Belysse Group NV

Interim / Quarterly Report • Aug 28, 2019

Balta Group NV

2019 INTERIM FINANCIAL REPORT

Period ended June 30, 2019

Balta Group nv

Registered office: Wakkensteenweg 2, 8710 Sint-Baafs-Vijve Belgium Registration number: 0671.974.626

1.	DECLARATION REGARDING THE INFORMATION PROVIDED IN THIS REPORT3
2.	KEY FIGURES 4
3.	MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS5
3.1.	GROUP FINANCIAL HIGHLIGHTS 5
3.2.	BUSINESS UPDATE5
3.3.	MANAGEMENT CHANGE 5
3.4.	OUTLOOK 6
4.	OPERATING REVIEW PER SEGMENT 7
4.1.	REVENUE AND ADJUSTED EBITDA PER SEGMENT 7
4.1.1.	H1 2019 7
4.1.2.	Q2 20197
4.2.	GROUP 8
4.3.	RUGS8
4.4.	COMMERCIAL8
4.5.	RESIDENTIAL 8
5.	OTHER FINANCIAL ITEMS REVIEW8
5.1.	INTEGRATION AND RESTRUCTURING EXPENSES8
5.2.	NET FINANCING EXPENSES 9
5.3.	TAXATION 9
5.4.	EARNINGS PER SHARE 9
5.5.	CASHFLOW AND NET DEBT9
6.	RISK FACTORS 9
7.	CONSOLIDATED INTERIM FINANCIAL STATEMENTS10
7.1.	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 10
7.2.	CONSOLIDATED STATEMENT OF FINANCIAL POSITION11
7.3.	CONSOLIDATED STATEMENT OF CASH FLOWS 12
7.4.	CONSOLIDATED STATEMENT OF CHANGES IN EQUITY13
7.5.	SELECTED EXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 14
7.5.1.	SIGNIFICANT ACCOUNTING POLICIES14
7.5.2.	SEGMENT REPORTING16
7.5.3.	INTEGRATION AND RESTRUCTURING EXPENSES17
7.5.4.	GOODWILL 17
7.5.5.	NET DEBT RECONCILIATION18
7.5.6.	RELATED PARTY TRANSACTIONS 18
7.5.7.	COMMITMENTS18
7.5.8.	EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE18
8.	GLOSSARY: ALTERNATIVE PERFORMANCE MEASURES 19

1. Declaration regarding the information provided in this report

We, the undersigned declare that, to the best of our knowledge, the condensed financial statements for the six-months period ended June 30, 2019, which have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole, and that the half-year report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, together with a description of the principal risks and uncertainties for the remaining six months of the financial year.

Jan-Christian Werner Chief Financial Officer Cyrille Ragoucy Chairman of the Board and Chief Executive Officer

2. Key Figures

(€ thousands) H1 2019 LFL H1 2018 Impact IFRS 16 transition Reported H1 2018 Results Revenue 351 413 321 896 321 896 Adjusted EBITDA 37 269 37 296 3 125 34 171 Adjusted EBITDA Margin 10,6% 11,6% 1,0% 10,6% Integration and restructuring expenses (3 093) (2 410) (2 410) EBITDA 34 175 34 886 3 125 31 761 Depreciation / amortisation (19 370) (19 018) (2 819) (16 199) Operating profit / (loss) for the period 14 805 15 868 306 15 562 Net finance expenses (12 508) (13 541) (823) (12 718) Income tax benefit / (expense) 476 (127) (127) Profit/(loss) for the period 2 773 2 200 (517) 2 717

Cash flow

Cash at beginning of period	26 853	37 338	-	37 338
Net cash generated / (used) by operating activities	20 320	12 636	3 125	9 511
Net cash used by investing activities	(11 955)	(14 912)	-	(14 912)
Net cash generated / (used) by financing activities	(15 477)	(17 743)	(3 125)	(14 618)
Cash at end of period	19 741	17 317	-	17 317

Note 1: LfL H1 2018 figures contain the like-for-like IFRS 16 impact in order to make the figures comparable

The net cash flow is impacted by the adoption of IFRS 16. We refer to IFRS 16 adoption Note 7.5.1 for more details.

Financial position

In relation to Balta's financing agreements, the documentation provides for the effect of changes in accounting standards to be neutralized. As such, the application of IFRS 16 has no consequence for the Group's financing.

