Carel Industries

Earnings Release • Mar 6, 2020

CAREL INDUSTRIES S.p.A. 2019 – FY Results

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th March 2020

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Main events

Set-up of CAREL Ukraine in order to better manage and develop Eastern European Market. Further implementation of the global expansion strategy through the acquisition of Enersol, a distributor specialized in the humidification sector, located in Canada. Jan Sep Sep Inauguration of the new plant in China, three times as large as the previous one. Implementation of the first production line for inverters in the Country. Jul Official coming on stream of the enlarged plant in US. Chinese Public Authorities confirmed the "High Tech Enterprise" status for CAREL also for 2019-2021 period. Dec 2020 Signing of the first multi-year recurring-fee contracts for the supply of digital services to supermarket chains.

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FY 2019 – Highlights

In spite of a difficult macroeconomic scenario the company achieved a mid-single digit organic revenues growth rate and a 19.5% profitability, in line with the guidance provided in the occasion of the 9M 2019 results presentation.

FY 2019 – Growth in economic KPIs confirmed

m€	FY 2018	FY 2019	Δ%
Revenue	280.2	327.4	16.8%
Revenue FX Adj.	280.2	324.9	15.9%
Revenue (like for like)	280.2	294.6	5.1%
EBITDA	47.0	63.1*	34.4%
EBITDA Adj.**	55.2	63.9*	15.8%
EBITDA Adj/Revenue	19.7%	19.5%
Net Profit	30.7	35.0	14.2%
Capex	18.4	23.6	27.8%

280.2 13.7 2.5 (1.8) 294.6 32.7 327.4 Revenues FY 2018 Organic Growth FX No core Organic Sales M&A Revenues FY 2019 KPIs Revenues Bridge (m€) +5.1%

*Including the additional contribution from Hygromatik and Recuperator equal to +7.2m€ and the impact of the adoption of IFRS 16 equal to 4.0m€

** 2018 EBITDA adj. for non recurring costs (8.2m€) mainly related to IPO; 2019 EBITDA adj. for non-recurring costs (0.8m€) related to IPO/M&A

• Revenue +16.8%: The positive results in revenues are attributable both to organic growth (+13.7m€) and to the excellent results of Hygromatik and Recuperator (+32.7m€), included in the consolidation perimeter in FY 2018 only for one month.
• EBITDA adj. +15.8%: the growth in the top-line is substantially reflected at the EBITDA level, which includes 7.2m€ from Hygromatik and Recuperator and benefitted also from the IFRS 16 adoption (+4.0m€). EBITDA includes, as well, approx. 0.8m€ of recurring costs from IPO not present in FY 2018 and additional 0.8m€ costs related to US/China duties.
• Net Profit 14.2%: The contribution from Hygromatik and Recuperator partly offset higher interest charges and higher tax rate compared to 2018.
• Capex: International footprint expansion plan on track, resulting in a significant Capex growth.
• Dividend: Dividend proposal equal to 0.12€/share (+20% on 2018 dividend), with a pay-out ratio of approx. 34% ⁴

FY 2019 – Revenue breakdowns

• Sector FY 2018 FY 2019 Δ% Δ% fx HVAC 171.7 215.4 25.4% 24.4% Refrig. 102.3 107.6 5.2% 4.5% Core Revenue 274.0 322.9 17.9% 17.0% No core 6.2 4.4 -29.3% -29.4% Total Revenue 280.2 327.4 16.8% 15.9% HVAC 66% Refrig. 33% Other 1% 327.4 M€ m€ m€ m€ m€
• Positive growth in all the geographic areas maintained with very significant results in North America.
• EMEA Driven mainly by the change in the scope of consolidation (Hygromatik and Recuperator).
• APAC High single digit growth in spite of a non-favourable scenario, in particular in China (trade war).

• Americas (South) further improvement compared to 9M 2019.

• Strong growth in HVAC sector driven also by the change in scope of consolidation (Hygromatik and Recuperator).

