Landi Renzo

Quarterly Report • Sep 22, 2017

HALF-YEARLY FINANCIAL REPORT AS AT 30 JUNE 2017

CONTENTS

1. GENERAL INFORMATION

• 1.1. Corporate officers and information
• 1.2. Group Structure
• 1.3. Landi Renzo Group, Financial Highlights
• 1.4. Significant Events During the Six Months

2. INTERIM REPORT ON OPERATING PERFORMANCE

• 2.1. Operating performance
• 2.2. Innovation, research and development
• 2.3. Shareholders and financial markets
• 2.4. Policy for analysing and managing risks connected with the activities of the Group
• 2.5. Other information
• 2.6. Significant events after closing of the six-month period and forecast for operations

3. CONDENSED SIX-MONTHLY CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2017

• 3.1. Consolidated Statement of Financial Position
• 3.2. Consolidated Income Statement
• 3.3. Consolidated Statement of Comprehensive Income
• 3.4. Consolidated Cash Flow Statement
• 3.5. Table of Changes in Consolidated Equity
• 1. EXPLANATORY NOTES TO THE CONDENSED SIX-MONTHLY CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2017
• 4.1. General information
• 4.2. General Accounting Standards and Consolidation Principles
• 4.3. Consolidation area
• 4.4. Explanatory notes to the consolidated financial statements
• 1. CERTIFICATION OF THE CONDENSED SIX-MONTHLY CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO. 11971 OF 14 MAY 1999, AS AMENDED AND SUPPLEMENTED
• 1. AUDITOR'S REPORT

(Translation from Italian original which remain the definitive version)

1. GENERAL INFORMATION

1.1. CORPORATE OFFICERS AND INFORMATION

On 29 April 2016, the Shareholders' Meeting of the parent company Landi Renzo S.p.A. elected the Board of Directors and the Board of Statutory Auditors for the period 2016-2018. They will therefore remain in office until the Meeting of Shareholders called to approve the Financial Statements for the year ending 31 December 2018. The same Meeting also appointed PricewaterhouseCoopers S.p.A. as the independent auditing firm for the period 2016-2024. The following year, on 28 April 2017, after increasing the number of members of the Board of Directors from eight to nine, the Shareholders' Meeting appointed Cristiano Musi (formerly General Manager) as director. On the same date, the Board of Directors made him Chief Executive Officer and revoked all other mandates previously assigned.

Chairman Stefano Landi continues to act as Executive Chairman of the Board. Following the death of Statutory Auditor Massimiliano Folloni in May 2017, Filomena Napolitano, formerly an Alternate Auditor, became a standing auditor; to ensure that the composition of the Board of Statutory Auditors meets gender requirements, the Company will call an Ordinary Meeting of Shareholders to be held by mid-October 2017.

At the end of July 2017, Director Claudio Carnevale resigned in order to pursue new professional opportunities.

On the date on which this Half-Yearly Financial Report was drafted, the company officers were as follows:

Board of Directors

Executive Chairman	Stefano Landi
Honorary Chairperson - Director	Giovannina Domenichini
Chief Executive Officer	Cristiano Musi
Director	Silvia Landi
Director	Angelo Iori
Independent Director	Anton Karl
Independent Director	Sara Fornasiero (*)
Independent Director	Ivano Accorsi
Board of Statutory Auditors
Chairman of the Board of Statutory Auditors	Eleonora Briolini
Standing Statutory Auditor	Diana Rizzo
Standing Statutory Auditor	Filomena Napolitano
Alternate Auditor	Andrea Angelillis
Control and Risks Committee
Chair	Sara Fornasiero
Committee Member	Ivano Accorsi
Committee Member	Angelo Iori
Remuneration Committee
Chair	Ivano Accorsi
Committee Member	Sara Fornasiero
Committee Member	Angelo Iori
Committee for Transactions with Related Parties
Committee Member	Sara Fornasiero
Committee Member	Ivano Accorsi
Supervisory Board (Italian Legislative Decree 231/01)
Chair	Jean-Paule Castagno
Member of the Board	Sara Fornasiero
Member of the Board	Enrico Gardani

Half-yearly financial report – H1 2017_________________________________________________________ 3

Independent Auditing Firm PricewaterhouseCoopers S.p.A.

Financial Reporting Manager Paolo Cilloni

(*) The Director also holds the office of Lead Independent Director

Registered office and company details

Landi Renzo S.p.A. Via Nobel 2/4/6 42025 Corte Tegge – Cavriago (RE) – Italy Tel. +39 0522 9433 Fax +39 0522 944044 Share capital: €11,250,000 Tax Code and VAT No. IT00523300358

This report is available on the Internet at: www.landirenzogroup.com

1.3. LANDI RENZO GROUP FINANCIAL HIGHLIGHTS

(Thousands of Euro)
ECONOMIC INDICATORS FOR THE SECOND QUARTER	Q2 2017	Q2 2016	Change
Revenue	56,734	47,870	8,864
Adjusted Gross Operating Profit (EBITDA) (1)	4,234	1,533	2,701
Gross Operating Profit (EBITDA)	2,710	-1,917	4,627
Adjusted Net Operating Profit (EBIT) (1) and (1 bis)	293	-2,386	2,679
Net Operating Profit (EBIT)	-3,291	-5,836	2,545
Earnings before Tax	-5,363	-6,393	1,030
Net profit (loss) for the Group and minority interests	-5,660	-8,450	2,790
Adjusted Gross Operating Profit (EBITDA) / Revenue	7.5%	3.2%
Adjusted Net Operating Profit (EBIT) / Revenue	0.5%	-5.0%
Net profit (loss) for the Group and minority interests / Revenue	-10.0%	-17.7%

(Thousands of Euro)
ECONOMIC INDICATORS FOR THE FIRST HALF OF THE YEAR	30/06/2017	30/06/2016	Change
Revenue	103,508	89,290	14,218
Adjusted Gross Operating Profit (EBITDA) (1)	6,430	1,896	4,534
Gross Operating Profit (EBITDA)	4,457	-1,554	6,011
Adjusted Net Operating Profit (EBIT) (1) and (1 bis)	-1,518	-6,141	4,623
Net Operating Profit (EBIT)	-5,551	-9,591	4,040
Earnings before Tax	-8,574	-11,607	3,033
Net profit (loss) for the Group and minority interests	-8,621	-12,766	4,145
Adjusted Gross Operating Profit (EBITDA) / Revenue	6.2%	2.1%
Adjusted Net Operating Profit (EBIT) / Revenue	-1.5%	-6.9%
Net profit (loss) for the Group and minority interests / Revenue	-8.3%	-14.3%

(Thousands of Euro)
FINANCIAL POSITION	30/06/2017	31/12/2016	30/06/2016
Net fixed assets and other non-current assets	89,932	96,967	100,331
Operating capital (2)	29,352	36,442	49,674
Non-current liabilities (3)	-12,587	-12,611	-13,448
NET CAPITAL EMPLOYED	106,697	120,798	136,557
Net financial position (cash) (4)	61,681	75,716	78,269
Shareholders' equity	45,016	45,082	58,288
BORROWINGS	106,697	120,798	136,557

(Thousands of Euro)
KEY INDICATORS	30/06/2017	31/12/2016	30/06/2016
Operating capital / Turnover (rolling 12 months)	14.8%	19.8%	25.3%
Net financial debt / Equity	137.0%	168.0%	134.3%
Gross tangible and intangible investments	2,993	9,376	4,619
Personnel (peak)	766	781	792

(Thousands of Euro)
CASH FLOWS	30/06/2017	31/12/2016	30/06/2016
Operational cash flow	7,470	-6,104	-13,888
Cash flow for investment activities	-2,851	-9,144	-4,501
FREE CASH FLOW	4,619	-15,248	-18,389

⁽¹⁾ The data does not include accounting of extraordinary costs of €1,973 thousand for the first six months of 2017, of which €1,524 thousand in the second quarter of 2017, as described in more detail in paragraph 2.1 of this Report.

(1 bis) The data does not include accounting of the net capital loss of €2,060 thousand deriving from assets held for sale in the first half of 2017, due to the disposal of the Technical Centre business unit.

(2) This is calculated as the difference between Trade Receivables, Inventories, Contract work in progress, Other Current Assets and Trade Payables, Tax liabilities, Other Current Liabilities.

(3) These are calculated by totalling Deferred Tax Liabilities, Defined Benefit Plans for employees and Provisions for Risks and Charges.

(4) The net financial position is calculated in accordance with the provisions of CONSOB Communication DEM/6064293 of 28 July 2006.

1.4. SIGNIFICANT EVENTS DURING THE SIX MONTHS

January In January, a Group reorganization was launched to bring the Group closer to the market and increase the efficiency and the effectiveness of operating activities.

• February In the beginning of February, the new management team began the "Excellence" project focused on a variety of activities of EBITDA improvement with the support of a leading external consulting firm, focusing on a series of activities meant to reduce fixed and variable costs to align them with Automotive best practices at international level.
• March On 30 March 2017, the Meeting of Bondholders for the LANDI RENZO 6.10% 2015-2020 loan unanimously approved the Board of Directors' proposal regarding amendments to the Bonded Loan Regulations. In particular, inter alia, the Meeting approved the postponement of the maturity of the debenture loan from 15 May 2020 to 31 December 2022. The Meeting then approved a decrease in the coupon rate in relation to interest periods beginning from the payment date falling on 30 April 2017 (inclusive) until 30 June 2019 (exclusive) from the current 6.10% to 5.5% on an annual basis of the outstanding capital; the coupon rate will be paid every six months.

Following the changes mentioned above, the debenture loan was named "LANDI RENZO 6.10% 2015-2022", maintaining the same ISIN IT0005107237.

At the same time, the Group's financial structure Optimization Agreement was finalized, the guidelines of which were developed with the support of the financial advisor Mediobanca – Banca di Credito Finanziario S.p.A., after all banking institutions involved had signed it.

The agreement calls for, inter alia:

• (i) The movement of the maturity date of the debt of the Parent Company and its subsidiaries signatories to the agreement to 2022;
• (ii) The rescheduling of the debt of the Group, on the basis of repayment instalments of increasing amounts in line with the cash generation objectives laid out in the Business Plan;
• (iii) The review of financial covenants consistent with the performance laid out in the Business Plan;
• (iv) The maintenance of short-term lines in an amount consistent with the needs laid out in the Business Plan.

The project was also prepared in light of and consistent with the Group's Business Plan, the update of which was approved by the Board of Directors on 30 December 2016. The Business Plan was subject to an independent business review by KPMG Advisory S.p.A. in the capacity of independent third-party business advisor, and the results of that analysis and the relative documentation were considered by the Group's management in developing and finalizing the Financial Optimization Project.

In line with the above-mentioned Optimization Agreement, on 30 March 2017 the controlling shareholder made a future capital increase contribution to the Parent Company for a total of €8,866.5 thousand.

April On 26 April 2017, Landi Renzo and AVL entered into the preliminary agreement for the sale of a business unit regarding part of the technical centre (consisting of laboratories, equipment and sundry materials) to the AVL Group, a leading global operator in the development of powertrains.

	The agreement calls for, inter alia, a disposal consideration of €5.7 million gross of liabilities
	transferred, to be paid in instalments.
April	On 28 April 2017, the Shareholders' Meeting resolved, amongst other things: - to approve covering the operating loss of Landi Renzo S.p.A. of €28,985,860.92 by fully utilizing the Extraordinary and IAS Transition reserves which are now cancelled out, and the Share Premium Reserve, which is reduced to €30,718,198.13; - renewal of authorization for the purchase and disposal of treasury shares; - the appointment of Cristiano Musi as the new director.
April	On 28 April 2017, the Board of Directors re-elected Stefano Landi as the Chairman of the Board of Directors of Landi Renzo and appointed Cristiano Musi, formerly General Manager of the Company (who therefore no longer holds this position), as the Chief Executive Officer.
May	At the end of May, following the death of standing member of the Board of Statutory Auditors Massimiliano Folloni, alternate auditor Filomena Napolitano took his place as a standing member of the Board of Statutory Auditors.

2. INTERIM REPORT ON OPERATING PERFORMANCE

This consolidated Half-Yearly Financial Report at 30 June 2017 was prepared pursuant to Italian Legislative Decree 58/1998 and subsequent modifications, as well as the Issuer Regulations issued by CONSOB.

This consolidated Half-Yearly Financial Report has been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and endorsed by the European Union, and has been prepared in accordance with IAS 34 - Interim Financial Reporting, applying the same accounting policies as adopted in preparing the consolidated financial statements at 31 December 2016.

In partial exception to the provisions of IAS 34, this report provides detailed rather than summary tables in order to provide a clearer view of the economic-equity and financial dynamics over the six-month period. All values presented below are expressed in thousands of Euro and comparisons are made with respect to data from the corresponding period of the previous year for the economic values and with respect to the data at 31 December 2016 for the financial data (shown in brackets), unless otherwise indicated. The explanatory notes are also presented in compliance with the information required by IAS 34 with the supplements considered useful for a clearer understanding of the six-monthly financial statements.

2.1. OPERATING PERFORMANCE

Preamble

Following the closure of the Group's financial structure Optimization Agreement with the banks and the appointment of Cristiano Musi as Chief Executive Officer in order to guide the Group's recovery and relaunch, including by reviewing its strategic guidelines, in the first half of 2017 a project got underway to reorganize the Automotive business area, which includes OEM (Original Equipment Manifacturer) and AM (After Market) channel sales as well as Electronic Equipment sales, with a view to enabling the Group to better meet market needs, improving upon its capacity to satisfy a range of business requirements, reducing time to market and, in general, bringing Automotive sector area efficiency levels into line with market best practices. The new organizational model calls for the strategic integration of the management of the Group's different Automotive companies (Landi Renzo S.p.A., Lovato Gas S.p.A., AEB S.p.A. and Emmegas S.r.l.) and the foreign investees, in order to define a shared strategic vision and thus improve efficiency, effectiveness and innovation capacity.

