Tesmec — Investor Presentation 2019

Aug 2, 2019

• Stringing
• Energy Automation
• Railway
• Trencher

Integrated Solutions Provider

2019.H1 Results Presentation

Corporate Strategy >

• 2019.H1 Results >
• 2019 Outlook >

VISION

To be a technological partner in a changing world >

VALUE PROPOSITION

To supply addedvalue integrated solutions for our customers > Innovation

MISSION

To operate in the market of infrastructure for the transport of energy, data and material (oil and derivatives, gas, water). >

STRATEGY

Internationalization Integration >

STRINGING

• Overhead power lines construction & maintenance >
• Advanced methodologies for powerlines improvement >
• Zero emissions underground cable laying >

• Catenary lines construction & maintenance >
• Diagnostics systems >
• Big Data integrated solutions for safe infrastructure >

PLATFORMS FOR DIAGNOSTIC & DATA MANAGEMENT

• Telecommunications solutions for HV Grids >
• Grid Management: protection and metering solutions >
• Advanced sensors for fault passage indication, protection and monitoring >

• > Telecom networks, FTTH & long distance, power cable installation
• > Oil & Gas, Water pipelines
• > Bulk excavation, Quarries & Surfaces mining

✓ Grassobbio, Patrica and Monopoli plants are fed by solar panels

• ✓ By 31/07/2019 all Italian plants will be ISO 14001 and ISO 45001 compliant
• ✓ By 31/07/2019 Tesmec Automation will be ISO 14067:2018 (Carbon footprint of products) certified

✓ The whole production process takes care of waste and complies with recycling regulations

• Corporate Strategy >
• 2019.H1 Results >
• 2019 Outlook >

NEW METHODOLOGY FOR RECONDUCTORING

• Age of grid in development Countries is higher than conductor lifespan
• Grant the quality of the network service, reducing outage period and related costs

NEW SAFER FASTER & CHEAPER METHODOLOGY

NEW DEAL FOR NORTH AMERICA MARKET

• Reorganization of our presence on energy sector
• New deals with partner for business development
• Development of customized products

INCREASE MARKET SHARE AND REVENUES STARTING FROM 2020

KEY OPPORTUNITIES IN GROWING MARKET SEGMENTS KEY OPPORTUNITIES IN INTERNATIONAL MARKETS

ENEL MARKET:

• Continuous supplies of MV Smart devices in Italy and South America
• Cybersecurity Integration in compliance with market requirements

ITALIAN MARKET:

• Push on supplies for primary and secondary substation Automation by market diversification

RUSSIA:

• Growing direct supplies of SMT on the Rosseti Grid
• Start-up of supplies to local players (Engineering companies, EPC, installators) in order to expand the market

OTHER HV MARKETS:

• Ramp-up activities in North Africa
• New High Voltage telecommunications tenders in Eastern Europe and Middle East

Main targets: USA, UK, Africa

• Digital & connected solutions: SAFETY first and easier PROJECT MANAGEMENT
• Better overall QUALITY
• Clean & Fast working methodologies
• INTEGRATED value chain

KEY OPPORTUNITIES IN 5G&FIBER BUSINESS KEY OPPORTUNITIES IN SURFACE MINING BUSINESS

Main targets: Bauxite, coal, limestone, alluvial gold

• Focus on: PRODUCTIVITY, EXCAVATED MATERIAL SIZE, OPERATIVE COSTS
• Safe & efficient working methodologies
• INTEGRATED solutions: EQUIPMENT + SERVICES

METHODOLOGY FOR SAFE & FAST CATENARY MAINTENANCE OPERATIONS

• Certified solution (with remote control systems) for replacement of the contact wires – RFI Italy
• Technological solutions for refurbishment of the line RER C network - RC2 consortium France

SOLUTIONS TO ASSURE RAILWAY INFRASTRUCTURES RELIABILITY & SAFETY

• Specialized vehicles equipped with DIAGNOSTIC DEVICES and DIGITAL PLATFORM to measure and to manage big amount of data in real time.
• Diagnostic systems to grant SAFETY of the railway infrastructures.

GROUP (€ mln)	2019.H1	2018.H1	Delta %
REVENUES	97,5	91,1	7,0% (1)
EBITDA (2) (3)	12,1	9,3	29,6%
% on Revenues	12,4%	10,2%
EBIT	3,3	2,4	38,2%
% on Revenues	3,3%	2,6%
Differences in Exchange (4)	0,3	0,0	n/a
% on Revenues	0,3%	0,0%
PROFIT (LOSS) BEFORE TAX	1,1	0,8	34,9%
% on Revenues	1,1%	0,9%
NET INCOME/(LOSS)	0,5	0,5	-1,1%
% on Revenues	0,5%	0,6%
GROUP (€ mln)	2019.H1	2018.H1	Delta %
NFP ante IFRS 16	94,1	92,1	-2,2%
NFP post IFRS 16 (3)	112,5