(€ thousands)	H1 2019	H2 2018
Net debt2	268 666	261 816
Leverage	3,7	3,6

Note 2: IFRS 16 effect is excluded from the leverage comparison (see glossary)

3. Management discussion and analysis of the results

3.1. Group Financial Highlights

• H1 consolidated: Revenue €351.4m +9.2%, Adjusted EBITDA flat at €37.3m on a like-for-like basis1, Adjusted EBITDA margin 10.6%
  • o Organic revenue growth +7.5% and FX +1.6%
  • o Revenue growth by division: Rugs +18.9%, Commercial +14.2%, Residential -4.3%
  • o Group EBITDA flat due to lower margin in Rugs division driven by adverse mix and temporarily higher costs
• Net Debt slightly down vs. H1 2018 (reported Net Debt H1 2019 of €311.8m includes €43.2m IFRS 16 impact) on a like-for-like basis2
• Leverage 3.7x, down from 3.8x as at H1 2018, on a like-for-like basis2
• Arrival of the CTO early Q4 finalizes the renewal of the Management Committee

3.2. Business Update

• The implementation of NEXT, the three year program designed to deliver a significant improvement in earnings, started in Q1 and is well on track. NEXT highlights for the quarter across the three key pillars include:
  • o Delivering sustainable growth: in Rugs, our US e-commerce sales out of our new dedicated warehouse in Savannah have improved month by month. In Commercial, sales to the targeted new segments for Bentley, as well as the cross-selling of our European carpet tiles into the US are progressing well.
  • o Improving Commercial Excellence: we have successfully recruited sales talent as planned. To continuously improve the effectiveness of our sales professionals, we are progressing with Field and Forum training across the divisions, and have redefined a strategy for each key account.
  • o Increasing cost competitiveness: our Lean program is progressing well in our Bentley, Tielt and Sint-Baafs-Vijve plants and has started at our Waregem and Zele plants. Procurement improvements were ahead of plan over the period.
• Strong growth in Rugs, benefiting from regained US outdoor rugs programs and the timing of some European program roll-outs which came at a higher cost due to the exceptionally high plant occupancy.
• Strong top line evolution in Commercial, driven by the continued double-digit growth of our US business both in office and new targeted segments. In Europe, volumes are down over H1 but at better prices and margins.
• In Residential, UK revenue was flat year-on-year over H1 as the pre-Brexit from Q1 reversed over Q2. Trading in our Continental European markets remained subdued in the first half, but at better prices and margins.

3.3. Management Change

As part of the strengthening of Balta's organisation, to be able to deliver NEXT and to build a more agile and flexible company, the Management Committee has been amended and expanded as follows:

• Cyrille Ragoucy remains Chief Executive Officer
• Jan-Christian Werner, currently Head of Group Controlling & Reporting, is appointed Chief Financial Officer following the departure of Tom Gysens who has decided to leave Balta to pursue other career opportunities. Tom and Jan-Christian will work closely together on the transition until mid September.

Jan-Christian has extensive experience in Corporate Finance as well as Financial Controllership at international stock market listed companies. Before joining Balta in February, Jan-Christian was head

¹ Like-for-like IFRS16 adjustment on H1 2018 EBITDA

² Excluding impact of IFRS16

of the Finance organisation for the EMEA region at Orion Engineered Carbon for five years and afterwards spent one year as acting CFO of AvesOne AG, a listed Investment holding company.

• Marc Dessein remains Managing Director of Balta Home
• Jim Harley remains President of Bentley Mills in the USA and joins the Management Committee
• Oliver Forberich will join Balta on 2 September, as Managing Director of Balta carpets, ITC and arc edition. Oliver joins us from Bekaert where he was Chief Marketing Officer and Senior Vice President Stainless Technologies. Oliver spent twelve years at Bekaert in different leadership roles covering various geographies. Before Bekaert, Oliver also held several executive roles at Schott AG
• Stefan Claeys joined Balta in April to become Managing Director of modulyss, our European commercial brand for carpet tiles. Stefan has worked for the last five years at Beaulieu as the General Manager of the Technical Textiles Division. Before Beaulieu, he spent ten years at the Wienerberger Group in various leadership positions including Director Corporate Marketing and Export, CEO of Wiekor in Poland and Product Group Business Manager
• Kris Willaert joined Balta in June as Human Resources Director. Kris has previously served in international HR executive roles at KONE International, MasterCard Europe and Lloyds Pharma
• Emmanuel Rigaux will join Balta early Q4 as Chief Transformation Officer. Emmanuel has spent 20 years at LafargeHolcim in various leadership positions, most recently as Head of West & Central Africa. During his time at LafargeHolcim, Emmanuel has gained extensive experience in leading several transformation programs. Before his time at LafargeHolcim, Emmanuel spent two years at Boston Consulting Group.

3.4. Outlook

.