At the same time, the new management team began a project meant to improve operating efficiency, taking significant steps in order to reduce the break even, with the identification of a series of initiatives meant to reduce fixed and variable product costs to align them with Automotive best practices at international level. The project envisages activities on the SG&A (Selling, General & Administrative) cost structure, a review of the production footprint and processes, sourcing & procurement strategies and the supply chain at international level, as well as the reorganization of product development activities, with the aim of fully exploiting synergies deriving from the possibility of managing production and procurement in different parts of the world. In order to quickly launch the development and EBITDA improvement plan, a top consulting firm was engaged to support the Chief Executive Officer and the company's top management in preparing and implementing an action plan. Already in the final quarter of 2017, there will be significant positive results with full benefits expected as of 2018.

At the same time, a new strategic project was launched in the subsidiary Safe in order to embark upon a path of growth and industrial optimization, to position Safe as one of the worldwide market leaders in the development and sale of CNG (Compressed Natural Gas), biomethane (RNG) and LNG (Liquid Natural Gas) solutions. To support this project, a new General Manager was appointed, with more than 25 years of experience in top-tier companies operating in the compressor for gas and Oil & Gas sectors.

Consolidated results

Consolidated revenues for the first half of 2017 totalled €103,508 thousand, increasing by €14,218 thousand (+15.9%) compared with the same period of the previous year.

This revenue growth was caused by robust sales trends in the Automotive sector, particularly in the OEM channel (+42.6%) as well as After Market (+8.6%), specifically in high-end innovative products.

The growth in volumes is correlated with rising sales of LPG and CNG fuelled vehicles as well as the greater commercial focus of the Group, which is seeking to adopt an increasingly market-oriented approach, which is more and more concentrated on providing solutions to the market quickly.

The adjusted Gross Operating Profit (EBITDA) at the end of the six-month period totalled €6,430 thousand, a significant improvement compared with the same period of the previous year (€1,896 thousand) due to the higher sales volumes in the Automotive sector, the Landi Renzo Group's core business, as well as thanks to the initial benefits of the EBITDA improvement activities launched during the half-year, focusing on aligning the Automotive business area efficiency levels with sector best practices, with a series of actions aiming to reduce fixed and variable costs.

The Gross Operating Profit (EBITDA) was positive at €4,457 thousand. This result was affected not only by the above factors but also by extraordinary costs of €1,973 thousand, of which:

• €1,533 thousand relating to the appointment of the top consulting firm engaged to support the Chief Executive Officer and the company management in preparing and implementing an EBITDA improvement action plan;
• €440 thousand for personnel incentives, particularly for executives who were replaced as part of the reorganization and relaunch plan.

The Net Operating Profit (EBIT) is negative at -€5,551 thousand (-€9,591 thousand in the first half of 2016), after depreciation and amortization of €7,948 thousand and an extraordinary net capital loss of €2,060 thousand deriving from the preliminary agreement signed in the first half of 2017 and subsequently finalized on 31 July 2017 for the disposal of the business unit relating to the part of the Technical Centre responsible for the management of laboratories to the AVL Group.

With reference to the above-mentioned agreement, it is important to underscore that on an annual basis, starting from 2018, the estimated advantages of the transaction will allow for a reduction in fixed costs of roughly €3 million in terms of EBIT, of which around €1.5 million in terms of EBITDA, and a positive impact of roughly €2 million in terms of financial management. The disposal of the business unit will also allow for a reduction of the annual investments necessary to maintain and upgrade the equipment sold of between €500 thousand and €700 thousand.

The following table shows the evolution of the main economic performance indicators for the first half of 2017 compared with the first half of 2016.

(Thousands of Euro)
	30/06/2017	Extraordinary costs	30/06/2017 ADJ	%	30/06/2016	Extraordinary costs	30/06/2016 ADJ	%	ADJ changes	ADJ %
Revenues from sales and services	103,508		103,508	100.0%	89,290		89,290	100.0%	14,218	15.9%
Other revenues and income	433		433	0.4%	559		559	0.6%	-126	-22.6%
Operating costs	-99,484	-1,973	-97,511	-94.2%	-91,403	-3,450	-87,953	-98.5%	-9,558	10.9%
Gross operating profit	4,457		6,430	6.2%	-1,554		1,896	2.1%	4,534	n/a
Amortization, depreciation and impairment	-7,948		-7,948	-7.7%	-8,037		-8,037	-9.0%	89	-1.1%
Net capital loss from disposal	-2,060	-2,060	0		0		0		0
Net Operating Profit	-5,551		-1,518	-1.5%	-9,591		-6,141	-6.9%	4,623	n/a
Financial income (charges) and exchange differences	-3,077		-3,077	-3.0%	-1,952		-1,952	-2.2%	-1,125	57.6%
Gain (loss) on equity investments valued using the equity method	54		54	0.1%	-64		-64	-0.1%	118	184.4%
Profit (Loss) before tax	-8,574		-4,541	-4.4%	-11,607		-8,157	-9.1%	3,616	n/a
Current and deferred taxes	-47				-1,159
Net profit (loss) for the Group and minority interests, including:	-8,621				-12,766
Minority interests	-147				-225
Net profit (loss) for the Group	-8,474				-12,541

SEGMENT REPORTING

In compliance with the provisions of IFRS 8, information is provided below on the business operating segments.

Since the first half of 2017, with the appointment of the new Chief Executive Officer, the Group has been engaged in an organizational evolution which has entailed the reorganization of activities into the following segments, previously considered on a unitary basis as a business segment for the manufacture of car systems and distribution:

• Automotive;
• Gas Distribution and Compressed Natural Gas;
• Sound.

The new organizational model also calls for the integration of the management of the Group's different Automotive companies (Landi Renzo S.p.A., Lovato Gas S.p.A., AEB S.p.A. and Emmegas S.r.l.) and the foreign investees, with a view to developing a shared strategic vision, improving efficiency, effectiveness and innovation capacity.

However, it is important to underscore that, consistent with the strategies applied particularly for the After Market segment, the Group maintains separate commercial, product development and industrial management units for the three companies and the relative Landi Renzo, Lovato and Emmegas brands, which are intended for different customers and at times different markets.

The criteria applied to identify the operating segments and the performance indicators are consistent with the management reporting periodically prepared and used by the Group's top management to take strategic decisions.

Automotive operating segment

The Automotive operating segment refers primarily to the design, manufacture and sale through the OEM and After Market channels of mechanical and electronic systems and components for the use of automotive gas as well as, to a lesser extent, anti-theft alarms. In particular the following are made:

• Complete CNG and LPG alternative automotive fuel systems;
• Electromechanical components such as pressure reducers, injectors, solenoid valves and multivalves;
• Electronic devices such as electronic control units, switches, advance variators and other accessories;
• Devices dedicated to vehicle safety and mobility.

The Automotive segment represents the Group's core business and includes sales for the OEM and AM channels as well as Electronic Equipment sales, the business areas that guide market development and management while also providing clear instructions and targets in terms of what is needed and when (technical features, time to market, quality, cost) to the other support functions (Quality Management, Operation & Purchasing, R&D and Technical) in order to satisfy and capitalize on the various business requirements of customers/markets with a proactive and highly market driven approach.

This segment includes the following companies and brands, which operate separately, although they are all under the Parent Company's strategic and market supervision:

• Landi Renzo
• AEB
• Emmegas
• Lovato.

Gas Distribution and Compressed Natural Gas operating segment

The Gas Distribution and Compressed Natural Gas operating segment groups together all business areas of the subsidiary SAFE S.p.A., which designs and manufactures compressors for the treatment and distribution of gas (CNG - Compressed Natural Gas and Biomethane or RNG – Renewable Natural Gas) as well as in the Oil&Gas market.

The broad range of SAFE products makes it possible to satisfy multiple market requirements for the construction of automotive CNG and RNG distribution stations.

SAFE supplies stations for the public and private sector capable of serving various CNG vehicles and designs heavy duty compressors for high flows with various input pressures for optimal performance; SAFE's standard solution is based on SW compressors run by an electric or gas motor (if electricity is unavailable). The company also designs three different types of stations for buses capable of providing the best solution for the following needs: performance, number of vehicles, availability of space and fuelling times.

As regards the scope of applications for biomethane or RNG, the result of the decomposition of natural organic materials in "digesters", please note that currently this gas is used especially in combustion in engines for cogeneration, thanks to which electric power and heat are generated at the same time in the place of use, thus eliminating losses during energy transport and exploiting the heat which otherwise would dissipate into the environment. The environmental advantages include a reduction in CO2 emissions into the atmosphere compared to traditional electricity production stations, in addition, clearly, to financial savings. SAFE offers turnkey solutions, proposing a complete system from the exit from the digester to high-pressure compression to fuel vehicles, or for injection back into the network.

Lastly, SAFE provides equipment for a broad range of Oil&Gas applications, from gas recompression in wells to supplying energy for turbines and underground storage.

Sound operating segment

The Sound operating segment includes the design, manufacture, distribution and marketing of electroacoustic transducers (loudspeakers) for professional use (the main components of speakers for the reproduction of music) made by the subsidiaries Eighteen Sound S.r.l. and Sound & Vision S.r.l. and used mainly by the manufacturers of the best sound reinforcement systems for live events as well as for fixed installations.

Revenues are earned through the OEM channel as well as the After Market channel in the main global geographical areas.

Breakdown of sales by business segment

Second quarter of 2017 compared to second quarter of 2016

(Thousands of Euro)
Distribution of revenues by segment	Q2 2017	% of revenues	Q2 2016 (*)	% of revenues	Changes	%
Automotive segment	46,456	81.9%	38,393	80.2%	8,063	21.0%
Gas Distribution and Compressed Natural Gas segment	6,777	11.9%	5,966	12.5%	811	13.6%
Sound segment	3,501	6.2%	3,511	7.3%	-10	-0.3%
Total revenues	56,734	100.0%	47,870	100.0%	8,864	18.5%

(*) The values at 30 June 2016 have been reclassified based on the Segment Reporting adopted starting in the first half of 2017.

During the quarter in question, revenues from sales of products and services of the Group increased, overall, from €47,870 thousand in the second quarter of 2016 to €56,734 thousand in the second quarter of 2017, a rise of 18.5% primarily resulting from higher sales volumes in the Automotive segment.

First half of 2017 compared to first half of 2016

(Thousands of Euro)
Distribution of revenues by segment	At 30/06/2017	% of revenues	At 30/06/2016 (*)	% of revenues	Changes	%
Automotive segment	87,258	84.3%	73,139	81.9%	14,119	19.3%
Gas Distribution and Compressed Natural Gas segment	9,880	9.5%	10,110	11.3%	-230	-2.3%
Sound segment	6,370	6.2%	6,041	6.8%	329	5.4%
Total revenues	103,508	100.0%	89,290	100.0%	14,218	15.9%

(*) The values at 30 June 2016 have been reclassified based on the Segment Reporting adopted starting in the first half of 2017.

The Group's total revenues in the first six months were €103,508 thousand, an increase of +15.9% (€14,218 thousand) compared to the same period in the previous year.

Revenues from sales of products and services in the Automotive segment increased by 19.3% (€14,119 thousand) in the first six months from €73,139 thousand in 2016 to €87,258 thousand in 2017.

The growth in sales as of 30 June 2017 in the Automotive sector was caused by the increase in revenues on the OEM channel (+42.6%) and, to a lesser extent, in the After Market segment (+8.6%).

Revenues in the Gas Distribution and Compressed Natural Gas segment were €9,880 thousand, down by €230 thousand compared with the same period of 2016.

Revenues in the Sound segment increased by 5.4% (€329 thousand) in the first six months from €6,041 thousand in 2016 to €6,370 thousand in 2017 due to the increase in sales of CIARE brand products through the subsidiary Sound & Vision S.r.l. as well as the turnover generated with new customers under the main Eighteen Sound brand.

Breakdown of sales by geographical area

Second quarter of 2017 compared to second quarter of 2016

Q2 2017	% of revenues	Q2 2016	% of revenues	Changes	%
11,584	20.4%	10,002	20.9%	1,582	15.8%
25,924	45.7%	21,915	45.8%	4,009	18.3%
8,646	15.3%	8,166	17.1%	480	5.9%
10,580	18.6%	7,787	16.2%	2,793	35.9%
56,734	100%	47,870	100%	8,864	18.5%

First half of 2017 compared to first half of 2016

At 30/06/2017	% of revenues	At 30/06/2016	% of revenues	Changes	%
21,170	20.5%	19,390	21.7%	1,780	9.2%
49,654	48.0%	40,749	45.6%	8,905	21.9%
15,162	14.5%	14,294	16.0%	868	6.1%
17,522	17.0%	14,857	16.7%	2,665	17.9%
103,508	100%	89,290	100%	14,218	15.9%

With reference to the geographical distribution of revenues, during the first half of 2017 the Landi Group realized 79.5% (78.3% at 30 June 2016 ) of its consolidated sales revenues abroad (48.0% in Europe and 31.5% outside Europe), further details of which are provided below.

• Italy

Sales in the Italian market, totalling €21,170 thousand in the first half of the year (up €1,780 thousand, or 9.2%,

compared to the same period of the previous year), substantially reflect good overall domestic market demand trends for products in the Automotive segment, although with different performance in the OEM and After Market channels, as described below:

• OEM bi-fuel new car registrations, for the set of new vehicles equipped with CNG and LPG systems, registered a 5.3% increase compared with the same period of 2016, according to data published by ANFIA (the Italian National Association for the Automotive Industry), totalling 7.8% of total registrations;
• according to data from the Ecogas consortium, the After Market sector, on the other hand, registered a 13.9% reduction in conversions compared with the same period of the previous year. The Group's domestic market share on the After Market channel at the end of the period was substantially stable and equal to roughly 32%.

• Europe

Revenue in Europe recovered significantly in the course of the six months in question, with growth of 21.9% compared to the same period of 2016, driven mainly by the increase in OEM channel sales in the Automotive segment as a result of the completion of the phase of transitioning to new Euro 6 LPG engines.

• America

Sales in the first six months for this area, equal to €15,162 thousand, registered an increase of 6.1%. This was mainly attributable to the good trend of the Automotive segment After Market channel in Peru, Colombia and Mexico, which offset the slowdown in Argentina and Brazil.

• Asia and rest of the world

The Asia and Rest of the World markets recovered significantly (+17.9%) compared to the same period of 2016, due primarily to the favourable development of revenues in the Automotive segment, particularly in the Algerian and Iranian markets, while sales are stable in China, where the Group launched an important growth project dedicated to the Medium & Heavy Duty segment.