(1) + 5,3% at constant currencies

(2) The EBITDA has not yet impacted by the full effectiveness of the positive management actions rolled out from September of the last year and impacted by the lower performance of the Marais Group

(3) Starting from the 1 st January 2019, the new IFRS 16 has been introduced. It impacts:

•	EBITDA	+1,8 M€
---	--------	------------

• Depreciation 1,6 M€
• Net Results 0,2 M€
• Intangible assets + 18,2 M€
• NFP + 18,4 M€

The EBITDA ante IFRS would have been 10,3 M€

(4) The positive exchange differences are positive due to the favorable effects FX

ENERGY	2019.H1	2018.H1	Delta %
Revenues	21,9	20,8	5,6%
EBITDA*	2,8	2,6	11,1%
% on Revenues	12,9%	12,3%
* EBITDA ante IFRS 16 would have been 2,3 M€

• > Energy Automation Growth
• > European Market Driven

TRENCHERS	2019.H1	2018.H1	Delta %
Revenues	59,2	60	-1,3%
EBITDA*	6,4	5,2	22,5%
% on Revenues	10,8%	8,7%
* EBITDA ante IFRS 16 would have been 5,6 M€

• > Marais Profitability Turnaround still on going
• > USA Market Booming
• > Different mix

RAILWAY	2019.H1	2018.H1	Delta %
Revenues	16,4	10,3	58,1%
EBITDA*	2,9	1,6	83,8%
% on Revenues	17,5%	15,1%
* EBITDA ante IFRS 16 would have been 2,4 M€

> RFI-OCPD001: Delay in prototype acceptance. Acceptance July/August.

Waiting for series customer orders

• > RFI-Falco 3: Project delay. Production start in 2H.
• > Amtrak: Project delay.

GROUP (Euro mln)	2018.H1	2019.H1
Differences in Exchange	0,0	0,3
of which:
Realised	(0,1)	0,1
Unrealised	0,1	0,2
Differences in Exchange for currency:
USD	0,5	0,0
ZAR	(0,4)	0,0
OTHER	(0,1)	0,3
Total	0,0	0,3

2019.H1 EBITDA

€ mln

* The impact of IFRS 16 is around 1,8 M€

Financial Information (€ mln)	2019.H1	2018
Net Working Capital	66,3	48,9
Non Current assets	67,2	67,3
Right of use - IFRS 16	18,2	0,0
Other Long Term assets/liabilities	4,6	4,8
Net Invested Capital	156,4	121,0
Net Financial Indebtness	94,1	77,7
Lease liability - IFRS 16	18,4	0,0
Equity	43,9	43,3

	Increase of working capital due to Railways Business and the stock to
2018	support the growth of the 2nd half 2019	2019.H1

2019.H1

2018

OPERATING NET FINANCIAL POSITION

* From 1 st January 2019, the new IFRS 16 has been introduced, the impact is term of NFP is around 18,4 M€, otherwise the NFP would have been around 94,1 M€

• Corporate Strategy >
• 2019.H1 Results >
• 2019 Outlook >

GREEN PRODUCT LINE

• ✓ Zero emissions product line dedicated for urban area
• ✓ Approach with marketing actions on specific areas:

NEW MARKET POSITIONING IN CHINA

• ✓ Tesmec New Technology antenna for green & digital technologies in cooperation with local manufacturer
• ✓ Hub for neighbour markets: Asia Pacific Countries starting from South Korea & Taiwan

TOWARDS CYBERSECURITY REQUIREMENTS FOCUS ON ENGINEERING SOLUTIONS

Focus on reliable solutions for secure communication and M2M and M2H interface in order to provide stability of strategic assets (utilities substations).

Main drivers:

• Efficient device access control
• Compliance with cybersecurity standards
• Enhance infrastructure performance

Development of an engineering solutions starting from Tesmec ready-to-go telecommunication systems to increase productivity and reliability of infrastructure.

Main drivers:

• High control and automation capabilities
• Increase plant productivity

TOWARDS 5G – NEXT GENERATION OF BROADBAND CONNECTION

The costs and speed of building new 5G networks depend to a large extent on how quickly broadband providers can dig trenches along roads to lay fiber conduit

Main features of the new generation network:

• Massive device connectivity
• Ultra reliability
• High speeds
• Low communication latency

TESMEC has the solution for a "clean & fast" network deployment

FOCUS ON DIGITAL AND SUSTAINABLE WORKING PROCESSES

The acceptance and use of Surface Miners in mining applications has increased and is continuously growing.