• The negative trend in Refrigeration sector in Europe, reported in Q2 and Q3 reversed in Q4.
• Expected decline in no core revenues, net of which the growth in the top line would have been ~1% higher.

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From EBITDA to Net Profit

K€	FY '18	FY '19	Δ%
EBITDA	46,986	63,132	34.4%
D&A	-9,119	-16,769
Impairment
EBIT	37,867	46,363	22.4%
Financial (charges)/income	-136	-1,431
FX gains/losses	-352	-152
Companies cons with e.m.	15	177
EBT	37,394	44,957	20.2%
Taxes	-6,643	-9,910
Minorities	-74	-28
Group net profit	30,678	35,019	14.2%

• Higher D&A mainly linked to: the change in scope of consolidation (~3.4m€), higher Capex in 2019 and to the adoption of IFRS 16 (3.8m€).
• Higher Financial charges due to the loans for the M&A transactions, the absence of the positive contribution coming from life insurances present in 2018 and interests for IFRS 16.

• 22.0% tax rate, substantially in line with 9M 2019 and with guidance. The positive effect related to confirmation of the High tech enterprise in China was offset by higher IRAP and other minor elements.

• Net of the effects derived from M&A (Enersol), the adoption of IFRS 16 and the so-called tax step-up mechanism, the NFP would have decreased by ~25m€.

• FFO 51.7m€: which easily covered higher capex (due to the deployment of the production plants expansion plan), and dividends.
• ΔNWC -8.0m€: NWC positive trend already reported in Q2 and Q3 further accelerated in Q4 2019. This positive results are mainly linked to an improvement in inventory management along with a decrease in DSO and in tax credits.

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*Excluding the impact of IFRS 16

Focus on COVID-19

• CAREL has 1 production plant in China, in Souzhou, with approximately 120 blue collars. Its production (in terms of worked hours) represents ~30% of the total for the Group.
• Due to the outbreak of the COVID-19, production was stopped for 1 week on the 3rd of February. On the 10th of February the production restarted with a limited number of Employees. As of today, slightly more than half of the total employees are working, we expect them to be 80% by mid-March.
• The Company set several countermeasures to limit the impact of this situation, such as moving the production to other plants (~90% of CAREL products can be manufactured at least in 2 plants).
• In terms of supply chain, all our "tier1" Chinese suppliers restarted the production with an operating capacity ranging from 10% to 70%.
• The impact on Q1 2020 in terms of missing revenues can be quantified in approximately 3-4m€, part of which we expect to recover by YE.
• CAREL's Italian plants are 100% operating, so are its Italian suppliers.

Map of China

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Closing Remarks

In 2019, Carel continued to deploy consistently its strategic guidelines

Organic Growth

• Even in a non-favourable scenario, the company managed to reach an organic mid-single digit growth in revenues, with a positive contribution from all the geographic areas.
• Completion of the production footprint expansion plan, which will support organic growth expectations for the next 3-5 years.

M&A

• Hygromatik and Recuperator integration process proceeded smoothly, causing a significant increase in revenues of the two companies.
• Acquisition of Enersol, a Canadian distributor active mainly in the humidification sector.

Digital Services • In the last few months the company signed several contracts for the supply of digital services with important supermarket chains. Besides, at the beginning of 2020 a new department, "After sales and Service", has been created, in order to better focus on the sector.

COVID-19 has limited the visibility on the magnitude of the 2020 expected revenues growth rate, which will be clearer in the next quarters. Net of possible worsening in COVID-19 scenario, we expect a growth rate acceleration in the second part of the year.