Profitability

Values at 30 June 2017 Values at 30 June 2016 Gas Gas Distributi Distribution Landi Landi on and and Renzo Automoti Renzo Automotive Sound Adjustments Compres Sound Adjustments Compresse Consolidate ve Consoli sed d Natural d dated Natural Gas Gas Net sales outside the Group 87,258 9,880 6,370 103,508 73,139 10,110 6,041 89,290 Intersegment sales 318 54 31 -403 - 308 24 3 -335 0 Total Revenues from net sales and services 87,576 9,934 6,401 -403 103,508 73,447 10,134 6,044 -335 89,290 Other revenues and income 409 24 433 483 72 4 559 Operating costs -81,084 -11,027 -5,803 403 -97,511 -70,973 -11,630 -5,685 335 -87,953 Adjusted gross operating profit 6,901 -1,069 598 0 6,430 2,957 -1,424 363 0 1,896 Extraordinary costs -1,973 -1,973 -3,450 -3,450 Gross operating profit 4,928 -1,069 598 0 4,457 -493 -1,424 363 0 -1,554 Amortization, depreciation and impairment -7,027 -632 -289 -7,948 -7,211 -619 -207 -8,037 Net capital loss from disposal -2,060 -2,060 Net Operating Profit -4,159 -1,701 309 0 -5,551 -7,704 -2,043 156 0 -9,591 Financial income (charges) and exchange differences -3,077 -1,952 Gain (loss) on equity investments valued using the equity method 54 -64 Profit (Loss) before tax -8,574 -11,607 Current and deferred taxes -47 1,159 Net profit (loss) for the Group and minority interests, including: -8,621 -12,766 Minority interests -147 -225 Net profit (loss) for the Group -8,474 -12,541	(Thousands of Euro)

The adjusted Gross Operating Profit (adjusted GOP or adjusted EBITDA) for the first six months of 2017 was positive at €6,430 thousand, equal to 6.2% of revenues – an increase of €4,534 thousand compared to the figure for June 2016, equal to 2.1% of revenues (€1,896 thousand), especially due to the higher sales volumes of the Automotive Segment, which alone had an adjusted EBITDA margin of roughly €6,901 thousand, equal to 7.9% of revenues, compared to €2,957 thousand in H1 2016 (4% of revenues), while the Gas Distribution and Compressed Natural Gas segment had a negative impact of -€1,069 thousand. On the other hand, the adjusted GOP in the Sound operating segment was positive at €598 thousand, marking an increase of 64.7% (€235 thousand).

The Gross Operating Profit (GOP or EBITDA) was positive in the amount of €4,457 thousand, inclusive of €1,973 thousand in extraordinary costs referring to strategic advisory expenses as well as voluntary retirement incentives agreed upon with personnel, as shown in detail below:

• strategic advisory expenses of €1,533 thousand;
• voluntary retirement incentives of €440 thousand.

Costs of raw materials, consumables and goods and changes in inventories increased overall from €42,240 thousand as at 30 June 2016 to €50,121 thousand as at 30 June 2017, which in absolute terms is an increase of €7,881 thousand, mainly related to the growth in sales volumes.

In the first half of 2017, the costs of services and use of third-party assets amounted to €27,257 thousand and included extraordinary costs of €1,533 thousand related to the strategic advisory costs mentioned above, compared to €25,900 thousand in the same period of last year (of which €1,050 thousand for non-recurrent expenses). Net of extraordinary costs, there was an increase of €874 thousand, ascribable mainly to top line growth due to the increase in external processing on products.

In the first half, personnel costs amounted to €20,446 thousand, including the above-mentioned extraordinary costs of €440 thousand, an increase of €1,480 thousand compared with €18,966 thousand recorded in the same period of last year, when no extraordinary costs were incurred. Not considering the effects of the extraordinary component, note that personnel expenses were up by €1,040 thousand as a result of the increased use of temporary agency work linked to the rising production and less recourse to solidarity agreements for the Parent Company and the subsidiary AEB S.p.A., likewise correlated with the recovery in production.

The Net Operating Profit (EBIT) for the period was negative, in the amount of -€5,551 thousand (-€9,591 thousand as at 30 June 2016), after accounting for amortization, depreciation and impairment losses of €7,948 thousand (€8,037 thousand as at 30 June 2016), net capital losses from the disposal of tangible assets regarding the Technical Centre and held for sale of €2,060 thousand, as well as the above-mentioned extraordinary costs of €1,973 thousand.

The adjusted Net Operating Profit (EBIT) was negative at -€1,518 thousand, marking a significant improvement compared to -€6,141 thousand at 30 June 2016.

Overall, financial management had higher costs of €1,007 thousand compared to the first half of 2016, most of which deriving from exchange losses from valuation equal to €828 thousand, mainly in relation to the depreciation of the Brazilian Real and the Pakistani Rupee.

Taking these changes into account, the result before tax was negative at -€8,574 thousand (-€11,607 thousand at 30 June 2016), while the Net Result of the Group showed a loss of -€8,474 thousand (-€12,541 thousand at 30 June 2016).

With reference to the business operating segments, economic information is provided below relating to the three business segments for the first half of 2016 and 2017.

Automotive operating segment performance

(Thousands of Euro)
	30.06.2017	30.06.2016	Delta	% Change
Net sales outside the Group	87,258	73,139	14,119	19.3%
Intersegment sales	318	308	10	3.2%
Total Revenues from net sales and services	87,576	73,447	14,129	19.2%
Other revenues and income	409	483	-74	-15.3%
Operating costs	-81,084	-70,973	-10,111	14.2%
Adjusted gross operating profit	6,901	2,957	3,944	133.4%
Extraordinary costs	-1,973	-3,450	1,477	-42.8%
Gross operating profit	4,928	-493	5,421	1099.6%
Amortization, depreciation and impairment	-7,027	-7,211	184	-2.6%
Net capital loss from disposal	-2,060		-2,060
Net Operating Profit	-4,159	-7,704	3,545	-46.0%

In the first half of 2017, the Automotive segment had net sales outside the Group of €87,258 thousand, up 19.3% compared with the same period of the previous year (€73,139 thousand).

The increase was caused mostly by the significant recovery of sales in the OEM channel for LPG fuelled systems for European car manufacturers. Furthermore, After Market sales benefitted from a significant sales drive, partly due to the introduction of innovative products, particularly in countries like Turkey, Algeria and Mexico.

Adjusted EBITDA came to €6,901 thousand, a considerable improvement compared with the first half of 2016 (€2,957 thousand) thanks to the significant growth in sales.

EBITDA was positive at €4,928 thousand (-€493 thousand in the first half of 2016) although in the first half of 2017 there were extraordinary costs of €1,973 thousand, also correlated with the quick launch of the development and EBITDA improvement plan, for which a top consulting firm was engaged to support the Chief Executive Officer and the company's top management in preparing and implementing the plan.

In addition, during the half the preliminary agreement was signed (finalized on 31 July 2017) regarding the disposal to the AVL Group of the part of the Technical Centre for the management of laboratories with the aim of further reducing the fixed cost structure in upcoming years and focusing activities on the core business. The disposal consideration is €5.7 million, gross of liabilities transferred for around €25 thousand: the amount will be paid in 10 annual instalments. The sale of this business unit resulted in a net capital loss at 30 June 2017 of €2,060 thousand.

The segment also includes sales of alarm systems for cars under the MED brand (non-core business), with revenues during the half equal to €790 thousand compared with €1,350 thousand at 30 June 2016.

Gas Distribution and Compressed Natural Gas operating segment performance

	30.06.2017	30.06.2016	Delta	% Change
Net sales outside the Group	9,880	10,110	-230	-2.3%
Intersegment sales	54	24	30	125.0%
Total Revenues from net sales and services	9,934	10,134	-200	-2.0%
Other revenues and income	24	72	-48	-66.7%
Operating costs	-11,027	-11,630	603	-5.2%
Gross operating profit	-1,069	-1,424	355	24.9%
Amortization, depreciation and impairment	-632	-619	-13	2.1%
Net Operating Profit	-1,701	-2,043	342	16.7%

In the first half of 2017, the Gas Distribution and Compressed Natural Gas segment had net sales outside the Group of €9,880 thousand, substantially aligned with the same period of the previous year (€10,110 thousand).

The gross operating profit recovered from -€1,424 thousand in the first half of 2016 to -€1,069 thousand at 30 June 2017, also as a result of the improvement in the economic contribution of several contracts, in particular for fuelling and RNG stations.

Turnover aligned with budget forecasts and the company's order portfolio for the third quarter totalling more than €9 million make it reasonable to predict that revenue will be up compared to the previous year, with greater profit margins thanks to the operating cost containment measures taken by the new management team, strengthened in the course of the second quarter with the appointment of a new General Manager with more than 25 years of experience in toptier companies operating in the compressor for gas and Oil & Gas sectors.

Sound operating segment performance

	30.06.2017	30.06.2016	Delta	% Change
Net sales outside the Group	6,370	6,041	329	5.4%
Intersegment sales	31	3	28	933.3%
Total Revenues from net sales and services	6,401	6,044	357	5.9%
Other revenues and income		4	-4	-100.0%
Operating costs	-5,803	-5,685	-118	2.1%
Gross operating profit	598	363	235	64.7%
Amortization, depreciation and impairment	-289	-207	-82	39.6%
Net Operating Profit	309	156	153	98.1%

The Sound segment's net sales outside the Group, totalling €6,370 thousand in the first half of 2017, met expectations, with an increase of 5.4% compared to the first half of 2016 (€6,041 thousand): this improvement was due to the rise in revenues from CIARE brand products sold through the subsidiary Sound & Vision S.r.l., as well as the acquisition of several new customers for Eighteen Sound brand products.

EBITDA rose by 64.7%, from €363 thousand in the first half of 2016 to €598 thousand at 30 June 2017.

Invested capital

(Thousands of Euro)
Statement of Financial Position	30/06/2017	31/03/2017	31/12/2016	30/06/2016
Trade receivables	36,657	34,951	37,551	36,198
Inventories	49,321	49,719	49,872	60,878
Contract work in progress	210	714	1,281	3,182
Trade payables	-55,220	-46,548	-53,090	-52,453
Other net current assets	-1,616	-431	828	1,869
Net operating capital	29,352	38,405	36,442	49,674
Property, plant and equipment	19,556	29,262	30,500	32,889
Non-current assets held for sale	5,700
Intangible assets	56,826	58,067	58,873	60,007
Other non-current assets	7,850	7,836	7,594	7,435
Fixed capital	89,932	95,165	96,967	100,331
TFR and other provisions	-12,587	-12,570	-12,611	-13,448
Net capital employed	106,697	121,000	120,798	136,557
Financed by:
Net Financial Position	61,681	69,877	75,716	78,269
Group shareholders' equity	45,451	51,410	45,405	58,083
Minority interests	-435	-287	-323	205
Borrowings	106,697	121,000	120,798	136,557
Ratios	30/06/2017	31/03/2017	31/12/2016	30/06/2016
Net operating capital	29,352	38,405	36,442	49,674
Net operating capital/Turnover (rolling)	14.8%	20.2%	19.8%	25.3%
Net capital employed	106,697	121,000	120,798	136,557
Net invested capital/Turnover (rolling)	53.8%	63.8%	65.6%	69.4%

Net operating capital at the end of the period totalled €29,352 thousand, marking a reduction compared to the end of the first half of 2016 of €20,322 thousand due to the activities for the improvement in working capital already started last year and which continued during the half; in percentage terms, on rolling turnover (from first of July 2016 to 30 June 2017), there was a sharp improvement in this figure from 25.3% at 30 June 2016 to the current 14.8%.

Trade receivables totalled €36,657 thousand, a decrease of €894 thousand compared to the figure as at 31 December 2016, also as a result of greater use of non-recourse factoring operations for which there was derecognition of the relative receivables, totalling €23.1 million compared to €22.2 million in December 2016.

There was growth of €2,130 thousand in trade payables, which rose from €53,090 thousand as at 31 December 2016 to €55,220 thousand, while the closing inventories and contract work in progress, totalling €49,531 thousand, decreased by €1,622 thousand.

Net invested capital (€106,697 thousand) was down by €14,101 thousand compared to December 2016, while the percentage indicator calculated on the rolling turnover decreased from 65.6% to 53.8% as a result of an improvement in working capital and the reduction in fixed capital due to the impact of assets held for sale.

Net Financial Position and cash flows

(Thousands of Euro)
	30/06/2017	31/03/2017	31/12/2016	30/06/2016
Cash and cash equivalents	15,916	20,997	16,484	18,749
Bank financing and short-term loans	-13,495	-25,187	-40,662	-46,913
Bonds issued (net value)	-1,183	0	-9,614	-6,175
Short-term loans	-420	-425	-425	-425
Net short term indebtedness	818	-4,615	-34,217	-34,764
Bonds issued (net value)	-30,259	-31,377	-21,764	-25,046
Medium-Long term loans	-32,240	-33,885	-19,735	-18,459
Net medium-long term indebtedness	-62,499	-65,262	-41,499	-43,505
Net financial position	-61,681	-69,877	-75,716	-78,269

The net financial position was negative for -€61,681 thousand compared with a negative net financial position at 31 December 2016 equal to -€75,716 thousand (negative and equal to -€78,269 thousand at 30 June 2016) the decrease is due to the reasons given below

Please note that upon closure of the Financial Optimization Agreement, compared to 31 December 2016, €21,279 thousand was reclassified from short to medium-term, inclusive of amounts referring to the Debenture Loan as well as unsecured loans.

As a result of the above-mentioned Optimization Agreement, on 30 March 2017 the controlling shareholder made a future capital increase contribution to the Parent Company for a total of €8,867 thousand.

The following table illustrates the trend of the total cash flow over the last 12 months:

(Thousands of Euro)
	30/06/2017	31/03/2017	31/12/2016	30/06/2016
Operational cash flow	7,470	-1,930	-6,104	-13,888
Cash flow for investment activities	-2,851	-1,556	-9,144	-4,501
Free Cash Flow	4,619	-3,486	-15,248	-18,389

Net cash flow from operating activities at the end of June, as shown in the Cash Flow Statement, was positive at €7,470 thousand compared to -€6,104 thousand at 31 December 2016, while net investment activities entailed cash absorption of €2,851 thousand.

.

Investments

Gross investments in property, plant and machinery and other equipment totalled €1,136 thousand (€2,148 thousand at 30 June 2016) and relate mainly to purchases of plant and machinery, new production moulds and testing and control instruments.