"First half results were overall in-line with our expectations and we remain on track for the full year 2019 guidance we provided in March. Both our Rugs and Commercial division realized solid sales growth in the first six months of the year. At the same time, our first half margins were impacted from cost inflation and the investments in NEXT. We are focused and on track with implementing the various growth and cost saving initiatives identified in NEXT which will start benefiting our results later in the second half of the year and will bring a significant improvement in earnings as from 2020."

4. Operating review per segment

4.1. Revenue and Adjusted EBITDA per segment

4.1.1. H1 2019

		Lfl				o/w
(€ million, unless otherwise stated)	H1 2018	IFRS16 Im pact	Lfl H1 2018	H1 2019	% change Lf(1)	organic growth	o/w FX
Rugs	100.8		100.8	119.8	18.9%
Commercial	101.9		101 9	116.4	14.2%
Residential	105.1		105.1	100.6	(4.3)%
Non-Woven	14.1		14.1	14.6	3.7%
Consolidated Revenue	321.9		321.9	351.4	9.2%	7.5%	1.6%
Rugs	12 5	0.4	12.9	9.2	(29.0)%
Commercial	14.1	2.5	16.6	19.2	15.8%
Residential	6.2	0.2	6.4	7.9	22.5%
Non-Woven	1.4	0.0	1.4	1.0	(25.3)%
Consolidated Adjusted EBITDA	34.2	3.1	37.3	37.3	(0.1)%	(2.2)%	2.1%
Rugs	12.4%		12.8%	7.6%
Commercial	13.8%		16.3%	16.5%
Residential	5.9%		6.1%	7.8%
Non-Woven	9.8%		9.8%	7.1%
Consolidated Adjusted EBITDA Margin	10.6%		11.6%	10.6%

4.1.2.Q2 2019

		Lfl				o/w
(€ million, unless otherwise stated)	Q2 2018	FRS16 Im pact	Lfl Q2 2018	Q2 2019	% change Lf(1)	organic growth	o/w EX
Rugs	47.6		47.6	54.3	14.1%
Commercial	53.6		53.6	60.7	13.1%
Residential	51.5		51.5	45.8	(11.1)%
Non-Woven	6.9		6.9	7.2	3.2%
Consolidated Revenue	159.6		159.6	167.9	5.2%	3.5%	1.6%
Rugs	6.6	0.2	6.8	2.9	(56.6)%
Commercial	8.2	1.2	0.4	11.5	21.6%
Residential	3.5	0.1	3.6	4 6	28.9%
Non-Woven	0.6	0.0	0.6	0.8	24.6%
Consolidated Adjusted EBITDA	18.8	1.6	20.4	19.8	(3.0)%	(5.1)%	2.1%
Rugs	13.8%		14.2%	5.4%
Commercial	15.3%		17.6%	18.9%
Residential	6.7%		6.9%	10.1%
Non-Woven	9.0%		9.0%	10.9%
Consolidated Adjusted EBITDA Margin	11.8%		12.8%	11.8%

4.2. Group

Strong revenue growth in Rugs and Commercial was offset on an Adjusted EBITDA level by €2.0m of NEXT investments, and lower margin in Rugs due to adverse revenue mix and temporarily higher costs. Adjusted EBITDA includes a net benefit of €2.0m from the release of accruals, mainly benefiting Residential.

4.3. Rugs

Our Rugs division realized Revenue of €119.8m, up 18.9% versus the first half of 2018. In the US, we benefited from regaining share of wallet for the outdoor rugs programs with two home improvement customers. Our US e-commerce business is progressing, with sales further ramping up over Q2. We moved dedicated stock into the new e-commerce warehouse in Savannah. In Europe, the market environment overall remains challenging, though we benefited from the timing of the roll-outs of some of our programs with key customers.

Adjusted EBITDA in H1 was €9.2m, down from €12.9m on a like-for-like basis3 in the same period last year. On a like-for-like basis1, the Adjusted EBITDA margin decreased from 12.8% to 7.6%. Despite solid top-line growth, underlying margins were impacted by unfavorable mix and increased promotional activity as a result of the generally more challenging trading environment and expected cost inflation in raw materials, in particular polypropylene, energy and freight. Furthermore, investments in the various growth and cost saving initiatives from NEXT, €0.5m of which are nonrecurring, weighed on our margin.

4.4. Commercial

Commercial realized Revenue of €116.4m, up 14.2% versus the first half of 2018. Our US business continued its double-digit organic growth spurred by share gains in the Office segment and growth in newly targeted segments where, accelerated under NEXT, we hired additional sales resources. In Europe, Revenue declined year on year as the environment remained more challenging.

