Mittel S p A : approves the consolidated half-year financial statements at 30 june 2020

Offices in Milan - Via Borromei n. 5

Share Capital € 87.907.017 fully paid-in

Listed in the Milan Register of Companies at n. 00742640154

www.mittel.it

PRESS RELEASE

MITTEL S.p.A. APPROVES THE CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS

AT 30 JUNE 2020

• Strong solidity, financial and operational stability of the Group in a delicate situation of the global public health emergency.
• Limited impact on economic results despite important effects produced by the lockdown on commercial and production operations and despite unfavourable half-year period due to ordinary seasonality phenomena and extraordinary components relating to historical assets.
• Consolidated revenues in increase, equal to € 69.4 million (€ 68.1 million in the comparison period).
• Broadly positive EBITDA, equal to € 7.1 million, thanks to contributions of the consolidated industrial sectors (Nursing Home (RSA), Design and Automotive).
• Net consolidated result, negative in the first half-year, equal to € 5.5 million, attributable to the presence of non-recurring items (i.e. value adjustments for € 1.9 million on loans and other non-core financial assets, and interest expense for € 1.0 million accrued on the portion of the bond loan already repaid in August) and the negative impact of a total of € 2.8 million deriving from the application of IFRS 16.
• Net of the application of IFRS 16, Group NFP is in further sharp reduction (€ 23.4 million, compared to € 45.7 million at 31 December 2019).
• Important post-development real estate sale transaction made by the Zaffiro Group (Pogliano Milanese) as part of the agreement signed with a primary international real estate fund, according to which Zaffiro retains the management of nursing home facilities in the post-developmentand sale process: gross proceeds of approximately € 21 million with a gross capital gain of approximately €
  4.5 million, largely insignificant in accounting terms due to the application of IFRS 16 (sale & leaseback).
• Expected improvement in the second half of the year, which results would benefit, in case there is not any further escalation of the Covid emergency, from the full incorporation of the growth process engaged in the operating sectors:
• • aggregate turnover data available for the months following the end of the half-year provide initial confirmation of a decisive recovery phenomenon in the post lockdown period;
  • expectation, for the Nursing Home sector (RSA), of the quick recovery as soon as the post Covid regulatory restrictions on new admissions will become obsolete;
  • a recently acquired order in the Automotive sector capable of significantly impacting turnover and margins in the second half of the year;
  • the subsidiary Sport Fashion Service will generate its turnover and the related operating margins in the second half of the year, as a consequence of the physiological seasonality that characterises the sector;
  • significant future impact of the reduction in holding costs and, specifically, of the voluntary early repayment - which took place in the month of August - of a portion of the bond loan (maturity in 2023), to be added to the full repayment in July 2019 of the previously outstanding additional bond loan.

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Milano, 25 September 2020 - At today's meeting, chaired by Mr. Michele Iori, the Board of Directors of Mittel S.p.A. reviewed and approved the Consolidated Half-Year Financial Report for the period 1 January - 30 June 2020.

Operating performance overview

It is a well-known fact that, starting January 2020, the national and international scenarios were impacted by the spread of the new Coronavirus (COVID-19) and by the consequent restrictions, aimed at its containment, put in place by the Government authorities of the countries concerned. The emergency situation of an unprecedented scale produced devastating impacts on the global economic and social systems. In such a context, the Mittel Group however demonstrated strong solidity and suffered very limited effects on its equity, thus proving once again its strong financial and operational stability, without necessity to resource new financing for the industrial subsidiaries, except for development projects already planned, and, as detailed below, proceeded with a voluntary early repayment, in July 2020, of a significant portion of the bond issued by the Parent Company.

The negative influence on the economic outcomes was relatively limited despite the important commercial and production impacts suffered during the lockdown period (particularly in March and April) and despite the fact that the pandemic contingency occurred during the first half of the year, which was already unfavourable due to ordinary seasonality phenomena in some sectors of the Group's operations.

The company management, thanks to the solid business model of the Group, effectively balanced opposing needs in different phases of the crisis and took decisions based on rigor, prudence and attention to the safety of workers and stakeholders during the most delicate phase of the health crisis, and on trust and proactivity in the current recovery phase, focusing on concrete economic measures to guarantee an important relaunch, never compromising on safety or risks perception, but taking up challenges and opportunities that will surely pop up in the coming months in different activity sectors.