Annexes

Shareholding structure

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Income statement and Balance Sheet

Income statement Balance sheet

K€	FY 2018	FY 2019	Delta %
Revenues	280,220	327,358	16.8%
Other revenues	3,147	3,611	14.7%
Operative costs	(236,381)	(267,837)	13.3%
EBITDA	46,986	63,132	34.4%
Depreciation and impairments	(9,119)	(16,769)	83.9%
EBIT (Risultato Operativo)	37,867	46,363	22.4%
EBT (earn before taxes)	37,394	44,957	20.2%
Taxes	(6,643)	(9,910)	49.2%
Net result of the period	30,752	35,047	14.0%
Non controlling interest	74	28	-62.5%
Group net result	30,678	35,019	14.2%

K€	FY 2018	FY 2019	Delta %
Fixed Capital	131,364	167,957	27.9%
Working Capital	53,383	45,232	-15.3%
Employees defined benefit plans	(7,333)	(7,844)	7.0%
Net invested capital	177,414	205,345	15.7%
Equity	118,288	143,220	21.1%
Net financial position (asset)	59,125	62,124	5.1%
Total	177,414	205,345	15.7%

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Company profile

Leading provider of advanced control solutions for HVAC/R

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Note: financial data refer to consolidated accounts of CAREL Industries S.p.a. 2015-2019 IFRS. Comparability might be affected by change in consolidation perimeter

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We operate in attractive niches across a wide range of end-markets…

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Source: Company information as of Mar-20

…through a one-stop-shop portfolio of components and platforms

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Source: Company information as of Mar-20 Note: 1) developed with partners

Long track record of profitable organic growth

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of local distributors

Legend: R&D centre Plants Acquisitions

Source: Company information as of Mar-19

Note: financial data refer to consolidated accounts of CAREL Industries S.p.a. for the period 2011A-2018A (IFRS 2015A- 2018A; ITA GAAP 2011A-2014A) and CAREL S.p.a. for the period 2000A-2010A (ITA GAAP). Comparability might be affected by change in reporting standard and in consolidation perimeter.

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Well-articulated strategies to continue the growth track record

• Consolidation of HVAC market leadership
• Growth in Refrigeration driven by technology leadership
• Upselling and cross-selling
• Global penetration
• Connectivity, IoT and AI capabilities already developed
• Advanced monitoring and optimization services to end customers to represent one of CAREL's organic growth drivers
• Maintain innovation leadership
• Deliver strong profitability
• Invest in 2018/19 in capacity globally and in Industry 4.0, with labor efficiency benefits in future years
• Develop talent
• Disciplined bolt-on M&A activity focused on complementing corebusiness in Europe, on expanding in US and APAC and on adjacent capabilities, leveraging on solid balance sheet

CAREL general strategy for 2018-20 will be oriented to the research for new innovative technological solutions with a major focus on energy saving, widening high-efficiency solutions offer and geographical expansion

Source: Company information as of Mar-18

Leading provider of advanced energy efficient control solutions

¹ High-tech leader in attractive niches of the HVAC/R industry

Source: Company information as of Mar-18, BSRIA (Mar-17)

Note: 1) 2016 market shares calculated on # of units based on BSRIA market data and management elaborations; 2) close control units for data centers in US, UK and Italy; 3) tested by third-party laboratory compared to Topten EU benchmarks; 4) compared to average semi-hermetic

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² Attractive market growth supported by secular trends

Note: 1) Based on management elaboration on BSRIA data on Rooftop, Chillers, AHU and Datacenters applications, based on report dated Mar-2018; 2) Based on management elaboration on PlanetRetail data on Food Retail and Food Service segments

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Growth is driven by market trends and focused strategic actions… 2

wallet

digitalisation and environmental focus

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…and favoured by up-selling and cross-selling 2

FROM PRODUCT PLATFORMS TO INTEGRATED ELECTRONIC SOLUTIONS…

…IN THE HVAC AND REFRIGERATION MARKETS

Positioning and innovation capability hard to replicate 3

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Leadership position in HVAC OEM premium niches… 3

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Source: Management elaborations based on BSRIA data for the year 2016 (based on report dated Mar-17) Note: 1) Total other minor proprietary c.13%; 2) Total other minor proprietary c.8%

…and leading in innovation in the refrigeration market 3

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Source: Company info; Management elaborations

4 Highly efficient global operations serving locally…

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4 …diversified blue-chip customers

Well-established relationships oriented to preserve and enhance the CUSTOMER LIFE-TIME VALUE

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Source: Company information as of Dec.19;

Note: 1) as% of 2018 Revenues 2) as of 2018 revenues for each market 3) Top 40 customers accounting for approx. 50% of total revenue for each market

⁵ Track record of profitable organic growth

Resulting in a solid balance sheet and strong value creation to shareholders

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Source: Company information as of Mar-20

Note: 2015-2019 IFRS

Note: 1) Including the contribution from Hygromatik and Recuperator and the impact of the non recurring IPO Costs (~8m€ in 2018) 2) Operating cash calculated as cash flow from operations - Capex;

Global expansion, innovation and services 6 A

Pursuing additional opportunities improving services offer with IoT and advanced monitoring solutions

Cross-selling and upselling exploiting high-efficiency trends

Consolidation of leadership positions in HVAC Growth in Refrigeration

Geographical expansion through the introduction of innovative solutions in new geographies

Pursuing external growth through disciplined bolt-on M&A 6 C

CAREL has performed detailed analyses and scouting of potential targets, thus promoting an opportunistic approach with a focus on 3 MAIN EXPANSION AREAS:

COMPLEMENTING CORE-BUSINESS A

through the acquisition of complementary products / services, competences and niche markets, and increasing its presence in European markets

GEOGRAPHICAL EXPANSION ABROAD, mainly US and APAC B

Potential selected acquisitions in NEW APPLICATIONS (e.g. industrial refrigeration, building automation, etc.)

C

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M&A

M&A - Recuperator

• Key Data:

• Cash-out for equity = 25.7m€
• Company positive net-cash = 6.9m€
• 2017 Revenues = 16.4m€
• EBITDA = 1.7m€
• Employees = ~60

• Industrial fitting:

• Small-size Company
• Complementary products
• Carel's commercial strength
• Cross-selling

• Financial fitting:

• ~11x EV/EBITDA vs. CAREL's ~15x
• Net-Cash in the BS
• Low impact on Carel's NFP

M&A - HygroMatik

• Key Data:

• Cash-out for equity = 56.1m€
• Enterprise Value = 59.0m€
• 2017 Revenues = 15.0m€
• EBITDA = 4.7m€
• Employees = ~60

• Industrial fitting:

• Small-size Company
• Interesting geographic positioning
• Strong in after-sale services
• Cross-selling

• Financial fitting:

~12.5x EV/EBITDA vs. CAREL's ~15x

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HygroMatik NFP substantially neutral.

Disclaimer

This document has been prepared by CAREL Industries S.p.A for use during meetings with investors and financial analysts and is solely for information purposes. The information set out here in has not been verified by an independent audit company.

Neither the Company nor any of its subsidiaries, affiliates, branches, representative offices (the "Group"), as well as any of their directors, officers, employees, advisers or agents (the "Group Representatives") accepts any responsibility for/or makes any representation or warranty, express or implied, as to the accuracy, timeliness or completeness of the information set out herein or any other related information regarding the Group, whether written, oral or in visual or electronic form, transmitted or made available.

This document may contain forward-looking statements about the Company and/or the Group based on current expectations and opinions developed by the Company, as well as based on current plans, estimates, projections and projects of the Group. These forward-looking statements are subject to significant risks and uncertainties (many of which are outside the control of the Company and/or the Group) which could cause a material difference between forward-looking information and actual future results.

The information set out in this document is provided as of the date indicated herein. Except as required by applicable laws and regulations, the Company assumes no obligation to provide updates of any of the aforesaid forward-looking statements.

Under no circumstances shall the Group and/or any of the Group Representatives beheld liable (for negligence or otherwise) for any loss or damage howsoever arising from any use of this document or its contents or otherwise in connection with the document or the aforesaid forward looking statements. This document does not constitute an offer to sell or a solicitation to buy or subscribe to Company shares and neither this entire document or a portion of it may constitute a recommendation to effect any transaction or to conclude any legal act of any kind whatsoever.

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