risks -2,786 -25.93% -952 -1.28% -927 -2.47% -1,859

Other income and expenses -74 -0.69% 1,383 1.86% 61 0.16% -135 -221.31%

Internal construction 409 3.81% 1,690 2.27% 737 1.96% -328 -44.50%

OPERATING COSTS

-19,249 -179.18% -76,829 -103.23% -38,326 -102.00% 19,077 -49.78%

OPERATING PROFIT/(LOSS) (EBIT)

-8,506 -79.18% -2,405 -3.23% -751 -2.00% -7,755

Other financial income 94 0.87% 187 0.25% 23 0.06% 71 308.70%

Financial costs and expenses -449 -4.18% -1,186 -1.59% -578 -1.54% 129 -22.32%

Net gains/(losses) on foreign exchange -160 -1.49% 121 0.16% -207 -0.55% 47 -22.71%


-515 -4.79% -878 -1.18% -762 -2.03% 247 -32.41%


-9,021 -83.97% -3,283 -4.41% -1,513 -4.03% -7,508

Current and deferred income taxes 614 5.72% -1,192 -1.60% 120 0.32% 494


-8,407 -78.26%

-4,475 -6.01%

-1,393 -3.71% -7,014

EBITDA

-7,063 -65.75% 171 0.23% 469 1.25% -7,532


SUBCONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AS AT 30.06.14 ELETTRONICA SANTERNO BUSINESS AREA





Trade receivables and other receivables 197 401 199




Financial assets 64 215 397


CURRENT ASSETS 32,481 33,075 63,107

TOTAL ASSETS 70,156 71,362 102,622

Share Capital 2,500 2,500 2,500

Reserves 29,110 33,615 33,815

Foreign currency translation reserve -84 -122 236

Profit/(Loss) for the period -8,407 -4,475 -1,393

SHAREHOLDERS’ EQUITY

23,119 31,518 35,158

Financial liabilities 674 - -

Trade payables and other payables 181 212 222

Deferred tax liabilities -7 4 4

Provision for severance indemnity and retirement benefits 613 609 656

Provisions for risks and liabilities 52 49 119

NON-CURRENT LIABILITIES 1,513 874 1,001



Current taxes payables - - 145





CASH FLOW AS AT 30.06.14 BUSINESS AREA ELETTRONICA SANTERNO



Group profit/(loss) -8,407 -4,475 -1,393


Cash flow before Net Working Capital -6,964 -1,899 -173

Change in Net Working Capital -3,172 3,416 -11,177

Investments in fixed assets -506 -2,580 -1,059

Disinvestments in fixed assets - 363 -

Operating Free Cash Flow -10,645 -700 -12,409

Other operating flows 148 2,495 1,399

Other investing flows -15 30 8

Other equity flows 8 -491 67

Free Cash Flow -10,504 1,334 -10,935

Closing Net Financial Position -15,614 -5,110 -17,379

ANALYSIS OF NET WORKING CAPITAL AS AT 30.06.14 ELETTRONICA SANTERNO BUSINESS AREA



Inventory 16,620 11,182 21,176

Trade Payables -19,250 -22,557 - 35,653



TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties carried out during the period gave rise to relationships of a commercial, financial or

advisory nature and were expedited at market terms, in the economic interest of the individual companies involved in

the transactions.

No transactions were carried out that were atypical or unusual with respect to normal business operations, with the

exception of the conferment of the business arm of Agritalia S.p.A. to Carraro S.p.A., and the interest rates and terms

applied to and by the companies in their reciprocal financial relationships are in line with market terms.

Detailed information on the transactions carried out with related parties are provided in the Explanatory Notes to the

Condensed Consolidated Interim Financial Statements.

STANDARDS USED IN PREPARING THE CONDENSED CONSOLIDATED INTERIM FINANCIAL

STATEMENTS

The annual consolidated financial statements are drafted in compliance with the ’International Accounting Standard

Board (“IASB”) and ratified by the EU in accordance with Regulation no. 1606/2002, as well as in compliance with the

provisions issued to implement Article 9 of Legislative Decree no. 38/2005. These consolidated simplified half-year

financial statements are drafted in summary form, in compliance with IAS 34 "Interim Financial Reporting" and do not

include all the information required by the annual consolidated financial statements. They must therefore be read

together with the annual consolidated financial statements that were drafted for the year closed on 31 December 2013.

In addition, the consolidated simplified half-year financial statements are drafted on the assumption of a going

concern.

**********************

With reference to the provisions of Articles 36 and 39 of Consob Regulation 16191 of 29.10.2007 (the so-called “Market

Regulations”) and of Art. 2.6.2 paragraph 15 of the Stock Exchange Regulations we can confirm that the parent

company Carraro S.p.A. meets the conditions required by points a), b) and c) of paragraph 1 of the aforementioned Art.

36 on the subject of accounting situations, articles of association, corporate bodies and administrative and accounting

control of its subsidiaries incorporated and regulated in countries that do not belong to the European Union.

The Group includes 25 companies, of which 15 established under and governed by the laws of non-EU member states,

and in particular Argentina, Brazil, China, India, Russia and the United States; of these, 4, belonging to Argentina,

China, India and the United States, are significant pursuant to provisions of section VI, part II of the Issuer Regulations

(Consob resolution 11971/1999).

Interim Financial Report as at 30 June 2014

CARRARO S.p.A.

Registered office in Campodarsego, Padua (Italy) – 37 Via Olmo

Share Capital Euros 23,914,696, fully paid-up.

Tax Code/VAT Registration Number and

In the Padua Companies Register 00202040283

R.E.A. no. 84033

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE CARRARO GROUP AS AT 30 JUNE 2014

BOARD OF DIRECTORS ENRICO CARRARO (2) Chairman In office until approval of the 2014 Financial Statements (Appointed, General Meeting 20/04/2012 - Powers conferred, Board resolution 20/04/2012)

TOMASO CARRARO Deputy Chairman ALEXANDER JOSEF BOSSARD (1) Chief Executive Officer

ARNALDO CAMUFFO (1) (2) Director * FRANCESCO CARRARO Director ANTONIO CORTELLAZZO (1) (2) Director * GABRIELE DEL TORCHIO Director * MARINA PITTINI (1) (2) Director * MARCO REBOA (1) Director * (1) Members of the Auditing and Risk Committee (2) Members of the Nominations, Human Resources and Remuneration Committee * Independent directors

BOARD OF STATUTORY AUDITORS ROBERTO SACCOMANI Chairman In office until approval of the 2014 Financial Statements (Appointed, General Meeting 20/04/2012)

SAVERIO BOZZOLAN Regular Auditor MARINA MANNA Regular Auditor BARBARA CANTONI Alternate Auditor STEFANIA CENTORBI Alternate Auditor

INDEPENDENT AUDITORS PricewaterhouseCoopers S.p.A. from 2007 to 2015

PARENT COMPANY Finaid S.p.A.

Under the terms and for the purposes of Consob Communication no. 97001574 of 20 February 1997, we state

that:

The Chairman Mr Enrico Carraro and Chief Executive Officer Mr Alexander Bossard have separate powers to

legally represent and sign for the company in relations with third parties and in legal actions; they carry out

their work within the limits of the powers conferred on them by the Board of Directors in the meeting of 20

April 2012, in accordance with applicable legal constraints, in terms of matters which cannot be delegated by

the Board of Directors and of responsibilities reserved for the Board itself, as well as the principles and limits

provided for in the Company’s Code of Conduct.


(amounts in Euro thousands) NOTES 30/06/2014 of which

non-recurring

30/06/2013

A) REVENUES FROM SALES

1) Products 362,688 440,138

2) Services 5,015 4,732

3) Other revenues 3,716 4,296

TOTAL REVENUES FROM SALES 1 371,419 449,166

B) OPERATING COSTS

1) Purchases of goods and materials 234,769 287,458

2) Services 60,794 74,097

3) Use of third-party goods and services 3,042 2,906

4) Personnel costs 71,155 76,354

5) Amortisation, depreciation and impairment of assets 14,713 15,494

5.a) depreciation of property, plant and equipment 11,469 12,866

5.b) amortisation of intangible fixed assets 2,646 2,283

5.c) impairment of fixed assets 12 52

5.d) impairment of receivables 586 293

6) Changes in inventories -20,841 -21,882

7) Provision for risks and other liabilities 7,213 2,339 3,917

8) Other income and expenses -2,884 -2,856

9) Internal construction -1,654 -1,647

TOTAL OPERATING COSTS 2 366,307 2,339 433,841

OPERATING PROFIT/(LOSS) 5,112 15,325

C) GAINS/(LOSSES) ON FINANCIAL ASSETS

10) Income and expenses from equity investments 542 -

11) Other financial income 1,413 979

12) Financial costs and expenses -9,121 -9,597

13) Net gains/(losses) on foreign exchange -1,905 -384

14) Value adjustments of financial assets - -

NET GAINS/(LOSSES) ON FINANCIAL ASSETS 3 -9,071 -9,002

PROFIT/(LOSS) BEFORE TAXES -3,959 -2,339 6,323

15) Current and deferred income taxes 4 5,670 548 5,620

NET PROFIT/(LOSS) -9,629 703

16) Minority interests -455 -551

GROUP CONSOLIDATED PROFIT/(LOSS) -10,084 -1,791 152

EARNINGS (LOSSES) PER SHARE 5

- basic, for the profit for the period attributable to ordinary shareholders of the parent company

€ -0.23

-€ 0.00

-diluted, for the profit for the period attributable to ordinary shareholders of the parent company

€ -0.23

-€ 0.00


CONSOLIDATED COMPREHENSIVE INTERIM INCOME STATEMENT

(amounts in Euro thousands) 30/06/2014 30/06/2013

NET PROFIT/(LOSS) FOR THE PERIOD -9,629 703

Other income components that could be recognised in the income statement in subsequent periods:

Change in cash flow hedge reserve 982 -895

Exchange differences from the translation of items from foreign operations -3,030 -2,928

Taxes on other comprehensive income components -345 359

Total other income components that could be recognised in the income statement in subsequent periods: -2,393 -3,464

