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REGISTRATION DOCUMENT 2012 including the Annual Report and Annual Financial Report Fiscal year from September 1, 2011 to August 31, 2012 WORLD LEADER IN PRECISION SPRAYING SOLUTIONS 1 Registration Document Including the Annual Report and Annual Financial Report Fiscal year from September 1, 2011 to August 31, 2012 In accordance with article 212-13 of the General Regulations of the Autorité des Marchés Financiers (AMF) the original French language version of this Registration Document was filed with the AMF on December 27, 2012. It may be used in connection with a financial transaction only if accompanied by a memorandum approved by the AMF. The original French language version of this document was prepared by the issuer and is binding on its signatories. In compliance with the provisions of article 28 of European Regulation 809/2004 of April 29, 2004, for selected information the reader is referred to the previous Registration Documents: • The consolidated financial statements, separate annual financial statements and corresponding auditors' reports for the period ended August 31, 2011 contained in the Registration Document filed with the AMF on December 29, 2011; • The consolidated financial statements, separate annual financial statements and corresponding auditors' reports for the period ended Tuesday, August 31, 2010 contained in the Registration Document filed with the AMF on Thursday, December 30, 2010. 2 Cross-reference table This cross-reference table refers to key headings for disclosures required by European Regulation No. 809/2004 applied in accordance with Directive 2003/71/EC (the "Prospectus Directive") of the European Parliament and Council of November 4, 2003, prospectuses to be published when securities are offered to the public or admitted to trading. 1. Persons responsible P. 10 1.1 Name and position of persons responsible for the document P. 10 1.2 Responsibility statement P. 10 2. Name and address of the Statutory Auditors P. 11 3. Selected financial information p. 33, 42, 43, 44 4. Risk factors p. 23 to 27, 38, 39, 44 to 47, 86, 87 5. Information about the issuer 5.1 5.2 History and development of the company p. 15 Legal and commercial name of the company p. 122 to 127 Place of registration and registration number p. 122 to 127 Date of incorporation and term p. 122 to 127 Registered office and legal form p. 122 to 127 Important events in the development of the company p. 122 to 127 Investments p. 30 6. Business overview p. 17 to 28 6.1 Principal activities p. 17 to 28 6.2 Principal markets p. 17 to 28 6.3 Degree of dependence, competitive position p. 17 to 28 7. Organizational structure p. 17, 69, 70 8. Property, plants and equipment p. 28, 29, 30, 38 9. Operating and financial review p. 33, 42, 43, 44 55 to 101 9.1 Financial position 9.2 Operating results 10. Capital resources 10.1 Information concerning the issuer's capital resources p. 47 to 50, 56, 58, 76, 90, 96, 97 3 concerning 10.2 Cash flows p. 59, 60, 75, 85 10.3 Information on borrowing requirements and funding structure p. 44 to 47, 56, 57, 79, 80, 83, 86, 90, 98, 99 11. Research and development, patents and licenses p. 33 to 38 12. Trend information p. 23 to 28, 33 13. Profit forecasts or estimates p. 33 14. Administrative, management and supervisory bodies and senior management p. 51, 52, 53, 108, 110, 111, 112 15. Remuneration and benefits p. 10, 51, 52, 82, 83, 85, 118, 119 16. Board practices p. 110 to 119 17. Employees 17.1 Number of employees p. 54, 82, 100 17.2 Stock options p. 52 17.3 Employee stock ownership p. 47 to 50 18. Main shareholders p. 47, 48 19. Related-party transactions p. 28, 29, 30, 85, 86 20. p. 30, 33, 42 to 47, 53, 54, 56 to 108 Financial information concerning the issuer's assets and liabilities, financial position and profits and losses Historical financial information, financial statements, auditing of historical annual financial information Dividend policy Legal and arbitration proceedings 21. Additional information 21.1 Share capital p. 47 to 50, 76, 96, 127 21.2 Memorandum of incorporation and bylaws p. 123 to 127 22. Material contracts p. 26 to 31, 33, 34, 35, 85, 86, 87, 100, 104 to 106 23. Third party information N/A 24. Documents on display p. 11, 12 25. Information on holdings p. 63, 69 to 73, 93, 94, 95 4 Contents INFORMATION ON THE REGISTRATION FINANCIAL STATEMENTS 55 Consolidated financial statements DOCUMENT 9 I - Consolidated balance sheet at August 31, 201256 II - Consolidated income statement at August 31, Responsibility for the Registration Document ..... 10 Responsibility statement ................................ 10 Auditors .................................................... 11 Responsibility for information ........................ 11 Shareholder information and investor relations .. 11 2012......................................................... 57 III - Consolidated statement of changes in shareholders' equity ..................................... 58 IV - Consolidated statement of cash flows ........... 59 V - Notes to the consolidated financial statements 61 Statutory Auditors' report on the consolidated financial statements PRESENTATION OF THE GROUP 14 ..................................... 88 Condensed parent company financial statements I.- Balance sheet at August 31, 2012 ................ 90 History of the Group ..................................... 15 Organization chart of EXEL Industries Group ..... 17 Business overview of EXEL Industries Group ....... 17 1 - Group businesses and products ................... 17 2 - Market, competition ................................. 23 3 - Customers - suppliers ............................... 26 4 - Production resources ................................ 28 5 - Capital investments ................................. 30 6 - Insurance .............................................. 31 II.- Income statement ..................................... 91 III.- Notes to the separate parent company financial statements................................................... 92 IV.- Proposed appropriation of net income ....... 101 Statutory Auditors' report on the annual financial statements................................................. 102 Statutory Auditors' special report on regulated agreements and commitments ........................ 104 CORPORATE GOVERNANCE MANAGEMENT DISCUSSION AND ANALYSIS 1 - Annual highlights 32 109 Directors and officers of SA EXEL Industries ..... 110 Audit committee ....................................... 111 Group Management and Strategy Committee ..... 111 .................................. 33 2 - Events after the reporting period and outlook 33 Offices and positions held by each corporate officer of 3 - Research and development ......................... 33 EXEL Industries SA 4 - Sustainable development, industrial and .................................... 113 ........................................... 113 environmental Auditors' fees risks Report of the Chairman of the Board of Directors114 .................................................... 38 5 - Review of operations, consolidated and parent Statutory Auditors' report on the Chairman's report company separate financial statements .............. 42 120 6 - Market risks ........................................... 44 7 - Exceptional items and litigation ................. 47 8 - Changes in share capital in the period ........ 47 9 - Appropriation of net income of the period ..... 51 10 -Information on corporate officers................ 51 11 -Change in accounting method ................... 53 12 -Parent company results and five-year financial summary .................................................... 53 5 Information on EXEL Industries' share capital .. 127 Securities giving access to the share capital ...... 127 Information on pledges ................................ 127 Shareholders' agreement .............................. 127 Dividends ............................................... 127 INFORMATION ON THE COMPANY AND ITS SHARE CAPITAL 122 Statutory information on EXEL Industries ........ 123 SHAREHOLDER RESOLUTIONS 6 128 Chief Executive Officer's Message Dear shareholders, Fiscal 2011-2012 was a very good year for the EXEL Industries Group, marked by renewed international expansion, with the acquisition of AGRIFAC in July 2012, and record revenues for the Group topping €525 million. We ended the year with growth in excess of 20% in both the agriculture and industry segments, while international growth stood at 21%. The automotive segment outside Europe and demand in the agricultural market were positive contributing factors. EXEL ends the 2011-2012 fiscal year with equity representing half of the total balance sheet and positive net cash of €4.7 million, equating to deleveraging of €17.2 million after acquisitions. Fiscal 2012-2013 has begun in an atmosphere of financial crisis. EXEL has good visibility over the coming months, but remains prudent regarding the outlook for growth in revenues for the coming year. We will continue our international expansion and consolidate our presence in the gardening segment with the acquisition of HOZELOCK in October 2012. We have begun 2013 with the same level of determination and pragmatism that marked our approach in 2012, focusing on our three operating priorities. > Margins. We increased our margins by volume in FY 2011-2012. However, there is real potential for improvement, particularly in terms of sale prices that better reflect our competitive advantages, the continued deployment of lean manufacturing at our manufacturing facilities and rigorous project management in industry, > Innovation. Our engineering departments continue to build up our portfolio of more than 200 patents. Our spraying technology innovations offer our customers increased value through improved time-tomarket performances, modular design and reliability for our new products due to pilot testing, > International development. Our focus on international expansion has resulted in market share gains and acquisitions, the opening of new subsidiaries in growth markets, the higher professional standards of our local teams, and the launch of new products specifically adapted to each market. Our Group's unique profile and strength are based on an organization comprised of independent small and mid-size companies with the agility to adapt more easily, and proactively take the right decisions. Furthermore, given the positive underlying trends for our markets, we remain confident about the future. Contributing to feeding the world, respecting the environment and supporting the industrial development 7 of emerging countries: these three challenges are key priorities for EXEL Industries. Finally, with subsidiaries on five continents, complementary markets, high quality products and the expertise of our teams, we have a strong foundation for the future. Founded on the basis of strong human values, EXEL Industries will continue its trajectory of growth guided by these principles. With a clear strategy, a long-term vision, an exemplary financial base, and values firmly anchored in a corporate culture of entrepreneurship, the EXEL Industries Group will pursue its path of sustainable and profitable growth. Thank you for your continued support, Guerric Ballu Chief Executive Officer of the Group 8 INFORMATION ON THE REGISTRATION DOCUMENT Responsibility for the Registration Document Responsibility statement Auditors Responsibility for information Shareholder information and investor relations 10 10 11 11 11 9 Responsibility for the Registration Document Monsieur Guerric Ballu Chief Executive Officer Responsibility statement I declare, after having taken all reasonable measures in this regard that to the best of my knowledge the information in this Registration Document is accurate and there are no omissions likely to alter its import. I declare that, to the best of my knowledge: the financial statements have been prepared in accordance with the applicable financial reporting standards and give a true and fair view of the assets and liabilities, financial position and results of the company and all consolidated operations; and the annual report for the period faithfully presents business trends, the results and financial position of the company and all consolidated operations and the description of the main risks and uncertainties. I have obtained a completion of work letter from the Statutory Auditors in which they indicate that they have verified the information concerning the financial position and accounts presented in this Registration Document and read the entire Registration Document. The Statutory Auditors have issued reports on the historical information presented in this Registration Document. The Statutory Auditors' report on the annual financial statements includes the following observation: "the management report does not provide exhaustive information as provided by article L. 225-102-1 of the French Commercial Code (Code de Commerce) on compensation and benefits paid to each corporate officer during the fiscal year, as well as the commitments incurred in their favor in connection with the assumption, change, or termination of functions at the time of or subsequent to their a ppointments as officers.” I wish to specify that: We do not include exhaustive detail on this information, considering that such disclosures might constitute an unwarranted infringement of privacy both with respect to the individuals concerned and the profession, that is moreover totally silent on this matter; Total remuneration of management committee members and company officers of EXEL Industries is also disclosed, thus allowing shareholders to be adequately informed and note that compensation levels remain reasonable. Guerric Ballu CEO 10 Auditors STATUTORY AUDITORS The financial statements for the 2011-2012 fiscal year were approved by: > DELOITTE & Associés - Appointment date: January 19, 2009 - End of term: expiring on the date of the Ordinary General Meeting called to approve the financial statements for the fiscal period ending in 2014; > SA Philippe Venet – Grant Thornton - Appointment date: January 19, 2009 - End of term: expiring on the date of the Ordinary General Meeting called to approve the financial statements for the fiscal period ending in 2014. ALTERNATE AUDITORS B.E.A.S. - Appointment date: January 19, 2009 - End of term: expiring on the date of the Ordinary General Meeting called to approve the financial statements for the fiscal period ending in 2014. > Geneviève VENET-MOREL - Appointment date: January 19, 2009 - End of term: expiring on the date of the Ordinary General Meeting called to approve the financial statements for the fiscal period ending in 2014. Responsibility for information Responsibility for information Guerric BALLU EXEL Industries 54, Rue Marcel Paul - 51200 Épernay Tel.: + 33 (0)3 26 51 52 55 Shareholder information and investor relations 1. FINANCIAL COMMUNICATIONS EXEL Industries has a policy of providing extensive information to shareholders, the financial community and the public through: > An annual report - Registration Document filed with the French financial market authority, the AMF; > The publication of financial announcements and press releases; > Quarterly newsletters; > Regular meetings with journalists, analysts and investors; > Visits to our manufacturing sites; > A website with a section dedicated to financial communications. In addition, since November 2008, EXEL Industries has been a partner of the FFCI (French Federation of 11 Investment Clubs), an independent not-for-profit association serving the community of individual investors. 2. ACCESS TO INFORMATION Documents are available on request and selected documents can be consulted and downloaded from our website: www.exel-industries.com, under the heading "Finance". For the period of validity of this Registration Document, the articles of association (statuts), Statutory Auditors' reports and the financial statements for the last three financial periods, as well as all reports, correspondence and other documents and the historical financial information of EXEL Industries and its subsidiaries for the last three financial periods and all other documents provided for by law may be consulted at the issuer's registered office. 3. FY 2011-2012 FINANCIAL PRESS RELEASES December 14, 2011 First-quarter sales March 27, 2012 Second-quarter sales April 18, 2012 First-half results June 26, 2012 Third-quarter sales October 09, 2012 Fourth-quarter sales December 12, 2012 Full-year results 4. 2013 SHAREHOLDERS' DIARY December 12, 2012 First-quarter sales January 22, 2013 Annual General Meeting March 22, 2013 Second-quarter sales April 16, 2013 First-half results June 25, 2013 Third-quarter sales October 01, 2013 Fourth-quarter sales December 10, 2013 Full-year results 12 5. BROKERAGE AND RESEARCH FIRMS COVERING EXEL INDUSTRIES GROUP > Arkéon Finance, > Aurel-BGC, > CM-CIC Securities, > Crédit Agricole Cheuvreux, > Gilbert Dupont (Crédit du Nord), > ID Midcap, > Oddo Securities, > Portzamparc. 13 PRESENTATION OF THE GROUP History of the Group Organization chart of EXEL Industries Group Business overview of EXEL Industries Group 1 - Group businesses and products 2 - Market, competition 3 - Customers - suppliers 4 - Production resources 5 - Capital investments 6 - Insurance 15 17 17 17 23 26 28 30 31 14 History of the Group In 1946, Vincent Ballu, civil engineer and father of the current Chairman, invented, developed and built the prototype of the first wine grower “high-clearance tractor” for use in the vineyards of the famous Champagne producer Moët et Chandon. In 1947, this achievement won its inventor first prize from the Association Viticole Champenoise and marked the beginning of automation for wine growing in Champagne and subsequently all narrow vineyards. > 1952 Creation of TECNOMA a marketing company for the high-clearance tractors. > 1953 Tecnoma becomes a local dealer for Vermorel spraying equipment. > 1959 Tecnoma invents the first synthetic resin sprayer. > 1960 Tecnoma takes over manufacturing of its new sprayers. > 1966 Acquisition of former market leader “VERMOREL”, “ ULYSSE FABRE” , and “LACHAZETTE” . > 1967 First export award. > 1975 Launch of first garden spraying equipment with synthetic resin injection. > 1980 Death of the company's founder, Vincent Ballu. Patrick Ballu, graduate of the top French engineering school, Arts et Métiers, and a CPA, succeeded his father. The company sales reached nearly FFR 80 million (€12.2 million). > 1986 Modernization of the Epernay plant, roll-out of a new range of agricultural sprayers. Acquisition of RAM and Caruelle near Orléans, and Nicolas in Agen. > 1987 Creation of the EXEL Group and acquisition of Berthoud, the French market leader for agricultural and garden spraying with its subsidiaries Seguip, Thomas and Perras. The EXEL Group triples in size to become a world leader in spraying equipment for plant protection. > 1988 The company is voted "The Most Innovative French Business". > 1989 Acquisition of VITITRAC and LOISEAU, competitors in the high-clearance tractor segment. > 1990 Acquisition of Préciculture, the French leader in self-propelled spraying equipment. 15 > 1993 Group legal structure simplified around EXEL Industries as the holder of most of the trademarks and patents. > 1996 Acquisition of Kremlin, the French market leader in painting equipment. After having established positions in the agriculture and consumer segments, the EXEL Group expands into the industrial market. > 1997 The EXEL Group changes its name to EXEL Industries and is listed on the Second Marché of the Paris stock exchange. > 1998 Consolidated sales exceed the FFR1 billion milestone (€150 million). > 1999 Acquisition of Eurotec (UK). > 2000 The size of the Préciculture plant is doubled. Acquisition of Fischer and Rexson. EXEL Industries becomes the world no. 3* for materials protection. > 2001 Acquisition of Sames, No. 2 worldwide* for electrostatic industrial spraying, and Matrot, French leader for agricultural self-propelled sprayers. > 2003 Merger of Kremlin and Rexson. Acquisition of Herriau (Plant Protection). > 2006 Acquisition of CMC (Constructions Mécaniques Champenoises), a specialist in highclearance tractors for wine growers. > 2007 With the acquisition of Moreau, the French leader for sugar beet harvesters, EXEL Industries becomes a major European player in this market. > 2007 Acquisition of Hardi, the world's second-largest manufacturer of agricultural sprayers. Through this acquisition, EXEL Industries consolidates its global leadership in the Plant Protection business. > 2009 Acquisition of JOHNSTONE. EXEL Industries strengthens its position in North America in the Material Protection business. > 2012 Acquisition of Agrifac, a Dutch company specializing in agricultural spraying and sugar beet harvesters. * Company data 16 Organization chart of EXEL Industries Group on Friday, November 30, 2012 Business overview of the EXEL Industries Group The Group is a pure player provider of high precision spraying solutions for two key market applications: > Plant Protection, a business subject to seasonal fluctuations linked to weather and natural growing cycles; > Materials Protection, a business with a limited seasonality profile. 1 - Group businesses and products 1.1 - PLANT PROTECTION EXEL Industries' historical business is the manufacture of spraying equipment for plant protection for professional, semi-professional and consumer agricultural applications. The sprayer makes it possible to deliver just the right amount of product to protect and treat plants as needed. Sometimes called phytomedication or phytosanitary products, plant health products include herbicides (to fight against weeds), insecticides (to protect against attack by insects), fungicides (to protect against fungal and mildew attack), liquid fertilizers, and other products. Spraying equipment design requires expertise in cutting-edge technologies that are both environmentally friendly and safe for the operators. 17 This equipment must comply with a significant number of demanding safety and environmental standards. For this reason, new players need to obtain product certification before they can be introduced on the market. A summary of key regulations and standards in force is provided below: > European Directive 2006/42/EC (the amended "Machinery Directive" entered in effect on December 29, 2009) setting key European requirements for agricultural equipment manufacturers. For sprayers, this Directive is based on EN ISO 4254, parts I and VI; > Amendment to the Machinery Directive (Directive 2009/127/EC adopted by the European Parliament on April 22, 2009). This amendment that concerns only sprayers, supplements requirements laid down by the directive on machine safety with a specific section on the "Environment". Beginning on December 15, 2011, new sprayers marketed in the EU must comply with these new environmental standards; > Directive 2009/128/EC on the sustainable use of pesticides (adopted by the European Parliament in January 2009) establishes a framework for Community action with respect to use of plant health products within Europe, through measures such as user training, obligatory inspection of sprayers, phytosanitary effluent management, adherence to best practices, etc; > Obligatory operating safety certification for high-clearance tractors, self-propelled vehicles and trailed sprayers, both in France and other European countries (a long and costly procedure); > Decree of September 12, 2006 on the use of phytosanitary products that notably encourages manufacturers to offer sprayers in France meeting new requirements for tank filling (overflow prevention systems), dilution of tank bottom residue and reduction of spray drift. > New French "Water Act", adopted on December 20, 2006, that has imposed a requirement for regular technical inspections (every 5 years) of all sprayers, mandatory since January 1, 2009; > The Ecophyto 2018 action plan adopted by the French government to reduce the use of plant health (phytosanitary) products by half, if possible, and strengthen prevention measures in the area of user safety and health. All these requirements impose high precision in applying plant health products and consistent performance in delivering "the right dose in the right place at the right time". For example, nozzle flow must not vary by more than 5% from nominal flow, and transversal distribution under the boom must be perfectly uniform (<7% variance). Sprayers must consequently be reliable, ready for use at all times and easy to rapidly adjust for each new application. 1.1.1 - Agriculture Sprayers are the most frequently used equipment after tractors. They are used nearly eight months out of the year to perform 4 to 20 treatments depending on the type of crop. The reliability of the spraying equipment guarantees the quality and yield of the crop and is the decisive factor in the effectiveness of all plant care products. The annual cost of the spraying equipment is often less than 5% of the annual plant protection budget for which it is a key component. We therefore understand the importance of its performance quality in contributing to controlling optimizing farmers' operating costs. Faced with the new challenges of globalization and changing agricultural subsidy policies (in particular the EU's Common Agricultural Policy), it is increasingly important for farmers to effectively identify and manage mechanization-related costs. The focus on productivity per hectare is gradually shifting in favor of human productivity. This new challenge entails: > simplified crop itineraries (no-till direct seeding, for example); 18 > sustainable or integrated farming; > spraying that is: • more accurate (GPS connections to adjust quantities according to requirements in the field), • faster (reducing time required to cover larger farms), • safer and more reliable (adapting and meeting specified requirements for quantities for improved efficiency), • better managed (preprogrammed treatment for more efficient delivery), • traceability ensured (providing tools if required to demonstrate proper compliance with regulations). Spraying equipment may be motorized (self-propelled), carried or trailed by a tractor. Self-propelled sprayers are fitted with a fully equipped cabin for driver comfort which may even be air-conditioned. High-clearance tractors are particularly well suited to wine-growing and vegetable production. An agricultural sprayer costs between €2,000 and €150,000 depending on the size, performance and degree of sophistication. For the most elaborate, functions (unfolding, geometry, height, etc.) may be remotely controlled from the cabin and even regulated electronically both during the preparation (filling, dosage, mixing, cleaning, etc.) and crop spraying phases (automatic regulation of the output per hectare), regardless of changes in operating speed, the actual width of the spraying of the boom, etc. All these improvements fall within the scope of "sustainable and precision farming" that respects the nutritional quality of food products, health and the environment, where spraying equipment plays a major role. For fertilizers and plant care products different spraying techniques are used. For example: > Air blast sprayers: droplets are created by pressurization of the liquid (2 to 50 bars); > Aero-convection or carried jet: droplets generated by the pressure of the liquid are transported by a stream of air created by a ventilator. It is often used in arboriculture to ensure the droplets reach the depth of the foliage; > Pneumatic: this form of spraying is produced by the high air speed (several hundred km per hour) generated by a centrifugal ventilator which also sprays the liquid arriving at the center of the air jet. This technique is used in vineyards or crops needing a strong penetration at a highly localized position; > Centrifugal: the liquid directed without pressure to the center of a disc carried at high speed by an electric motor, is sprayed on its periphery. The size of the drops is directly related to the speed of the disc which provides a highly homogeneous spectrum of droplets. This technique is used to apply much more concentrated products (with ten times less water transported) for example to treat cotton in Africa by using wind drift. A broad range of spraying equipment is offered by each of the Group’s main brands: Berthoud, Caruelle, Evrard, Hardi, Matrot, Nicolas, Seguip, Thomas and Tecnoma, to cover all market requirements. 1.1.2 - In vegetable gardens, greenhouses and market gardens Backpack and hand-held sprayers can be used for treatment to ensure the quality of fruit and vegetables. 1.1.3- In private parks and domestic gardens Hand-held spraying equipment (with a trigger or compressed air) enables gardeners to give ornamental plants all the plant health products they need. EXEL distributes a complete range of hand-held spraying equipment under its different brand names, Berthoud, Cooper Pegler, Peras, Tecnoma, as well as distributor brands. 