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INTERIM FINANCIAL STATEMENTS 1. HY 2016 FOR THE FIRST HALF YEAR FROM JANUARY 1 TO JUNE 30, 2016 OF KTM AG, MATTIGHOFEN

INTERIM FINANCIAL STATEMENTS 1. HY 2016 - KTM · PDF fileINTERIM FINANCIAL STATEMENTS 1. HY 2016 3 EUR million EARNINGS RATIOS 1. HY 2016 1. HY 2015 Revenue 572.3 515.1 EBITDA 81.8

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Page 1: INTERIM FINANCIAL STATEMENTS 1. HY 2016 - KTM · PDF fileINTERIM FINANCIAL STATEMENTS 1. HY 2016 3 EUR million EARNINGS RATIOS 1. HY 2016 1. HY 2015 Revenue 572.3 515.1 EBITDA 81.8

1

INTERIM F INANCIAL STATEMENTS 1 . HY 2016FOR THE F IRST HALF YEAR FROM JANUARY 1 TO JUNE 30 , 2016 OF KTM AG , MATT IGHOFEN

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2 KTM AG

EUR million

EARNINGS RATIOS 1. HY 2016 1. HY 2015Revenue 572.3 515.1 EBITDA 81.8 70.2 EBIT 56.2 50.3 EBT 51.7 44.3 Net result after tax 39.0 33.3 EBITDA margin 14.3% 13.6% EBIT margin 9.8% 9.8%

BALANCE SHEET RATIOS June 30, 2016 Dec. 31, 2015 Balance sheet total 1,003.1 848.9 Working capital 1) 143.0 122.1 Equity 397.0 379.8 Equity in% of total assets 39.6% 44.7% Net financial debt 2) 165.8 97.2 Gearing 3) 41.8% 25.6%

CASH FLOW 1. HY 2016 1. HY 2015 Cash flow from operating activities 10.2 21.3 Free Cash Flow -46.4 -22.9

EMPLOYEES June 30, 2016 Dec. 31, 2015 4Employees 4) 2,676 2,515

1) Working Capital = Trade receivables + inventories - trade payables2) Net financial debt = Financial liabilities (current, non-current) - cash and cash equivalents - financing receivables3) Gearing = Net financial debt / equity including non-controlling interests4) Employees including temporary staff and external employees

K T M O V E R V I E W

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3INTERIM FINANCIAL STATEMENTS 1. HY 2016

EUR million

EARNINGS RATIOS 1. HY 2016 1. HY 2015Revenue 572.3 515.1 EBITDA 81.8 70.2 EBIT 56.2 50.3 EBT 51.7 44.3 Net result after tax 39.0 33.3 EBITDA margin 14.3% 13.6% EBIT margin 9.8% 9.8%

BALANCE SHEET RATIOS June 30, 2016 Dec. 31, 2015 Balance sheet total 1,003.1 848.9 Working capital 1) 143.0 122.1 Equity 397.0 379.8 Equity in% of total assets 39.6% 44.7% Net financial debt 2) 165.8 97.2 Gearing 3) 41.8% 25.6%

CASH FLOW 1. HY 2016 1. HY 2015 Cash flow from operating activities 10.2 21.3 Free Cash Flow -46.4 -22.9

EMPLOYEES June 30, 2016 Dec. 31, 2015 4Employees 4) 2,676 2,515

1) Working Capital = Trade receivables + inventories - trade payables2) Net financial debt = Financial liabilities (current, non-current) - cash and cash equivalents - financing receivables3) Gearing = Net financial debt / equity including non-controlling interests4) Employees including temporary staff and external employees

K T M O V E R V I E W T A B L E O F C O N T E N T S

Interim consolidated management report 1. HY 2016 (condensed) 4Economic Environment 4Business development and highlights 4Market development 4Development of sales 4Development of revenue 5KTM Share 5Annual General Meeting of the shareholders 5Risk report 6Related party disclosures 6Significant events after the reporting period 6Outlook 6

Interim consolidated financial statements 1. HY 2016 (condensed) 7Consolidated statement of profit or loss 7Consolidated statement of comprehensive income 7Consolidated statement of financial position 8Consolidated statement of cash flows 9Consolidated statement of changes in equity 10Notes to the interim consolidated financial statements 11

Statement of all legal representatives 18

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4 KTM AG

I N T E R I M C O N S O L I D AT E D M A N A G E M E N T R E P O R T 1. HY 2016 (CONDENSED)

(1) Economic Environment

According to the report of the International Monetary Fund (IMF) as of July 2016, the global economic growth will grow further in 2016 by 3.1%, whereas the progno-sis of April 2016 showed a growth of 3.2% and the prognosis of January 2016 showed 3.4%.

For advanced economies, a growth of 1.8% is projected for the current and the next year. For the Euro area, a development of 1.6% is projected for 2016. For the year 2017, the IMF anticipates a global economic growth of 3.4% and for the Euro area a moderate growth of 1.4%.

For emerging markets and developing economies, a growth in economic output of 4.1% is projected for the year 2016 and 4.6% for the year 2017, unchanged to the prognosis of April 2016. For China, a growth rate of 6.6% for the year 2016 and 6.2% for the year 2017 is projected. The highest growth rate is expected for India, with 7.4% for the current and the next year.

(2) Business development and highlights

In the first half year of 2016 KTM reported a pleasing business performance and thus achieved consolidated revenues amounting to EUR 572.3 million. Therefore, an increase of 11.1% compared to the same period in prior year could be achieved.

