Masterflex SE — Interim / Quarterly Report 2019

Aug 9, 2019

MASTERFLEX SE

CONNECTING VALUES INTERIM REPORT

2019 FIRST HALF-YEAR

HIGHLIGHTS OF THE FIRST SIX MONTHS 2019

• Revenue growth of 5.7% with catch-up efects in the irst quarter and slightly increasing momentum in the second quarter
• Broadly stable development with signiicant increases in medical technology and a slowdown in automotive
• Scheduled preparations for the optimisation programme which will be presented at the beginning of September 2019
• Another dividend payment of 0.7 cents per share

MASTERFLEX AT A GLANCE

in €k	30.06.2019*	30.06.2018*	Change
Consolidated revenue	41,940	39,693	5.7%
EBITDA	5,617	5,235	7.3%
EBIT (operative)	3,620	3,602	0.5%
EBIT	3,533	3,464	2.0%
EBT	3,050	3,028	0.7%
Financial result	-483	-436	-10.8%
Consolidated earnings from continued business units**	2,121	2,108	0.6%
Consolidated earnings from discontinued business units	0	-58
Consolidated net income (Interests of shareholders of Masterlex SE)	2,130	2,058	3.5%
Consolidated earnings per share (€)
from continued business units	0.22	0.22	0%
from discontinued business units	0.00	-0.01
from continued and discontinued business units	0.22	0.21	4.8%
EBIT margin (operative)	8.6%	9.1%
Employees (number)	678	648	4.6%

in €k	30.06.2019*	31.12.2018	Change
Consolidated equity	41,491	40,223	3.2%
Consolidated balance sheet total	79,397	75,173	5.6%
Consolidated equity ratio	52.3%	53.5%

* unaudited

** without non-controlling interests

BRANDS

SPECIALISTS IN HIGH-TECH HOSES AND CONNECTION SYSTEMS

Hoses and connection systems for all industrial applications Spiral hoses – heated hoses – intelligent hose systems – connecting elements

Vulcanised moulded parts and hoses for the aviation and aerospace sector and automobile industry Special hoses – suction hoses – elastomer hoses – bellows

Thermoplastic moulded parts and smooth hoses for industrial applications and medical technology Pneumatic hoses – compressed air hoses – moulded hoses – medical hoses

Plastic injection-moulded parts and components for medical technology Medical clamps – client-speciic items – hose connectors – housing components

Hose and connection systems for industrial applications as well as air conditioning and ventilation systems Spiral hoses – smooth hoses – air conditioning and ventilation system hoses

Hoses made of fluoroplastics with extremely high chemical resistance Smooth hoses – shrink tubes

The Masterflex Group is digitalising the hose and connection element business Intelligent, network-compatible hoses and connection systems

4

CONTENT

Foreword by the Chairman of the Executive Board	5
Shares and Annual General Meeting	7
INTERIM GROUP MANAGEMENT REPORT	8
Business development	8
Economic situation	8
Employees	9
Research and development	10
Opportunity and risk report	10
Forecast report	10

INTERIM CONSOLIDATED FINANCIAL STATEMENTS 11

Consolidated balance sheet	11
Consolidated income statement of irst half-year	13
Consolidated statement of comprehensive income of irst half-year	14
Consolidated income statement of second quarter	15
Consolidated statement of comprehensive income of second quarter	16
Consolidated cash low statement	17
Consolidated statement of changes in equity	18

CONSOLIDATED NOTES 19

FINANCIAL CALENDAR 2019, IMPRINT 25

FOREWORD BY THE CHAIRMAN OF THE EXECUTIVE BOARD

in the irst half of 2019, we were able to grow again and increase our revenues by 5.7% to EUR 41.9 million – with a simultaneously stable operating EBIT of EUR 3.6 million. At the same time, we succeeded in solving the problems, which slowed us down in the past iscal year, as far as possible by processing the increased order backlogs, which arose in 2018, accordingly. On a quarterly basis, we have slightly gained momentum, so that overall we are still within our revenue forecast of 3.0% to 6.0% growth for 2019 as a whole. We are therefore well on the way to closing the tenth year in succession with a revenue increase.

Dr. Andreas Bastin Chief Executive Oicer

In the irst six months of 2019, we also succeeded in inding a balance in a very central task: on the one hand, to further develop our operating business and consistently exploit our

growth opportunities, such as those ofered by medical technology. And on the other hand, to develop and advance our announced optimisation programme in parallel – without afecting our operational development in this phase. At the beginning of September, we will present in detail the concrete measures and the expected efects with the objective of achieving a double-digit EBIT margin again on a sustained basis.

Despite all our successes, the earnings development in the irst half of 2019 showed just how important and right it is for us to consistently drive forward the operational excellence and thus the agility of our company and the optimisation of our process landscapes. With an operating EBIT of EUR 3.6 million, we have once again demonstrated solid proitability and thus also developed in line with our full-year earnings forecast, which foresees a slight increase for 2019 compared with 2018. However, this level is not our medium- and long-term objective. Rather, it remains our goal to achieve a sustained doubledigit return level across all subsidiaries, as already demonstrated by some of our subsidiaries and as demonstrated by many of our companies in the past. However, extensive measures are still required to achieve this goal. This relates in particular to the increase in personnel productivity, as the development of the revenue-personnel ratio at a small number of companies has been unsatisfactory for some time. This applies above all to the Gelsenkirchen site. In particular, the increase in personnel costs by around EUR 1.2 million in the irst half of 2019 underlines the urgent need for action. With a special focus on this area, we must and will consequently counteract this as part of our optimisation programme.

The irst half of 2019 has also shown that we are confronted with a certain heterogeneity in the development of our subsidiaries. On the one hand, this is due to the prevailing target markets: While the medical technology segment is developing excellently, the automotive segment is showing weaknesses that will presumably intensify in the further course of the year. On the other hand, it is repeatedly apparent that process quality varies greatly in individual sub-segments of our Group. Here, we see corresponding optimisation potential, in particular at Masterlex in Gelsenkirchen.

Despite or precisely because of these challenges, we can be quite satisied with the good revenue development in the irst half of 2019. Here, our geographical and customer sector-based multi-pillar strategy has once again proven its worth. We also succeeded in combining the intact operating development with the intensive preparatory work for our optimisation programme. However, we also see that the current development conirms us all the more in approaching these optimisations from a position of strength. At the same time, uncertainties are increasing in key target industries such as automotive and mechanical engineering, and the general economic mood is continuing to deteriorate. This reminds us to pay particular attention to the further development.

Despite these growing uncertainties, we are sticking to our full-year forecast. This is based on very stable incoming orders in the vast majority of areas of our Group. In the irst half of 2019, we were able to show a book-to-bill ratio of at least 1.0 or even above for almost all subsidiaries, which for us is a clear indication of further growth – albeit certainly under diicult economic conditions.

Gelsenkirchen, 31 July 2019

Dr. Andreas Bastin Chief Executive Oicer

SHARES AND ANNUAL GENERAL MEETING

7

MASTERFLEX SHARE PRICE PERFORMANCE IN THE FIRST HALF OF 2019 COMPARED WITH THE SDAX

SHARE PRICE PERFORMANCE

Masterlex shares opened the 2019 trading year with a Xetra price of EUR 7.00. The high for the period under review was reached on 28 January at EUR 7.26 and the low for the irst time on 17 June at EUR 5.70. The Xetra closing price on 28 June 2019 was also EUR 5.70, equivalent to a price performance of -18.6% in the irst half of 2019. The relevant benchmark index, the SDAX, recorded a signiicant gain of 19.6% in the same period.

RESEARCH

In the irst half of 2019, Masterlex continued to be monitored and rated by the analysts at Bankhaus Lampe, DZ Bank and SMC Research. In their current studies within the irst six months of 2019, DZ Bank and Bankhaus Lampe rated Masterlex shares as "Hold" with a price target of EUR 6.50 and EUR 7.00 respectively. SMC Research gave the rating "Buy" with a target price of EUR 9.10.

ANNUAL GENERAL MEETING

67.45% of the voting capital attended the Annual General Meeting on 28 May 2019 in Gelsenkirchen. The shareholders approved all items on the agenda with a large majority.

DIVIDEND

Masterlex SE continued its dividend policy in 2019. In accordance with the resolution of the Annual General Meeting, a dividend of 7 cents per share and thus at the previous year's level was distributed to shareholders.

INTERIM GROUP MANAGEMENT REPORT

BUSINESS DEVELOPMENT

The Masterlex Group developed positively in the irst half of 2019 and overall in line with its own revenue and earnings forecasts. During the course of the year, revenue momentum grew slightly on a quarterly basis. The increased order backlog created in 2018 was successfully processed in the reporting period and new sales successes were achieved. Thanks to the broad geographical and sector-speciic positioning of the Group, slight revenue declines at the Gelsenkirchen site and in the automotive sector were successfully ofset. Growth was achieved particularly in Asia (Singapore and China), the USA and Great Britain as well as in medical technology.

ECONOMIC SITUATION

Results of operations

Group revenues improved in the irst half of 2019 by 5.7% from EUR 39.7 million to EUR 41.9 million. Thereby, the revenue growth of the irst quarter of 5.4% could be slightly raised to 5.9% in the second quarter.

Consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 7.3% compared to the same period of the previous year from EUR 5.2 million to EUR 5.6 million. After deduction of depreciation and amortisation, earnings before interest and taxes (EBIT) amounted to EUR 3.5 million, which is thus at the level of the previous year. The same applies to operating EBIT (= EBIT before discontinued business units and non-operating income and expenses), which amounted to EUR 3.6 million in the reporting period. The positive revenue development was contrasted by higher raw material prices, wage and salary increases and the measures taken in 2018 to increase the workforce, particularly at the Gelsenkirchen site.

Against this background, the cost of materials rose by 10.6% in the first half of 2019 from EUR 12.7 million to EUR 14.1 million. Accordingly, the cost of materials ratio (in relation to total operating performance) increased from 31.7% to 33.2%.

The rise in personnel as well as wage and salary increases led to an increase in personnel expenses of 7.7% to EUR 16.3 million. This results in a personnel expenditure ratio (in relation to total operating performance) of 38.6% after 37.9% in the same period of the previous year.

Depreciation increased from EUR 1.6 million to EUR 2.1 million in the irst half of 2019. In addition to the ERP project, the irst-time application of IFRS 16, the new standard for lease accounting, had a particular impact here (EUR +0.3 million).

The corresponding opposite efect resulted from the application of IFRS 16 to other expenses, which fell from EUR 7.3 million to EUR 7.0 million in the reporting period.

The inancial result amounted to EUR -0.5 million after EUR -0.4 million in the same period of the previous year. This was due to an increased credit volume and, to a lesser extent, the application of IFRS 16.

At EUR 2.1 million, consolidated earnings after taxes reached the previous year's level. The same applies to earnings per share (from continued business units) of EUR 0.22.

Net assets

Total assets increased from EUR 75.2 million as of 31 December 2018 to EUR 79.4 million as of 30 June 2019. Non-current assets climbed from EUR 45.1 million to EUR 46.3 million. This was due in particular to the ERP project, which led to an increase in concessions and industrial property rights from EUR 0.9 million to EUR 1.9 million within intangible assets. Current assets rose from EUR 30.1 million to EUR 33.1 million. On the one hand, inventories increased from EUR 16.7 million to EUR 18.9 million as a result of targeted stockpiling. On the other hand, trade receivables went up due to balance sheet date related factors from EUR 7.5 million to EUR 9.8 million.

Financial position

Consolidated equity rose from EUR 40.2 million to EUR 41.5 million as of 30 June 2019. The main factors inluencing equity were the positive earnings development and the payment of a dividend of 7 cents per share in the irst half of 2019.

Non-current liabilities rose slightly from EUR 20.9 million to EUR 21.2 million and current liabilities increased from EUR 14.1 million to EUR 16.7 million. This was due in particular to the rise in current inancial liabilities, which is directly related to the increase in current assets.

Cash low from operating activities improved in the reporting period from EUR -0.1 million to EUR 0.8 million. The rise in inventories was ofset by lower income taxes and increased depreciation due to the application of IFRS 16. At EUR 2.3 million, cash low from investing activities remained at the previous year's level. Cash low from inancing activities increased from EUR 0.5 million to EUR 0.7 million. The utilisation of a short-term tranche from the syndicated loan agreement is relected in a corresponding inlow of funds totalling EUR 4.0 million (EUR +1.0 million). On the other hand, payments for repayments increased by EUR 0.9 million compared with the previous year's period.

EMPLOYEES

The number of employees rose from an average of 648 in the irst half of 2018 to 678 in the reporting period. The increase in the number of employees mainly related to Masterlex SE in order to process the increased order backlog created in 2018.

RESEARCH AND DEVELOPMENT

In the irst half of 2019, a new microbe- and hydrolysis-resistant suction and conveying hose made of polyurethane was launched under the Masterlex brand. This hose was specially developed for use in waste disposal and cleaning technology: the Master-PUR H Streetmaster Pro. The innovative external folding ensures signiicantly improved compressibility and greater lexibility. The product has already proven its worth, particularly in China, and has led to irst revenue contributions. Since April 2019, production has been carried out on site.

Under the AMPIUS brand, a hose system was developed and presented at the HMI trade show, which is now equipped with a digital interface as standard. In addition to clear product identiication, an app now makes it possible to call up data on wear, pressure, internal and external temperature and low rate, among other things, in the future. Such intelligent components with life-cycle tracking functions are playing an increasingly important role in the industrial sector.

At Matzen & Timm, the focus was on a noise-reducing hose that is currently being used in helicopters and is also to be qualiied for aircraft in the future. Three hose variants have already passed the demanding acoustic tests. Currently, the best design is being further optimised with a focus on weight reduction and simpliication of the manufacturing process. In addition, a new cuf construction was developed for a customer in the aviation sector that enables the installation of ventilation hoses on the pipes without an additional clamp. The irst hoses with the so-called "quick connection" cufs have already successfully passed several tests.

OPPORTUNITY AND RISK REPORT

The management system for identifying opportunities and risks and the measures for limiting risks were described in detail in the 2018 combined management report. In addition, the key opportunities and risks arising for the Masterlex Group in the course of its business activities were also explained there. There were no changes to this opportunity and risk situation in the irst half of 2019.

FORECAST REPORT

Masterlex Group is sticking to its forecast for the 2019 inancial year. Group revenue is thus expected to grow by 3.0% to 6.0%, which corresponds to a range of EUR 79.5 million to EUR 81.8 million. In addition, the quality of earnings is to be further improved, equivalent to a slight increase in operating EBIT and the operating EBIT margin compared with 2018.

The outlook for the further business development in 2019 will increasingly be inluenced by macroeconomic and customer sector-speciic developments. While the economic mood is likely to continue to deteriorate, the Masterlex Group also anticipates increasing uncertainty in key target industries such as automotive and mechanical engineering.

10

CONSOLIDATED BALANCE SHEET

Assets in €k	30.06.2019*	31.12.2018
NON-CURRENT ASSETS
Intangible assets	12,951	12,529
Concessions, industrial property rights	1,878	887
Development costs	1,133	947
Goodwill	9,187	9,187
Advance payments	753	1,508
Property, plant and equipment	32,823	31,892
Land and buildings	16,481	16,542
Technical equipment and machinery	12,035	11,782
Other equipment, operating and oice equipment	3,277	2,787
Advance payments and assets under construction	1,030	781
Financial assets	88	98
Non-current inancial instruments	88	98
Other assets	33	29
Deferred taxes	374	511
	46,269	45,059

CURRENT ASSETS Inventories 18,941 16,662 Raw materials, consumables and supplies 10,022 8,050 Uninished goods and services 645 581 Finished goods and products 8,248 8,025 Advance payments 26 6 Receivables and other assets 10,619 8,217 Trade receivables 9,829 7,490 Other assets 790 725 Other inancial assets 0 2 Income tax assets 179 865 Cash in hand and bank balances 3,389 4,370 33,128 30,114 Total assets 79,397 75,173

* unaudited

-

-

CONSOLIDATED BALANCE SHEET

Equity and liabilities in €k	30.06.2019*	31.12.2018
SHAREHOLDERS' EQUITY
Consolidated equity	42,027	40,720
Subscribed capital	9,618	9,618
Capital reserve	31,306	31,306
Retained earnings	2,645	1,189
Reserve for the market valuation of inancial instruments	-619	-609
Hedging instruments	-63	-31
Exchange diferences	-860	-753
Non-controlling interests	-536	-497
Total equity	41,491	40,223
NON-CURRENT LIABILITIES
Provisions	105	209
Financial liabilities	18,937	18,856
Other liabilities	1,014	956
Deferred taxes	1,107	861
	21,163	20,882
CURRENT LIABILITIES
Provisions	256	632
Financial liabilities	10,762	7,643
Income tax liabilities	295	249
Other liabilities	5,430	5,544
Trade payables	2,108	2,101
Other liabilities	3,322	3,443
	16,743	14,068
Total equity and liabilities	79,397	75,173

CONSOLIDATED INCOME STATEMENT OF FIRST HALF-YEAR

Continued business units in €k	01.01.–30.06.2019*	01.01.–30.06.2018*
1. Revenue	41,940	39,693
2. Increase or decrease in inventories of inished and uninished goods	324	217
3. Other own work capitalised	131	194
Total operating performance	42,395	40,104
4. Other income	668	239
Operating revenue	43,063	40,343
5. Cost of materials	-14,079	-12,724
6. Staf costs	-16,349	-15,181
7. Depreciation	-2,084	-1,633
8. Other expenses	-7,018	-7,341
9. Financial result
Financial expenses	-486	-440
Other inancial result	3	4
10. Earnings before taxes	3,050	3,028
11. Income tax expenses	-929	-920
12. Earnings after taxes from continued business units	2,121	2,108
Discontinued business units in €k
13. Earnings after taxes from discontinued business units	0	-58
14. Consolidated net income	2,121	2,050
of which: non-controlling interests	-9	-8
of which: interests attributable to shareholders of Masterlex SE	2,130	2,058
Earnings per share (diluted and non-diluted)
from continued business units	0.22	0.22
from discontinued business units	0.00	-0.01
from continued and discontinued business units	0.22	0.21

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF FIRST HALF-YEAR

in €k	01.01.–30.06.2019*	01.01.–30.06.2018*
Consolidated net income	2,121	2,050
Other result
Items that are subsequently reclassiied to proit or loss if certain conditions are fulilled
1. Exchange gains/losses on the translation of foreign inancial statements	-120	83
2. Changes in fair values of inancial instruments	-10	20
3. Hedging instruments	-32	0
4. Income taxes	13	-11
5. Other result after taxes	-149	92
6. Comprehensive income	1,972	2,142
Comprehensive income	1,972	2,142
of which: non-controlling interests	-9	-8
of which: interests attributable to shareholders of Masterlex SE	1,981	2,150

CONSOLIDATED INCOME STATEMENT OF SECOND QUARTER

Continued business units in €k	01.04.–30.06.2019*	01.04.–30.06.2018*
1. Revenue	20,817	19,657
2. Increase or decrease in inventories of inished and uninished goods	98	438
3. Other own work capitalised	82	145
Total operating performance	20,997	20,240
4. Other income	244	141
Operating revenue	21,241	20,381
5. Cost of materials	-6,990	-6,756
6. Staf costs	-8,211	-7,694
7. Depreciation	-1,181	-826
8. Other expenses	-3,387	-3,604
9. Financial result
Financial expenses	-142	-220
Other inancial result	2	3
10. Earnings before taxes	1,332	1,284
11. Income tax expenses	-471	-368
12. Earnings after taxes from continued business units 861
Discontinued business units in €k
13. Earnings after taxes from discontinued business units	0	-48
14. Consolidated net income	861	868
of which: non-controlling interests	-22	0
of which: interests attributable to shareholders of Masterlex SE	883	868
Earnings per share (diluted and non-diluted)
from continued business units	0.09	0.09
from discontinued business units	0.00	-0.01
from continued and discontinued business units	0.09	0.08

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF SECOND QUARTER

in €k	01.04.–30.06.2019*	01.04.–30.06.2018*
Consolidated net income	861	868
Other result
Items that are subsequently reclassiied to proit or loss if certain conditions are fulilled
1. Exchange gains/losses on the translation of foreign inancial statements	-579	426
2. Changes in fair values of inancial instruments	-13	9
3. Hedging instruments	-32	0
4. Income taxes	28	-25
5. Other result after taxes	-596	410
6. Comprehensive income	265	1,278
Comprehensive income	265	1,278
of which: non-controlling interests	-22	0
of which: interests attributable to shareholders of Masterlex SE	287	1,278

CONSOLIDATED CASH FLOW STATEMENT

in €k	01.01.–30.06.2019*	01.01.–30.06.2018*
Result for the period before taxes, interest expenses and
inancial income	3,542	3,504
Income tax expenses	-458	-1,093
Depreciation on property, plant and equipment and intangible assets	2,084	1,633
Decrease in provisions	-480	-978
Other non-cash income and gains from the disposal of non-current assets	-140	-248
Increase in inventories	-2,279	-1,000
Increase in trade receivables and other assets not attributable to investing or inancing activities	-1,640	-1,725
Increase/decrease in trade payables and other liabilities not attributable to investing or inancing activities	161	-241
Cash low from operating activities	790	-148
Proceeds from the disposal of non-current assets	0	0
Payments for investments in non-current assets	-2,345	-2,280
Payments for the acquisition of consolidated companies	0	0
Cash low from investing activities	-2,345	-2,280
Proceeds from capital increases	0	0
Dividends to Masterlex shareholders	-704	-673
Interest and dividend income	3	4
Interest payments	-479	-619
Proceeds from raising loans	4,000	3,000
Payments for the repayment of loans	-2,170	-1,250
Cash low from inancing activities	650	462
Cash-efective changes in cash and cash equivalents	-905	-1,966
Exchange-rate related and other value changes in cash and cash equivalents	-76	72
Change in the basis of consolidation	0	0
Cash and cash equivalents at the beginning of the period	4,370	5,336
Cash and cash equivalents at the end of the period	3,389	3,442

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

in €k	Sub scribed capital	Capital reserve	Retained earnings	Reserve for the market valuation of inan cial instru ments	Reserve for hedging instru ments	Ex change diferen ces	Interests attributa ble to share holders of Masterlex SE	Non cont rolling interests	Equity
Notes
Equity as at 31.12.2017	9,618	31,306	-1,511	-629	0	-1,048	37,736	-340	37,396
Distributions	0	0	-673	0	0	0	-673	0	-673
Comprehensive income	0	0	2,104	20	0	72	2,196	-54	2,142
Consolidated net
income	0	0	2,104	0	0	0	2,104	-54	2,050
Other income after income taxes	0	0	0	20	0	72	92	0	92
Changes in the fair value of inancial
instruments	0	0	0	20	0	0	20	0	20
Exchange gains/ losses on the translation of foreign inancial statements	0	0	0	0	0	83	83	0	83
Income taxes on other comprehensive income	0	0	0	0	0	-11	-11	0	-11
Equity as at 30.06.2018	9,618	31,306	-80	-609	0	-976	39,259	-394	38,865
Equity as at 31.12.2018	9,618	31,306	1,189	-609	-31	-753	40,720	-497	40,223
Distributions	0	0	-674	0	0	0	-674	-30	-704
Comprehensive income	0	0	2,130	-10	-32	-107	1,981	-9	1,972
Consolidated net income	0	0	2,130	0	0	0	2,130	-9	2,121
Other income after income taxes	0	0	0	-10	-32	-107	-149	0	-149
Changes in the fair value of inancial
instruments	0	0	0	-10	-32	0	-42	0	-42
Exchange gains/ losses from the translation of foreign inancial statements	0	0	0	0	0	-120	-120	0	-120
Income taxes on other comprehensive
income	0	0	0	0	0	13	13	0	13
Equity as at 30.06.2019	9,618	31,306	2,645	-619	-63	-860	42,027	-536	41,491

CONSOLIDATED NOTES

1. ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with the International Financial Reporting Standards (IFRS), as they are to be applied in the EU, and the International Accounting Standards (IAS) of the International Accounting Standards Board (IASB) and is consistent with the material accounting principles of the Company presented here. The accounting, valuation and consolidation methods described in the 2018 inancial year were extended in the reporting period by the accounting standards adopted by the EU and mandatory from 1 January 2019, in particular IFRS 16 "Leases".

IFRS 16 introduces requirements for the recognition of leases in the balance sheet, which lead to farreaching changes on the part of the lessee. A lessee recognises a right of use (right of use asset), which represents his right to use the underlying asset, and a liability from the lease, which represents his obligation to make lease payments. There are exceptions for current and low-value assets.

As a result of the introduction of IFRS 16, all operating leases were revised in accordance with the regulations efective from 1 January 2019. This system change had a signiicant impact on the Masterlex Group.

The Group has recognised new assets and liabilities for its operating leases. In addition, the nature of the expenses associated with these leases has changed as IFRS 16 replaces the straight-line expenses for operating leases with a depreciation expense for rights of use (right of use assets) and interest expenses for lease liabilities.

In the Masterlex balance sheet, the new regulation leads to an increase in assets (assets from rights of use) in non-current assets, but at the same time, inancial liabilities also rise in the amount of EUR 999 thousand.

All other changes to accounting standards had no or no material impact on this interim report.

In accordance with IAS 34, a shortened scope of reporting has been chosen compared to the consolidated inancial statements.

19

2. BASIS OF CONSOLIDATION

There have been no changes in the basis of consolidation compared to 31 December 2018.

Company name	Company headquarters		Equity interest held by Masterlex (%)
Masterlex SARL	France	Béligneux	80
Masterlex Technical Hoses Ltd.	Great Britain	Oldham	100
Masterduct Holding, Inc.*	United States	Houston	100
· Flexmaster USA, Inc.	United States	Houston	100*
· Masterduct, Inc.	United States	Houston	100*
· Masterduct Holding S.A., Inc.	United States	Houston	100*
· Masterduct Brasil LTDA.	Brazil	Santana de Parnaiba	100*
Novoplast Schlauchtechnik GmbH	Germany	Halberstadt	100
FLEIMA-PLASTIC GmbH	Germany	Wald-Michelbach	100
Masterlex Handelsgesellschaft mbH	Germany	Gelsenkirchen	100
Masterlex Česko s.r.o.	Czech Republic	Plana	100
M & T Verwaltungs GmbH*	Germany	Gelsenkirchen	100
· Matzen & Timm GmbH	Germany	Norderstedt	100*
Masterlex Scandinavia AB	Sweden	Kungsbacka	100
Masterlex Vertriebs GmbH*	Germany	Gelsenkirchen	100
· APT Advanced Polymer Tubing GmbH	Germany	Neuss	100*
Masterlex Asia Holding GmbH*	Germany	Gelsenkirchen	80
· Masterlex Asia Pte. Ltd.	Singapore	Singapore	100*
· Masterlex Hoses (Kunshan) Co., Ltd.	People's Republic of China	Kunshan	100*

* = Partially consolidated

3. FINANCIAL INSTRUMENTS

The accounting of forward transactions is explained under no. 16 of the consolidated notes in the Annual Report 2018.

The market value of the forward exchange transaction concluded for a total of USD 3,300 thousand amounted to EUR -90 thousand on the balance sheet date and was recorded under other liabilities. The change in the forward component was recognised in other income as a change in the value of the hedging instrument. The fair value of the forward exchange transaction is calculated on the basis of the interest rate diference between the Euro zone and the USA compared with the contracted forward exchange rate.

As of 30 June 2019, the amount recorded in the reserve for hedging instruments was EUR 90 thousand less related deferred taxes.

The accounting of forward transactions includes the fair value of EUR 0 thousand (previous year: EUR 7 thousand). The derivative inancial instruments were concluded to hedge against varying interest payments from variable-interest loans (interest cap) amounting to EUR 32 thousand.

The change in the fair value of EUR 2 thousand (previous year: EUR 11 thousand) is recognised through proit or loss in interest income.

The market value of the liabilities to banks corresponds to the stated book values. The fair value of the other inancial instruments corresponds to the carrying amount.

4. DIVIDEND

On 28 May 2019, the Annual General Meeting of Masterlex SE approved the payment of a dividend of EUR 0.07 per share. The distribution of a total of EUR 673,283.38 was made on 3 June 2019.

5. SEGMENT REPORTING

The Masterlex Group classiies its operating segments in accordance with the criteria of IFRS 8. Management is based on the information received by the overall Executive Board as the chief operating decision maker to measure performance and allocate resources for the Masterlex Group as a whole (the so-called management approach).

Compared with the consolidated inancial statements as of 31 December 2018, there have been no changes in the segmentation basis. The Masterlex Group has one operating segment, which is the core business unit high-tech hose systems (HTHS).

		Continued	Discontinued
in €k	HTHS	business units	business units	Group
Revenues with non-Group third parties	41,940	41,940	0	41,940
EBIT	3,533	3,533	0	3,533
Investments in property, plant and
equipment and intangible assets	2,345	2,345	0	2,345
Depreciation	2,084	2,084	0	2,084
Assets	79,397	79,397	0	79,397

SEGMENT REPORTING 30 JUNE 2019

SEGMENT REPORTING 30 JUNE 2018

in €k	HTHS	Continued business units	Discontinued business units	Group
Revenues with non-Group third parties	39,693	39,693	0	39,693
EBIT	3,464	3,464	-15	3,449
Investments in property, plant and equipment and intangible assets	2,280	2,280	0	2,280
Depreciation	1,633	1,633	0	1,633
Assets	74,648	74,648	0	74,648

The reconciliation of operating EBIT from continued business units to earnings after taxes breaks down as follows:

Reconciliation to consolidated earnings after taxes in €k	30.06.2019	30.06.2018
EBIT from continued business units	3,533	3,464
Interest income/investment income	3	4
Interest expenses and similar expenses	-486	-440
EBT from continued business units	3,050	3,028
Taxes on income and earnings	-541	-472
Deferred taxes	-388	-448
Earnings after taxes from continued business units	2,121	2,108

Rounding diferences possible

6. EARNINGS PER SHARE

Non-diluted earnings per share are calculated in accordance with IAS 33 by dividing consolidated net income by the weighted average number of shares outstanding during the reporting period. As of 30 June 2019, non-diluted earnings per share from continued business units amounted to EUR 0.22 and from continued and discontinued business units to EUR 0.22 with a weighted average number of shares of 9,618,334.

Since there is no stock option plan, diluted earnings are not calculated.

7. TREASURY SHARES

As of 30 June 2019, Masterlex SE held 134,126 treasury shares.

8. EMPLOYEES

The number of employees in the reporting period was 678 and thus 4.6% higher than in the same period of the previous year with 648 employees.

9. INCOME TAXES

The income tax expense was calculated in the half-year inancial report on the basis of the estimated efective tax rate for Masterlex SE for the full year 2019, which was related to earnings before taxes for the reporting period. The efective tax rate is based on current earnings and tax planning.

10. CASH FLOW STATEMENT

The consolidated cash low statement has been prepared in accordance with IAS 7 ("Cash Flow Statements"). A distinction is made between cash lows from operating, investing and inancing activities. The liquidity shown in the cash low statement corresponds to the balance sheet item "cash in hand and bank balances".

11. RELATIONSHIPS WITH RELATED COMPANIES AND PERSONS

The relationships are explained in the consolidated notes to the Annual Report 2018 under no. 33.

12. AUDITOR'S REVIEW OF THE INTERIM REPORT

The interim inancial statements and the interim management report were neither audited in accordance with § 317 of the German Commercial Code (HGB) nor reviewed by an auditor.

13. RESPONSIBILITY STATEMENT

To the best of our knowledge, we assure that, in accordance with the applicable accounting principles for interim inancial reporting, the interim consolidated inancial statements give a true and fair view of the Group's earnings position, net assets and inancial position, and that the interim group management report provides a true and fair view of the business performance, including the results of operations, and the position of the Group, and that the principal opportunities and risks associated with the expected development of the Group in the remaining inancial year are described.

31 July 2019

Dr. Andreas Bastin Mark Becks

Chief Executive Oicer Chief Financial Oicer

FINANCIAL CALENDAR 2019

3 September	Fall Conference in Frankfurt
8 November	Statement on Q3/2019
25 to 27 November	Analysts' conference at the Eigenkapitalforum in Frankfurt

The inancial calendar was published on the Company's website (www.Masterlexgroup.com/investorrelations/inancial-calendar) and is regularly updated there.

IMPRINT

Masterlex SE Willy-Brandt-Allee 300 45891 Gelsenkirchen Germany

CONTACT

Tel.: +49 209 97077 0 Fax: +49 209 97077 33 info@MasterlexGroup.com www.MasterlexGroup.com

EDITING

Better Orange IR & HV AG www.better-orange.de

LAYOUT

Sommerprint GmbH www.sommerprint.com

www.MasterlexGroup.com