19 1.1.4 - Description of Group companies EXEL Industries has 14 direct subsidiaries: Tecnoma, Berthoud, Caruelle-Nicolas, Hardi, Préciculture, CMC, Vermorel, EMC, Agrifac, Matrot, Herriau, Capagri, Moreau, and EXEL gsa: Tecnoma Technologies, based in Epernay in the Marne region, designs, manufactures and markets a wide range of agricultural spraying equipment under the Tecnoma brand name. In addition, it distributes highclearance tractors for vineyards used for mainly spraying under the Tecnoma, Loiseau and Viti label brand names. It also manufactures and distributes components for other companies, and in particular Group companies (tanks, injection components, etc.). The company had sales of €51.72 million in the period, up from €43.2 million in the prior financial year. Berthoud Agricole, located in Belleville-sur-Saône in the Rhone region, designs, manufactures and markets agricultural spraying equipment for large-scale farming, vineyards, and fruit trees. The Berthoud range covers all market requirements with over 120 product groups. Berthoud, the leading brand on the French market, recorded sales of €56 million in the period compared with €41.6 million the previous year. CARUELLE-NICOLAS, located in Saint-Denis de l’Hôtel in the Loiret region, designs, manufactures and markets spraying equipment sold under its four brand names: Caruelle and Seguip (spraying equipment with booms for large farms) and Nicolas and Thomas (turbine driven sprayers used to treat vineyards and fruit trees). It had sales of €17.2 million in the period compared with €15.8 million in the previous year. The Hardi Group, with its head office in Taastrup in Denmark, designs, manufactures and markets a very broad range of sprayers for large-scale farming, vineyards, fruit orchards, golf courses, parks and gardens. The Hardi Group is comprised of 9 companies throughout the world. This includes HARDI-EVRARD AND HARDI SERVICE in France, as well as eight production sites in Denmark, France, Australia, USA and Spain. This makes Hardi the leading world brand for agricultural spraying equipment. The HARDI Group posted sales of €161.8 million in the period, up from €133.6 million in the previous financial year. Préciculture, based in Fère-Champenoise in the Marne region, designs and manufactures self-propelled chassis for the BERTHOUD, CARUELLE, SEGUIP and TECNOMA brands. Each company then installs its own spraying equipment on the chassis and markets the end product: a self-propelled sprayer. Préciculture also manufactures high-clearance tractors marketed by CMC and Tecnoma, which equip them with spraying equipment. It posted sales of €35.6 million in the period compared with €29.3 million in the previous year. CMC (Constructions Mécaniques Champenoises), established at Epernay in the Marne department, joined the EXEL Industries Group in July 2006. It markets a complete range of high-clearance tractors for use in vineyards. The company had sales of €1.7 million in the period compared with €2.9 million in the previous year. Vermorel, based in Ploiesti in Romania, manufactures and markets spraying equipment for the Group. Its sales during the period totaled €2.7 million, compared with €2 million in the previous year. EMC, based in Volgograd in Russia, manufactures and markets spraying equipment for the Russian market. EMC's sales for the period amounted to €6.4 million, up from €4.5 million in the previous year. 20 The Agrifac Group, headquartered in Steenwijk in the Netherlands, was acquired at the end of FY 2012. It manufactures and markets a wide range of sprayers, sugar beet harvesters, potato harvesters and drainage cleaners. There are three companies in the group, including the production site in the Netherlands and the two sales subsidiaries located in the United Kingdom and Russia. Consolidated in EXEL Industries' financial statements for two months (since 01/07/2012), Agrifac posted sales of €4.8 million for FY 2011-2012. Matrot Equipements is the market leader in France in the manufacture of self-propelled agricultural equipment. Matrot Equipements, based in Noyers Saint-Martin (60), mainly manufactures two product ranges: selfpropelled beet harvesters and self-propelled sprayers. It had sales of €31.4 million in the period compared with €19.8 million in the previous year. Herriau, acquired in January 2003, is based at Noyelles-sur-Escault in France's Nord Pas de Calais region. It markets self-propelled high-end seeders. The company posted sales of €1.3 million in the period compared with €1.2 million in the previous year. Capagri, located in Maizy in the Aisne region, manufactures conveyor belts. It had sales of €1.3 million in the period compared with €1.4 million in the previous year. Moreau, also based in Noyelles-sur-Escault in the Nord Pas de Calais region, joined the Group in July 2007. It is the French leader in self-propelled sugar beet harvesters. It also designs, manufactures and markets beach cleaners. Moreau recorded sales of €11.2 million in the period compared with €13.2 million in the previous year. EXEL gsa is based in Villefranche-sur-Saône in the Rhône region. It designs, assembles and markets backpack and hand-held spraying equipment for semi-professional users and gardeners, drawing and watering pumps and a range of fogging equipment. The company also offers alternatives to sprayers for weeding, in the form of thermal and electric weeders. EXEL gsa's products are distributed through all specialized and traditional sales networks in France and other countries. The company has a significant market share in France through its different consumer brands that include Berthoud, Tecnoma, Peras and Laser. It had sales of €22.5 million in the period compared with €22.8 million in the previous year. 1.2 - MATERIALS PROTECTION EXEL Industries provides materials protection through spaying applications in two areas: > Industrial equipment for the application of paint and viscous products; > Elimination of dust and odors. 1.2.1 - Industrial equipment for applying paint and viscous products Manufacturing spraying equipment for paint and other products (varnish, glue, coatings, etc.) requires the same basic technologies as those used in spraying for plant protection. EXEL Industries is positioned as a provider of technologies that help customers reduce the quantity of products used in spraying applications. As such, it offers equipment with a particularly high rate of transfer, i.e. the ratio of the product actually deposited on the item to the total amount used. The cost of products used over a year often 21 amount to 20 times the cost of the spraying application equipment. Today the Group has two brands in this market with clearly defined positions: > Kremlin Rexson for liquid and viscous applications; > Sames for electrostatic applications. KREMLIN REXSON posted consolidated sales of €89.8 million in the period, up from €74.5 million in the previous year. KREMLIN REXSON is the Group brand specialized in the application of liquid products for industrial finishing. Its pumps and pistols are designed to spray a range of products including paint, varnish and other coatings. > KREMLIN REXSON'S spraying equipment significantly improves productivity by reducing paint consumption, while protecting the environment and the operator's health by reducing paint fume emissions, > Its wide range of products is intended solely for professional use and covers all customer needs. The main areas of usage for these spray guns are the wood, metal, plastics and transport industries. Kremlin REXSON uses a number of different spray-painting techniques: • "pneumatic" (air speed); • "airless" (pump pressure); • "airmix" (combining the two previous techniques). Each spray gun model is available in manual and automated versions that are able to be mounted on painting robots. KREMLIN REXSON is also the Group brand specialized in viscous products for industrial applications (glue, coatings, paste, etc.). KREMLIN REXSON offers high-yield applications that are often automated. Its products are mainly used in the automotive, metallurgy and aeronautics industries, etc. SAMES is the Group brand specialized in equipment and integrated solutions for electrostatic spraying of paint in liquid or powder form. Based near Grenoble, it is the world No. 2 in this market segment with international sales accounting for more than three quarters of its sales. For FY 2011-12, Sames had consolidated sales of €77.2 million, up from €58.2 million in the previous year. As a highly innovative company and a pioneer of electrostatic spraying techniques, Sames has numerous patents with 16% of its workforce devoted to R&D. Its technology involves giving an electrostatic charge to each paint particle making it possible to paint all sides of components simultaneously. Its equipment and systems are used by general industry (30% of sales) and by the automotive industry (70% of sales) in their vehicle painting and varnishing lines. Using its advanced technologies, Sames has also created new, very powerful, miniaturized electrostatic generators, capable of removing ultrafine industrial dust before being released into the atmosphere. Sames' main product ranges are: > Complete solutions for robot painting lines for the car industry; > Electrostatic spraying equipment mounted on multi-axis robots; > Electrostatic powdered paint atomizers; > Electrostatic liquid paint atomizers; > Powder coating booths; > High voltage generators. Kremlin-Rexson and Sames full range of products are also marketed throughout the world through the 22 Group's many subsidiaries (Europe, North and South America, China, India, Singapore and South Africa). 1.2.2 - Elimination of dust and odors RAM Environnement, located in Saint-Denis de l'Hôtel in the Loiret region, is a well-known specialist in dust elimination using the spraying techniques of its RAM (Molecular Action Reduction) equipment. The RAM process has the ability to capture very fine "alveolar" dust that is invisible and a danger to health (pneumoconiosis, silicosis, etc.). RAM's markets cover all industries concerned with extracting, handling and breaking up ore and minerals (quarries, mines, steel plants, ore terminals, etc.), demolition industries and all food processing industries (agricultural cooperatives, port terminal grains silos, sugar and starch refineries, etc.). In addition to dust removal, RAM also specializes in eliminating odors. Its ODO-RAM system, specifically developed for this purpose, is perfectly suited to a wide range of uses: factory olfactory emissions, waste disposal centers, water treatment plants, etc. RAM equips installations throughout the world. It had sales of €1.5 million in the period compared with €1.8 million in the previous year. 2 - Market, competition EXEL Industries operate in three markets: > the agricultural market with large-scale farms, arboriculture and wine growing, etc.; > industrial markets: all companies are concerned in varying degrees by spraying and the application of paint, varnish and glue, etc.; > the consumer market (retail and wholesale) with backpack and hand-held sprayers, water drawing systems, and thermal and electric weeders for semi-professionals and gardeners. Its presence in three different markets reduces the Group's overall exposure to cyclical variations and their seasonal effects. 2.1 - THE AGRICULTURAL MARKET With its many brands, EXEL Industries is the world leader in the market for agricultural spraying. The size of the installed base of agricultural spraying equipment is currently going through a phase of contraction. However, this trend is being offset by a rise in equipment unit prices in response to: > Increasing sizes of farms through the consolidation of farm units driving demand for larger and higherperformance equipment; > Increasing treatment speed and precision from the contributions of new technologies; > Growing mechanization of agriculture to achieve higher productivity and meet today's challenges: • reduce production costs, • meet growing demand for agricultural products even though the volume of arable land is relatively stable worldwide; > Increasing environmental and safety requirements. Sales of agricultural sprayers can depend on several factors: > The price of agricultural products; > Growth in demand for agricultural products, resulting from an increase in the size, standard of living and dietary habits of the world's population as well as the rapid development of non-food uses (biofuels, 23 bioplastics, biomaterials, biomedicines, etc.); > Stagnation in the availability of usable farm land requiring productivity increases to keep pace with demand; > Climatic conditions impacting crop quality and abundance; > The level of agricultural subsidies (Common Agricultural Policy, World Trade Organization negotiations, etc.); > Developments in farming production costs (price of energy, fertilizers, pesticides, seeds, etc.); > The ability of farmers to obtain financing; > Regulatory developments. A number of regulatory developments may contribute to a renewal of the installed base of agricultural spraying equipment: > New French "Water Act", adopted on December 20, 2006. Since January 1, 2009, this Act has made regular (every 5 years) technical inspections of all operating sprayers mandatory in France. This should encourage the renewal or refurbishing of farming spraying machinery in use; > The amendment of the Machinery Directive (Directive 2009/127/EC) adopted by the European Parliament on April 22, 2009 and effective on December 15, 2011. This amendment supplements requirements laid down by the directive on machine safety by a section on the "Environment"; > Decree of September 11, 2006 on the use of phytosanitary products that notably encourages farmers in France to purchase spraying equipment that meets the new requirements for tank filling (overflow prevention systems), dilution of tank bottom residue and reduction of spray drift; > Draft regulation to allow sprayers trailed by a tractor to operate at speeds of up to 40km/h, compared with 25 km/h today; > The Ecophyto 2018 action plan adopted by the French government to reduce the use of plant health (phytosanitary) products by half, if possible, and strengthen prevention measures in the area of user safety and health. Lastly, significant investments made to modernize agricultural operations in Central and Eastern European countries provide opportunities for attractive medium term growth potential for the sales of agricultural sprayers. For that reason EXEL Industries has established a subsidiary in Russia and a production and marketing site in Romania. EXEL Industries' main competitors are: John Deere (United States) tractor manufacturer which is aiming to build a full line of products; Jacto (Brazil) for large scale cultivation, vines and trees; Amazone (Germany) for large scale cultivation; Kuhn, subsidiary of the Bucher Group (Switzerland) that seeks to develop up a wide range in large scale farming sector. However, EXEL Industries is currently the only pure player on a global scale with the ability to cover the full range of farmers' requirements. 24 2.2 - THE CONSUMER MARKET FOR SPRAYING EQUIPMENT The world consumer spraying equipment market is valued at in excess of €200 million* and EXEL Industries Group is positioned as the market leader. Long-term growth prospects in Europe, with France as one of its main markets, remain positive. This outlook is supported by several trends: > Increased leisure and free time contributing to a renewed and healthy interest in nature; > Increasing longevity and larger number of older people leading to a rise in the number of people engaged in gardening; > With balconies and patios, vegetation is becoming fully integrated into the home and new trends are developing; > Changes in consumer behavior have led to renewed interest in private vegetable gardens; > Lastly, we estimate that less than one-third of users are adequately equipped. With a 60% market share in France (source: Nielsen, 2010) and present in all distribution channels, EXEL Industries is well-positioned to benefit from these trends. The Group thus operates in a sector where the installed base for the gardening market has considerable room for continued expansion particularly for constant pressure and hand-held manual compression sprayers. The main competitors in this market are: > Hozelock (UK); > Matabi (Spain); > Gloria and Mesto (Germany); > Selected Italian and Chinese companies. 2.3 - THE INDUSTRIAL MARKET Through its subsidiaries Kremlin-Rexson and Sames, EXEL Industries is No. 1 in France and No. 3 worldwide* in materials protection. Trends for the market for industrial sprayers are dependent on: > Worldwide economic growth; > The addition of new production capacity in the global market (particularly in emerging countries); > The need for "clean" solutions to comply with environmental requirements (legislation on emissions of Volatile Organic Compounds, REACH directive, etc.); > The need for higher performance sprayers to improve productivity and profitability for users. A number of major developments concern this last point: > Increasing "transfer rates" (proportion of paint actually applied to the target) to minimize the loss of sprayed products; > Increasing spray flows to paint more quickly and reduce the number of robots used; > The development of new solutions making it possible to paint inside objects (for example car interiors); > Reducing time required to change colors in order to increase production output rates. The main competitors in this market are: > Graco (USA); > ITW (USA) - De Vilbiss, Gema and Binks brands; > Nordson (USA); > Wagner (Germany); > Anest Iwata (Japan); > Dürr (Germany) for electrostatic spraying; 25 > ABB (Switzerland/Sweden) for electrostatic spraying. 3 - Customers - Suppliers 3.1 - THE AGRICULTURAL MARKET Agricultural spraying equipment is sold ex-works to agricultural machinery retailers sometimes called dealerships. They demonstrate, sell and set up new spraying equipment and also provide after-sales services, trade-in and sales of used equipment. Each Group brand develops its own marketing strategy through its own distribution networks. The rationale behind this "multi-brand" and "multi-network" policy is based on: > Geographical market segmentation; > Brand loyalty among farmers; > Maintaining the market share historically developed by each Group brand based on specific arguments and an original marketing mix; > The need to maintain a large selection of several brands of sprayers with decisive differences to increase customer loyalty among the many agricultural equipment distributors through an offering providing differentiation from their competitors. Each of the Group's main brands therefore has its own network made up of several hundred approved and trained distributors. The distribution agreements are renewed on an annual basis. The technical and sales staff of each distributor are required to attend a session lasting several days at one of the Group's approved training centers. The end users of EXEL Industries' spraying equipment are farmers. These include cereal farmers, tree growers, wine growers and market gardeners. Farmers today have a pivotal role in the development of sustainable and eco-friendly agriculture. As part of this trend, they seek to adopt the most sustainable approach for treatment with the goal of producing "clean" products. They also ensure the traceability of treatment operations. Spraying equipment is also used in various exotic or tropical environments such as for cotton production. 3.2 - THE CONSUMER MARKET Gardens, personal vegetable gardens and market gardens represent a sizable consumer base of users for EXEL Industries' hand-held spraying equipment. Spraying equipment is sold under several brands and distributed through specialized mass retailers (DIY superstores, garden centers, agricultural cooperatives, traditional retailers, online and mail order, etc.), hypermarkets and supermarkets and through distributors of technical products for industry. 3.3 - THE INDUSTRIAL MARKET Many industries use EXEL Industries' spaying equipment: > Transport: cars, trains, ships, aerospace, bikes and motorcycles, trucks, buses, etc.; > Metallurgy: machine tools, wind turbines, electrical transformers, construction equipment, farm machinery, structural steel, metal furnishings, maritime containers, kitchen utensils, etc.; > Plastics: packaging, pleasure boats, household electrical appliances, television sets, computers, cell-phones, toys, cosmetics, consumer goods, etc.; > Wood: furniture, joinery, building, musical instruments; > Glassmaking: fragrance bottles, cosmetics, decoration products, windows, etc.; > Leather: clothing, footwear, bags, car seats, etc. 26 Our customers include many prestigious companies: Airbus, Alstom, Areva, Audi,Bang & Olufsen, Bénéteau, Caterpillar, Dacia, Dassault, EDF, Eurocopter, Fagor, Ford, GM, IKEA, Lafarge, Lamborghini, Louis Vuitton, Mahindra, Mercedes, Philips, PSA Peugeot Citroën, Renault-Nissan, Rolls-Royce, Safran, Schneider Electrics, Tata, Tefal, Veolia. No single customer represents a significant share of the Group's consolidated sales. The Rexson and Sames acquisitions have increased the share of EXEL Industries' sales with car manufacturers and their subcontractors that today account for approximately 60% of the materials protection market. For our Group, the automotive industry is a very dynamic customer segment: > Investing heavily in new factories located in regions where there is strong growth in car demand (emerging and newly industrialized countries); > Constantly looking for new sprayer solutions to increase its productivity and profitability. Distribution The painting equipment sales often require demonstrations to present the performances and advantages of the model under consideration. Each sales team, both in France and in the foreign sales subsidiaries, has technicians with the expertise to conduct these demonstrations and train distributors and large industrial users. Products are sold ex-works or prepaid under set terms and conditions through "approved distributors" (active sales including servicing) and "approved resellers" (typical of modern distribution). In addition, industries that are the largest consumers of paint are prospected and monitored directly by the Group's sales engineers with specialized expertise.. This sales approach allows the company to maintain direct and continuous contact with large customer-users, identify issues and priorities in the field and even anticipate future market needs. These factors no doubt contribute to the successful track record of Kremlin, Rexson and Sames as innovators. 3.4 - SUPPLIERS No single supplier accounts for a significant share of the Group's consolidated purchases. There is no risk of dependency on a single supplier. Whenever several suppliers are able to provide the same product to more than one subsidiary, attempts are made to achieve standardization and economies of scale at the group level. As a result, one or more authorized suppliers may be selected for the whole of the Group. Negotiations are carried out by one or more buyers and contribute to securing favorable sales conditions (prices, deadlines, quality, etc.). With regard to the manufacture of agricultural sprayers, the three largest purchase items are: > Mechanized welding: chassis, ramp arms, etc.; > Plastics for the manufacture of tanks or bodywork parts; > Mechanical engineering: engines, cylinders, universal blocks, wheel rims, etc. Manufacturing sprayers or pumps for the industrial market requires sophisticated and very precise industrial techniques (tolerance or surface finish of within a few microns) to ensure no leaks under very high spraying pressures (more than 600 bars). Raw material risks Despite the diversified base of suppliers and large range of raw materials used by the Group, certain items may still be subject to price fluctuations and pressure on supply. 27 For that reason, purchasing departments usually negotiate long-term contracts with major suppliers to ensure future availability, delivery times and prices over subsequent years. 4 - Plant and machinery PRODUCTION TECHNIQUES The main technologies used in the Group's factories are: > Injection and over-injection of synthetic thermoplastic resin; > Machining of metals with great precision (machining center for up to 11 axes); > Rotational molding of tanks and cowling of complex shapes; > Automatic flow and robot-controlled or semi-automatic welding of complex chassis items; > Surface preparation and application of paint (automated electrostatic powdering). PRODUCTION ORGANIZATION All of the Group's factories are organized as autonomous workshops operating on a just-in-time basis. This organization contributes to better responsiveness to seasonal fluctuations in activity and more efficient management of working capital. Moreover, the Group applies lean management practices in its manufacturing plants. Lean management is a process that seeks to optimize the organization and operating efficiencies of our companies. Production sites (worldwide) Company name Address Agrifac Machinery BV Eesveesenweg 15 Owned by Area in square Of which area the Group meters for buildings No 26,667 12,475 Productio 8332 JA Steenwijk n (Netherlands) API Technologies SAS Activity Offices 29 av. Ashton-Under-Lyne Yes 52000 Chaumont Same site as SCM Same site as Productio SCM n Offices Berthoud Agricole SAS 1 rue de l'Industrie Yes 53,419 17,222 Productio 69220 Belleville sur Saöne n Offices 9009 rue du Bois Baron Yes 3,215 Yes 31,000 69220 Belleville sur Saöne CARUELLE NICOLAS SAS 2 rue de l'Industrie 22,300 Productio 45550 St Denis de l'Hôtel n Offices CMC SAS 1 rue Vincent Ballu Yes 51200 Epernay Capagri SAS Route de Villers Yes (via 02160 Maizy SCI) Same site as Same site as Tecnoma Tecnoma 17,400 Offices 3,000 Productio n Offices 28 EXEL gsa SAS ZI Nord Arnas 69400 Villefranche Yes 47,124 12,742 Productio sur n Saône EXEL Industries SA Offices 54 rue Marcel Paul Yes 51200 Epernay Same site as Tecnoma Same site as Group Tecnoma headquar ters Villefranche sur Saône Yes 22,738 - Reserve of (69400) and Saint Jean additiona d'Ardières (69) HARDI l land INTERNATIONAL Helgeshøj allé 38 A/S No - 6,159 Productio 2630 Taastrup (Denmark) n Offices Herthadelvej 10 Yes 155,176 47,062 Productio 4840 Norre alslev (Denmark) n Offices Hardi Australia Cross Keys Road Yes 58,776 15,200 Productio Cavan SA 5094 (Australia) n Offices Hardi US 1500 W 76th Street Yes 80,937 9,145 Productio Davenport (USA) n Offices Ilemo Hardi (Spain) Poligono Industrial "El Segre" No 13,182 6,007 Productio 25080 Lleida (Spain) n Offices Hardi Evrard SAS 43 rue Cuivre Yes 13,827 5,182 Productio 77542 Savigny le Temple n Offices Rue du 21 mai 1940 Yes 62,697 16,911 Productio 62990 Beaurainville n Offices Hardi Service SAS 43 rue Cuivre Yes 77542 Savigny le Temple Herriau SAS Rue Pasteur Yes 59159 Noyelles s/Escaut Same site as Same site as Productio Hardi- Hardi- n Evrard in Evrard in Offices Savigny Savigny Same site as Moreau Same site as Productio Moreau n Offices 82 rue de Bonavis Yes (via 59400 Cambrai 73,974 Reserve of SCI) additiona l land Kremlin Rexson SA 150 av. de Stalingrad Yes 30,000 14,000 Productio 93240 Stains n Offices 29 av. Ashton-Under-Lyne Yes 29 70,000 22,000 52000 Chaumont Matrot Equipements SAS 116 rue des Pommiers Yes 50,000 25,000 Productio 60480 Noyers St Martin n Offices 02420 Gouy le Catelet Moreau SAS Rue Pasteur 59159 Noyelles s/Escaut Yes 7,500 Yes (via 40,000 20,000 Productio SCI) n Offices Préciculture SAS 165 rue des Verriers Acquisiti 51230 Fère Champenoise RAM Environnement SAS 2 rue de l'Industrie n progress Offices Yes 13 chemin de Malacher 9,471 Productio on in 45550 St Denis de l'Hôtel Sames Technologies SAS 32,248 Yes 1,600 1,300 Productio Same site as Same site as n Caruelle Caruelle Offices 28,000 10,800 Productio 38240 Meylan n Offices SCM SAS 29, av. Ashton-Under-Lyne Yes 52000 Chaumont Tecnoma Technologies SAS Same site as Same site as Productio API 54 rue Marcel Paul Yes 36,500 API n 18,500 Productio 51200 Epernay n Offices Note: - none of the properties belongs directly or indirectly to executive officers of the EXEL Industries Group or members of their families; - none of the rented properties belong to executive officers of the EXEL Industries Group. Distribution sites: The Group's distribution subsidiaries outside of France are all tenants of their premises, except the subsidiaries in Spain, the US and Australia, which occupy premises owned by the Group. 5 - Capital investments 5.1 - SUMMARY OF CAPITAL INVESTMENTS 2007 - 2012 (€ millions) 2007 Capital expenditures for property, plant and equipment and intangible assets Non-current financial assets 2008 2009 2010 5.7 8.6 9.9 20.3 0.6 40.0 0.0 0.0 2011 2012 11.9 0.0 8.5 (a) 0.1 5.2 - MAIN CAPITAL EXPENDITURES (a) In the last fiscal year, Group capital expenditures amounted to more than €8.5 million. The main capital expenditures included: fit-out of test laboratories at Sames; 30 Purchase of machine tools and industrial fixtures, notably for BERTHOUD Agricole, EXEL gsa, KREMLIN REXSON, SAMES, TECNOMA, PRÉCICULTURE and Hardi. These capital expenditures were in large part financed from equity. 6 - Insurance To provide optimal coverage for risks incurred by the Group, EXEL Industries has had an international insurance program for property damage and business interruption and civil liability (RC) in place since September 1, 2008. The purpose of this program is to ensure that all subsidiaries in France and other countries benefit from optimal premium rates available at a Group level and to achieve harmonized coverage and deductibles at the best costs. In connection with this international program, each of the participating subsidiaries is in turn charged the corresponding premium amount by our company. During the current fiscal year we will examine the inclusion of the newly acquired Agrifac Machinery BV and Hozelock, optimizing the conditions whenever possible. At the same time, EXEL Industries maintains Group insurance cover in the following areas: Type of insurance Main cover Property damage and business interruption (International Program) All risks subject to named exclusions Civil Liability (International Program) All risks subject to named exclusions Directors and Officers liability Coverage for claims of liability against directors and officers Automobile fleet Full coverage for vehicle damage < 3.5 t (period < 4 years) Full coverage for vehicle damage > 3.5 t (period < 7 years) Employee vehicle coverage Use of personal vehicles by employees for professional purposes Individual accident and assistance insurance Individual accidents and assistance insurance for employees (in France and other countries) Professional comprehensive insurance (vehicle driving risks) Coverage for agricultural equipment loaned or made available Coverage for testing new agricultural equipment 31 MANAGEMENT DISCUSSION AND ANALYSIS 1 - Annual highlights 2 - Events after the reporting period and outlook 3 - Research and Development 4 - Sustainable development, industrial and environmental risks 5 - Review of operations, consolidated and parent company separate financial statements 6 - Market risks 7 - Exceptional items and litigation 8 - Changes in share capital in the period 9 - Appropriation of net income of the period 10 - Information on corporate officers 11 - Change in accounting method 12 - Parent company results and five-year financial summary 32 33 33 33 38 42 44 47 47 51 51 53 53 1 - Annual highlights In FY 2011-2012, EXEL Industries' consolidated sales grew 22%: the Materials segment was up 23%, while Plant Protection gained 22%. EXEL grew international sales by 21%, compared with gains of 24% in the French market. For EXEL Industries Group as a whole, export sales accounted for 60% of annual sales. At €33.1 million, current operating income increased by €12.9 million, accounting for 6.3% of sales (vs. 4.7% in 2010-2011), boosted by a volume effect on margins and good control of fixed costs. Net income came to €26.1 million, compared with €13.1 million for the previous fiscal year, giving net earnings per share of €3.85 (vs. €1.93 the previous year). Shareholders' equity at the end of the fiscal year rose €25.3 million to €212.3 million, representing 50% of total assets. WCR improved from 98 days of sales in FY 2011 to 86 days in 2012 against a backdrop of strong business growth. Our operations allowed us to reduce net debt by €17.2 million during the fiscal year. Net cash (cash - debt) amounted to €4.7 million, compared with net debt of €12.5 million in 2010-2011. 