Adjusted EBITDA in H1 was €19.2m, up from €16.6m on a like-for-like basis1 in the same period last year with Adjusted EBITDA margin up from 16.3% to 16.5% on a like-for-like basis1. Volume growth and the impact from price increases had a positive effect on margins, which was partly offset by cost inflation and the initial cost of expanding our sales teams under NEXT.

4.5. Residential

Our Residential division realized Revenue of €100.6m, down 4.3% versus the first half of 2018. In the UK, while Revenue was flat year-on-year, the environment generally remained volatile. As anticipated, the positive impact in Q1 from pre-Brexit stocking by some of our UK customers reversed in Q2. The overall first half Revenue decline for the division was driven by the subdued trading environment in Continental Europe, where volume declines more than offset the positive effect from price increases we introduced across Continental Europe at the start of the year. We continue our focus on higher margin products, which grew mid-single digit in H1, and now represent 36% of Residential Revenue.

Adjusted EBITDA in H1 was €7.9m, up from €6.4m on a like-for-like basis1 in the same period last year. On a like-for-like basis1, Adjusted EBITDA margin in Residential of 7.8% was up from 6.1%, benefiting from a growing share of higher margin products, price increases we realized outside of the UK, and the net impact from the non-recurring release of accruals which mainly impacted Residential.

5. Other financial items review

5.1. Integration and Restructuring Expenses

Non-recurring expenses for integration and restructuring over the first six months of 2019 amounted to €3.1m, as compared to €2.4m in the same period last year. The expense in the current period is mainly driven by one-off costs related to NEXT.

5.2. Net financing expenses

Net finance expenses for the first six months of 2019 are equal to €12.5m, as compared to €12.7m in the same period last year. This decrease is mainly driven by the change in result from foreign exchange rate differences on intercompany transactions, offset by the interest charge as a result of the change in accounting policy (IFRS 16).

5.3. Taxation

Income tax benefit equal to €0.5m for the six months ended 30 June, 2019, as compared to an income tax expense of €0.1m in the same period last year. The income tax benefit for the period is primarily driven by the recognition of deferred tax assets for new tax credits and the positive impact of the reversal of pre-acquisition deferred tax positions in Bentley Mills Inc. The normalized effective tax rate of the Group amounts to around 27%.

5.4. Earnings per share

Net earnings per share for the first six months of 2019 were €0.08, compared to €0.08 for the same period last year.

5.5. Cashflow and net debt

Net debt at the end of June 2019 is equal to €268.7m (excluding IFRS 16 effect), versus €261.8m at the end of December 2018. The increase in working capital is driven by the seasonality of our business operations. We intentionally build up inventories during the months of June and July in preparation for the increase in demand and the annual shutdown of the majority of our manufacturing facilities in August. As a result, our trade working capital is higher during the summer months compared to the rest of the year.

Net Debt slightly lower vs H1 2018 (reported Net Debt H1 2019 of €311.8m includes €43.2m IFRS16 impact) on a like-for-like basis.

6. Risk Factors

There are no material changes related to the risks and uncertainties for the Group as explained in the section "Summary of main risks" of the 2018 annual report.

7. Consolidated Interim Financial Statements

7.1. Consolidated Statement of Comprehensive Income

(€ thousands)	H1 2019	H1 2018
I. CONSOLIDATED INCOME STATEMENT
Revenue	351 413	321 896
Raw material expenses	(167 333)	(154 290)
Changes in inventories	(1 393)	5 202
Employee benefit expenses	(85 706)	(80 346)
Other income	1 494	1 802
Other expenses	(61 206)	(60 093)
Depreciation/ amortization	(19 370)	(16 199)
Adjusted Operating Profit 1	17 899	17 971
Gains on asset disposals	-	-
Integration and restructuring expenses	(3 093)	(2 410)
Operating profit / (loss) 1	14 805	15 562
Finance income	190	50
Finance expenses	(12 698)	(12 768)
Net finance expenses	(12 508)	(12 718)
Profit / (loss) before income taxes	2 297	2 844
Income tax benefit / (expense)	476	(127)
Profit / (loss) for the period from continuing operations	2 773	2 717
Profit/ (loss) for the period from discontinued operations
Profit/(loss) for the period	2 773	2 717
Attributable to:
Equity holders	2 773	2 717
Non-controlling interest	-	-
II. CONSOLIDATED OTHER COMPREHENSIVE INCOME
Items in other comprehensive income that may be subsequently
reclassified to P&L
Exchange differences on translating foreign operations	(5 822)	(11 140)
Changes in fair value of hedging instruments qualifying for cash
flow hedge accounting	313	160
Changes in deferred taxes	-	(49)
Items in other comprehensive income that will not be reclassified to
P&L
Changes in deferred taxes	389	42
Changes in employee defined benefit obligations	(2 051)	(163)
Other comprehensive income for the period, net of tax	(7 172)	(11 150)
Total comprehensive income for the period	(4 399)	(8 434)
Basic and diluted earnings per share from continuing
operations attributable to the ordinary equity holders of the
company	0,08	0,08

(1) Adjusted Operating Profit / Operating profit/(loss) are non-GAAP measures. Adjusted EBITDA is calculated as Adjusted Operating Profit (Loss) adjusted for depreciation and amortization charges.