Taking into account the 200 Duke, 390 Duke, RC 200 and RC 390 sold by our partner Bajaj in India 99,734 vehicles were sold worldwide in the first half year of 2016 (+12.7% compared to prior year). In the first six months of 2016 KTM showed an EBITDA of EUR 81.8 million (+16.5% compared to prior year) and an EBIT of EUR 56.2 million (+11.7% compared to prior year). Net result could be increased from EUR 33.3 million in prior year to EUR 39.0 million in the first half year of 2016.

The implementation of the global product strategy as well as the expansion into further Asian and South American markets has been consistently pursued in the first half year of 2016.

In January, further success could be achieved in motorsports. The Red Bull KTM Rally Factory Racing Team remains the benchmark at the most demanding and notorious offroad motorsport event worldwide, as Red Bull KTM factory rider Toby Price celebrated an emphatic win at the 2016 Dakar Rally as he crossed the finish line in Rosario, Argentina on Saturday while giving KTM its 15th consecutive victory at the event aboard his KTM 450 RALLY factory machine. Pablo Quintanilla won the third place for the Husqvarna Team with his Husqvarna FR 450.

With its unrivaled amounts of performance and levels of sophisticated rider assis-tance, KTM looks set to rewrite the expectations of the Sports Touring motorcycle class when the new 1290 SUPER DUKE GT arrives in dealers at the end of March.

In March, the Husqvarna Bike VITPILEN 701, which was already introduced in No-vember at the EICMA motorcycle fair, won the prestigious “iF Design Award 2016”.

Further motorsport success could be celebrated by the Husqvarna Team in May at the “Erzbergrodeo” (Red Bull Hare Scramble). Graham Jarvis (UK) achieved his third victory in total at the iron mountain. The KTM riders Cody Webb (US) and Alfredo Gómez could ensure the second and third place.

In June 2016 a promissory note loan with a volume amounting to EUR 120 million and a duration of five, seven and ten years was issued.

In 2015, KTM started the construction of a new motorsports building in Munderfing with planned investments of EUR 13.2 million. In the second quarter of 2016, the new building was completed.

(3) Market development

Compared to prior year, the overall European market1 increased by 7.9% to ap-proximately 330,000 vehicles registered in the first half year of 2016. This increase is primarily due to the upward trend in the largest European markets such as Italy (+21.7%), Spain (+24.9%) and Sweden (+16.9%).

Registrations of KTM motorcycles in the overall European market amount to 8.4% (8.2% in prior year) market share. Husqvarna could reach a market share of 1.3% (prior year 1.0%).

In the overall US market2 registrations declined slightly, compared to prior year, by -2.4% to approximately 230,000 vehicles registered in the first half year of 2016.

KTM succeeded in increasing its share in the overall US market from 4.6% to 5.1 %. Husqvarna also recorded a rise in market shares from 0.7% to 1.3%.

1) Motorcycles >120 ccm, excl. Motocross, Scooters and ATVs, incl. electric motorcycles2) Motorcycles >120 ccm, including Motocross, excluding Scooters and ATVs, incl. electric motorcycles

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5INTERIM FINANCIAL STATEMENTS 1. HY 2016

(4) Development of sales

In the first half year of 2016 KTM sold 76,349 Fullsize motorcycles (+5,858 motorcycles compared to prior year) out of which 31,229 motorcycles (+6,894 motorcycles compared to prior year) were sold in the offroad division and 45,120 motorcycles (-1,036 motorcycles compared to prior year) in the street division.

Sales units of sportminicycles increased to 5,961 motorcycles (+2.822 motorcycles compared to prior year). In the first six months of 2016 KTM sold 47 X-Bows (+29 X-Bows compared to prior year).

Furthermore 17,377 KTM-bikes (prior year: 14,883 KTM-bikes) were sold by our strategic partner Bajaj in India.

In our largest single market, North America (US and Canada), sales increased to 19,135 vehicles (+4,464 vehicles compared to prior year).

(5) Development of revenue

In the offroad division, revenue rose to EUR 184.5 million (+28.9% compared to prior year). Revenue of Sportminicycles increased to EUR 18.8 million (+90.6% compared to prior year).

In the street division, revenue decreased to EUR 272.3 million (-1.9% compared to prior year). The supersports car X-Bow achieved revenues amounting to EUR 2.9 million (prior year EUR 1.0 million).

In the PG&A (parts, garments and accessories and other revenues) division, reve-nue could be increased by 12.2%, to EUR 93.8 million.

By region, sales in Europe increased to EUR 340.1 million (+19.2% compared to prior year). In North America revenue increased to EUR 147.9 million (+10.0% compared to prior year). Revenue in other countries decreased slightly by -11.5% to EUR 84.3 million.

(6) KTM Share

On March 29, 2016 CROSS KraftFahrZeug Holding GmbH announced to put a public purchase offer to all shareholders of free float shares of KTM AG concerning the withdrawal of the shares of KTM AG from the Third Market (MTF) of the Vienna Stock Exchange. The offer price amounted to 122.50 EUR per share of the target company. Until the end of the terms of acceptance on June 10, 2016, there have been 22,490 shares submitted for sale to the Raiffeisen Centrobank AG, the tender and payment agent. This means 0.21% of the share capital of KTM AG.