2 - Events after the reporting period and outlook Guerric Ballu, EXEL Industries Group CEO, comments: "The Group is seeing the benefit of sales coming from our acquisitions of AGRIFAC and HOZELOCK (acquired in October 2012) in Q1 2012-2013, as we continue to grow sales: up 18% compared with 2011-2012. The October 2012 acquisition of HOZELOCK is of strategic importance for EXEL Industries and strengthens our position in the Consumer market. Hozelock will be consolidated in our 2012-2103 financial statements and provides EXEL Industries with the opportunity to further balance its market portfolio and reduce its exposure to cyclical variations while contributing to profitable and sustainable growth. Although sales in the Materials segment are down, they are resilient in Agriculture. Against the backdrop of the economic crisis with a particularly severe impact on the automotive sector, we remain cautious regarding the level of sales growth for this year." 3 - Research and development 3.1 - A culture of innovation Since its creation, EXEL Industries has been a pioneer in developing technologies in its core business of spraying. Research and innovation have been a key driver of the growth and success of the various EXEL Industries businesses. This is a worldwide strategic strong point that allows the Group's products to dominate the most 33 difficult markets. In a particularly competitive market, research and development and an ongoing technology watch have enabled EXEL Group Industries to remain a leader in the three markets of the spraying business: farming, industry and the consumer markets. Each year, at least five new patents are filed in numerous countries. In fiscal 2011-2011, three patents were filed. At least 6% of our employees are permanently employed on R&D projects. Research and development expenditures are recognized as ordinary annual operating expenses and therefore not capitalized as assets, except on an exceptional basis. Furthermore, to optimize the management of research and development expenditures, the Group uses the system for research tax credits available in France. IN THE PLANT PROTECTION MARKET • Products for large-scale farms and vineyards In order to consistently respond in the best possible way to new market expectations, EXEL Industries' research and development is based on: greater precision in applying and aiming the drops on the target; greater safety for the operator; greater comfort in operation, usage, adjustment through the development of assistance systems; greater environmental protection; greater longevity and reliability of equipment. Some noteworthy examples of innovations include: Self-propelling booth mounted on hydraulic rails with access from the ground (LASER FC); 4-component electro-pneumatic carried jet system (OPTI-SPRAY); New variable-width chassis (225 to 320 cm) for use with all crops (WideTrackPlus); New chassis with clearance ranging from 125 to 200 cm for tall crops (ClearancePlus); A new exclusive system fully automating the process of opening and closing spraying booms (Press'n'Go). Innovation Award at the Innovagri 2010 trade fair; A new application system using air-assisted technology for precision spraying (IRIS). FIMA 2010 Innovation Award; Automatic driving of the self-propelled sprayer to allow the operator to concentrate solely on the operating settings. This "automatic pilot" operates when receiving a DGPS or RTK signal and may be disconnected at any time by the operator; Automatic management of the ramp height through ultrasound sensors (AutoHeight); Lift and chain system providing a wide range of spray heights from 0.5m to 3.15m (Twin Lift); Bi-turbine centrifugal pumps that are easier to clean and more economic in fuel consumption (Omega); An interlined air jet system for spraying in vineyard rows making it possible to significantly reduce doses of plant care products (Précijet); Air-assisted spraying that will enable drift from the sprayed products to be very significantly reduced (Twin); "Automotive" drive that allows self-propelled sprayers to be controlled by both hand and foot; Filling management system which prevents tank overflow and assists the operator to adjust the sprayer (Novaflow); 34 Filling the sprayer's main tank via an intermediate tank to avoid any risk of contamination (O'Clear); System that recycles the air in the sprayer's cabin and prevents any air entering from outside during spraying work for better operator protection (Clinair); Guiding systems, section management and dose modulation coupled with GPS mapping of the field; Automatic sequential rinsing system for the whole spraying cycle (Autonet); Automatic follow-up system for the ramp and system for keeping the chassis of the self-propelled sprayer horizontal (Stabilis); Telescopic booms for narrow or wide vineyards; Sugar beet cleaning system which cuts tare weight by half (Rotonet); Digital system for controlling the working depth of the leaf stripper and stripper chassis (Positronic 2). This culture of innovation also contributes to regular launches of new product lines. In 2012 alone launches by the Group is included: A new carried spraying system with the option of a tight swivel circle (Twist’Air); A new range of spraying products that are easy to handle and adjust (OSPRAY); A new range of trailed sprayers (Lunis); Renewed range of VITIS tractors; New self-propelled LASER FC. With this track record, the Group's products are regularly singled out for their performance, exemplified by Matrot's world record (122 ha sprayed in one hour) with a standard model Maestria 23-45, or the many awards received by the Group's products at trade shows. • The consumer market Such innovations are based on the creation of original product ranges offering new performance features while continuing to meet user needs with: improved ergonomics, comfort and safety; a visual-based approach for easier use and understanding of functions; greater robustness and reliability; a marketing approach using design and color to increase product attractiveness for customers. EXEL Industries is in this way pursuing its strategy of developing in the upmarket segment as a means of differentiation with competitors. • Selected innovations: Electric thermal shock weeder (Green Power); Gas thermal sprayer and weeder; Small hand-held manual compression 1.5 l sprayer, ergonomic and user-friendly (Pulsar). This new product had received several French awards: the "Trophée d'Or Promojardin 2008' and the "Trophée de la Maison 2008"; Multi-purpose evacuation pump: it enables, through very easy handling, the sucking up of clean ground water or sewage and so avoids the necessity of purchasing several traditional pumps (Flowmax Multi); Consumer market sprayer for one-off weeding in the form of a "cane", providing unrivaled user comfort for removing weeds without stooping (Herbastop and Wonderweed); Sprayers with rechargeable batteries (Libertis); Electronically regulated watering pumps (Olympia); Professional sprayer in stainless steel or steel-epoxy for intensive industrial or chemical use or building 35 trades (Laser); Constant pressure syringe sprayer for home and garden use (Seringa). THE MATERIALS PROTECTION MARKET To be able to meet all our customers' needs, there are four key research priorities: introduction of new products (paints, varnishes, dyes, glues, fillers etc.); higher transfer rates (the proportion of paint that is actually applied to its target); improved customer productivity (reducing time for changing colors, increase in spray flows, etc.); environmental protection through responsible energy use and controlling VOC (Volatile Organic Compound) emissions. The paint finishing stage, long the poor relation in the production process, is now often integrated into a quality process and continues to gain in importance. For a product to sell, it must be visually perfect. This requires use of high-quality sprayers. Kremlin-Rexson recently launched new product lines that have met with an enthusiastic response by customers: • Spray guns: New generation ASI GTV spray gun To meet new customer needs, the spray gun product circuit was redesigned to increase productivity and triple the effective operation time, compared with older models. Xcite™ paint spray gun: Latest generation of Airmix® spray guns, the Xcite provides a further improved finish quality and offers the possibility of applying up to 86% of paint sprayed onto the part, a record for non-electrostatic sprayers. M22 HTV spray gun: Containing high technology features, this new spray gun enables fluid product to be applied to very complex forms. For example, the vortex effect generates a helicoidal movement of paint particles which then cover parts at distance or those parts that are difficult to reach. It therefore saves time while guaranteeing a perfect finish. M22 WBE spray gun: The M22 WBE is a specialist spray gun for the application of enamels and highly loaded hydro-soluble paints. Its strengths: very high standard quality of finish and above all exceptional reliability that is 4 times higher than average as well as very rapid maintenance. This new spray gun is particularly suited to high output rates. S3 manual spray gun: Small and light (390 g), it is ideal for precise work in sectors such as wood, metal or plastics-processing. • Pumps: New EOS pump range: The latest generation of KREMLIN REXSON spray pump guns are the first to be offered in phosphor and black colors, especially designed to be seen even in the darkest work areas. Their innovative design offers high performance and easy-to-maintain features, requiring a minimum quantity of solvents for a more eco-friendly product. Finally, they are equipped with a new motor providing optimal control flow and smooth and steady handling for even better spraying performance. PU 3000 pump: Simple and quick to use (Plug & Spray), the PU 3000 has electronic regulation for continuous and precise control of applications and monitoring of actual product consumption and emissions of VOCs. PU 2160 F pump: Ready for using dual-component products simply and economically, it is also particularly well suited to new 36 UV and pre-catalyzed products. INTENSIVES™ 40.25 and 40.50 WBE pumps: These pumps provide a reliable and high performance solution to implement the latest generation of hydrosoluble, high viscosity products, used especially in the wood market. • Examples of new products launched by Sames: Accubell 709 EVO: This new spraying solution for hydro-soluble paints features several innovations: reduced application times per vehicle, reduced quantities of lost paint during color changes and application, broader application spectrum (since Accubell 709 EVO can be used to paint both the interior and exterior of vehicle bodies, as well as plastic parts, such as fenders and wing mirrors), elimination of the need to check the thickness of the layer of paint applied, and lastly, a guarantee of performance, regardless of the ambient humidity and temperature. A new PPH 707-EXT atomizer: The latest generation of electrostatic external charge atomizers, the PPH 707-EXT uses our exclusive new Hi-TE (High Transfer Efficiency) spraying technology, offering significant savings in paint consumption (with transfer rates of up to 95%) while retaining high quality finishing capabilities. These features of the PPH 707 EXT establish its position as an industry benchmark for external charge sprayers. Inobell sprayer: Inobell is the first powder paint sprayer in the world to use a rotating bell. This technology, until now, only used by liquid paint sprayers, provides both better finish quality and greater flow rate. Inobell should therefore enable Sames to stand out from the competition in the powder paint sprayer market. Nanobell sprayer: Nanobell is a very light (3.3kg) electrostatic liquid paint sprayer used by small multiple axis robots that are less costly than the large robots and are very widely used in a large number of industries. Despite its size, the Nanobell sprayer uses the latest technological advances to provide very high transfer rates (over 90%) and thus enables numerous industries to benefit from technology that has, until now, been the reserve of the automobile sector, at the forefront of paint application. PPH 707-SB sprayer: First new generation sprayer equipped with HST (High Speed Turbine). The technology allows fast paint flow applications (up to 1,000 cc/min), thus increasing productivity. In conjunction with the "Bol/Bol" process, it makes it possible to achieve a perfect color with one of the highest transfer rates available on the market. FCR and MCR lines: These lines offer a "Plug and Spray" concept which Sames intends to extend in future. Customers can order a complete system under a single reference, unpack it, plug it in and start painting. EasyCompact powder coating booth: Through its design (aspiration floor, smooth wall structure, integration of manual work stations, intuitive command interface, etc.), this automatic dusting cabin meets all industry requirements. It enables gains across the whole production cycle: saving powder, rapid cleaning, minimization of color changing time, increased productivity, etc. GNP 800 High Voltage Generator for capturing ultrafine industrial dust. Three times as powerful but only twice as big as the GNP 250, the GNP 800 gives customers an even more effective way to meet environmental standards concerning factory smoke. 37 As part of its dust removal activity, RAM Environnement created: A system for stabilizing tracks and external stocks to combat wind erosion by controlled precipitation measurement (RAM-SPC) connected to a meteorological center. A spraying system that treats odors (ODO-RAM). An ultra-powerful spraying equipment (TURBO RAM). This equipment is capable of spraying large quantities of liquid up to a distance of 40 meters. Canon output can vary from several dozens of liters per hour to 10,000 l/h. This makes possible either near-total vaporization (for odor treatment or atmospheric humidification), or spraying (for dust removal). A system for dust elimination fitted directly on mechanical excavators used for demolition (RAM-ED). The spray, controlled directly from the cabin of the excavator, makes the dust heavy, causing it to fall to the ground instead of remaining in suspension in the air. RAM-ED is already offered as an option on equipment from Liebherr, and is compatible with most machines from other manufacturers. Lastly, the latest model, launched in 2008 and developed in partnership with Sames, has a dust removal system that uses new technology based on the principle of electrostatic capture (Volta-RAM). This new system ensures optimal results, close to vacuuming, but with much less energy consumption and reduced maintenance. 3.2 - Trademarks and patents In principle, trademarks, patents and models are registered by EXEL Industries; however for historic reasons and in exceptional cases, they may remain the property of some of our subsidiaries. EXEL Industries owns over 204 patents, 237 trademarks and 54 models, protected by EU or international filings. As the main holder of the patents, trademarks and models of the Group, EXEL Industries has granted licenses to its various operating subsidiaries in return for the payment of royalties. The Group does not recognize patents, trademarks and models under assets, apart from those acquired individually or as part of the assets originating from company acquisitions. EXEL Industries has no license granted by a third party and therefore does not pay royalty fees. 4 - Sustainable development, industrial and environmental risks 4.1 - Industrial and environmental risks None of the Group's activities entail significant industrial or environmental risks that could have an adverse impact on its assets or results. All possible precautions are taken for more sensitive activities, such as painting lines or use of solvents for cleaning paint-application equipment used during marketing demonstrations or after-sales service. 38 Concrete measures are starting to be widely adopted within the Group's companies: The use of latest-generation painting installations (powder paints, with high dry-extract or dualcomponent) allowing reduction in emissions of volatile organic components; Replacement in certain of our plants of zinc phosphate used to protect the metallic parts of sprayers from corrosion by an eco-friendly product (OXSILAN®); Reduced use of solvents for cleaning soiled paint-application equipment; The cleaning method (with or without solvent) is now determined on a case-by-case basis; Selective waste sorting and use of approved treatment channels for optimal recycling; Improving the energy performance of our sites (notably investments in more energy-efficient boilers); Reducing travel by staff by investing in new videoconferencing systems for our subsidiaries in France and abroad. 4.2 - Sustainable development: the environment EXEL Industries' innovation strategy forms part of a sustainable development policy. All the Group's laboratories and design departments work in close collaboration with the customers and suppliers within the Group and the sector, as well as with inter-professional associations. R&D contributes to renewing the range of products and services while playing a part in reducing manufacturing costs, improving personal and product safety as well as being more environmentally friendly. In this way, EXEL Industries, as a responsible corporate citizen, is constantly designing more efficient, accurate and elaborate spraying equipment, supporting GPS tracking of product sprayed as part of sustainable, precision farming that respects the environment and the quality of the food we eat. In addition, the increasing focus on the priorities of user safety and environmental protection acts to accelerate the replacement of our equipment. Today, increasing attention is paid to protecting the operator (elimination of the risks of injury or contamination) and the environment (elimination of waste, reducing wastage, residual products and overspray, pollution and neighborhood disruption). These two objectives are an integral part of all our specifications from the moment a new machine enters the design phase. Environmental protection is a core value of EXEL Industries and we are proud to be actors within sectors at the forefront of this issue, as it is our belief that action and innovation are drivers of change. As examples, here are some of our latest innovations in this area: PLANT PROTECTION An interlined air jet spaying system (Précijet). Used for vines, this new system greatly reduces the amount of plant health products used (between 20% and 50% reduction in sprayed product, depending on the previous type of equipment used). Vine spray calibration system (EasyFlo). It delivers more accurate application and limits the loss of products into the environment (up to 10% reduction in sprayed plant health products). ADX nozzles to limit the loss of sprayed products and thus reduce the risk of propagation to surrounding areas (neighboring fields, watercourses, housing, etc.). Control by GPS which allows the spray to be automatically cut when passing over the same spot again and which automatically controls the flow according to the real needs of the plot (as yields vary according to 39 zones, certain parts of a field will have less need of a product than others). Filling the sprayer's main tank via an intermediate tank to avoid any risk of contamination by splashes or discharge to the running water system (O'Clear). System for automatically washing the packaging of concentrated products (Lav'box), the tank (Lav'ton) and the whole of the agricultural sprayer (Autonet), to prevent most discharge of residual products into the natural environment. Residue at the bottom of the tanks is thus reduced as much as possible, then diluted up to 1,000 times before being sprayed on the plants to be treated. Anti-overflow tank filling program controller (Volutis). Given that currently nearly 30% of accidental pollution is caused by tank overflow, this system is all the more important for environmental protection. System that recycles the air in the sprayer's cabin and prevents any air entering from outside during spraying work for better operator protection (Clinair). MATERIALS PROTECTION Design of specific sprayers for new environmentally-friendly paints (hydro-soluble, multi-component, high dry content, powder, etc.). Electronic systems offering full traceability capability for volatile organic compounds (VOCs). Increase of transfer rates in order to reduce paint consumption as much as possible. Our latest generation sprayers offer paint transfer rates of up to 95% (data officially verified by the prestigious German research institute, the IPA*). In addition, the Group works in close association with: FARRE sustainable agricultural forum (Forum de l'Agriculture Raisonnée et Respectueuse de l'Environnement); manufacturers of active or consumable materials sprayed with its equipment: plant care products, paints, glues and varnish, fillers and surfactants; specialized institutions and research centers; international standardization organizations (CEN and ISO). All these factors contribute to the Group's position at the cutting edge of operator and environmental protection. 4.3 - Sustainable development: corporate citizenship and social responsibility In 20 years, EXEL Industries has developed in large part through external growth while retaining its culture as a family business and the focus and energy of a small and mid-sized company, a culture actively transmitted by management to all staff. A grouping of companies on a human scale 40 EXEL Industries today is itself comprised of a group of dynamic small and mid-sized companies. Each company has its own culture and retains this human scale which in turn fosters better relations with suppliers, customers and employees. Accessibility to management facilitated by short reporting lines, contributes to more efficient information flows and promotes workplace motivation and professional development for the maximum number of employees. This decentralized approach that seeks to encourage maximum accountability and promote initiative, accelerates and facilitates decision-making as close as possible to the field resulting in a more flexible and responsive organization. In addition, horizontal and spontaneous coordination of expertise facilitates sharing knowledge and the best practices between management staff who occupy the same function in different companies. An organization and corporate culture that encourages dialog between staff and management The decentralization of authority and the particular culture of family companies also positively contribute to dialog between staff and management adapted to the organization, actual experiences and decision-making processes within each company. The positive working environment and relations between staff and management is reflected by statistics such as the very low turnover rate, the level of absenteeism and an average seniority of employees of more than 14 years. A SOCIALLY RESPONSIBLE CORPORATE CITIZEN EXEL Industries is an open Group that respects its employees and the world around it. Respecting its employees with safety at work is a key Group priority. Training programs and initiatives to raise employee awareness about risks are regularly organized for personnel and their safety coordinators. Respecting the world around it, EXEL Industries is committed to being an equal opportunity employer, combating discrimination (racial, ethnic, religious, sexual or other) and regularly proposing job opportunities to disabled workers. EXEL Industries also seeks to encourage young people to enter the workforce and to assist persons in difficulty to return to active employment. The Group has undertaken a range of initiatives to this end. 41 5 - Review of operations, consolidated and parent company separate financial statements EXEL Industries has continued to exercise two primary activities: Managing and coordinating its direct subsidiaries, all more than 95%-held; Management and supervision of its portfolio of patents, trademarks, designs and models for which it grants operating licenses. 5.1 Consolidated accounts - financial highlights (€ millions) 8/31/2012 Equity attributable to owners of the parent before appropriation of income 8/31/2011 212.2 186.9 Goodwill 25.3 25.2 Net assets (excluding goodwill) 75.2 72.4 Cash and cash equivalents 54.9 44.8 Borrowings (current and non-current) 50.2 57.3 Provisions for contingencies and expenses (current and non-current) 28.4 24.4 525.3 430.1 33.1 20.2 Non-recurring income/ (expenses) 0.4 0.6 Of which impairment of goodwill 0.0 (0.5) 33.5 20.7 4.0 (4.1) Net income from consolidated operations 26.1 13.1 Net income attributable to the equity holders of the parent before appropriation 26.1 13.1 Operating cash flows 36.8 20.6 In euros In euros Net income per share 3.8 1.9 Cash flow per share 5.4 3.0 Revenue (excluding VAT) Current operating income (EBIT) Operating profit Financial income /(expenses) 5.1.1 - INCOME STATEMENT Annual consolidated revenue rose +22.1% from €430.1 million to €525.3 million. Revenue from exports rose +21% from €262.7 million to €317.2 million. International sales accounted for 60% of total revenue, down slightly from 61% in the previous fiscal year. Revenue was boosted by a €7 million positive currency effect from exchange rate increases for selected currencies and notably the US and Australian dollars. Current operating income (EBIT) rose from €20.2 million to €33.1 million after net depreciation allowances 42 and provisions of €12.7 million, compared with €9.5 million in the prior period. Statutory and voluntary employee profit sharing expenses, included under payroll, totaled €2.8 million, up from €2.1 million in the previous fiscal year. Net non-recurring income and expenses amounted to €0.4 million. This primarily includes bad debts recovered. Net financial income amounted to €4 million. This included net borrowing costs of -€1.6 million plus net foreign exchange gains of €5.5 million. Profit before tax rose from €16.6 million to €37.5 million. Tax expense increased from €4 million in the previous period to €12 million. Net income attributable to equity holders of the parent rose 99.4% to €26.1 million, representing a net margin of 5%. 5.1.2 - BALANCE SHEET Equity attributable to the parent increased from €186.9 million to €212.2 million, up €25.3 million and broken down as follows: Total income and expenses recognized in the balance sheet: Distribution of dividends: Change in treasury shares + €28.5 million -€3.3 million + €0.1 million Equity represented 49.5% of the total balance sheet, compared with 51.4% at the end of the previous fiscal year. Provisions for contingencies and expenses (current and non-current) of €28.4 million were set aside or maintained to cover risks identified by the company. Working capital rose €15.2 million from €119.9 million to €135.1 million in response to the following: + Change in shareholders' equity: €25.3 million + Change in provisions: €4.6 million + Change in non-current financial liabilities: - €10.4 million - Change in non-current assets: - €4.3 million Working capital requirements, determined on the basis of net asset values, amounted to €126.4 million at August 31, 2012, up from €118 million at August 31, 2011. This €8.4 million increase reflects: + An increase in current assets (excluding cash and cash equivalents): + 50.8 million - A decrease in current liabilities (excluding provisions & short-term borrowings) - €42.4 million 43 At August 31, 2012, the net cash balance (cash net of current financial liabilities) totaled €8.7 million, or cash and cash equivalents of €54.9 million and current borrowings of €46.2 million. 5.2 - Parent company accounts Parent company financial highlights: 2012 2011 Revenue: €7,536,000 €5,745,000 Operating profit: €6,190,000 €4,750,000 Net financial income/(expense): €14,107,00 0 €6,146,000 Net income: €14,734,00 0 €7,673,000 Financial income includes primarily dividends paid by subsidiaries and interest income from cash and cash equivalents. 5.3 - Analysis of trade payables (see article L441-6-1 and Decree D.441-4 of the French Commercial Code) Total trade payables Fiscal 2012 Fiscal 2011 €283,000 €447,000 Nil Nil Of which due on 09/30 €283,000 €447,000 Of which due on 10/31 Nil Nil Of which past due on 08/31 6 - Market risks After performing a review of risks that could potentially have a material adverse effect on its business, financial position or results (or its ability to meet its targets), the Company considers that there are no risks other than those presented below. 6.1 - Exchange rate and payment risks Most export sales invoiced in euros are covered by COFACE trade credit insurance or cash payment prior to delivery. Sales through foreign retail subsidiaries outside the Euro zone are naturally invoiced in local currencies. Given the importance of billings in US and Australian dollar markets, the Group has exposure to fluctuating exchange rates of these currencies. Trade payables in US dollars owed to French companies of the Group are fully recognized at the closing exchange rate at the end of the financial period. 44 The majority of sales by the Group's foreign subsidiaries to non-Group foreign buyers are in euros. Invoices issued in foreign currencies by French subsidiaries of the Group are converted into euros at the exchange rate in force on the date of delivery. Sales and invoices of French subsidiaries of EXEL Industries to their foreign subsidiaries are in euros. As an exception to this practice, subsidiaries in the US and the UK are invoiced in their respective local currencies and subsidiaries in China in US dollars. Since the end of the 2004-2005 financial period, the Group's general policy has been to hedge significant engineering contracts denominated in a currency other than the euro, mainly in US dollars. In the last fiscal year, there has been no significant contract of this type denominated in a currency other than in euros. The Group has recourse to cash flow hedges for a portion of cash flows in US dollars on a case-by-case basis. At 8/31/2012, trade receivables, cash and cash equivalents and payables of the Group denominated in the main currencies were as follows: IN US DOLLARS: Receivables in US$14,716,000 - Cash in USD US$13,426,000 (*) - Payables in USD US$12,253,000 - Net receivables in USD US$15,889,000 Or €12,599,000 (*) Assets in US dollars are not covered by an exchange rate hedge at the end of the financial year. IN DANISH CROWNS: - Receivables and cash in DKK DKK 48,124,000 - Payables in DKK DKK 187,003,000 - Net receivables in DKK - DKK 138,879,000 Or - €18,638,000 (**) (**) Historically, the Danish Crown has fluctuated within a narrow range of 0.20% relative to the euro. IN POUNDS STERLING: - Receivables and cash in GBP £1,614,00 0 - Payables in GBP £825,000 - Net receivables in GBP £790,000 Or €993,000 IN AUSTRALIAN DOLLARS: - Receivables and cash in AUD AUD 7,903,000 - Payables in AUD AUD 6,623,000 45 AUD 1,280,000 - Net receivables in AUD Or €1,049,000 IN CHINESE YUAN - Receivables and cash in CNY CNY 32,107,000 - Payables in CNY -CNY 21,134,000 - Net receivables in CNY CNY 10,973,000 Or €1,371,000 €5,130,000 Total net receivables in other currencies: Net consolidated foreign exchange gains as at August 31, 2012 totaled €5,544,000. Most of this amount originated from US dollars breaking down as follows: Gains originating from payment delays: €2,486,000 Gains on revaluation of receivables and payables: €1,288,000 Gains on sales of currencies and fluctuations on currencies in bank: €1,770,000 6.2 - Exposure to interest rate risk At August 31, 2012, most borrowings and financial debt at variable rate interest were indexed to the 1- or 3-month Euribor, as appropriate, or equivalent rates, notably in Denmark. At the fiscal year end, total debt and borrowings concerned broke down as follows: Medium-term variable-rate loans and drawdowns on secured medium-term credit facilities: €15,993,00 0 Finance lease liabilities: €1,214,000 Overdrafts and similar facilities: €30,689,00 0 Financial assets (money market funds and other short-term investments) bearing interest at a variable rate amounted to €23,838,000. A 1% increase in the interest rate would have a negative impact on the Group's pretax profit of €240,000. 6.3 - Exposure to equity risk EXEL Industries does not hold, directly or indirectly, shares in listed companies or other financial instruments. 46 The only exception to this are holdings of its own shares in connection with a liquidity agreement with Natixis. At August 31, 2012, EXEL Industries held 6, 641 treasury shares, equating to 0.10% of share capital. 6.4 - Exposure to liquidity risk No loans obtained by EXEL Industries from banks provide for prepayment provisions (covenants). Furthermore, EXEL Industries has good access to credit in light of the number of confirmed credit lines with banks negotiated before the current financial crisis. The Company has performed a specific review of its liquidity risk and considers that it is able to fully honor all its future payment obligations. 7 - Exceptional items and litigation To the best of the Company's knowledge, no exceptional items or litigation exist for which provisions have not been recorded that could have a material adverse effect on its business, financial position or assets and liabilities. There are no other legal, judicial or arbitration proceedings (including any that are pending or threatened of which the company is aware), which may have or have had during the last twelve months, a material effect on the financial position or profitability of the company and/or Group. 8 - Changes in share capital in the period 8.1 - Analysis of share capital at the end of the financial year There have been no changes in the share capital in the last five years and the amount of share capital thus remains unchanged at €16,969,750. However, for information, in the 2007-2008 financial year, a two-for-one stock split of the EXEL Industries share was carried out, reducing the par value per share from €5 to €2.50. OWNERSHIP OF EXEL INDUSTRIES SHARE CAPITAL AND VOTING RIGHTS At 8/31/2010 Shareholder Number of s shares EXEL SAS Patrick Ballu and family shareholders 4,143,489 1,035,221 % of capital 61.04% 15.25% At 8/31/2011 % of voting rights Number of shares 68.61 % 4,158,367 17.28% % of capital 61.26 % 1,018,375 47 15.00% At 8/31/2012 % of voting rights 68.92 % 17.09% Number of shares % of capital % of voting rights 4,158,367 61.26 % 69.04 % 1,018,880 15.01% 17.09% EXEL Industries SA 5,067 0.07% 0.00% 9,083 0.13% 0.00% 6,641 0.10% 0.00% Financial institutions, misc. investors and public 1,604,123 23.63% 14.11% 1,602,075 23.60% 13.99% 1,604,012 23.63% 13.87% TOTAL 6,787,900 100.00% 100.00% 6,787,900 100.00% 100.00% 6,787,900 100.00% 100.00% * EXEL SAS is wholly owned by the family of Patrick Ballu NUMBER OF VOTING RIGHTS: At 8/31/2010 11,957,026 At 8/31/2011 11,907,670 At 8/31/2012 11,906,396 DISCLOSURES ON OWNERSHIP THRESHOLDS: None. SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARE CAPITAL AMONG "FINANCIAL INSTITUTIONS, MISC. INVESTORS AND THE PUBLIC": La Financière de l'Echiquier and Lazard Frères Gestion. SHAREHOLDERS HOLDING MORE THAN 2.5% OF THE SHARE CAPITAL AMONG "FINANCIAL INSTITUTIONS, MISC. INVESTORS AND THE PUBLIC": None. NUMBER OF SHAREHOLDERS (based on the most recent identifiable bearer shares report on 11/20/2012): 1,733 (including 263 registered shareholders). No employee stock ownership plan exists. 8.2 - Authorizations to purchase treasury shares In light of regulations in force, and in accordance with article L225-209 of the French Commercial Code (Code de Commerce) and Commission Regulation (EC) No 2273/2003 of September 22, 2003, and the Information Memorandum, the Annual General Meeting of January 24, 2012 granted the Board of Directors an authorization for a period of 18 months from the date of this Meeting to repurchase shares of the company in accordance with the following terms and conditions: These share buybacks may be carried out in accordance with the limits provided for by laws and regulations applicable at the time of said transactions and in accordance with the purposes and procedures set forth below. The maximum number of shares purchased by the company under this authorization may not exceed 10% of its current share capital. These shares may be acquired on one or more occasions and through any means for the following purposes: 48 Market-making or share liquidity services provided by an Investment Service Provider through a liquidity agreement in compliance with the conduct of business rules recognized by the French securities market regulator, the AMF; Purchasing shares to be retained for future use for payment or exchange in connection with possible acquisitions; The cancellation of all or part of the shares thus acquired; Employee stock option plans (or other share grants to employees) or for debt securities convertible into shares. These shares may be acquired, sold or transferred by any means, on or off market, including involving the use of any derivative financial instruments. The entire share repurchase program may be carried out through block trades. The maximum purchase price may not exceed €80 per share, subject to adjustments linked to corporate actions that may be implemented. In a scenario involving the purchase of 5% of the shares, the maximum amount paid would be €27 million. Shares thus purchased may be held, sold or transferred. In connection with the objective of assuring an orderly market for its shares, the company made use of this authorization to repurchase shares and on August 31, 2012, held 6,641 of said shares. On August 31, 2012, EXEL Industries sold and purchased a certain number of its own shares for the purpose of ensuring the liquidity and an orderly market for its shares: Number of shares at 8/31/2011 9,083 Number of shares repurchased in the financial year ended 8/31/2012 30,278 Shares were purchased at an average price of €33.64 Number of shares sold in the financial year ended 8/31/2012 32,720 Shares were sold at an average price of €32.93 Number of treasury securities held at 8/31/2012 6,641 Furthermore, an authorization was submitted for approval to the next Annual General Meeting of Tuesday, January 22, 2013. Once approved by the shareholders, this authorization will cancel and supersede the authorization granted by the Ordinary General Meeting of January 24, 2012. An Information Memorandum on this share repurchase program has been made available on the websites of both the AMF and EXEL Industries. 8.3 - Authorizations to increase the share capital and issue securities Extraordinary Preferential shareholders' Authorizations granted to subscription meeting the Board rights ESM of 01/24/2012 1. Capital increase (issuance of shares for cash, capitalization of reserves or share premium, the exchange of shares, bonus With or without Maximum nominal value €80 million 49 Authorization Term of s in force validity and Term of the used in FY exercise of authorization (1) 2011-2012 securities 26 months Nil Nil share issues, exercise of warrants) 2. Capital increase through the issuance of shares or securities With or without €80 million 26 months Nil Nil 3. Rights issue reserved for employees (1) As these authorizations were granted to the Board of Directors for a period of validity of 26 months, a new ESM will be called at the end of this term to proceed, if necessary, with their renewal. 8.4 - The market for the issuer's shares Price changes over the past 24 months in the EXEL Industries share, listed in compartment B (mid-caps) of NYSE-Euronext Paris since June 20, 1997, were as follows: EXEL INDUSTRIES SHARE PRICE AND TRADING ACTIVITY: (SOURCE: NYSE-EURONEXT) 12/1/2010 to 11/30/2011 Price in euros Period Trading volume in number of shares Trading volume in € million High Low Closing price December 2010 50,326 1.81 39.30 31.60 38.90 January 2011 59,184 2.47 43.50 38.01 40.58 February 2011 25,182 1.01 42.00 38.85 42.00 March 2011 79,682 3.40 45.00 39.50 43.60 April 2011 28,232 1.25 44.75 42.50 42.80 May 2011 15,891 0.67 42.60 41.20 41.44 June 2011 13,481 0.55 41.75 39.70 41.74 July 2011 12,003 0.52 43.50 41.70 42.91 August 2011 11,404 0.46 43.40 39.40 39.40 September 2011 7,461 0.28 40.00 36.00 36.84 October 2011 3,653 0.13 37.50 35.51 37.00 17,580 0.52 36.99 23.50 26.50 324,079 13.07 45.00 23.50 26.50 November 2011 TOTAL 12/1/2011 to 11/30/2012 Price in euros Period Trading volume in number of shares Trading volume in € million High Low Closing price December 2011 10,993 0.31 31.85 26.20 31.85 January 2012 43,942 1.40 32.90 31.00 31.36 February 2012 30,368 1.05 36.00 31.30 35.50 March 2012 22,242 0.81 37.99 34.00 37.38 April 2012 27,346 1.05 41.20 36.00 36.01 May 2012 8,319 0.31 37.75 35.10 35.56 June 2012 47,997 1.59 35.70 30.59 32.50 July 2012 26,698 0.87 33.45 31.91 32.26 August 2012 9,809 0.33 34.99 32.27 33.55 September 2012 2,885 0.10 35.00 33.53 35.00 33,183 1.25 37.90 34.86 37.85 October 2012 50 November 2012 TOTAL 40,169 1.46 37.90 35.52 36.50 303,951 10.53 41.20 26.20 36.50 9 - Appropriation of net income of the period 9.1 - Income appropriation In light of the consolidated net profit of €26.1 million, we propose that the General Meeting appropriates the net income of the parent company for the year, of €14,734,134, as follows: Distribution of a dividend of €6,516,384 or €0.96 per share (1), duly noting that the legal reserve is already fully funded; Carry forward to retained earnings of the remaining profit of €8,217,750; Thereby increasing the amount of retained earnings to €105,390,967. Furthermore, the Ordinary General Meeting approved the allocation of amounts corresponding to dividends not distributed for EXEL Industries treasury shares held by the company to "Retained Earnings". (1) This dividend will be payable as of January 25, 2013 directly by CM-CIC Securities. 9.2 - Dividends FY Dividend per share 2008/2009 €0.37 per share 2009/2010 €0.64 per share 2010/2011 €0.49 per share 10 - Information on company officers 10.1 - Remuneration and benefits paid in the period to directors and officers of the Group Total gross remuneration paid in fiscal year 2011-2012 by EXEL Industries to its Chairman, Patrick Ballu, and its Chief Executive Officer, Guerric Ballu, amounted to €334,850 (excluding social charges). This remuneration was comprised exclusively of fixed compensation and benefits in kind (car, PC, telephone). Compensation to members of the Management Committee and company officers totaled €4.2 million (including social charges) for the fiscal year ended August 31, 2012, compared with €3.75 million for the previous FY. This remuneration breaks down as follows: 51 €4.2 million Short-term benefits Post-employment benefits - Other long-term benefits - Severance benefits - Share-based payments - Total attendance fees of €80,000 voted by the General Meeting for fiscal 2011-2012 were allocated among the six directors of EXEL Industries. This amount remains unchanged from fiscal 2010-2011. EXEL Industries has not granted any loans, advances, guarantees or security to directors and officers. Holding an employment contract with SA EXEL Industries while at the same time serving as a director or officer is prohibited. Furthermore, they are not entitled to special retirement severance benefits and stock options reserved for senior executives or share-based compensation. 10.2 - Stock options and warrants There are no stock option, stock subscription warrant (BSA) and founder share warrant (BSPCE) plans. 10.3 - Offices and positions exercised by each corporate officer at August 31, 2012 COMPANIES CONCERNED Patrick Ballu Guerric Ballu Marc Ballu Franck Ballu Cyril Ballu Chairman of the Board of Directors (1) CEO Director Chief Executive Officer and Director Deputy Chief Executive Officer Deputy Chief Executive Officer Director + Shareholder's Rep. EI Agrifac Machinery BV (2) API Technologies SAS Chairman's Rep. KR Berthoud Agricole SAS Chairman's Rep. EI (2) (3) Capagri SAS CEO Caruelle Nicolas SAS Chairman's Rep EI (2) CMC SAS Chairman's Rep. EI (2) EXEL SAS Chairman EXEL gsa SAS Hardi A/S Chairman Member of the Board Kremlin Rexson SA Director Deputy Chief Executive Officer Deputy Chief Executive Officer Chairman's Rep. EI (2) CEO Member of the Board Chairman of the Board of Directors RAM Environnement SAS Chairman's Rep. EI (2) Sames Technologies SAS Chairman's Rep. EI (2) SCM SAS Chairman's Rep. KR (3) 52 Deputy Chief Executive Officer Deputy Chief Executive Officer Tecnoma Technologies SAS Chairman's Rep EI (2) Banque CIC Est Director EXPOSIMA SA Director (1) The other corporate officers, who do not fulfill any function other than as Director of EXEL Industries, are not included in the table (2) EI = SA EXEL Industries (3) KR = SA KREMLIN REXSON 11 - Change in accounting method There were no changes in accounting methods in the period under review. 12 - Parent company results and five-year financial summary FY closing date (12 month period) In euros 8/31/2012 8/31/2011 8/31/2010 8/31/2009 8/31/2008 1. CAPITAL AT YEAR-END Share capital 16,969,750 16,969,750 16,969,750 16,969,750 16,969,750 6,787,900 6,787,900 6,787,900 6,787,900 6,787,900 7,536,039 5,745,487 5,081,898 5,293,177 6,032,740 18,707,458 6,938,115 19,934,117 18,759,653 17,989,618 3,386,844 (1,540,258) 3,476,123 (2,220,292) 898,477 - - - - - 586,480 804,892 3,235,636 561,139 (954,546) 14,734,134 7,673,482 13,222,359 20,418,806 18,045,687 - 3,326,071 4,344,256 2,511,523 5,090,925 2.26 1.25 2.42 3.09 Number of shares - ordinary shares - preferred shares Maximum number of potential shares - by conversion of bonds - by exercise of subscription rights II. OPERATING HIGHLIGHTS AND RESULTS Sales excluding VAT Profit before tax, employee profit-sharing, depreciation, amortization and provisions Income tax Employee profit-sharing Depreciation, amortization and provisions Net income Distributed profit III. EARNINGS PER SHARE Profit after tax, employee profit-sharing, before depreciation, amortization and provisions 53 2.52 Profit after tax, employee profit-sharing depreciation, amortization and provisions 2.17 1.13 1.95 3.01 2.66 0.49 0.64 0.37 0.75 6 7 7 7 7 Payroll 467,624 533,900 582,123 525,312 474,322 Social charges and benefits paid (social security, social welfare payments, etc.) 199,186 233,757 239,900 221,688 208,464 Dividend per share IV. PERSONNEL Average number of employees 54 FINANCIAL STATEMENTS Consolidated financial statements I - Consolidated balance sheet at August 31, 2012 II - Consolidated income statement at August 31, 2012 III – Consolidated statement of changes in shareholders' equity IV - Consolidated statement of cash flows V - Notes to the consolidated financial statements Statutory Auditors' report on the consolidated financial statements 56 57 58 59 61 88 Condensed parent company financial statements I.- Balance sheet at August 31, 2012 II.- Income statement III.- Notes to the separate parent company financial statements IV.- Proposed appropriation of net income Statutory Auditors' report on the annual financial statements Statutory Auditors' special report on regulated agreements and commitments 55 90 91 92 101 102 104 CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheet at August 31, 2012 ASSETS (€ thousands) Notes 8/31/2012 8/31/2011 Goodwill 3 25,256 25,173 Intangible assets 4 916 701 Property, plant and equipment 5 71,252 68,925 Investments in associates 6 2,659 2,460 Financial assets 7 344 351 Deferred tax assets 22 10,611 9,158 111,038 106,767 NON-CURRENT ASSETS Total non-current assets CURRENT ASSETS Inventories and work-in-progress 8 143,885 117,613 Trade receivables 9 102,471 79,580 334 3,484 Current tax receivables Other receivables 10 16,262 11,485 Cash and cash equivalents 11 54,893 44,840 Total current assets 317,845 257,001 TOTAL ASSETS 428,883 363,768 EQUITY AND LIABILITIES (€ thousands) Notes 8/31/2012 8/31/2011 12 16,970 16,970 169,343 157,178 (223) (358) 26,111 13,098 212,200 186,887 Equity attributable to non-controlling interests 106 99 Income attributable to non-controlling interests (1) 2 105 101 212,306 186,988 EQUITY Capital Other reserves Treasury shares Net income/(loss) for the year Shareholders' equity attributable to the Group Total non-controlling interests Total equity NON-CURRENT LIABILITIES 56 Non-current provisions 13 26,301 22,886 14 & 15 4,013 14,404 1,475 904 31,789 38,194 13 2,085 1,526 Current portion of long-term debt 14 & 15 15,472 4,259 Current bank facilities and overdrafts 14 & 15 30,689 38,643 53,549 45,381 7,571 892 75,422 47,884 Total current liabilities 184,788 138,586 TOTAL EQUITY AND LIABILITIES 428,883 363,768 Long term financial debt Deferred tax liabilities Total non-current liabilities CURRENT LIABILITIES Current provisions Trade payables Current tax liabilities Other current liabilities 16 II - Consolidated income statement at August 31, 2012 CONSOLIDATED INCOME STATEMENT (€ thousands) Notes 8/31/2012 17 525,287 430,080 1,527 1,535 526,814 431,614 15,102 10,673 (260,034) (205,196) Other purchases and external charges (80,281) (69,170) Taxes and duties other than on income (7,348) (6,440) (147,474) (130,981) (9,301) (9,226) (3,359) (254) Other operating expenses (1,049) (869) CURRENT OPERATING INCOME (EBIT) 33,070 20,152 2,097 3,811 (1,656) (3,238) 442 573 33,512 20,725 9,079 2,744 Revenue Other operating income Operating income Changes in inventories of work-in-process and finished goods Raw materials and consumables Staff costs 18 Allowances for depreciation and amortization Net allowances for provisions and asset impairments 19 Non-recurring income Non-recurring expenses Net non-recurring income/(expenses) 20 OPERATING PROFIT Financial income 57 8/31/2011 Financial expense Net financial income/(expense) (5,121) (6,860) 3,958 (4,116) 37,469 16,609 21 PROFIT BEFORE TAX Corporate income tax 22 (11,951) (3,992) Share in earnings of equity-method associates 6 591 483 26,109 13,100 26,111 13,098 Net income attributable to non-controlling interests (1) 2 Earnings per share (in €) 3.8 1.9 Diluted earnings per share (in €) 3.8 1.9 NET INCOME FOR THE PERIOD Net income attributable to the Group III.- Consolidated statement of changes in shareholders' equity Statement of recognized income and expense (€ thousands) 8/31/2012 Net income 26,109 13,100 Net actuarial gains/(losses) on defined benefit plans (1,323) 679 456 (234) 3,314 (384) (50) 34 28,506 13,195 28,503 13,193 3 2 Deferred taxes on actuarial gains/(losses) Changes in currency translation adjustments Capital gains or losses on the disposal of treasury shares (net of tax) Total recognized income and expenses Attributable to shareholders Attributable to non-controlling interests 8/31/2011 EQUITY ATTRIBUTABLE TO THE GROUP (€ thousands) Balance at 8/31/2010 (Reported data) Capital 16,970 Retained Share earnings and Translation Treasury premiums reserves adjustments shares 2,528 Correction of error Balance at 8/31/2010 (Restated data) 158,793 849 (144) (808) 16,970 2,528 157,985 849 58 (144) Total attributable to the Group Equity attributable to noncontrolling interests Total consolidated equity 178,995 104 179,099 (808) (4) (812) 178,187 100 178,287 Impact of change from correction of error (N-1) - - 56 - Total recognized income and expenses - - 13,578 (384) Dividends distributed - - (4,341) - - - 56 4 60 13,193 2 13,195 (4,341) 0 (4,340) Change in Group structure 0 Other changes 19 (13) (214) (208) (6) (214) Balance at 8/31/2011 0 0 16,970 2,528 167,296 451 (358) 186,887 101 186,988 Total recognized income and expenses - - 25,193 3,310 - 28,503 3 28,506 Dividends distributed - - (3,323) - - (3,323) 0 (3,323) Change in Group structure - - 0 - - 0 - 0 Other changes - - (24) 23 135 133 2 135 16,970 2,528 189,142 3,784 (223) 212,200 105 212,306 8/31/2012 8/31/2011 Balance at 8/31/2012 IV - Consolidated statement of cash flows Consolidated data (€ thousands) Notes A. CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to the Group 26,111 13,098 (1) 2 - Share in earnings of equity-method associates (591) (483) + Allowances for depreciation of fixed assets 9,303 9,226 + Net allowances for provisions and asset impairments (a) 2,197 (1,211) - Net gains on disposals of fixed assets (194) (57) 36,825 20,574 (1,696) 21,200 38,521 (626) (8,513) (11,900) 420 320 (4,589) 0 (12,682) (11,580) 0 0 Attributable to non-controlling interests Operating cash flows Change in Working Capital Requirements 23 NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES (C) B. CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (b) Proceeds from the sale of fixed assets Impact of changes in Group structure CASH BUDGETED FOR CAPITAL EXPENDITURES C. CASH FLOWS FROM FINANCING ACTIVITIES Increase in share capital and premium 59 Net dividends paid in the period (2,932) (4,142) Increase in borrowings 12,747 1,090 (17,180) (5,943) 59 (161) (7,306) (9,156) (525) (743) 18,008 (22,104) 6,196 28,300 18,008 (22,104) 24,204 6,196 Marketable securities 23,838 16,477 Cash at banks and on hand 31,055 28,362 - Current bank facilities and overdrafts (30,689) (38,643) NET CASH AND CASH EQUIVALENTS AT CLOSE OF THE PERIOD 24,203 6,196 Repayment of borrowings Change in treasury shares CASH FROM FINANCING ACTIVITIES D. EFFECT OF FOREIGN EXCHANGE RATES ON CASH NET CHANGE IN CASH AND CASH EQUIVALENTS (A + B + C + D) Net cash and cash equivalents at beginning of the period Net change in cash and cash equivalents during the period NET CASH AND CASH EQUIVALENTS AT CLOSE OF THE PERIOD (a) Excluding impairment of current assets (b) Purchases are net of changes in payables on fixed assets (c) Of which interest expense paid 2,035 1,655 and of which income tax paid (or refunded) 1,956 8,150 60 V - Notes to the consolidated financial statements 1. Significant accounting policies and basis of consolidation.............................. 61 2.- Basis of consolidation ........................................... ................................................. 69 3.- Goodwill................................................................... ................................................. 71 4.- Intangible assets ...................................................... ................................................. 72 5.- Property, plant and equipment .......................... ................................................. 72 6.- Investments in associates ....................................... ................................................. 73 7.- Non-current financial assets ............................... ................................................. 74 8.- Inventories and work in progress ........................ ................................................. 74 9.- Trade receivables .................................................... ................................................. 74 10.- Other receivables ................................................. ................................................. 75 11.- Cash and cash equivalents ................................ ................................................. 75 12.- Share capital ........................................................ ................................................. 76 13.- Provisions for contingencies and expenses ..... ................................................. 76 14.- Analysis of financial debt by nature.............. ................................................. 79 15.- Repayment schedule of financial debt at August 31, 2012 ........................ 80 16.- Analysis of other current liabilities .............. ................................................. 81 17.- Net sales ................................................................. ................................................. 81 18.- Payroll and workforce ........................................ ................................................. 82 19.- Net allowances for depreciation, amortization and impairment ............... 82 20.- Non-recurring income/(expenses) .................... ................................................. 83 21.- Financial income/(expenses) ............................. ................................................. 83 22.- Corporate income tax .......................................... ................................................. 83 23.- Change in working capital requirements (WCR) ............................................ 85 24.- Related party transactions ................................. ................................................. 85 25.- Off-balance sheet commitments & contingent liabilities ............................. 86 26.- Liquidity risk ....................................................... ................................................. 86 27.- Tax risk.................................................................. ................................................. 87 28.- Exposure to exchange rate risk ......................... ................................................. 87 29.- Events after the reporting period ...................... ................................................. 87 1. Significant accounting policies and basis of consolidation 1.1 STATEMENT OF COMPLIANCE The financial statements of EXEL Industries Group have been prepared on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union at August 31, 2012, and available for consultation on the European Commission's website: http://ec.europa. eu/internal_market/accounting/ias/index_en. htm New standards, interpretations and amendments applicable to the financial period commencing on September 1, 2011 The Group has applied the following new standards, amendments and interpretations as from the beginning 61 of FY 2011/2012: IAS 24 – Related party disclosures (applicable to periods beginning on or after January 1, 2011); IFRS annual improvements - May 2010 (applicable to periods beginning on or after January 1, 2011); Amendments to IFRS 7 - Disclosures: transfers of financial assets; (applicable to periods beginning on or after July 1, 2011); Amendments to IFRIC 14 - Prepayments of a minimum funding requirement (applicable to periods beginning on or after January 1, 2011). The first time of adoption of these standards, interpretations and amendments did not have a material effect on the Group's financial statements at August 31, 2012. Standards and interpretations published but that have not yet entered into force The following standards and interpretations have been adopted by the European Union at the closing date: Amendment to IAS 1 – Presentation of other items of comprehensive income (applicable to periods beginning on or after July 1, 2012); Amendment to IAS 19 – Employee benefits (applicable to periods beginning on or after January 1, 2013). The Group has not applied these new standards or interpretations in advance and does not anticipate that they will have a material impact on its financial statements. Standards and interpretations not adopted by the European Union at the closing date Subject to their final adoption by the European Union, application of the standards, amendments and interpretations published by IASB and presented below are mandatory effective September 1, 2012: Amendments to IFRS 1 - Severe hyperinflation and removal of fixed dates for first-time adopters (applicable to periods beginning on or after July 1, 2011); Amendment to IAS 12 – Recovery of underlying assets (applicable to periods beginning on or after January 1, 2012). The Group is currently in the process of assessing the impact of the first-time application of these new standards and interpretations. They have not been applied in advance. The consolidated financial statements for the period ending Friday, August 31, 2012 were prepared according to the same accounting policies used for the period ending Wednesday, August 31, 2011. The consolidated financial statements of EXEL Industries were approved by the Board of Directors on December 10, 2012. 1.2 BASIS OF CONSOLIDATION (see note 2) Companies over which EXEL Industries exercises exclusive control are fully consolidated. Exclusive control is defined as an ability to govern the financial and operating policy decisions of the enterprise so as to benefit from its activities. It is generally presumed to exist when the Group has more than 50% of the voting rights of the controlled company. Companies in which EXEL Industries exercises a material influence are accounted for using the equity method. Significant influence is an ability to participate in the financial and operating policy decisions of an enterprise though without exercising control over its policies. It is presumed to exist when the Group directly or indirectly holds between 20% and 50% of the voting rights. Receivables, payables, and reciprocal assets and liabilities are fully eliminated between fully consolidated companies as well as intra-Group profits and losses (dividends, capital gains, margins on inventory). 62 1.3 BUSINESS COMBINATIONS Business combinations are recognized on the basis of the acquisition method of accounting, according to the principles of IFRS 3 - Business Combinations. The assets, liabilities and contingent liabilities of the acquiree are recognized at fair value. The difference between the acquisition cost and the proportionate share acquired of the fair value of the assets and liabilities on the acquisition date is recognized under "Goodwill". This goodwill is not amortized and is tested for impairment whenever there exist indications of loss, and at least once a year (see below). If the acquisition cost is less than the fair value of the acquiree's assets and liabilities, the residual amount of negative goodwill (badwill) is recognized directly in "Non-recurring income/(expenses)". 1.4 GOODWILL (see note 3) For fully consolidated companies, goodwill arises from the difference between the purchase price of shares acquired and the Group's share in equity on this date, recognized as assets in the consolidated balance sheet under the heading of "Goodwill". At August 31, 2012, the net value of residual goodwill on the balance sheet amounted to €25,256,000. Goodwill as well as property, plant and equipment and intangible fixed assets are tested as soon as they are there is evidence of impairment and reviewed at the end of each period. This test is performed at least once a year for indefinite life fixed assets, which for the Group is limited to goodwill. For the performance of these tests, fixed assets are grouped into units of reporting referred to as Cash Generating Units (CGU). CGUs are homogeneous groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. For the Group, CGUs are legal entities or subsidiaries providing the basis for organizing its activities and analyzing its results for internal reporting purposes. When the recoverable value of the CGU is less than its net carrying amount, an impairment charge is recognized in the income statement under "current operating income" and "operating profit". The recoverable value of a CGU represents the higher of its net selling price and value in use. Value in use is determined on the basis of the present value of future operating cash flows expected over a five-year period and a terminal value based on a perpetuity growth rate for cash flow. The following are the main assumptions used in 2012 to calculate value in use: perpetuity growth rate of 2%; A discount rate of 9.3% (the same as in the previous period). The discount rate used for impairment testing is based on an independent source according to the weighted average cost of capital (WACC) estimated for the period by financial analysts who cover the EXEL Industries share, on a date near the fiscal year-end. Management's budget for future cash flows is based on past performances and developments expected on the date these forecasts are produced. On the basis of these assumptions, impairment tests on CGUs including goodwill did not indicate any impairment loss to be recognized. For information, with respect to the sensitivity of these assumptions, a one point increase or decrease in the discount rate or perpetuity growth rate would not result in the recognition of an additional goodwill impairment charge. 63 1.5 INTANGIBLE ASSETS (see note 4) Other intangible assets are recognized at cost and amortized on a straight line basis over their estimated useful lives. Development costs In accordance with IAS 38, development costs are not capitalized by the Group for several reasons: When these expenditures are incurred, the technical feasibility of completing the intangible asset so that it will be available for use or sale is not certain; The Group is not able to demonstrate how the intangible asset will generate probable future economic benefits. In particular, it is difficult to demonstrate the existence of a market (or evaluate the duration) for production resulting from these development costs. In effect, the Group is constantly developing new innovations in its market and the potential of these developments is still unknown or even nonexistent at that particular time. These costs mainly comprise payroll expenditure. 1.6 PROPERTY, PLANT AND EQUIPMENT (see note 5) Property, plant and equipment are recognized in the balance sheet at acquisition cost or their contribution value. These assets are depreciated according to the straight line method applied on the basis of their corresponding estimated useful lives. Comparable depreciation rates are applied by all companies as follows: 20 to 30 years for buildings; 5 to 10 years for building improvements; 5 to 10 years for industrial equipment and machinery; 3 to 5 years for other fixed assets (office equipment, vehicles, etc.). 1.7 IMPAIRMENT OF ASSETS The Group performs impairment tests on an annual basis on the main tangible and intangible assets to identify potential losses if events or circumstances indicate that the carrying amount of these assets may not be recoverable. When there is an indication that the carrying amount of the fixed assets may not be recovered, the Group compares the recoverable value of these assets with their net carrying amount and when applicable, an impairment charge is consequently recorded to reduce the value of the assets to their estimated recoverable value. Recoverable value is defined as the higher of market value and value in use on the basis of future cash flows discounted to their present value (discounted cash flows or DCF) derived from use of the assets. After recognizing this provision, the asset is maintained in the balance sheet at its net carrying amount after impairment. In the case of depreciable assets, the depreciation expense is calculated on the basis of the new net carrying amount and its remaining estimated useful life. 1.8 NON-CURRENT FINANCIAL ASSETS (see note 7) Non-current financial assets include equity interests and other financial assets. Equity interests represent Group holdings. These interests are accounted for as available-for-sale securities and recognized at fair value or their acquisition cost, which, according to the Group's estimates, represents their fair value in the absence of an active market. Unrealized gains and losses on these items are recorded 64 separately under shareholders' equity. In the case of a permanent loss in value, the corresponding impairment charge is recognized in the income statement of the period. The permanent nature of impairment is determine by comparing the estimated value based on the share in net equity, the market price or earnings growth prospects, after adjusting for the effects of these holdings on the Group in terms of strategy, synergies or existing businesses. Recognition of this impairment loss in the income statement is not reversible if the estimated value is considered to develop positively in the future (in which case the unrealized profit is recognized under the separate heading of equity mentioned above). Other financial assets are recognized at amortized cost. A provision for impairment may be recorded when there exists an objective indication that they have been impaired. Securities held for trading are recognized at fair value and unrealized gains and losses on re-measurement are recognized in profit or loss under "income from cash and cash equivalents". All financial assets are subject to tests once a year to determine if there exists an indication of impairment. 1.9 INVENTORIES AND WORK IN PROGRESS (see note 8) In accordance with IAS 2 "Inventories", inventories and work in progress are measured at the lower of cost and net realizable value. Cost is measured mainly according to the FIFO method. Net realizable value is defined as the expected selling price in the ordinary course of business minus costs necessary for completion and disposal. Raw materials and trade goods are as a general rule measured according to the FIFO method. Inventory in progress and finished products are recognized at production cost that includes the cost of raw materials, direct labor costs and factory overheads. 1.10 TRADE RECEIVABLES AND RELATED ACCOUNTS (see note 9) Trade receivables have been measured at face value. Provisions for impairment are recorded according to the age of the receivable and an assessment of the customer's situation. 1.11 CASH AND CASH EQUIVALENTS (see note 11) Cash includes bank balances and highly liquid investments and cash equivalents with maturities of less than three months from their date of acquisition. Bank overdrafts are presented as a specific line item under current liabilities. 1.12 INCOME TAXES (see note 22) Deferred taxes In accordance with IAS 12 "deferred tax", provisions for deferred tax are recorded using the balance sheet liability method and temporary differences arising between the tax bases of assets and liabilities (including tax losses) and their carrying amounts in the financial statements. Deferred taxes are calculated at the prevailing tax rate in force. Deferred tax assets are recorded only if it is probable that they will be recovered from taxable profit. In particular, no deferred tax asset has been recognized for losses of certain subsidiaries where recovery is not currently considered likely. 65 Deferred tax assets and liabilities are not discounted. The Group offsets deferred tax assets and liabilities if the entity has the legal right to offset current income tax assets and liabilities and they relate to types of taxes levied by the same tax authority. French tax group provisions Under the current tax sharing agreement, with EXEL Industries as head of the tax group, Group subsidiaries pay advances to EXEL Industries for taxes owed by them and EXEL Industries will settle the Group tax at the end of the fiscal year after any restatements provided for under this system. Application of these tax sharing provisions between the parent company and subsidiaries resulted in a tax saving of €352,000 for fiscal 2012 compared with a tax saving of €2,093,000 the previous year. Tax credits Given the purely fiscal nature of these provisions, and possibilities that they will be subject to changes in line with changes in tax regulations, tax credits are recognized as a deduction from the income tax expense. This is notably the case for research tax credits (RTC). 1.13 FOREIGN CURRENCY TRANSLATION The annual financial statements of foreign companies are translated using the closing rate method. Under this method assets and liabilities are translated at the closing rate (balance sheet rate) and income statement items at the average exchange rate of the period. Translation differences are recorded directly in equity under the heading "Foreign currency translation reserve". Transactions by Group entities in a currency other than their functional currency are translated at the exchange rate prevailing on the transaction date. Assets and liabilities denominated in a currency other than the functional currency of the entity are translated at the closing exchange rate in force at the end of the period. Currency gains and losses are recognized directly under financial income and expense. 1.14 LEASES Finance leases Assets financed by means of finance leases as defined by IAS 17 "Leases" are presented as assets at the lower of the present value of future lease payments or fair market value. The corresponding liability is recognized in financial liabilities. Such items are amortized on a straight line basis over their estimated useful lives. Only significant transactions are restated (where the purchase value at inception of the item financed by the lease exceeds €150,000). The main finance leases have been restated in the consolidated financial statements and no additional disclosures are required concerning the corresponding future lease payments. Operating leases Operating leases that individually involve small amounts are not material in nature. In particular, there are no significant property leases as the Group is the owner of its main production sites. 1.15 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES In accordance with IAS 37, provisions are recognized based on case-by-case assessments of the corresponding contingencies and expenses. A provision is recorded whenever Group corporate governance bodies are made aware of a legal or constructive obligation resulting from a past event when it is probable that it will result in an outflow of resources with no inflow of resources representing an equivalent amount expected in return. Provisions are broken down between current and non-current liabilities according to the expected term to 66 maturity of the risk. Provisions with a term to maturity of more than one year are discounted when their impact is material. In cases where it is not probable that an obligation will result in the outflow of resources to be settled or because its amount cannot be measured with sufficient reliability, it is recognized by the Group off-balance sheet as a contingent liability. Contingent liabilities are reported in the notes unless the probability of an outflow of resources is very low. Contingent assets are reported in the notes where an inflow of economic benefits is probable. 1.16 PENSIONS AND SIMILAR LIABILITIES (see note 13.3) Provisions are recorded in the balance sheet for liabilities arising from defined benefit plans. These liabilities are calculated using the projected unit credit method based on actuarial valuations performed at the end of the financial year. Actuarial assumptions used to calculate these liabilities vary according to the economic conditions of the country in which the plan applies. Each plan is accounted for separately. The Group makes use of these services of an outside entity to partially cover its benefit liabilities. The provision recorded in the consolidated financial statements corresponds solely to the uncovered portion as well as social charges for the full amount of these benefit liabilities. For defined benefit plans financed through outside fund managers (pension funds or insurance policies), any difference in the fair value of plan assets and the present value of obligations is recognized in the balance sheet as an asset or liability. However, such differences are only recognized as assets when they embody a future economic benefit for the Group. Past service costs represent the benefits granted when the company either adopts a new defined benefit plan or modifies the level of benefits of the existing plan. When new rights to benefits are vested as of the adoption of the new plan or the change of the existing plan, past service costs are immediately recognized in the income statement. Conversely, when the adoption of a new plan or a change in the existing plan results in the vesting of rights subsequent to the date the plan is established, past service costs are expensed on a straight-line basis over the average remaining period for the corresponding rights to be fully vested. Actuarial gains and losses result from changes in actuarial assumptions and adjustments related to experience (differences between actuarial assumptions and assumptions based on actual experience). Actuarial gains and losses are recognized directly in equity and in consequence have no impact on the income statement. For defined benefit plans, the expenses recognized in operating income includes service costs, the amortization of past service costs, the discounting costs as well as the effects of any plan curtailment or settlement. 1.17 USE OF ESTIMATES To prepare consolidated financial statements in compliance with the rules provided for under IFRS, Group Management makes a certain number of estimates and adopts certain assumptions that may have an impact on the amounts disclosed under assets and liabilities. These include amounts for depreciation, amortization and provisions, information on contingent assets and liabilities on the closing date of the consolidated financial statements and amounts recognized under income and expenses for the period. These estimates are based on the assumption of going concern and include assumptions that Management considers relevant and feasible in the Group's operating environment and based on feedback available. Estimates and assumptions are reviewed on a regular basis and at a minimum at the end of each financial year. They may vary if the circumstances on which they were based change or new information becomes available. Actual results may differ from these estimates. 67 The main estimates made by the Group when preparing the financial statements concern notably assumptions adopted for calculating deferred taxes, the valuation of tangible and intangible assets, equity interest, the depreciation of current assets and current and non-current provisions. Forecasting and producing medium-term plans is rendered difficult by the current economic environment. The consolidated financial statements for the period were prepared taking into account the current economic and financial crises and on the basis of financial parameters for the market available at the end of the financial year. The immediate effects of the crisis were taken into account in particular in the valuation of assets such as inventories, trade receivables and liabilities. With respect to longer-term assets such as goodwill, the assumption adopted is that the crisis' duration will be limited in time. The value of these assets is reassessed at the end of the financial period and whenever there exists an indication of impairment based on the long-term economic outlook and Group Management's best assessment in an environment of reduced visibility with respect to future cash flows. 1.18 SEGMENT REPORTING Even though it manufactures products for three principal markets segments, namely agriculture, gardening and industry, EXEL Industries Group remains a pure player operating in a single core business: spraying technologies. 1.19 FINANCIAL INSTRUMENTS Treasury shares In accordance with IAS 32, treasury shares (own equity instruments) held by the Group through the share repurchase program in connection with the liquidity agreement are recorded at acquisition cost and deducted from equity. Proceeds from the disposal of treasury shares are recognized under equity, net of income tax, and are not included under income in the period. Derivative financial instruments In the fiscal year, the Group has on occasion made use of interest rate or foreign exchange hedges to reduce its exposures. At the end of the fiscal year, a position remained open for only one financial instrument: A fixed-to-variable interest rate swap on a nominal €2.65 million bank loan. At August 31, 2012, the position of this financial instrument was valued at -€73,000. Financial liabilities Non-current loans and financial liabilities are valued at their historical nominal value considered close to their amortized cost. 1.20 REVENUE Revenue arising from ordinary activities represents sales from goods and services produced in connection with the Group's main activities. In accordance with IAS 18, revenue is recognized according to the accrual basis of accounting and matching principle for income and expenses. Income from the sale of goods is recognized when the risks and rewards incident to ownership are transferred to the buyer and the costs that have been or are to be incurred can be reliably identified. 68 Any trade discounts rebates and related items granted to customers are recognized as amounts deducted from of sales. Revenue from the sale of services is recognized at fair value of the consideration received or receivable. Revenue from the sale of products is recognized when delivery has been completed, the amount of revenue can be reliably measured and the economic benefits of the transaction will flow to the Group. 2.- Basis of consolidation Percentage controlled Name 08/2012 EXEL Industries SA 100.00% Tecnoma Technologies SAS Consolidation method 08/2012 08/2011 100.00% 100.00% 100.00% Parent company 100.00% 100.00% 100.00% 100.00% FC Préciculture SAS 100.00% 100.00% 100.00% 100.00% FC CMC SAS 100.00% 100.00% 100.00% 100.00% FC Caruelle Nicolas SAS 100.00% 100.00% 100.00% 100.00% FC RAM Environnement SAS 100.00% 100.00% 100.00% 100.00% FC Berthoud Agricole SAS 100.00% 100.00% 100.00% 100.00% FC FISCHER Nouvelle SARL (Switzerland) BERTHOUD Sprayers Ltd (UK) MATROT Equipements SAS: Matrot UK Ltd (UK) 08/2011 Percentage held 100.00% 100.00% 100.00% 99.00% 99.00% 99.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.0 0% 99.00 % 100.00% 100.00 % FC FC FC FC Herriau SAS 100.00% 100.00% 100.00% 100.00% FC Moreau 100.00% 100.00% 100.00% 100.00% FC SCI Cathan Capagri SCI Maizy Vermorel (Romania) 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00 % 100.00% 100.00 % FC FC FC 100.00% 100.00% 100.00% 100.00% FC 90.00% 90.00% 90.00% 90.00% FC EXEL GSA SAS 100.00% 100.00% 100.00% 100.00% FC EXEL Real Estate (USA) 100.00% 100.00% 100.00% 100.00% FC EXEL Real Estate (Australia) 100.00% 100.00% 100.00% 100.00% FC EMC LLC (Russia) 100.00% 100.00% 100.00% 100.00% FC Kremlin Rexson SA 99.48% 99.48% 99.48% 99.48% FC Ingelia (Romania) French subsidiaries: 69 Percentage controlled Name 08/2012 SCM SAS 100.00% API Technologies SAS 08/2011 Percentage held Consolidation method 08/2012 08/2011 100.00% 99.48% 99.48% FC 100.00% 100.00% 99.48% 99.48% FC 100.00% 100.00% 99.48% 99.48% FC 99.90% 99.90% 99.38% 99.38% FC KREMLIN REXSON Italy 100.00% 100.00% 99.48% 99.48% FC EXEL North America (USA) 100.00% 100.00% 99.48% 99.48% FC Portugal 100.00% 100.00% 99.48% 99.48% FC Argentina 100.00% 100.00% 99.48% 99.48% FC Poland 100.00% 100.00% 99.48% 99.48% FC Brazil 100.00% 100.00% 99.48% 99.48% FC 100.00% 74.00% 99.48% 73.62% FC Mexico 100.00% 100.00% 99.48% 99.48% FC India 100.00% 100.00% 99.48% 99.48% FC Singapore 100.00% 100.00% 99.48% 99.48% FC 100.00% 100.00% 100.00% 100.00% FC NC 100.00% NC 100.00% FC UK 100.00% 100.00% 100.00% 100.00% FC China 100.00% 100.00% 100.00% 100.00% FC Russia 100.00% 100.00% 100.00% 100.00% FC 100.00% 100.00% 100.00% 100.00% FC Hardi North America Inc. (USA) 100.00% 100.00% 100.00% 100.00% FC Hardi Australia Pty (Australia) 100.00% 100.00% 100.00% 100.00% FC Ilemo-Hardi S.A. (Spain) 100.00% 100.00% 100.00% 100.00% FC Hardi GmbH (Germany) 100.00% 100.00% 100.00% 100.00% FC Svenska Hardi AB (Sweden) 100.00% 100.00% 100.00% 100.00% FC Hardi Norge A/S (Norway) 100.00% 100.00% 100.00% 100.00% FC Hardi Ltd (UK) 100.00% 100.00% 100.00% 100.00% FC Hardi Evrard SA 100.00% 100.00% 100.00% 100.00% FC Hardi Service 100.00% 100.00% 100.00% 100.00% FC 47.32% 47.32% 47.32% 47.32% EA 100.00% NA 100.00% NA FC 100.00% NA 100.00% NA FC Foreign subsidiaries: Germany (a) Spain South Africa (c) Sames Technologies SAS Foreign subsidiaries: Germany (a) Hardi International AS (Denmark) Foreign subsidiaries: French subsidiaries: Pommier S.C.E.P. Agrifac Machinery BV (Netherlands) (b) Foreign subsidiaries: Agrifac UK Ltd (UK) 70 Percentage controlled Name 08/2012 Agrifac Russia LLC (Russia) 100.00% 08/2011 NA Percentage held 08/2012 08/2011 100.00% NA Consolidation method FC FC: Full consolidation – EA: Equity accounting – NC: Not consolidated, deconsolidated – NA: Not applicable. Changes in consolidated Group structure In the fiscal year ended August 31, 2012, the following changes were made in the consolidated Group's structure: (a) An internal Group merger of the two German subsidiaries of Kremlin Rexson and Sames had no impact on the consolidated financial statements. (b) EXEL Industries acquired 100% of the stock in Agrifac Machinery BV on July 4, 2012. This Dutch company, whose registered office is in Steenwijk in the Netherlands, makes and sells agricultural sprayers and sugar beet harvesters. This acquisition was paid for in cash. Agrifac’s activity was consolidated in the period 2011/2012, from July 2012, i.e. over two months. This first-time consolidation had the following impact on consolidated income: on consolidated sales + €4,841,000 on operating income - €827,000 on financial income - €11,000 on net income - €915,000 This first-time consolidation affects the consolidated balance sheet as follows: (net value) on non-current assets + €1,759,000 on stocks + €14,989,000 on trade receivables + €3,604,000 on other current assets + €2,327,000 on non-current liabilities + €1,697,000 on current liabilities + €12,780,000 (c) Kremlin Rexson bought the minority interests in the capital of its South African subsidiary for a residual value. As this subsidiary was losing money, it was already fully consolidated beforehand: this purchase of interests did not therefore have any material effect on the Group’s consolidated financial statements. 3.- Goodwill 3.1 CHANGES IN THE PERIOD (€ thousands) 08/31/2012 Opening net value 08/31/2011 25,173 25,668 Increases 55 0 Decreases 0 0 Changes in consolidated Group structure: Impairment (533) 71 Other net changes (foreign exchange effect) Closing net value 28 38 25,256 25,173 The change in Group structure concerns Agrifac. 3.2 ANALYSIS OF GOODWILL BY CASH GENERATING UNIT (CGU) (Net carrying value) (€ thousands) 08/31/2012 08/31/2011 KREMLIN REXSON 2,228 2,228 SAMES 2,629 2,629 MATROT HARDI and its subsidiaries Other subsidiaries TOTAL 5,296 5,296 14,291 14,263 811 756 25,256 25,173 4 - Intangible assets 08/31/2012 (€ thousands) Patents, trademarks, licenses and software (a) Other intangible assets TOTAL 08/31/2011 Gross Amortization Impairment Net Net 9,628 (8,805) 0 823 624 805 (711) 0 94 76 10,433 (9,517) 0 916 701 (a) Software purchases account for virtually all these assets. 5 - Property, plant and equipment 08/31/2012 (€ thousands) Gross 08/31/2011 Depreciation Impairment Net Net Land 17,711 (1,085) 0 16,626 15,338 Buildings 69,174 (40,259) 0 28,915 28,507 Plant and equipment 86,878 (70,877) 0 16,001 15,229 Other property, plant and equipment (a) 25,204 (19,562) 0 5,642 4,522 3,828 0 0 3,828 5,077 239 0 0 239 252 203,035 (131,783) 0 71,252 68,925 Property, plant and equipment under construction Advances and prepayments TOTAL (a) Other property, plant and equipment consists mainly of vehicles, furniture and computer equipment. The gross value of property, plant and equipment includes €5,278,000 for items acquired through finance 72 leases (see note on financial debt). 5.1 - CHANGES IN GROSS VALUE DURING THE PERIOD (€ thousands) 08/31/2012 Gross value of property, plant and equipment at the beginning of the period 08/31/2011 191,720 181,685 Acquisitions (net of transfers) 8,251 11,575 Change in Group structure 1,674 0 Disposals or decommissioned assets (1,942) (1,221) Impact of foreign exchange and misc. 3,331 (319) 203,035 191,720 GROSS VALUE OF PROPERTY, PLANT AND EQUIPMENT AT THE END OF THE PERIOD 5.2 - CHANGES IN ACCUMULATED DEPRECIATION DURING THE PERIOD (€ thousands) 08/31/2012 Accumulated depreciation at the beginning of the period Increases in the period 122,796 115,379 9,009 8,811 Change in Group structure Reversals of disposals or decommissioned assets 744 0 (1,752) (1,104) 986 (290) 131,783 122,796 Impact of foreign exchange and misc. ACCUMULATED DEPRECIATION AT THE END OF THE PERIOD 08/31/2011 6 - Investments in associates (€ thousands) 08/31/2012 Opening net value 08/31/2011 2,460 2,176 591 483 (392) (199) 0 0 2,659 2,460 Acquisitions Change in Group structure Share in earnings of equity-accounted associates Dividend distribution Disposals / deconsolidation Other net changes CLOSING NET VALUE This concerns Pommier, 47%-held by Hardi Evrard, a direct subsidiary of Hardi: Key financial aggregates of Pommier at 08/31/2012 are presented below: Assets €7.3m Liabilities (excluding equity) €1.7m Revenue (12 months) Net income (12 months) €12.6m €1.3m 73 7 - Non-current financial assets 08/31/2012 Consolidated data (€ thousands) Gross Equity interests Impairment 102 Receivables on equity interests 0 Other equity securities 8 Loans 08/31/2011 0 Net Net 102 102 0 0 5 5 48 48 (3) 48 Other non-current financial assets 375 (187) 188 195 TOTAL 534 (190) 344 351 Equity interests represent non-controlling interests of 10% in companies marketing agricultural equipment in Europe. 8 - Inventories and work in progress 08/31/2012 (€ thousands) Gross Raw materials 86,149 08/31/2011 Impairment (19,498) Net Net 66,651 62,181 Work-in-progress (goods and services) 31,757 (1,532) 30,225 20,279 Semi-finished and finished goods 43,213 (2,164) 41,049 29,681 9,716 (3,756) 5,960 5,472 170,835 (26,950) 143,885 117,613 Trade goods TOTAL 9.- Trade receivables 08/31/2012 (€ thousands) Trade receivables TOTAL Gross 08/31/2011 Impairment Net Gross Impairment Net 108,869 (6,398) 102,471 83,002 (3,422) 79,580 108,869 (6,398) 102,471 83,002 (3,422) 79,580 Impairment charges are estimated on an individual basis after identifying a risk of default by the customer in question and based on payment delays. Changes in allowances for impairment of trade receivables break down accordingly: € thousands 08/31/2012 Allowances for impairment at the beginning of the period Net allowance (or reversal) recognized under profit or loss 74 08/31/2011 (3,422) (3,859) (1,159) 438 Change in Group structure (1,817) Other changes ALLOWANCES FOR IMPAIRMENT AT THE END OF THE PERIOD (6,398) (3,422) The payment schedule of receivables due, subject to allowances for impairment or not, is presented below: Receivables not due (€ thousands) Receivable s past due Gross trade receivables < 90 days 80,140 Impairment of trade receivables TOTAL NET RECEIVABLES 80,140 91 - 180 days 181 - 360 days > 360 days TOTAL 18,270 3,583 1,657 5,219 108,869 (693) (346) (852) (4,507) (6,398) 17,577 3,237 805 712 102,471 10 - Other receivables Other receivables consist mainly of amounts for VAT refunds. (€ thousands) Tax receivables excluding corporate income tax (mainly VAT) 08/31/2012 08/31/2011 net value net value 8,877 Amounts receivable from payroll tax agencies Advances and prepayments paid Sundry debtors Prepaid expenses TOTAL 6,006 273 280 2,903 1,667 555 879 3,654 2,654 16,262 11,485 11 - Cash and cash equivalents (€ thousands) 08/31/2012 08/31/2011 Marketable securities 23,838 16,477 Cash at banks and on hand 31,055 28,362 54,893 44,840 TOTAL The market value of marketable securities that consist mainly of money market funds is close to the carrying value. Available cash is generally invested in risk-free investment vehicles (money market funds). The company does not have any investment portfolios of equity securities. 75 12 – Share capital At August 31, 2012, the parent company's share capital consisted of 6,787,900 ordinary shares with a par value of €2.50 per share. The company does not have any dilutive instruments. There were no corporate actions in the period under review. At August 31, 2012, there were 6,641 treasury shares. Policy for managing equity Equity management involves mainly determining the level of current and future share capital and the policy with respect to the distribution of dividends. The Group's management policy is based on ensuring a sufficient level of equity to ensure that the Group's financial structure remains sound. The proper level of equity is monitored on the basis of gearing (net financial debt to equity). In addition, for a number of years, a liquidity agreement has been in place to facilitate orderly trading of its shares on the market. This liquidity agreement does not permit use of significant amounts of capital and allows for only marginal intervention in the trading of the company's shares on the market. 13 - Provisions for contingencies and expenses 13.1 BREAKDOWN OF PROVISIONS BY NATURE AND CHANGES IN THE PERIOD Consolidated data (€ thousands) Provisions for contingencies Provisions for expenses TOTAL Of which non-current provisions Of which current provisions TOTAL Reversals Reversals Reclassifi(used (unused cations & 08/31/2011 Allowance provisions) provisions) other Change in Group structure and exchange rates 08/31/2012 15,447 5,603 (2,740) (1,150) 571 17,731 8,965 1,826 (151) 0 16 10,656 24,412 7,429 (2,892) (1,150) 587 28,386 0 22,886 26,301 1,526 2,085 24,412 28,386 13.2 BREAKDOWN BETWEEN CURRENT AND NON-CURRENT PROVISIONS As a rule, provisions for contingencies and expenses are classified as non-current liabilities as their due date is known with precision except if at the closing date the company knows that certain provisions will result in outflows in the next financial year. In this latter case, provisions in question are classified as current liabilities. 76 Non-current provisions for contingencies and expenses Consolidated data € thousands 08/31/2012 08/31/2011 Sales-related litigation and expenses for work in progress 1,871 1,967 Contractual customer warranties 8,360 6,689 30 30 10,397 8,803 Other miscellaneous employee-related commitments (excluding redundancy plans) 2,044 1,787 Contingencies for patents and related litigation 2,730 2,585 Tax contingencies and provisions 381 426 Sundry 489 599 26,301 22,886 Risks of the closure of foreign establishments and subsidiaries Retirement commitments including social charges TOTAL Current provisions for contingencies and expenses Consolidated data € thousands 08/31/2012 08/31/2011 Sales-related litigation and expenses for work in progress 174 Redundancy plans 130 175 0 0 448 0 1,333 1,351 2,085 1,526 Risks of the closure of foreign establishments and subsidiaries Tax contingencies and provisions Other miscellaneous employee-related commitments TOTAL 13.3 PENSION LIABILITIES Depending on the country, Group employees are entitled to: Lump sum severance payments paid on retirement (defined benefit plans that concern almost exclusively French employees); Or supplementary retirement benefits paid annually to retired employees (defined contribution plan). For defined-contribution plans, Personnel expenses and contributions payable are recognized by the Group when they are incurred. For defined benefit plans, The Group recognizes a provision for pension liabilities corresponding to the amount of liabilities calculated by independent actuaries, deducting premium amounts paid to an external fund managed by an insurance company. Assumptions used to estimate retirement commitments: Salary growth rate 2012 2% 2011 2% Discount rate (corresponding to the rate of French TEC 10-year OAT government bonds for August) 2012 2.13% 77 2011 2.94% Retirement age: 65 Life expectancy: TF 00-02 mortality table Turnover rate: based on the demographic data specific to each Group entity and actual experience. Voluntary retirement of employees with social security costs representing 45% of total retirement liabilities. Expenses in connection with retirement liabilities are recognized under current operating income and break down as follows: (€ thousands) Gross Social charges Total 08/31/2012 Total 08/31/2011 Service costs in the period 316 142 459 495 Discount costs 188 85 273 275 COST FOR THE PERIOD 505 227 732 770 Total 08/31/2012 Total 08/31/2011 Changes in pension and similar liabilities break down as follows: (€ thousands) Gross Liabilities at the beginning of the period Cost for the period Actuarial gains and losses recognized in equity Benefits paid Social charges 6,549 2,947 9,497 9,917 505 227 732 770 913 411 1,323 (679) (321) (144) (465) (511) 0 0 0 0 0 3,441 11,087 9,497 Contributions to plan assets 0 Changes in Group structure TOTAL PENSION LIABILITIES AT THE END OF THE PERIOD 7,646 Reconciliation between total pension liabilities and provisions for liabilities recognized in the balance sheet at 08/31(N): (€ thousands) Total pension liabilities at the end of the period Liabilities covered by plan assets managed by a thirdparty (a) PROVISIONS AT THE END OF THE PERIOD Gross Social charges 7,646 3,441 (690) 6,956 78 3,441 Total 08/31/2012 Total 08/31/2011 11,087 9,497 (690) (693) 10,397 8,803 (a) Breakdown of plan assets at 08/31/2012: Equities €543,000 (78.6%) Bonds €147,000 (21.4%) Provisions for retirement liabilities varied as follows for the period: (€ thousands) Gross Provisions at the beginning of the period Social charges Total 08/31/2012 Total 08/31/2011 5,856 2,947 8,803 9,038 Cost for the period 505 227 732 770 Actuarial gains and losses recognized in equity 913 411 1,323 (679) Benefits paid (194) (144) (338) (348) Contributions to plan assets (including returns on plans) (123) 0 (123) 23 0 0 0 0 6,956 3,441 10,397 8,803 Changes in Group structure PROVISIONS AT THE END OF THE PERIOD 14 - Analysis of financial debt by nature Consolidated data (€ thousands) 08/31/2012 Short-term facilities for operations and bank overdrafts - France and other countries (b) 08/31/2011 30,689 38,643 1,214 1,463 17,859 16,661 258 342 Other borrowings 97 163 Contingent advances (d) 56 34 50,174 57,306 4,013 14,404 46,161 42,903 50,174 57,306 Finance leases (a) Bank borrowings - France and other countries (c) Payables on employee profit sharing TOTAL FINANCIAL DEBT Breakdown between non-current and current: Non-current portion (> 1 year) Current portion (< 1 year) TOTAL FINANCIAL DEBT The average rate of interest for the period was, at 2.3%, similar to that in the prior period. (a) Finance leases were restated under fixed assets and financial debt: (€ thousands) Gross value Depreciation Net value Land and buildings 3,498 (1,577) 1,921 Installations 1,633 (1,498) 135 Computer equipment 147 (147) 0 Software 470 (470) 0 79 Outstanding financial debt (1,214) TOTAL Of which intangible assets Of which property, plant and equipment TOTAL 5,749 (3,693) 2,056 470 (470) 0 5,278 (3,222) 2,056 5,749 (3,693) 2,056 (1,214) (1,214) Transactions which on an individual basis are not material or do not result in the acquisition of assets (vehicle fleets) were not restated. (b) Foreign short-term bank borrowings amounted to €15.1 million. These concern foreign subsidiaries in Denmark, the Netherlands, Italy and Spain. (c) Bank borrowings break down as follows: Consolidated data (€ thousands) 08/31/2012 08/31/2011 France 1,916 14,771 Foreign 15,943 1,890 TOTAL 17,859 16,661 1,927 2,282 15,933 14,379 Of which fixed rate: Of which variable rate: (d) These concern advances granted by French development agencies (DRIRE and ANVAR) for modernization and innovation or advances received from COFACE for commercial prospecting for export business. Financial debt in foreign currency At August 31, 2012, financial debt in foreign currency broke down as follows: Financial debt denominated in DKK€15,702,000 (i.e. DKK 117,000,000) Financial debt denominated in USD€5,108,000 (i.e. USD 6,442,000) Financial debt denominated in AUD€4,409,000 (i.e. AUD 5,380,000) Financial debt denominated in GBP€465,000 (i.e. GBP 370,000) 15 - Repayment schedule of financial debt at August 31, 2012 Consolidated data (€ thousands) Short-term operating capital loans and bank overdrafts - France and other countries Finance leases Bank borrowings - France and other countries Other borrowings Less than 1 year Total 30,689 0 0 30,689 138 600 476 1,214 15,206 2,601 52 17,859 128 228 355 0 56 56 46,161 3,485 Contingent debt TOTAL More than 5 years 1 to 5 years 80 528 50,174 16 - Analysis of other current liabilities Consolidated data (€ thousands) 08/31/2012 08/31/2011 Advances and prepayments received 14,830 12,429 Payables for tax (excluding corporate income tax) and payroll tax agencies 35,759 29,430 Other payables Deferred income TOTAL 3,755 2,617 21,078 3,408 75,422 47,884 17 - Net sales Sales by geographical sector break down as follows: Consolidated data (€ millions) 08/31/2012 FY 08/31/2011 FY % % MARKET Plant protection 368.7 70.2% 302.6 70.4% Materials protection 156.6 29.8% 127.5 29.6% 525.3 430.1 GEOGRAPHICAL AREA France 208.1 39.6% 167.4 38.9% Exports 317.2 60.4% 262.7 61.1% 525.3 430.1 Export sales broke down by geographical region as follows: Consolidated data (in millions of euros) 08/31/2012 Europe % 08/31/2011 % 168.0 53% 137.3 52% USA/Canada/Latin America 74.4 23% 57.2 22% Asia 35.3 11% 29.2 11% Africa & Oceania 39.4 12% 39.0 15% TOTAL EXPORT 317.2 Amounts invoiced for export sales broke down as follows (translated into euros): Total amounts invoiced in euros (subsidiaries + direct sales): €142.5m Total amounts invoiced in foreign currency: €174.7m 81 262.7 In US dollars: .............................................................. €65.0m i.e.USD 84.8m In Danish crowns: ...................................................... €33.1m i.e.DKK 246.5m In Australian dollars: ............................................... €29.1m i.e.AUD 37.0m In pounds sterling: ....................................................... €9.6m i.e.GBP 7.9m In other currencies: .................................................... €37.9m 18 - Payroll and workforce Statutory employee profit sharing agreements and voluntary profit sharing plans specific to certain companies of the Group amounted to €2,842,000 for the fiscal year ended August 31, 2012, compared with €2,085,000 in the prior period. These amounts are expensed under staff costs for the period. At the end of the period under review, the workforce broke down as follows: Permanent workforce 08/31/2012 08/31/2011 Executive officers and management 520 514 Technical and supervisory staff 876 881 1,408 1,278 2,804 2,673 Plant workers TOTAL Permanent staff by division 08/31/2012 08/31/2011 PLANT PROTECTION Headcount in France Headcount in other countries 1,143 1,116 961 887 2,104 2,003 MATERIALS PROTECTION Headcount in France 379 399 Headcount in other countries 321 271 700 670 Headcount in France 1,522 1,515 Headcount in other countries 1,282 1,158 2,804 2,673 TOTAL WORKFORCE 19 - Net allowances for depreciation, amortization and impairment Consolidated data (€ thousands) 08/31/2012 FY 08/31/2011 FY Increases in operating provisions Provisions for contingencies and expenses (5,241) (3,732) Provisions for current assets (3,076) (2,393) 82 Reversal of operating provisions Provisions for contingencies and expenses 3,315 3,292 Provisions for current assets 1,644 2,579 (3,359) (254) TOTAL 20 - Non-recurring income/(expenses) This line item includes items not relating to ordinary activities corresponding to events that are unusual or infrequent in nature. Net non-recurring income amounted to €0.4 million. This includes mainly: + €0.8 million of inflows of old receivables previously written off; - €0.4 million of net allowances in additional provisions on old litigation, a tax contingency and employeerelated disputes. 21 - Financial income/(expenses) Consolidated data (€ thousands) 08/31/2012 FY Income from cash and cash equivalents 08/31/2011 FY 448 407 Finance costs, gross (2,035) (1,655) Net interest income/(expenses) (1,586) (1,248) 5,544 (2,868) 3,958 (4,116) (Loss)/gains on foreign exchange & other financial income/(expenses) NET FINANCIAL INCOME/(EXPENSE) 22 - Corporate income tax Income tax expense breaks down as follows: Consolidated data (€ thousands) 08/31/2012 FY Current tax income/(expense) Deferred tax income/(expense) TOTAL 08/31/2011 FY (11,784) (3,975) (166) (17) (11,951) (3,992) 22.1 – CHANGE IN DEFERRED TAX Consolidated data (€ thousands) 08/31/2012 FY 83 08/31/2011 FY Net deferred tax assets/(liabilities) at the beginning of the period Differed taxes recognized in equity Deferred tax income/(expense) 8,254 8,593 510 (286) (166) (17) Changes in Group structure 413 Translation adjustments 125 (36) 9,136 8,254 Of which deferred tax liabilities (1,475) (904) Of which deferred tax assets 10,611 9,158 Net deferred tax at the end of the period 22.2 - ANALYSIS OF DEFERRED TAXES BY NATURE Consolidated data (€ thousands) 08/31/2012 FY 08/31/2011 FY (assets if +; liabilities if -) Deferred taxes from temporary timing differences Employee benefits (profit sharing, accrued vacation payments, provisions for pension liabilities) 5,138 4,113 Other timing differences between the tax result and book result 2,072 1,964 743 1,451 (277) (294) (1,698) (1,479) 2,881 2,222 276 278 9,136 8,254 Of which deferred tax liabilities (1,475) (904) Of which deferred tax assets 10,611 9,158 Tax losses to be carried forward Deferred taxes arising from consolidation adjustments Capitalization of finance leases Cancellation of tax-driven provisions (accelerated tax depreciations) Elimination of internal inventory margins Other misc. items Net deferred tax at the end of the period 22.3 - RECONCILIATION OF THE EFFECTIVE TAX EXPENSE AND THEORETICAL TAX EXPENSE (Calculated at the tax rate applicable in France) Consolidated data (€ thousands) 08/31/2012 FY Net loss before tax 08/31/2011 FY 37,469 16,609 36.10% 34.43% (13,526) (5,719) Permanent tax differences (820) (714) Tax loss not used (855) (68) 754 347 2,204 2,023 293 139 (11,951) (3,992) 31.89% 24.03% Current tax rate in France Theoretical tax income/(expense) at the current tax rate Impact of: Tax rate differential with foreign subsidiaries Tax credits Misc. (including impact of the French tax sharing agreement) Net tax income/(expense) recognized Effective Group tax rate (%) 84 Tax credits concerned mainly research tax credits (RTC). 23 - Change in working capital requirements (WCR) (€ thousands) 08/31/2012 Net inventories 26,272 30,035 1,236 112 Net trade receivables 22,891 5,269 Current income tax receivables (3,150) 3,234 3,541 2,021 50,791 40,671 Advances and prepayments received 2,401 8,260 Trade payables 8,219 13,622 (51) 43 Payables for tax (excluding corporate income tax) and payroll tax agencies 6,329 2,197 Current income tax payables 6,679 (942) Other payables and accruals 18,951 (3,988) 42,527 19,192 8,264 21,479 51 (43) Impact of change in Group structure on WCR 8,505 0 Impact of foreign exchange on WCR 1,404 322 (1,696) 21,200 Advances and prepayments paid Other net receivables and accruals Payables for fixed assets Change in WCR Payables on fixed assets reclassified under investments CHANGE IN WCR AFFECTING OPERATING CASH FLOW (EXCL. IMPACT OF FOREIGN EXCHANGE AND GROUP STRUCTURE) 08/31/2011 24 - Related party transactions 24.1 - REMUNERATION OF EXECUTIVE OFFICERS Compensation to members of the Management Committee and company officers totaled €4.2 million (including social charges) for the fiscal year ended August 31, 2012, compared with €3.75 million for the fiscal year ended August 31, 2011. There were no share subscription agreements reserved for executive officers or share-based payments. This remuneration breaks down as follows: Short-term benefits €4.2m Post-employment benefits - Other long-term benefits - Severance benefits - 85 Share-based payments - 24.2 - TRANSACTIONS WITH OTHER RELATED PARTIES In line with previous years, the nature of the Group's relations remained unchanged with EXEL SAS, which: invoiced industrial companies for provision of services in the amount of €4.08 million; made its surplus cash available with a maximum amount of €20.0 million, giving rise to remuneration of €141,000 determined on the basis of 1-month Euribor plus 0.35%. 25 - Off-balance sheet commitments and contingent liabilities 25.1 - GUARANTEES GIVEN ON FINANCIAL DEBT Certain medium-term loans are guaranteed by pledges on equipment acquired. At August 31, 2012, the amount of these pledges was not material and represented less than 1% of the gross value of total property, plant and equipment of the Group. Short-term credit lines are generally guaranteed by trade receivables balances with financing. At August 31, 2012, total current bank facilities amounted to €30.7 million and outstanding trade receivables balances net of impairment charges to €102.5 million. No shares of a subsidiary were given as security for loans. 25.2 – OPENING OF MEDIUM-TERM CREDIT LINES In connection with possible acquisitions, EXEL Industries Group's banks granted it a medium-term credit line. At August 31, 2012, none of these credit lines were drawn. 25.3 - GUARANTEES GIVEN In connection with the acquisition of Hardi on December 1, 2007, the EXEL Industries Group granted a guarantee in favor of a Danish bank for all the medium- and short-term credit lines granted by this bank to Hardi and its subsidiaries, but with the limit of a maximum amount of DKK 100 million (i.e. €13.4 million). 25.4 - OTHER COMMITMENTS At August 31, 2012, individual training benefits provided for under French law (droit individuel à la formation or DIF) representing a total amount of 146,435 hours were available. No requests were made to exercise these rights. In consequence they remain contingent liabilities and no provisions have been recorded for this purpose. To the best of the Group's knowledge, it has not omitted to disclose any material off-balance sheet commitments in accordance with applicable accounting standards. 26 - Liquidity risk No loans obtained by EXEL Industries from banks provide for prepayment provisions based on covenants. After performing a specific review of its liquidity risk, the company considers that is has the resources to 86 honor its future payment obligations. 27 - Tax risk To the best of its knowledge, the Group does not have any tax risks for which provisions have not been recorded. 28 - Exposure to exchange rate risk Given the importance of its sales to North America and Australia, as well as US dollar denominated contracts, the Group has an exposure to fluctuations in the exchange rates of these currencies. In the period ended, Group revenue incurred a positive currency effect of €7 million resulting from foreign exchange fluctuations concerning notably the Australian dollar in relation to the average exchange rate for the previous period. The majority of sales by the Group's foreign subsidiaries to non-Group foreign buyers are in euros. Invoices issued in foreign currencies by French subsidiaries of the Group are converted into euros at the exchange rate in force on the date of delivery. Sales and invoices of French subsidiaries of EXEL Industries to their foreign subsidiaries are in euros. As an exception to this general rule, subsidiaries in the US, Canada and the UK subsidiary of Berthoud are invoiced in local currencies and the Chinese subsidiary in US dollars. Foreign subsidiaries of the Group invoice customers in local currency and ensure that these amounts are settled in a timely manner. 29 - Events after the reporting period In October 2012, EXEL Industries acquired 100% of the Hozelock Group from the CVC Capital Partners investment fund and other minority shareholders. Hozelock is one of the leading European manufacturers of gardening equipment, with a full range including watering, spraying, hoses and aquatics (pool equipment). In its last period ended September 30, 2012, Hozelock achieved sales of €95 million. 87 Statutory Auditors' report on the consolidated financial statements To the Shareholders, In accordance with the terms of our engagement as auditors appointed by your general meeting, we hereby report to you for the year ended August 31 2012, on: the audit of the accompanying consolidated financial statements of EXEL Industries; the basis of our assessments; the specific verification required by law. The consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these annual financial statements based on our audit. I. OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS We conducted our audit in accordance with professional standards applicable in France. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examination, on a test basis or other methods of selection, of evidence relevant to the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the audit evidence we have obtained provides a sufficient and appropriate basis for our audit opinion. In our opinion, the consolidated financial statements for the year give a true and fair view of the assets, liabilities, financial position and results of the consolidated group of entities in accordance with IFRS as adopted by the European Union. II. BASIS OF OUR ASSESSMENTS Accounting estimates used to prepare the financial statements for the period ended August 31, 2012, were produced in a context of highly volatile markets and conditions rendering forecasting economic trends difficult. These conditions are described in note 1.17 to the financial statements. It was in this context, in accordance with the provisions of article L. 823-9 of the French Commercial Code (Code de Commerce), that we proceeded with our own assessments based on which we draw to your attention the following matters: As described in notes 1.15 and 1.17 to the consolidated financial statements, the Group has made estimates and formulated assumptions and judgments that affect amounts presented in these financial statements and the notes thereto, notably with respect to the valuation of provisions on the basis of the most recent available data. Based on these estimates, the Group recognized provisions under liabilities in its balance sheet as described in note 13 to the consolidated financial statements. Our work has consisted in evaluating the data and assumptions on which these estimations have been based, reviewing the calculations made by the company and examining the procedures for management's approval of these estimations. Because assumptions are by nature uncertain, especially in the environment of economic crisis referred to above, actual results may differ from these estimates. On this basis, we have assessed the reasonable nature of these estimations. 88 The Group tested goodwill and indefinite life intangible assets for impairment and determined for long-lived assets if there existed an indication of impairment according to the procedures described in note 1.4 of the consolidated financial statements. We have reviewed the procedures used for this impairment test, the estimations concerning future cash flows and assumptions used and have verified that the notes 1.4 and 3 to the consolidated financial statements provide appropriate information. These assessments were made as part of our audit of the consolidated financial statements taken as a whole, and therefore contributed to our opinion expressed in the first part of this report. III. SPECIFIC VERIFICATION As required by law we have also verified, in accordance with professional standards applicable in France, the information relating to the Group given in the management report. We have no matters to report with respect to the fair presentation of this information and its consistency with the consolidated financial statements. Reims and Villeurbanne, December 19, 2012 The Statutory Auditors SA PHILIPPE VENET – GRANT THORNTON DELOITTE & ASSOCIES Philippe Venet Dominique Natale 89 CONDENSED PARENT COMPANY FINANCIAL STATEMENTS I - Balance sheet at August 31, 2012 Separate financial statements - Assets (€ thousands) 08/31/2012 Net intangible fixed assets 08/31/2011 97 109 1,427 1,617 112,951 97,859 114,475 99,585 Trade receivables 1,621 1,100 Other receivables 14,379 16,647 Cash at banks and on hand 23,182 27,412 24 80 39,206 45,238 153,681 144,823 Net tangible fixed assets Financial assets NON-CURRENT ASSETS Accruals CURRENT ASSETS TOTAL ASSETS Separate financial statements - EQUITY & LIABILITIES (€ thousands) 08/31/2012 Capital Share premiums Reserves 08/31/2011 16,970 16,970 2,528 2,528 4,101 4,101 Retained earnings 97,173 92,823 Net income/(loss) for the period 14,734 7,673 924 728 136,430 124,823 4,645 4,424 49 11,008 283 447 Tax and amounts payable to payroll tax agencies 7,010 443 Other payables 2,574 2,314 Accruals 2,688 1,363 12,556 4,568 153,681 144,823 Tax-driven provisions Shareholders’ equity Provisions for contingencies and expenses Financial debt Trade payables and related accounts Trade and other payables TOTAL EQUITY AND LIABILITIES 90 II - Income statement Separate financial statements INCOME STATEMENT (€ thousands) 08/31/2012 08/31/2011 Sales 7,536 5,745 Other operating income 1,107 1,467 8,643 7,213 (1,313) (1,279) Taxes and duties other than on income (148) (123) Payroll (667) (768) Increases in depreciation and amortization, provisions (203) (205) Other expenses (122) (87) (2,453) (2,463) 6,190 4,750 NET FINANCIAL INCOME/(EXPENSE) 14,107 6,146 CURRENT OPERATING INCOME (EBIT) 20,297 10,896 NET EXCEPTIONAL INCOME/(LOSS) (2,176) (4,762) PROFIT BEFORE TAX 18,121 6,133 Corporate income tax (3,387) 1,540 NET INCOME 14,734 7,673 Operating income Operating expenses: Raw materials and consumables Other purchases and external charges Operating expenses Operating profit/(loss) 91 III - Notes to the separate parent company financial statements ANNUAL HIGHLIGHTS During the year, EXEL Industries acquired the Dutch company Agrifac (see table of subsidiaries and associates below). Our company granted debt waivers to certain subsidiaries for a total amount of €2,500,000 accompanied by a "better fortunes" (financial recovery) clause. In addition, one company repaid €800,000 as partial activation of a "better fortunes" clause. These debt waivers and "better fortunes" are recorded in exceptional expenses and income. SIGNIFICANT ACCOUNTING POLICIES, PRINCIPLES AND METHODS - Articles L123-13 to L123-21 of the French Commercial Code (Code de Commerce). 1) COMPLIANCE STATEMENT AND BASIS OF PRESENTATION These condensed financial statements of our company for the fiscal year ended August 31, 2012 were prepared according to French generally accepted accounting principles (French GAAP). The financial statements are on this basis prepared in accordance with the general principles of conservatism in accordance with the basic principles of: Going concern; The consistency principle; and The time period concept; These principles comply with general rules for establishing and presenting annual financial statements. The financial statements for the period were prepared taking into account the current economic and financial crises and on the basis of financial parameters for the market available at the end of the financial year. The immediate effects of the crisis were taken into account in particular in the valuation of such assets as marketable securities. With respect to longer-term assets such as equity interests, the assumption adopted is that the crisis' duration will be limited in time. The value of these assets is reassessed at the end of the financial period based on the long-term economic outlook and Management's best assessment in an environment of reduced visibility with respect to future cash flows. 2) EXCEPTIONS PROVIDED FOR BY THE REGULATIONS - EXEMPTIONS TO ACCOUNTING INSTRUCTIONS It was not necessary to make use of exceptions provided for by regulations to provide a true and fair view of the company. 92 3) INTANGIBLE ASSETS Intangible fixed assets are recognized at purchase cost and amortized on a straight-line basis over following periods: Patents and trademarks: 1 to 10 years Software: 1 year on a prorated basis 4) PROPERTY, PLANT AND EQUIPMENT Tangible fixed assets are recognized at purchase cost or production cost. Economic depreciation is calculated using the straight-line method over the following estimated useful life of the assets: Machinery and equipment: Accelerated method between 3 and 5 years; Hardware: Accelerated and straight-line method between 3 and 5 years; Buildings: Straight-line between 10 and 20 years; Vehicles: Straight-line between 3 and 5 years. Total assets Separate financial statements (€ thousands) Opening gross values Intangible assets Increases Reclassificatio ns Decreases Closing net values 589 0 589 2,693 1 2,694 Equity interests 86,194 117 86,310 Receivables on interests 13,116 15,050 Property, plant and equipment Financial assets: Other equity securities 6 Others 4 TOTAL 102,602 (75) 28,091 6 (1) 15,168 (76) 3 0 117,694 Amortization and depreciation Separate financial statements (€ thousands) Provisions at the beginning of the period Amortization of intangible fixed assets 480 12 0 492 1,076 191 0 1,267 1,556 203 0 1,759 Depreciation of tangible fixed assets TOTAL Allowances Reversals Provisions at the end of the period Changes affecting provisions for accelerated tax depreciations Separate financial statements (€ thousands) Provisions at the beginning of the period 93 Increases Reversals Provisions at the end of the period For tangible fixed assets 0 0 0 1 For acquisition costs for securities 728 197 0 925 Reversal of tax-driven provisions (accelerated tax depreciations) 728 198 0 925 5) FINANCIAL ASSETS The gross value of equity interests and receivables on interests is the acquisition cost. A provision for impairment is recognized where the net carrying value exceeds the recoverable amount. Recoverable value is calculated using various criteria including those used when the interests are acquired, value in use based on the present value of estimated future cash flows and market value as determined in particular from revalued equity. Costs related to the purchase of equity interests are capitalized and amortized over five years as accelerated tax depreciation. Subsidiaries and associates of EXEL Industries (in euros) SUBSIDIARIES AND ASSOCIATES Currenc y Capital Other equity before the appropriatio n of 2012 income Percent age of capital held Carrying value of shares Carrying value of shares Gross Net Loans and advances granted by the company Pledges and guarantee s given by the company Sales 2012 Net income for the last fiscal year in 2012 Dividends received by EXEL Industries in the period 56,044,020 4,551,222 2,079,000 1,253,491 (73,063) 25,000 FRENCH SUBSIDIARIES Berthoud Agricole SAS In euros 1,155,000 17,489,954 100 5,456,542 5,456,542 Capagri SARL In euros 80,000 170,574 100 523,850 523,850 Caruelle Nicolas SAS In euros 537,000 4,410,131 100 5,472,464 5,472,464 17,242,876 169,002 CMC SAS In euros 405,000 243,249 100 843,711 843,711 1,678,671 109,021 282,000 EXEL GSA SAS In euros 2,600,000 6,970,186 100 5,120,167 5,120,167 22,474,632 2,053,892 1,870,000 Herriau SAS In euros 51,000 (511,868) 100 461,273 4,000 1,128,340 1,335,646 229,879 Kremlin Rexson SA In euros 6,720,000 6,588,999 99.48 6,333,528 6,333,528 800,000 37,193,646 98,788 Matrot Equipements SAS In euros 1,050,000 963,216 100 9,783 9,783 1,000,000 31,446,516 (49,665) Moreau SAS In euros 1,000,000 -497,423 100 1,000,000 7,380,000 11,151,548 409,753 Préciculture SAS In euros 419,650 3,975,563 100 1,583,750 1,583,750 35,575,117 1,875,968 RAM Environnement SAS In euros 100,000 6,940 100 76,769 76,769 1,474,547 (131,237) Sames Technologies SAS In euros 6,000,000 6,642,060 100 9,205,979 9,205,979 69,453,186 5,180,445 3,281,250 Tecnoma Technologies SAS In euros 1,174,400 7,355,197 100 6,272,572 6,272,572 51,735,969 1,627,611 1,253,672 2,727,833 (233,355) 0 (4) 215,000 200,000 FOREIGN SUBSIDIARIES Vermorel In euros 54 -1,153,185 100 70 70 Ingelia In 72 10,217 90 2,145 2,145 94 2,941,256 1,292,522 euros EXEL Real Estate USA In euros 1,328,206 267,473 100 1,116,101 1,116,101 Hardi International In euros 13,420,477 33,556,426 100 39,851,597 39,851,597 LLC EMC (Russia) In euros 186,447 359,312 100 183,855 183,855 EXEL Real Estate Australia In euros 3,544,791 1,599,863 100 2,678,848 Agrifac Machinery BV In euros 67,520 (121,040) 100 Other equity holdings In euros 917,648 0 56,165 83,883,093 3,713,836 225,000 6,402,849 293,407 2,678,848 8,507,499 0 596,484 116,782 116,782 9,156,250 21,759,438 (2,684,434 ) 6,631 3,674 86,316,416 84,856,185 32,470,994 670,916 10,754,360 6) INVENTORIES AND WORK IN PROGRESS Not applicable. 7) TRADE RECEIVABLES Receivables are recorded at face value. They are reviewed on a case-by-case basis and a provision is recorded for impairment when risks of noncollection arise. 8) MARKETABLE SECURITIES This line item includes treasury shares held in connection with a market-making agreement and money market funds. At the fiscal year-end, there were 6,641 treasury shares valued at €33.55 per share or a total of €223,000. In the period, the company purchased 30,278 shares at an average price of €33.64 per share and sold 32,720 shares at an average price of €32.93 per share. Surplus cash invested in monetary market funds (SICAV) amounted to €10,478,000. At the fiscal year-end, the carrying value of these items was close to their market value. 9) CORPORATE INCOME TAX The company has been the head of a French tax group within the provisions of tax sharing agreements since 09/01/1993, in accordance with the terms of the agreement of 08/30/1994 effective as of 09/01/1993. Agreement between the parent company and consolidated subsidiaries were drawn up on the basis of fiscal neutrality. Taxes payable are recognized by subsidiaries as if they were taxed separately, with the parent company recording its own tax and the saving or charge resulting from application of the scheme. Income tax as presented in the income statement breaks down as follows: Tax on the company’s taxable income €3,810,000 (identical to the tax that would have been paid in the absence of tax consolidation) Taxes payable abroad €13,000 95 Tax benefit arising from group relief €(352,000) (originating mainly from tax losses of subsidiaries allocated to the results of the tax group) Tax credit of the company Total income tax expenses for the €(84,000) €3,387,000 period (or net income) Breakdown of income tax Profit before tax (€ thousands) Taxes payable Net income/(loss) after tax Current operating income 20,297 (3,792) 16,506 Net exceptional income/(loss) (2,176) 52 (2,124) 352 352 (3,387) 14,734 Impact of tax consolidation BOOK INCOME 18,121 Deferred taxes (€ thousands) Amount Taxes payable on: Regulated provisions (accelerated tax depreciations) 924 Total deferred tax assets 924 Prepaid taxes on: Temporarily disallowed deductions (to be deducted the following year) 2,581 Expenses to be subsequently deducted (nondeductible provisions) 4,977 Total deferred tax liabilities 7,558 Net deferred taxes (6,633) 10) FOREIGN EXCHANGE RISK At August 31, 2012, the company had a cash balance of US$7.20 million. These foreign exchange holdings were not covered by a currency hedge. At August 31, 2012, at the closing USD/€ exchange rate of 1.2611, this balance represented €5.71 million. 11) SHARE CAPITAL The share capital is comprised of 6,787,900 shares fully paid up of €2.5 per share. 12) CHANGE IN SHAREHOLDERS' EQUITY (IN € THOUSANDS) Shareholders’ equity at August 31, 2011 124,822 96 Dividends (3,322) Net income/(loss) for the year 14,734 Change in tax-driven provisions Shareholders’ equity at August 31, 2012 196 136,430 13) PROVISIONS FOR CONTINGENCIES AND EXPENSES Provisions for contingencies and losses are recorded whose purpose and term are clearly defined or whose amount can be reliably determined, when the company has an obligation towards a third party and it is certain or probable that it will result in an outflow of resources with no inflow of resources representing an equivalent amount expected in return. 13.1 - Changes in the period Separate financial statements (€ thousands) Lawsuit contingency provisions for subsidiaries 08/31/2011 Allowance 3,382 145 974 179 Provisions for subsidiary losses Reversal (used provision) Reversal (unused provision) 08/31/2012 (45) 3,482 1,153 Provisions for retirement benefits 11 (1) 10 Provisions for foreign exchange losses 58 (58) 0 TOTAL 4,424 324 (59) (45) 4,644 13.2 - Retirement severance benefits Retirement severance payments under collective bargaining agreements (on the basis of a retirement age of 65) are calculated according to rights vested at August 31, 2012 in accordance with agreement for the metallurgy industry, according to a mortality table, an employee turnover rate, a discount rate and taking into account regular wage increases. The amount of this liability has in part been transferred to a specialized insurance company. 13.3 - Other provisions for contingencies and expenses. For the period in progress, the company increased the net amount of provisions for contingencies to €279,000. Lawsuit contingency provisions for subsidiaries amounted to €3,482,000 at August 31, 2012. These provisions were recognized in the parent company's accounts rather than those of the subsidiaries for reasons of confidentiality and to safeguard the latters' interests as parties to legal proceedings. They concern mainly patent litigation and sales and employee-related disputes. 14) USE OF ESTIMATES To prepare annual financial statements in compliance with the generally accepted accounting principles (French GAAP), the company makes a certain number of estimates and adopts certain assumptions that may have an impact on the amounts disclosed under assets and liabilities. These include amounts recorded under assets and liabilities, information on contingent assets and liabilities on the closing date of the financial 97 statements and amounts recognized under income and expenses for the period. These estimates are based on the assumption of going concern and include assumptions Management considers relevant and feasible in the company's operating environment and based on feedback available. Estimates and assumptions are reviewed on a regular basis and at a minimum at the end of each financial year. They may vary if the circumstances on which they were based change or new information becomes available. Actual results may differ from these estimates. The main estimates made by the company when preparing the financial statements concern notably assumptions adopted for calculations used for the valuation of intangible and intangible assets, equity interest and provisions. 15) ADVANCES TO EXECUTIVE OFFICERS No advances or loans were granted to executive officers for the period under review. 16) RELATED PARTY TRANSACTIONS The company has non-material transactions with related parties or transactions concluded under normal conditions or excluded from the scope of application of regulations 2010-02 and 2010-03 of the French accounting standards Authority (ANC) on related parties. 17) TRADE RECEIVABLES AND PAYABLES Statement of receivables Separate financial statements (€ thousands) Gross amount More than 1 year Up to 1 year Receivables from equity interests 28,091 2,096 Other non-current financial assets 3 3 1,621 1,621 Tax and employee-related receivables 128 128 Group and associates (related parties) 14,197 14,197 78 78 44,118 18,123 Trade receivables Other receivables and accruals TOTAL Loans granted in the period 25,995 25,995 15,870 Repayments received in the period 2,709 Statement of payables Separate financial statements (€ thousands) Financial debt Gross amount Up to 1 year 49 49 283 283 Tax and amounts payable to payroll tax agencies 7,010 7,010 Group and associates (related parties) 1,287 1,287 Other payables and accruals 1,430 1,430 Trade payables 98 More than 1 year More than 5 years TOTAL 10,059 Loans obtained in the period 10,059 0 0 0 Loans repaid in the period 11,000 Breakdown of accrued expenses Trade payables €111,000 Tax and amounts payable €103,000 to payroll tax agencies Other payables €1,243,000 Total accrued expenses €1,457,000 Selected balance sheet information (€ thousands) Affiliates NON-CURRENT ASSETS Equity interests 86,310 Receivables from equity interests 28,091 CURRENT ASSETS Trade receivables and related accounts 1,619 Other receivables 14,197 PAYABLES Trade payables and related accounts 16 Other payables 2,431 18) NET FINANCIAL EXPENSE Separate financial statements (€ thousands) 08/31/2012 Financial income from equity interests 08/31/2011 10,756 8,089 Other interest and similar income 1,213 1,027 Reserves written back to income 58 Foreign exchange gains Net proceeds from the disposal of marketable securities Total income Increases in provisions Interest Foreign exchange losses Net losses from the disposal of marketable securities Total expenses NET FINANCIAL INCOME/(EXPENSE) 2,398 324 43 86 14,468 9,525 0 (1,058) (341) (265) (19) (2,057) 0 0 (360) (3,379) 14,107 6,146 Changes in balances of cash and cash equivalents with affiliates break down as follows: (€ thousands) 08/31/2012 99 08/31/2011 Financial income 11,849 9,059 168 144 Financial expenses 19) NET EXCEPTIONAL INCOME/(LOSS) Separate financial statements (€ thousands) 08/31/2012 Application of a "better fortunes" (financial recovery) clause 08/31/2011 800 Disposal price of decommissioned assets 0 0 8 45 665 0 2 845 674 (2,500) (5,100) 0 (8) Allowances for subsidiary contingencies (325) (134) Allowances for tax-driven provisions (accelerated tax depreciations) (197) (193) 0 (1) TOTAL EXPENSES (3,022) (5,437) NET EXCEPTIONAL INCOME/(LOSS) (2,176) (4,762) Reversal of provisions for subsidiary contingencies Other misc. items Total income Debt waivers granted to subsidiaries NAV of deactivated assets Other misc. items 20) OTHER INFORMATION Financial commitments COMMITMENTS GIVEN (€ thousands) Hardi bank loan guarantee 13,420 13,420 COMMITMENTS RECEIVED (€ thousands) "Better fortunes" (financial recovery) clauses 16,330 16,330 Average number of employees Average number of employees 08/31/2012 08/31/2011 Executive officers and management 4 5 Office staff and workers 2 2 TOTAL 6 7 21) EVENTS AFTER THE REPORTING PERIOD In October 2012, EXEL Industries acquired 100% of the Hozelock Group from the CVC Capital Partners investment fund and other minority shareholders. Hozelock is one of the leading European manufacturers of gardening equipment, with a full range including 100 watering, spraying, hoses and aquatics (pool equipment). In its last period ended September 30, 2012, Hozelock achieved sales of €95 million. IV - Proposed appropriation of net income (in euros) 08/31/2012 08/31/2011 Sources 1. Retained earnings from prior years 97,173,217 92,822,909 2. Net income/(loss) for the year 14,734,134 7,673,482 Appropriations: 3. Legal reserve 0 0 4. Dividends 6,516,384 3,326,071 5. Retained earnings 8,217,750 4,347,411 14,734,134 7,673,482 TOTAL 101 Statutory Auditors' report on the annual financial statements FISCAL YEAR ENDED AUGUST 31, 2012 To the Shareholders, In carrying out the mission entrusted to us by your Annual General Meeting, we hereby present our report for the year ended August, 31 2012, on: the audit of the accompanying annual financial statements of EXEL Industries; the basis of our assessments; the specific procedures and disclosures required by law. These annual financial statements have been approved by the Board of Directors. Our role is to express an opinion on these annual financial statements based on our audit. I. OPINION ON THE ANNUAL FINANCIAL STATEMENTS We conducted our audit in accordance with professional standards applicable in France. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the annual financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the audit evidence we have obtained provides a sufficient and appropriate basis for our audit opinion. In our opinion, the annual financial statements give a true and fair view of the financial position and the assets and liabilities of the company as of August 31, 2012, and the results of its operations for the year then ended in accordance with accounting principles generally accepted in France. II. BASIS OF OUR ASSESSMENTS In application of the terms of article L. 823-9 of the French Commercial Code relating to the basis of our assessments, we bring to your attention the following matters: Accounting estimates used to prepare the financial statements for the period ended August 31, 2012, were produced in a context of highly volatile markets and conditions rendering forecasting economic trends difficult. These conditions are described in note 1 to the financial statements. It was in this context that we proceeded with our own assessments based on which we draw to your attention the following matters: As described in note 14 to the financial statements, the Group has made estimates and formulated assumptions and judgments that affect the amounts presented in these financial statements and the notes thereto, notably with respect to the valuation of provisions for contingencies and expenses on the basis of the most recent available data. Based on these estimates, the company recorded in its balance sheet provisions for lawsuit contingencies. In particular, our work has consisted in evaluating the data and assumptions on which these estimations have been based, reviewing the calculations made by the company and examining 102 the procedures for management's approval of these estimations. Because assumptions are by nature uncertain, especially in the environment of economic crisis referred to above, actual results may differ from these estimates. On this basis, we have assessed the reasonable nature of these estimations. Note 5 to the financial statements on "long-term investments" presents the accounting rules and principles for the valuation of equity interests and related receivables. In connection with our assessment of the accounting policies used by the Company, we have reviewed the appropriate nature of the accounting methods referred to above and the information provided in this note to the financial statements. These assessments were made as part of our audit of the annual financial statements taken as a whole and therefore contribute to the opinion we expressed in the first part of this report. III. SPECIFIC VERIFICATIONS AND INFORMATION We have also carried out the specific verifications required by law. We have no matters to report as to the fair presentation and the consistency with the annual financial statements of the information given in the management report of the Board of Directors and in the documents addressed to shareholders with respect to the financial position and the annual financial statements. Furthermore, with respect to the accuracy of the information provided in the management report on compensation and benefits paid to the corporate directors and officers concerned and commitments granted in their favor at or after such time as they assume, cease or change functions, we have the following observation: The management report does not provide exhaustive information as provided for by article L. 225-102-1 of the French Commercial Code on compensation and benefits paid to each corporate officer during the fiscal year as well as commitments made in their favor in connection with the assumption, change, or termination of functions or subsequent to their appointments as officers. In addition, as required by law, we have ensured that the management report includes the mandatory disclosures on the identity of owners of share capital and voting rights in the company. Reims and Villeurbanne, December 19, 2012 The Statutory Auditors SA PHILIPPE VENET – DELOITTE & ASSOCIES GRANT THORNTON Philippe Venet Dominique Natale 103 Statutory Auditors' special report on regulated agreements and commitments ANNUAL GENERAL MEETING CALLED TO APPROVE THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED AUGUST 31, 2012 To the Shareholders, As your Company's Statutory Auditors, we hereby present our report on regulated agreements and commitments. The terms of our engagement require us to communicate to you, based on information provided to us, the principal terms and conditions of those agreements and commitments brought to our attention or which we may have discovered during the course of our audit, without expressing an opinion on their usefulness and merits or identifying such other agreements and commitments, if any. It is your responsibility, pursuant to article R. 225-31 of the French Commercial Code, to assess the merits of concluding these agreements and commitments for the purpose of approving them. Our role is also to provide you with the information stipulated in article R. 225-31 of the French Commercial Code relating to the implementation during the past year of agreements and commitments previously approved by the Shareholders' Meeting, if any. We performed procedures we deemed necessary in accordance with the professional guidelines of the French National Institute of Statutory Auditors (Compagnie nationale des Commissaires aux Comptes) relating to this engagement. These procedures consisted in verifying that the information provided to us is consistent with the relevant source documents. I - AGREEMENTS AND COMMITMENTS SUBMITTED FOR APPROVAL TO THE GENERAL MEETING Pursuant to article L. 225-40 of the French Commercial Code, we have been advised of the following agreements and commitments previously authorized by your Board of Directors. 1.1 WITH MOREAU On August 30, 2012, your Board of Directors authorized your company to grant a debt waiver to Moreau for an amount of up to €2.3 million. This debt waiver was accompanied by a "better fortunes" clause that will be applied when Moreau's shareholders' equity has been reconstituted and its net equity is positive. In this case, up to 90% of profit before tax will be repaid to your Company by Moreau in the same period. The amount of debt thus canceled under this waiver totaled €2.3 million as confirmed by your Board of Directors on November 27, 2012. 1.2 WITH EXEL NORTH AMERICA INC On April 11, 2012, your Board of Directors granted a US$7 million loan to EXEL North America Inc. over eight years at 1-year Euribor plus 2.10%. This loan accrues with the previous advance of US$1 million. At August 31, 2012, the outstanding amount was US$8,000,000, i.e. €6,343,669. Interest income of €91,288 104 on this loan was recognized in the period. II - AGREEMENTS AND COMMITMENTS APPROVED IN PRIOR PERIODS THAT REMAINED IN FORCE DURING THE PERIOD ENDED Pursuant to article R. 225-30 of the French Commercial Code, we have been informed that the following agreements and commitments, previously approved by General Meetings of prior years, have remained in force during the year. 2.1 WITH KREMLIN REXSON On August 26, 2010, and August 30, 2011, your company granted debt waivers for €3,000,000 to Kremlin Rexson. These debt waivers are accompanied by a "better fortunes" (financial recovery) clause that will become enforceable as soon as Kremlin Rexson's operating margin exceeds 1%. In this case, an amount will be repaid in the same period representing up to 90% of current operating income (EBIT). During the period, and in line with KREMLIN REXSON’s results, this company repaid the debt waiver in the amount of €800,000. The remaining balance payable at August 31, 2012 in connection with the debt waivers totaled €2,200,000. 2.2 WITH HARDI INTERNATIONAL On December 9, 2010, your Board of Directors authorized your company to extend the guarantee granted by EXEL Industries to a Danish bank for up to DKK 600 million (or €80 million) for a term not to exceed November 30, 2012 (with an option to negotiate a lesser amount and/or shorter period with this bank). 2.3 WITH ERE AUSTRALIA On August 26, 2010, your Board of Directors granted a 15-year loan for AUD 12,975,000 paying a 5% rate of interest, subject to annual revision. Interest income of €436,309 on this loan was recognized in the period. At August 31, 2012, the balance remaining due was AUD 10,380,000, i.e. €8,507,500. 2.4 WITH VERMOREL On June 9, 2006, your Board of Directors granted a €3 million loan to Vermorel at interest based on the 3month Euribor plus 0.35%. The loan agreement amendments of December 12, 2008 and January 29, 2009 increased the amount granted to €5 million and extended the term of the loan for 5 years to February 28, 2014. At August 31, 2012, the outstanding amount was €2,941,256. Interest income of €39,852 on this loan was recognized in the period. 2.5 WITH EMC RUSSIA On August 26, 2010, your Board of Directors authorized granting a 5-year €300,000 loan subject to 3month Euribor plus 0.50%, generating interest income of €4,353 in the period. At August 31, 2012, the balance remaining due was €225,000. 2.6 WITH MOREAU 105 On August 27, 2008, August 27, 2009, and August 30, 2011, your company granted debt waivers totaling €4,200,000 to Moreau. These debt waivers were accompanied by a "better fortunes" clause that will become enforceable when Moreau's shareholders' equity has been reconstituted and its net equity is positive. In this case, an amount of up to 90% of its profit before tax will be repaid in the same period. No amounts were repaid in the period under the provisions of a "better fortunes" clause as the conditions for applying this clause had not been met. 2.7 WITH HERRIAU On November 20, 2007 your company granted Herriau a debt waiver for €1,900,000. This debt waiver was accompanied by a "better fortunes" clause that must be enforced when Herriau's shareholders' equity has been reconstituted and its net equity is positive. In this case, an amount of up to 90% of its current operating income will be repaid in the same period. No amounts were repaid in the period under the provisions of a "better fortunes" clause as the conditions for applying this clause had not been met. 2.8 WITH MATROT EQUIPEMENTS On July 1, 2002 your company granted Matrot Equipements a debt waiver for €12.9 million accompanied by a "better fortunes" clause. This "better fortunes" clause becomes enforceable as soon as Matrot Equipements generates a positive current operating income. In this case, Matrot Equipements will repay your company an amount corresponding to at least 50% of its current operating income subject to the condition that this amount does not generate a loss in Matrot Equipements' accounts. No amounts were repaid in the period under the provisions of a "better fortunes" clause as the conditions for applying this clause had not been met. The remaining balance payable at August 31, 2012, in connection with this debt waiver totaled €3,630,000. On August 30, 2011, your Board of Directors authorized your company to grant a debt waiver to Matrot Equipements for an amount of up to €1,900,000. This debt waiver was accompanied by a "better fortunes" clause that will be applied when Matrot Equipements' shareholders' equity has been reconstituted and its net equity is positive. In this case, an amount representing up to 90% of Matrot Equipements' profit before tax will be repaid to your company in the same period. No amounts were repaid in the period under the provisions of a "better fortunes" clause as the conditions for applying this clause had not been met. The remaining balance payable at August 31, 2012, in connection with this debt waiver totaled €1,900,000. 106 III - PERSONS CONCERNED BY REGULATED AGREEMENTS Patrick Ballu Chairman of the Board of Directors Guerric Ballu Chief Executive Officer and Director Marc Ballu Deputy Chief Executive Officer and Director Cyril Ballu Deputy Chief Executive Officer - - - - Director Chairman of the Board of Directors - - Chairman Member of the Board - - SAS MOREAU - - - - ENA USA - - - - COMPANIES CONCERNED SC VERMOREL SRL SA KREMLIN REXSON HARDI INTERNATIONAL A/S Reims and Villeurbanne, December 19, 2012 The Statutory Auditors SA PHILIPPE VENET – GRANT THORNTON DELOITTE & ASSOCIES Philippe Venet Dominique Natale 107 REGULATED AGREEMENTS I - ADVANCES, LOANS AND OTHER RECEIVABLES (IN EUROS) ADVANCES, LOANS AND OTHER RECEIVABLES GRANTED BY RECEIVED BY AMOUNT at 08/31/2012 INCOME (EXPENSES) RECOGNIZED at 08/31/2012 TERMS Loan agreement (3-month Euribor plus 0.35%) €40,000 €918,000 Loan agreement (5% per annum) US$62,000 (approx. €48,000) ERE Australia €8,507,000 Loan agreement (5% per annum) AUD 557,000 (approx. €438,000) SA EXEL Industries EMC Russia €225,000 Loan agreement (3-month Euribor plus 0.5%) €4,000 SA EXEL Industries ENA USA €6,344,000 Loan agreement (1-year Euribor plus 2.1%) US$115,000 (approx. €88,000) SA EXEL Industries SC VERMOREL SRL €2,941,000 SA EXEL Industries ERE USA SA EXEL Industries II - OTHER AGREEMENTS COMPANIES CONCERNED NATURE, PURPOSE, TERMS OF AGREEMENTS SA KREMLIN REXSON Repayment - under the "better fortunes" clause - on debt waivers HARDI INTERNATIONAL A/S The Hardi Group’s net financial debt with respect to a Danish bank is covered by a guarantee given by SA EXEL Industries within the limit of an amount of DKK 100 million at 08/31/2012 (i.e. €13.4 million) SAS MOREAU INCOME (EXPENSES) RECOGNIZED at 08/31/2012 €800,000 €(2,300,000) Debt waiver with a "better fortunes" clause III - PERSONS CONCERNED BY REGULATED AGREEMENTS COMPANIES CONCERNED Patrick Ballu Chairman of the Board of Directors Guerric Ballu Chief Executive Officer and Director Marc Ballu Deputy Chief Executive Officer and Director Cyril Ballu Deputy Chief Executive Officer SC VERMOREL SRL - - - - SA KREMLIN REXSON Director Chairman of the Board of Directors - - HARDI INTERNATIONAL A/S Chairman Member of the Board - - SAS MOREAU - - - - ENA USA - - - - 108 CORPORATE GOVERNANCE Directors and officers of SA EXEL Industries 110 Audit Committee 111 Group Management and Strategy Committee 111 Offices and positions held by each corporate officer of EXEL Industries SA 113 Auditors’ fees 113 Report by the Chairman of the Board of Directors 114 Statutory Auditors' report on the Chairman's report 120 109 Directors and officers of SA EXEL Industries CHAIRMAN OF THE BOARD OF DIRECTORS M. Patrick Ballu - Appointed as Chairman and Chief Executive Officer on September 13, 1980 and subsequently reappointed, lastly by the AGM of January 25, 2011, for a term of office expiring at the end of the AGM called to approve the 2016 financial statements. The Board meeting of April 22, 2011 decided to modify corporate governance procedures involving a separation of the powers of executive management. Pursuant to this change Patrick Ballu retained his functions as Chairman of the Board of Directors. CHIEF EXECUTIVE OFFICER AND DIRECTOR Guerric Ballu - Appointed by the AGM of February 26, 2008 for a term of office expiring at the end of the AGM called to approve the 2014 financial statements. By decision of the Board meeting of April 22, 2011, and pursuant to the separation of executive management powers, he thereupon assumed the functions of Chief Executive Officer. DEPUTY CHIEF EXECUTIVE OFFICERS Marc Ballu, Franck Ballu and Cyril Ballu - Appointed as Deputy CEOs by the Board meeting of October 26, 2005 for terms of office equivalent to those of the Chairman and Chief Executive Officer. Their appointments were renewed by the Board of Directors' meeting of January 25, 2011 for terms of office equivalent to that of the Chairman. Then, at the meeting of the Board of Directors held on April 22, 2011, their terms of office were renewed. BOARD MEMBERS René Marchese - Appointed February 2, 1995 and reappointed February 24, 1998, February 19, 2004 and January 25, 2010 whose current term expires at the end of the AGM called to approve the 2015 financial statements. EXEL SAS, represented by Marie-Pierre du Cray-Sirieix - a Company appointed Director by the AGM of February 2, 1995, and subsequently reappointed, lastly by the AGM of January 25, 2011, for a term of office expiring at the end of the AGM called to approve the 2016 financial statements. Marc Ballu - Appointed by the AGM of January 24, 2012, for a term of office expiring at the end of the AGM called to approve the 2017 financial statements. INDEPENDENT DIRECTORS Marie-Claude Bernal - Appointed by the AGM of January 24, 2012, for a term of office expiring at the end of the AGM called to approve the 2017 financial statements. Claude Lopez - Appointed by co-optation by the Board of Directors on April 11, 2012, to replace René Marchese – outgoing. Claude Lopez was appointed for his predecessor’s remaining term of office, i.e. until the end of the AGM called to approve the 2015 financial statements – subject to ratification by the next AGM held on January 22, 2013. 110 Audit Committee In accordance with article L 823-19 of the French Commercial Code, the company has opted for the Board of Directors to assume the role of Audit Committee as well. Since December 9, 2011, the Board of Directors' meeting has authorized the expansion of the Audit Committee with the addition of Marie-Claude Bernal and decided that she would assure the chairmanship of this committee, thus replacing René Marchese. In addition, on April 11, 2012, the Board of Directors authorized the addition to the Audit Committee of Claude Lopez. This Committee is responsible notably for overseeing: the process for producing financial information with reporting; the efficiency of the internal control systems; identification and audit of risk management; the statutory audit by the Auditors of the separate parent company and consolidated financial statements; the independence of the Statutory Auditors. Group Management and Strategy Committee This Committee is comprised mainly of Managing Directors of Group subsidiaries. Its purpose is to examine and make strategic decisions with respect to the major priorities to be adopted for the Group's development. The members of the Group Management and Strategy Committee are as follows: Patrick Ballu - Chairman of the Board of Directors of SA EXEL Industries, - Director of SA Kremlin Rexson, - Chairman of Hardi International A/S; Guerric Ballu - CEO of the EXEL industries Group, - Chairman of the Board of Directors of SA Kremlin Rexson, - Representing the Chairman of EXEL Industries in SAS Berthoud Agricole, Caruelle Nicolas, CMC, EXEL gsa, Préciculture, RAM Environnement, Sames Technologies and Tecnoma Technologies, - Representing the Chairman of Kremlin Rexson in SAS API Technologies and SCM, - Director (Member of the Board) of Agrifac Machinery BV; Marc Ballu - Group Director of Strategy and Development, - Deputy CEO of SA EXEL Industries, 111 - CEO of SAS EXEL gsa, - Representative of SA EXEL Industries, Director company of SA Kremlin Rexson; Franck Ballu - CEO of SAS Capagri; Marie-Pierre du Cray-Sirieix - Group General Counsel; Jérôme Denormandie - CEO of SAS Matrot Equipements; Sten Kjelstrup - CEO and President of Hardi International A/S, - Representative of the Chairman of Hardi International A/S in SAS Hardi-Evrard and SAS Hardi Service; Dominique Lagouge - CEO of SA Kremlin Rexson, - CEO of SAS API Technologies; Pierre Nieuviarts - CEO of SAS Herriau, - CEO of SAS Moreau, - Manager of the SCI subsidiaries of both these companies; Cédric Perres - CEO of SAS Sames Technologies; Bertrand Pignolet - CEO of SAS Tecnoma Technologies, - CEO of SAS Préciculture, - CEO of SAS CMC; Sébastien Roche CEO of SAS Berthoud Agricole; Sylvain Rousseau - Group CFO; Daniel Tragus - Vice-Chairman of Hardi International A/S, - CEO of SAS Hardi-Evrard, - Representative of SAS EXEL, Director company of SA Kremlin Rexson, - Director (Member of the Board) of Agrifac Machinery BV; Christophe Turpin-Invernon - CEO of SAS Caruelle Nicolas, - CEO of SAS RAM Environnement. 112 Offices and positions held by each corporate officer of EXEL Industries SA See page 32, paragraph 10.3 Auditors’ fees Deloitte Group Amount at 08/31/2012 Other auditors Amount at 08/31/2011 % % Amount at 08/31/2012 % Amount at 08/31/2011 % Auditing services Auditing, certification, examination of the separate and consolidated accounts 572,697 81% 536,913 89% 360,949 82% 305,634 95% Other related services and audit assignments 133,466 19% 67,744 11% 79,950 18% 14,525 5% 706,162 100% 604,657 100% 440,898 100% 320,159 100% 3,000 0% 0 0% 0 0% 0 0 0 0% 0 0% 0 0% 0 0% 3,000 0% 0 0% 0 0% 0 0% 709,162 100% 604,657 100% 440,898 100% 320,159 100% Subtotal Other services Legal, tax, employee-related assignments Others Subtotal TOTAL 113 Report by the Chairman of the Board of Directors ON THE CONDITIONS OF PREPARATION AND ORGANIZATION OF THE WORK OF THE BOARD OF DIRECTORS AND INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES To the shareholders, As a supplement to our Annual Report and in accordance with the French Financial Security Act No. 2003706 of August 1, 2003 (as amended by Act No. 2008-649 of July 3, 2008, I hereby report to you on the preparation and organization of the Board of Directors' work and the internal control and risk management procedures implemented by our company. This Report will be submitted for approval to the Board of Directors. The Auditors will in turn present their observations on the internal control procedures with respect to the preparation and processing of accounting and financial information in their special report issued for this purpose and accompanying their report on the annual financial statements. I - CONDITIONS OF PREPARATION AND ORGANIZATION OF THE BOARD'S WORK COMPOSITION OF THE BOARD OF DIRECTORS Our company is managed by a Board of Directors that currently has six members, each possessing at least one share of the company in accordance with article 14 of the Articles of Association. Our Board of Directors does not include any Director elected by employees but benefits from the experience of two Independent Directors: Marie-Claude Bernal and Claude Lopez. Directors are appointed for six-year terms that are renewed for periods of the same duration. BOARD ROLE AND OPERATING PROCEDURES Its traditional role The Board of Directors sets the company's business priorities, ensures their implementation and performs the controls and verifications it considers appropriate. Subject to the powers expressly granted to shareholders' meetings and within the limits of the company's corporate charter, the Board may address all matters pertaining to the proper management of the company and settle all items of business relating thereto. Operating procedures The Board meeting of April 22, 2011 decided to modify corporate governance procedures by separating the powers of executive management between a Chief Executive Officer (Directeur Général) and a Chairman of the Board of Directors. Under my Chairmanship our Board of Directors meets as often as the interests of the company require. Board of Directors' meetings are called and chaired by me as the Chairman with responsibility for organizing and overseeing the Board's work. I also ensure that corporate bodies effectively perform their functions. Decisions by the Board are made in accordance with the conditions of quorum and majority voting requirements provided for by law. In the event of a tie, the vote of the Chairman prevails. In the fiscal year ended August 31, 2012, the Board of Directors met six times. 114 Decisions at these Board meetings were taken on the basis of a unanimous vote by Directors present or represented. AUDIT COMMITTEE ROLE AND OPERATING PROCEDURES Membership In accordance with article L 823-19 of the French Commercial Code, our company has opted for the Board of Directors to assume the role of Audit Committee as well. Since December 9, 2011, the Board of Directors' meeting has authorized the expansion of the Audit Committee with the addition of Marie-Claude Bernal and decided that she would assure the chairmanship of this committee, owing to her independence and her financial and accounting skills. In addition, on April 11, 2012, the Board of Directors authorized the addition to the Audit Committee of Claude Lopez. At the same Board meeting, Claude Lopez was appointed a new Director by co-optation, replacing René Marchese, outgoing Director. This appointment will be ratified by the next AGM, to be held on January 22, 2013. Its role and assignments This Committee is responsible notably for overseeing: the process for producing financial information with reporting; the efficiency of the internal audit systems; identification and audit of risk management; the statutory audit by the Auditors of the separate parent company and consolidated financial statements; the independence of the Statutory Auditors. Operating procedures In the fiscal year ended 08/31/2012, the Audit Committee met on December 9, 2011, and April 11, 2012. It is also meeting this coming Monday December 10, with the following agenda: Approval of the Minutes of the meeting of the Audit Committee held on 04/11/2012; Review and approval of the 2011/2012 annual results; Review of the Announcement Letter of the 2011/2012 annual results; The Statutory Auditors’ report; Update on the procedure for disclosing quiet periods and the list of insiders; Update on the Letters of Affirmation; Update on the audit procedure; Update on putting risk management in place. The Audit Committee reported to the Board of Directors (acting as a collegial body) on the performance of its missions and will do so at least twice year in connection with the half-year and annual financial closings and immediately notify the Board of any difficulty encountered. II - INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES DEFINITION AND OBJECTIVES OF INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES Internal control covers all systems adopted by executive management for the purpose of providing reasonable 115 assurance with respect to the: The reality and effectiveness of transactions; The reliability of reporting; Compliance with laws and regulations in force; Asset protection; Risk management in all areas. One of the purposes of the internal control risk management system is to prevent and effectively manage risks associated with business operations of the company and its subsidiaries. Risk management covers not only financial risks (exchange rates, interest rates, etc.) but also operational risks (IT, fraud, environmental, employee-related, legal, online reputational risks, etc.). As with all systems of control, it cannot however provide an absolute guarantee that such risks will be fully eliminated. ORGANIZATION OF INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES The internal control and risk management environment Our group is a pure player operating in a single business across three markets: farming, manufacturing and retail consumers. Our activities cover the design, manufacture and sale of spraying equipment through wholly-owned manufacturing or sales subsidiaries, some of which also have in turn foreign distribution or manufacturing subsidiaries. Parties involved in internal control and risk management procedures By virtue of its powers and responsibilities for exercising oversight and setting priorities, the Board of Directors assures the primary role in the company's internal control and risk management system with the assistance of the Audit Committee. Executive Management of our Company is provided by a CEO in direct collaboration with the Chairman of the Board of Directors. It is also assisted by three Deputy CEOs. These different executive officers devote considerable time in the subsidiaries to ensure that their operations are effectively managed and to meet their CEO. Executive Management is vested with the broadest powers to act in all circumstances in the name of the company. It exercises its powers within the limits set by the company's corporate charter and the powers expressly granted by law to shareholders' meetings and the Board of Directors. INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES Within our subsidiaries Internal controls for accounting and finance and risk management procedures exist within each subsidiary. Within the guidelines set by the Group, each subsidiary has full autonomy with respect to marketing, employee-related issues, finance and risk management. Under the authority of a chief executive officer (Directeur Général) and as the subsidiary's executive officer with responsibility for the day-to-day application of internal control and risk management procedures, the subsidiary has all resources required to: monitor its performance and management; ensure effective risk management. 116 Executive Management of the Group is responsible for the effectiveness of the controls put in place in the subsidiaries and requires that they be strengthened if deemed necessary. The organization of the Finance Department The process of financial closings is organized on the basis of a schedule and plan established by the Group for each of its subsidiaries. Each subsidiary is responsible for producing its financial statements, drawing up its budget, annual accounts and defining its cash flow requirements. The Group's Corporate Finance Department is responsible for producing the consolidated financial statements and exercising oversight over subsidiary reporting. This department also ensures Group procedures are properly applied by subsidiaries for consistency in financial statements and conducts audits when it deems necessary. The Corporate Finance Department coordinates cash management decisions for each subsidiary through the Group's centralized cash pooling system. Organization of risk management To ensure the sustainability of its operating activities, the Group must ensure that the appropriate risk prevention and risk management procedures are in place. To this purpose, Group companies have identified the main risks incurred in connection with their activities. Procedures to manage certain risks have been adopted in consequence. On this basis, the Group has adopted solutions to limit the financial impact of risks notably through Group-level insurance programs and managed by the Group’s Legal Department. To supplement risk management, Executive Management has decided to put in place working groups charged with drawing up an exhaustive list of risks, with a hierarchy of priorities. With respect to the environment, the Group's policy is to promote sustainable development and its strategy for innovation consequently incorporates this objective. Within each subsidiary and through the products we manufacture, we are increasingly focusing on improving operator safety and preserving the environment. These two objectives in effect constitute integral parts of all manufacturing specifications for our products and equipment. Quality control checks are performed on our products and equipment at the different stages of production. To ensure that its activities comply at all times with applicable laws and regulations, the Group is assisted by its Legal Department that works, when necessary, with specialized lawyers. The Legal Department centralizes and coordinates the handling of legal matters for all Group subsidiaries. It also manages and monitors disputes, in collaboration with the subsidiaries concerned. Safeguarding intellectual and industrial property that constitutes a major Group strength represents a key priority. These property rights are subject to rigorous oversight with the support of outside lawyers. III - Other procedures (provided for in the French Act 2008-649 of July 3, 2008 - Art. 26) CORPORATE GOVERNANCE EXEL Industries Group is a closely-held corporation with members of one family holding the majority interest and serving as corporate officers. 117 The Group is committed to the principles of ethical business conduct and good corporate governance: Because of its size and specific characteristics, our Group does not apply a specific code of corporate governance. Its corporate governance organization nevertheless applies the principles of selected recommendations of the corporate governance code of Middlenext, the independent French association representing listed SMEs and MidCaps. Accordingly, the Board of Directors has six members including two Independent Directors according to the criteria of the Middlenext Corporate Governance Code. The Chairman of the Board of Directors and Chief Executive Officer of our company as well as the other executive officers do not have employment contracts in addition to their corporate offices. Furthermore, they do not have special supplemental retirement benefits ("Top Hat" plans) or options to subscribe for shares or special severance benefits payable if they cease to exercise their functions (golden parachutes). The Chief Executive Officer of our company is vested sufficiently broad powers to fully exercise responsibility over strategy, with the assistance of a Strategic Committee and a Director of Development and Strategy. At the same time, he benefits from the necessary expertise provided by the Chairman of the Board of Directors and members of the Audit Committee and Strategy Committee. For a number of years already, the Chairman has made decisions for ensuring a smooth transition in management when the time arises. The Board meeting of April 22, 2011 decided to modify corporate governance procedures involving a separation of the powers of executive management. The Executive Management has since been assured by Guerric Ballu in direct collaboration with Patrick Ballu, Chairman of the Board of Directors. As for shareholders, they continue to be kept reasonably informed about major foreseeable risks that could potentially jeopardize the continuing operations of the company and its subsidiaries. Finally, our company has a solid understanding of its shareholder base and seeks to strengthen long-term shareholder commitment (notably by granting double voting rights for shares held more than four years). RULES FOR SHAREHOLDER PARTICIPATION IN MEETINGS All shareholders are entitled to participate in Meetings. However to participate, vote by mail or be represented at Meetings, shareholders must no later than three business days before the Meeting by midnight (Paris time): if a holder of registered shares, be listed in the registered shareholders account maintained by the company; or, if a holder of bearer shares, provide a participation certificate (attestation de participation) issued by the bank or broker managing these shares confirming their status as shareholders on the meeting date. Shareholders who do not personally attend the Meetings may choose one of the following three options: grant a proxy to another shareholder or his or her spouse; send a proxy form to the company without specifying the proxy's name; vote by mail. DETERMINING FINANCIAL COMPENSATION AND BENEFITS FOR CORPORATE OFFICERS The principles and rules set by the Board of Directors to determine compensation and benefits to be granted to corporate officers are based on criteria relating to their respective skills, experience and responsibilities. 118 In addition, being among the company's main shareholders, certain of the corporate officers have a financial interest through the growth of their personal assets that consist in large part of EXEL Industries shares they directly or indirectly hold and dividend payments. The Chairman of the Board of Directors December 10, 2012 119 Statutory Auditors' report on the Chairman's report ISSUED IN ACCORDANCE WITH ARTICLE L 225-235 OF THE FRENCH COMMERCIAL CODE FISCAL YEAR ENDED AUGUST 31, 2012 To the Shareholders, In our capacity as Statutory Auditors of EXEL Industries and in accordance with the provisions of article L. 225-235 of the French Commercial Code (Code de Commerce), we hereby present our report on the report prepared by the Chairman of your company in accordance with article L. 225-37 of the French Commercial Code for the fiscal year ended August 31, 2012. It is the Chairman's responsibility to prepare, and submit to the Board of Directors for approval, a report on the internal control and risk management procedures implemented by the company and containing the other disclosures required by article L. 225-37 of the French Commercial Code, particularly in terms of corporate governance. It is our responsibility to: Report to you on the information contained in the Chairman's report with respect to the internal control and risk management procedures relating to the preparation and processing of accounting and financial information; and Certify that the report contains the other information required by article L. 225-37 of the French Commercial Code, while specifying that we are not responsible for verifying the fairness of this other information. We have carried out our work in accordance with the professional standards and practices applicable in France. 120 Information concerning the internal control and risk management procedures relating to the preparation and processing of financial and accounting information This standard requires us to perform procedures to assess the fairness of the information set out in the Chairman's report on the internal control and risk management procedures relating to the preparation and processing of financial and accounting information. These procedures mainly consist of: Obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of financial and accounting information, on which the information presented in the Chairman's report is based, as well as reviewing supporting documentation; obtaining an understanding of the work performed to prepare this information, as well as reviewing supporting documentation; taking note of the valuation process put in place and assessing the quality and adequacy of its documentation, as regards the information related to assessing the internal control and risk management procedures; establishing whether major weaknesses in the internal control procedures relating to the preparation and processing of accounting and financial information that we have identified in carrying out our work are appropriately covered in the Chairman’s report. On the basis of these procedures, we have no matters to report in connection with the information given on the internal control and risk management procedures relating to the preparation and processing of financial and accounting information, contained in the Chairman's report, prepared in accordance with article L. 225-37 of the French Commercial Code. Other disclosures We hereby certify that the Chairman's report includes the other disclosures required by article L. 225-37 of the French Commercial Code. Reims and Villeurbanne, December 19, 2012 The Statutory Auditors SA PHILIPPE VENET – GRANT THORNTON DELOITTE & ASSOCIES Philippe Venet Dominique Natale 121 INFORMATION ON THE COMPANY AND ITS SHARE CAPITAL Statutory information on EXEL Industries Information on EXEL Industries' share capital Securities giving access to the share capital Information on pledges Shareholders’ agreement Dividends 123 127 127 127 127 127 122 Statutory information on EXEL Industries COMPANY NAME: EXEL Industries HEADQUARTERS: 54 rue Marcel Paul, 51200 Epernay - France LEGAL FORM: A French public limited company (Société Anonyme) with a Board of Directors. Amendment of the Articles of Association (Statuts) to comply with the provisions of Act 2001-420 of May 15, 2001 (New Economic Regulations Act).(see articles 13, 18, 19, 20 and 21 of the Articles of Association). NATIONALITY: French DATE OF INCORPORATION: August 4, 1952 TERM Ninety-nine (99) years effective from its date of entry in the Trade and Companies Register (Registre du Commerce et des Sociétés) or until August 3, 2051 barring early liquidation or extension. CORPORATE CHARTER (ARTICLE 3 OF THE ARTICLES OF ASSOCIATION): "The company's corporate purpose is to, in France and in any other country, directly or indirectly, conduct research, manufacture and market, equipment, materials and services used mainly for industrial or consumer agriculture, as well any commercial, industrial, financial, securities or real estate transactions relating directly or indirectly to the purposes stated above or any similar and related activities contributing thereto and that directly or indirectly contribute to the company's continuing operations and development". FRENCH TRADE AND COMPANY REGISTER RCS REIMS B 095 550 356 APE CODE: 2830Z PLACE WHERE DOCUMENTS AND INFORMATION CONCERNING THE COMPANY CAN BE CONSULTED: The Articles of Association, minutes of meetings and other corporate, legal or accounting documents may be consulted at the Group's registered office: Epernay (51200) - 54 rue Marcel Paul, (the Legal and Finance Departments), subject to the terms and times provided for by legislation in force concerning shareholders' rights to information. FISCAL YEAR: 123 The fiscal year commences on September 1 and ends on August 31 of each year. DELIBERATIONS OF THE BOARD OF DIRECTORS (ARTICLE 17 OF THE ARTICLES OF ASSOCIATION) "17.1 Directors are called to Board meetings by all available means (including electronic messaging, remote transmission, videoconferencing, etc.) and including orally. All Directors may attend, participate and vote in Board meetings through videoconferencing and telecommunications means under conditions provided for by regulations in force at that time. A record of attendance is maintained that is signed by Directors participating in the Board meeting". AGMS (ARTICLE 23 OF THE ARTICLES OF ASSOCIATION): "Shareholders' meetings are called and conduct proceedings according to procedures defined by statutes and applicable regulations. They are to be held at the registered office or at any other venue indicated in the notice of meeting. The General Meeting is chaired by the Chairman of the Board of Directors or by the Director temporarily appointed for this purpose or, barring this, by a Vice Chairman. If the Chairman, the Director temporarily appointed for that purpose or the Vice Chairmen are absent at the same time, the Meeting is then chaired by the Director designated by the Board or, barring this, a person selected by the Meeting. Proceedings of the meeting are recorded in minutes signed by the Officers of the Meeting. Subject to restrictions provided for by law or resulting from its application, any shareholder may attend general meetings and proceedings in person or through a representative, regardless of the number of his or her shares, subject to providing proof of identity, and provided that no payments are due on said shares. The right to attend the shareholders meetings is evidenced by an accounting entry showing the number of shares in the name of the shareholder of record (or the intermediary of record for the account) on the third business day preceding the meeting at midnight (Paris time): either in the registered share accounts maintained by the company or its agent; or in bearer share accounts maintained by an authorized intermediary; in this latter case, the corresponding book entry must be evidenced by a certificate of attendance (attestation de participation) issued by the authorized intermediary that is to be attached to the voting form or the proxy or the request for an admission card (carte d'admission) mentioning the name of the shareholder. However, the Board of Directors may reduce or set aside these time requirements provided that this is to the benefit of all shareholders. Any shareholder may vote by mail using a form that may be obtained according to the conditions indicated by the meeting notice. A shareholder may only be represented by his/her spouse, or by another shareholder holding a valid proxy. Votes in Meetings can be cast through all means (notably electronic means, teletransmission, videoconferencing, etc.), in accordance with the conditions established by regulations and set forth in the meeting notice". 124 TRANSFER AND TRANSMISSION OF SHARES (ARTICLE 10 OF THE ARTICLES OF ASSOCIATION): No provisions of the Articles of Association imposed restrictions on the transfer of shares. DOUBLE VOTING RIGHTS (ARTICLE 12 OF THE ARTICLES OF ASSOCIATION): shares that are fully paid up for which it is evidenced that they have been held in registered form in the name of the same shareholder for at least four years, carry a double voting right. This four- year period commences when the shares are recorded in registered form". The double voting right was introduced by the Extraordinary General Meeting of May 26, 1997 (Resolution 12). The double voting rights ceases to exist for any share converted to bearer form or on transfer, excluding transfers from one registered shareholder to another pursuant to inheritance or a gift to a qualifying family member (see applicable laws and regulations). APPROPRIATION AND DISTRIBUTION OF EARNINGS (ARTICLE 25 OF THE ARTICLES OF ASSOCIATION) "The income statement summarizes revenue and expense items of the period. It presents, after deducting allowances for depreciation, amortization and provisions, the profit or loss of the period. From this profit, less accumulated losses of prior periods, when applicable, are deducted". "At least 5% to be appropriated to reserves as required by law. This obligation remains in force until the reserve amount equals 10% of the common stock and resumes when, for any reason, the reserve amount falls below this percentage." "And all amounts appropriated to reserves required by law". "The balance, plus profits brought forward, constitutes the distributable earnings for the year. This amount is available to the General Meeting, pursuant to a proposal by the Board, for distribution in part or in full as dividends, allocation to all reserves, repayment of the capital or to be carried forward to retained earnings". "The shareholders' meeting, called to approve the financial statements for the period, may grant shareholders the choice of receiving a dividend in the form of cash or shares for all or part of the dividend to be distributed". "Reserves available to the General Meeting may be used on its decision, for the payment of dividends. Such decision expressly indicates the reserve accounts from which the amounts are drawn". SHARE REPURCHASE PROGRAM In light of regulations in force, in accordance with article L 225-209 of the French Commercial Code (Code de Commerce), and the Information Memorandum, the Annual General Meeting of January 24, 2012 granted the Board of Directors an authorization for a period of 18 months from the date of this Meeting to repurchase shares of the company in accordance with the following terms and conditions: These share buybacks may be carried out in accordance with the limits provided for by laws and regulations applicable at the time of said transactions and in accordance with the purposes and procedures set forth below. The maximum number of shares purchased by the company under this authorization may not exceed 10% of its current share capital. 125 These shares may be acquired on one or more occasions and through any means for the following purposes: Market-making or share liquidity services provided by an Investment Service Provider through a liquidity agreement in compliance with the conduct of business rules recognized by the French securities market regulator, the AMF; Purchasing shares to be retained for future use for payment or exchange in connection with possible acquisitions; The cancellation of all or part of shares thus acquired; Employee stock option plans (or other share grants to employees) or for debt securities convertible into shares. These shares may be acquired, sold or transferred by any means, on or off market, including involving the use of any derivative financial instruments. The entire share repurchase program may be carried out through block trades. The maximum purchase price may not exceed €80 per share, subject to adjustments linked to corporate actions that may be implemented. In a scenario involving the purchase of 5% of the shares, the maximum amount paid would be €27 million. Shares thus purchased may be held, sold or transferred. An authorization for the company to buy back its shares is submitted for vote by the next General Meeting of January 22, 2013.An Information Memorandum to this purpose has been filed with the AMF. Once approved by the shareholders, this authorization will cancel and supersede the authorization granted by the Ordinary General Meeting of January 24, 2012. IDENTIFIABLE BEARER SHARES (TITRES AU PORTEUR IDENTIFIABLE) The Company may, in accordance with applicable laws and regulations (article 263-1 of the Act of July 24, 1966) at its own expense and at any time, request the following information from the entity providing clearing services for its securities, the name, nationality, date of birth or year of incorporation and address of owners of securities that confer, immediately or in the future, voting rights in its shareholders' meetings, along with the number of equity securities held by each, and, where applicable, any restrictions on said securities. EXCEEDING THRESHOLDS DEFINED IN THE ARTICLES OF ASSOCIATION (ARTICLE 10 OF THE ARTICLES OF ASSOCIATION) "In addition to those thresholds provided for by applicable laws and regulations, any shareholder, a natural person or legal entity, who acquires a proportion of the share capital or voting rights equal to 2.5%, or whose holdings fall below or rise above this threshold or any multiple thereof, must notify the Company of the total number of shares of voting rights possessed within 15 days after crossing this threshold by registered letter with acknowledgment of receipt". If the crossing of this threshold is not reported to the company within 15 days, the sanctions provided for by applicable laws and regulations will then apply and namely, failure to report crossing a threshold shall result in the loss of voting rights for the shares exceeding the percentage that should have been reported, for a period of two years after this disclosure obligation has been met. 126 Information on EXEL Industries' share capital SHARE CAPITAL (ARTICLE 6 OF THE ARTICLES OF ASSOCIATION) "The share capital amounts to €16,969,750 divided into 6,787,900 shares all with a par value of €2.5. The shares are all fully subscribed, paid up and allocated among shareholders in proportion to their rights". Securities giving access to the share capital None. Information on pledges To the best of our knowledge, none of the shares making up EXEL Industries' share capital are pledged. Shareholders' agreement There are no shareholders’ agreements. Dividends FY Dividend per share 2008/2009 €0.37 2009/2010 €0.64 2010/2011 €0.49 DIVIDEND POLICY: Over the coming years, the company's policy is to pay dividends representing approximately one quarter of consolidated net income. LIMITATION PERIOD: In accordance with the provisions of French law, dividends not claimed within five years are time-barred and shall be paid over to the French State. CHANGES IN CAPITAL STOCK DURING THE LAST FIVE YEARS There have been no increases in share capital in the last five years and the amount of share capital thus remains unchanged at €16,969,750. The Extraordinary General Meeting of February 26, 2008 approved a 2-for-1 stock split dividing the par value of the share by two which had no impact on the amount of the share capital. 127 TEXT OF RESOLUTIONS SUBMITTED TO THE ORDINARY GENERAL MEETING OF JANUARY 22, 2013 128 RESERVED FOR THE ORDINARY GENERAL MEETING Resolution one The Shareholders, after having reviewed the different reports and documents and notably the "Registration Document - Annual report", the Chairman of the Board of Directors' report on the organization of internal controls and risk management procedures as well as the Statutory Auditors' reports, approve these reports and the consolidated financial statements for the fiscal year ended August 31, 2012, as presented as well as the operations reflected in these financial statements and summarized in these reports, and showing a net consolidated profit of €26,100,000. Resolution two The Shareholders approve the separate annual financial statements for the fiscal year ended August 31, 2012, as presented as well as all operations reflected in these financial statements and summarized in these reports, and showing a net profit of €14,734,134. Resolution three The Shareholders decide that the net profit for the fiscal year of €14,734,134 shall be appropriated as follows: Distribution of a total dividend of €6,516,384 or €0.96 per share (1), it being noted that the Legal Reserve is already fully funded; Carry forward to retained earnings of the remaining profit of €8,217,750; Thereby increasing the amount of retained earnings to €105,390,967. Furthermore, the Board requests that the General Meeting approves the appropriation to the "Retained Earnings" account of the amount corresponding to dividends not paid on treasury shares held by EXEL Industries. The Shareholders furthermore duly note that dividends paid for the last three periods were as follows: FY year Dividend per share 2008/2009 €0.37 2009/2010 €0.64 2010/2011 €0.49 129 Resolution four The Shareholders, having reviewed the Statutory Auditors' special report on regulated agreements governed by article L. 225-38 et seq. of the French Commercial Code, hereby approve in succession each of the transactions presented in this report. Resolution five The Shareholders on that basis fully discharge all Directors from any liabilities with respect to the performance of their duties over the year ended. Resolution six The Shareholders set a total amount for attendance fees to be granted to Directors of €80,000 for the fiscal year ending August 31, 2013. The Board of Directors shall meet in consequence to fix the allocation of this amount among its members. Resolution seven The Shareholders, after having reviewed the Board of Directors' report, authorize the Board, in accordance with the provisions of articles L 225-209 et seq. of the French Commercial Code and other applicable laws and regulations, to have the company buy its own shares for a period of eighteen months from the date of this meeting. These share buybacks may be carried out in accordance with the limits provided for by laws and regulations applicable at the time of said transactions and in accordance with the purposes and procedures set forth below. The maximum number of shares purchased by the company under this authorization may not exceed 10% of its current share capital. These shares may be acquired on one or more occasions and through any means for the following purposes: Market-making or share liquidity services provided by an Investment Service Provider through a liquidity agreement in compliance with the conduct of business rules recognized by the French securities market regulator, the AMF; Purchasing shares to be retained for future use for payment or exchange in connection with possible acquisitions; The cancellation of all or part of shares thus acquired; Employee stock option plans (or other share grant to employees) or for debt securities convertible into shares. These shares may be acquired, sold or transferred by any means, on or off market, including involving the use of any derivative financial instruments. The entire share repurchase program may be carried out through block trades. The maximum purchase price may not exceed €80 per share, subject to adjustments linked to corporate 130 actions that may be implemented. In a scenario involving the purchase of 5% of the shares, the maximum amount paid would be €27 million. Shares thus purchased may be held, sold or transferred. This authorization replaces the authorization granted by the Ordinary General Meeting held on January 24, 2012. Resolution eight The Ordinary General Meeting ratifies the appointment of Claude Lopez, Director co-opted by a decision of the Board of Directors on April 11, 2012, for the remaining term of office of his outgoing predecessor – i.e. until the AGM called to approve the financial statements for the period ended in 2015. Resolution nine The Shareholders grant all powers to the holder of an original, a short-form certificate or a copy of the minutes of this Meeting to carry out all formalities that may be required. (1) Dividend to be payable as of January 25, 2013, directly by CM-CIC Securities. 131