The increase in intangible assets amounted to €1,857 thousand (€2,471 thousand at 30 June 2016) and refers primarily to the capitalization of costs for development projects that meet the requirements of IAS 38 in order to be recognized as balance sheet assets.

Performance of the Parent Company

In the first half of 2017, Landi Renzo S.p.A. totalled revenues of €48,831 thousand, marking a significant improvement compared with €35,064 thousand in the first half of 2016, a 39.3% increase caused primarily by the growth in supplies due to conversion from Euro 5 to Euro 6 engines on the European OEM channel.

The Gross Operating Profit totalled €388 thousand (of which €1,973 thousand in non-recurrent charges), compared with -€4,781 thousand at 30 June 2016 (of which €3,450 thousand in non-recurrent charges), while the net financial position was -€61,848 thousand (-€71,598 thousand at 31 December 2016).

At the end of the six-month period, the Parent Company's workforce numbered 283 employees, a decrease of 7 units compared with 31 December 2016.

The economic results of the Parent Company are positively influenced by higher volumes supplied to car manufacturers as a result of the conclusion of the transition to Euro 6 engines, which was still under way in the first half of 2016. This also made it possible to recover higher levels of profitability in the OEM sector, penalized in previous periods also by significant non-recurring costs.

STATEMENT OF RECONCILIATION BETWEEN THE DATA OF THE PARENT COMPANY'S FINANCIAL STATEMENTS AND THE DATA OF THE CONSOLIDATED FINANCIAL STATEMENTS

The following is a reconciliation table between the result for the period and net equity of the Group with the corresponding values of the Parent Company.

(thousands of Euro)
RECONCILIATION STATEMENT	Net equity at 30/06/2017	Results for the year at 30/06/2017	Net equity at 30/06/2016	Results for the year at 30/06/2016
Net equity and results for the year of the Parent Company	44,808	-8,239	62,305	-10,739
Difference in value between book value and pro rata value of the accounting equity of the consolidated companies	3,189	54	1,808	-65
Pro rata results achieved by investees	0	-1,047	0	-1,375
Elimination of intercompany dividends	0	0	0	-1,113
Elimination of the effects of intercompany commercial transactions	-1,648	-191	-1,623	28
Exchange gains (losses) from valuation of intercompany financing	-846	846	-159	159
Elimination of revaluation/write-down of investments and recognition of impairment of goodwill	0	-44	0	351
Elimination of the effects of intercompany assets	-487	0	-427	-12
Equity and result for the year from Consolidated Financial Statements	45,016	-8,621	58,288	-12,766
Equity and result for the year of minority interests	-435	-147	205	-225
Equity and result for the year of the Group	45,451	-8,474	58,083	-12,541

2.2. INNOVATION, RESEARCH AND DEVELOPMENT

Research and Development activities in the first half of 2017 saw the continuation of projects initiated in the previous year as well as the launch of new initiatives, in particular:

• development of conversion systems in the After Market and OEM segments, destined for new vehicles and new engines introduced into the automotive segment;
• development of projects for the production of LPG multivalves and new LPG and CNG reducers, including for heavy duty vehicles, for the After Market segment and developed in order to optimize internal manufacturing processes and reduce the related costs;
• development of new electronic systems, primarily for the After Market segment and destined for all Group brands.

2.3. SHAREHOLDERS AND FINANCIAL MARKETS

The Landi Group maintains a constant dialogue with its Shareholders through a responsible and transparent activity of communication carried out by the Investor Relations office with the aim of providing a clear explanation of the company's evolution. The Investor Relations office is also assigned the task of organizing presentations, events and "Road shows" that enable a direct relationship between the financial community and the Group's Top management. For further information and to consult the economic-financial data, corporate presentations, periodic publications, official communications and real time updates on the share price you can visit the Investors section of the site www.landirenzogroup.com.

The following table summarizes the main share and stock market data for the period:

Price at 2 January 2017	0.3586
Price at 30 June 2017	0.7650
Maximum price 2017 (02/01/2017 - 30/06/2017)	0.91
Minimum price 2017 (02/01/2017 - 30/06/2017)	0.3411
Market Capitalization at 30 June 2017 (thousands of Euro)	86,063
Group equity and minority interests at 30 June 2017 (thousands of Euro)	45,016
Number of shares representing the share capital	112,500,000

The share capital is made up of 112,500,000 shares with a nominal value of €0.10 per share, for a total of €11,250,000.00.

At 30 June 2017, the quotation of the "LANDI RENZO 6.10% 2015-2022" (ISIN:IT0005107237) bonds, traded on the ExtraMOT PRO professional segment of the ExtraMOT market organized and managed by Borsa Italiana, was 88.08.

2.4. POLICY FOR ANALYSING AND MANAGING RISKS CONNECTED WITH THE ACTIVITIES OF THE GROUP

The Group is exposed to various risks associated with its activities, particularly in relation to the following types:

• Strategic risks relating to the macroeconomic and sector situation and recoverability of intangible assets, particularly goodwill. Intangible assets totalling €56,826 thousand are reported in the condensed six-monthly consolidated financial statements at 30 June 2017, including €7,516 thousand for development expenditure, €30,094 thousand for goodwill, €19,216 thousand for patents and trademarks and also net deferred tax assets totalling €7,310 thousand. The recoverability of such values is related to the materialization of future product development and sale plans and the cash generating units to which they refer.
• Operating risks, risks relating to relations with OEM customers (in the six-month period in question, Group sales of systems and components to OEM customers accounted for around 34.7% of total sales), the high competitiveness of the sector where the Group operates, product liability and protection of intellectual property.
• Financial risks, specifically:

• a) Interest rate risk, linked to fluctuations in the interest rates applied on Group loans at variable rates

• b) Exchange rate risk, relating both to the marketing of products in countries outside the Euro area and to the translation of financial statements of subsidiaries not belonging to the European Monetary Union for inclusion in the consolidated financial statements

• c) Credit risk related to non-fulfilment of contractual obligations by a customer or counterparty
• d) Liquidity risk, related to possible difficulties in meeting obligations associated with financial liabilities.

The six-monthly financial report does not include all the information on the management of the above-mentioned risks required for the annual financial statements and should be read in conjunction with the Annual Financial Report prepared for the year ended 31 December 2016. There were no substantial changes in the management of the risks mentioned above.

2.5. OTHER INFORMATION

Transactions with related parties

The creditor/debtor relationships and economic transactions with related companies are the subject of a specific analysis in "Explanatory Notes to the Condensed Six-monthly Consolidated Financial Statements" to which you are referred. It should also be noted that sales and purchases between the parties are not classed as atypical or unusual since they fall within the regular operations of the Group companies and they are conducted at regular market rates. Regarding the relationships with the parent company Girefin S.p.A., it should also be noted that the Directors of Landi Renzo S.p.A. deem that it does not exercise the administration and coordination activities envisaged by art. 2497 of the Italian Civil Code. Lastly, please note that in accordance with CONSOB Regulation 17221/2010, and pursuant to Article 2391-bis of the Italian Civil Code, the Board of Directors has adopted the specific procedure for transactions with related parties, available on the company website, to which you are referred.

Positions or transactions deriving from atypical and/or unusual transactions

Pursuant to CONSOB communication no. 6064293 of 28 July 2006, note that during the period no atypical and/or unusual transactions occurred outside the normal operation of the company that could give rise to doubts regarding the correctness and completeness of the information in the financial statements, conflicts of interest, protection of company assets and safeguarding of minority shareholders.

Treasury shares and shares of parent companies

In compliance with the provisions of article 2428 of the Italian Civil Code, it is confirmed that during 2016 and the first half of 2017 the Parent Company did not negotiate any treasury shares or shares of parent companies and does not at present hold any treasury shares or shares of parent companies.

Adoption of simplification of reporting obligations pursuant to CONSOB Resolution no. 18079 of 20 January 2012

Pursuant to art. 3 of CONSOB Resolution no. 18079 of 20 January 2012, Landi Renzo S.p.A. decided to adopt the optout system envisaged by arts. 70, par. 8, and 71, par. 1-bis, of CONSOB Regulation no. 11971/99 (as amended). It is therefore able to opt out from the disclosure of the information documents listed in Annex 3B to said CONSOB Regulation, on occasion of significant mergers, demergers, increases in capital through contribution of goods in kind, acquisitions and disposals.

Sub-offices

No sub-offices were established.

Half-yearly financial report – H1 2017_________________________________________________________ 25

2.6. SIGNIFICANT EVENTS AFTER CLOSING OF THE SIX-MONTH PERIOD AND FORECAST FOR OPERATIONS

Significant events after closing of the six-month period

After the closing of the period and up to the present we point out that:

• On 31 July, Landi Renzo S.p.A. and AVL Italia S.r.l. completed the sale procedure for the disposal of a business unit regarding the part of the technical centre for the management of laboratories to the AVL Group, a leading global operator in the development of powertrains: the relative preliminary agreement was signed on 26 April 2017. With this transaction, the Landi Renzo Group obtained two significant results: on one hand, it launched a significant partnership with a leading automotive sector operator specialized in CNG, LNG and hydrogen powertrains and, on the other hand, it is continuing with the Group reorganization process undertaken by the new management, with the goals of reducing the fixed cost structure and focusing activities on the core business.

As part of the above-mentioned disposal, 7 employees were transferred directly from Landi Renzo to AVL and at the same time the real estate rental contract with the affiliate Gireimm S.r.l. was renegotiated.

The economic impact of this transaction was net capital loss of €2,060 thousand.

On an annual basis, the transaction will entail a positive impact on the reduction in fixed costs, specifically roughly €3 million annually in terms of EBIT, of which around €1.5 million in terms of EBITDA, and a positive impact of roughly €2 million annually in terms of financial management. The disposal of the business unit will also allow for a reduction of between €500 thousand and €700 thousand in the annual investments necessary to maintain and upgrade the equipment sold.

• At the end of July 2017, Claudio Carnevale resigned with immediate effect from his position as member of the Board of Directors of Landi Renzo S.p.A. to take advantage of new professional opportunities. Claudio Carnevale was a non-executive member of the Board of Directors with no role in the Landi Renzo S.p.A. internal committees. At the date of his resignation Claudio Carnevale held 2,050 Landi Renzo S.p.A. ordinary shares.

Likely future developments

By the end of September, the Group will introduce the new 2018-2022 strategic plan, which will provide instructions regarding asset allocation strategies, business forecasts and competitive positioning of the Group over the next 5 years.

With regard to the business outlook, taking into account the results of the first six months of 2017, the uncertainties in the core market and the orders in the portfolio, the outlook already communicated at the time of the approval of the Annual Financial Report as at 31 December 2016 is confirmed, with moderate business growth forecast along with a slight recovery in margins in terms of adjusted EBITDA already in 2017.

Cavriago, 7 September 2017

Chief Executive Officer Cristiano Musi

3. CONDENSED SIX-MONTHLY CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2017

3.1. CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of Euro)
ASSETS	Notes	30/06/2017	31/12/2016
Non-current assets
Land, property, plant and equipment	2	19,556	30,500
Development expenditure	3	7,516	8,420
Goodwill	4	30,094	30,094
Other intangible assets with finite useful lives	5	19,216	20,359
Equity investments valued using the equity method	6	97	43
Other non-current financial assets	7	443	664
Deferred tax assets	8	7,310	6,887
Total non-current assets		84,232	96,967
Current assets
Trade receivables	9	35,015	35,553
Trade receivables - related parties	9	1,642	1,998
Inventories	10	49,321	49,872
Contract work in progress	11	210	1,281
Other receivables and current assets	12	10,310	10,082
Cash and cash equivalents	13	15,916	16,484
Total current assets		112,414	115,270
Non-current assets held for sale	2	5,700
TOTAL ASSETS		202,346	212,237

(Thousands of Euro)
EQUITY AND LIABILITIES	Notes	30/06/2017	31/12/2016
Shareholders' equity
Share capital	14	11,250	11,250
Other reserves	14	42,675	59,400
Profit (loss) for the period	14	-8,474	-25,245
Total Equity attributable to the Group		45,451	45,405
Minority interests		-435	-323
TOTAL EQUITY		45,016	45,082
Non-current liabilities
Non-current bank loans	15	31,401	18,687
Other non-current financial liabilities	16	31,098	22,812
Provisions for risks and charges	17	9,294	8,973
Defined benefit plans for employees	18	2,829	3,124
Deferred tax liabilities	19	464	514
Total non-current liabilities		75,086	54,110
Current liabilities
Bank financing and short-term loans	20	13,495	40,662
Other current financial liabilities	21	1,603	10,039
Trade payables	22	50,272	48,919
Trade payables – related parties	22	4,948	4,171
Tax liabilities	23	2,313	2,604
Other current liabilities	24	9,588	6,650
Total current liabilities		82,219	113,045
Current liabilities held for sale	24	25
TOTAL EQUITY AND LIABILITIES		202,346	212,237

3.2. CONSOLIDATED INCOME STATEMENT

(Thousands of Euro)
		30/06/2017	30/06/2016
CONSOLIDATED INCOME STATEMENT	Notes
Revenues from sales and services	25	103,216	89,219
Revenues from sales and services – related parties	25	292	71
Other revenues and income	26	433	559
Cost of raw materials, consumables and goods and change in inventories	27	-50,121	-42,240
Costs for services and use of third party assets	28	-25,644	-24,286
Costs for services and use of third-party assets – related parties	28	-1,613	-1,614
Personnel cost	29	-20,446	-18,966
Provisions, provision for bad debts and other operating expenses	30	-1,660	-4,297
Gross operating profit		4,457	-1,554
Amortization, depreciation and impairment	31	-7,948	-8,037
Net capital loss from disposal	31	-2,060	0
Net Operating Profit		-5,551	-9,591
Financial income	32	48	65
Financial expenses	33	-2,297	-2,677
Exchange gains (losses)	34	-828	660
Gain (loss) on equity investments valued using the equity method	35	54	-64
Profit (Loss) before tax		-8,574	-11,607
Current and deferred taxes	36	-47	-1,159
Net profit (loss) for the Group and minority interests, including:		-8,621	-12,766
Minority interests		-147	-225
Net profit (loss) for the Group		-8,474	-12,541
Basic earnings (loss) per share (calculated on 112,500,000 shares)	37	-0.0753	-0.1115
Diluted earnings (loss) per share		-0.0753	-0.1115