The accompanying notes form an integral part of these consolidated condensed interim financial statements.

7.2. Consolidated Statement of Financial Position

(€ thousands)	Note	30 June 2019	31 Dec 2018
Property, plant and equipment		338 599	301 259
(Of which IFRS 16 related right-of-use assets)		42 077	-
Land and buildings		191 047	153 752
Plant and machinery		135 228	132 632
Other fixtures and fittings, tools and equipment		12 323	14 875
Goodw ill		190 903	194 643
Other intangible assets		10 602	11 399
Deferred income tax assets		5 403	5 470
Trade and other receivables		1 144	996
Total non-current assets		546 651	513 765
Inventory		156 302	153 894
Derivative financial instruments		496	119
Trade and other receivables		68 663	60 772
Current income tax assets		24	278
Cash and cash equivalents		19 741	26 853
Total current assets		245 227	241 916
Total assets		791 878	755 681
Share capital		252 950	252 950
Share premium		65 660	65 660
Other comprehensive income		(40 560)	(33 388)
Retained earnings		10 704	9 457
Other reserves		(39 876)	(39 876)
Total equity		248 878	254 804
Senior Secured Notes		231 033	230 065
Senior Term Loan Facility		34 969	34 908
Bank and Other Borrow ings		49 591	12 225
Of which IFRS 16 related lease liabilities		37 636	-
Deferred income tax liabilities		44 218	47 837
Provisions for other liabilities and charges		2 473	2 458
Employee benefit obligations		4 755	3 106
Total non-current liabilities		367 039	330 598
Senior Secured Notes		3 425	3 425
Senior Term Loan Facility		(113)	(118)
Bank and Other Borrow ings		6 860	1 261
Of which IFRS 16 related lease liabilities		5 532	-
Provisions for other liabilities and charges		313	1 165
Derivative financial instruments		101	55
Other payroll and social related payables		34 469	36 714
Trade and other payables		126 053	123 599
Income tax liabilities		4 853	4 178
Total current liabilities		175 961	170 279
Total liabilities		543 000	500 877
Total equity and liabilities		791 878	755 681

The accompanying notes form an integral part of these consolidated condensed interim financial statements.

7.3. Consolidated Statement of Cash Flows

(€ thousands)	H1 2019	H1 2018
I. CASH FLOW FROM OPERATING ACTIVITIES
Net profit / (loss) for the period	2 773	2 717
Adjustments for:
Income tax expense/(income)	(476)	127
Finance income	(190)	(50)
Financial expense	12 698	12 768
Depreciation, amortisation (incl. depreciation of IFRS 16 right-of-use
assets - as from 2019)	19 370	16 199
(Gain)/loss on disposal of non-current assets	(38)	(2)
Movement in provisions and deferred revenue	(852)	(3 139)
Fair value of derivatives	(14)	(34)
Cash generated before changes in working capital	33 271	28 586
Changes in w orking capital:
Inventories	(3 482)	(12 479)
Trade receivables	(5 207)	(4 447)
Trade payables	2 313	963
Other w orking capital	(5 010)	165
Cash generated after changes in working capital	21 885	12 788
Net income tax (paid)	(1 565)	(3 277)
Net cash generated / (used) by operating activities	20 320	9 511
II. CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment	(13 984)	(14 728)
Acquisition of intangibles	(253)	(599)
Proceeds from non-current assets	2 282	415
Acquisition of subsidiary	-	-
Net cash used by investing activities	(11 955)	(14 912)
IIII. CASH FLOW FROM FINANCING ACTIVITIES
Interest and other finance charges paid, net	(11 337)	(10 507)
Proceeds from borrow ings w ith third parties	-	-
Proceeds from capital contributions	-	-
Repayments of Senior Secured Notes	-	-
Repayments of borrow ings w ith third parties (incl. IFRS 16 lease
liabilities - as from 2019)	(4 140)	(1 236)
Dividends paid	-	(2 875)
Net cash generated / (used) by financing activities	(15 477)	(14 618)
NET INCREASE/ (DECREASE ) IN CASH AND BANK OVERDRAFTS	(7 112)	(20 020)
Cash, cash equivalents and bank overdrafts at the beginning of the
period	26 853	37 338
Cash, cash equivalents and bank overdrafts at the end of the period	19 741	17 317

The accompanying notes form an integral part of these consolidated condensed interim financial statements.