Other income components that will not be recognised in the income statement in subsequent periods:

Change in the provision for discounting employee benefits -1,025 -267

Taxes on other comprehensive income components 313 77

Total other income components that will not be recognised in the income statement in subsequent periods: -712 -190

OTHER COMPREHENSIVE INCOME COMPONENTS, NET OF TAX EFFECTS -3,105 -3,654

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD -12,734 -2,951

Total comprehensive income attributable to:

Shareholders of the parent company -13,011 -2,737

Profit/(loss) pertaining to minorities 277 -214

Total comprehensive income for the period

-12,734

-2,951


CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

(amounts in Euro thousands) NOTES 30/06/2014 31/12/2013

A) NON-CURRENT ASSETS

1) Property, plant and equipment 6 182,503 202,230

2) Intangible fixed assets 7 88,563 89,521

3) Real estate investments 8 707 709

4) Investments 9 - -

5) Financial assets 10 6,276 2,867

5.1) Loans and receivables 6,069 2,317

5.2) Other financial assets 207 550

6) Deferred tax assets 11 27,266 26,375

7) Trade receivables and other receivables 12 4,726 3,596

7.1) Trade receivables - 205

7.2) Other receivables 4,726 3,391

TOTAL NON-CURRENT ASSETS 310,041 325,298

B) CURRENT ASSETS

1) Closing inventory 13 155,778 145,849

2) Trade receivables and other receivables 12 142,652 133,232

2.1) Trade receivables 94,190 94,220

2.2) Other receivables 48,462 39,012

3) Financial assets 10 5,810 3,799

3.1) Loans and receivables 2,011 1,952

3.2) Other financial assets 3,799 1,847

4) Cash and cash equivalents 14 35,735 72,712

4.1) Cash 184 148

4.2) Bank current accounts and deposits 35,551 72,564

4.3) Other cash and cash equivalents - -

TOTAL CURRENT ASSETS 339,975 355,592

TOTAL ASSETS 650,016 680,890


CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION


A) SHAREHOLDERS’ EQUITY 15

1) Share Capital 23,915 23,915

2) Other Reserves 44,676 42,519

3) Profits/(Losses) brought forward - -

4) Other IAS/IFRS reserves 320 -284

5) Provision for discounting employee benefits -1,169 -500

6) Foreign currency translation reserve -21,042 -18,180

7) Profit/loss for the year pertaining to the group -10,084 1,290

GROUP SHAREHOLDERS’ EQUITY 36,616 48,760

8) Minority interests 6,441 6,103

TOTAL SHAREHOLDERS’ EQUITY 43,057 54,863

B) NON-CURRENT LIABILITIES

1) Financial liabilities 16 134,804 180,892

1.1) Bonds - -

1.2) Loans 134,804 180,892

1.3) Other financial liabilities - -

2) Trade payables and other payables 17 1,395 1,814

2.1) Trade payables - -

2.2) Other payables 1,395 1,814

3) Deferred tax liabilities 11 1,499 2,297

4) Provision for employee benefits/retirement 19 18,480 19,349

4.1) Provision for severance indemnity 12,104 13,591

4.2) Provision for retirement benefits 6,376 5,758

5) Provision for risks and liabilities 20 4,975 5,077

5.1) Provision for warranties 1,778 1,778

5.2) Provision for legal claims 322 322

5.3) Provision for restructuring and reconversion - -

5.4) Other provisions 2,875 2,977

TOTAL NON-CURRENT LIABILITIES 161,153 209,429

C) CURRENT LIABILITIES

1) Financial liabilities 16 174,459 146,847

1.1) Bonds - -

1.2) Loans 173,448 144,793

1.3) Other financial liabilities 1,011 2,054

2) Trade payables and other payables 17 241,201 247,742

2.1) Trade payables 207,471 212,297

2.2) Other payables 33,730 35,445

3) Current taxes payables 18 13,536 5,977

4) Provision for risks and liabilities 20 16,610 16,032

4.1) Provision for warranties 9,709 8,930

4.2) Provision for legal claims 1,235 1,389

4.3) Provision for restructuring and reconversion 3,527 2,316

4.4) Other provisions 2,139 3,397

TOTAL CURRENT LIABILITIES 445,806 416,598

TOTAL LIABILITIES 606,959 626,027

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 650,016 680,890


STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY


Share Capital

Capital reserves

Other reserves

Provision for discounting

employee benefits

Treasury stock

acquired

Cash flow

hedge reserve

Foreign currency

translation reserve

Profit/(Loss) for the period

Equity of Group

Minority interests

Total

Balance as at 1/1/2013 23,915 27,130 34,030 -494 -6,435 -553 -8,988 -15,299 53,306 9,810 63,116

Total profit/loss for the year -176 -491 -2,222 152 -2,737 -214 -2,951

Transactions with shareholders: - -

Allocation of 2012 results -15,299 15,299 - -

Treasury share purchase -104 -104 -104 Change in consolidation scope

Other changes 2,531 -51 2,480 -2,480 -

Total transactions of the period - - -12,768 -51 -104 - - 15,299 2,376 -2,480 -104

Balance as at 30/06/2013 23,915 27,130 21,262 -721 -6,539 -1,044 -11,210 152 52,945 7,116 60,061


Share Capital

Capital reserves

Other reserves

Provision for discounting

employee benefits

Treasury stock

acquired

Cash flow

hedge reserve

Foreign currency

translation reserve

Profit/(Loss) for the period

Equity of Group

Minority interests

Total

Balance as at 1/1/2014 23,915 27,130 21,928 -500 -6,539 -284 -18,180 1,290 48,760 6,103 54,863

Total profit/loss for the year -669 604 -2,862 -10,084 -13,011 277

-12,734

Transactions with shareholders: - -

Allocation of 2013 results 1,290 -1,290 - -

Treasury share purchase -125 -125 -125 Change in consolidation scope 992 - - 992 61 1,053

Other changes

Total transactions of the period - - 2,282 - -125 - - -1,290 867 61 928

Balance as at 30/06/2014

23,915 27,130 24,210 -1,169 -6,664 320 -21,042 -10,084 36,616 6,441

43,057


CONSOLIDATED STATEMENT OF CASH FLOWS


Profit/(loss) for the year pertaining to the Group 15 -10,084 152

Profit/(Loss) for the year pertaining to minority interests 455 551

Tax for the year 5,670 5,620

Profit/(loss) before taxes -3,959 6,323

Depreciation of property, plant and equipment 2 11,469 12,866

Amortisation of intangible assets 2 2,646 2,283

Impairment of intangible assets 2 12 52

Provisions for risks 2 7,213 3,917

Provisions for employee benefits 2 2,483 2,638

Net gains/(losses) on foreign exchange 3 1,905 384

Income from equity investment -542 -

Cash flows before changes in Net Working Capital 21,227 28,463

Changes in inventory 13 -20,841 -20,019

Changes in trade receivables and other receivables 12 -25,793 -43,146

Changes in trade payables and other payables 17 12,801 21,304

Use of receivables/payables for deferred taxation 11 -141 -165

Use of funds for employee benefits 19 -1,279 -2,455

Changes in provision for risks 20 -5,719 -6,221

Change in other financial assets and liabilities -183 1,063

Tax payments 4 109 -8,164

Cash flows from operating activities -19,819 -29,340

Investments in PPE and real estate investments 6 -15,406 -8,893

Disinvestments and other movements in PPE 6 1,463 3,267

Investments in Intangible assets 7 -3,000 -4,244

Disinvestments and other movements in Intangible assets 7 4 -

Net cash flow gained from disinvestments in companies 22 20,673 -

Cash flows from Investing activities 3,734 -9,870

Change in financial assets 10 -3,489 -805

Change in financial liabilities 16 -16,056 5,788

Cash flows from financing activities -19,545 4,983

Conversion difference and other movements -1,347 -3,758

Total cash flows for the period -36,977 -37,985

Opening cash and cash equivalents 72,712 108,857

Closing cash and cash equivalents 35,735 70,872


EXPLANATORY AND SUPPLEMENTARY NOTES 1. General Publication of the Consolidated Financial Report and abridged Consolidated Financial Statements of Carraro S.p.A. and subsidiaries, the Carraro Group, for the period running from 1 January 2014 to 30 June 2014 is authorised by resolution taken by the Board of Directors on 1 August 2014. Carraro S.p.A. is a joint-stock company registered in Italy at the Padua Companies Register and controlled by Finaid S.p.A. Carraro S.p.A. is not subject to management and coordination activities under the terms of Art. 2497 et seq of the Italian Civil Code. The controlling shareholder Finaid S.p.A. does not perform any activity of management and coordination in relation to Carraro, and in particular: - Finaid is a purely financial holding; - Finaid does not issue any directions to Carraro; - the Finaid Board of Directors does not approve Carraro’s strategic plans or business plans nor does it ―interfere‖

regularly in its operations; - there are no relationships of a commercial or financial nature between Finaid and Carraro. These Condensed Consolidated Interim Financial Statements are presented in Euro, as this is the currency in which most of the group’s operations are conducted. The foreign companies are included in the consolidated interim financial statements in accordance with the principles described in the notes that follow. Amounts in these financial statements are given in thousand Euro, while amounts in the notes are indicated in million Euro (mln). The Carraro Group companies are principally engaged in the manufacture and marketing of drive systems developed for agricultural tractors, construction equipment, material moving machinery, light commercial vehicles and automobiles, and electronic control and power systems. The Carraro Group operates in several foreign countries and exposure to the same has gradually increased over the years. In these markets conditions of political and economic instability that have affected and could adversely affect the financial situation and financial results cyclically occur. In particular the Group is following the evolution of the recent developments in the economic and financial situation in Argentina, the market in which it is present and operates through the subsidiary Carraro Argentina S.A. The Carraro Group is organised in the three CGU (Cash Generating Units): Carraro Drive Tech, Santerno and Agritalia. In addition to these, the condensed consolidated interim financial statements include Carraro International with registered office in Luxembourg which carries out Group financial management and treasury and Carraro Deutschland with registered office in Hattingen (Germany), a financial holding company which owns 8.01% of Carraro Drive Tech S.p.A.. Reporting criteria and accounting principles The annual consolidated financial statements are drafted in compliance with the International Financial Reporting Standards (―IFRS‖) issued by the International Accounting Standard Board (―IASB‖) and ratified by the EU in accordance with Regulation no. 1606/2002, as well as in compliance with the provisions issued to implement Article 9 of Legislative Decree no. 38/2005. These consolidated simplified half-year financial statements are drafted in summary form, in compliance with IAS 34 "Interim Financial Reporting" and do not include all the information required by the annual consolidated financial statements. They must therefore be read together with the annual consolidated financial statements that were drafted for the year closed on 31 December 2013. In preparing the present condensed interim financial statements, drawn up in accordance with IAS 34 ―Interim Financial Reporting‖ the same accounting standards have been used as adopted in preparing the consolidated financial statements as at 31 December 2013, with the exception of that described in the paragraph below entitled ―Accounting standards, amendments and interpretations coming into effect as from 1 January 2014‖. The Condensed Consolidated Interim Financial Statements were prepared assuming that the company is a going concern. The preparation of the interim financial statements requires management to make estimates and assumptions based on the best information available, which affect the value of revenues, costs, assets and liabilities on the statements and the disclosure in relation to potential assets and liabilities as of the date of the interim financial statements. Some of the measurement processes, and in particular the more complex processes, such as calculating any impairment of non-current assets, are generally only carried out in a complete manner upon preparing the annual financial statements, when all information as may be necessary is available. This is without prejudice to cases where there are indicators of impairment that require an immediate assessment of loss of value.


2. Structure and content of the condensed consolidated interim financial statements These condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and ratified by the European Union and to this end the figures of financial statements of the consolidated companies have been reclassified and adjusted appropriately. 2.1 Format of the consolidated financial statements With regard to the format of consolidated accounting schedules, the Company opted to present the following accounting statements. Income Statement Items on the consolidated income statement are classified by their nature. Statement of Comprehensive Income The statement of comprehensive income includes items of income and costs that are not posted on the period income statement, as required or permitted by the IFRSs, such as changes to the cash flow hedge reserve, changes to the reserve for employee benefits - actual gains and losses, changes to the translation reserve and the result of financial assets available for sale. Statement of financial position The consolidated interim statement of financial position is presented with separate disclosure of Assets, Liabilities and Shareholders’ Equity. Assets and Liabilities are illustrated in the Consolidated Financial Statements according to their classification as current and non-current. Statement of Changes in Shareholders’ Equity The statement of changes in shareholders’ equity is presented in accordance with the requirements of the international accounting standards, showing the comprehensive income for the period and all changes generated from transactions with shareholders. Statement of Cash Flows The consolidated statement of cash flows illustrates the changes in cash and cash equivalents (as presented in the statement of financial position) divided by cash generating area in accordance with the ―indirect method‖, as permitted by IAS 7. Accounting statements of transactions with related parties (Consob regulation 15519) With reference to the reporting of related-party transactions in the financial statements, provided for in Consob Resolution 15519 of 27 July 2006, balances of a significant amount are specifically indicated, to facilitate understanding of the assets and liabilities, financial position and results of the group, in the table of paragraph 8 below devoted to related party transactions.


2.2 Content of the Condensed Consolidated Interim Financial Statements Basis of consolidation The Carraro Group’s condensed consolidated interim financial statements include the financial statements of Carraro S.p.A. and of the companies in which it holds, directly or indirectly, the majority of voting rights at the annual general meeting. The definition of a subsidiary is in keeping with that given in the Carraro Group’s annual financial statements as at 31 December 2013.

The following companies are consolidated using the line-by-line method:

Name Based in Currency

Nominal value Group stake Share capital

Parent company:

Carraro S.p.A. Campodarsego (PD) EURO 23,914,696

Italian subsidiaries:

Carraro Drive Tech S.p.A. Campodarsego (PD) EURO 30,102,365 94.53%

Elettronica Santerno S.p.A. Campodarsego (PD) EURO 2,500,000 100.00%

Carraro Drive Tech Poggiofiorito S.p.A. Padua EURO 5,256,951 94.53%

Siap S.p.A. Maniago (PN) EURO 35,582,616 86.56%

Foreign subsidiaries:

Carraro International S.A. Luxembourg EURO 39,318,000 100.00%

Carraro Deutschland GmbH Hattingen (Germany) EURO 10,507,048 100.00%

Carraro Technologies India Pvt. Ltd. Pune (India) INR 18,000,000 94.53%

O&K Antriebstechnik Gmbh Kg Hattingen (Germany) EURO 4,000,000 94.53%

Carraro Argentina S.A. Haedo (Argentina) ARS 105,096,503 94.49%

Carraro China Drive System Qingdao (China) CNY 168,103,219 94.53%

Carraro India Ltd. Pune (India) INR 568,260,000 94.53%

Carraro North America Inc. Norfolk (USA) USD 1,000 94.53%

Fon S.A. Radomsko (Poland) PLN - 93.23%

Carraro Drive Tech Do Brasil Santo Andrè (State of Sao Paulo)

BRL 1,201,929 100.00%

Eletronica Santerno Industria e Comercio Ltda Minas Gerais (Brazil) BRL 8,265,367 100.00%

Elettronica Santerno Espana S.L. Valencia (Spain) EURO 1,003,006 100.00%

Santerno Inc. San Francisco (USA) USD 1,000 100.00%

Zao Santerno Moscow (Russia) RUB 100,000 100.00%

Santerno Shangai Trading Ltd Shanghai (China) CNY 5,553,010 100.00%

Santerno India Pvt Ltd. Pune (India) INR 166,560 100.00%

Turbo Gears India Ltd. Pune (India) INR 960,000,000 94.53%

Mini Gears Inc. Virginia Beach (USA) USD 8,910,000 100.00%

Gear World North America Inc. Virginia Beach (USA) USD 20,000 100.00%

Mini Gears Property Virginia Beach (USA) USD 20,000 100.00%


Changes in the basis of consolidation and other operations of company reorganisation Mini Gears S.p.A. and Mini Gears Suzhou Co Ltd In 30 April 2014 the agreement for the transfer of the activities of miniGears in Padua and Suzhou (China) to MG Mini Gears S.p.A., today ―Carraro Drive Tech Poggiofiorito Spa‖, and the German Fund Finatem was completed. The economic effects arising from the transfer operation have been reported in the income statement (note 3). Below is a summary of the main figures of the transfer of the business unit. Effect of the transfer of the miniGears business unit (amounts in Euro thousands)

1) Property, plant and equipment -22,307

2) Intangible fixed assets -1,309

TOTAL NON-CURRENT ASSETS -23,616

1) Closing inventory -8,084

2) Trade receivables and other receivables -12,464

3) Financial assets -14

4) Cash and cash equivalents transferred -1,157

TOTAL CURRENT ASSETS -21,719

TOTAL ASSETS -45,335

TOTAL SHAREHOLDERS’ EQUITY 108

1) Financial liabilities -672

3) Differed liabilities -416

4) Provision for severance indemnity and retirement benefits -2,067

TOTAL NON-CURRENT LIABILITIES -3,155

1) Financial liabilities -380

2) Trade payables and other payables -15,877

4) Provision for risks and liabilities -373

TOTAL CURRENT LIABILITIES -16,630

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES -19,677

NET EFFECT OF EXTRAORDINARY OPERATIONS: -25,658

Sales price 26,200

of which net cash and cash equivalents acquired 21,830


3. Consolidation criteria and accounting principles 3.1 Consolidation criteria The figures are consolidated using the line by line method, that is assuming the entire amount of the assets, liabilities, costs and earnings of the individual companies, regardless of the stock held in the company. Foreign subsidiaries are consolidated using financial statement formats in line with the layout adopted by the parent company and compiled in accordance with common accounting standards, as applied for Carraro S.p.A. The carrying amount of consolidated equity interests, held by Carraro S.p.A. or by other companies within the consolidation scope, was offset by the relevant amount of shareholders’ equity in the subsidiary companies. The amount of shareholders’ equity and the net profit/(loss) of these third-party shareholders are shown in the Consolidated Statement of Financial Position and Income Statement respectively. Payable and receivables, income and expenditure and all operations undertaken between the companies included within the consolidation scope have been eliminated, including dividends distributed within the Group. Profits not yet realised and capital gains and losses deriving from operations between companies of the Group have also been eliminated. Intra-group losses that indicate impairment are recognised in the consolidated financial statements. Balances in foreign currencies have been converted into Euro using the exchange rate of the end of the period for assets and liabilities, historical exchange rates for shareholders’ equity items and average exchange rates in the period for the income statement. Exchange differences resulting from this conversion method are shown in a specific shareholders’ equity item entitled ―Foreign currency translation reserve‖. The exchange rates applied for the translation of balances presented in foreign currencies were as follows:

Currency

Average exchange rate

01/01/14- 30/06/14

Exchange rate as at 30/06/14

Average exchange rate

01/01/13- 30/06/13

Exchange rate as at 30/06/13

Indian Rupee 83.25 82.20 72.28 77.72

Polish Zloty 4.18 4.16 4.18 4.34

US Dollar 1.37 1.37 1.31 1.31

Chinese Renminbi 8.45 8.47 8.13 8.03

Argentine Peso 10.75 11.11 6.73 7.04

Russian Ruble 48.04 46.38 40.75 42.84

Brazilian Real 3.15 3.00 2.67 2.89

3.2 Accounting standards and measurement criteria Accounting standards, amendments and interpretations not relevant or not yet applicable and not adopted in advance by the Group IFRIC 21 – ―Levies‖. The interpretation published by the IASB on 20th May 2013 applies to financial statements for accounting periods commencing on 1st January 2014. The IFRIC 21 is an interpretation of the IAS 37 ―Provisions, Contingent Liabilities and Contingent Assets‖, which establishes among the criteria for the recognition of liabilities the fact that the entity has a current obligation following a past event (Obligating event). The interpretation clarifies that the obligating event for the recognition of a liability is the activity that triggers the payment of the levy in accordance with the relevant legislation. The interpretation has not had a significant impact on the Group’s consolidated financial statement. Amendments to the IAS 32 ―Financial instruments: Presentation on offsetting financial assets and financial liabilities‖. The amendments clarify some requirements for offsetting financial assets and liabilities. The amendment, published by the IASB in December 2011, was endorsed by the European Community in December 2012 and is effective for the periods commencing on 1st January 2014. The amendments to the standard have not had a significant impact on the Group’s consolidated financial statement. Amendments to the IAS 36 – ―Impairment of assets‖. The amendments indicate the information to be provided on the recoverable value of the assets that have sustained a value loss, if determined on the basis of the fair value of the asset minus the sale costs. The amendments apply to the periods commencing on 1st January 2014. The amendments to the standard have not had an impact on the Group’s consolidated financial statement. Amendments and interpretations of existing standards, effective for periods commencing on 1st January 2015 and not adopted in advance by the Group. IFRS 9 – ―Financial instruments‖. The standard, issued in November 2009, constitutes the first phase of the process of replacement of the IAS 39 – ―Financial instruments: recognition and evaluation‖. The IFRS 9 introduces new requirements for the classification and measurement of financial assets. The new standard reduces the number of categories of financial assets established by the IAS 39 and requires all financial assets to be (i) classified on the basis of the model adopted by the entity to manage its financial assets and cash flows characteristic of the financial asset,


(ii) initially measured at fair value plus, in the case of financial assets not at fair value with offsetting entry in the income statement, some transaction costs, and (iii) subsequently measured at fair value or at the amortised cost. The IFRS 9 also establishes that the embedded derivatives that fall within the ambit of application of the IFRS in question no longer have to be separated from the main contract that contains them and that the entity can decide to enter directly in the overall income statement the fair value changes of the holdings that fall within the ambit of application of the IFRS in question. The standard has not yet been endorsed by the European Union. The Group is assessing the impacts which this standard may have on the Group’s financial statement. IFRS 15 – ―Revenue from contracts with customers‖. On 28th May 2014 the FASB issued the IFRS 15 ―Revenue from contracts with customers‖. The new standard will be applicable as from the first quarter of the accounting periods commencing on 1st January 2017. The standard replaces the IAS 18 – ―Revenues,‖ the IAS 11 "Construction Contracts", IFRIC 13 ―Customers Loyalty Programmes‖, ―IFRIC 15 - Agreements for the Construction of Real Estate‖, IFRIC 18 – ―Transfers of Assets from Customers‖, SIC 31 – ―Revenue—Barter Transactions Involving Advertising Services‖. The revenues are recognised when the customer acquires control over the goods and services and, therefore, when the same is able to direct the use and obtain the benefits. When a company agrees to supply goods or services at a price that varies on the basis of the occurrence or otherwise of future events, an estimate of the variable part is included in the price only if occurrence is highly probable. In the case of transactions entailing the simultaneous sale of several goods and/or services, the sale price must be allocated according to the price which the company would apply to the customers if the same goods and services included in the contract were sold individually. Companies sometimes sustain costs, such as sales commissions, to obtain or carry out a contract. These costs, if certain criteria are met, are capitalised and recognised in the income statement throughout the duration of the contract. The standard also specifies that the sale price must be adjusted if it contains a significant financial component. The Group is assessing the impacts of adoption of the new standard on its consolidated financial statement. The new standard has not been endorsed by the European Union at the date on which this abbreviated consolidated financial statement for the six-month period was authorised for publication. Amendments to IAS 16 and IAS 38: ―Clarification of Acceptable Methods of Depreciation and Amortisation‖. The amendments clarify use of the revenue-based methods for calculating the amortisation of a capital asset. Application of the amendments is effective from 1st January 2016 and has not yet been endorsed by the European Union. The Group is assessing the impact this standard may have on the Group’s financial statement. Amendments to IFRS 11: ―Accounting for Acquisitions of Interests in Joint Operation‖. The amendments to the standard provide an orientation on correct accounting of the acquisitions deriving from ―Interests in Joint Operation‖. Application of the amendments is effective from 1st January 2016 and has not yet been endorsed by the European Union. The amendments to the standard do not have a significant impact on the Group’s consolidated financial statement. Intra-group transactions In accordance with the Consob recommendations of 20 February 1997 (DAC/97001574) and 27 February 1998 (DAC/98015375) we can confirm that: a) intragroup transactions and transactions with related parties which took place during the period, gave rise to

trade, financial or consultancy-related relationships, and were carried out under standard market terms, in the financial interest of the individual companies involved in the transactions;

b) no atypical or unusual operations were implemented as compared with normal business management; c) the interest rates and terms applied (paid and received) in financial relationships between the various companies

are in line with market terms.


4. Information by business segment and geographic segment Information on Operating Segments is given on the basis of the internal reporting provided to the highest operating decision-making level. For operational purposes, the group manages and controls its business on the basis of the type of products supplied. Three operating segments were identified, corresponding to the following Business Areas:

- Carraro Drive Tech (Transmission systems and components): specialised in the design, manufacture and sale of transmission systems (axles, transmissions and drives) mainly for agricultural and construction equipment, and also markets a wide range of components and gears for very diverse sectors, from the automotive industry to light power tools, material handling, agricultural applications and construction equipment.

- Carraro Divisione Agritalia (Vehicles): designs and manufactures special tractors (from 60 to 100 hp) for third-party brands;

- Elettronica Santerno (Power electronics) designs, develops, manufactures and markets inverters (electronic power converters) mainly for the photovoltaic industry and industrial automation (HVAC, water treatment, lifting systems and large-scale transport).

The item ―other segments‖ brings together the Groups operations not allocated to the three operating segments, and comprises the central holding and management activities of the Carraro Group. The Management examines separately the results achieved by the operating segments in order to take decisions on the allocation of resources and on assessment of the results. 4.1 Business segments The most significant information by business segment is presented in the tables below, with comparisons for the first half of 2014 and first half of 2013. a) economic data

30/06/2014 (amounts in Euro thousands) Drive Tech Agritalia

Elettronica Santerno

Eliminations and items

not allocated

Consolidated Total

Revenues from sales 326,810 45,164 10,743 -11,298 371,419

Sales to third parties 317,587 43,022 10,727 83 371,419

Sales between divisions 9,223 2,142 16 -11,381 -

Operating costs 306,650 47,215 19,249 -6,807 366,307

Purchases of goods and materials 195,733 39,979 10,318 -11,261 234,769

Services 52,064 4,927 4,161 -358 60,794

Use of third-party goods and services 3,811 3 286 -1,058 3,042

Personnel costs 53,878 7,221 5,745 4,311 71,155

Amortisation, depreciation and impairment of assets 10,953 672 1,570 1,518 14,713

Changes in inventories -9,246 -6,761 -5,282 448 -20,841

Provisions for risks 3,120 1,302 2,786 5 7,213

Other income and expenses -2,419 -128 74 -411 -2,884

Internal construction -1,244 - -409 -1 -1,654

Operating profit/(loss) 20,160 -2,051 -8,506 -4,491 5,112

Gains/(losses) on financial assets -7,005 -48 -515 -1,503 -9,071

Current and deferred income taxes 6,334 -332 -614 282 5,670

Minorities 87 - - 368 455

Net profit/(loss) 6,734 -1,767 -8,407 -6,644 -10,084


30/06/2013

Drive Tech Agritalia Elettronica Santerno

Eliminations Consolidated

Total (amounts in Euro thousands) and items

not allocated

Revenues from sales 368,415 53,190 37,575 -10,014 449,166

Sales to third parties 359,713 51,306 37,515 632 449,166

Sales between divisions 8,702 1,884 60 -10,646 -

Operating costs 349,222 51,939 38,326 -5,646 433,841

Purchases of goods and materials 234,874 37,670 24,808 -9,894 287,458

Services 57,138 4,624 11,896 439 74,097

Use of third-party goods and services 4,264 5 437 -1,800 2,906

Personnel costs 59,027 6,563 6,320 4,444 76,354

Amortisation, depreciation and impairment of assets 12,364 609 1,363 1,158 15,494

Changes in inventories -16,819 1,622 -6,627 -58 -21,882

Provisions for risks 2,171 819 927 - 3,917

Other income and expenses -2,887 27 -61 65 -2,856

Internal construction -910 - -737 - -1,647

Operating profit/(loss) 19,193 1,251 -751 -4,368 15,325

Gains/(losses) on financial assets -7,408 -68 -762 -764 -9,002

Current and deferred income taxes 4,778 80 -120 882 5,620

Minorities 177 - - 374 551

Net profit/(loss) 6,830 1,103 -1,393 -6,388 152

b) balance sheet

30/06/2014 Drive Tech Agritalia


Eliminations and items not

allocated

Consolidated Total


Non-current assets 211,857 13,814 37,675 46,695 310,041

Current assets 276,508 33,760 32,481 -2,774 339,975

Shareholders’ equity 68,190 10,215 23,119 -58,467 43,057

Non-current liabilities 48,646 2,584 1,513 108,410 161,153

Current liabilities 371,529 34,775 45,524 -6,022 445,806

31/12/2013 Drive Tech Agritalia



allocated

Consolidated Total


Non-current assets 226,628 13,411 38,287 46,972 325,298

Current assets 289,462 30,172 33,075 2,883 355,592

Shareholders’ equity 63,342 12,059 31,518 -52,056 54,863

Non-current liabilities 52,573 1,819 874 154,163 209,429

Current liabilities 400,175 29,705 38,970 -52,252 416,598


c) Other information

30/06/2014 Drive Tech Agritalia Elettronica Santerno


allocated

Consolidated Total

Investments (Euro/000) 15,735 565 511 1,595 18,406

Workforce as at 30/06 3,343 286 187 82 3,898

30/06/2013

Drive Tech Agritalia Elettronica Santerno


allocated

Consolidated Total

Investments (Euro/000) 9,073 562 1,060 2,442 13,137

Workforce as at 30/06 3,623 249 198 83 4,153

4.2 Geographic areas The industrial activity of the Group is located in different areas of the world: Italy, other European countries, North and South America, Asia and other non-European countries. The Group’s sales, deriving from the manufacturing carried out in the above areas, are achieved equally with customers in Europe, Asia and the Americas. Other information is better commented in the director's report on operations. a) sales The breakdown of sales by main geographic area is shown in the following table. (amounts in Euro thousands) Geographical Area

30/06/14

% 30/06/13

%

North America 45,591 12.3 59,390 13.2

Germany 44,770 12.1 53,693 12.0

South America 42,949 11.6 53,513 11.9

United Kingdom 31,372 8.4 33,402 7.4

Turkey 27,936 7.5 31,866 7.1

India 26,557 7.1 29,543 6.6

Switzerland 25,442 6.8 27,378 6.1

France 20,690 5.6 25,972 5.8

China 16,837 4.5 22,754 5.1

Poland 6,209 1.7 10,565 2.4

Other non-E.U. areas. 5,948 1.6 14,250 3.2

Other E.U. areas 29,475 7.9 33,800 7.5

Total Abroad 323,756 87.2 396,126 88.2

Italy 47,663 12.8 53,040 11.8

Total 371,419 100.0 449,166 100.0

of which:

Total E.U. area 180,179 48.5 210,342 46.8

Total non-E.U. area 191,240 51.5 238,824 53.2

In analysing turnover by geographic segment, it should be noted that the Group mainly sells to the production sites of

OEMs that may reside in different countries from the nations of end users of their products.


b) assets The following table illustrates the book values of current and non-current assets according to the primary geographic areas of manufacture.


30/06/2014 31/12/2013

CURRENT ASSETS

NON-CURRENT ASSETS

CURRENT ASSETS

NON-CURRENT ASSETS

Italy 237,741 399,447 213,085 414,238

Other E.U. countries 189,758 82,382 212,648 78,241

North America 3,858 3,180 4,572 3,432

South America 45,785 7,866 43,618 8,569

Asia (India, China) 107,299 55,877 113,696 62,194

Non-E.U. countries 459 69 571 73

Eliminations and items not allocated -244,925 -238,780 -232,598 -241,449

Total 339,975 310,041 355,592 325,298

c) investments The table below illustrates the value of investments in the primary geographic areas of manufacture.


Italy 11,640 10,122

Other E.U. countries (Germany, Poland) 4,447 998

North America - 26

South America 788 265

Asia (India, China) 2,326 3,368

Non-E.U. countries - -

Eliminations and items not allocated -795 -1,642

Total 18,406 13,137

5. Non-recurring operations As at 30 June 2014, non-recurring transactions concerning the personnel restructuring programme are present which have resulted in an allocation of 2.3 million Euro launched by the Santerno CGU.

30/06/2014 (amounts in Euro thousands)

PERSONNEL COSTS

EBIT TAXES MINORITIES NET

Elettronica Santerno S.p.A. 2,183 2,183 -548 - 1,635

Santerno Shanghai Trading Co 26 26 - - 26

Elettronica Santerno Espana SL 130 130 - - 130

Total 2,339 2,339 -548 - 1,791


6. Notes and comments Revenues and costs A) Revenues from sales (Note 1) Analysis by business segment and geographical area See the information provided in section 4 above. B) Operating costs (Note 2)

OPERATING COSTS

(amounts in Euro thousands) 30/06/2014

30/06/2013

1) PURCHASES OF GOODS AND MATERIALS 234,769 287,458

2) SERVICES 60,794 74,097

3) USE OF THIRD-PARTY GOODS AND SERVICES 3,042 2,906

4) PERSONNEL COSTS 71,155 76,354

5) AMORTISATION, DEPRECIATION AND IMPAIRMENT OF ASSETS 14,713 15,494

6) CHANGES IN INVENTORIES -20,841 -21,882

7) PROVISION FOR RISKS AND OTHER LIABILITIES 7,213 3,917

8) OTHER INCOME AND EXPENSES -2,884 -2,856

9) INTERNAL CONSTRUCTION -1,654 -1,647

Total 366,307 433,841

C) Net income from financial assets (note 3)



30/06/2013

10) INCOME FROM EQUITY INVESTMENTS 542 -

11) OTHER FINANCIAL INCOME 1,413 979

12) FINANCIAL COSTS AND EXPENSES -9,121 -9,597

13) NET GAINS/(LOSSES) ON FOREIGN EXCHANGE -1,905 -384

14) ADJUSTMENTS OF FINANCIAL ASSETS - -

Total -9,071 -9,002

Net financial charges amount to 7.7 million Euro (2.1% of revenues), a slight increase with respect to the 8.618 million Euro (1.9% of revenues) in the first half of 2013. It should be noted that the financial charges of 30 June 2013 include a part of the fees paid to banks as a result of the undersigning of the Restructuring Agreement. The net exchange differences as at 30 June 2014 were negative at 1.9 million Euros and include, as well as financial items, also the MTM (Mark-to-Market) effects of the measurement at fair value of derivative instruments.


Income taxes (note 4)

INCOME TAXES


30/06/2013

CURRENT TAXES 6,730 5,698

TAX CONSOLIDATION EXPENSE AND INCOME - -

TAXES FROM PREVIOUS YEARS 504 -614

DEFERRED TAXES -1,564 494

PROVISION FOR TAX RISKS RELATIVE TO DIRECT TAXES - 42

Total 5,670 5,620

Current taxes Tax on the income of Italian companies is calculated at 27.50%, for IRES (corporation tax), and at 3.50% for IRAP (regional business tax) on the respective taxable income for the period. Taxes for the other foreign companies are calculated at the rates in force in the various countries. Tax consolidation expense and income Carraro S.p.A., Carraro Drive Tech S.p.A. Elettronica Santerno S.p.A., Siap S.p.A. and Carraro DriveTech Poggiofiorito S.p.A adhere to the tax consolidation area of the parent company Finaid S.p.A. The charges/income deriving from the transfer of the IRES taxable base are booked under current taxes. According to the regulations of the Tax Consolidation Agreement, companies of the Carraro Group have the right to ―relief‖ for use of the tax losses of companies controlled by Finaid, other than those belonging to the Carraro Group. This ―relief‖ amounts to 3% of the tax losses of the other companies of the Finaid Consolidation area possibly offset with the taxable amounts of Carraro Group companies. The regulations also provide for a mechanism of priority offsetting of the positive and negative taxable amounts between Carraro Group companies with respect to offsetting with the other companies of the Finaid Consolidation area. The same mechanism is provided for with reference to the non-deductible expenses as an effect of the Thin Cap Rule.

Deferred taxes These are set aside on the temporary differences between the carrying amount of the assets and liabilities and the corresponding tax value. As well as taxes entered in the income statement for the period, deferred tax assets for 0,03 million Euros were charged directly to the deferred tax assets shareholders’ equity.

Group earnings or losses per share (Note 5) Basic earnings (losses) per share are calculated by dividing the net earnings (net losses) for the year attributable to the company’s ordinary shareholders by the weighted average number of outstanding ordinary shares during the year.

30/06/2014

30/06/2013

Earnings Euro/000 Euro/000

Earnings (Losses) for the purposes of calculation of basic earnings per share -10,084 152

Diluting effect deriving from potential ordinary shares: - -

Earnings (Losses) for the purposes of calculation of diluted earnings per share -10,084 152

30/06/2014 30/06/2013

Number of shares No./000 No./000

Weighted average number of ordinary shares for calculating

of basic earnings (losses) per share: 43,368 42,489

of diluted earnings (losses) per share: 43,368 42,489

Basic earnings (losses) per share (Euro): -0.23 0.00

Diluted earnings (losses) per share (Euro): -0.23 0.00


Property, plant and equipment (Note 6) These items present a net balance of 182.5 million Euros compared with 202.23 million Euros in the previous period. The breakdown is as follows:

Items (amounts in Euro thousands)

Land and buildings

Plant and machinery

Industrial equipment

Other assets

Invest. in prog.

and deposits

Total

Historical cost 79,732 210,250 123,805 19,665 9,798 443,250

Provisions for amortisation and depreciations -21,570 -115,814 -88,817 -14,819 - -241,020

Net as at 31/12/2013 58,162 94,436 34,988 4,846 9,798 202,230

Movements in 2014:

Increases 219 4,574 2,950 459 7,204 15,406

Decreases - -1,041 -173 -14 -81 -1,309

Capitalisation 7 1,610 375 - -1,992 -

Change in consolidation scope 1 -15,269 -4,935 -446 -1,658 -22,307

Depreciation and amortisation -945 -5,908 -4,060 -556 - -11,469

Reclassification 2 490 123 -8 -607 -

Depreciations - - -12 - - -12

Translation exchange differences -275 303 -150 -2 88 -36

Net as at 30/06/2014 57,171 79,195 29,106 4,279 12,752 182,503

Made up of:

Historical cost 78,283 178,115 106,381 17,751 12,752 393,282

Provisions for amortisation and depreciations -21,112 -98,920 -77,275 -13,472 - -210,779

As at 30/06/2014, leased assets were registered under plant and machinery for 2.65 million Euros. Investments in land and buildings were made in particular by Carraro Argentina, Carraro S.p.A. Divisione Agritalia and Siap S.p.A. The main investments in plant and machinery were made by Siap S.p.A. The increases in industrial equipment relate mainly to purchases of fusion moulds and tools by Carraro Drive Tech S.p.A., MiniGears S.p.A. and Siap S.p.A. Investments in other assets are due to the purchase of sundry office materials by Carraro India, Siap S.p.A. and Carraro Technologies. The increases in amounts relative to Investments in progress and deposits is primarily owing to investments currently under way at O&K Gmbh and Turbo Gears. The properties of the Group have mortgage loans secured against them for a total of 33.6 million euros, of which the properties of Carraro S.p.A. have 21.3 million euros, the properties of Siap S.p.A. have 2.0 million euros and the properties of Carraro India Pvt Ltd have 10.3 million euros. Decrease, reclassification and exchange difference values are highlighted by the net value of the historical cost and the amortisation fund.


Intangible assets (Note 7) These items present a net balance of 88.56 million Euros compared with 86.52 million Euros in the previous period. The breakdown is as follows:


Goodwill Develop-

ment costs

Royalties and

patents

Licences and

Trademarks

Invest. in prog.

and deposits

Other intangible

assets Total

Historical cost 63,171 20,515 1,582 25,994 11,379 876 123,517

Provisions for amortisation and depreciations - -11,989 -1,415 -19,726 - -866 -33,996

Net as at 31/12/2013 63,171 8,526 167 6,268 11,379 10 89,521

Movements in 2014:

Increases - - 21 316 2,663 - 3,000

Decreases - - - - - - -

Capitalisation - - - 7,954 -7,954 - -

Change in consolidation scope - - - -1,295 -12 -2 -1,309

Depreciation and amortisation - -1,260 -34 -1,349 - -3 -2,646

Reclassification - - - - - - -

Translation exchange differences - - 1 -14 12 -2 -3

Net as at 30/06/2014 63,171 7,266 155 11,880 6,088 3 88,563

Made up of:

Historical cost 63,171 20,515 1,116 25,183 6,088 10 116,083

Provisions for amortisation and depreciations - -13,249 -961 -13,303 - -7 -27,520

The other intangible fixed assets with a limited useful life are amortised on a straight-line basis over terms estimated at between 3 and 5 years. Decrease, reclassification and exchange difference values are highlighted by the net value of the historical cost and the amortisation fund. Goodwill Goodwill is attributed to the CGUs (cash generating units), identified in the business areas: ―Drivetech‖, ―Santerno‖. These CGUs are subjected to specific impairment testing at least once a year, in application of the provisions of IAS 36 as described in the explanatory notes to the consolidated financial statements as at 31/12/2013. No elements have arisen up to the current date, compared to the date of the last execution, such to deem that the hypotheses and parameters used in the impairment test shall be reviewed. The amounts of goodwill recognised are shown below (amounts in euro thousands):

Business Unit (CGU) 30/06/2013 Changes 30/06/2014

Drivetech 41,294 - 41,294

Elettronica Santerno 21,877 - 21,877

Total 63,171 - 63,171


Fixed assets in progress and deposits The item refers mainly to development costs incurred by Carraro S.p.A., Carraro Drive Tech S.p.A. and Elettronica Santerno S.p.A. These costs refer to the purchase of licenses for the new ERP management system and for the design of new product lines developed in relation to similar projects started by customers. Development costs generated internally are capitalised at cost. Licences and Trademarks The increases mainly refer to licenses and patents on the part of Carraro S.p.A. for the new ERP management system.

Research and development costs (non-capitalisable) During the first half of 2014 studies and experiments were conducted that occupied part of the resources employed in both in the development as well as the production phases. For these activities the Group incurred total costs (not eligible for capitalisation due to lack of the requirements provided for by IAS 38) of 7.9 million Euro (8.9 million Euro in the first half of 2013). Real estate investments (Note 8) These present a net balance of 0.7 million Euro and relate to civil property owned by Carraro S.p.A., Siap S.p.A. and Carraro Argentina SA. Equity investments (Note 9) Equity investments in associates As at 30 June 2014 no equity investments were held in associates. Financial assets (Note 10)


Loans to third parties 6,069 2,317

LOANS AND RECEIVABLES 6,069 2,317

Available for sale 97 111

Other financial assets 110 439

OTHER FINANCIAL ASSETS 207 550

NON-CURRENT FINANCIAL ASSETS 6,276 2,867

With third parties 2,011 1,952

LOANS AND RECEIVABLES 2,011 1,952

Fair value of derivatives 2,582 627

Other financial assets 1,217 1,220

OTHER FINANCIAL ASSETS 3,799 1,847

CURRENT FINANCIAL ASSETS 5,810 3,799

Non-current loans and receivables This is the medium/long-term portion of the financial receivable from Finatem III GmbH & Co. KG to which the MG Minigears S.p.A. business unit was transferred for 4 million Euro; the amortisation plan provides for reimbursements on 31 December 2015, 2016 and 2017. The item also includes 2 million Euro for the medium/long-term portion of the financial receivable from FON SKB sp. Zo.o. deriving from the transfer of the business unit of the Polish subsidiary Fabryka Osi Napedowych S.A, which took place on 8 September 2011, whose maturity is on 1 August 2016. Other non-current financial assets The item also includes the commissions for 0.11 million Euros, paid to Carraro International for the re-negotiation of the financing falling within the Framework Agreement with the main lending banks.

Current loans and receivables They mainly refer to the short-term portion of the financial receivable from MARIV S.r.l., equal to 1.03 million Euros and the remaining financial receivable from the STM S.r.l. (equal to 0.39 million Euro). The item also includes 0.47 million Euros for the current portion of the financial receivable from the FON SKB sp. Zo.o.


Other current financial assets They include the ―cash flow hedge‖ derivatives amounting to 2.6 million Euro. The amount refers to the fair value as at 30/06/2014 on the currency instruments in place. As described in detail in the section on derivative financial instruments (Paragraph 9), gains or losses deriving from hedging instruments are recognised in the consolidated comprehensive income statement and accumulated in a specific shareholders’ equity reserve for the efficient part, while the remaining (inefficient) portion is recognised in the consolidated income statement. Deferred tax assets and liabilities (Note 11) The carrying amount of net deferred tax assets recognised as at 30 June 2014 was 25.8 million Euros (24.1 million Euros as at 31 December 2013). Deferred tax assets include the benefits associated with retained tax losses, insofar as it is likely that there will be suitable future taxable profits against which these losses can be used in a reasonably short period. Tax losses for which it was decided not to recognise deferred tax assets as at 30 June 2014 amounted to 104.6 million Euros (97.29 million Euros as at 31/12/2013) with a tax effect of 28.6 million Euros (26.8 million Euros as at 31/12/2013). It was also not considered prudent to recognise deferred tax assets with reference to temporarily non-deductible financial expenses for a taxable income of 11.8 million Euros (11.8 million Euros as at 31/12/2013), with a tax effect of 3.2 million Euros (3.2 million Euros as at 31/12/2013). Trade receivables and other receivables (Note 12)


NON CURRENT TRADE RECEIVABLES - 205


OTHER NON-CURRENT RECEIVABLES 4,726 3,391

NON-CURRENT TRADE RECEIVABLES AND OTHER RECEIVABLES 4,726 3,596

With related parties 294 245


CURRENT TRADE RECEIVABLES 94,190 94,220

With related parties 2,308 1,658


OTHER CURRENT RECEIVABLES 48,462 39,012

CURRENT TRADE RECEIVABLES AND OTHER RECEIVABLES 142,652 133,232

Closing inventory (Note 13)


30/06/2014 31/12/2013

Raw materials 103,293 89,165 Work in progress and semi-finished products

39,914 25,076

Finished products 37,499 55,781

Goods in transit 1,094 445

Total inventories 181,800 170,467 Provisions for depreciation of inventories

-26,022 -24,618

Total inventories 155,778 145,849


Cash and cash equivalents (Note 14)


CASH 184 148

BANK CURRENT ACCOUNTS AND DEPOSITS 35,551 72,564

OTHER LIQUID FUNDS OR EQUIVALENT ASSETS - -

TOTAL 35,735 72,712

Shareholders’ equity (Note 15)


1) Share Capital 23,915 23,915

2) Other Reserves 44,676 42,519

3) Profits/(Losses) brought forward - -

4) Other IAS/IFRS reserves 320 -284

5) Provision for discounting employee benefits -1,169 -500

6) Foreign currency translation reserve -21,042 -18,180

7) Result for the period pertaining to the group -10,084 1,290

GROUP SHAREHOLDERS’ EQUITY 36,616 48,760

8) Minority interests 6,441 6,103

The Shareholders’ Meeting of Carraro S.p.A. held on 17 April 2014 approved a treasury share purchase and disposal plan involving no more than 10% of the share capital, for a term of 18 months, which provides for: a price for the purchase of each common share not less than, at the minimum, 30% and, at the maximum, 20% below the reference price of the share on the stock market on the day preceding each individual transaction; a price for the sale of each common share not less than, at the minimum, 20% below and, at the maximum, not more than 20% above the reference price of the share on the stock market on the day preceding each individual transaction. The same Meeting resolved to cover the loss of Carraro S.p.A. for 2013 amounting to 3,213,657 Euros using the Extraordinary Reserve.

The company has issued a single category of ordinary shares which do not give the right to a fixed dividend. No other financial instruments which assign equity and investment rights have been issued. As at 30 June 2014, 2,625,801 were fully acquired for a total investment of 6.664 million Euros, of which 39,264 in the first half of 2014 for a value equal to 0.125 million Euros. Other reserves The item ―Other reserves‖ of 44.676 million Euros, includes the reserves of Carraro S.p.A. relating to profits not distributed or carried forward and others as follows: - 27.130 million Euros relating to the Carraro S.p.A. share premium reserve; - 4.761 million Euros relating to the Carraro S.p.A. legal reserve; - 1,887 million Euros relating to the extraordinary reserve and profits carried forward of Carraro S.p.A.; - 44.384 million Euros relating to the first adoption reserve of IAS/IFRS; - less 6.664 million Euros for deduction of the reserve corresponding to treasury share purchase of Carraro S.p.A.; - less 26.822 million generated by the reduction of the shareholders’ equities of consolidated companies with respect to

the corresponding carrying amounts of the equity investments and consolidation adjustments. Other IAS/IFRS reserves This includes the values arising from application of the criterion prescribed for cash flow hedging of 0.3 million Euros.


Foreign currency translation reserve This reserve, of 21 million Euros is used to record the exchange differences deriving from the conversion into Euros of the financial statements of foreign subsidiaries. The change in the reserve (negative for the amount of 18 million Euros as at 31/12/2013) derives in particular from the variations recorded in the period by the Argentine Pesos and the Indian Rupee. It should be noted that, as required by IAS 1 Revised paragraph 83, the movements in the period of the foreign currency translation reserve were recognised in the statement of comprehensive income, as detailed below:

(amounts in Euro thousands) 31/12/2013 Movements of

the period 30/06/2014

Exchange reserve of the parent company’s shareholders -18,180 -2,862 -21,042

Exchange reserve of minority interests -1,056 -168 -1,224

Effect of the exchange reserve on the consolidated comprehensive income statement

-19,236 -3,030 -22,266

Minority interests For an analysis of the change in minority interests, see paragraph 2.2. Financial liabilities (Note 16) The classification of the financial liabilities as at 30/06/2014 and 31/12/2013 is indicated.


Medium/long-term loans 134,804 180,892

Other non-current financial liabilities - -

NON-CURRENT FINANCIAL LIABILITIES 134,804 180,892

Medium/long-term loans – short-term portion 53,840 37,611

Short-term loans 119,608 107,182

LOANS 173,448 144,793

Fair value of interest rate derivatives 37 66

Fair value derivatives on exchange rates 366 883

Other current financial liabilities 608 1,105

OTHER FINANCIAL LIABILITIES 1,011 2,054

CURRENT FINANCIAL LIABILITIES 174,459 146,847


A breakdown of medium- and long-term financial debts (shown at par value) is presented below, inclusive of the portion expiring before the end of the year.

COMPANY LENDER

Short-term portion as at 30/06/2014

Md/lg-term portion as at 30/06/2014

EXPIRY RATE RATE TYPE

CURRENCY


Carraro China Drive System Bank of Communications 472 708 Jun-14 7.86% variable CNY

Carraro India Exim 1,241 3,175 Jun-18 12.50% fixed INR

Carraro India Idbi Bank 393 1,785 Sep-17 13.25% variable INR

Carraro India Indusind 541 1,892 Sep-17 13.25% variable INR

Carraro India Axis 364 639 Nov-16 14.55% variable INR

Carraro Drive Tech do Brasil Bradesco Finance 2 1 Mar-15 23.71% variable BRL

Carraro International BPV Finance 1,333 14,667 Jun-19 4.59% variable EURO

Carraro International Monte dei Paschi di Siena 2,730 4,094 Jun-17 3.84% variable EURO

Carraro International Monte dei Paschi di Siena 2,426 3,446 Mar-17 3.84% variable EURO

Carraro International Pool of banks 16,542 57,905 May-17 3.83% variable EURO

Carraro International Pool of banks (revolving) 18,198 18,198 May-16 3.84% variable EURO

Carraro S.p.A. Banca Antonveneta 1,752 12,420 Dec-20 3.84% variable EURO

Carraro S.p.A. Banca Popolare di Ravenna 1,665 3,526 Jun-17 3.83% variable EURO

O&K Unicredit Leasing 96 252 Nov-17 3.72% variable EURO

O&K Unicredit Leasing 81 219 Dec-17 3.72% variable EURO

Eletronica Santerno Industria e Comercio Ltda Banco Itauleasing 1 - Jul-14 1.44% variable BRL

SIAP Friulia 1,014 1,045 Jun-16 3.00% variable EURO

SIAP Albaleasing 61 243 Jun-16 3.00% variable EURO

SIAP Credit Agricole Leasing 30 100 Jun-16 3.00% variable EURO

SIAP Credit Agricole Leasing 61 230 Jul-18 4.04% variable EURO

Carraro Drive Tech Poggiofiorito Banca Popolare Verona 4,660 10,388 Mar-17 3.72% variable EURO

Turbo Gears Mcc 736 1,104 Dec-16 1.74% variable EURO

Turbo Gears Siemens Financial 90 276 Nov-17 13.00% variable INR

Turbo Gears Siemens Financial 61 208 Feb-18 12.97% variable INR

Turbo Gears Siemens Financial 38 44 Oct-16 13.50% variable INR

TOTAL 54,588 136,565

Medium- and long-term financial debts are indicated below according to the year of expiry.

Year of expiry


2014 (2nd half) 17,195

2015 54,108

2016 53,135

2017 49,587

2018 5,401

2019 8,628

2020 3,099

amortised cost effect and exchange delta

-2,509

Total financial debts 188,644

Other current financial liabilities They include "cash flow hedge" derivatives for a total of 0.403 million Euros, of which 0.366 million Euros refer to the fair value calculated as at 30/06/2014 on current instruments on currencies and 0.037 million Euros refer to the fair value calculated as at 30/06/2014 on interest rate derivatives. As described in detail in the section on derivative financial instruments (Paragraph 9), profits or losses deriving from hedging instruments are recognised in the statement of comprehensive income and accumulated in a specific shareholders’ equity reserve for the efficient portion, while the remaining (ineffective) portion is recognised in the income statement.


The net financial position is broken down below.

Net financial position (amounts in Euro thousands)

30/06/2014 31/12/2013

Non-current loans payable 134,804 180,892

Current loans payable 173,448 144,793

Other non-current financial liabilities - -

Other current financial liabilities 608 1,105

Financial liabilities: 308,860 326,790

Non-current loans and receivables -6,069 -2,317

Current loans and receivables -2,011 -1,952

Other non-current financial assets -110 -439

Other current financial assets -1,217 -1,220

Financial assets: -9,407 -5,928

Cash -184 -148

Bank current accounts and deposits -35,551 -72,564

Cash and cash equivalents: -35,735 -72,712

Net financial position 263,718 248,150 of which payables / (receivables):

- non-current 128,625 178,136

- current 135,093 70,014

The Carraro Group has available short term banking credit facilities for a total of 180.397 million Euros, 119.608 million Euros used. These facilities can be used either for current account overdrafts or short-term loans. Medium- and long-term bank credit facilities amount to a total of 211.616 million Euros, where 191.153 million Euros are used (medium- and long-term portion and portion due within the year). On 27 June 2014, a positive resolution was obtained from banks in relation to the request for waivers of the covenants of 30 June 2014. Fair Value The fair value of medium/long-term financial liabilities, taking account of the fact that these are almost exclusively for variable-rate funding and that the terms being renegotiated with the banking counterparties are in line with the average levels for the market and the segment – even considering the residual volatility of the markets and the relative uncertainty in identifying ―reference‖ conditions – as measured is not significantly different overall from the carrying amounts. Management of capital The Carraro Group’s main management objective is to ensure that a sound credit rating is maintained, together with adequate levels of the capital indicators so as to support its activities and maximise value for the shareholders. The Carraro Group manages and modifies the capital structure in line with changes in the economic conditions. To maintain or change the capital structure, the Group can adjust the dividends paid to the shareholders, redeem the capital or issue new shares.


Trade payables and other payables (Note 17)


NON-CURRENT TRADE PAYABLES - 1,814


OTHER NON-CURRENT PAYABLES 1,395 1,814

TRADE PAYABLES AND OTHER NON-CURRENT PAYABLES 1,395 1,814

With related parties - 2,297


CURRENT TRADE PAYABLES 207,471 212,297

With related parties - -


OTHER CURRENT PAYABLES 33,730 35,445

TRADE PAYABLES AND OTHER CURRENT PAYABLES 241,201 247,742

Current taxes payables (Note 18)


Current taxes payables 13,536 5,977

Employee severance indemnities and retirement benefits (note 19) PROVISION FOR SEVERANCE INDEMNITY AND RETIREMENT BENEFITS


Opening severance indemnities in accordance with IAS 19 13,591 13,966

Utilisation of employee severance indemnities -357 - 763

Employee severance indemnities transferred to other companies -151 - 1,050

Employee severance indemnities transferred from other companies 151 1,051

Current Service Cost - -

Interest Cost 175 410

Actuarial Gains/Losses 762 -23

Change in consolidation scope -2,066 -

Closing severance indemnities in accordance with IAS 19 12,105 13,591

The severance indemnity, calculated according to current Italian laws, is treated for accounting purposes as a defined-benefit fund and as such is recalculated at the end of each accounting period according to a statistical-actuarial criterion which also takes account of the effects of financial discounting. The actuarial valuation of this obligation is carried out according to the actuarial criterion of the ―projected unit credit method‖ with the support of the data issued by ISTAT, INPS and ANIA. The parameters used are as follows: 1) annual discount rate: 2.3%, 2) personnel turnover rate 5%, 3) annual rate of inflation 2%, 4) advances rate 2%, 5) remuneration increase rate 3%. As from the 2012 Financial Statements, the accounting treatment of employee benefits recognised in the financial statements complies with IAS 19 Revised for defined benefit plans. For further details, see section 3.3. Termination benefits are benefits to employees regulated by the laws in force in Italy and recognised in the financial statements of Italian companies. On the basis of the changes introduced in Law 296/06, with effect from 30 June 2007, termination benefits maturing after 1 January 2007 must be paid into a specific treasury reserve established at the pensions agency INPS, or, if the employee so chooses, into a special complementary pension fund. There are no more provisions for termination benefits with these contributions.


Sensitivity analysis IAS 19 revised The table below indicates the values of the Employee benefits provision as at 31/12/2013 calculated in the case of changes in actuarial assumptions reasonably possible at that date with the following variables:

- turnover frequency - discount rate (taken from the Iboxx Corporate AA 10+ index) - inflation rate

turnover frequency discount rate inflation rate

(amounts in Euro thousands) +1 % + 0.25% - 0.25% + 0.25% - 0.25%

Provision for employee benefits as at 30/06/2014 12,091 11,852 12,399 12,305 11,939

Pension/retirement funds Pension and similar funds for 6.38 million Euros (5.87 million Euros as at 31/12/2013) mainly relate to the liabilities recognised in the financial statements of the company O&K Antriebstechnik; the actuarial recalculation, except for the structural differences of the relevant plans, follows the same criterion described for the aforementioned Italian termination benefit provisions. As from the 2012 Financial Statements, the accounting treatment of employee benefits recognised in the financial statements complies with IAS 19 Revised for defined benefit plans; Sensitivity analysis IAS 19 revised The table below indicates the values of the O&K Pension Fund as at 30/06/2014 calculated based on changes in actuarial assumptions reasonably possible at that date:

(amounts in Euro thousands) inflation rate +0.25%; discount rate +0.2%

Pension fund 30/06/2014 5,794

Number of employees The number of employees refers only to the fully consolidated companies and is divided into categories:

Employees 30/06/2014 31/12/2013

Executives 48 50

Clerical staff 981 1,035

Factory workers 2,519 2,964

Temporary workers 350 314

Total 3,898 4,363

Provision for risks and liabilities (Note 20) The item can be broken down as follows:

(amounts in Euro thousands) Provisions 31/12/2013

Increases 1st half 2014

Decreases 1st half 2014

Change of area 1st half 2014

Exchange-rate

adjustments

Provisions 30/06/2014

Non-current portion

1) WARRANTY 1,778 - - - - 1,778

2) COSTS OF LEGAL CLAIMS 322 - - - - 322

3) RENOVATION AND CONV. - - - - - -

4) OTHER PROVISIONS 2,977 1,151 -1,118 - -135 2,875

TOTAL 5,077 1,151 -1,118 - -135 4,975

Current portion

1) WARRANTY 8,930 3,481 -2,299 -330 -73 9,709

2) COSTS OF LEGAL CLAIMS 1,389 79 -142 - -91 1,235

3) RENOVATION AND CONV. 2,316 2,339 -1,128 - - 3,527

4) OTHER PROVISIONS 3,397 2,043 -3,257 -45 1 2,139

TOTAL 16,032 7,942 -6,826 -375 -163 16,610


In the period 1.2 million Euros were allocated for future liabilities and charges in Carraro Divisione Agritalia S.p.A. and Carraro Argentina SA. From the product warranty reserve, 2.3 million Euros was used for customer claims accepted and the reserve was increased by 3.5 million Euros on the basis of the expected warranty costs which will be incurred in relation to the sales made. The use of the costs of legal claims provision relates to personnel disputes. Of the restructuring provision allocated as at 31 December 2013, for the reorganisation and restructuring of the Carraro Group, 1.1 million Euros were used and non-recurring costs of 2.3 million Euros were allocated following the reorganisation of the Elettronica Santerno business area. The item ―Other provisions for risks and liabilities‖ includes amounts recognised in the individual companies for future expenses and liabilities. It is pointed out that the item Other provisions for risks and liabilities, amounting to 2.2 million Euros, is constituted by the MBO (Management By Objectives) provision for 1.9 million Euros. 7. Commitments and risks No significant events occurred as worthy of note. 8. Transactions with related parties (note 21) The Carraro Group is controlled directly by Finaid S.p.A., which as at 30/06/2014 held 64.9736% of the shares outstanding. Carraro S.p.A., Carraro Drive Tech S.p.A., Elettronica Santerno S.p.A., Siap S.p.A. and Carraro Drive Tech Poggiofiorito S.p.A. adhere to the tax consolidation area of the parent company Finaid S.p.A. The charges/income deriving from the transfer of the IRES taxable base are booked under current taxes. According to the regulations of the Tax Consolidation Agreement, companies of the Carraro Group have the right to ―relief‖ for use of the tax losses of companies controlled by Finaid, other than those belonging to the Carraro Group. This ―relief‖ amounts to 3% of the tax losses of the other companies of the Finaid Consolidation area possibly offset with the taxable amounts of Carraro Group companies. The regulations also provide for a mechanism of priority offsetting of the positive and negative taxable amounts between Carraro Group companies with respect to offsetting with the other companies of the Finaid Consolidation area. The same mechanism is provided for with reference to the non-deductible expenses as an effect of the Thin Cap Rule. The transactions between Carraro S.p.A. and its subsidiaries which are affiliated entities of Carraro S.p.A., were eliminated in the consolidated financial statements and are not pointed out in these notes. The details of the transactions between Carraro Group and other affiliated companies according to principle IAS 24 and Consob requirements, are indicated below.

(amounts in Euro thousands) Financial and

equity transactions Economic transactions

Trade receivables and other

receivables

Trade payables and other payables

Sales of

services Other

revenues

Purchases of goods

and materials

Purchases of

services

Use of third-party

goods and services

Other related parties

FINAID S.p.A. 2,318 - 5 - - - -

Maus S.p.A. 192 - 119 - - 4 -

Maus U.S.A. Inc. 92 - 13 - - - -

The positive items relative to Finaid S.p.A. refer mainly to receivables deriving from tax consolidation.


9. FINANCIAL INSTRUMENTS

9.1 Derivative financial instruments on currencies The following tables indicate all the key information relating to the portfolio of derivative financial instruments on currencies outstanding as at 30/06/2014. These are instruments for hedging: - foreign currency sales budgets; - cash flows of medium- and long-term loans; - imbalances of current receivables and payables in foreign currencies.

a) Notional values

CONTRACT (amounts in Euro thousands)

Swap (DCS) (1) Swap (DCS) (2) Total notional

values

Carraro SpA - 5,614 5,614

Carraro Drive Tech - 7,669 7,669

Carraro Argentina - - -

Carraro India 48,850 -2,750 46,100

Carraro International - 3,376 3,376

Elettronica Santerno - 7,157 7,157

Turbo Gears - -1,661 -1,661

O&K - - -

SIAP - 2,275 2,275

Carraro China 12,687 - 12,687

GROUP TOTAL 30/06/2014 61,537 21,680 83,217

GROUP TOTAL 31/12/2013 69,603 12,549 82,152

b) Reference currencies and expiry dates of contracts

CONTRACT Swap (DCS) (1) Swap (DCS) (2)

Currencies Expiry dates Currencies Expiry dates

Carraro SpA - - USD/EUR Aug-14

Carraro Drive Tech - - USD/EUR Aug-14

Carraro Argentina - - - -

Carraro India INR/EUR Jul 14 - May 15 INR/EUR Sep-14

Carraro International - - USD/EUR Aug-14

Elettronica Santerno - - USD/EUR BRL/EUR RUB/EUR

Jul - Aug 14 Sep-14 Sep-14

Turbo Gears - - INR/EUR Nov-14

O&K - - - -

SIAP - - USD/EUR Aug-14

Carraro China CNY/EUR CNY/USD

Jul 14 - May 15 Jul 14 - May 15

- -


c) Fair value


Swap (DCS) (1) Swap (DCS) (2) Total

Carraro SpA - 14 14

Carraro Drive Tech - 19 19


Carraro India 2,485 -3 2,482

Carraro International - 8 8

Elettronica Santerno - -176 -176

Turbo Gears - 21 21

O&K - - -

SIAP - 36 36

Carraro China -188 - -188

GROUP TOTAL 30/06/2014 2,297 -81 2,216

GROUP TOTAL 31/12/2013 126 -381 -255

(1) instruments hedging foreign currency sales budget (2) instruments hedging imbalances of current receivables and payables in foreign currencies d) Details of fair values


30/06/2014 31/12/2013

Positive fair value

Negative fair value

Positive fair value

Negative fair value

CASH FLOW HEDGE Exchange rate risk - Domestic Currency Swap 2,582 -366 627 -883

e) Summary of fair values recognised before tax effect according to their accounting treatment

(amounts in Euro

thousands) FV recognised in the income statement

FV recognised in net equity

Total

Carraro SpA 14 - 14

Carraro Drive Tech 19 - 19


Carraro India 1,782 700 2,482

Carraro International 8 - 8

Elettronica Santerno -176 - -176

Turbo Gears 21 - 21

O&K - - -

SIAP 36 - 36

Carraro China -59 -129 -188

GROUP TOTAL 30/06/2014 1,645 571 2,216

GROUP TOTAL 31/12/2013 126 -381 -255

In relation to the positioning in the hierarchy of fair values pursuant to IFRS 7 paragraph 27, the financial instruments described are classifiable as level 2; there were no transfers of level during the period.

The fair values as at 30 June 2014 of financial instruments on exchange rates were calculated using the forward exchange rate method. The counterparties with which the contracts are stipulated are leading national and international banking institutions.


The financial instruments on currencies are used, on a basis consistent with the financial risk management policy adopted by the group, to hedge the risks deriving from exchange rate fluctuations and concern sales volumes compared with the budget exchange rate and the collections and payment of short and medium-term receivables and payables with respect to the historical value. For accounting purposes in relation to contracts hedging sales budgets in foreign currencies effective at the reporting date, it should be noted that for the transactions executed, especially Domestic Currency Swaps, and in accordance with all the conditions provided by IAS/IFRS, hedge accounting was applied with reference to the type of ―cash flow hedge‖. Consequently, the corresponding changes in fair values are reflected in a shareholders’ equity reserve, net of the tax effect. 9.2 Derivative financial instruments on interest rates a) Notional values and fair values The table shows the details of the notional and fair values and other information regarding the various types of derivative contracts on interest rates in existence as at 30/06/2014; on said date, open agreements concern Carraro International S.A.

CONTRACT (amounts in Euro

thousands) CURRENCY EXPIRY

NOTIONAL 30/06/2014

NOTIONAL 31/12/2013

FAIR VALUE 30/06/2014

FAIR VALUE

31/12/2013

Interest Rate Swap EUR 30/06/2015 4,500 7,500 -36 -66

Total derivatives from cash flow hedge 4,500 7,500 -36 -66

In relation to the positioning in the hierarchy of fair values pursuant to IFRS 7 paragraph 27, the financial instruments

described are classifiable as level 2; there were no transfers of level during the period. For determination of the fair value of Interest Rate Swaps the discounted cash flow method was applied. Below is a summary table of the assets and liabilities valued at fair value as at 30 June 2014, as required by IFRS 13, described in paragraph 3.2:


Level 2 30/06/2014

Level 2

31/12/2013

Assets

Foreign exchange derivative assets 2,582 627

Total Assets 2,582 627

Liabilities

Foreign exchange derivative liabilities 366 883 Interest rate derivative liabilities 36 66

Total Liabilities 402 949

carraro group

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