After the transfer of the submitted shares, the shareholder structure of KTM AG as of June 30, 2016 is structured as follows:

Investor Relations Contact: Viktor Sigl

Betriebsgebiet Süd / Stallhofnerstraße 3 / 5230 Mattighofen

Phone: +43 7742 6000 144 / E-mail: [email protected] / Website: www.ktmgroup.com

REVENUE BY PRODUCT GROUP REVENUE BY REGION

16.4%PG&A0.5%X-Bow3.3%Sportminicycles

47.6%Street

32.2%Offroad

59.4%Europe

14.7%Rest of the world

25.9%North America

SHAREHOLDER STRUCTURE BY SHAREHOLDER RIGHTS (BY SHARE CAPITAL) NUMBER OF SHARES: 10,845,000

47.99%Bajaj Auto International Holdings B.V.

51.66%CROSS Industries AG

0.35%Freefloat

as of June 30, 2016

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6 KTM AG

(7) Annual General Meeting

The 28th Annual General Meeting of the shareholders of KTM AG took place on April 21, 2016 in Mattighofen.

For the business year 2015, the Annual General Meeting resolved to distribute a dividend amounting to 2.00 EUR (prior year: 1.05 EUR) per share.

The members of the Supervisory Board and the members of the Executive Board were discharged. Furthermore, the Supervisory Board has been elected for another four years.

Furthermore, the resolutions for the withdrawal of the shares of KTM AG from the Third Market of the Vienna Stock Exchange were adopted (refer to the note (6) KTM Share for further information).

(8) Risk report

The risk report is provided in the consolidated financial statements as of December 31, 2015. Since then, there have been no changes in the evaluation of risks.

(9) Related party disclosures

All products and services rendered and received from related companies and individuals as stated in the consolidated financial statements as of December 31, 2015 are carried out at arm’s lengths. In the first half year of 2016 there have been no material changes regarding transaction partner, volume and nature of the business relationship.

(10) Significant events after the reporting period

At the Executive Board Meeting in June 2016, the resolution for the consensual resignation of Mr. Friedrich Roithner as of the end of June 20, 2016 from the Executive Board of KTM AG has been resolved.

On July 20, 2016 KTM AG held an extraordinary General Meeting. Thereby, the following resolutions were adopted:

1. Elections for the Supervisory Board: Election of Mr. Friedrich Roithner to the Supervisory Board with effect from July 21, 2016 until the remaining term of office of the Supervisory Board that was newly elected at the 28th Annual General Meeting.

2. Change of the Articles of Association due to the withdrawal of the shares of KTM AG from the Third Market of the Vienna Stock Exchange (Delisting) and the changeover to registered shares.

Otherwise, here have been no further reportable events after June 30, 2016.

(11) Outlook

Economic situationThe economic environment remains very difficult in some markets. Although we expect the North American motorcycle market to enjoy significant growth in the current year and are also relatively bullish with regard to Europe, the emerging markets in South America and Asia are marked by numerous uncertainties. Nevertheless, we regard Asian markets as representing the biggest growth opportunities over the medium-term.

Together with Ayala Corporation, the Philippine partner and importer of KTM, an assembly plant is built in the Philippines. Starting in 2017, motorcycles for the sales market in Asia should be assembled in the sense of an extended workbench.

InvestmentsThe planned investments for 2016 remain at a high level. The focus of investments is on new series development projects as well as infrastructure and development investments in Motorsports and Logistics. The new motorsports building at Munderfing was completed in the second quarter of 2016. Moreover, production capacity at the main location in Mattighofen will be further expanded.

Research and development expenditure will continue to grow substantially, to reach approximately 7% of revenues. Substantial investments are also being made in the IT infrastructure, and a new ERP system is being implemented in 2016.

In 2016, work will begin on the construction of the KTM Experience World in Mattighofen, which will include a museum and demonstration workshop, at a cost of approximately EUR 25 million. Completion is scheduled for autumn 2017.

MotorsportsAs already announced, KTM will make its debut in the MotoGP racing series in 2017. The team will be unveiled in August 2016 at the Austrian Grand Prix, which will be held at the Red Bull Ring in Spielberg.

Adequate financial positionThe KTM Group further improved its liquidity and financing position in the current business year. Working capital management was further improved and will remain an area of focus during the coming year. Sufficient liquidity is therefore available to fund the planned growth, in particular by the issuance of the promissory note loan, from a portfolio of different financing instruments with a range of counterparties.

The Executive Board of KTM AGJuly 2016

Stefan Pierer, Chairman of the Executive Board

Harald PlöckingerViktor SiglHubert Trunkenpolz

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7INTERIM FINANCIAL STATEMENTS 1. HY 2016

in million EUR Note 1. HY 2016 1. HY 2015

Revenue (6) 572.3 515.1

Cost of sales -401.0 -363.4

Gross profit (6) 171.3 151.7

Selling and racing expenses (6) -72.5 -67.3Research and development expenses -10.6 -6.6Infrastructure and administration expenses -19.8 -17.9Other operating expenses -12.2 -9.7Other operating income 0.0 0.1Result from operating activities (6) 56.2 50.3

Interest income 0.6 0.5Interest expenses -4.5 -4.3Other financial result -0.6 -2.1Profit before tax 51.7 44.3Tax expense -12.7 -11.0

Profit for the reporting period (6) 39.0 33.3

of which attributable to the owners of the parent company 39.0 33.2of which attributable to non-controlling interests 0.0 0.1

Earnings per share (in EUR) basic = diluted 3.59 3.07

in million EUR Note 1. HY 2016 1. HY 2015

Profit for the reporting period 39.0 33.3Currency translation -0.6 1.2

Valuation of cash flow hedges 1.6 0.6

Deferred taxes on valuation of cash flow hedges -0.4 -0.1

Other comprehensive income - Possible reclassification into the income statement 0.6 1.7

Recognized actuarial losses -0.9 0.0

Deferred taxes on the recognized actuarial losses 0.2 0.0

Other comprehensive income - No reclassification into the income statement -0.7 0.0

Total comprehensive income (7) 38.9 35.0

of which attributable to the owners of the parent company 38.9 34.9of which attributable to non-controlling interests 0.0 0.1

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

I N T E R I M C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S 1 . H Y 2 0 1 6(CONDENSED)

The following notes to the consolidated interim financial statements form an integral part of the consolidated income statement and of the consolidated statement of comprehensive income.