7.4. Consolidated Statement of Changes in Equity

	Share	Share	Other compreh	Retained	Other		Non	Total
	capital	premium	ensive	earnings	reserves	Total	controlling interest	equity
(€ thousands)			income
Balance 31 December 2017	252 950	65 660	(19 913)	6 297	(39 878)	265 116	-	265 116
Adoption of accounting policies	-	-	-	(1 308)	-	(1 308)	-
Balance 1 January 2018	252 950	65 660	(19 913)	4 990	(39 878)	263 809	-	263 809
Profit / (loss) for the period	-	-	-	7 346	-	7 346	-	7 346
Dividends paid	-	-	-	(2 875)	-	(2 875)	-	(2 875)
Equity-settled share-based payment	-	-	-	7	-	7	-	7
plans
Other comprehensive income
Exchange differences on translating	-	-	(13 833)	-	-	(13 833)	-	(13 833)
foreign operations
Changes in fair value of hedging
instruments qualifying for cash flow	-	-	87	-	-	87	-	87
hedge accounting
Cumulative changes in deferred taxes	-	-	(107)	-	-	(107)	-	(107)
Cumulative changes in employee defined	-	-	379	-	-	379	-	379
benefit obligations
Total comprehensive income for the	-	-	(13 473)	-	-	(13 473)	-	(13 473)
period
								-
Balance at 31 December 2018	252 950	65 660	(33 388)	9 458	(39 876)	254 804	-	254 804
Adoption of accounting policies	-	-	-	(1 530)	-	(1 530)	-	(1 530)
Balance 1 January 2019	252 950	65 660	(33 388)	7 928	(39 876)	253 274	-	253 274
Profit / (loss) for the period	-	-	-	2 773	-	2 773	-	2 773
Equity-settled share-based payment	-	-	-	3	-	3	-	3
plans
Other comprehensive income						-	-	-
Exchange differences on translating	-	-	(5 822)	-	-	(5 822)	-	(5 822)
foreign operations
Changes in fair value of hedging
instruments qualifying for cash flow	-	-	313	-	-	313	-	313
hedge accounting
Cumulative changes in deferred taxes	-	-	389	-	-	389	-	389
Cumulative changes in employee defined	-	-	(2 051)	-	-	(2 051)	-	(2 051)
benefit obligations
Total comprehensive income for the	-	-	(7 172)	2 776	-	(4 396)	-	(4 396)
period
							-	-
Balance at 30 June 2019	252 950	65 660	(40 560)	10 704	(39 876)	248 878	-	248 878

7.5. Selected Explanatory Notes to the Condensed Consolidated Interim Financial Statements

7.5.1.Significant Accounting Policies

These consolidated condensed interim financial statements for the six months ended June 30, 2019 have been prepared in accordance with IAS 34 Interim financial reporting. They do not include all the notes of the type normally included in an annual report. Accordingly, this report is to be read in conjunction with the annual report for the year ended December 31, 2018 and any public announcements made by the Balta Group during the interim reporting period.

The amounts in this document are presented in thousands of euro, unless otherwise stated. Rounding adjustments have been made in calculating some of the financial information included in these consolidated condensed interim financial statements.

The accounting policies are consistent with those of the previous financial year and corresponding interim period, except for the adoption of new and amended standards as set out below.

New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period and the Group has to change its accounting policies and make retrospective adjustments as a result of adopting IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatments.

• IFRS 16 Leases

As of January 1, 2019, the Group changed its accounting policies to adopt IFRS 16. IFRS 16 has replaced IAS 17 Leases, and is a far reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Under the IFRS 16 adoption method chosen by the Group (simplified approach), prior years are not restated to conform to the new policies. Consequently, the year over year changes in profit, assets and liabilities and cash flows are impacted by the new policies.

The transition impact of the policy changes as of January 1, 2019, was as follows:

• Property plant and equipment are higher by €43.6m resulting from the recognition of right-of-use assets,
• Financial liabilities are higher by €43.6m due to the recognition of lease liabilities,

The Group expects that net profit after tax will not be materially impacted for 2019 as a result of adopting the new rules. Adjusted EBITDA for 2019 is expected to increase between approximately €6m and €8m, as the operating lease payments are included in the Adjusted EBITDA, but the amortization of the right-of-use assets and interest on the lease liability are excluded from this measure. The IFRS 16 adjustments will increase the Net Debt to Adjusted EBITDA ratio by between 0.2x – 0.3x.