3.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Thousands of Euro)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Notes	30/06/2017	30/06/2016
Net profit (loss) for the Group and minority interests:	-8,621	-12,766
Gains/losses that will not be subsequently reclassified in the income statement
Restatement of defined employee benefit plans (IAS 19) 18	143	-253
Total gains/losses that will not be subsequently reclassified in the income statement	143	-253
Profits/losses that could subsequently be reclassified in the income statement
Exchange rate differences from conversion of foreign operations	-308	-591
Total profits/losses that could subsequently be reclassified in the income statement	-308	-591
Profits/Losses recorded directly to Equity net of tax effects	-165	-844
Total consolidated statement of comprehensive income for the period	-8,786	-13,610
Profit (loss) for Shareholders of the Parent Company	-8,669	-13,365
Minority interests	-117	-245

3.4. CONSOLIDATED CASH FLOW STATEMENT

(Thousands of Euro)
CONSOLIDATED CASH FLOW STATEMENT	30/06/2017	30/06/2016
Financial flows deriving from operating activities
Profit (loss) for the period	-8,621	-12,766
Adjustments for:
Net capital loss from disposal	2,060
Depreciation of property, plant and equipment	4,039	4,255
Amortization of intangible assets	3,787	3,632
Impairment losses on intangible assets	122	150
Impairment loss on receivables	284	675
Net financial expenses	3,077	1,952
Income tax for the year	47	1,159
	4,795	-943
Changes in:
Contract work in progress	1,622	-3,628
Trade receivables and other receivables	603	1,064
Trade payables and other payables	-1,832	-8,775
Provisions and employee benefits	168	1,440
Cash generated from operations	9,020	-10,842
Interest paid	-928	-2,745
Interest received	20	32
Income taxes paid	-642	-333
Net cash generated from operating activities	7,470	-13,888
Financial flows from investments
Proceeds from the sale of property, plant and equipment	88	54
Equity investments valued using the equity method	54	64
Purchase of property, plant and equipment	-1,136	-2,148
Purchase of intangible assets	-201	-150
Development expenditure	-1,656	-2,321
Net cash absorbed by investment activities	-2,851	-4,501
Free Cash Flow	4,619	-18,389
Financial flows from financing activities
Proceeds from future share capital increase contributions	8,867	0
Bond repayments	0	-2,040
Disbursements (reimbursements) of medium/long-term loans	-552	-12,530
Change in short-term bank debts	-14,050	13,867
Net cash generated (absorbed) by financing activities	-5,735	-703
Net increase (decrease) in cash and cash equivalents	-1,116	-19,092
Cash and cash equivalents as at 1 January	16,484	38,264
Effect of exchange rate fluctuation on cash	548	-423
Closing cash and cash equivalents	15,916	18,749

This report, as required by IAS 7, par. 18, has been prepared using the indirect method.

Other information	30/06/2017	30/06/2016
(Increase)/Decrease in trade receivables and other receivables from related parties	356	-36
Increase/(Decrease) in trade payables and other payables to related parties	777	995

3.5. TABLE OF CHANGES IN CONSOLIDATED EQUITY

(Thousands of Euro)
	Share capital	Statutory Reserve	Extraordinary and Other Reserves	Share Premium Reserve	Future share capital contributions	Result for the year	Group Equity	Profit (Loss) attributable to minority interests	Capital and reserves attributable to minority interests	Total Equity
Balance as at 31 December 2015	11,250	2,250	46,580	46,598		-35,288	71,390	-299	724	71,815
Result for the year						-12,541	-12,541	-225		-12,766
Actuarial profits/losses (IAS 19)			-253				-253			-253
Translation difference			-412				-412		-20	-432
Total comprehensive profits/losses			-665			-12,541	-13,206	-225	-20	-13,451
Other changes			-101				-101		25	-76
Allocation of profit			-35,288			35,288	0	299	-299	0
Balance as at 30 June 2016	11,250	2,250	10,526	46,598	0	-12,541	58,083	-225	430	58,288
Balance as at 31 December 2016	11,250	2,250	10,552	46,598	0	-25,245	45,405	-759	436	45,082
Result for the year						-8,474	-8,474	-147		-8,621
Actuarial profits/losses (IAS 19)			143				143			143
Translation difference			508				508		30	538
Total comprehensive profits/losses			651			-8,474	-7,823	-147	30	-7,940
Other changes			-998		8,867		7,869		5	7,874
Allocation of profit			-9,365	-15,880		25,245	0	759	-759	0
Balance as at 30 June 2017	11,250	2,250	840	30,718	8,867	-8,474	45,451	-147	-288	45,016

4. EXPLANATORY NOTES TO THE CONDENSED SIX-MONTHLY CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2017

4.1. GENERAL INFORMATION

The Landi Renzo Group (also "the Group") has been active in the motor propulsion fuel supply system sector for more than sixty years, designing, producing, installing and selling environmentally-friendly LPG and CNG fuel supply systems (Automotive segment), compressors for fuel stations through the SAFE trademark (Gas Distribution and Compressed Natural Gas systems segment), and, as a secondary business, audio systems through the subsidiaries Eighteen Sound S.r.l. and Sound & Vision S.r.l. (Sound segment). The Group manages all phases of the process that leads to the production and the sale of automotive fuel supply systems; it sells both to the main automobile manufacturers at a world-wide level (OEM customers) and to independent retailers and importers (After Market customers). For a better understanding of the activities of each operating segment, please refer to the "Segment Reporting" section (paragraph 2.1) of this Report.

Please note that at 30 June 2017 the Landi Group structure changed compared to 31 December 2016 due to the removal from Group consolidation scope of the company Eurogas Utrecht B.V. since its liquidation is now complete, as described in detail in paragraph 4.3.

The Parent Company of the Landi Renzo Group is Landi Renzo S.p.A. with its registered office in Cavriago (RE). The company is listed on the Milan Stock Exchange in the FTSE Italy STAR segment.

These Financial Statements are submitted to limited auditing by PricewaterhouseCoopers S.p.A.

4.2. GENERAL ACCOUNTING STANDARDS AND CONSOLIDATION PRINCIPLES

4.2.1. Preamble

The condensed six-monthly consolidated financial statements at 30 June 2017 have been prepared pursuant to art. 154-ter of Italian Legislative Decree 58/1998 "Consolidated Financial Law" (Testo Unico della Finanza), in accordance with the provisions of international accounting standards (IAS/IFRS) recognized in the European Union, and, in particular, those of IAS 34 "Interim Financial Statements". In partial exception to the provisions of IAS 34, this report provides detailed rather than summary tables in order to provide a clearer view of the economic-equity and financial dynamics over the six-month period. The explanatory notes are also presented in compliance with the information required by IAS 34 with the supplements considered useful for a clearer understanding of the six-monthly financial statements.

The condensed six-monthly consolidated financial statements at 30 June 2017, approved by the Board of Directors on 7 September 2017, must be read in conjunction with the consolidated annual financial statements as at 31 December 2016.

The consolidation method for the financial statements of the group companies is specified below in the sections "Companies consolidated using the line-by-line method" and "Companies consolidated using the equity method".

The valuation criteria used for the preparation of the consolidated financial statements for the six months closed at 30 June 2017 are the same as those used for the consolidated financial statements as at 31 December 2016.

In addition to the interim values of the consolidated income statement and the consolidated statement of comprehensive income at 30 June 2017, the balance sheet figures for the year closed at 31 December 2016 and the income statement figures at 30 June 2016 are included in the tables below for purposes of comparison. The functional and reporting currency is the Euro. Figures in the schedules and tables in this six-monthly financial report are in thousands of Euro.

In application of IAS 12, par. 74, already at 31 December 2016, as well as for the first half of 2017 and as a result also at 30 June 2016, to ensure greater comparability, deferred tax assets were offset with deferred tax liabilities.

Amendments and revised accounting standards applied by the Group for the first time

The accounting standards and calculation methods used for the preparation of this Half-Yearly Financial Report were not modified compared to those used to prepare the consolidated financial statements at 31 December 2016. Please note that the valuation and measurement of the accounting items shown are based on International Accounting Standards and the relative interpretations currently in force, and that no new accounting standards were applied early.

Accounting standards, amendments and interpretations approved by the European Union, applicable as of 1 January 2017, which were applied for the first time in the condensed six-monthly consolidated financial statements of the Landi Renzo Group as at 30 June 2017

• Annual Improvements to IFRSs: IFRS 12: "Disclosure of interests in other entities", issued by the IASB on 18 December 2014. This amendment envisages that an investment entity that draws up financial statements in which all of its subsidiaries are measured at fair value through profit or loss must provide the disclosure set forth for investment entities on the basis of IFRS 12. The application of this standard had no impacts on the Group.

Accounting standards, amendments and interpretations approved by the European Union, applicable as of 1 January 2018 and not adopted early by the Landi Renzo Group

• IFRS 15 – "Revenue from Contracts with Customers". On 28 May 2014, the IASB published the document requiring a company to recognise revenues at the moment of transfer of control over the assets or services to customers at an amount which reflects the consideration expected to be received in exchange for such products or services. To achieve this end, the new model for the recognition of revenues defines a five-step process:

• 1) Identify the contract(s) with a customer;
• 2) Identify the performance obligations;
• 3) Determine the transaction price;
• 4) Allocate the transaction price to the performance obligations;
• 5) Recognize revenue when (or as) the entity satisfies a performance obligation.

The new standard also requires further additional information about the nature, amount, timing and uncertainties relating to revenues and the cash flows deriving from contracts with customers. The IASB requires the adoption of this standard as of 2018 and the European Union approved it on 22 September 2016. In addition, on 12 April 2016, the IASB published amendments to the standard: Clarifications to IFRS 15 "Revenue from Contracts with Customers", also applicable as of 1 January 2018. These amendments aim to clarify the methods whereby the company should be identified as "Principal" or "Agent" and to determine whether the revenues from a licence should be recognised over time for its duration.

The effects of the new standard are currently being assessed in accordance with a project plan that will be completed during the half year.

• IFRS 9 – "Financial Instruments". On 24 July 2014, the IASB published the final document representing the conclusion of the process, broken down into three phases: "Classification and Measurement", "Impairment" and "General Hedge Accounting", for completely revising IAS 39. The document introduces new criteria for the classification and measurement of financial assets and liabilities. Specifically, for financial assets, the new standard uses a single approach based on the method for managing financial instruments and the characteristics of the contractual cash flows of the financial assets in order to determine the valuation approach, replacing the different rules laid out in IAS 39. On the other hand, for financial liabilities, the main amendment introduced regards accounting for changes in the fair value of a financial liability measured at fair value through profit or loss, if they are due to changes in the credit risk of the financial liability itself. According to the new standard, these changes must be recognised in other items of the comprehensive income, and should no longer be recognised in the income statement. The main new elements regarding hedge accounting are:

• Changes in the types of transactions eligible for hedge accounting; in particular, the risks of non-financial assets/liabilities eligible for management under hedge accounting have been extended;

• Change in the methods of accounting for forward contracts and options included in a hedge accounting relationship, in order to reduce income statement volatility;

• Amendments to the effectiveness test by replacing current methods based on the 80-125% parameter with the principle of the "economic relationship" between the hedged item and the hedging instrument; in addition, the retrospective effectiveness assessment of the hedging relationship will no longer be required;

The greater flexibility in these accounting rules is balanced out by requirements for additional disclosure on the risk management activities implemented by the company.

The new document includes a single model for the impairment of financial assets based on expected losses.

The IASB requires the adoption of this standard as of 2018 and the European Union approved it on 22 November 2016. From an initial examination, it does not seem that the future adoption of this standard will have a significant impact on the Group's financial statements.

Accounting standards, amendments and interpretations published by the IASB but not yet approved by the European Union and not adopted in preparing these financial statements

Description	Approved at the date of the following financial statements	Expected effective date of the standard
IFRS 16: Leases	NO	1 January 2019
Amendment to IFRS 2: Classification and measurement of share-based payment transactions	NO	1 January 2018
Amendment to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts	NO	1 January 2018
Amendment to IAS 40: Regarding Transfers of investment property	NO	1 January 2018
Amendment to IFRIC 22: Foreign Currency Transactions and Advance Consideration	NO	1 January 2018
Annual Improvements to IFRSs: 2014-2016 Cycle	NO	1 January 2018

The standards listed in this paragraph are not applicable as they have not been approved by the European Union which, during the approval process, could only partially adopt or not adopt such standards.

4.2.2. Consolidation procedures and valuation criteria

The preparation of the condensed six-monthly consolidated financial statements requires the directors to apply accounting standards and methods that are sometimes based on difficult and subjective assessments and estimates derived from past experience and based on assumptions that are considered reasonable and realistic given the circumstances. Application of these estimates and assumptions affects the amounts presented in the financial statements, such as the Consolidated Statement of Financial Position, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Table of Changes in Equity and the Consolidated Cash Flow Statement, and in disclosures provided. Estimates are used in recognizing goodwill, impairment of fixed assets, development costs, taxes, provisions for bad debts and inventories write-down, employee benefits and other provisions. The estimates and assumptions are reviewed periodically and the effects of all changes are reflected immediately on the income statement.

However, some valuation processes, especially the more complex ones such as establishing any loss in value of noncurrent assets, are normally carried out to a fuller extent only during the preparation of the annual financial statements, when all the necessary information is available, except for those cases in which there are impairment indicators that require an immediate assessment of possible losses in value.

The Group performs activities that do not on the whole present significant seasonal or cyclical variations in total sales over the course of the year, except for the signing of new supply contracts on the OEM channel which may involve planned and differing delivery schedules in the individual quarters.

4.2.3. Conversion of the financial statements of foreign companies

The Financial Statements in the currency of the foreign subsidiaries are converted into the accounting currency, adopting the half-year end exchange rate for the consolidated Statement of Financial Position and the average exchange rate over the six months for the Consolidated Income Statement. The conversion differences deriving from the adjustment of opening Equity to the current rates at the end of the period, and those due to the different method used for conversion of the result for the period, are accounted for in Equity under the other reserves.

The following table specifies the exchange rates used for the conversion of financial statements expressed in currencies other than the accounting currency.