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8 KTM AG

in million EUR Note June 30, 2016 Dec. 31, 2015

ASSETS

NON-CURRENT ASSETSProperty, plant and equipment (8) 168.1 161.2Intangible assets (9) 298.2 279.8Investments accounted for using the equity method 3.1 3.1Deferred tax assets 3.0 3.6Other non-current assets (10) 3.9 1.6

476.3 449.3

CURRENT ASSETSCash and cash equivalents (11) 173.7 118.4Inventories (12) 157.0 161.3Trade receivables (13) 114.0 88.2Prepayments 6.1 3.1Other current assets 76.0 28.7

526.8 399.7TOTAL 1,003.1 848.9

in million EUR Note June 30. 2016 Dec. 31. 2015

EQUITY AND LIABILITIES

CONSOLIDATED EQUITYShare capital 10.8 10.8Reserves including retained earnings 385.9 368.7Equity of the owners of the parent company 396.7 379.5Non-controlling interests 0.3 0.3

397.0 379.8NON-CURRENT LIABILITESBond (14) 0.0 84.8Promissory note loan (14) 119.5 0.0Financial liabilities (14) 127.6 125.5Employee benefits 17.1 14.9Deferred tax liabilities 40.7 37.7Other non-current liabilities (15) 6.7 6.8

311.6 269.8CURRENT LIABILITIESBond (14) 83.5 0.0Financial liabilities (14) 9.7 6.1Trade payables 128.1 127.4Provisions 9.9 8.9Tax liabilities 8.2 1.4Prepayments 2.5 2.2Other current liabilities (16) 52.6 53.3

294.5 199.4Total 1,003.1 848.9

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The following notes to the consolidated interim financial statements form an integral part of the consolidated statement of financial position.

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9INTERIM FINANCIAL STATEMENTS 1. HY 2016

in million EUR 1. HY 2016 1. HY 2015

Consolidated cash flow from operating activities+ (-) Profit for the reporting period 39.0 33.2+ (-) Profit allocated to non-controlling interests 0.0 0.1+ (-) Interest expenses/ Interest income 3.9 3.8

- Interest paid -4.4 -3.6+ Interest received 0.6 0.5

+ (-) Current income tax 9.4 3.0- Income taxes paid -2.1 -1.3

+ (-) Deferred taxes 3.3 8.0+ (-) Write-downs (additions) of fixed assets 25.5 20.0+ (-) Other non cash-effective income and expense 1.7 1.6

Gross cash flow 76.9 65.2

- (+) Increase (decrease) in inventories 6.7 -11.1

- (+)Increase (decrease) in trade receivables, prepayments, other current and non-current assets

-75.7 -36.7

+ (-)Increase (decrease) in trade payables, prepayments and other current and non-current liabilities

1.6 4.4

+ (-)Increase (decrease) in tax liabilities, deferred taxes and other provisions

0.7 -0.5

-66.7 -43.9Consolidated cash flow from operating activities 10.2 21.3

Consolidated cash flow from investing activities- Investments in fixed assets -54.1 -44.1- Investments in financial assets -2.5 -0.1+ Disposals of fixed assets 0.0 0.1

Consolidated cash flow from investing activities -56.6 -44.2

Consolidated cash flow from financing activities- Dividend -21.7 -16.3+ Promissory note loan 119.5 0.0+ Research loan 0.0 45.0

+ (-)Increase (decrease) in current and non-current financial liabilities

4.2 3.2

- (+) Other financing activities 0.0 0.1Consolidated cash flow from financing activities 102.0 32.0

Consolidated cash flow+ (-) Consolidated cash flow from operating activities 10.2 21.3+ (-) Consolidated cash flow from investing activities -56.6 -44.2+ (-) Consolidated cash flow from financing activities 102.0 32.0

Change in cash and cash equivalents 55.6 9.1+ (-) Effect of exchange rate fluctuations on cash held -0.3 -1.4

+Cash and cash equivalents at the beginning of the reporting period

118.4 68.8

Cash and cash equivalents at the end of the reporting period 173.7 76.5

CONSOLIDATED STATEMENT OF CASH FLOWS

comprising: cash on hand, checks, cash in banks and time deposits

The following notes to the consolidated interim financial statements form an integral part of the consolidated statement of financial position. The following notes to the consolidated interim financial statements form an integral part of the consolidated statement of cash flows.