In relation to Balta's financing agreements, the documentation provides for the effect of changes in accounting standards to be neutralized. As such, the application of IFRS 16 has no consequences for the Group's financing. We will continue to calculate Leverage in line with the definition in our financing agreement.

The key judgments involved in the evaluation relate to the applied discount rates and the lease term. We have reviewed the applied rates and concluded that the applied rates of January are still valid and accurate.

• IFRIC 23 Uncertainty over Income Tax Treatments

This interpretation clarifies the accounting for uncertainties in income taxes. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over whether tax taken by a Group will be accepted by the tax authority. It is applied to both current and deferred tax where there is uncertainty over a Group's tax position.

Balta made a detailed assessment of all tax uncertainties within the Group having the following implications on the accounting policies:

a. It has decided whether to consider its uncertain tax positions (UTPs) individually or collectively, based on which approach provided the best predictions of the resolution of the uncertainties with the tax authority;

b. It has assumed that the tax authority will examine the position (if entitled to do so) and will have full knowledge of all the relevant information;

c. On a case by case basis the Group has decided to recognize a UTP (group of UTPs) using either the most likely amount or the expected value, depending on which is thought to give a better prediction of the resolution of each (group of) UTP(s), to reflect the likelihood of an adjustment being realised on examination.

The Group applied this Interpretation retrospectively with the cumulative effect of initially applying the Interpretation recognized on 1 January 2019. In accordance with the transitional provisions of IFRIC 23 it has opted not to restate comparative information. Instead, the cumulative effect of initially applying the Interpretation as an adjustment has been recognized to the opening balance of the reserves.

7.5.2.Segment Reporting

Segment information is presented in respect of the Company's business segments. The performances of the segments is reviewed by the chief operating decision maker, which is the Management Committee.

reported figures (1) (€ thousands) H1 2019 Revenue by segment 351 413 321 896 Rugs 119 786 100 764 Commercial 116 413 101 925 Residential 100 622 105 132 Non-Woven 14 592 14 074 Revenue by geography 351 413 321 896 Europe 214 534 198 754 North America 116 046 95 680 Rest of World 20 834 27 462 Adjusted EBITDA by segment 2 37 269 34 171 Rugs 9 160 12 458 Commercial 19 205 14 093 Residential 7 871 6 240 Non-Woven 1 033 1 380 Net capital expenditure by segment 11 955 14 912 Rugs 4 919 4 642 Commercial 3 186 5 187 Residential 3 589 4 688 Non-Woven 261 395 Inventory by segment 156 302 153 894 Rugs 63 729 72 940 Commercial 37 098 33 170
Residential 50 733 43 622
Non-Woven 4 742 4 162
Trade receivables by segment 45 377 51 558 Rugs 8 548 11 895
Commercial 24 189 23 774
Residential 11 301 14 665
Non-Woven 1 339 1 223

Note 1: For Revenue, Adjusted EBITDA and Capital Expenditure, the previous reporting period refers to June 30, 2018. The previous reported period for Net Inventory and Trade Receivables refers to December 31, 2018.

Note 2: IFRS 16 is applied as from 2019, this new accounting policy impacts the Adjusted EBITDA

7.5.3.Integration and Restructuring Expenses

The following table sets forth integration and restructuring expenses for the period ended June 30, 2019 and 2018. This comprises various items which are considered by management as non-recurring or unusual by nature.

(€ thousands)	H1 2019	H1 2018
Integration and restructuring expenses	3 093	2 410
Corporate restructuring	41	-
Business restructuring	3 393	1 846
Acquisition related expenses	-	-
Idle IT costs	-	-
Strategic advisory services	-	358
Other	(341)	208

Integration and restructuring expenses over the first six months of 2019 amounted to €3.1m, as compared to €2.4m in the same period last year. The expense in the current period is primarily driven by the one-off costs related to the previously announced holistic NEXT program. During the six months ended June 30, 2018, €1.8m in the current period is driven by the previously announced optimization of the Residential operational footprint. In addition, a minor part is fees incurred for strategic advisory services supporting the execution of the six key priorities for delivering improved performance as detailed in the 2017 annual report.

7.5.4.Goodwill

The goodwill decreased by €3.7m from €194.6m as of December 31, 2018 to €190.9m as of June 30, 2019. The decrease in goodwill reflects the changes in foreign exchange rate from the US dollar to euro from the date of acquisition of Bentley. The related foreign exchange fluctuations are presented in other comprehensive income.

The Group considers that the assumptions used in 2018 to test the goodwill for impairment remain valid in all respects.