Main drivers:

• safe operations
• efficient and digital equipment
• sustainable technology

Tesmec is committed in a continuous improvement of his range of solutions to increase productivity, reliability and costs saving

CERTIFIED & ENVIRONMENTALLY FRIENDLY METHODOLOGY INFRASTRUCTURES RELIABILITY & SAFETY

• INTERNATIONALIZATION OF HIGH-QUALITY SOLUTIONS
• Automated operations
  • Fleet Management

CENTRALIZED PLATFORM Unmanned diagnostic (software + devices)

Verification and validation process through IoT, Big Data and Analytics tools

2019 outlook

MACRO MARKET TRENDS xxx	+ Digital Transformation & Industry 4.0 Telecom – 5G Energy transition Mines – new methodology	- Economy is slowing → China – USA commercial → Middle East, Iran embargo
BUSINESS DRIVERS	> New products: impact on revenues ENERGY > New USA agreement: Transmission and Distribution > Important development on digital grids with cyber-security needs TRENCHERS → > New solutions for 5G & FTTx Clean & Fast methodology in USA, SA, UK, FR & DE > Mining: development of special tailor made solutions with key market: Africa > Diagnostic market developments → Full solutions in final test RAILWAY > Diagnostic + Web Platform
ECONOMICS & xxx FINANCIALS	1 Sales: double digit growth 2 EBITDA %: improvement in comparison to 3 NFP: improvement NFP/EBITDA ratio due to 4 Expected BACKLOG: increase in comparison to H1.2019 5 Back to dividends distribution policy	H1.2019 cash generation related to the WIP reduction

BACKLOG

Profit & Loss Account (Euro mln)	2019.H1	2018.H1	Delta vs 2018	Delta %
Net Revenues	97,5	91,1	6,4	7,0%
Raw materials costs (-)	(43,2)	(39,3)	(3,9)	10,0%
Cost for services (-)	(17,7)	(15,4)	(2,3)	14,9%
Personnel Costs (-)	(25,6)	(24,4)	(1,2)	5,0%
Other operating revenues/costs (+/-)	(3,6)	(5,8)	2,1	-37,1%
Non recurring revenues/costs (+/-)	1,1	0,0	1,1	na
Portion of gain/(losses) from equity investments evaluated using the equity method	(0,1)	0,1	(0,2)	-286,0%
Capitalized R&D expenses	3,8	3,1	0,7	24,0%
Total operating costs	(85,4)	(81,8)	(3,6)	4,4%
% on Net Revenues	(88%)	(90%)
EBITDA	12,1	9,3	2,8	29,6%
% on Net Revenues	12%	10%
Depreciation, amortization (-)	(8,8)	(7,0)	(1,9)	26,7%
EBIT	3,3	2,4	0,9	38,2%
% on Net Revenues	3%	3%
Net Financial Income/Expenses (+/-)	(2,2)	(1,6)	(0,6)	39,8%
Taxes (-)	(0,5)	(0,3)	(0,3)	111,6%
Minorities	-	-	-
Group Net Income (Loss)	0,5	0,5	(0,0)	-1,1%

Summary 2019.H1 Balance Sheet - Appendix B

Balance Sheet (€ mln)	2019.H1	2018
Inventory	97,8	73,6
Accounts receivable	52,5	52,6
Accounts payable (-)	(57,9)	(54,4)
Op. working capital	92,4	71,8
Other current assets (liabilities)	(26,1)	(22,9)
Net working capital	66,3	48,9
Tangible assets	44,7	45,3
Right of use - IFRS 16	18,2	0,0
Intangible assets	18,5	18,0
Financial assets	4,0	4,0
Fixed assets	85,4	67,3
Net long term liabilities	4,6	4,8
Net invested capital	156,4	121,0
Cash & near cash items (-)	(21,4)	(42,8)
Short term financial assets (-)	(9,9)	(10,4)
Lease liability - IFRS 16	18,4	0,0
Short term borrowing	74,2	80,1
Medium-long term borrowing	51,3	50,8
Net financial position	112,5	77,7
Equity	43,9	43,3
Funds	156,4	121,0

Disclaimer

The Manager responsible for preparing the company's financial reports, Gianluca Casiraghi, declares, pursuant to paragraph 2 of Article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this presentation corresponds to the document results, books and accounting records.

Certain information included in this document is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially.

Any estimates or forward-looking statements contained in this document are referred to the current date and, therefore, any of the assumptions underlying this document or any of the circumstances or data mentioned in this document may change. Tesmec S.p.A. expressly disclaims and does not assume any liability in connection with any inaccuracies in any of these estimates or forward-looking statements or in connection with any use by any third party of such estimates or forwardlooking statements.

This document does not represent investment advice or a recommendation for the purchase or sale of financial products and/or of any kind of financial services. Finally, this document does not represent an investment solicitation in Italy, pursuant to Section 1, letter (t) of Legislative Decree no. 58 of February 24, 1998, or in any other country or state.

In addition to the standard financial reporting formats and indicators required under IFRS, this document contains a number of reclassified tables and alternative performance indicators. The purpose is to help users better evaluate the Group's economic and financial performance. However, these tables and indicators should not be treated as a substitute for the standard ones required by IFRS.

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