Exchange rate (Currency against the Euro)	At 30/06/2017	Ave. H1 2017	At 31/12/2016	Average 2016	At 30/06/2016	Ave. H1 2016
Real – Brazil	3.76	3.44	3.43	3.86	3.59	4.13
Renminbi – China	7.74	7.44	7.32	7.35	7.38	7.30
Rial – Iran	37,076.40	35,112.48	34,127.50	34,213.69	34,083.10	33,817.59
Rupee - Pakistan	119.64	113.51	110.47	115.92	116.29	116.87
Zloty – Poland	4.23	4.27	4.41	4.36	4.44	4.37
Leu - Romania	4.55	4.54	4.54	4.49	4.52	4.50
Dollar - US	1.14	1.08	1.05	1.11	1.11	1.12
Peso - Argentina	18.89	17.02	16.75	16.34	16.58	16.00
Rupee - India	73.74	71.18	71.59	74.37	74.96	75.00
Dollar - Singapore	1.57	1.52	1.52	1.53	1.50	1.54

4.3. CONSOLIDATION SCOPE

The consolidation scope includes the Parent Company Landi Renzo S.p.A. and the companies in which it holds a direct or indirect controlling stake according to IFRS.

The consolidation scope at 30 June 2017 changed compared to 31 December 2016 due to the consolidation of the company Sound&Vision S.r.l., a wholly owned subsidiary of the company Eighteen Sound S.r.l., as well as the removal from Group consolidation scope of the company Eurogas Utrecht B.V. as its liquidation is now complete. These changes did not have any significant effects.

The list of equity investments included in the consolidation scope and the relative consolidation method is provided below.

Companies consolidated using the line-by-line method

			% stake at 30 June 2017
Description	Registered Office		Share capital	Direct investment	Indirect investment	Notes
Parent Company
Landi Renzo S.p.A.	Cavriago (RE – Italy)	EUR	11,250,000	Parent Company
Companies consolidated using the line-by-line method
Landi International B.V.	Utrecht (The Netherlands)	EUR	18,151	100.00%
Landi Renzo Polska Sp.Zo.O.	Warsaw (Poland)	PLN	50,000		100.00%	(*)
LR Industria e Comercio Ltda	Espirito Santo (Brazil)	BRL	4,320,000	99.99%
Beijing Landi Renzo Autogas System Co. Ltd	Beijing (China)	USD	2,600,000	100.00%
L.R. Pak (Pvt) Limited	Karachi (Pakistan)	PKR	75,000,000	70.00%
Landi Renzo Pars Private Joint Stock Company	Tehran (Iran)	IRR	55,914,800,000	99.99%
Landi Renzo RO srl	Bucharest (Romania)	RON	20,890	100.00%
Landi Renzo USA Corporation	Wilmington - DE (USA)	USD	3,067,131	100.00%
AEB S.p.A.	Cavriago (RE – Italy)	EUR	2,800,000	100.00%
AEB America s.r.l.	Buenos Aires (Argentina)	ARS	2,030,220		96.00%	(§)
Eighteen Sound S.r.l.	Reggio Emilia (Italy)	EUR	100,000		100.00%	(§)
Lovato Gas S.p.A.	Vicenza (Italy)	EUR	120,000	100.00%
Officine Lovato Private Limited	Mumbai (India)	INR	19,091,430		74.00%	(#)
SAFE S.p.A.	S.Giovanni Persiceto (BO - Italy)	EUR	2,500,000	100.00%
Emmegas S.r.l.	Cavriago (RE - Italy)	EUR	60,000	100.00%
Sound & Vision S.r.l.	Senigallia (AN – Italy)	EUR	10,000		100.00%	(ç)
Associates and subsidiaries consolidated using the equity method
Krishna Landi Renzo India Private Ltd Held	Gurgaon - Haryana (India)	INR	118,000,000	51.00%

Detailed notes on investments:

(*) held by Landi International B.V. (§) held by AEB S.p.A. (#) held by Lovato Gas S.p.A. (ç) held by Eighteen Sound S.r.l.

4.4. EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The changes reported hereafter have been calculated on the balances at 31 December 2016 as regards balance sheet items and on the values of the first half of 2016 as regards income statement items.

4.4.1. SEGMENT REPORTING

Since the financial statements for the year closed at 31 December 2008, the Landi Renzo Group has adopted Accounting Standard IFRS 8 – Operating Segments. According to this Accounting Standard, the segments must be identified using the same procedures with which the internal management reporting is prepared for Top Management. Please see the "Segment Reporting" section of this Report for information by activity segment and by geographical area.

Please also note that since the first half of 2017, with the appointment of the new Chief Executive Officer, the Group has been engaged in an organizational evolution which has entailed the reorganization of activities into the following segments, previously considered on a unitary basis as a business segment for the manufacture of car systems and distribution:

• Automotive;
• Gas Distribution and Compressed Natural Gas systems;
• Sound.

NON-CURRENT ASSETS

4.4.2. LAND, PROPERTY, PLANT, MACHINERY AND OTHER EQUIPMENT

Tangible assets showed an overall net decrease of €10,944 thousand, decreasing from €30,500 thousand at 31 December 2016 to €19,556 thousand at 30 June 2017.

The following is an analysis of changes in "Land, property, plant, machinery and other equipment" that took place during the period:

(Thousands of Euro)
	Net Value at 31/12/2016	Increases	Disposals	Depreciation amounts	Assets held for sale	Other changes	Net Value at 30/06/2017
Land, property, plant and equipment	30,500	1,136	-134	-4,039	-7,760	-147	19,556

The main increases in tangible assets during the six-month period relate to:

• purchase of industrial equipment for €490 thousand, relating to testing and control instruments, moulds and other equipment;
• assets under construction and payments on account for €92 thousand;
• purchase of plant and machinery for €554 thousand.

The main decreases in tangible assets for the first six months of 2017 relate to disposals of industrial vehicles, moulds and obsolete equipment, which did not have significant impacts on the income statement.

Assets held for sale

Assets held for sale refer to the disposal on 31 July 2017 of the business unit regarding the part of the Technical Centre for the management of laboratories to the AVL Group, a leading global operator in the development of powertrains: the relative preliminary agreement was signed on 26 April 2017.

By virtue of this preliminary agreement, which as at 30 June 2017 qualified the disposal transaction as highly likely and the subsequent sale as to be completed within one year of the classification in the financial statements of the assets held for sale, the requirements of IFRS 5 can be deemed satisfied.

The consideration expected for the disposal was €5,700 thousand and caused the registration of a net capital loss on the residual book value of the assets at 30 June of €2,060 thousand.

The disposal value of the assets, equal to €5,700 thousand, was reclassified from "Land, property, plant and other equipment" to "Non-current assets held for sale".

(Thousands of Euro)
	30/06/2017
Residual value of the Technical Centre systems for laboratory management	7,760
Business unit disposal value	5,700
Net capital loss	-2,060

4.4.3. DEVELOPMENT EXPENDITURE

(Thousands of Euro)
	Net Value at 31/12/2016	Increases	Amortization and write-downs	Net Value at 30/06/2017
Development expenditure	8,420	1,656	-2,560	7,516

Development expenditure amounted to €7,516 thousand (€8,420 thousand at 31 December 2016) and includes the costs incurred by the Group both for internal personnel and for services supplied by third parties, for projects meeting the requirements of IAS 38 to be capitalized. In particular, costs capitalized during the first half of 2017, for a total of €1,656 thousand, refer to innovative projects, aimed both at development of new technologies in the Automotive segment and the design of new systems capable of expanding and optimizing the product range on the market, the value of which is expected to be recovered through revenue flows generated in future years.

It is expected that new product development activities will continue during the second half of 2017.

The increases for the period relate to development projects in progress at 30 June 2017, for which the grounds for recoverability have been verified.

4.4.4. GOODWILL

The item Goodwill totalled €30,094 thousand, unchanged compared with 31 December 2016. The following table shows this item broken down by CGU (Cash Generating Unit):

(Thousands of Euro)
CGU	30/06/2017	31/12/2016	Change
Lovato Gas S.p.A.	27,721	27,721	0
AEB S.p.A.	2,373	2,373	0
Total	30,094	30,094	0

During the six months there were no events or circumstances that indicate possible impairment in relation to the goodwill mentioned above. In particular, the half-yearly results of the CGU Lovato Gas S.p.A. and AEB S.p.A. are in line with the budget data.

4.4.5. OTHER INTANGIBLE ASSETS WITH FINITE USEFUL LIVES

(Thousands of Euro)
	Net Value at 31/12/2016	Increases	Depreciation amounts	Other changes	Net Value at 30/06/2017
Other intangible assets with finite useful lives	20,359	201	-1,227	-117	19,216

Other tangible assets with finite useful lives, totalling €19,216 thousand (€20,359 thousand), consist mainly of rights of use of inventions and proprietary Group trademarks, particularly the values of the LOVATO trademark (€8,693 thousand), the AEB and 18SOUND trademarks (€8,206 thousand), the Baytech trademark (€994 thousand), the SAFE trademark (€474 thousand) and the Emmegas trademark (€156 thousand), expressed at the fair value at the moment of purchase, based on evaluations made by independent professionals and amortized over 18 years – a period considered to represent the useful lifetime of trademarks – with the exception of the SAFE and Emmegas trademarks, which are amortized over a useful lifetime of 7 years.

4.4.6. EQUITY INVESTMENTS CONSOLIDATED USING THE EQUITY METHOD

This item includes the value calculated by applying the equity method to Joint Venture Krishna Landi Renzo Prv Ltd, owned by the Landi Renzo Group, equal to €97 thousand. The increase compared with 31 December 2016 of €54 thousand derives from the period valuation, taking the profit of the JV of €112 thousand into account.

4.4.7. OTHER NON-CURRENT FINANCIAL ASSETS

Other non-current financial assets, totalling €443 thousand (€664 thousand) mainly include the value of the equity investment in the Joint Venture EFI Avtosanoat Landi Renzo – LLC and totalled €172 thousand valued using the cost method and not consolidated as it is not significant and €225 thousand in guarantee deposits and other assets.

4.4.8. DEFERRED TAX ASSETS

In application of IAS 12, par. 74, deferred tax assets were offset with deferred tax liabilities as:

• (i) the entity has a right to set off current tax assets against current tax liabilities; and
• (ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

This item is shown in detail below (thousands of Euro):

Offsettable deferred tax assets and liabilities	30/06/2017	31/12/2016	Change
Deferred tax assets	12,592	12,467	125
Deferred tax liabilities	-5,282	-5,580	298
Total net deferred tax assets	7,310	6,887	423

The following table shows the values of the offsettable deferred tax assets and liabilities and their changes from 31 December 2016 to 30 June 2017 (in thousands of Euro):

Deferred tax assets	Deferred tax assets 31/12/2016	Uses	Temporary changes	Other changes	Deferred tax assets 30/06/2017
Goodwill	2,178	-314	12		1,876
Temporary changes	4,535	-217	557		4,875
Other deferred tax assets	769			35	804
Tax losses	4,985			52	5,037
a) Total deferred tax assets	12,467	-531	569	87	12,592
Deferred tax liabilities	Deferred tax liabilities 31/12/2016	Uses	Temporary changes	Other changes	Deferred tax liabilities 30/06/2017
Adjustments for consolidation and IFRS compliance	146			14	160
Contract completion evaluation	86	-86			0
Other temporary changes	410	-43		56	423
Intangible assets	4,938	-239			4,699
b) Total deferred tax liabilities	5,580	-368	0	70	5,282
a-b) Total net deferred tax assets	6,887	-163	569	17	7,310

In particular, deferred tax assets, totalling €12,592 thousand (€12,467 thousand at 31 December 2016), related both to temporary differences between the book values of assets and liabilities on the balance sheet and the corresponding tax values recognized and to the losses from the national consolidation tax scheme of years prior to 2016 deemed to be recoverable on the basis of the company plans identified by the Board of Directors through the approval of the updated 2016-2020 Business Plan, the realization of which is subject to the intrinsic risk of non-implementation inherent in its provisions.

In addition, for reasons of prudence the Group decided not to recognize any provision for deferred tax assets on tax losses for the half-year, in line with what was done at 31 December 2016.

At 30 June 2017 offsettable deferred tax liabilities totalled €5,282 thousand (€5,580 thousand at 31 December 2016), with a decrease of €298 thousand, and are primarily related to temporary differences between the book values of certain tangible and intangible assets and the values recognized for tax purposes.

CURRENT ASSETS

4.4.9. TRADE RECEIVABLES (including related parties)

Trade receivables (including trade receivables due from related parties), stated net of the related depreciation fund, are analysed by geographical segment as follows:

(Thousands of Euro)
Trade receivables by geographical area	30/06/2017	31/12/2016	Change
Italy	9,790	10,244	-454
Europe (excluding Italy)	9,458	10,620	-1,162
America	11,654	12,326	-672
Asia and Rest of the World	12,356	11,196	1,160
Provision for bad debts	-6,601	-6,835	234
Total	36,657	37,551	-894

Trade Receivables totalled €36,657 thousand, net of the Provision for Bad Debts equal to €6,601 thousand, compared with €37,551 thousand at 31 December 2016.

Total operations for assignment of trade receivables through factoring without recourse, for which the corresponding receivables were derecognized, amounted to €23,070 thousand (€22,196 thousand at 31 December 2016).

Receivables from related parties totalled €1,642 thousand (€1,998 thousand) and related to supplies of goods to the Joint Venture Krishna Landi Renzo India Private Ltd Held, to the Joint Venture EFI Avtosanoat-Landi Renzo LLC and to the Pakistani company AutoFuels. All the related transactions are carried out at arm's length conditions. For transactions with related parties, please refer to paragraph 4.4.39 of this Report.

The provision for bad debts, which was calculated using analytical criteria on the basis of the data available and, in general, of the historical trend, changed as follows:

(Thousands of Euro)
Provision for bad debts	31/12/2016	Allocation	Uses	Other changes	30/06/2017
Provision for bad debts	6,835	202	-334	-102	6,601

The allocations made during the period, necessary in order to adjust the book value of the payables to their assumed recovery value, amounted to €202 thousand. Utilization of €334 thousand refers to the write-off of definitively irrecoverable receivables by the Group companies, particularly relating to the American subsidiary Landi Renzo USA Corporation.