7.5.5.Net Debt Reconciliation

The following table reconciles the net cash flow to movements in net debt:

			Liabilities from financing activities							Cash and Cash equivalents
(€ thousands)	Senior Secured Notes due after 1 year	Senior Secured Notes due within 1 year	Senior Term Loan Facility due after 1 year	Senior Term Loan Facility due within 1 year	Lease liabilities due after 1 year	Lease liabilities due within 1 year	Super Senior RCF	Bentley RCF	Total gross financial debt	Cash and Cash equivalents	Total net financial debt
Net debt as at 31
December 2018	(234 900)	(5 360)	(35 000)	(20)	(12 225)	(1 166)	-	-	(288 671)	26 853	(261 818)
Adoption of IFRS 16 Net debt as at 1	-				(37 953)	(5 655)			(43 608)		(43 608)
January 2019	(234 900)	(5 360)	(35 000)	(20)	(50 178)	(6 821)	-	-	(332 279)	26 853	(305 426)
Cashflow s	-	-	-	2	-	-	-	-	2	(7 112)	(7 110)
Proceeds of
borrow ings w ith third
parties	-	-	-	-	-	-	-	-	-	-	-
Business combinations	-	-	-	-	-	-	-	-	-	-	-
Foreign exchange
adjustments	-	-	-	-	-	-	-	-	-	-	-
Repayments of
borrow ings w ith third
parties	-	-	-	-	-	4 140	-	-	4 140	-	4 140
Other non- cash
movements	-	-	-	-	587	(4 025)	-	-	(3 438)	-	(3 438)
Net debt as at 30 June
2019	(234 900)	(5 360)	(35 000)	(18)	(49 591)	(6 706)	-	-	(331 575)	19 741	(311 834)

When excluding the IFRS 16 impact (€ 43.2m), the net debt at the end of H1 2019 amounts to € 268.7m, slightly higher compared to Q4 2018. The net debt excluding IFRS 16 is the only relevant debt in light of Balta's financing agreements, as the effect of changes in accounting standards is to be neutralized.

7.5.6.Related Party Transactions

The related party transactions with shareholders and parties related to the shareholders have not substantially changed in nature and impact compared to the year ended December 31, 2018 and hence no updated information is included in this interim report.

The remuneration of key management is determined on an annual basis, for which reason no further details are included in this interim report.

7.5.7.Commitments

There is no significant evolution to report in terms of commitments. Please refer to Note 38 'Commitments' in the IFRS Financial Statements of the 2018 annual report.

7.5.8.Events After the Statement of Financial Position Date

No subsequent events occurred which could have a significant impact on the interim condensed financial statements of the Group per June 30, 2019.

8. Glossary: Alternative Performance Measures

The following alternative performance measures (non-IFRS) have been used as management believes that they are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The alternative performance measures may not be comparable to similarly titled measures of other companies, have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results, our performance or our liquidity under IFRS.

Adjusted Operating Profit/Loss is defined as operating profit/(loss) adjusted for (i) the impact of the purchase price allocation mainly on changes in inventory, (ii) gains on assets disposals, (iii) integration and restructuring expenses and (iv) impairment and write-off.

Adjusted EBITDA margin is defined as the Adjusted EBITDA as a percentage of revenue.

Adjusted EBITDA is defined as operating profit / (loss) adjusted for (i) the impact of the purchase price allocation mainly on change in inventories, (ii) gains on asset disposals, (iii) integration and restructuring expenses, (iv) depreciation / amortization and (v) impairment and write-off

Adjusted Earnings per Share is defined as profit/(loss) for the period adjusted for (i) the impact of the purchase price allocation of changes in inventory, (ii) gains on assets disposals, (iii) integration and restructuring expenses, (iv) non-recurring finance expenses and (v) non-recurring tax effects divided by the number of shares of Balta Group nv.

Gross Debt is defined as (i) Senior Secured Notes adjusted for the financing fees included in the carrying amount, (ii) Senior Term Loan Facility adjusted for capitalized financing fees and (iii) Bank and other borrowings adjusted for capitalized financing fees

Net Debt is defined as (i) Senior Secured Notes adjusted for the financing fees included in the carrying amount, (ii) Senior Term Loan Facility adjusted for capitalized financing fees, (iii) Bank and other borrowings adjusted for capitalized financing fees and (iv) cash and cash equivalents

Net-investment or net-CAPEX is defined as of the sum of all investments in tangible and intangible fixed assets adjusted for proceeds from sales of fixed assets

Leverage is defined as the ratio of Net Debt to Adjusted EBITDA (excluding IFRS16 impacts as per financing documentation)