Having now fully completed the reorganization process of previous years, characterised by a transformation into the industrial holding company that began in 2016 and was intensified following recent changes in the Company governance model, and, as the result of strategic acquisitions made up to date, the Group currently operates in four investment verticals which, despite the difficult situation arisen globally due to the outbreak of the health emergency since February 2020, present high income prospects in the medium / long term. In particular, the Group operates in:

• healthcare nursing sector, through Gruppo Zaffiro S.r.l. which, since November 2016 (date of its acquisition by Mittel S.p.A.), confirms to be a solid platform for aggregating other companies in the healthcare sector and to have potential to become, within coming years, a reference point for this market which presents clear structural growth trends associated with demographic and social factors, while still having a highly fragmented offer structure with significant room for combination;
• production and marketing of designer ceramic sanitary-ware and accessories for the luxury sector in Italy and abroad, through Ceramica Cielo S.p.A. acquired in June 2017, that offers products characterised by a stylistically avant-garde design and innovative use of materials (with particular attention to R&D and obtaining excellence awards) and two new companies acquired at the end of June 2019, Galassia S.r.l. and Disegno Ceramica S.r.l., as part of the transactions aimed at creating an aggregation platform in bathroom fixtures and fittings sector in which Italian design occupies a very important and globally recognised position;
• automotive components sector (cold moulding of structural and internal components on steel and aluminium elements for primary producers in the automotive sector), through IMC - Industria Metallurgica Carmagnolese S.p.A., acquired in September 2017 and recognised by the sector for its considerable technological know-how and high service standards offered to customers;
• clothing sector, through Sport Fashion Service S.r.l., acquired in November 2019. The company operates in the informal clothing market, in particular, in the Urban/Lifestyle and Outdoor segments, owns the iconic and highly renowned brand Ciesse Piumini and extends the experience built up in technical-sports products, intended for extreme expeditions also, to clothing items for urban fashion, combining manufacturing excellence with comfort and style.

As described earlier, the first half of 2020, which presented a delicate frame of reference, was faced with extreme prudence due to uncertainties of the present historical moment while continuing the Group operations with strong commitment. and even led to further significant results in the growth of the subsidiary Gruppo Zaffiro. In fact, on 30 June, the property of Pogliano Milanese was sold to the French real estate fund Primonial totalling EUR 21 million of gross proceeds (a greenfield transaction). The operation produced a gross capital gain of approximately EUR 4.5 million (largely not accounted for due to the IFRS 16 provisions, which envisage, for properties sold and located back, the spreading of the achieved capital gain over the lease period).

It is worth recalling that last year Gruppo Zaffiro signed a contract with Primonial, a leading EURpean real estate investor, for the development of new Nursing Homes (RSA)s (RSA) throughout Italy. The contract specifically envisages that Primonial will own the real estate component while operating management of the facilities will be carried out by Gruppo Zaffiro. This significant agreement will allow to accelerate growth plans of the group aimed at achieving over 5,000 beds under management over the next few years and will free up significant resources for new investments and enhance the property component at the same time.

Furthermore, compatibly with the present difficult situation and with important results already achieved in the previous years, the group continued to implement measures for further containment of operating costs and valuation of non-core assets held in the portfolio in order to generate new resources for investments. In particular, as regards disposals, the divestment process of non-strategic assets of the historical portfolio continued during the reporting period and concerned real estate inventories and financial receivables mainly.

It should be noted that, starting from the previous year, due to the application of IFRS 16 standard (Leasing), the consolidated accounting figures have undergone significant changes, showing dynamics that require some specification for a better understanding of the management performance. The IFRS 16 standard which, in a nutshell, provides for the recognition in fixed assets of the "right of use" of leased assets that fall within the standard's application scope and the recognition in liabilities of the related financial payable, has produced a significant impact on equity and income statement items (in particular on those of the Nursing Homes (RSA) sector, characterised by long-term lease contracts) resulting in the following main effects on the figures at 30 June 2020:

• higher value of fixed assets, equal to EUR 201.6 million (right of use on property mainly referring to real estate property);
• increase in the value of the consolidated net financial position of EUR 215,7 million, therefore not dependent on a higher financial exposure in the strict sense but on the valuation of the contractual obligation connected with the right of use;
• increase of EUR 5,5 million in the operating margin (EBITDA), essentially deriving from lease payments, excluding the negative impact on non-recurring profit items. For details please refer to the capital gains from disposal in the Nursing Homes (RSA) sector;
• overall negative impact of EUR 1,1 million on the Group's net result of ordinary nature, due to prevalence of amortisation of the right of use and financial expenses on financial liabilities booked on the write-off of lease payments;
• as a result of the specific accounting rules for sale and lease-back transactions envisaged by the new standard, capital gains of EUR 3,8 million were written off for accounting purposes (EUR 2,8 million net of the effects for deferred tax assets recognised, of which EUR 1,7 million pertaining to the Group), which was earned as part of significant sale transactions for the real estate component of the Nursing Homes (RSA) sector. The non-recognition as revenue of this amount will entail recognition in the future of an economic benefit over the lease term, represented by lower amortisation that will be recorded on the relative rights of use, currently recognised in assets at the original value.

The consolidated net result of the first half 2020, negative for EUR 5.5 million, was therefore negatively impacted by the application of IFRS 16 standard for a total of EUR 2.8 million (EUR 1.1 million on recurring items and EUR 1.7 million due to non-recognition of capital gains from sale, which has become, in any case, a systematic corollary of Nursing Homes (RSA) developments since the previous year), amount to add to significant write-downs, totaling EUR 1.9 million (entirely pertaining to the Group), of the non-core financial receivables and assets, as the result of strict valuation policies adopted by the Group in applying IFRS 9 standard in this specific emergency context. Furthermore, the result for the first half 2020 includes financial expenses of approximately EUR 1.0 million attributable to the portion of the bond subject to voluntary early repayment in August.

Net of such negative impacts, the net result would have been essentially balanced, despite the effects of the lockdown period on operating margins of the industrial subsidiaries and the seasonality phenomena that characterise, in the first six months of the year, the activity sector where Sport Fashion Service operates.

Equity pertaining to the Group at 30 June 2020 amounted to EUR 214.9 million, in decrease compared to EUR 220.1 million at 31 December 2019, mainly due to the recognition of the loss for the period.

The consolidated net financial position amounted to negative EUR 243.6 million, with an improvement compared to EUR 251.9 million recorded at 31 December 2019. This improvement is even more significant if we consider the figures before the application of IFRS 16, excluding financial payables related to the rights of use on lease contracts. This amount, which decreased from EUR 45.7 million at 31 December 2019 to EUR

24.3 million at 30 June 2020, benefited, among other important items, from the significant proceeds made by Gruppo Zaffiro from sale of the real estate component of the Pogliano nursing home (RSA).

Main economic figures of the Group

	(Thousands of EUR)		30.06.2020		30.06.2019
	Revenue and other income	69.401	68.056
	Increases (decreases) in inventories	(4.131)		(9.890)
	Net revenue	65.270	58.166
	Purchases, provision of services, sundry costs	(34.904)		(31.254)
	Personnel costs	(23.217)		(17.402)
	Operating costs	(58.120)		(48.656)
	Operating margin (EBITDA)		7.150		9.510
	Amortisation/depreciation, allocations and adjustments to non-current	(8.485)		(6.058)
	assents
	Share of profit (loss) of investments	(158)		(60)
	Operating result (EBIT)		(1.493)		3.392
	Profit (loss) from financial management	(5.829)		(4.991)
	Result of management and valuation of financial assets and receivables	(1.942)		(1.053)
	Profit (loss) before taxes		(9.264)		(2.652)
	Taxes	3.518	3.459
	Net profit (loss) of the interim reporting period		(5.745)		807
	Profit (loss) pertaining to non-controlling interests	(223)		458
	Profit (loss) pertaining to the Group		(5.523)		349

For greater clarity and easier comparison with the profit margins of the comparison period, the following table highlights the impact of the application of IFRS 16 on EBITDA.

	(Thousand of EUR)		30.06.2020	30.06.2019
	Operating margin (EBITDA) post IFRS 16		7.150	9.510
	Lease payments	(5.504)	(4.071)
	Operating (EBITDA) before IFRS 16 before capital gain		1.646	5.439
	Sale & leaseback capital gains	3.821	-
	Operating margin before IFRS 16 with capital gain		5.467	5.439

Similarly, the reconciliation of the Group result that would have occurred in the event of non-application of IFRS 16 is shown here below.