In accordance with the requirements of Accounting Standard IFRS 7, the following table provides information on the maximum credit risk divided by past due credit classes, gross of the bad debt provision:

(Thousands of Euro)
		Past due
	Not past due	0-30 days	30-60 days	60 and beyond	Bad debt provision
Trade receivables at 30/06/2017	34,423	2,780	1,415	4,640	-6,601
Trade receivables at 31/12/2016	33,240	3,025	1,057	7,064	-6,835

It is considered that the book value of the item Trade Receivables approximates the fair value thereof. Checks performed by the company on these customers did not reveal any particular solvency risks not already covered by the related provision.

4.4.10. INVENTORIES

This item breaks down as follows:

31/12/2016 Change
37,136 41
8,009 -571
12,959 370
-8,232 -391
49,872 -551

Closing inventories totalled €49,321 thousand, net of the inventory write-down reserve of €8,623 thousand, and therefore record a decrease of €551 thousand compared to 31 December 2016. The Group estimated the size of the inventory write-down reserve so as to take account of the risks of technical obsolescence of inventories and to align the book value with their assumed recovery value. At 30 June 2017 this item totalled €8,623 thousand, an increase of €391 thousand compared with 31 December 2016.

4.4.11. CONTRACT WORK IN PROGRESS

The item refers to contracts for fuel station compressors in progress at 30 June 2017, evaluated using the percentage of completion method with the cost to cost criterion, for a total of €210 thousand. At the end of 2016, this item amounted to €1,281 thousand and the decrease is related to deliveries during the half-year relating to contracts in progress.

4.4.12. OTHER RECEIVABLES AND CURRENT ASSETS

This item breaks down as follows:

(Thousands of Euro)
Other receivables and current assets	30/06/2017	31/12/2016	Change
Tax assets	5,160	6,229	-1,069
Receivables from others	2,186	2,525	-339
Accruals and deferrals	2,964	1,328	1,636
Total	10,310	10,082	228

Tax assets consist primarily of VAT recoverable from the tax authorities for €3,563 thousand and income tax credit of €1,597 thousand.

Receivables from others relate to payments on account, credit notes to be received and other receivables.

Accruals and deferrals relate mainly to deferred assets for long-term business services, insurance premiums, leases, association fees and hardware /software maintenance fees paid in advance.

4.4.13. CASH AND CASH EQUIVALENTS

This item, consisting of the active balances of bank current accounts and cash in hand in both Euro and foreign currency, breaks down as follows:

(Thousands of Euro)
Cash and cash equivalents	30/06/2017	31/12/2016	Change
Bank and post office accounts	15,879	16,406	-527
Cash	37	78	-41
Total	15,916	16,484	-568

Cash and cash equivalents amount to €15,916 thousand (€16,484 thousand).

For analysis of the production and absorption of cash during the half-year, please refer to the Consolidated Statement of Cash Flows.

It is considered that the book value of the item "Cash and cash equivalents", not subject to a significant risk of changes in value, is aligned with its fair value at the date of the financial statements.

The credit risk relating to Cash and cash equivalents is therefore deemed to be limited since the deposits are split over primary national and international banking institutions.

4.4.14. SHAREHOLDERS' EQUITY

The following table provides a breakdown of shareholders' equity items:

(Thousands of Euro)
Shareholders' equity	30/06/2017	31/12/2016	Change
Share capital	11,250	11,250	0
Other reserves	42,675	59,400	-16,725
Profit (loss) for the period	-8,474	-25,245	16,771
Total Group equity	45,451	45,405	46
Capital and Reserves attributable to minority interests	-288	436	-724
Profit (loss) attributable to minority interests	-147	-759	612
Total Minority Interests	-435	-323	-112
Total Consolidated Equity	45,016	45,082	-66

The share capital stated is the fully subscribed and paid-up share capital of the company Landi Renzo S.p.A. which is equal to a nominal €11,250 thousand, subdivided into a total of 112,500,000 shares, with a nominal value equal to €0.10.

Consolidated Shareholders' Equity showed a decrease of €66 thousand compared with 31 December 2016. For further details on the changes compared with 31 December 2016, please refer to the Table of Changes in Consolidated Equity in paragraph 3.5 of this Report.

The other reserves are shown in detail below:

(Thousands of Euro)
Other reserves	30/06/2017	31/12/2016	Change
Statutory Reserve	2,250	2,250	0
Extraordinary and Other Reserves	840	10,552	-9,712
Share Premium Reserve	30,718	46,598	-15,880
Future share capital contributions	8,867		8,867
Total Other Reserves of the Group	42,675	59,400	-16,725

The balance of the Statutory Reserve totalled €2,250 thousand and remains unchanged since it has reached one fifth of the share capital.

The Extraordinary Reserve and the Other Reserves refer to the profits recorded by the Parent Company and by the subsidiary companies in previous years and decreased by €9,712 thousand as a result of coverage of the previous year's loss net of the actuarial profit relating to the DBO (Defined Benefit Obligation) at 30 June 2017 according to the principles of IAS 19.

The Share Premium Reserve originated as a result of the quotation for an amount equal to €46,598 thousand, net of the related costs and now amounts to €30,718 after its utilization to cover losses from the previous year.

As a result of the optimization agreement, on 30 March 2017 the controlling shareholder made a future capital increase contribution to the Parent Company for a total of €8,867 thousand.

The minority interest represents the share of equity and result for the period of foreign subsidiaries not owned in full

NON-CURRENT LIABILITIES

4.4.15. NON-CURRENT BANK LOANS

This item, totalling €31,401 thousand (€18,687 thousand), includes the medium/long term portion of the bank debts for unsecured loans.

Please note that upon closure of the Financial Optimization Agreement, compared to 31 December 2016, €27,546 thousand in unsecured loans was reclassified from short to medium-term based on the updated contractual maturities which require half-yearly repayment in instalments of increasing amounts, from June 2018 to December 2022, and the first measurement of financial covenants at 31 December 2017.

The structure of said loans is exclusively at a variable rate indexed to the Euribor and increased by a spread aligned with normal market conditions; the loan currency is the Euro, except for the loans (\$4 million) provided in United States dollars by the Bank of the West.

The Group does not have any derivatives to hedge the loans.

The breakdown of the Group's Net Financial Position is provided in paragraph 2.1 of this Report.

The table below shows the residual debt by original maturity date of the unsecured loans:

(Thousands of Euro)

Loans and financing	H2 2017	H2 2018	2019	2020	2021	2022
Reimbursement instalments	0	4,730	3,617	4,786	7,119	11,149
Residual debt	31,401	26,671	23,054	18,268	11,149	0

4.4.16. OTHER NON-CURRENT FINANCIAL LIABILITIES

The item, totalling €31,098 thousand (€22,812 thousand) includes the remaining debt beyond 12 months of the "LANDI RENZO 6,10% 2015-2022" debenture loan of €30,259 thousand and, for the remainder, the instalments of a subsidized loan disbursed by Simest S.p.A. to the Parent Company in order to support a plan to expand trade in the USA. The repayment times of the debenture loan, originally issued in May 2015 for €34 million, with a duration of five years, bullet repayment and a 6.10% gross fixed interest rate with six-monthly deferred coupon, were revised by the Bondholders' Meeting held on 30 March 2017, which voted in particular, inter alia, to postpone the maturity of the debenture loan from 15 May 2020 to 31 December 2022. The Meeting then approved a decrease in the coupon rate in relation to interest periods beginning from the payment date on 30 April 2017 (inclusive) until 30 June 2019 (exclusive) from the current 6.10% to 5.5% on an annual basis of the outstanding capital; the coupon rate will be paid every six months. The rate on the coupon established for the first four months of 2017 remained unchanged at 6.10% on an annual basis, as approved by the Meeting on 30 December 2016 and was paid at the payment date of 30 April 2017 to the extent of 2.03% (for the period of entitlement from 31 December 2016 inclusive to 30 April 2017 exclusive). For the entitlement period from 30 April 2017 inclusive to 30 June 2017 exclusive, the coupon rate of 0.92% will be paid (equal to an annual interest rate of 5.5%). For the entitlement period from 30 June 2017 inclusive to 30 June 2019 exclusive, the half-yearly coupon rate will be 2.75% (equal to an annual interest rate of 5.5%).

The rates on the half-yearly coupons that will accrue from 30 June 2019 inclusive to the maturity date of the loan will be equal to 3.05% (equal to an annual interest rate of 6.1%) of the outstanding capital.

Following the changes mentioned above, the debenture loan was named "LANDI RENZO 6.10% 2015-2022", maintaining the same ISIN IT0005107237.

In addition, inter alia, the Meeting of 30 March 2017 approved the amendment to the repayment plan, envisaging increasing instalment amounts on a half-yearly basis from 30 June 2018 to 31 December 2022.

The table below provides details of the new maturities on the nominal value of the Loan:

(Thousands of Euro)
Landi Renzo 6.10% 2015- 2022 Debenture Loan	H2 2017	H1 2018	H2 2018	2019	2020	2021	2022
Reimbursement instalments	0	1,307	1,307	3,920	5,226	7,840	12,360
Residual debt	31,960	30,653	29,346	25,426	20,200	12,360	0

4.4.17. PROVISIONS FOR RISKS AND CHARGES

(Thousands of Euro)
Provisions for risks and charges	31/12/2016	Allocation	Utilization	Other changes	30/06/2017
Provision for product warranties	3,356	804	-299	-13	3,848
Provision for lawsuits in progress	277		-50	-9	218
Provisions for pensions	53	7			60
Other provisions	5,287		-118	-1	5,168
Total	8,973	811	-467	-23	9,294

These provisions can be broken down as follows:

The item "Provision for product warranties" includes the best estimate of the costs related to the commitments that the Group companies have incurred as an effect of legal or contractual provisions, in relation to the expenses connected with providing product warranties for a fixed period of time starting from the sale thereof. This estimate was calculated with reference to the historical data of the Group, on the basis of specific contractual content.

At 30 June 2017 this provision totalled €3,848 thousand. The provision, totalling €804 thousand, was stated on the Income Statement under the item "Provisions, write-downs and other operating expenses".

Use of the risk provision totalling €299 thousand is mainly due to the covering of warranty costs correlated with supplies of components in previous years.

The provision for lawsuits in progress, which relates to the probable payment for a dispute under way with a service provider declared bankrupt, was used in the amount of €50 thousand to cover further tranches of settlement costs incurred during the year.

The Provisions for pensions item relates to the provision accrued for additional customer indemnity, including provisions for the year of €7 thousand.

"Other provisions" that remain to €5.168 thousand at 30 June 2017 were used to €118 thousand.

4.4.18. DEFINED BENEFIT PLANS FOR EMPLOYEES

This item includes employee severance indemnity funds set up in compliance with the regulations in force. The following is the overall change in defined benefit plans for employees:

(Thousands of Euro)
Defined benefit plans for employees	31/12/2016	Allocation	Utilization	Other changes	30/06/2017
Employee severance indemnity reserve	3,124	72	-241	-126	2,829

The provision is due to the effect of the revaluation of the TFR (severance pay) for current employees at the end of the period. Uses totalling -€241 thousand refer to amounts paid to employees who left, while the column Other changes relates to adjustment of the DBO (Define Benefit Obligation) according to IAS 19.

For the purposes of calculating the Current Value, an interest rate of 1.67% was adopted, corresponding to the benchmark rate represented by the "Markit iBoxx € Corporate AA 10+" rate measured at 30 June 2016 (1.31% at 31 December 2016).

4.4.19. DEFERRED TAX LIABILITIES

At 30 June 2017 deferred tax liabilities that do not meet the offsetting requirements for the purposes of IAS 12, par. 74, totalled €464 thousand (€514 thousand at 31 December 2016) with a decrease equal to €50 thousand, and are primarily related to temporary differences between the book values of certain intangible assets and the values recognized for tax purposes.

Deferred tax liabilities	Deferred tax liabilities 31/12/2016	Uses	Temporary changes	Deferred tax liabilities 30/06/2017
Intangible assets	506	-54		452
Other temporary changes	8		4	12
Total deferred tax liabilities	514	-54		464

CURRENT LIABILITIES

4.4.20. BANK FINANCING AND SHORT-TERM LOANS

"Bank financing and short-term loans", totalling €13,495 thousand (€40,662 thousand), consists of the current portion of existing unsecured loans and financing totalling €1,096 thousand (€14,539 thousand at 31 December 2016), while the remaining €12,399 thousand refers to the utilization of short-term commercial credit lines. Said loans are not secured by guarantees, are at variable rate and are not hedged by derivatives.

The breakdown of the Group's Net Financial Position is provided in paragraph 2.1 of this Report.

4.4.21. OTHER CURRENT FINANCIAL LIABILITIES

This item, totalling €1,603 thousand (€10,039 thousand), includes:

• the current portion of the "LANDI RENZO 6.10% 2015-2022" debenture loan equal to €1,184 thousand;
• the short-term portion of €419 thousand relates to a subsidized loan disbursed by Simest to support a plan to expand trade in the USA.

4.4.22. TRADE PAYABLES (including related parties)

Trade payables totalled €55,220 thousand, with an increase of €2,130 thousand compared with 31 December 2016. Trade payables (including trade payables to related parties) can be analysed by geographical segment as follows:

Total	55,220	53,090	2,130
Asia and Rest of the World	2,801	2,624	177
America	801	737	64
Europe (excluding Italy)	6,745	9,263	-2,518
Italy	44,873	40,466	4,407
Trade payables by geographical area	30/06/2017	31/12/2016	Change
(Thousands of Euro)

Trade payables to related parties of €4,948 thousand refer to relations with the companies Gireimm S.r.l. and Gestimm S.r.l. for property lease payments.

All the related transactions are carried out at arm's length conditions. For transactions with related parties, please refer to paragraph 4.4.39 of this Report.

4.4.23. TAX LIABILITIES

Tax liabilities, consisting of total amounts payable to the Tax Authorities of the individual States in which the companies of the Group are located, totalled €2,313 thousand, compared with €2,604 thousand at 31 December 2016.

4.4.24. OTHER CURRENT LIABILITIES

(Thousands of Euro)
Other current liabilities	30/06/2017	31/12/2016	Change
Payables to welfare and social security institutes	1,872	2,136	-264
Other payables (payables to employees, to others)	4,916	3,098	1,818
Payments on account	2,622	1,198	1,424
Accrued expenses and deferred income	178	218	-40
Total	9,588	6,650	2,938

Other current liabilities amount to €9,588 thousand, an increase of €2,938 thousand compared with 31 December 2016. In particular, the item "Other payables" amounting to €4,916 thousand refers primarily to payables for current pay and deferred pay to be settled for employees. The increase of €1,818 thousand was caused to a significant extent by payables for holidays and end-of-year bonuses accrued.