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10 KTM AG

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

in million EUR Attributable to the owners of the parent company Non-controlling

interests

Total consolidated

equityShare capital Reserves

including retained earnings

Cash flow hedge

reserve

Foreign currency

translation reserve

Total

Balance as of January 1, 2016 10.8 366.8 0.8 1.1 379.5 0.3 379.8Currency translation 0.0 0.0 0.0 -0.6 -0.6 0.0 -0.6Financial instruments 0.0 0.0 1.2 0.0 1.2 0.0 1.2Actuarial losses 0.0 -0.7 0.0 0.0 -0.7 0.0 -0.7Other comprehensive income 0.0 -0.7 1.2 -0.6 -0.1 0.0 -0.1Profit of the reporting period 0.0 39.0 0.0 0.0 39.0 0.0 39.0Total comprehensive income 0.0 38.3 1.2 -0.6 38.9 0.0 38.9Dividend 0.0 -21.7 0.0 0.0 -21.7 0.0 -21.7

Balance as of June 30, 2016 10.8 383.4 2.0 0.4 396.7 0.3 397.0

in million EUR Attributable to the owners of the parent company Non-controlling

interests

Total consolidated

equityShare capital Reserves

including retained earnings

Cash flow hedge

reserve

Foreign currency

translation reserve

Total

Balance as of January 1, 2015 10.8 319.4 -3.6 0.4 327.1 0.5 327.6Currency translation 0.0 0.0 0.0 1.2 1.2 0.0 1.2Financial instruments 0.0 0.0 0.5 0.0 0.5 0.0 0.5Other comprehensive income 0.0 0.0 0.5 1.2 1.7 0.0 1.7Profit of the reporting period 0.0 33.2 0.0 0.0 33.2 0.1 33.3Total comprehensive income 0.0 33.2 0.5 1.2 34.9 0.1 35.0Dividend 0.0 -16.3 0.0 0.0 -16.3 0.0 -16.3

Balance as of June 30, 2015 10.8 336.4 -3.1 1.6 345.7 0.6 346.3

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11INTERIM FINANCIAL STATEMENTS 1. HY 2016

N O T E S T O T H E I N T E R I M C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S F O R 1 . H Y 2 0 1 6(condensed)

(1) The Company

KTM AG has its registered office in Stallhofnerstrasse 3, 5230 Mattighofen, Austria, and has been recorded in the commercial register at the Provincial Court as Commercial Court of Ried im Innkreis under file number FN 107673 v.

KTM AG engages in the development, production and distribution of motorized vehicles for recreational purposes (power sports), in particular under the “KTM” and “Husqvarna” brands, and in the acquisition and holding of stakes in entities engaging in the distribution of such equipment. As of June 30, 2016, the KTM Group comprised 39 subsidiaries, located in Austria, Switzerland, the U.S., Japan, South Africa, Mexico and India as well as in various other countries in Europe and Asia, which are included within the consolidated financial statements. Furthermore, the KTM Group has equity holdings in general importers that are based in important distribution markets (New Zealand and Dubai) as well as in various flagship stores in Austria and Germany.

Significant sales markets include the U.S., Germany, Great Britain, France, Italy, Canada, Spain, Austria and Australia as well as other European countries.

(2) Principles of financial reporting

The interim financial statements of KTM AG as of June 30, 2016 were prepared in ac-cordance with the International Financial Reporting Standards (IFRS) as adopted by the EU considering IAS 34 “Interim Financial Reporting”. The interim consolidated financial statements were neither audited nor reviewed by a certified public accountant.

The condensed interim consolidated financial statements do not include all the informa-tion and disclosures required in the annual financial statements, and should be read in conjunction with the consolidated financial statements as of December 31, 2015.

The figures in the interim consolidated financial statements are reported in the func-tional currency of the parent, the Euro. Unless deviations are indicated specifically, all amounts are rounded to 1,000,000 euros (EUR million), which may give rise to rounding differences.

Slight differences in totals from adding up rounded amounts and percentages cannot be excluded due to automated calculation tools.

The accounting and valuation methods used for the consolidated financial statements as of December 31, 2015 were applied unchanged. Further information regarding the accounting and valuation methods are explained in the notes to the consolidated financial statements for the financial year 2015. The accounting and valuation methods applied therein constitute the basis for the present interim consolidated financial statements for the first half year of 2016.

The accounting principles of the companies included in the condensed interim consol-idated financial statements are based on standardized accounting principles. These principles were fully applied by all consolidated companies.

The amount of income tax expenses for the consolidated interim financial statements was estimated, according to IAS 34, on basis of the annual average tax rate that is expected for the total business year.

The valuation of the provisions for severance payments and anniversary bonuses are based on the projected unit credit method. The amounts of the provisions are deter-mined on the basis of an actuarial report as at the balance sheet date. For the interim consolidated financial information, these amounts are extrapolated. If significant changes of the parameters occur during the year, a reassessment of the net debt is carried out.

All further new or amended standards and interpretations that are effective in the European Union from January 1, 2016 have no significant impact on the consolidated interim financial statements of KTM AG.

» Amendments to IAS 27: Equity Method in Separate Financial Statements » Amendments to IAS 1: Disclosure Initiative » Annual Improvements to IFRSs 2012–2014 Cycle » mendments to IAS 16 and IAS 38: Clarification of Acceptable Methods

of Depreciation and Amortization » Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint

Operations » Amendments to IAS 16 and IAS 41: Bearer Plants

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12 KTM AG

(3) Scope of consolidation

All subsidiaries under the legal or factual control of KTM AG have been included in the interim consolidated financial statements of KTM AG for the first half year of 2016. Apart from the parent, 39 entities (of which 33 are foreign entities and six are domestic entities) are therefore included by full consolidation in the KTM Group.

The following table shows the consolidated companies as of June 30, 2016:

(4) Estimates

In the consolidated financial statements, certain estimates and assumptions have to be made that affect the recognized assets and liabilities, the disclosure of con-tingent liabilities as of the balance sheet date and the presentation of income and expenses for the financial year. Estimates and assumptions are based on empirical values the Executive Board deems appropriate. The amounts actually arising may differ from the estimates if assumed parameters develop contrary to expectations. If new conditions become known, they are duly taken into account and previous assumptions are revised accordingly.

Estimates and uncertainties in judgements and assumptions are explained in the consolidated financial statements of KTM AG as of December 31, 2015 under note (4) accounting policies.

(5) Seasonality

Seasonality effects occur due to a different seasonality of offroad- and street motorcycles. In the street area, there are higher sales in the first half of the year, whereas in the offroad division, the main focus is on the second half of the year. Due to the increasing importance of the street segment to total revenue, seasonal effects are straightened over the year to a great extent. Therefore, management is not expecting a high dependency on seasons.

(6) Notes to the consolidated statement of profit or loss

Revenue increased, compared to prior year, by EUR 57.2 million to EUR 572.3 million (+11.1%) due to an increase in sales volume. Approximately 94% of sales were generated outside of Austria.

In the first half year of 2016 gross profit rose by 12.9% to EUR 171.3 million compared to prior year due to an increased business volume resulting in a gross margin ratio of 29.9% (prior year: 29,5%).

Selling and racing expenses rose by EUR 5.2 million to EUR 72.5 million (+7.7%) compared to prior year. This growth is due to an increase in sales and extensive motorsports activities.

Operating development expenses in the first half year 2016 rose by EUR 10.7 million from prior year to EUR 41.8 million (+34.3%). Considering the capitaliza-tion of development costs amounting to EUR 27.7 million (+27.5% to prior year) and the inclusion of research subsidies amounting to EUR 3.5 million (+24.6% to prior year) results in net development expenses of EUR 10.6 million (prior year: EUR 6.6 million).

Overhead expenses in total increased from EUR 101.4 million in the prior year to EUR 115.1 million (+13.5%).

The result from operating activities increased to EUR 56.2 million (+ EUR 5.9 million compared to prior year) due to a positive development of sales and revenue in the first half year of 2016. Therefore, an EBIT margin of 9.8% could be recorded, unchanged to the EBIT margin in prior year.

The financial result amounted to EUR -4.5 million and therefore EUR 1.4 million below the figure of prior year (EUR -5.9 million) due to currency valuation effects in prior year.

The effective tax rate as of June 30, 2016 changed only slightly compared to the same period in prior year and amounts to 24.6% (prior year: 24.8%).

The profit after interest and taxes increased from EUR 33.3 million in prior year to EUR 39.0 million (+17.1% to prior year).

(7) Notes to the consolidated statement of comprehensive income

The cash flow hedge reserve increased equity by EUR 1.4 million net in the reporting period. Furthermore actuarial losses amounting to EUR -0.7 million and changes of the foreign currency translation reserve of EUR -0.6 million were recognized in equity.

Total comprehensive income increased the group’s equity in the reporting period by EUR 38.9 million.

Notes to the consolidated statement of financial position

(8) Property, plant and equipment

Property, plant and equipment increased, compared to the book value as of Decem-ber 31, 2015, by EUR 6.9 million to EUR 168.1 million due to investments in the motorsports building and tools.

(9) Intangible assets

Intangible assets include, in substance, capitalized development costs as well as brand rights and licenses. In the first six months of 2016, intangible assets rose by EUR 18.4 million to EUR 298.2 million due to the net capitalization of development costs and investments in IT infrastructure.

Full consolidation At-equity consolidationAs of January 1, 2016 39 3Additions 0 0Disposals 0 0As of June 30, 2016 39 3

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13INTERIM FINANCIAL STATEMENTS 1. HY 2016

(10) Other non-current assets

Other non-current financial assets include, as reported in the consolidated financial statement as of December 31, 2015, equity instruments, that are not quoted in an active market and whose fair value cannot be reliably measured. These are accounted for at cost less impairment.

(11) Cash and cash equivalents

In the first half year of 2016, cash and cash equivalents increased by EUR 55.3 million to EUR 173.7 million due to the issuance of the promissory note loan.

(12) Inventories

Inventories declined by EUR 4.3 million to EUR 157.0 million compared to prior year due to an inventory reduction of spare parts, garments and accessories. In the first half year 2016, allowances to the net realizable value amounting to EUR 1.7 million (EUR 3.5 million in prior year) were recorded as expense.

(13) Trade receivables

Trade receivables including receivables due from affiliated and associated com-panies rose by EUR 25.8 million to EUR 114.0 million due to seasonal influences. Taking into account the receivables sold in the first six months of 2016 within the scope of the ABS transaction, this increase amounts to EUR 34.7 million.

(14) Financial liabilities

In June 2016 a promissory note loan with a volume amounting to EUR 120 million and a duration of five, seven and ten years was issued. By issuing this promissory note loan, the group gained liquidity amounting to EUR 119.5 million after the reduction of transaction fees. This liquidity, in substance, is used for the redemption of the bond that is due in April 2017.

By the early repurchase of own bonds, the remaining bonds liability amounts to EUR 83.5 million.

Furthermore an investment loan was taken out for the construction of the new motorsports building (+ EUR 9.5 million).

In the first half year of 2016, non-current financial liabilities increased by EUR 2.1 million to EUR 127.6 million.

Current financial liabilities increased slightly by EUR 3.6 million to EUR 9.7 million.

Net Financial Debt increased in the first half year of 2016, compared to December 31, 2015, by EUR 68.6 million to EUR 165.8 million due to seasonality. The gearing ratio amounts to 41.8% (December 31, 2015: 25.6%).

(15) Other non-current liabilities

Other non-current liabilities remained nearly at the same level compared to prior year amounting to EUR 6.7 million and include, in substance, deposits received.

(16) Other current liabilities

Other current liabilities declined by EUR 0.7 million to EUR 52.6 million.

Other current liabilities include, in substance, employee benefits, tax liabilities, liabilities from derivative financial instruments and liabilities due to sales bonuses and price discounts.

(17) Notes to the consolidated statement of cash flows

Compared to prior year the free cash flow deteriorated from EUR -22.9 million to EUR -46.4 million, and is therefore negative due to seasonality. The cash flow from operating activities decreased due to prepayments (EUR -11.1 million). Furthermore, the cash flow from investing activities declined due to higher investments (+ EUR 12.4 million).

(18) Notes to the consolidated statement of changes in equity

Total equity changed due to the result of the current period (+ EUR 39.0 million) and the payment of the dividend (– EUR 21.7 million) to EUR 397.0 million.

(19) Notes to financial instruments

The fair value of a financial instrument is determined by means of quoted market prices for an identical instrument in active markets (Level 1). If no quoted market prices in active markets are available for the instrument, the fair value is determined by means of valuation techniques for which the material parameters are based only on observable market data (Level 2). In all other cases, the fair value is determined on the basis of valuation techniques for which at least one material parameter is not based on observable market data (Level 3).

Reclassifications from one level to another are taken into account at the end of the reporting period. There were no transfers between levels in the financial year

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14 KTM AG

MILLION EUR CARRYING AMOUNT Fair Value Fair Value

Level 1 Level 2 Level 3 Total

June 30, 2016Loan and receivablesCash and cash equivalents 173.7 - - - - -Trade receivables 114.0 - - - - -Other financial assets 19.6 - - - - -Sum 307.3

Available for saleOther non-current financial assets 3.9 - - - - -Sum 3.9

Held for trading

Other current assets - securities (Trading acc. to IAS 39)

1.7 1.7 1.7 - - 1.7

Sum 1.7

Other non-current assets - financial assets

Other current assets - Derivates with positive market value (cash flow hedge)

7.1 7.1 - 7.1 - 7.1

Sum 7.1Total 320.0

MILLION EUR CARRYING AMOUNT Fair Value Fair Value

Level 1 Level 2 Level 3 Total

December 31, 2015Loan and receivablesCash and cash equivalents 118.4 - - - - -Trade receivables 88.2 - - - - -Other financial assets 13.3 - - - - -Sum 219.9

Available for saleOther non-current financial assets 1.6 1.6 1.6 - - 1.6Sum 1.6

Held for trading

Other current assets - securities (Trading acc. to IAS 39)

1.6 1.6 1.6 - - 1.6

Sum 1.6

Other non-current assets - financial assets

Other current assets - Derivates with positive market value (cash flow hedge)

3.6 3.6 - 3.6 - 3.6

Sum 3.6Total 226.7

The following table shows the carrying amounts and fair values of the financial assets (financial instruments shown on the assets side), broken down by class or measurement category according to IAS 39. But it does not provide information on

financial instruments not measured at fair value where the carrying amount is a reasonable approximation of fair value.

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15INTERIM FINANCIAL STATEMENTS 1. HY 2016

The following table shows the carrying amounts and fair values of the financial liabilities (financial instruments shown on the liabilities side), broken down by class or measurement category according to IAS 39. But it does not provide information

on financial liabilities not measured at fair value where the carrying amount is a reasonable approximation of fair value.

MILLION EUR CARRYING AMOUNT Fair Value Fair Value

Level 1 Level 2 Level 3 Total

June 30, 2016At amortized costFinancial liabilities 116.0 119.1 - - 119.1 119.1Finance lease liabilities 21.3 - - - - -Trade payables 128.1 - - - - -Bonds 83.5 85.8 85.8 - - 85.8Promissory note loan 119.5 124.5 - - 124.5 124.5Other current and non-current financial liabilities 30.5 - - - - -Sum 498.9

Held for tradingOther financial liabilities - Derivatives with negative market value

0.0 0.0 0.0 0.0 0.0 0.0

Sum 0.0

Fair value - Hedging instruments

Other financial liabilities - Derivates with negative merket value (cash flow hedge)

2.1 2.1 - 2.1 - 2.1

Sum 2.1Total 501.0

MILLION EUR CARRYING AMOUNT Fair Value Fair Value

Level 1 Level 2 Level 3 Total

December 31, 2015At amortized costFinancial liabilities 109.8 111.7 - - 111.7 111.7Finance lease liabilities 21.8 - - - - -Trade payables 127.4 - - - - -Bonds 84.8 88.6 88.6 - - 88.6Other current and non-current financial liabilities 33.6 - - - - -Sum 377.4

Held for trading

Other financial liabilities - Derivatives with negative market value

0.1 0.1 - 0.1 - 0.1

Sum 0.1

Fair value - Hedging instruments

Other financial liabilities - Derivates with negative merket value (cash flow hedge)

2.5 2.5 - 2.5 - 2.5

Sum 2.5Total 380.0

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16 KTM AG

Financial instruments measured at fair value

Type Valuation technique Significant, unobservable inputs

Connection between significant unobservable inputs and fair value measurement

Foreign currency forwards and interest rate swaps

Market comparison method:The fair values are based on the market values determined using accepted methodologies of financial mathematics; they are regularly checked for plausibility.

Not applicable Not applicable

Securities For the valuation of securities, the current market price at the balance sheet date is used.

Not applicable Not applicable

Financial instruments not measured at fair value

Type Valuation technique Significant, unobservable inputs

BondsThe exchange listed bond is measured using the price quoted on the balance sheet date.

Not applicable

Promissory note loan Discounted cash flows Risk premium for own credit risk

Loans Discounted cash flows Risk premium for own credit risk

Fair value determination

The following table shows the valuation technique used to determine the fair value as well as the significant unobservable inputs used.

(20) Segment reporting

Information for business segmentsThe KTM group is divided by brand into two business segments, KTM and Husqvarna. The marketing activities of both brands now take place via two different marketing entities that are separated in both corporate and staffing terms. The two business segments are defined as follows:

KTM segmentThe KTM segment comprises KTM AG along with the KTM subsidiaries specializing in the sale of KTM street and offroad motorcycles, as well as the X-Bow supercar and in motorsport.

Upstream processes such as R&D, production and purchasing, along with group administrative group functions, continue to provide services for both brands and therefore also continue to be centered in corporate terms in one company which is allocated to the KTM business segment. A division of property, plant, and equipment between the two brands is not possible because of the single production location and nearly identical production processes. No such division is therefore reported internally to the chief operating decision maker.

Husqvarna segmentThe Husqvarna segment comprises Husqvarna Motorcycles GmbH and the Husqvarna subsidiaries. Husqvarna sells Husqvarna motorcycles and is involved in motorsport.

The accounting policies for both reporting segments are the same as the group-wide accounting policies. No difference therefore exists between the measurement of the profit / loss or of the assets and liabilities of the segments and the equivalent figures for the group.

Intersegmental revenues are recorded at arm’s-length transfer prices.

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17INTERIM FINANCIAL STATEMENTS 1. HY 2016

in million EUR KTM Husqvarna Consolidation Group

1. HY 2016External revenue 485.2 87.1 0.0 572.3

Revenue between the segments 71.1 0.2 -71.3 0.0

Revenue total 556.3 87.3 -71.3 572.3

EBIT 47.1 9.3 -0.2 56.2Depreciation 25.4 0.1 0.0 25.5

Group revenue by region 1. HY 2016 in% 1. HY 2015 in%

Europe 340.1 59.4% 285.4 55.4%North America 147.9 25.9% 134.5 26.1%Other countries 84.3 14.7% 95.2 18.5%Total 572.3 100.0% 515.1 100.0%

Group revenue by product group 1. HY 2016 in% 1. HY 2015 in%

Offroad-Sportmotorcycles 184.5 32.2% 143.2 27.8%Street-Sportmotorcycles 272.3 47.6% 277.5 53.9%Sportminicycles 18.8 3.3% 9.8 1.9%X-Bows 2.9 0.5% 1.0 0.2%PG&A 93.8 16.4% 83.6 16.2%Gesamt 572.3 100.0% 515.1 100.0%

in million EUR KTM Husqvarna Consolidation Group

1. HY 2015External revenue 460.6 54.5 0.0 515.1

Revenue between the segments 38.6 0.3 -38.9 0.0

Revenue total 499.2 54.8 -38.9 515.1

EBIT 47.5 2.7 0.1 50.3Depreciation 19.9 0.1 0.0 20.0

The result in the balance column corresponds to the result in the statement of profit or loss. The reconciliation from the result before tax is shown in the statement of profit or loss.

The following tables show the cross-segment information for the first half year 2016 and 2015.

As of June 30, 2016 non-current assets amounting to EUR 451.8 million (December 31, 2015: EUR 426.6 million) were allocated to the company’s country of origin and EUR 14.5 million (December 31, 2015: EUR 14.4 million) concern third countries.

Neither the KTM segment nor Husqvarna report dependencies on external customers within the meaning of IFRS 8.34.

(21) Related Party disclosures

All products and services rendered and received from related companies and individuals as stated in the consolidated financial statements as of December 31, 2015 are carried out at arm’s lengths. In the first half year of 2016 there have been no material changes regarding transaction partner, volume and nature of the business relationship.

(22) Significant events after the reporting period

For the reportable events after the reporting date of the interim period we refer to the interim consolidated management reporting, note (10) Significant events after the reporting period.

The following tables show the segment information for the first half year of 2016 and 2015:

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18 KTM AG

The Executive Board of KTM AGJuly 2016

Stefan Pierer, Chairman of the Executive Board

Members of the Executive Board:

Harald Plöckinger

Viktor Sigl

Hubert Trunkenpolz

We, the executive board of KTM AG, confirm to the best of our knowledge that the condensed interim consolidated financial statements for the first six months of 2016 give a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the applicable accounting standards and that the condensed consolidated management report gives a true and fair view of important events that have occurred during the first six months of the financial year and their impact on the condensed interim consolidated financial statements, of the principal risks and uncertainties for the remaining six months of the financial year and of significant related party transactions to be disclosed.

S T AT E M E N T O F A L L L E G A L R E P R E S E N T AT I V E S

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19INTERIM FINANCIAL STATEMENTS 1. HY 2016

Press date: July 25, 2016

While every care was taken in compiling this report and checking that the data it contains is correct, slight differences in totals from adding up rounded amounts and percentages, typographical errors and misprints cannot be excluded. This report and the forward-looking statements it contains were prepared on the basis of all data and information available at the time of going to press. We wish to point out, however, that various factors may cause the actual results to deviate from the forward-looking statements given in the report.

I N T E R I M F I N A N C I A L S T AT E M E N T S 1. HALF YEAR 2016

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KTM AG Stallhofnerstraße 35230 Mattighofen, Austria

E-MAIL: [email protected]: www.ktmgroup.com