The item payments on account, up by €1,424 compared to 31 December 2016, includes mainly advances paid by customers, primarily to SAFE S.p.A., which does contract-based work.

Liabilities held for sale

Liabilities held for sale, amounting to €25 thousand, refer to the disposal on 31 July 2017 of the business unit regarding the part of the Technical Centre for the management of laboratories to the AVL Group and represent payables correlated with the holidays and end-of-year bonuses accrued by employees expected to be transferred to AVL following the above-mentioned transaction.

INCOME STATEMENT

4.4.25. REVENUES (including related parties)

(Thousands of Euro)
Revenues from sales and services	30/06/2017	30/06/2016	Change
Revenues related to the sale of assets	99,322	85,920	13,402
Revenues for services and other revenues	4,186	3,370	816
Total	103,508	89,290	14,218
of which transactions with related parties	292	71	221

During the first half of 2017, the Landi Renzo Group achieved revenues of €103,508 thousand, an increase of €14,218 thousand compared with the same six months of the previous year.

Revenues from related parties totalling €292 thousand refer entirely to supplies of goods to the Joint Venture Krishna

Landi Renzo India Private Ltd Held and to the Joint Venture EFI Avtosanoat-Landi Renzo LLC. For transactions with related parties, please refer to paragraph 4.4.39 of this Report.

4.4.26. OTHER REVENUES AND INCOME

Other revenue and income totalled €433 thousand (€559 thousand) and are formed mainly of contingent gains and gains on sales of fixed assets.

4.4.27. COST OF RAW MATERIALS, CONSUMABLES AND GOODS

30/06/2017	30/06/2016	Change
41,156	35,054	6,102
7,732	5,636	2,096
1,233	1,550	-317
50,121	42,240	7,881

The total costs for purchases of raw materials, consumables and goods (including the change in inventories) amount to €50,121 thousand (€42,240 thousand), a growth of €7,881 thousand compared with 30 June 2016, related to revenue trends.

4.4.28. COSTS FOR SERVICES AND USE OF THIRD PARTY ASSETS (including related parties)

This item breaks down as follows:

(Thousands of Euro)
Costs for services and use of third party assets	30/06/2017	30/06/2016	Change
Industrial and technical services	15,284	14,075	1,209
Commercial, general and administrative services	7,686	8,049	-363
Extraordinary services	1,533	1,050	483
Costs for use of non-Group assets	2,754	2,726	28
Total	27,257	25,900	1,357

Costs for services and use of third party assets amount to €27,257 thousand (€25,900 thousand) with an increase of €1,357 thousand.

The increase in costs for industrial and technical services is linked mainly to the rise in external processing related to revenues as well as technical project consultancy.

The item "Extraordinary services" at 30 June 2017 includes expenses relating to the appointment of a Top Consulting Firm engaged to support the Chief Executive Officer and the company management in preparing and implementing an EBITDA improvement action plan.

For transactions with related parties, please refer to paragraph 4.4.39 of this Report.

4.4.29. PERSONNEL EXPENSES

Personnel expenses are analysed as follows:

(Thousands of Euro)
Personnel cost	30/06/2017	30/06/2016	Change
Wages and salaries, social security contributions and expenses for defined benefit plans	18,132	17,279	853
Other extraordinary personnel expenses	440	0	440
Temporary agency work and transferred work	1,490	1,250	240
Directors' remuneration	384	437	-53
Total	20,446	18,966	1,480

In the six months in question, personnel costs totalled €20,446 thousand, an increase of €1,480 thousand compared with the same period of the previous year (€18,966 thousand) and with an impact of the extraordinary component correlated with personnel incentives equal to €440 thousand.

Net of the extraordinary component, note that personnel expenses were up by €1,040 thousand as a result of the increased use of temporary agency work linked to the rising production and less recourse to the benefits of solidarity agreements for the Parent Company and the subsidiary AEB S.p.A., likewise correlated with the recovery in production.

The following table lists the number of employees in the workforce, broken down between Italian and foreign companies.

Company	30/06/2017	31/12/2016	30/06/2016
Landi Renzo S.p.A.	283	290	289
AEB S.p.A.	97	100	102
Eighteen Sound S.r.l.	40	43	43
Lovato Gas S.p.A.	87	91	92
SAFE S.p.A.	71	69	71
Emmegas S.r.l.	6	6	6
Sound&Vision	6	(*)	(*)
Foreign companies	176	182	189
Total	766	781	792

(*) Not consolidated.

4.4.30. PROVISIONS, WRITE-DOWNS AND OTHER OPERATING EXPENSES

Provisions, write-downs and other operating expenses totalled €1,660 thousand (-€4,297 thousand at 30 June 2016), a decrease of €2,637 thousand. This item consists mainly of allocations to the provisions for product warranties and other provisions, for bad debts and other sundry operating costs.

4.4.31. AMORTIZATION, DEPRECIATION AND IMPAIRMENT

(Thousands of Euro)
Amortization, depreciation and impairment	30/06/2017	30/06/2016	Change
Amortization of intangible assets	3,787	3,632	155
Depreciation of tangible assets	4,039	4,255	-216
Impairment of financial assets	122	150	-28
Total	7,948	8,037	-89

Amortization and depreciation amounted to €7,948 thousand (€8,037 thousand), a decrease of €89 thousand. No elements emerged from analysis which revealed the need to change the useful lifetime of tangible and intangible assets.

The amortization of intangible assets refers primarily to the amortization of development and design expenditure incurred by the Group, costs for the purchase and registration of trademarks and licenses and for software (applications and management) purchased over time.

Depreciation of tangible assets refers primarily to property, plant and machinery for production, assembly and runningin of the products, to industrial and commercial equipment for the purchase of moulds, to testing and control tools and to electronic processors.

The impairment of financial assets of €97 thousand relates to impairment of the stake in SAFE Gas Pte. Ltd. with registered office in Singapore, while the remaining €25 thousand relates to the impairment of the stake in Landi Renzo Argentina S.r.l.

Net capital loss from disposal

On 31 July 2017, the Parent Company Landi Renzo S.p.A. disposed of the business unit regarding the part of the Technical Centre for the management of laboratories to the AVL Group, a leading global operator in the development of powertrains: the relative preliminary agreement was signed on 26 April 2017.

By virtue of this preliminary agreement, which as at 30 June 2017 qualified the disposal transaction as highly likely and the subsequent sale as to be completed within one year of the classification in the financial statements of the assets held for sale, the requirements of IFRS 5 can be deemed satisfied.

The disposal consideration was €5,700 thousand, with a capital loss on the residual book value of the assets at 30 June of €2,060 thousand, as described in Paragraph 4.4.2.

4.4.32. FINANCIAL INCOME

Financial income totalled €48 thousand (€65 thousand) and refers mainly to interest income on bank deposits and tax refunds.

4.4.33. FINANCIAL EXPENSES

Financial expenses totalled €2,297 thousand (€2,677 thousand) and the decrease of €380 thousand is primarily due to the decline in the interest on the Debenture Loan, as previously reported.

4.4.34. EXCHANGE RATE GAINS AND LOSSES

The net exchange differences were negative and amounted to €828 thousand, arising from net losses on exchange from valuation (€931 thousand) correlated primarily with the depreciation of the Brazilian Real and the Pakistani Rupee, and the net gains realized (€103 thousand). At 30 June 2017, the Group did not have financial instruments hedging exchange rates.

4.4.35. PROFIT (LOSS) FROM EQUITY INVESTMENTS MEASURED USING THE EQUITY METHOD

This item totalled €54 thousand and includes the Group portion of profits, stated using the equity method, in the Joint Venture Krishna Landi Renzo India Private Ltd Held.

4.4.36. CURRENT AND DEFERRED TAXES

Taxes at 30 June 2017 totalled a negative amount of -€47 thousand, compared with a negative amount of -€1,159 thousand at 30 June 2016.

4.4.37. EARNINGS (LOSS) PER SHARE

The "base" earnings/loss per share were calculated by relating the net profit/loss of the Group to the weighted average number of ordinary shares in circulation in the period (112,500 thousand). The "base" loss per share, which corresponds with the "diluted" earnings/loss per share since there are no convertible bonds or other financial instruments with possible diluting effects, is -€0.0753. Loss per share for the first half of 2016 was -€0.1115.

OTHER INFORMATION

4.4.38. ANALYSIS OF THE MAIN DISPUTES IN PROGRESS

The Group companies are involved in proceedings, for both assets and liabilities, for non-significant amounts. The directors of the Parent Company, supported by the opinion of its lawyers, did not deem it necessary to make provision for any further funds in the financial statements beyond those already allocated as at 31 December 2016.

A number of Italian companies have disputes in progress with the Financial Authorities for which provisions were set aside in previous years to cover the related potential liability. No new elements emerged during the six months which made it necessary to set aside further provisions or release the provisions already stated at 31 December 2016.

4.4.39. TRANSACTIONS WITH RELATED PARTIES

The Landi Group deals with related parties at market conditions considered to be normal in the markets in question, taking account of the characteristics of the goods and the services supplied.

Transactions with related parties listed below include:

• the relationships between Gireimm S.r.l., Landi Renzo S.p.A. and SAFE S.p.A. for lease payments on the buildings used as operational headquarters by the Parent Company and by the subsidiary companies; On 31 July 2017, following the disposal of the business unit to AVL, Landi Renzo redefined the rental contract with Gireimm S.r.l. relating to the Technical Centre, reducing the rental consideration from €1,070 thousand per year to €302 thousand per year.
• the relationships between Gestimm S.r.l. and the company AEB S.p.A. for rent of the property used as the operational headquarters of the subsidiary;
• the relationships between Emilia Properties Inc. and Landi Renzo USA Corporation for the rents on properties used by the company;
• relationships for supply of services to the Pakistani company AutoFuels (held by a minority shareholder of the Pakistani subsidiary LR PAK), to the joint venture Krishna Landi Renzo India Private Ltd Held and to the joint venture EFI Avtosanoat-Landi Renzo LLC.

Incidence of Transactions with Related Parties (Thousands of Euro)	Total item	Absolute value for related parties	%	Related party
a) Incidence of the transactions or positions with related parties on balance sheet items
Trade receivables	36,657	1,642	4.5%	Autofuels, Krishna Landi Renzo, EFI Avtosanoat
Trade payables	55,220	4,948	9.0%	Gireimm, Gestimm, Krishna Landi Renzo
b) Incidence of the transactions or positions with related parties on income statement items
Cost for services and use of third party assets	-27,257	-1,613	5.9%	Gireimm, Gestimm, Emilia Properties Inc.
Revenues from sales and services	103,508	292	0.3%	Autofuels, Krishna Landi Renzo

The following table summarizes the relationships with related parties:

4.4.40. POSITIONS OR TRANSACTIONS DERIVING FROM ATYPICAL AND/OR UNUSUAL TRANSACTIONS

Pursuant to CONSOB communication no. 6064293 of 28 July 2006, note that during the first half of 2017 no atypical and/or unusual transactions occurred outside the normal operation of the company that could give rise to doubts regarding the correctness and completeness of the information in the financial statements, conflicts of interest, protection of company assets, safeguarding the minority shareholders.

4.4.41. NON-RECURRING SIGNIFICANT EVENTS AND OPERATIONS

Pursuant to CONSOB communication no. 6064293 of 28 July 2016, it is stated that during the first half of 2017 no nonrecurring significant events or operations took place.

4.4.42. SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSE OF THE FINANCIAL YEAR

Please refer to comments relating to this in the Interim Report on Operating Performance.

5. Certification of the condensed six-monthly consolidated financial statements pursuant to art. 81-ter of CONSOB regulation no. 11971 of 14 May 1999, as amended and supplemented

The undersigned Cristiano Musi, CEO, and Paolo Cilloni, Officer in charge of preparing the accounting documents of Landi Renzo S.p.A., state, having regard also to the provisions of art. 154-bis, paragraphs 3 and 4, of Italian Legislative Decree No. 58 dated 24 February 1998:

• the adequacy in relation to the relative corporate characteristics, and
• the effective application of the administrative and accounting procedures for preparing the condensed sixmonthly financial statements as at 30 June 2017.

There are no significant aspects to report in relation thereto.

We furthermore declare that:

1) the condensed six-monthly consolidated financial statements at 30 June 2017:

• have been prepared in compliance with the international accounting standards issued by the International Accounting Standards Board and adopted by the European Commission in accordance with the procedure specified in art. 6 of Regulation (EC) no. 1606/2002 of 19 July 2002 of the European Parliament and Council;
• correspond with the accounting books and records;
• are capable of providing a true and correct representation of the asset, economic and financial situation of the issuer and of the companies included in the consolidation.
• 2) The interim report on performance includes a reliable analysis of the references to the important events that occurred in the first six months of the year and to their impact on the condensed six-monthly consolidated financial statements, together with a description of the main risks and uncertainties for the remaining months of the year. The interim report on operating performance also includes a reliable analysis of the information on the significant transactions with related parties.

Cavriago, 7 September 2017

CEO

Cristiano Musi

Officer in charge of preparing the company accounting documents

Paolo Cilloni

REVIEW REPORT ON CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

To the shareholders of Landi Renzo SpA

Foreword

We have reviewed the consolidated condensed interim financial statements of Landi Renzo SpA (hereinafter, also the "Company") and its subsidiaries (hereinafter, also "Landi Renzo Group") as of 30 June 2017 comprising the consolidated statement of financial position, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of cash flows, the consolidated statement of changes in equity and the related explanatory notes. The Directors of the Company are responsible for the preparation of the consolidated condensed interim financial statements in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these consolidated condensed interim financial statements based on our review.

Scope of review

We conducted our work in accordance with the criteria for a review recommended by Consob in Resolution No. 10867 of 31 July 1997. A review of consolidated condensed interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a fullscope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated condensed interim financial statements.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that consolidated condensed interim financial statements of Landi Renzo Group as of 30 June 2017 are not prepared, in all material respects, in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union.

Parma, 14 September 2017

PricewaterhouseCoopers SpA

Signed by Massimo Rota (Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers.