KTM AGANNUAL REPORT 2017

KTM AT A GLANCE

1 Working capital = Trade and other receivables + inventories – trade and other payables2 Net financial debt = Financial liabilities (current, non-current) – cash and cash equivalents – financing receivables3 Gearing = Net financial debt / equity including non-controlling interests4 Employees including temporary staff and external employees

EURk 2013 2014 2015 2016 2017 Change

EARNINGS RATIOSRevenue 716,390 864,636 1,022,487 1,141,819 1,331,717 16.6 %EBITDA 87,694 112,599 141,524 160,012 178,816 11.8 %EBIT 54,886 75,377 95,105 102,796 113,059 10.0 %EBT 46,923 70,636 85,421 94,378 107,012 13.4 %Net result after tax 36,509 57,162 63,924 72,109 78,963 9.5 %EBITDA margin 12.2 % 13.0 % 13.8 % 14.0 % 13.4 % -EBIT margin 7.7 % 8.7 % 9.3 % 9.0 % 8.5 % -

BALANCE SHEET RATIOSBalance sheet total 571,435 694,799 848,933 1,056,524 1,091,928 3.4 %Working capital1 86,074 106,836 122,051 103,700 92,470 -10.8 %Equity 282,843 327,575 379,814 427,979 487,965 14.1 %Equity in % of total assets 49.5 % 47.1 % 44.7 % 40.5 % 44.7 % -Net financal debt2 82,365 87,475 97,164 80,850 69,329 -14.2 %Gearing3 29.1 % 26.7 % 25.6 % 18.9 % 14.2 % -

CASHFLOWCash flow from operating activities 83,240 79,649 118,104 165,590 166,388 0.5 %Free cash flow 25,187 9,914 23,802 18,838 39,262 108.4 %

EMPLOYEESEmployees as at December 314 1,849 2,143 2,515 2,931 3,245 10.7 %

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ANNUALREPORT

2017

FINANCIAL YEAR FROMJANUARY 1 TO DECEMBER 31, 2017KTM AG, MATTIGHOFEN, AUSTRIA

K T M A G004

Every day is a chance to perform; every year is an opportunity for

success. Each day, each year is the time to step up to the plate and

assert yourself in the marketplace, moving boldly ahead into the future.

The following annual report gives a broad overview of the KTM AG’s

activities and overall performance over the past year. It is a brief

pause to evaluate its efforts, and allow a moment to prepare for

and face the year ahead with renewed focus and a shared vision.

The KTM AG brands produce a range of trend-setting and innovative

powersports vehicles, sold through a solid and expanding global

network of dealers, partners, joint ventures, subsidiaries and regional

importers.

The research and development center in Mattighofen, Austria, is a hub

of innovation, where market-leading powersports vehicles are designed,

developed and produced. It is here that the KTM AG is constantly

driven to set new benchmarks and introduce new technologies,

designs and approaches to the market that challenge the industry,

assert themselves proudly in competition and provide an exhilarating

and rewarding experience for the end consumer.

With strong roots in the offroad motorcycle and competition disci-

plines, over the past year, the KTM AG has successfully expanded

beyond the dirt and into the realm of street-legal motorcycles, with

industry-leading models in the travel-enduro and naked segments.

The KTM AG has also recently introduced smaller capacity models for

entry-level riders that cater to a wider range of global motorcyclists.

The current range of smart and versatile engine and chassis platforms

empowers the KTM AG to better adapt to future market trends and to

offer a desirable and relevant range of modern powersport vehicle

products.

The only certainty in the modern world is change, a change that seems

to be happening at sometimes breakneck speeds in multiple fields and

areas of expertise. The KTM AG focus on innovation, technology and

progress leaves the company excited about tackling the future

challenges and deliver the next generation of industry-leading,

smart, disruptive, exciting and rewarding powersports solutions to

a fast-evolving and ever-changing world.

KTM AG

CONTENT

History

Investor Relations

Consolidated Management Report

Quality

007 Foreword

009 Report of the Supervisory Board

018 History

022 Sales Markets

024 KTM AG Vision

026 Group Structure

028 KTM as a Sales Organization

030 KTM Vision, Goals and Strategy

032 Husqvarna Motorcycles Vision, Goals and Strategy

034 WP Motorcycles Vision, Goals and Strategy

036 Employees

038 KTM Motorsport

040 Husqvarna Motorsport

042 Quality

044 Research & Development

048 Investor Relations

052 Consolidated Management Report

071 Consolidated Income Statement

072 Consolidated Statement of Comprehensive Income

073 Consolidated Statement of Financial Position

074 Consolidated Statement of Cash Flows

076 Consolidated Statement of Changes in Equity

077 Notes to the Consolidated Financial Statements

138 Schedule of Equity Holdings

140 Auditor’s Report

143 Statement of all Legal Representatives

018048

052

042

005

„314 new employees“

„Husqvarna goes STREET“

„High level of innovation“

„MOTO GPTM successes in the first season“

„Highest sales and revenue levels in the company‘s history“

006

FOREWORD BY THE CHAIRMAN OF THE BOARD

OF DIRECTORS

007

LADIES AND GENTLEMEN

THE 2017 FINANCIAL YEAR JUST ENDED WAS THE SEVENTH

RECORD YEAR IN A ROW AND THEREFORE WAS THE BEST YEAR

IN THE HISTORY OF THE KTM. KTM HAS BEEN THE FASTEST

GROWING MOTORCYCLE BRAND IN THE WORLD FOR YEARS NOW.

HIGHEST SALES AND REVENUE LEVELS IN THE COMPANY‘S HISTORY

KTM again increased both its sales and revenues and in 2017

achieved a new record high for the seventh time in a row.

With 238,408 motorcycles sold worldwide by the two group brands

KTM and Husqvarna in the 2017 financial year, sales were up 17.2 %

on the previous year. Revenue was up in the same period by 16.6 % to

EUR 1.33 billion.

EBIT SIGNIFICANTLY INCREASED

KTM saw a sharp rise in earnings in addition to revenue and sales.

With EBIT of EUR 113.1 million, KTM achieved a further all-time-high

in the 2017 financial year.

INVESTMENTS

In 2017, KTM continued to maintain investments at a high level

amounting to around EUR 138 million, thereof EUR 65 million for

product development.

RECORD EMPLOYMENT AT THE MATTIGHOFEN SITE

At the end of the year, KTM employed 3,245 people around the world,

which represents a new record level of employment. In the 2017

financial year, headcount increased by 314, of whom 285 were new

employees in Austria.

The Executive Board would like to thank all employees for the great

dedication and commitment with which they have contributed to this

successful development.

OUTLOOK

For the financial year 2018 we expect to see a further increase both in

sales and in revenues.

By region, we expect the highest growth in absolute figures in the

regions Europe and North America. The highest relative growth rates

are expected in the ASEAN region and in India.

The planned growth is essentially expected from KTM and Husqvarna

street motorcycles. For the Husqvarna Motorcycles brand, the focus

for 2018 is on the return to the street segment and the introduction

of the models Vitpilen 401, Svartpilen 401 and Vitpilen 701. KTM will

extend its product range by the introduction of the new two-cylinder

engine DUKE 790.

KTM has set itself the medium-term goal of increasing annual sales to

400,000 units and to develop Husqvarna Motorcycles to the third

biggest European motorcycle manufacturer.

After the complete acquisition of WP group by KTM AG in January

2018, the full integration should be completed in 2018 and therefore

efficiency improvements and synergy potentials should be realized.

The level of investment planned for 2018 remains at a high level.

The main areas of focus for investment cover in particular new series

development projects as well as investments in infrastructure and

expansion.

Mattighofen, March 2018

Stefan Pierer

Chairman of the Executive Board

F O R E W O R D B Y T H E C H A I R M A N O F T H E E X E C U T I V E B O A R D

K T M A G

EXECUTIVE BOARD

Stefan Pierer

Chairman of the Executive Board

Harald Plöckinger

Viktor Sigl

Hubert Trunkenpolz

SUPERVISORY BOARD

Friedrich Roithner

Chairman of the Supervisory Board

Rajiv Bajaj

Deputy Chairman of the Supervisory Board

Ernst Chalupsky

Srinivasan Ravikumar

Friedrich Lackerbauer

Employee Representative

Franz Hattinger (from June 2017)

Employee Representative

Horst Resch (until June 2017)

Employee Representative

008

(F.L.T.R.) HARALD PLÖCKINGER, STEFAN PIERER, VIKTOR SIGL, HUBERT TRUNKENPOLZ

009

REPORT OF THESUPERVISORY BOARD

REPORT OF THE SUPERVISORY BOARD OF KTM AG

FOR THE BUSINESS YEAR 2017

In the business year 2017, the Supervisory Board of KTM AG held

four meetings on March 7, on June 20, on September 20 and on

December 14, in Mattighofen and in Vienna, thus fulfilling its duties

required by law and under the articles of incorporation.

The Executive Board of KTM AG regularly reported to the Supervi-

sory Board on business development and the economic state of the

corporation, including its associated companies. The annual financial

statements and the management report for the business year 2017

as well as the consolidated financial statements and group manage-

ment report for the business year 2017 were audited by KPMG Austria

GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Linz,

and did not give any reasons for objections. The auditors certified that

the accounting and annual financial statements as of December 31,

2017 are consistent with the applicable laws, that the annual financial

statements give, in all material respects, a true and fair view as

possible of the company’s net assets, financial position and results

of operations in accordance with generally accepted accounting

principles, and that the management report is consistent with the

annual financial statements. Further, the auditors certified that the

consolidated financial statements give a true and fair view in all

material respects of the group’s net assets and financial position as of

December 31, 2017, as well as of the results of operations and cash

flows for the past business year in accordance with the International

Financial Reporting Standards (IFRS), and that the other details in the

group management report do not misrepresent the group‘s situation.

All documents concerning the financial statements (including the

„Additional report of the Audit Committee concerning the audit of the

annual financial statements concerning art. 11 of the EU regulation

no. 537/2014 as of December 31, 2017”) were discussed in detail

with the Audit Committee and the auditors, and have been presented

to the Supervisory Board.

In its report to the Supervisory Board, the Audit Committee of

KTM AG concurred with the results of the final audit. After reviewing

FRIEDRICH ROITHNER

R E P O R T O F T H E S U P E R V I S O R Y B O A R D

the management report and the annual statements for the business

year including the proposed appropriation of net profit, the group

management report and the consolidated financial statements for the

business year 2017, and reviewing the management, the Committee

did not raise any objections. The Audit Committee agreed with the

appropriation of net profit proposed by the Executive Board and

recommended to the Supervisory Board that KPMG Austria GmbH

Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Linz, be

proposed for appointment as independent auditors for the business

year from January 1, 2018 to December 31, 2018 at the Annual

General Meeting.

The Supervisory Board concurs with the Audit Committee’s report and

consequently also with the results of the final audit. After obtaining

the final results of its review of the management report and group

management report, the annual financial statements, including the

proposed appropriation of net profit and consolidated financial state-

ments, and its management review, the Supervisory Board also raised

no objections. The Supervisory Board also concurs with the Executive

Board’s proposed distribution of net profit.

Having been accepted by the Supervisory Board, the annual financial

statements can be deemed approved pursuant to Article 96 (4) Stock

Corporation Law (AktG). The Supervisory Board acknowledged the

consolidated financial statements and the group management report

for the business year 2017.

The Supervisory Board recommends that KPMG Austria GmbH

Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Linz, be ap-

pointed as independent auditors for the business year from

January 1, 2018 to December 31, 2018.

Mattighofen, March 2018

Friedrich Roithner

Chairman of the Supervisory Board

POL ESPARGARO, KTM RC16 CIRCUIT DE BARCELONA-CATALUNYA 2017, PHOTO: SEBAS ROMERO

SVARTPILEN 401 2018, PHOTO: SCHEDL R.

KTM 790 DUKE MY 2018, PHOTO: SCHEDL R.

FC 450 2018, PHOTO: SCHEDL R

018 K T M A G

1992 NEW BEGINNINGS

STEFAN PIERERTAKES OVER

KTM841934 EARLY BEGINNINGS 25 year old Hans Trunkenpolz

opens a fitter’s and car workshop in the Upper

Austrian town Mattighofen. A first approach to the founding of what

is later known as KTM.

1953 KTM – KRONREIF TRUNKENPOLZ MATTIGHOFEN

In 1953 the three letters “KTM” appeared for the

first time to represent Kraftfahrzeuge Trunkenpolz Mattighofen.

Since the mid-1950s, when the associate Ernst Kronreif joined the

company, the meaning of the initials is clearly defined as “Kronreif

Trunkenpolz Mattighofen”.

1954 KTM NONSTOP – PARIS TO VIENNA In autumn 1954,

a KTM attracted attention because a board with the

magic number “1000” was pinned at the handlebars of the R125

Tourist. To make the performance and reliability of a motorcycle known

to the public, long distance races were pretty popular in the 1950s.

Therefore, on September 30, 1954, three 125 ccm Tourist and three

riders, among them KTM boss Hans Trunkenpolz, stood at the

outskirts of Paris. The destination was Vienna, a distance of 1,300

kilometers. Not only the distance, the timing was also pretty ambitious

by the standards of the time. The group at least wanted to keep pace

with the “Arlberg-Express”, a train that needed 24 hours for the same

distance. And it worked out – the train’s time was even beaten by more

than two hours. A KTM Tourist that was faster than the express train

from Paris to Vienna should be the right motorcycle for normal

tourists.

1984 AUSTRIA SETS A SIGNAL – KINI AND KTM ARE

CHAMPIONS! Heinz Kinigadner becomes a national

sports hero as the Tyrolean wins for the first time a world champion-

ship title in Motocross for Austria – on an Austrian manufactured

KTM race bike. Repeating the win in 1985 finally left a first massive

footprint in the international offroad world.

YEARS HISTORY

1953

1984

019

1998 LC8 – A NEW DIRECTION OF POWER It was 1998 when

KTM began researching into its first multi-cylinder

engine and, after many different confi guration types, they decided on

a 75 degree V-twin. This engine was announced at the 2000

INTERMOT Show in Cologne, Germany, shown in a prototype called

the “LC8 ADVENTURE”.

1999 NEW FACTORY With a rapidly increasing model range

with diverse engine types requiring more replace-

ment parts, a new KTM factory was opened on the outskirts of the

small Austrian town of Mattighofen. The main factory building houses

the four main production lines, assembling all the offroad machines

and street bikes from 690 ccm and above. A cordoned off production

line is where special prototype bikes and customer race machines,

such as the KTM 450 RALLY and KTM RC 250 R, are produced.

2001 FIRST DAKAR VICTORY The Dakar Rally is unique in

its difficulty for both rider and machine.True

endurance; the event is long in terms of duration and riding distance

an often features terrain as varied as the landscape. For the biggest

offroad brand, the Dakar acts a great test of its machines. KTM first

won the Dakar Rally with Italian Fabrizio Meoni in 2001. Since that

first victory, only KTM-mounted riders have won this event – 16

consecutive wins is a feat no other manufacturer has accomplished.

1992 NEW BEGINNINGS In the beginning of 1992, Stefan

Pierer and his CROSS Industries Company took over

KTM and set about not only resurrecting the Austrian brand that began

in 1953, but taking it to new levels of success. Just 24 years later

they are consistently the biggest European motorcycle brand,

are the dominant fi gure in two-wheel offroad machines and have

over 270 World Championships in the trophy room – including 16

consecutive Dakar victories – and are now selling more of its street

motorcycles than offroad.

EXC – READY TO RACE FOR EVERYONE Although the KTM trophy

cabinets are already bursting with Motocross and Supercross

silverware, Enduro is the heart of KTM; responsible for the majority

of its world championships and always at the top of the global Enduro

sales chart. Why? Because, since 1992, KTM has always provided

customers with its EXC machine – either two-stroke or four-stroke

– that is ready to fight for victories straight from the showroom.

Upgraded each year, this is READY TO RACE and this mentality

will never change.

1994 TAKING TO THE STREET Take an LC4-powered 620

Enduro, chopped it up with an angle grinder and fit

some 17-inch wheels in it. This is the origins of how, in 1994, KTM

took to the asphalt for the first time in its rebirth and the 620 DUKE

was unleashed; bringing Supermoto on the street to the world’s riding

masses. That mono-wheeling, tire-squealing bike quickly set an

attitude for KTM and, as most of us know, reputations can last a

lifetime – 23 years and counting, to be precise.

2001 FIRST DAKAR VICTORY – SINCE THAT TIME, KTM DRIVERS ACHIEVED 16 VICTORIES IN A ROW

1992

H I S T O R Y

1999

020 K T M A G

2003 A NEW ADVENTURE Although not the first KTM

to carry the ’Adventure’ banner (that was the

LC4-powered 640, back in the mid-nineties), in 2003 the brand

established itself as a serious player in the Travel Enduro market with

the arrival of its first multi-cylinder contender. The LC8-powered

950 ADVENTURE changed perceptions that bikes in this sector didn’t

have to be big and cumbersome. Almost 90% the same machine

that won the 2002 Dakar Rally, the 950 – later becoming the 990

– was pivotal for the future of KTM and introduced many more riders

to the brand.

2008 A UNIQUE SUPERBIKE ARRIVES

Never one to follow the crowd, the arrival of KTM’s

first true Superbike, the KTM RC8, tore-up the rulebook in terms of

design and handling performance. Distinctive looks matched with an

equally individual riding experience has seen the KTM RC8 remain

a firm favorite with two-wheel purists. The capabilities of the

KTM RC8 R were demonstrated when it clinched the IDM Superbike

Championship in 2011 in the hands of Martin Bauer, a class where

engine tuning is very minimal.

UNBELIEVABLE – A KTM CAR After an energy loaded development

ended with another big scoop: The presentation of the KTM X-BOW

underlined KTM’s philosophy – translating the brand’s core values

even onto four wheels. This unique supersport car showed straight

away its READY TO RACE approach and demonstrated the impressive

learning curve in all development disciplines.

2011 SMALLER CAPACITIES, BIGGER OPPORTUNITIES Since

2007, KTM has been cooperating with the Indian

Bajaj Group to focus on the joint development of entrylevel, 125 to

390 ccm street motorcycles. Produced in India and distributed under

the KTM brand by both companies, the first model released from this

partnership was the KTM 125 DUKE in 2011, which quickly became

the biggest selling machine in its class in Europe.

The KTM 200 DUKE followed in 2012, allowing KTM to enter the

Indian market and is the fi rst KTM model ever to be offered

worldwide. Since then, the KTM 390 DUKE was released and, in

2014, the Supersports KTM RC 125, KTM RC 200 and KTM RC 390

began production.

2013 SETTING NEW STANDARDS IN SAFETY In cooperation

with BOSCH, KTM developed the MSC (Motorcycle

Stability Control) and therewith is the first brand worldwide to present

an ABS that works even while cornering at deep lean angles. MSC

supports the rider together with the combined antilock braking system

C-ABS (Combined ABS) and the lean angle dependently working

motorcycle traction control MTC (Motorcycle Traction Control) in a

multitude of ways – of course just within the limits of physics. Fitted

to the KTM 1190 ADVENTURE and later the KTM 1290 SUPER

ADVENTURE, these models are not only the most versatile of all

Travel Enduros, but also the safest motorcycles in the world.

2008

K T M A G

021

2014 THE BIG PICTURE – THE RESTART OF HUSQVARNA

Following the acquisition of Husqvarna Motorcycles

in early 2013, and the subsequent reunion of the Husaberg brand into

the newly established Husqvarna Motorcycles GmbH company, 2014

was the first complete financial year for the “new” Husqvarna

Motorcycles.

With a full line-up of Motocross and Enduro models and a continued,

strong commitment to offroad competition, Husqvarna immediately

set a record year with 16,377 bikes sold and a revenue of more than

100 million euros. These were the best ever results in the 114-year

history of Husqvarna Motorcycles.

In late 2014, with the unveiling of the VITPILEN 401 and

SVARTPILEN 401 concept-bikes at the international motorcycles

exhibition EICMA, Husqvarna confirmed its decision to re-enter

the street segment, giving a glimpse of what the future will hold for

the iconic Swedish brand.

2015 KTM GOES ELECTRIC Although a long-running project

and partially developed in public at its E-Cross

Center, as the leader of offroad motorcycling KTM has also set a new

bar for electric bikes in its typical manner with the release of the

innovative KTM FREERIDE E-SX, E-XC and E-SM available in 2015.

Despite lacking petrol power, these bikes are still built to the

company’s READY TO RACE mantra boasting high-specification

components and incredible performance.

2016 AT THE BEGINNING of the year KTM celebrated its

15th consecutive Dakar victory. Championships in

Supercross, Motocross and Moto3 round off another successful

motorsport year. The first outing of KTM’s MotoGPTM bike at the Red

Bull Ring offered a foretaste of what is to come in 2017. With an

extended ADVENTURE family and a reworked DUKE range KTM

strengthens its position on asphalt. Only two years after the presenta-

tion of the concept-bikes VITPILEN 401 and SVARTPILEN 401 at the

EICMA, Husqvarna unveiled the serial models at the same place in

2016, representing a bold first step in an exciting new direction for

Husqvarna Motorcycles..

2017 SUSTAINED GROWTH AND NEW CHALLENGES The

KTM AG again records record sales and revenue

figures. As well as strengthening existing partnerships, the integration

of WP and the equity holding in the company PEXCO, which specializ-

es in e-mobility, provides the company with new prospects.

Besides the KTM FREERIDE E-XC electric bike, it is primarily the

revolutionary 2-stroke Enduros with electronic fuel injection and the

announcement of the series version of the KTM 790 DUKE that are

attracting attention at KTM. In addition, with the prototype of the KTM

790 ADVENTURE R, the brand is daring to look to the future.

In 2017, Husqvarna Motorcycles took great pride in making great

strides forward in meeting its vision of progressive street motorcycling.

As part of the new, innovative street model range, the Husqvarna

VITPILEN 401, Husqvarna VITPILEN 701 and the Husqvarna

SVARTPILEN 401 will pave the way to an extremely successful future

for the brand in this sector. The introduction of these models is

planned for 2018. Meticulous and tireless work on making a dynamic

return to the street segment enabled the Husqvarna SVARPILEN 701

concept bike to be developed and presented to the public –

a progressive, iconic example of the timeless motorcycling culture

with cult character.

In addition to numerous victories, driver and manufacturer titles in a

wide range of different motorsport disciplines, in 2017 it has primarily

been the involvement in the MotoGPTM that has attracted attention

and interest internationally.

H I S T O R Y

2015

2014

2017

022 K T M A G

8.0 %MARKET SHARE IN NORTH AMERICA1

€ 381.3 MREVENUE IN NORTH AMERICA

10.1 %MARKET SHARE IN EUROPE1

€ 700.2 MREVENUE IN EUROPE

€ 250.2 MREVENUE IN OTHER COUNTRIES

KTM SALES COMPANIES

SALES MARKETS

CKD PRODUCTION

1 TOTAL MARKET SHARE OF KTM AND HUSQVARNA

EUROPE: REGISTERED MOTORCYCLES ≥ 120 CCM EXCLUDING MOTOCROSS, SCOOTERS AND ATVS, INCLUDING ELECTRIC MOTORCYCLES

NORTHE AMERICA: REGISTERED MOTORCYCLES ≥ 120 CCM INCLUDING MOTOCROSS, EXCLUDING SCOOTERS AND ATVS, INCLUDING ELECTRIC MOTORCYCLES

023

SALES MARKETS

KTM SALES COMPANIESAND SALES MARKETSWORLDWIDE

S A L E S M A R K E T S

024 K T M A G

KTM AG

VISION

KTM AG IS A PREMIUM MANUFACTURER

OF HIGH-PERFORMANCE MOTORCYCLES

FOR BOTH OFFROAD AND STREET USE,

WITH A SMALLER PERFORMANCE MOTOR-

CAR SEGMENT. THANKS TO CONTINUOUS

INNOVATION AND DIFFERENTIATED PROD-

UCT DESIGN, EVERY VEHICLE BUILT IS OF

THE HIGHEST QUALITY.

Today, driven by the passion of its employ-

ees, KTM AG has already become the largest

European motorcycle manufacturer, with a

10.1% market share in Europe and a 8.0%

share in the US, as well as achieving an

annual turnover well in excess of 1.3 billion

Euro. The current trajectory of KTM AG as

a whole bodes well for reaching a goal of

400,000 units of annual production by 2022.

To achieve this, the strategy is to maximize

the synergies and resources of the constituent

brands, stakeholders and infrastructure within

the group.

KTM AG’s corporate success is grounded in

strengthening the core brand values of the

primary brands and communicating them

appropriately. The ongoing objective is to

ensure that every product always delivers

on the brand promise implicit in each of the

individual KTM AG brands. For KTM, it is the

“READY TO RACE” philosophy that guides all

brand behavior, while for Husqvarna Motorcy-

cles, the “PIONEERING SINCE 1903” claim

is the clear benchmark that all decisions and

actions are measured against.

POL ESPARGARO KTM RC16 2017, PHOTO: SEBAS ROMERO

025K T M A G V I S I O N

With WP, “GET IN FRONT” is a brand claim

that highlights a commitment to performance

and innovation.

Despite a marked contrast between the main

brands of KTM AG, they share strong histories

of success and innovation, using very different

approaches. This competitive environment

within KTM AG has benefitted the brands

tremendously. Clear differentiation of the

brands and their consistent adherence to

their own corporate personas are mainstays

of KTM AG’s success.

The shared vision of KTM AG and its constitu-

ent brands is to be a world-leading independ-

ent international motorcycle and component

manufacturer, with a portfolio of diverse

brands and outstanding products.

KTM AG cultivates a close relationship with

its customers through a well-trained network

of dealers and importers, with a focus on pro-

fessionalism and authentic customer intimacy

seen as being critical to overall success. KTM

AG strives to further advance its creation of a

sustainable partnership with its dealers and

importers, which is grounded in fairness and

trust. Due to the constant qualitative growth

in product range and specially developed

store concepts, KTM AG dealers can run a

profitable business solely by selling KTM

AG’s wide range of products and accessories,

along with the highest quality components

and some of the most unique and impressive

motorcycles, both on the road and off it.

Geared for the future, KTM AG successfully

markets products that were developed with

a great deal of craftsmanship. With a long

history and strong interest in motorsport,

KTM AG constantly strives to develop the

overall product range and to increase its

competitiveness and penetration into global

markets; this is done by identifying developing

trends and defining new ones. Innovation and

the highest development standards are crucial

to achieving this vision. A major step towards

growing the group’s reach and profile globally

and expanding mainstream market awareness

of the group’s brands has been the entry into

MotoGPTM in 2017.

The KTM AG offering is a diverse and

ever-expanding model range that now covers

all essential engine capacity categories and

performance classes (50–1300 cc). The

small-engine street motorcycles - developed

in cooperation with Indian partner Bajaj -

open up a new global segment. Due to this,

the KTM AG product portfolio now comprises

a more diverse and ever-expanding range that

is more appropriate and better geared towards

a growing portion of the global market. The

introduction of the new parallel twin engine

platform provides better access to the popular

and fast-expanding mid-sized street segment.

The unveiling of KTM’s latest supersports car,

the KTM X-BOW GT4 model, follows on from

having sold over 1,000 of the original X-BOW

model. It is an ongoing project that proves

KTM AG is capable of developing and evolving

new product ranges outside of its traditional

core motorcycle business. The experience

gained in terms of lightweight vehicle

construction is invaluable in developing new

vehicle concepts.

KTM AG has taken a leading developmental

role in electric powertrain innovation.

The experience gained from the research

project to develop an innovative high-power

electric motorcycle in the form of the

KTM FREERIDE-E proved the potential

of electric powertrains. Building on this re-

search, KTM AG is developing technology that

supports alternative forms of mobility in urban

settings for multiple applications.

VITPILEN 701 2018, PHOTO: SCHEDL R.

026 K T M A G

GROUP STRUCTURE

KTM AG AS PARENT COMPANY OF KTM GROUP SINCE THE HUSQVARNA MOTORCYCLES BRAND WAS INTEGRATED INTO THE KTM GROUP, KTM AG HAS FOLLOWED A CONSISTENT TWO-BRAND STRATEGY FOR “KTM” AND “HUSQVARNA MOTORCYCLES”. THE SALES ORGANIZATION HAS BEEN STRUCTURED ACCORDINGLY.

The main equity holdings of KTM AG are

KTM Sportmotorcycle GmbH, Husqvarna Mo-

torcycles GmbH, KTM Sportcar GmbH, KTM

Technologies GmbH, KTM Immobilien GmbH

and the minority stakes in W Verwaltungs AG

(former: WP AG).

KTM AG develops and manufactures

motorcycles under the brands “KTM” and

“Husqvarna” as well as the X-BOW super

sports car and comprises all central group

functions.

The sales companies

KTM Sportmotorcycle GmbH and

Husqvarna Motorcycles GmbH distribute the

respective brands‘ motorcycles and spare

parts directly to European dealers and global

importers. Markets in the United States,

Mexico, South Africa, Japan and Greece

are served via local stock-carrying sales

subsidiaries. The two companies thus hold

participations in a total of 35 domestic and

foreign sales companies that provide sales

and marketing-related services in the local

markets for KTM Sportmotorcycle GmbH and

Husqvarna Motorcycles GmbH.

WP Performance Sports GmbH operates the

after sales business of WP products.

KTM Sportcar GmbH distributes the X-BOW

super sports car.

The land and buildings of KTM group are

bundled in KTM Immobilien GmbH.

W Verwaltungs AG (former: WP AG) forms the

ultimate group parent of WP group –

constituting one of the leading European

system suppliers of performance-defining

components for the motorcycle and power-

sport industries.

027G R O U P S T R U C T U R E

KTMRacing AG

CH 100 %

KTMImmobilien

GmbH

AT 99.61 %

KTMSportcarGmbH

AT 100 %

KTMSportmotor-cycle GmbH

AT 100 %

HusqvarnaMotorcycles

GmbH

AT 100 %

WPgroup 1

AT 24 %

KTMSubsidiaries

HusqvarnaSubsidiaries

1 FROM JANUARY 2018 ON, KTM AG HOLDS 99,86% OF SHARES IN W VERWALTUNGS AG (FORMER: WP AG)

KTM AG

GROUP STRUCTURESIMPLIFIED PRESENTATIONAS OF DECEMBER 31, 2017

POL ESPARGARO, KTM RC16 CIRCUITO DE JEREZ 2017, PHOTO: JESÚS ROBLEDO

WPPerformance

SportsGmbH

AT 100 %

028 K T M A G

KTM AS A SALES ORGANIZATION

KTM & HUSQVARNA FLAGSHIPSTORE VIENNA

BUILDING PREMIUM VEHICLES REQUIRES

A HIGH LEVEL OF TECHNICAL KNOW-HOW

AND MANY YEARS OF EXPERIENCE.

WITHOUT A STRONG SALES SUBSIDIARY

WITH IN-DEPTH MARKET KNOWLEDGE,

EVEN A PREMIUM VEHICLE IS NOT UP TO

THE REQUIRED LEVEL FOR CUSTOMERS

WHO WANT TO EXPERIENCE A BRAND THAT

LIVES UP TO ITS PROMISE. THIS IS THE

ONLY WAY CUSTOMERS CAN BE TIED TO

THE BRAND OVER THE LONG TERM.

As parent company of the KTM and

Husqvarna Motorcycles brands, KTM AG

demands top levels of performance in all

areas of business. Every area of the business

and customer touch point shows that the

organization truly embraces its brand values,

whether it is the sale of vehicles, clothing and

accessories, premium performance parts or

original spare parts. An in-depth understand-

ing of the sales and marketing process is

absolutely key here - KTM provides con-

tinuous further training to give its staff an

“inside-out” perspective. For KTM AG, the

focus is always on providing the best support

to the customers of the two brands and the

customer satisfaction that results from this.

Through its Network Development division,

Commercial Business Development puts trade

and brand promise at the forefront. The focus

is on the authorized network of dealers, which

is usually the customer’s first point of contact

029

35SALES SUBSIDIARIES

K T M S A L E S O R G A N I Z A T I O N

with the KTM and Husqvarna Motorcycles

brands. The network of dealers is responsible

for bringing the brands to life, and contribut-

ing decisively to the organization’s success

with its competence, customer proximity and

corresponding service. KTM AG therefore

invests every year massively not only in sites

and services, but also more intensively in

measures for further developing and strength-

ening the network of dealers.

KTM AG remains in close contact with

all dealers via the KTM and Husqvarna

Motorcycles subsidiaries. This keeps KTM AG

close to market developments and allows it to

develop appropriate products and services to

fulfill its brand promise.

Through 35 sales subsidiaries and joint

ventures in Australia and the Philippines the

employees of KTM AG look after more than

2,350 independent dealers and also further

importers for the two brands around the

world.

This ensures that all KTM and Husqvarna Mo-

torcycles dealers have one thing in common:

Each and every one of them embraces the

spirit of these brands – at all times.

HUSQVARNA MOTORCYCLES STORE, PHOTO: SCHEDL R.

KTM STORE

030 K T M A G

65 YEARS EXPERIENCEKTM

VISION, GOALS ANDSTRATEGY

SINCE ITS FOUNDATION IN 1953, KTM

HAS AMASSED OVER 6 DECADES OF EXPER-

TISE IN THE TWO-WHEELED WORLD AND

MAINTAINS ITS POSITION AS EUROPE’S

LARGEST MOTORCYCLE MANUFACTURER.

KTM IS A BRAND GUIDED BY A STRONG AND

UNMISTAKABLE VISION - READY TO RACE.

This goes beyond a brand claim and forms

the foundation for everything the KTM brand

does.

It’s a mantra for our employees and custom-

ers alike, serving as motivation to always be

ready to hit the ground running. It is an atti-

tude that defines how one looks at challenges

and differentiates whether one sees the

difficulty in an opportunity, or the opportunity

in a difficulty.

KTM has a distinct brand personality and

bold presence in global competition. We don’t

just claim to be READY TO RACE, but lead by

that example in all we do. This flows through

our four core values of ADVENTURE, PURITY,

PERFORMANCE and EXTREME, guiding all

activities and allows an authentic interpreta-

tion of READY TO RACE across all segments,

markets and areas of business. It is also this

competitive vision which keeps us searching

for global expansion opportunities to assert

ourselves through - both through actions and

through inspiring products that deliver on the

implicit brand claim.

With a strong presence in offroad, KTM

has recently progressed to become one of

the world’s most innovative manufacturers

of street motorcycles. Today, driven by the

passion of its employees, KTM’s goal is to

become the biggest manufacturer of sport

motorcycles worldwide. To achieve this goal,

an important strategic focus is on attack-

ing the street motorcycle market in KTM

brand-relevant segments.

In March 2011, KTM launched a complete

naked bike range, implemented successfully

by 2013, and which will be further strength-

ened by the upcoming addition of the

new parallel twin KTM 790 DUKE model.

In 2015, the introduction of the

KTM 1290 SUPER DUKE GT signaled a

decisive move into the sports-tourer segment.

The KTM 200 and 390 DUKE models are

important steps towards capitalizing on the

global brand reach and maximizing business

opportunities. Produced in collaboration with

Bajaj, these models illustrate how the street

product range now offers a wider variety to

young buyers, thereby solidifying our global

portfolio of products and maximizing the

regional hubs, to enhance the singular global

brand presence.

031K T M : V I S I O N , G O A L S A N D S T R A T E G Y

KTM 790 DUKE MY 2018, PHOTO: SCHEDL R.

After the launch of the travel enduro

KTM 1190 ADVENTURE and R models in

2013, and the further expansion in 2015 of

the ADVENTURE range to include the

1290 SUPER ADVENTURE and

1050 ADVENTURE models, a striking new

look adorned the revised range models

unveiled in 2016 for the 2017 model year.

The ADVENTURE range brings a new

higher-performing dynamic to the segment,

with a wide array of options to suit any

customer’s needs, ensuring every bike in

KTM’s arsenal is 100% READY TO RACE.

With the recent reveal of the

KTM 790 ADVENTURE R prototype, the

first shot was fired in the brand’s upcoming

assault on the mid-sized travel enduro market.

Many opportunities exist for KTM to enhance

the customer experience. Creating successful

programs to encourage riders to ride more,

and to keep them riding for longer, is one

important element of enhancing the user

experience. Growing and establishing a global

range of supporting products, known as

‘PG&A’ (parts, garments and accessories), will

allow users to intensify their riding experience,

and to fit their bike better to their personal

style, riding circumstances and conditions.

The growing global KTM brand presence,

along with the brand’s continued focus on

racing and their impressive gains in the street,

are all part of the brand’s steady world-wide

expansion. The recent push into the premier

motorcycle competition series of MotoGPTM,

supported by a strong first season showing in

Moto2, highlight these global street ambitions.

From this, top-level success in MotoGPTM

is the next ambitious goal in KTM’s sights,

which will greatly influence the global busi-

ness and brand expansion objectives.

True to the company’s racing DNA, suc-

cessful involvement in racing all over the

world further strengthens the KTM brand

and consolidates its leading market posi-

tion, visibility and credibility. Central to the

corporate strategy is taking successful racing

technology and directly incorporating it into

serial products. The brand’s winning culture

flows into the products and everything else

they do. An essential element of KTM’s long-

term growth-planning strategy is to further

extend the product range, opening up new

niches and markets. Accordingly, the strategy

focuses on research & development to keep

the performance edge, at the same time,

developing distribution networks through

new strategic regional partnerships, investing

heavily in the global brand growth.

READY TO RACE means that if you race to

win, then there’s no other choice - it has to

be KTM.

032 K T M A G

115

YEAR

S E

XPER

IEN

CE

HUSQVARNA MOTORCYCLES

VISION, GOALS ANDSTRATEGY

HUSQVARNA MOTORCYCLES’ ONGOING

VISION IS TO BE PIONEERS IN THE MOTORCY-

CLE WORLD. A VISION BORN OUT OF THE

BRAND PROMISE “PIONEERING SINCE 1903”.

To deliver on the brand promise, the future

goal is to build a complete motorcycle brand,

elevating Husqvarna to the third largest

European manufacturer by 2022. Every year

since Husqvarna Motorcycles joined the

KTM AG in 2013, it has achieved impressive

annual growth and with it, exceptional

success in a very short time. After just

one year as part of KTM AG, Husqvarna

Motorcycles achieved record offroad unit

sales for their 111-year-long history in 2014,

further improving on this with another record-

breaking year following after introducing

new street-legal models.

The few short years of the reunited brand,

which brings Husaberg and Husqvarna

Motorcycles together once more, have

reinforced the proven heritage of the

PIONEERING brand value. With a

PIONEERING focus, the brand is focused

forward, centered on innovation and

progression. The past four production model

years have boldly returned Husqvarna

Motorcycles to the international spotlight

and improved awareness of the brand. This

awareness is a central part of the ongoing

strategy, which will continue to be supported

through expansion of the dealer network and

consequent improved global sales. The

continuous development of the dealer network

is aligned to serve the growing awareness of

and demand for the brand globally. With many

untapped markets, areas and customer

groups beyond the traditional offroad

motorcycle user-base, this ever-expanding

global network will open up access for the

brand.

Husqvarna Motorcycles’ mission is to inspire

our customers to look at the motorcycle world

from a different angle and through that, to

have the courage to explore new routes, new

ways and new possibilities.

The brand’s promise brings with it a commit-

ment to leading, innovating and pioneering.

This disciplined approach of never resting or

blending into the crowd means Husqvarna

Motorcycles constantly sets its sights on the

distant horizon; seeking newer, better and

more sensible ways to create authentic

motorcycles that deliver real and rewarding

riding experiences.

SVARTPILEN 401 2018, PHOTO: SCHEDL R.

033H U S Q V A R N A : V I S I O N , G O A L S A N D S T R A T E G Y

With the brand values of PREMIUM,

PIONEERING and SWEDISH ROOTS as a

guiding compass, Husqvarna is committed

to making enjoyable riding experiences more

accessible. More importantly, these values let

Husqvarna Motorcycles look beyond, and

expose new users to the exhilaration and

liberation of discovering the motorcycle

lifestyle.

A strong focus on innovation and progression

has brought about Husqvarna Motorcycles’

deliberate return to the street - which is the

second important aspect of the current brand

strategy. Being a pioneer combines well with

the accessible, understated and approachable

brand personality, allowing Husqvarna

Motorcycles to open up and tap into a much

broader target audience beyond traditional

street motorcyclists. The first bold step in

this entirely new direction is evident in the

VITPILEN and SVARTPILEN ‘real street’

range of production motorcycles. Important

in the brand’s strategy is to balance the street

focus, and to consolidate and strengthen the

brand’s involvement and presence in the

offroad world.

Despite the brand’s renewed competitive

success in recent years, far beyond the

traditional boundaries of competition,

Husqvarna Motorcycles now sets its sights

towards ambitious new goals. A pioneer’s

work is never done, so this bold re-entry into

the street motorcycling segment is merely the

next concrete step, further proving and

building the tradition of progressive and

pioneering motorcycle development.

Husqvarna Motorcycles’ future vision is to

progress and expand the brand’s bold return

to the street. From the first showing of the

VITPILEN 401 and SVARTPILEN 401

concept bikes in 2014 to the subsequent

unveiling of further concepts and production

models in the years since, the response and

interest shown in this new range is significant.

With the first three production models arriving

at dealers in early 2018, the next chapter in

the brand’s story is about to begin. It is a

strong commitment to continuing the long

tradition of progressive thinking and

pioneering actions.

An approach reflected as much in the

creation of leading motorcycles as it is

through outstanding ways of identifying,

satisfying and engaging with the rapidly

expanding global customer base. These new

street production models will set Husqvarna

Motorcycles on a trajectory to becoming

Europe’s third-largest motorcycle producer

by 2022.

TE 250I 2018, PHOTO: SCHEDL R.

SVARTPILEN 401 2018, PHOTO: SCHEDL R.

034 K T M A G

WP AER CONE VALVE, PHOTO: SCHEDL R.

035

WP is an established high-performance motorcycle component and

suspension brand, with a brand promise of GET IN FRONT.

INNOVATION and PERFORMANCE are at the center of WP, with the

latter being the primary objective in everything the brand does, with

high-quality components designed to meet the demands of both racers

and riders alike.

In order to achieve these results, and to stay ahead of a very compet-

itive market, WP calls on intensive INNOVATION and R&D efforts to

ensure its edge is never lost.

Testing and development, not only on the racetrack but also in the real

world, allows WP to meld race-inspired input into on-road perfor-

mance, with smarter and more surprising technologies.

This investment in innovation has also proven to be successful by

resulting in numerous championships across many racing disciplines.

Jointly, a big progression for WP was the development of an Authorized

Centers network to focus on customer service and accessibility.

WP has endeavored to establish 70 Authorized Centers globally in

2018, with 55 centers in Europe alone. This marks a deliberate shift

in our business focus, going beyond a chain of distribution and more

towards an enhanced service offering, allowing customers to get the

maximum benefit out of their WP products.

This is made possible through intensive headquarter training that aims

to expand the know-how and expertise of Authorized Centers per-

sonnel, with further expansion expected in 2018 as a result of newly

established importers in Brazil, Israel, South Korea and Australia.

WP has set this high level of customer focus as a vital goal for 2018,

followed closely by strengthening the brand’s market awareness and

credibility by building the demand for WP PRO COMPONENTS as an

attainable high-performance aftermarket solution for motorcyclists.

This is central to the objective of better segmentation of the overall

product offering and creating a complete and comprehensive product

portfolio. As such, our business target for 2018 is to expand the

Authorized Center network to provide greater access to WP products

and expertise, and to double aftermarket revenue in the next 5 years.

W P : V I S I O N , G O A L S A N D S T R A T E G Y

WP

VISION, GOALS ANDSTRATEGY

70NEW AUTHORIZED CENTER

036 K T M A G

SUCCESS FACTOR

EMPLOYEESAS OF DECEMBER 31, 2017, THE GLOBAL NUMBER OF EMPLOYEES

STOOD AT 3,245, UP 314 ON THE PREVIOUS YEAR. THIS REPRE-

SENTS AN INCREASE OF 11%. AS OF DECEMBER 31, 2017, THERE

WERE 469 EMPLOYEES WORKING OVERSEAS. THE PROPORTION

OF WOMEN WAS ALMOST UNCHANGED RELATIVE TO THE

PREVIOUS YEAR AT 20%.

EXCELLENT RECRUITMENT QUALITY

For KTM AG, the topic of recruitment,

together with company growth, forms an

important component of the employment

strategy. In order to meet the quality

demands of the company in this area also,

KTM AG competes every year in the excellent recruitment quality

competition: the CAREER’S BEST RECRUITERS study.

This year, KTM AG achieved first place in the motor vehicle/automotive

field and 13th place among all 412 TOP companies tested in Austria,

so can therefore display Best Recruiter’s golden seal for excellent

recruitment quality once again.

NEEDS-BASED FURTHER TRAINING FOR QUALITATIVE

GROWTH – TALENT MANAGEMENT

Our performance is assisted by continuous training and further training

based on needs and specific target groups. On the one hand, knowl-

edge is kept up to date and, on the other hand, strengths are further

reinforced.

This is ensured by way of visits from external trainers and the

possibility of participating in in-house training sessions that are

specifically tailored to the needs of KTM AG.

In-house training sessions are division- or department-specific on the

one hand and are designed and organized with the whole company in

mind on the other. In addition to the content, employee networking

and mutual exchange are also areas of focus.

KTM’s in-house training catalog is expanded and updated on an

ongoing basis. Training sessions are currently conducted in the

following categories and in various learning formats: specialist training,

IT training, languages, personal development and management

training.

Effective management is an important factor for success in achieving

the corporate objectives. Experienced managers can take “pit stops”

in a management training session, in which they refine or expand their

scope of action and/or develop additional skills. New managers are

provided with support to help them assume their role successfully.

Various management training sessions were developed specifically

for KTM AG and have a high degree of practical relevance. In addition,

participants networking with each other makes a significant

contribution to strengthening everyday teamwork.

Overall, approximately 33,000 training hours were invested in the

Austrian companies in 2017. This corresponds to approximately 1,800

participants.

KTM ENGINE TEST BENCH, AUSTRIA

3.245EMPLOYEES WORLDWIDE

AS OF DECEMBER 31, 2017

037E M P L O Y E E S

APPRENTICES– MORE VOCATIONAL TRAINING PLACES THAN ANY

OTHER EMPLOYER IN THE REGION

Training apprentices is an important aspect of our employment

strategy. KTM AG now has more vocational training places than any

other employer in the region. As of December 31, 2017, we employed

123 apprentices, who were training in 9 vocational training programs.

» CAD design

» Process engineering

» Automotive engineering (motorcycle engineering)

» Metal engineering (with a focus on mechanical engineering)

» Industrial purchasers

» Office administrators

» Mechatronics (production engineering)

» Operational logistics administrators

» IT engineering

It is a central aim of the company to continue to employ apprentices

when they have completed their training. In 2017 all 22 employees

who had completed training were given permanent jobs in one of our

departments. This satisfies the company’s requirement for specialized

staff and at the same time helps enable young people to have a good

start to their professional life.

Our own training workshop forms a cornerstone of apprentice

workshop. This is where the appropriate basic training for all

technical professions and specialist training is delivered.

In addition, the apprentices rotate through different departments,

gaining a comprehensive insight into how they operate. Great store is

placed on ensuring that staff training the apprentices have the right

technical and teaching qualifications and social skills. For instance, in

2017, 22 employees participated in the “training the trainers” course

and five employees successfully completed a consolidation course on

training apprentices.

SOCIAL COMMITMENT

To help our employees return to the workplace after starting a family,

children aged between one and three receive educational care in the

KTM crèche in groups of not more than nine children. In this way the

company makes an important contribution to reconciling work and

family.

As a voluntary additional social benefit, the company has taken out an

endowment and whole life insurance policy with a term of 15 years for

all employees.

038 K T M A G

MOTOGP FIRST SEASON IN

7 TOP 10 FINISHES5TH PLACE IN MANUFACTURER’S CHAMPIONSHIP

MOTOGPPOL ESPARGARO

MOTOGPMIKA KALLIO

MOTOGPBRADLEY SMITH

CHAMPIONS 2017MORE

ENDURO WOMENMARIA FRANKE

SUPERCROSS 450RYAN DUNGEY

WORLD CHAMPIONSHIPTITLES 2017

280 WORLD CHAMPIONSHIP TITLES

IN TOTAL MORE THAN

DAKARSAM SUNDERLAND

MOTOCROSS MXGPTONY CAIROLI

ENDURO E2JOSEP GARCIA

MOTOCROSS MX2PAULS JONASS

AFTER THE KTM BRAND WAS RELAUNCHED

IN THE EARLY 1990S, THE READY TO RACE

SLOGAN EMBODIED A NEW SELF-CONFI-

DENCE. AS IN THE PAST, THE COMPANY

TODAY STILL PURSUES A CLEAR OBJECTIVE

WITH THIS PHILOSOPHY, WITH FINDINGS

MADE IN MOTORSPORT FLOWING DIRECT-

LY INTO SERIES PRODUCTION, BECAUSE

EVERY MOTORCYCLE COMING OFF THE

PRODUCTION LINE IN MATTIGHOFEN MUST

BE READY TO RACE FROM THE START.

READY TO RACE is still the creed that drives

the KTM motorsport division which, with

many factory teams, works internationally at

the very highest level, racking up champion-

ship titles non-stop. Every employee working

in the KTM motorsport division is 100

percent committed to racing and to winning

victories and titles for KTM. In addition to the

smoothly running racing machines they build

and maintain, perfectly functioning teamwork

is also a crucial factor for success.

The KTM factory riders, who give their best

every weekend on the circuit to achieve the

best possible result for themselves, the team

and for all at KTM, are no exception.

Having won over 280 World Championship

titles, KTM is one of the world’s most

successful motorsport brands.

KTM MOTORSPORT

READY TO RACE – MORE THAN JUST A SLOGAN

039

2017 WORLD CHAMPION TITLES

RIDER TITLES

ENDURO E2: Josep Garcia (ESP)

MOTOCROSS 65 cm3 Motocross: Ivano Van Erp (NED)

MX2: Pauls Jonass (LAT)

MXGP: Tony Cairoli (ITA)

450 Supercross: Ryan Dungey (USA)

MANUFACTURERS TITLES 2017 SuperEnduro

Supercross

MX2

MXGP

E2

Cross-Country Rallies

OTHER WINS OF 2017

RALLY Dakar: Sam Sunderland (GBR)

Abu Dhabi Desert Challenge: Sam Sunderland (GBR)

Sealine Cross-Country Rally: Sam Sunderland (GBR)

OiLibya Rally: Matthias Walkner (AUT)

EXTREME ENDURO ErzbergRodeo: Alfredo Gomez (ESP)

Kenda AMA Tennessee Knockout Extreme Enduro:

Cody Webb (USA)

Red Bull 111 Megawatt: Jonny Walker (GBR)

SUPERCROSS Monster Energy Cup: Marvin Musquin (FRA)

Red Bull Straight Rhythm: Marvin Musquin (FRA)

Paris Supercross: Marvin Musquin (FRA)

Geneva Supercross: Marvin Musquin (FRA)

MOTO3 Mugello: Andrea Migno (ITA)

MOTO2 Phillip Island: Miguel Oliveira (POR)

Sepang: Miguel Oliveira (POR)

Valencia: Miguel Oliveira (POR)

KTM celebrated its overall sixteenth

consecutive Dakar win with British rider

Sam Sunderland mid-January. It is the first

time a British rider has won the world’s

hardest off-road race.

The intensified participation in the prestig-

ious U.S. Supercross series has also paid

off in 2017: Following wins in 2015 and

2016, American Ryan Dungey has for the

third consecutive time won the AMA 450

Supercross World Championship title for the

Austrian manufacturer on his KTM 450 SX-F,

announcing his retirement from active racing

soon afterward. These incredible victories

were an ideal platform for both the brand and

its bikes, catapulting KTM into the interna-

tional limelight.

The orange motocross team also got people

sitting up and taking notice in Europe. After

two difficult years, Tony Cairoli is stronger

than ever, dominating the hard-fought MXGP

class and again winning the world champi-

onship the racing season before last. The

competition comes from his own ranks:

Jeffrey Herlings’ first MXGP season started

with problems, but the Dutchman is picking

up the pace as the season progresses,

ultimately becoming a World Championship

runner-up. But that was not all.

KTM’s systematic work to nurture new talent

has paid off in the MX2 class, as

Pauls Jonass gives KTM another MX2 title

with fantastic performances.

In the Enduro World Championship, it is the

young Spaniard Josep Garcia who immediate-

ly takes the World Championship title in his

first season in the Enduro2 class.

KTM has established itself firmly in road

racing, expanding its commitment in the

2017 season. After numerous successes in

Moto3, KTM is joining Moto2 with a chassis

developed in collaboration with the firm WP –

part of KTM Industries AG since 2017 – and

is aiming for an immediate place on the po-

dium. Spurred on by this success, the Moto2

project will be continued and expanded in the

coming season.

Joining MotoGPTM, the king of motorcycle

racing sport, probably marks the greatest

milestone of recent years. With its own

factory team and a motorcycle developed

entirely in Mattighofen, KTM now ranks

among the world’s best manufacturers. After

comprehensive testing and development work,

the new KTM RC16 was officially introduced

in August 2016 at the Heim Grand Prix on

the Red Bull Ring and the official team

presentation took place in February 2017.

In March 2017, both factory riders Pol

Espargaró and Bradley Smith started com-

peting for points for the first time in Qatar

at the beginning of the season. Both riders

have since achieved point rankings and made

remarkable progress. Another crucial factor

for the steep learning curve in the hard

competition of the premier class is the com-

prehensive testing work of Finn Mika Kallio,

who has again and again proved his potential

with a total of four wild card entries in the

2017 season.

K T M M O T O R S P O R T

RYAN DUNGEY, KTM 450 SX-F LAS VEGAS 2017, PHOTO: SIMON

280WORLD CHAMPIONCHIP TITLES

MORE THAN

040 K T M A G

HUSQVARNA MOTORCYCLES REMAIN

COMMITTED TO COMPETITION. EVEN WITH

THE BOLD MOVE INTO THE STREET

MOTORCYCLING SECTOR, THE LAST THREE

SEASONS WERE STILL ENORMOUSLY

SUCCESSFUL FOR HUSQVARNA

MOTORCYCLES IN OFFROAD, MOTOCROSS

AND SUPERCROSS RACING. ESTABLISHING

THE GLOBAL ROCKSTAR ENERGY HUSQVAR-

NA FACTORY RACING TEAM TWO YEARS

AGO, HUSQVARNA MOTORCYCLES HAVE

ENJOYED A WEALTH OF SUCCESS IN ALL

OFFROAD DISCIPLINES WORLDWIDE

THROUGHOUT THE 2017 SEASON.

Colton Haaker earned Husqvarna Motorcycles’

first title of 2017. Securing the

FIM SuperEnduro World Championship the

American then focused his attention on

battling for a second AMA EnduroCross

Championship title. Winning the season

opener in Las Vegas, Colton has been forced

to sit out the last three rounds of the series

to properly recover from recent surgery.

PABLO QUINTANILLA HUSQVARNA FR 450 , PHOTO: MARCIN KIN

041

Establishing Husqvarna Motorcycles as a

dominant force in the 250cc class, Zach

Osborne claimed the 2017 AMA 250SX East

Championship before wrapping up a

memorable year by also clinching the 2017

AMA 250MX Championship. Battling at the

top of the ultra-competitive AMA Supercross

Championship Jason Anderson rounded out

the season with a win at the Las Vegas final

and a strong fourth place result in the 450SX

class’ final standings.

Leaving their mark on the FIM Motocross

World Championship, Husqvarna riders

battled for victory in each of the 19 rounds

of the 2017 series. Leading Husqvarna

Motorcycles’ assault Gautier Paulin and

Thomas Kjer-Olsen both finished third overall

in the MXGP and MX2 classes respectively.

Rockstar Energy Husqvarna Factory Racing

team partners Gautier Paulin and Christophe

Charlier were also members of France’s

winning team at the 2017 FIM Motocross

of Nations.

Husqvarna’s success in the FIM EnduroGP

World Championship continued throughout

2017, with FE 350 powered Christophe

Charlier securing three EnduroGP class

podiums during the season. Christophe’s

teammates Pascal Rauchenecker and Danny

McCanney finished fourth and fifth respec-

tively in the Enduro 2 World Championship.

Completing an incredible feat Charlier won

the 2017 FIM Motocross of Nations and the

2017 FIM International Six Days Enduro with

Team France.

Leading Husqvarna Motorcycles’ US offroad

team in the AMA GNCC series, Thad Duvall

has claimed second in the 2017 champion-

ship standings. Continuing Husqvarna’s

presence in extreme enduro racing, Rockstar

Energy Husqvarna Factory Racing’s Graham

Jarvis was on winning form at some of the

season’s most prestigious events, including

Hell’s Gate, Minas Riders, Romaniacs, Sea to

Sky and Hixpania Hard Enduro.

Following a DNF while running second in the

2017 Dakar Rally, Pablo Quintanilla ended

the five-round-long FIM Cross-Country Rallies

World Championship in the best possible way.

Becoming the 2017 World Champion, Pablo

has secured a second consecutive rally

championship for the Rockstar Energy

Husqvarna Factory Racing team.

Motorsport is an integral part of Husqvarna’s

114-year history, and will continue to be one

of the driving factors in the development of

class-leading production motorcycles.

Husqvarna Motorcycles remains resolute

about achieving success at the highest levels

of two-wheeled motorsport.

2017 WORLD & US CHAMPIONS

FIM SUPERENDURO

WORLD CHAMPIONSHIP

Colton Haaker

FIM CROSS-COUNTRY RALLIES

WORLD CHAMPIONSHIP

Pablo Quintanilla

AMA 250SX EAST

SUPERCROSS CHAMPIONSHIP

Zach Osborne

2017 MOTORSPORT RESULTS

FIM MOTOCROSS WORLD CHAMPIONSHIP

Gautier Paulin – MXGP (3.)

Max Nagl – MXGP (8.)

Max Anstie – MXGP (9.)

Thomas Kjer-Olsen – MX2 (3.)

Thomas Covington – MX2 (4.)

FIM MOTOCROSS OF NATIONS

Gautier Paulin & Christophe Charlier –

Team Frankreich (1.)

FIM ENDUROGP WORLD CHAMPIONSHIP

EnduroGP – Christophe Charlier (9.)

E2 – Pascal Rauchenecker (4.)

E2 – Danny McCanney (5.)

FIM INTERNATIONAL SIX DAYS ENDURO

Christophe Charlier – Team Frankreich (1.)

EXTREME ENDURO

Graham Jarvis (1.) – Hell’s Gate, Italien

Graham Jarvis (1.) – Minas Riders, Brasilien

Graham Jarvis (2.) – Hare Scramble, Österreich

Graham Jarvis (1.) – Romaniacs, Rumänien

Graham Jarvis (1.) – Sea to Sky, Türkei

Graham Jarvis (1.) – Hixpania Hard Enduro, Spanien

Graham Jarvis (3.) – Roof of Africa, Südafrika

AMA 450SX SUPERCROSS

CHAMPIONSHIP

Jason Anderson (4.)

AMA 450MX PRO MOTOCROSS

CHAMPIONSHIP

Dean Wilson (4.)

AMA GNCC CHAMPIONSHIP

Thad Duvall (2.)

HUSQVARNA MOTORSPORT

SUCCESSFULOFFROAD SEASON

H U S Q V A R N A M O T O R S P O R T

QUALITY

» SUCCESSFUL OFFROAD SEASON,

we at KTM have set ourselves the goal of manufacturing

products that are innovative, in line with market requirements,

safe, and, most importantly, of high quality. The entire process

of producing a vehicle – from product idea to market analysis to

design studies, design and development, cooperation with

suppliers, the procurement of components for series production,

parts production, the assembly of engine and vehicle, right to

packing and dispatch – is mapped by a process-oriented quality

management system and controlled using the KTM process

management system.

» WE ACHIEVE HIGH PRODUCT QUALITY due to production-oriented design, the use of analytical and statistical

calculation methods, comprehensive checking and testing, compliance

with relevant approval rules, by a focus on process quality and by

targeted communication as well as by implementing training measures

at KTM and at the suppliers.

» THE GLOBAL ASSEMBLY LOCATIONS are professionally served by a team of high-quality QM staff. They

make sure that the know-how for manufacturing in these locations is

passed on and ensure the quality of the vehicles produced there by

implementing a KTM-compliant quality management system.

» AS KEY COMPONENTS OF THE MOTORCYCLES,

the engines are developed and manufactured by KTM and guarantee

the identity of motorcycles with the KTM and Husqvarna Motorcycles

brands.

» THE IMPRESSIVE TRACK RECORD in racing is the best evidence of KTM‘s and Husqvarna‘s high product

quality and high level of engineering competence.

QUALITY .KTM 1290 SUPER DUKE GT MY 2018, PHOTO: SCHEDL R

044 K T M A G

RESEARCH & DEVELOPMENT

AS A PREMIUM MANUFACTURER IN THE

NICHE SEGMENT OF READY-TO-RACE STREET

AND OFFROAD MOTORCYCLES, WE PLACE

PARTICULAR EMPHASIS ON THE AREA OF

RESEARCH AND DEVELOPMENT. INNOVATIVE

PRODUCTS AND THE CONSISTENT DEVELOP-

MENT OF NEW TECHNOLOGIES ENABLE US

TO MEET THE HIGH EXPECTATIONS OF OUR

CUSTOMERS AND OPEN UP NEW MARKETS

IN A SUSTAINABLE WAY.

KTM AG places a high value on the early

recognition of motorcycle trends, on research

and development regarding engineering and

functionality and on pursuing and imple-

menting customer wishes so as to achieve

innovative product development close to the

market. In this context, KTM AG not only

operates in its original core markets but is

also developing new products in previously

unexplored segments and niches of the

market as soon as it identifies them and they

become usable for the KTM and Husqvarna

Motorcycles brands.

The technologies, design methods and

development processes we use undergo

constant development, and our products‘

technical and functional standards are

continuously improved. The experience and

knowledge that we have obtained from racing

KTM DEVELOPMENT DEPARTMENT

045

EMPLOYEES (ANNUAL AVERAGE)

IN RESEARCH & DEVELOPMENT

540

R E S E A R C H & D E V E L O P M E N T

are incorporated directly into series

production and the development of new

models – it is not without reason that the

corporate philosophy is READY TO RACE.

In the past financial year, we were able to

take numerous different research and

development projects forward successfully.

A particular highlight is the introduction of

the world’s first series-produced 2-stroke

offroad motorcycles with fuel injection. In

addition to the large number of benefits for

the customer, this also enabled us to ensure

compliance with current emission standards.

A further milestone in the history of the

Husqvarna Motorcycles group brand, which

dates back over 100 years, was reached

with the simultaneous transition to series

production of three new models in the

Naked Bike segment. In addition to the

two entry-level models VITPILEN 401 and

SVARTPILEN 401, we were also able to

present the VITPILEN 701 to the international

trade audience.

Both model derivatives of the KTM premium

platform, the KTM 1290 SUPER DUKE R as

well as the KTM 1090 ADVENTURE/R and

KTM 1290 SUPER ADVENTURE R/S, were

subjected to extensive revision and success-

fully transferred to series production.

In addition to consistent refinement of the V2

drive unit, which achieved an improvement in

ridability and performance, we were able to

integrate a large number of comfort and

safety features, such as the semi-active

chassis, LED headlight or KTM MY RIDE and

a smartphone interface, for example, and

offer these features to the customer.

In the area of fundamental development, we

were able to celebrate major successes in the

development of new drive technologies –

both in the area of conventional internal

combustion engines and in the area of

zero-emission electrical mobility.

In parallel to the development of new technol-

ogies for engine and vehicle projects, inten-

sive work was carried out on the expansion of

the R&D infrastructure. The expansion of the

research and development center of KTM AG

at the headquarters in Mattighofen with an

investment of approx. EUR 30 million marks

a milestone in the corporate history.

In addition to the expansion of the test infra-

structure for engine and vehicle test stand

facilities, an important priority area of the

construction project is the expansion of the

operational durability test stand facilities and

the extension of the office facilities.

In the 2017 financial year we employed an

average of 540 people (+44% more than the

previous year and 17% of the total workforce)

in our Research and Development department.

In operating terms, disregarding the effects

of capitalizing and amortizing development

expenses, 8% of total revenue was invested

in research and development.

LEHMMODELL DER KTM 1290 SUPER DUKE GT IN EINER FRÜHEN DESIGNPHASE, PHOTO: MARCO CAMPELLI

PHOTO: CAMPELLI M.

047R E S E A R C H & D E V E L O P M E N T

RESEARCH & DEVELOPMENT

» Series development of the first KTM and

Husqvarna Enduro models equipped with

the newly developed 2-stroke direct injection

engine. The fully automatic fuel preparation

system offers the customer a number of bene-

fits and also ensures compliance with modern

emission standards by reducing harmful

emissions.

» Series development of new Husqvarna

models in the entry-level segment.

The aforementioned VITPILEN 401 and

SVARTPILEN 401 vehicles are the first Naked

Bikes of the Husqvarna Motorcycles brand,

which has now made it possible for the dealer

range to be expanded by two fully fledged

road models. The vehicles are characterized

in particular by their clear, progressive design

language.

» Series development of the newly developed

KTM DUKE motorcycle generation in the

entry-level segment. Since its initial market

launch in 2011, the Naked Bike platform,

with cubic capacities from 125cc to 390cc,

has held a significant share in the area of the

KTM street model range. In addition to an

extensively revised chassis, particular high-

lights were the integration of KTM MY RIDE,

which contains many electronic features, and

the reduction of harmful emissions.

» Series development of the revised

KTM 1290 SUPER DUKE R and

KTM 1090 ADVENTURE R and the

KTM 1290 SUPER ADVENTURE R/S.

The consistent refinement of the V2 drive

unit made it possible to improve ridability,

increase performance and significantly reduce

harmful emissions. Furthermore, the revised

models are characterized by the integration

of a large number of comfort and safety

features, such as the semi-active chassis,

LED headlight or KTM MY RIDE and a smart-

phone interface, for example.

» Series development of new Husqvarna

models in the mid-class segment. In addition

to the refinement of the 701 ENDURO and

701 SUPERMOTO variants, the VITPILEN

701 presented in November 2017 supple-

ments the street motorcycle portfolio in the

Naked Bike segment and therefore contrib-

utes toward opening up further markets.

As is the case with the VITPILEN 401 and

SVARTPILEN 401 models, this model also

visualizes the purist design language

“modern retro”.

» Series development of a new motorcycle

platform in the mid-class segment. In addi-

tion to a comprehensively in-line 2-cylinder

engine design, a large number of new design

and development approaches have been

implemented in series production in the area

of chassis development as well. In November

2017, in addition to a series version of the

KTM 790 DUKE, we were able to present the

prototype for a model derivative in the travel

segment with the KTM 790 ADVENTURE R.

» Development of a new KTM and Husqvar-

na Motocross generation. Based on the

knowledge acquired from the international

motorsport environment, a large number of

innovation approaches are being incorporated

into the refinement of assembly groups in the

engine and chassis domain. A particular focus

of the development work is reducing vehicle

weight and further improving handling proper-

ties.

» Development of new drivetrain, energy

accumulator and battery management

systems for motorcycle applications. Refine-

ment of the 100% electrically operated

KTM FREERIDE E-XC model. Intensive devel-

opment work on the electric energy accumula-

tor at cell level and refinement of the battery

management system has made it possible to

increase the range by approximately 50%.

» Concept development for new connectivity

systems for the digital networking of rider

and motorcycle. In addition to safety-related

equipment such as automated emergency call

systems or interlinked vehicles for a sustaina-

ble reduction in accidents, this also comprises

enhanced comfort and infotainment functions

for the rider.

» Development of concepts for new ap-

proaches in relation to engine management

systems and exhaust gas purification to

ensure that the KTM and Husqvarna model

ranges comply with current (EU V) and future

homologation and emission regulations.

These include both a reduction in fuel

consumption and a reduction in exhaust

emissions.

DURING THE 2017 FINANCIAL YEAR, NUMEROUS R&D PROJECTS WERE TAKEN

FORWARD AT VARIOUS STAGES FROM CONCEPT DEVELOPMENT TO THE START

OF SERIES PRODUCTION AND SUCCESSFULLY COMPLETED:

INVESTOR RELATIONS

2017KTM 1090 ADVENTURE, FOTO: SCHEDL R.

2017 VITPILEN 401, PHOTO: SCHEDL R.

050 K T M A G

THE KTM BONDIn April 2012, the EUR 85 million bond (2012-2017) of KTM AG

was successfully placed. The initial offering price was 101.389%.

The bond has been listed on the Second Regulated Market of the

Vienna Stock Exchange and was issued with a fixed coupon paying

interest at 4.375%. Interest is payable semi-annually as of October 24

and April 24; the first payment of interest was made on October 24,

2012. In April 2017, the bond was repaid as planned.

OVERVIEW OF INFORMATION ABOUT THE KTM BOND

On our website www.ktmgroup.com a comprehensive pool of

information on the company and on our products is offered to all

who are interested.

THE KTM SHAREUp to June 2016, 10,845,000 shares of stock, and thus the entire

share capital of KTM AG, were admitted to trading on the Vienna

Stock Exchange. The KTM share (ISIN: AT 0000645403) was listed

until June 2016 in the Third Market (MTF) of the Vienna Stock

Exchange.

DELISTING IN THE 2016 FINANCIAL YEAR

On March 29, 2016, K KraftFahrZeug Holding GmbH (previously:

CROSS KraftFahrZeug Holding GmbH) announced that it was issuing

a public acquisition offer to all free float shareholders of KTM AG as

an accompanying measure for withdrawing the shares of KTM AG from

the Third Market (MTF) of the Vienna Stock Exchange. The offer price

was EUR 122.50 per share. At the end of June 24, 2016, the share

was withdrawn from the Third Market of the Vienna Stock Exchange.

On July 20, 2016, the extraordinary general meeting of KTM AG

resolved to convert the previous bearer shares into registered shares.

This amendment to the articles of association was recorded in the

commercial register in September.

The Executive Board of KTM AG plans to propose to the General

Meeting to pay out a dividend of €2.00 per share for the 2017

financial year.

INVESTOR RELATIONS

ISIN AT0000A0UJP7Market Second Regulated MarketIssue volume 85,000,000.00Denomination 500.00Maturity 2012-2017Coupon 4.375%Initial offering price 101.389%

DUE TO THE DELISTING OF KTM AG FROM THE VIENNA STOCK EXCHANGE IN JUNE 2016 AND THE

PLANNED REPAYMENT OF THE KTM AG BOND IN APRIL 2017, KTM AG IS NO LONGER A CAPITAL

MARKET-ORIENTED COMPANY. FROM NOW ON, THE HOLDING COMPANY KTM INDUSTRIES AG

CONCENTRATES ON THE CAPITAL MARKET ACTIVITIES. FURTHER INFORMATION CONCERNING

INVESTOR RELATION ACTIVITIES OF KTM INDUSTRIES AG ARE AVAILABLE AT THE FOLLOWING

WEBSITE: HYPERLINK „HTTP://WWW.KTM-INDUSTRIES.AT“ WWW.KTM-INDUSTRIES.AT.

051I N V E S T O R R E L A T I O N S

0.33 %Others

47.99 %Bajaj Auto International Holdings BV

51.68 %KTM Industries AG

10,845,000shares

KTM-HAUPTQUARTIER

OWNERSHIP STRUCTUREWith KTM Industries AG, which directly and indirectly via

K KraftFahrZeug Holding GmbH holds 51.68 % of the voting rights,

and with Bajaj Auto Ltd. (via Bajaj Auto International Holdings BV),

which holds 47.99 % of the voting rights, KTM AG has two stable

core shareholders. The share of other small shareholders is below

one percent.

CONSOLIDATED MANAGEMENT REPORT

2017I54 Course of business and financial position

54 SIGNIFICANT EVENTS DURING THE

FINANCIAL YEAR

56 Market development

57 Development of revenue by region

57 Sales by region

57 Development of revenue by product group

58 Sales by product group

58 Production by product group

59 FFINANCIAL PERFORMANCE INDICATORS

59 Performance analysis

59 Statement of financial position analysis

60 Liquidity analysis

61 Investments

61 NON-FINANCIAL PERFORMANCE INDICATORS

61 Employees

61 Research and development

63 Racing

64 Financial instruments

64 Quality

64 Risk report

65 Sustainability

66 Outlook

C O U R S E O F B U S I N E S S A N D F I N A N C I A L P O S I T I O N2017 KTM 1290 SUPER DUKE R MY 2017 , PHOTO: SCHEDL R.

054 C O N S O L I D A T E D M A N A G E M E N T R E P O R T O F K T M A G

CONSOLIDATED MANAGEMENT REPORT AS OF DECEMBER 31, 2017 OF KTM AG, MATTIGHOFEN

1. COURSE OF BUSINESS AND FINANCIAL POSITION

According to the January 2018 assessment of the International Monetary Fund (IMF), the global economy is set to experience a slight recovery.

The IMF expects to see a 3.9 % rise in global economic output in 2018, with growth of 2.3 % in 2018 and 2.2 % in 2019 being forecast for

industrial nations.

Expansion of 2.2 % is forecast for the Eurozone in 2018 and 2.0 % in 2019. Growth of 2.7 % is anticipated in the U.S. for 2018. The IMF also

forecasts global growth of 3.9 % in 2019.

Economic output for emerging and developing nations is forecast to grow by 4.9 % in 2018 and 5.0 % in 2019. The biggest growth is expected

in India, which is forecast to grow by 7.4 % in 2018 and by 7.8 % in 2019. Growth of 5.3 % is expected in the ASEAN countries in 2018.

SIGNIFICANT EVENTS DURING THE FINANCIAL YEARThe 2017 financial year will go down as another record year in KTM‘s history.

By consistently implementing the global product strategy and expanding into all continents, KTM yet again successfully increased both revenue

and sales figures, thereby also achieving new record levels in 2017. KTM has been among the world’s fastest growing motorcycle brands for a

number of years.

During the 2017 financial year, KTM increased revenue to EUR 1,331.7 million (+ 16.6 % compared to the prior year) and sales to

191,270 vehicles (+ 14.2 % compared to the prior year).

Once sales of the KTM DUKE 200, KTM DUKE 390, KTM RC 200, and KTM RC 390, sold in India by our commercial partner Bajaj, are

included, 238,408 KTM and Husqvarna vehicles were sold worldwide during the 2017 financial year.

Investments

The construction of the “House of Brands” for sales and marketing was commenced at the Munderfing site. The expansion of the development

center and the KTM Motohall in Mattighofen are also in progress.

In addition, the extension to the logistics center in Munderfing was completed in 2017.

At the beginning of July, KTM AG opened a new development center in Rosenheim, Germany. The specialized staff at the site will concentrate

primarily on the development of electronics for the motorcycle sector.

Total capital expenditure in 2017 amounted approximately to of EUR 140 million. Of this, EUR 65 million related to development projects, EUR

70 million to property, plant, and equipment and intangible assets and EUR 5 million to financial assets.

055C O U R S E O F B U S I N E S S A N D F I N A N C I A L P O S I T I O N

Motorsport successes

Racing chalked up yet another victory in January 2017, when KTM factory rider, Sam Sunderland, celebrated a win in the Dakar Rally thanks to

his KTM 450 RALLY. He stood atop the triple KTM podium, alongside his Austrian teammate, Matthias Walkner, who took second place, and

Gerard Farres Guell, who finished in third.

Following on from its wildcard entry in the 2016 season finale in Valencia, the KTM MotoGPTM factory team has now competed in its first full sea-

son. With the RC16 racing bike, the two KTM riders, Spaniard Pol Espargaro and Brit Bradley Smith, successfully completed the 2017 season,

bringing home the first World Championship points for KTM.

2017 was the first year in which KTM was represented in all three categories: Alongside its many years of success in Moto3, KTM also lined up

on the starting grid of the Moto2 competition for the 2017 season. In August 2017, MotoGPTM fans were once again given the opportunity to

experience the pinnacle of motorcycle sport first hand at the KTM stand at the Spielbergring in Austria.

U.S. motorsport also saw an exciting year. Red Bull KTM factory rider, Ryan Dungey, secured his third consecutive AMA 450 Supercross

World Championship win on his KTM 450 SX-F Factory Edition. Shortly afterwards, Ryan Dungey announced his retirement from competitive

motorsport.

New models

During the first half of 2017, the new generation of KTM DUKE models was launched on the market. Husqvarna presented the new

2018 Enduro range and the 2018 Motocross range.

In October, KTM unveiled the second generation of its FREERIDE E-XC for the model year 2018.

At the EICMA Motorcycle Show in Milan, which took place in November, KTM presented a completely new series motorcycle: the

KTM 790 DUKE, together with the prototype version of the KTM 790 ADVENTURE R. In doing so, the Austrian company gave an indication

as to how it is planning to expand its product range with the help of its new 799 cm³ in-line 2-cylinder engine, the LC8c. In addition, KTM

introduced the completely new Generation of the KTM 450 RALLY. At the infamous Dakar Rally, which took place in January 2018, Red Bull

KTM factory rider, Matthias Walkner, secured KTM’s 17th consecutive victory on his new KTM 450 RALLY.

In addition, Husqvarna Motorcycles introduced the Naked Bikes Vitpilen 401 and Svartpilen 401, together with their big sister, the Vitpilen 701,

and the Svartpilen 701 concept bike.

Sales network

As part of the cooperation with the Philippine Ayala Corporation, the KTM and Husqvarna partner and importer in the Philippines, the assembly

of models from the KTM DUKE and RC families up to 400 cm³ started as scheduled during the first half of 2017. This opened up new distribu-

tion opportunities in the ASEAN region.

Bajaj Auto and KTM celebrated the ten-year anniversary of their strategic partnership in 2017. The KTM DUKE 125 – 390 and

RC 125 – 390 product lines, which are produced in Bajaj’s Indian production facilities, are distributed worldwide by both partners. In addition, it

was announced that a global roll-out of Husqvarna Street Motorcycles will take place in 2018. Extending the cooperation to the Husqvarna

Motorcycles brand will raise the partnership between Bajaj and KTM to the next level.

The “Husqvarna Motorcycles” brand will be rolled out across the globe with a view to generating a significant increase in sales. The first models,

the Vitpilen 401, Svartpilen 401, and Vitpilen 701, are being produced in Mattighofen and were launched on the market at the beginning of

2018. The production of the Vitpilen 401 and Svartpilen 401 models to be sold worldwide will be transferred to Bajaj in Chakan, India in late

2018/early 2019.

056 C O N S O L I D A T E D M A N A G E M E N T R E P O R T O F K T M A G

With a view to increasing its presence on the Chinese market, KTM AG is pursuing a joint venture with its long-standing partner, CF Moto.

KTM will hold a 49% share in this joint venture (“CFMOTO-KTMR2R”). It is scheduled for launch during Q1 2018. Not only is this joint venture

expected to increase the presence of KTM on the Chinese market, the intention is also to work together to develop and manufacture products in

order to further drive forward global expansion.

Significant changes to group companies

In June 2017, the equity holding in KTM Technologies GmbH (previously a fully consolidated subsidiary) and the holding in Kiska GmbH

(previously consolidated at equity) was divested to KTM Industries AG.

In July 2017, KTM acquired an equity holding of 26 % in the Australian company Motorcycle Distributors Australia Pty. Ltd. The associate is

included in the scope of consolidation at equity.

KTM New Zealand Ltd. was previously included as an associate at equity. In July 2017, this company was merged with a subsidiary of Motorcycle

Distributors Australia Pty. Ltd.

In addition, a 100 % equity holding in WP Suspension North America Inc. was acquired. The subsidiary is included in the consolidated financial

statements as a full consolidation.

2. MARKET DEVELOPMENT

The overall European market1 recorded a fall of 5.7 % when compared with the preceding year, with around 539,000 vehicles registered.

That fall can be explained by a surge in EURO3 vehicle registrations at the end of 2016 and can, for the most part, be traced back to changes in

large European markets, such as Germany (- 19.3 %), the United Kingdom (- 14.3 %), and Sweden (- 24.6 %). The French (+ 3.4 %) and Italian

(+ 8.0 %) markets recorded a positive development with regard to vehicles registered.

KTM and Husqvarna still hold a double-digit share of the market for motorcycles registered for road use in Europe. One particularly noteworthy

positive is the United Kingdom, which showed a significant growth in market share (+ 10.7 %) in spite of the extremely difficult market

environment.

Amid a difficult market environment, KTM brand vehicles succeeded in gaining additional market share in key markets such as the United

Kingdom (+ 0.6 percentage point compared to the prior year) and the Netherlands (+ 1.4 percentage points compared to the prior year).

However, a fall was recorded in the principal markets in Germany, France, and Italy. KTM has a share of 8.7 % of the total European market

(prior year: 9.7 %).

Husqvarna Motorcycles’ market share grew in Germany (+ 0.3 percentage points compared to the prior year), the United Kingdom

(+ 0.2 percentage points compared to the prior year), and Switzerland (+ 0.2 percentage points compared to the prior year). However, a slight

fall in market share was seen in France (- 0.2 percentage points compared to the prior year), Italy (- 0.5 percentage points compared to the prior

year), and Sweden (- 2.6 percentage points compared to the prior year). Husqvarna has a share of 1.4 % of the total European market

(prior year: 1.6 %).

New registrations in the overall U.S. market2 fell slightly to around 391,000 vehicles in 2017 (prior year: 407,000 vehicles). In spite of the

shrinking overall market, KTM and Husqvarna managed to significantly build upon their market share in the USA and Canada; this was largely

driven by the slump experienced by Harley-Davidson.

KTM succeeded in increasing its share of the overall U.S. market to 6.1 %, a rise of 0.6 percentage points compared to the prior year.

1 Motorcycles >= 120cm3 excluding Motocross, scooters and ATVs, including electric motorcycles2 Motorcycles >= 120 cm3 including Motocross, excluding scooters and ATVs, including electric motorcycles

057C O U R S E O F B U S I N E S S A N D F I N A N C I A L P O S I T I O N

Husqvarna increased its market in the U.S. by 0.4 percentage points to 1.9 %.

Strong growth was also recorded in Australia and South Africa. In Australia, KTM and Husqvarna achieved a market share of 13.6 %

(+ 0.6 percentage points compared to the prior year). On the South African market, a 14.4 % share (+ 3.1 percentage points compared to the

prior year) was achieved.

3. DEVELOPMENT OF REVENUE BY REGION

Group revenue increased by 16.6 % from EUR 1,141.8 million in the prior year to EUR 1,331.7 million. Revenue in North America rose 16.3 %

from the prior year to EUR 381.3 million; this corresponds to 28.6 % of total revenue. In Europe, revenue was up 16.0 % on the preceding year,

rising to EUR 700.2 million; Europe thus accounted for 52.6 % of total revenue. Revenue in other countries rose by 18.8 % compared to the

previous year, to EUR 250.2 million. The percentage of total revenue earned in the other countries was 18.8 %.

Group revenue by region 2017 2016 EURk

Change% EURk %

Europe 700,235 52.6 % 603,562 16.0 %

North America 381,263 28.6 % 327,704 16.3 %

Other countries 250,219 18.8 % 210,553 18.8 %

Total 1.331,717 100.0 % 1,141,819 16.6 %

4. SALES BY REGION

Accounting for 22.1 % of sales in the financial year 2017, the U.S. remained the largest single market for KTM. Europe accounted for 49.0 % of

sales, with the strongest sales markets for the group as a whole being Germany (10.9 %), France (6.4 %), Australia (6.0 %), the UK (5.6 %),

Italy (5.3 %), and Spain (4.2 %). Overall, 69.3 % of total sales were generated in the ten most important countries worldwide.

5. DEVELOPMENT OF REVENUE BY PRODUCT GROUP

Motorcycles (including Sportminicycles and X-Bows) represent 84.3 % of total revenue, this percentage increased slightly in relation to the prior

year (83.9 %). Revenue in the Offroad segment increased by 3.9 % compared to the prior year, to EUR 546.7 million. Revenue in the Street

segment, at EUR 515.1 million, increased relative to the prior year (+ 34.8 %). Revenue from Spares, Clothing, and Accessories

(KTM PowerWear and KTM PowerParts) and Other rose by 13.4 % relative to the prior year to EUR 208.7 million.

Group revenue by product group 2017 2016 EURk

Change%EURk %

Offroad sport motorcycles 546,743 41.1 % 526,082 3.9 %

Street sport motorcycles 515,087 38.7 % 381,983 34.8 %Total Full Size 1,061,830 79.7 % 908,064 16.9 %

Sportminicycles 55,461 4.2 % 44,749 23.9 %

X-Bow 5,712 0.4 % 5,000 14.2 %

Parts, garments and accessories and others 208,714 15.7 % 184,006 13.4 %

Total 1,331,717 100.0 % 1,141,819 16.6 %

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6. SALES BY PRODUCT GROUP

In 2017 KTM sold 191,270 vehicles, comprising 191,196 motorcycles and Sportminicycles (+ 14.2 % compared to the prior year) and

74 X-Bows (- 10.8 % compared to the prior year).

In the offroad segment, 88,238 motorcycles were sold (+ 1.7 % compared to the prior year).

In the street segment, 85,314 motorcycles were sold (+ 28.9 % compared to the prior year). Sales in the Adventure models segment rose by

109.6 % to 16,541 motorcycles.

In the Sportminicycle segment, sales went up 21.7 % from the prior year, to 17,644 motorcycles.

Sales by product group 2017 2016 Units

Change%Units in %

Offroad sport motorcycles 88,238 46.1 % 86,769 1.7 %

Street sport motorcycles 85,314 44.6 % 66,201 28.9 %

Total Full Size 173,552 90.7 % 152,970 13.5 %

Sportminicycles 17,644 9.2 % 14,497 21.7 %

Total motorcycles 191,196 100.0 % 167,467 14.2 %

X-Bow 74 0.0 % 83 -10.8 %

Total 191,270 100.0 % 167,550 14.2 %

7. PRODUCTION BY PRODUCT GROUP

During the 2017 financial year, 151,732 motorcycles were manufactured at the Mattighofen production site. Compared to the prior year, this

constitutes an increase of 17,093 units, or 12.7 %. Taking into account the small-engined KTM models produced by our partner Bajaj Auto Ltd.

in India, 197,612 KTM vehicles (+ 21.0 %) were manufactured worldwide.

Production by product group 2017 2016 Units

Change%Units %

Offroad sport motorcycles 91,705 60.4 % 86,080 6.5 %

Street sport motorcycles 41,969 27.7 % 33,444 25.5 %

Total Full Size 133,674 88.1 % 119,524 11.8 %

Sportminicycles 17,971 11.8 % 15,060 19.3 %

Total motorcycles 151,645 99.9 % 134,584 12.7 %

X-Bow 87 0.1 % 55 58.2 %

Total 151,732 100.0 % 134,639 12.7 %

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FINANCIAL PERFORMANCE INDICATORS

8. PERFORMANCE ANALYSIS

Net revenue rose in 2017 by 16.6 % to EUR 1,331.7 million (prior year: EUR 1,141.8 million). This was attributable to the increase in sales.

Approximately 96 % of revenues were earned outside Austria.

Production costs increased from the prior year, rising 20.8 % to EUR 957.1 million; the gross margin decreased by 2.5 percentage points

compared to the prior year and is now at 28.1 %.

Overheads went up EUR 16.9 million from the prior year to EUR 266.1 million (+ 6.8 %).

Expenses for selling and marketing rose by EUR 1.1 million from the prior year (+ 0.9 %). Net expenses for motorsport increased EUR 4.8

million compared to the prior year, to EUR 36.1 million (+ 15.1 %). This is attributable to the rise in sales volume as well as to wide-ranging

motorsport activities.

Expenses for infrastructure and administration went up EUR 4.3 million to EUR 47.8 million (+ 9.8 %). The increase is the result of substantial

capital investment, especially in IT.

Operating development expenses during the 2017 financial year rose EUR 14.6 million from the prior year, to EUR 107.2 million (+ 15.8 %).

Taking account of the capitalization of a higher amount of development costs (EUR 7.1 million, a rise of 12.3 % compared to the prior year) as

well as research subsidies of EUR 13.3 million (+ 52.2 % compared to the prior year) brought net development expenses to EUR 29.0 million

(prior year: EUR 26.0 million).

Other operating expenses in the amount of EUR 31.3 million are chiefly comprised of customer service and warranty costs, which increased by

EUR 4.0 million from the prior year, to EUR 31.3 million (+14.5 %).

Other operating income in the amount of EUR 2.6 million is primarily comprised of income arising as a result of deconsolidation, which

amounted to EUR 1.4 million, and negative difference amounting to EUR 0.9 million.

Thanks to the growth in revenues and sales, EBIT rose to EUR 113.0 million, an increase of EUR 10.3 million over the previous year’s result

of EUR 102.8 million.

The effective tax rate increased from 23.6 % in 2015 to 26.2 % as at December 31st 2017.

The financial result improved by EUR 2.4 million in 2017 compared to the prior year, to EUR -6.0 million. Interest expenses were

EUR 6.5 million (prior year: EUR 9.6 million) and interest income was EUR 1.9 million (prior year: EUR 1.9 million).

9. STATEMENT OF FINANCIAL POSITION ANALYSIS

The balance sheet total rose by 3.4 % compared to the prior year, to EUR 1,091.9 million.

Non-current assets went up EUR 74.1 million (+ 14.4 %) to EUR 590.0 million (54.0 % of the balance sheet total). Property, plant, and

equipment increased by EUR 32.1 million due to the extension to the logistics center and the expansion of the development center, coupled with

investments in tools. The EUR 37.6 million rise in intangible assets results mainly from the capitalization of development costs with a net total of

EUR 36.4 million and from investments in IT infrastructure, which essentially relates to the continued implementation of a new ERP system

during this financial year.

060 C O N S O L I D A T E D M A N A G E M E N T R E P O R T O F K T M A G

Trade receivables, including receivables due from affiliated and associated companies, fell by EUR 3.0 million to EUR 96.3 million

(- 3.0 %). Taking into account the receivables sold last year and this year under ABS arrangements, there was a rise in receivables of around

EUR 50.3 million (+ 32.8 %).

In the past financial year 2017, inventories rose EUR 40.8 million to EUR 205.3 million (+ 24.8 %) due to the increase in sales volume.

Other current assets increased by EUR 19.1 million to EUR 49.1 million. They essentially comprise advance payments made on inventories,

research grants receivable, and valuations of derivative financial instruments.

The balance sheet total was made up of the following items on the liabilities side:

» The bond issued in 2012 with a nominal value of EUR 85.0 million was repaid in April 2017, according to schedule.

» Long-term financial liabilities of EUR 186.9 million comprise long-term capital expenditure loans, research and promotional loans, and a

promissory note loans.

» Employee benefit liabilities of EUR 17.7 million comprise claims for severance and anniversary bonus payments. Actuarial losses, current

service costs, and interest expenses led to a EUR 0.4 million increase in the total liability.

» Deferred tax liabilities went up EUR 10.8 million, to EUR 55.1 million. The increase is essentially due to the recognition of EUR 9.1 million in

deferred tax on capitalized development costs.

» Other non-current liabilities of EUR 8.2 million are mainly made up of sureties received; the total amount rose only slightly by EUR 0.8 million

relative to the prior year.

» Short-term financial liabilities went up EUR 5.7 million, to EUR 28.5 million.

» Trade payables, including payables to affiliated and associated companies, went up EUR 160.1 million to EUR 209.1 million on account of

the reporting date.

» The statement of financial position item “Provisions”, which amounts to EUR 11.0 million (prior year: EUR 10.2 million), essentially comprises

provisions relating to guarantees and warranties. Compared to the prior year, provisions relating to guarantees and warranties showed an

increase of EUR 1.1 million on account of the increase in sales volume.

» The other current liabilities essentially comprise employee benefits, liabilities comprised of discounts and dealer bonuses, liabilities arising

due to derivative financial instruments being measured as of the reporting date and tax compensation for Pierer Konzerngesellschaft mbH.

Other current liabilities rose by EUR 17.2 million to EUR 82.2 million from the prior year.

» Net debt fell to EUR 69.3 million (prior year: EUR 80.9 million). Gearing 3) consequently stood at 14.2 % (prior year: 18.9 %).

» Equity rose by EUR 60.0 million from the prior year. Alongside the profit for the 2017 financial year, which amounted to EUR 79.0 million,

and the payment of the dividend for 2016, which amounted to EUR 21.7 million, the movement in the cash flow hedge reserve of EUR 6.5

million, also contributed to this result. The equity ratio as of December 31st 2017 was therefore 44.7 % (prior year: 40.5 %).

3) Gearing = net financial debt divided by equity

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10. LIQUIDITY ANALYSIS

Consolidated cash flow from operating activities rose to EUR 166.4 million, an increase of EUR 0.8 million relative to the prior year. There was

an increase of EUR 23.1 million on the preceding year in cash flow from profit and loss items, while working capital fell by EUR 22.3 million.

Allowing for disinvestments, investments decreased from EUR -146.8 million to EUR -127.1 million, and the free cash flow therefore increased

from EUR 18.8 million to EUR 39.3 million in net terms.

The consolidated cash flow from financing activities amounts to EUR -129.4 million (EUR 99.3 million in the prior year) and results mainly from

the repayment of the bond issued in 2017 in the amount of EUR 83.1 million, the dividend of EUR 21.7 million paid out in 2017 and the

repayment of a research loan in the amount of EUR 13.1 million.

Cash fell by EUR 94.4 million to EUR 142.4 million and was therefore substantially lower than at the end of the prior year (prior year: EUR

236.8 million).

11. INVESTMENTS

Considerable capacity and expansion investments were undertaken in the period under review in addition to the usual high investments in series

development projects and buying tools. The extension of the logistics center in Munderfing was completed and the expansion of the development

center and the KTM Motohall in Mattighofen are currently in progress.

In total, EUR 137.7 million (prior year: EUR 106.4 million) was invested in property, plant, and equipment and intangible assets during 2017.

Of this, EUR 65.0 million relates to capitalized development costs and EUR 8.9 million to investments in IT infrastructure.

NON-FINANCIAL PERFORMANCE INDICATORS

12. EMPLOYEES

During the 2017 financial year, KTM employed an average of 3,204 employees (prior year: 2,737 employees), of whom 468 (prior year: 425)

worked outside Austria. Revenue per employee was EUR 415.6k (prior year: EUR 417.2k).

EURk 2017 2016

Revenue 1,331,717 1,141,819

Empoyees (average) 3,204 2,737

Revenue per employee 415.6 417.2

13. RESEARCH AND DEVELOPMENT

In the Research and Development department, KTM employed an average of 540 employees in 2017 (prior year: 487), representing 16.9 % of

total headcount. Around EUR 107.2 million (prior year: EUR 92.6 million) was invested in research and development in 2017, which translates to

8.1 % of total revenue (no change when compared with the prior year).

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In the past financial year, we were able to take numerous different research and development projects forward successfully. A particular highlight

is the introduction of the world’s first series-produced 2-stroke offroad motorcycles with electronic fuel injection. In addition to the large number

of benefits for the customer, this also enabled us to ensure compliance with current emission standards.

A further milestone in the history of the Husqvarna Motorcycles group brand, which dates back over 100 years, was reached with the simultane-

ous transition to series production of three new models in the Naked Bike segment. In addition to the two entry-level models VITPILEN 401 and

SVARTPILEN 401, we were also able to present the VITPILEN 701 to the international trade audience.

Both model derivatives of the KTM premium platform, the KTM 1290 SUPER DUKE R as well as the KTM 1090 ADVENTURE/R and

KTM 1290 SUPER ADVENTURE R/S, were subjected to extensive revision and successfully transferred to series production. In addition to

consistent refinement of the V2 drive unit, which achieved an improvement in ridability and performance, we were able to integrate a large

number of comfort and safety features, such as the semi-active chassis, LED headlight or KTM MY RIDE and a smartphone interface, for

example, and offer these features to the customer.

In the area of fundamental development, we were able to celebrate major successes in the development of new drive technologies, both in the

area of conventional internal combustion engines and in the area of zero-emission electrical mobility.

In parallel to the development of new technologies for engine and vehicle projects, intensive work was carried out on the expansion of the R&D

infrastructure. The expansion of the research and development center of KTM AG at the headquarters in Mattighofen marks a mile-stone in the

corporate history. In addition to the expansion of the test infrastructure for engine and vehicle test stand facilities, an important priority area of

the construction project is the expansion of the operational durability test stand facilities and the extension of the office facilities.

During the 2017 financial year, numerous R&D projects were taken forward at various stages from concept development to the start of series

production and successfully completed:

» Series development of the first KTM and Husqvarna Enduro models equipped with the newly developed 2-stroke direct injection engine.

The fully automatic fuel preparation system offers the customer a number of benefits and also ensures compliance with modern emission

standards by reducing harmful emissions.

» Series development of new Husqvarna models in the entry-level segment. The aforementioned VITPILEN 401 and SVARTPILEN 401 vehicles

are the first Naked Bikes of the Husqvarna Motorcycles brand, which has now made it possible for the dealer range to be expanded by two

fully fledged road models. The vehicles are characterized in particular by their clear, progressive design language.

» Series development of the newly developed KTM DUKE motorcycle generation in the entry-level segment. Since its initial market launch in

2011, the Naked Bike platform, with cubic capacities from 125 cm³ to 390 cm³, has held a significant share in the area of the KTM street

model range. In addition to an extensively revised chassis, particular highlights were the integration of KTM MY RIDE, which includes many

electronic features, and the reduction of harmful emissions.

» Series development of the revised KTM 1290 SUPER DUKE R, KTM 1090 ADVENTURE R, and KTM 1290 SUPER ADVENTURE R/S. The

consistent refinement of the V2 drive unit made it possible to improve ridability, increase performance, and significantly reduce harmful

emissions. Furthermore, the revised models are characterized by the integration of a large number of comfort and safety features, such as the

semi-active chassis, LED headlight or KTM MY RIDE and a smartphone interface, for example.

» Series development of new Husqvarna models in the mid-class segment. In addition to the refinement of the 701 ENDURO and

701 SUPERMOTO variants, the VITPILEN 701 presented in November 2017 supplements the street motorcycle portfolio in the Naked Bike

segment and therefore contributes toward opening up further markets. As is the case with the VITPILEN 401 and SVARTPILEN 401 models,

this model also visualizes the purist design language “modern retro”.

» Series development of a new motorcycle platform in the mid-class segment. In addition to a comprehensively in-line 2-cylinder engine design,

a large number of new design and development approaches have been implemented in series production in the area of chassis development

as well. In November 2017, in addition to a series version of the KTM 790 DUKE, we were able to present the prototype for a model derivative

in the travel segment with the KTM 790 ADVENTURE R.

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» Development of a new KTM and Husqvarna Motocross generation. Based on the knowledge acquired from the international motorsport

environment, a large number of innovative approaches are being incorporated into the refinement of assembly groups in the engine and

chassis domain. A particular focus of the development work is reducing vehicle weight and further improving handling properties.

» Development of new drivetrain, energy accumulator and battery management systems for motorcycle applications. Refinement of the 100 %

electrically operated KTM FREERIDE E-XC model. Intensive development work on the electric energy accumulator at cell level and refinement

of the battery management system has made it possible to increase the range by approximately 50 %.

» Concept development for new connectivity systems for the digital networking of rider and motorcycle. In addition to safety-related equipment

such as automated emergency call systems or interlinked vehicles for a sustainable reduction in accidents, this also comprises enhanced

comfort and infotainment functions for the rider.

» Development of concepts for new approaches in relation to engine management systems and exhaust gas purification to ensure that the KTM

and Husqvarna model ranges comply with current (EU V) and future homologation and emission regulations. These include both a reduction in

fuel consumption and a reduction in exhaust emissions.

14. RACING

After the KTM brand was relaunched in the early 1990s, the READY TO RACE slogan embodied a new self-confidence. As in the past, the

company today still pursues a clear objective with this philosophy, with findings made in motorsport flowing directly into series production,

because every motorcycle coming off the production line in Mattighofen must be ready to race from the start.

READY TO RACE is still the creed that drives the KTM motorsport division which, with many factory teams, works internationally at the very

highest level, racking up championship titles nonstop. Every employee working in the KTM motorsport division is 100 percent committed to

racing and to winning victories and titles for KTM. In addition to the smoothly running racing machines they build and maintain, perfectly

functioning teamwork is also a crucial factor for success. The KTM factory riders, who give their best every weekend on the circuit to achieve

the best possible result for themselves, the team and for all at KTM, are no exception.

Having won over 280 World Championship titles, KTM is one of the world’s most successful motorsport brands. In mid-January, KTM celebrated

its sixteenth Dakar win with British rider Sam Sunderland. It is the first time a British rider has won the world’s hardest off-road race.

The intensified participation in the prestigious U.S. Supercross series has also paid off in 2017: Following wins in 2015 and 2016, American

Ryan Dungey has, for the third consecutive time, won the AMA 450 Supercross World Championship title for the Austrian manufacturer on his

KTM 450 SX-F, announcing his retirement from active racing soon afterward. These incredible victories were an ideal platform for both the

brand and its bikes, catapulting KTM into the international limelight.

The orange motocross team also got people sitting up and taking notice in Europe. After two difficult years, Tony Cairoli is stronger than ever,

dominating the hard-fought MXGP class and again winning the world championship the racing season before last. The competition comes from

his own ranks: Jeffrey Herlings’ first MXGP season started with problems, but the Dutchman is picking up the pace as the season progresses,

ultimately becoming a World Championship runner-up. But that was not all. KTM’s systematic work to nurture new talent has paid off in the

MX2 class, as Pauls Jonass gives KTM another MX2 title with fantastic performances.

In the Enduro World Championship, it is the young Spaniard Josep Garcia who immediately takes the World Championship title in his first season

in the Enduro2 class.

KTM has established itself firmly in road racing, expanding its commitment in the 2017 season. After numerous successes in Moto3, KTM

joined Moto2 with a chassis developed in collaboration with the firm WP, immediately achieving podium positions and victories. Spurred on by

this success, the Moto2 project will be continued and expanded in the coming season.

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Joining MotoGPTM, the pinnacle of motorcycle sport, probably marks the greatest milestone of recent years. With its own factory team and a

motorcycle developed entirely in Mattighofen, KTM now ranks among the world’s best manufacturers. After comprehensive testing and develop-

ment work, the new KTM RC16 was officially introduced in August 2016 at the Heim Grand Prix on the Red Bull Ring and the official team

presentation took place in February 2017. In March 2017, both factory riders Pol Espargaró and Bradley Smith started competing for points for

the first time in Qatar at the beginning of the season. Both riders have since achieved point rankings and made remarkable progress. Another

crucial factor for the steep learning curve among the fierce competition of the premier class is the comprehensive testing work of Finn Mika

Kallio, who has time and again proved his potential with a total of four wild card entries in the 2017 season.

Both brands’ commitment to racing also benefits KTM AG from a technological viewpoint, as racing know-how has a direct influence

on the development of series production models. KTM AG’s racing expenses in the 2017 financial year were EUR 36.1 million (prior year:

EUR 32.4 million), which therefore accounts for 2.7 % (prior year: 2.7 %) of total revenue.

15. FINANCIAL INSTRUMENTS

Regarding the use of financial instruments and the related risk management goals, please refer to the related explanations in the notes to the

consolidated financial statements.

16. QUALITY

KTM uses a process-oriented quality management system for all activities, from product idea to market analyses to design studies, design, and

development, cooperation with suppliers, the procurement of components for series production, parts production, the assembly of engine and

vehicle, right through to packing and dispatch.

PRODUCT QUALITY: The high quality of the products is accomplished due to production-oriented design, the use of analytical and statistical

methods of calculation, comprehensive checking and testing, compliance with relevant homologation rules, a focus on process quality, communi-

cation and training measures at KTM and at the suppliers.

PROCESS QUALITY: KTM was certified by the auditors of TÜV Süd LG Österreich as more than meeting the requirements of EN ISO 9001:2008

and of the Kraftfahrbundesamt (KBA), the German federal authority for motor vehicles and transport.

17. RISK REPORT

Regarding the risk report, please refer to the explanations in the notes to the consolidated financial statements.

18. SUSTAINABILITY

Commitment to sustainability

Strategic leadership, focusing on the development of key competencies, continuously improving work processes, working in partnership with

employees and suppliers and maintaining a process-oriented quality management system allow KTM to create added value both for the company

and for the shareholders. With an average workforce of 2,380 in Austria, KTM is one of the region’s biggest employers.

KTM takes every opportunity to respond to the sustainability demands that any modern company endeavors to comply with. For instance, the

factory and administrative buildings are constructed in a resource-conserving and energy-efficient manner, the cooling of test chambers and the

toolshop is controlled using groundwater, and various materials used in the manufacturing of intermediate and finished products are sorted by

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type and shipped in reusable containers.

Suppliers

The production companies in Mattighofen and Munderfing largely cover their requirements from the local procurement market (about 29 %

within a radius of 100 km, about 35 % within a radius of 200 km, about 44 % within a radius of 300 km, and about 51 % within a radius of

400 km); KTM therefore plays an active role in adding and maintaining value at the regional level.

Recycling and packaging

As a manufacturing company, KTM is aware of the responsibility it has vis-à-vis the environment. The motorcycle logistics system on reusable

metal plates, which was specially developed by KTM and obviates the need for additional packing material, is regarded as an innovative example

for the entire industry.

Employees

KTM aims to offer its employees a path towards personal development. It is the experience and expertise, creativity, passion for innovation, and

productivity of our employees that really allows KTM to achieve its corporate goals.

With a view to continuously enhancing the qualifications and competence of its employees, KTM constantly invests in their education and

training. KTM incurred expenses of EUR 1,797.5k in this regard in 2017 (prior year: EUR 1,216.5k). In Mattighofen, apprentices are being

educated in the fields of mechanical engineering, automotive and production engineering, and mechatronics, and as commercial employees, with

the goal of integrating them in the respective areas of responsibility and offering them employment with KTM in the long term after their final

exam. As of the reporting date, KTM employed 123 apprentices, and we persist in our clear commitment to sustainable in-house apprentice

training.

In addition, KTM offers employees the possibility of in-service training for passing their final apprenticeship exam. In this way, KTM makes it

possible for employees who have no formal training to be integrated into the world of work and continue their personal development.

By establishing an in-house toddler group in February 2012, KTM demonstrated its social commitment. This is also intended to facilitate reentry

into the world of work.

Health and safety

To achieve constant improvement in the area of health and safety, KTM, among other things, implements preventive measures regarding general

workplace safety, fire protection, and safety of machinery and organizes various seminars on health and safety-related topics, health promotion

in the workplace as well as measures for ensuring suitable workplaces (including lighting, height requirements, positioning of work equipment,

use of tools or aids).

Production safety

In designing and constantly improving its work processes, KTM takes care to offer its employees a safe work environment. This includes constant

training and instruction measures, the regular maintenance of production facilities, and high-tech methods and equipment.

Quality Management

KTM rises to the challenge of manufacturing products that are innovative, high-quality, in line with market requirements and, most importantly,

safe, with a comprehensive and process-oriented quality management system certified to ISO 9001:2008. This system controls each and every

process, from product idea to market analysis to design studies, development, design, cooperation with suppliers, procurement of components,

066 C O N S O L I D A T E D M A N A G E M E N T R E P O R T O F K T M A G

parts production, assembly of engine and vehicle, and dispatch, right through to sales and customer service. Particular focus is placed on the

continuous improvement process, which ensures consistent and sustainable improvement of the quality of products and services.

Product safety

On average 651 motorcycles per working day are assembled in Mattighofen/Austria. Each and every vehicle component is checked by experi-

enced KTM employees according to an inspection plan.

Moreover, every KTM motorcycle undergoes a complete functional check at a testing station after assembly. Intensive in-production product

audits of engines and vehicles ensure a high quality standard during the production process. Only then are KTM products ready to be shipped all

over the world.

The development work performed by our KTM employees is put to the test on the racetrack by our factory teams as early as during the prototype

phase. Additionally, a testing and endurance testing program spanning all phases of prototype and series production ensures that the series-

manufactured product meets the highest standards of quality and safety. Only proven innovative designs make the transition to series produc-

tion, and they deservedly bear the motto: “READY TO RACE”.

Environmental indicators

All new KTM offroad carburetors (EXC models) comply with the Euro IV standard, the European emissions standard for motorcycles. The

standard applies not only to new, but also to existing vehicle types. Compliance with the new standard is made possible primarily by the use of

fuel injection systems.

Wings for Life

KTM supports the spinal cord research foundation “Wings for Life”, set up by Heinz Kinigadner, in all marketing matters. “Wings for Life” is a

non-profit organization aiming to promote and speed up research and medical-scientific progress towards finding a cure for paraplegia induced

by spinal cord injuries.

19. OUTLOOK

Business development

KTM expects to see a further increase in both revenues and sales during the 2018 financial year.

From a regional point of view, we are expecting to see significant growth in absolute terms in the Europe and North America regions.

We are expecting to see the greatest relative growth rates in the ASEAN region and in India.

The planned growth is primarily expected from KTM and Husqvarna road bikes. At Husqvarna Motorcycles, the focus for 2018 is on its return

to the road segment with the launch of the Vitpilen 401, Svartpilen 401 and Vitpilen 701. KTM is breaking into a new segment with the

introduction of the new inline two-cylinder DUKE 790.

In the medium term, KTM has set itself the goal of increasing global sales to 400,000 units per year and developing Husqvarna Motorcycles into

the third largest motorcycle manufacturer in Europe.

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With a view to increasing its presence on the Chinese market, KTM AG is pursuing a joint venture with its long-standing partner, CF Moto.

The joint venture (“CFMOTO-KTMR2R”), in which KTM holds a 49 % share, is still subject to the approval of the competent authorities

governing CF Moto. Not only is this joint venture expected to increase the presence of KTM on the Chinese market, the intention is also to work

together to develop and manufacture products in order to further drive forward global expansion.

Following the complete takeover of the WP group by KTM AG in January 2018, it is expected that the former will be fully integrated during the

2018 financial year, resulting in increases in efficiency and greater potential for synergies.

Motorsport

2018 will also see KTM invest heavily in motorsport once again. Alongside the well-known racing series in the offroad segment and the Dakar

Rally, the emphasis will lie on the second MotoGPTM series. In 2018, KTM will once again line up on the grid of the MotoGPTM series with the

riders Pol Espargaró and Bradley Smith. With the Moto2 and Moto3 series, KTM is therefore represented in all three racing categories. KTM is

also continuing its unbelievable success story in the Dakar Rally. In January 2018, Red Bull KTM factory rider, Matthias Walkner, secured a

seventeenth consecutive victory in this infamous race for the Austrian manufacturer on his new KTM 450 RALLY.

Investments

The main areas of focus for investment in 2018 cover, in particular, new series development projects and investments in infrastructure and

expansion.

At around 8 % of revenue, investment in research & development remained at the high levels seen during the prior year.

The 2018 financial year will see the completion of the expansion of the research and development center in Mattighofen, in which a total of

around EUR 30 million has been invested. Investing in this expansion will create around 100 new jobs at the Mattighofen site for highly qualified

employees.

The completion of the “House of Brands” for the sales and marketing of the KTM, Husqvarna Motorcycles and WP brands at the Munderfing site

is scheduled for the end of 2018.

In 2018, all KTM subsidiaries will be fully integrated into the new SAP ERP system. As a result, further investments are planned in the expan-

sion, integration, and automation of our system landscape, as well as in improving its efficiency.

Adequate financial position

Over the last year, KTM further enhanced its treasury and financial position. Working capital management was further improved and will remain

an area of focus during the coming year.

Mattighofen, February 13th 2018

The Executive Board

Stefan Pierer Harald Plöckinger Hubert Trunkenpolz Viktor Sigl

2017 KTM 390 DUKE MY 2017, PHOTO: SCHEDL R.

G E S C H Ä F T S V E R L A U F U N D W I R T S C H A F T L I C H E L A G E

CONSOLIDATED FINANCIAL STATEMENTS

2017071 CONSOLIDATED INCOME STATEMENT072 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME073 CONSOLIDATED STATEMENT OF FINANCIAL POSITION074 CONSOLIDATED STATEMENT OF CASH FLOWS 076 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 077 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS138 ANNEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SCHEDULE OF EQUITY HOLDINGS140 AUDITOR’S REPORT143 STATEMENT OF ALL LEGAL REPRESENTATIVES

070 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

071C O N S O L I D A T E D I N C O M E S T A T E M E N T

CONSOLIDATED INCOME STATEMENTFOR THE FINANCIAL YEAR 2017

EURk Note nr. 2017 2016

Revenue 5 1,331,717 1,141,819

Cost of sales 6 -957,119 -792,281

Gross profit 374,598 349,538

Selling and racing expenses 6 -157,976 -152,096

Research and development expenses 6 -28,955 -26,017

Infrastructure and administration expenses 6 -47,825 -43,566

Other operating expeness 7 -31,318 -27,526

Other operating income 8 2,574 107

Share of the profit of associates accounted for using the equity method

9 1,961 2,357

Result from operating activities 113,059 102,796

Interest income 1,882 1,865

Interest expenses -6,486 -9,597

Other financial result 10 -1,443 -686

Profit before tax 107,012 94,378

Tax expense 11 -28,049 -22,269

Profit for the financial year 78,963 72,109

of which attributable to the owners of the parent company 78,844 72,012

of which attributable to non-controlling interests 119 97

072 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR 2017

EURk Note nr. 2017 2016

Profit for the financial year 78,963 72,109

Currency translation of foreign subsidiaries -2,880 992

Currency translation of accociates accounted for using the equity method 14, 19 -141 11

Currency translation of net investments in foreign operations 19 -803 116

Deferred tax on currency translation of net investments in foreign operations 201 -29

Valuation of cash flow hedges (of which associates accounted forusing the equity method: EUR -5k, prior year: EUR 33k)

19 8,691 -4,152

Deferred taxes on the valuation of cash flow hedges 19 -2,173 1,038

Other comprehensive income - Possible reclassification into the income statement 2,895 -2,024

Recognized actuarial gains/losses (of which associates accounted forusing the equity method: EUR 44k, prior year: EUR -1k)

14, 23 223 -759

Deferred taxes on the recognized actuarial losses 23 -56 190

Other comprehensive income - No reclassification into the income statement 167 -569

Other comprehensive income 3,062 -2,593

Total comprehensive income 82,025 69,516ot which attributable to the owners of the parent company 81,906 69,419

of which attributable to non-controlling interests 119 97

The following notes to the consolidated financial statements form an integral part of the consolidated statement of comprehensive income.

073C O N S O L IDAT ED S TAT EM EN T O F C O M P REHEN SIV E IN C O M E / C O N S O L IDAT ED S TAT EM EN T O F F IN A N C IA L P O S IT I O N

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS OF DECEMBER 31, 2017

EURk Note nr. 31/12/2017 31/12/2016

ASSETS

Non-current assets:

Tangible assets 12 205,416 173,288

Intangible assets 13 353,269 315,653

Investments accounted for using the equity method 14 24,817 22,702

Deferred tax assets 11 2,964 3,317

Other non-current assets 15 3,524 927

589,990 515,888Current assets:

Cash and cash equivalents 142,366 236,752

Inventories 16 205,298 164,544

Trade receivables 17 96,261 99,239

Prepayments 4,571 2,365

Current tax assets 4,313 7,718

Other current assets 18 49,128 30,018

501,937 540,636

ASSETS 1,091,928 1,056,524

LIABILITIES

Consolidated equity:

Share capital 19 10,845 10,845

Reserves including retained earnings 19 476,652 416,417

Equity of the owners of the parent company 487,496 427,262

Non-controlling interests 19 469 718

487,965 427,979Non-current liabilities:

Financial liabilities 20 186,921 212,554

Employee benefits 23 17,697 17,310

Deferred tax liabilities 11 55,072 44,305

Other non-current liabilities 21 8,244 7,426

267,935 281,595Current liabilities:

Bonds 20 0 83,061

Financial liabilities 20 28,448 22,760

Trade payables 22 209,089 160,084

Provisions 24 11,063 10,207

Tax liabilities 520 424

Prepayments 4,690 5,431

Other current liabilities 21 82,218 64,983

336,028 346,950

EQUITY AND LIABILITIES 1,091,928 1,056,524

The following notes to the consolidated financial statements form an integral part of the consolidated statement of financial position.

074 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

WCONSOLIDATED STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR 2017

EURk Note nr. 2017 2016

Consolidated cash flow from operating activities:

+ (-) Profit (Loss) for the financial year 78,844 72,012

+ (-) Profit (Loss) allocated to non-controlling interests 119 97

+ (-) Interest expenses (interest income) 4,604 7,732

- Interest paid -7,088 -8,832

+ Interest received 1,882 1,865

+ (-) Current income tax 11 18,993 14,128

- Income taxes paid -7,175 -14,839

+ (-) Deferred taxes 11 9,056 8,141

+ Depreciation/amortization of fixed assets 12, 13 65,757 57,458

- Non-cash results from investments accounted for using the equity method 9, 14 -1,961 -2,357

+ Dividends received from associated companies 876 116

+ (-) Results from consolidation 8 -2,106 0

- (+) Other non-cash income (expense) 25 -3,239 -94

158,561 135,428

- (+) Change of inventories -33,559 16,436- (+) Change of trade receivables, prepayments, current tax assets,

other current and non-current assets-23,700 -24,605

(+) - Change of trade payables, prepayments, and other current and non-current liabilities

73,876 38,694

(+) - Change of tax liabilities, deferred taxes and provisions -8,790 -363

7,827 30,162

Consolidated cash flow from operating activities 166,388 165,590

Consolidated cash flow from investing activities:

- Investments in tangible and intangible assets (payments-out) 12, 13 -129,762 -131,855

- Investments in financial assets (payments-out) 14 -3,766 -15,072

(+) - Acquisition of subsidiaries less acquired liquid funds 2 451 138

(+) - Disposal of subsidiaries less disposed liquid funds 2 -363 0

(+) - Acquisition of investments accounted for using the equity mehtod 31 0 26

(+) - Disposal of investments accounted for using the equity mehtod 31 3,701 0

+ Disposal of fixed assets (payments-in) 12 308 11

+ Disposal of financial assets (payments-in) 2,305 0

Consolidated cash flow from investing activities -127,126 -146,752

CONSOLIDATED FREE CASH FLOW 39,262 18,838

075C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S

EURk Note nr. 2017 2016

Consolidated cash flow from financing activities:

- Dividends to owners of the parent company 19 -21,671 -21,690

- Repayment of bond 20 -85,000 0

- Repurchase of own bonds 0 -1,966

+ Payment-in of repayment of own bonds 20 1,900 0

+ Taking out of promissory note loan (less transaction costs) 20, 25 0 119,540

+ Taking out investment loan 20, 25 0 9,500

- Repayment research loan 20, 25 -13,125 0

- Repayment investment loan 20, 25 -3,417 -3,403

- Repayment promotional loan 20, 25 -4,544 -2,161

- Repayment of liabilities from finance lease 20, 25 -545 -645

- Payments for receivables from other non-current financing 15 -3,514 0

+ (-) Other financing activities 561 86

Consolidated cash flow from financing activities -129,355 99,261

Consolidated cash flow:

+ (-) Consolidated cash flow from operating activities 166,388 165,590

+ (-) Consolidated cash flow from investing activities -127,126 -146,752

+ (-) Consolidated cash flow from financing activities -129,355 99,261

Change in liquid funds within the group -90,092 118,099

+ (-) Change due to exchange rate fluctuations -4,294 247

+ Opening balance of liquid funds within the group 236,752 118,406

Closing balance of liquid funds within the group comprising: 142,366 236,752

Cash on hand, checks, cash in banks and time deposits 142,366 236,752

The following notes to the consolidated financial statements form and integral part of the consolidated statement of cash flows.

076 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR 2017

EURk Attributable to the owners of the parent company Non-controlling

interests

Totalconsolida-

ted equity

Sharecapital

Reservesincludingretained earnings

Revaluationreserve

Cash flowhedge

reserve

Foreigncurrency

translationreserve

Total

as of December 31, 2015 10,845 349,614 17,235 764 1,075 379,532 281 379,814

Currency translation 0 0 0 0 1,090 1,090 0 1,090

Financial instruments 0 0 0 -3,114 0 -3,114 0 -3,114

Actuarial losses 0 -569 0 0 0 -569 0 -569

Other comprehensive income 0 -569 0 -3,114 1,090 -2,593 0 -2,593

Profit for the financial year 0 72,012 0 0 0 72,012 97 72,109

Total comprehensive income 0 71,443 0 -3,114 1,090 69,419 97 69,516

Transactions with non-controlling interests

0 0 0 0 0 0 340 340

Dividends to owners of the parent company

0 -21,690 0 0 0 -21,690 0 -21,690

as of December 31, 2016 = January 1, 2017

10,845 399,368 17,235 -2,350 2,165 427,261 718 427,979

Currency translation 0 0 0 0 -3,623 -3,623 0 -3,623

Financial instruments 0 0 0 6,518 0 6,518 0 6,518

Actuarial gains 0 167 0 0 0 167 0 167

Other comprehensive income 0 167 0 6,518 -3,623 3,062 0 3,062

Profit for the financial year 0 78,844 0 0 0 78,844 119 78,963

Total comprehensive income 0 79,011 0 6,518 -3,623 81,906 119 82,025

Transactions with non-controlling interests

0 0 0 0 0 0 -212 -212

Dividends to non-controlling interests

0 0 0 0 0 0 -156 -156

Dividends to owners of the parent company

0 -21,671 0 0 0 -21,671 0 -21,671

as of December 31, 2017 10,845 456,709 17,235 4,168 -1,459 487,496 469 487,965

077

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF KTM AG FOR THE 2017 FINANCIAL YEAR MATTIGHOFEN

I. THE COMPANY

KTM AG has its registered office in Mattighofen, Stallhofnerstraße 3, Austria, and has been recorded in the commercial register at the Provincial

Court of Ried im Innkreis in its capacity as Commercial Court under file number FN 107673 v.

KTM AG engages in the development, production, and distribution of motorized vehicles for recreational purposes (power sports), in particular

under the “KTM” and “Husqvarna” brands, and holds equity interests in other entities engaging in the development, production, and distribution

of such equipment. As of December 31st 2017, the KTM group includes in its consolidated financial statements 43 subsidiaries, located in

Austria, the United States, Japan, South Africa, Mexico, India, and Brazil, as well as in various other European and Asian countries. Furthermore,

the KTM group has equity holdings in suppliers (WP group) and in general importers based in important distribution markets (Australia and the

Philippines), as well as in various flagship stores in Austria and Germany.

Major sales markets include the USA, Germany, France, Australia, the UK, Italy, Spain, Canada, Austria, Argentina, and other European

countries.

The company is part of the same group as Pierer Konzerngesellschaft mbH, Wels (ultimate parent company) and its affiliates, and is included

within the consolidated financial statements of that group. These consolidated financial statements are filed with the Provincial Court of Wels in

its capacity as Commercial Court under file number FN 134766 k and are the consolidated financial statements for the largest scope of

consolidation.

The consolidated financial statements for the smallest scope of consolidation are drawn up by KTM Industries AG, Wels, and are filed with the

Provincial Court of Wels in its capacity as Commercial Court under file number FN 78112 x.

II. PRINCIPLES OF FINANCIAL REPORTING AND ACCOUNTING POLICIES

1. PRINCIPLES OF FINANCIAL REPORTING

The consolidated financial statements as of December 31st 2016 and December 31st 2017 were prepared in accordance with the International

Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and in accordance with the interpretations

of the International Financial Reporting Interpretations Committee (IFRIC), insofar as they are applied within the European Union. The additional

requirements stipulated by sec. 245a para. 1 of the Austrian Commercial Code (UGB) were also met in this context.

The figures in the consolidated financial statements are reported in the functional currency of the group parent, the euro. Unless specifically

indicated, all amounts are rounded to the nearest 1,000 euros (EURk), which may give rise to rounding differences.

The consolidated financial statements were approved by the Executive Board on February 13th 2018 (prior year: February 15th 2017) for review

by the Supervisory Board, for submission to the Annual General Meeting and for subsequent publication. Within the scope of the review it is

required to perform, the Supervisory Board may require changes to be made to the consolidated financial statements.

N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

078 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

The IASB has passed the following amendments to existing IFRSs and several new IFRSs and IFRICs that have already been endorsed by the

European Commission and are therefore to be mandatorily applied as from January 1st 2017:

» Amendment to IAS 7: Disclosure Initiative

» Amendment to IAS 12: Recognition of deferred tax assets for unrealized losses

»Annual Improvements to IFRS 2014-2016 Cycle: Amendments to IFRS 12

The first-time adoption of the above IFRSs did not lead to any material changes compared to the prior year. They did not result in any changes to

the accounting policies.

Future amendments to financial reporting provisions

The IASB and the IFRIC have passed further standards and interpretations, the application of which was not mandatory during the 2017

financial year and/or which have not yet been adopted by the European Commission. These are the following standards and interpretations:

Standard/amendment IASB date of application

Endorsed by EU? EU date of application

New standards and interpretations

IFRS 15 Revenue from Contracts with Customers January 1st 2018 Yes January 1st 2018

IFRS 9 Financial Instruments January 1st 2018 Yes January 1st 2018

IFRS 16 Leases January 1st 2019 Yes January 1st 2019

Amended standards and interpretations

IFRS 2: Classification and Measurement of Share-based Payment Transactions (Amendment)

January 1st 2018 No

IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendment)

January 1st 2018 Yes January 1st 2018

IFRS 15: Clarifications to IFRS 15 (Amendment) January 1st 2018 Yes January 1st 2018

IAS 40: Transfers of Investment Property (Amendment) January 1st 2018 No

IFRIC 22: Foreign Currency Transactions and Advance Consideration January 1st 2018 NoAnnual Improvements to IFRS Standards 2015-2017 Cycle: Amendments to IFRS 3, IFRS 11, IAS 12, and IAS 23

January 1st 2019 No

Annual Improvements to IFRS Standards 2014-2016 Cycle: Amendments to IFRS 1 and IAS 28

January 1st 2018 Yes January 1st 2018

IFRS 9: Prepayment Features with Negative Compensation (Amendment) January 1st 2019 No

IAS 28: Long-term Interests in Associates and Joint Ventures (Amendment) January 1st 2019 No

IFRIC 23 Uncertainty over Income Tax Treatments January 1st 2019 No

IFRS 17 Insurance Contracts January 1st 2021 No

The standards with material effects on the KTM group are explained briefly below.

» IFRS 15 Revenue

IFRS 15 Revenue from Contracts with Customers defines when and at what amount revenues should be recognized. In addition, preparers of

financial statements must provide recipients of financial statements with more informative and more relevant details than before. It replaces

the previous standards IAS 18 Revenue and IAS 11 Construction Contracts.

The standard provides a single, principles-based, five-stage model to be applied to all contracts with customers.

1. In preparation for the introduction of IFRS 15, all contracts with customers were determined and analyzed.

2. Individual performance obligations were identified in the contracts with customers.

3. The transaction price and variable considerations were determined.

4. The transaction price was allocated to individual performance obligations.

5. The revenue is recorded upon the fulfilment of the performance obligation and the transfer of control.

079N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Contracts for all key product groups (revenue streams) were analyzed with a view to identifying any need for adjustment: Offroad sport

motorcycles, street sport motorcycles, and spare parts, garments, and accessories in all key regions. Other, non-standard customer contracts

of lower importance were not investigated.

Variable considerations, such as price rebates, sales bonuses, and cash discounts were identified within the aforementioned product groups.

These are now being accounted for as revenue reductions. As a result, no material effects on the net assets, financial position or earnings

position in the consolidated financial statements are expected.

As warranties are not sold separately, these only provide assurance that the products being sold meet the agreed specifications. As these

warranties do not depart from the statutory warranty obligations or those that are typical of the industry in terms of their duration or their

content, they are deemed to be assurance-type warranties, which do not constitute a separate performance obligation. Accordingly, the

warranties will continue to be established in accordance with IAS 37, which is in line with current accounting.

The intention is that the standard will be applied on January 1st 2018, with full retroactive effect. Aside from the requirement to provide

more comprehensive information concerning revenue from contracts with customers, based on current knowledge and facts, the application of

IFRS 15 is not expected to have any impact on the consolidated statement of comprehensive income.

With regard to the consolidated statement of financial position, it is expected that obligations relating to variable considerations will need to be

disclosed as contractual obligations for the purposes of IFRS 15. These will be shown, unchanged, on the statement of financial position

under other current financial liabilities and explained in the notes.

» IFRS 9 Financial Instruments

IFRS 9 Financial Instruments was published in June 2014 and includes requirements for the recognition, measurement, derecognition, and

classification of financial assets and financial liabilities; impairment requirements, and requirements relating to hedge accounting. It has now

fully replaced the standard IAS 39.

IFRS 9 brings with it a comprehensive range of disclosure requirements for the transfer and for the ongoing application. When compared with

the previous regulations under IFRS 7, new declarations will need to be made with regard to impairment losses in particular.

On the basis of an analysis of the financial assets and financial liabilities of the group as at December 31st 2017, together with the facts and

circumstances existing at that time, the anticipated effects on the consolidated financial statements of KTM AG are described below.

1. Application and declarations:

IFRS 9 will be applied with retroactive effect to January 1st 2018. The effects of first-time application will be recorded at the beginning of

the 2018 financial year in the opening balance of retained earnings.

First-time application will lead to adjustments in internal processes and documentation.

Furthermore, it is expected that additional notes will need to be provided, which will primarily concern the transition of categorization and

impairment losses for financial assets during the first year of application, together with annual declarations concerning impairment losses.

2. Classification and measurement:

When compared with IAS 39, the regulations included under IFRS 9 provide for a new classification model for financial assets, which will

impact upon the measurement of those assets. Categorization will take place in connection with the contractual cash flows and the

business models on which they are based. In this regard, the following measurement categories are provided by IFRS 9:

080 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

» AC category: At amortized cost using the effective interest method

» FVOCI category: At fair value, changes to the fair value are recorded under other comprehensive income

» FVPL category: At fair value, changes to the fair value are recorded in the income statement

For the most part, the existing provisions will be adopted for the recognition and measurement of financial liabilities.

Effects on KTM:

Investigations have been carried out with regard to the assignment of debt instruments to business models. Financial assets have been

analyzed with regard to compliance with the SPPI criterion. Subsequently, the new measurement categories were established.

In the case of equity instruments (such as shares in companies not listed on the stock exchange) that are classified under IAS 39 as

financial assets available for sale, the FVOCI option can be exercised in the future. This will lead to changes in the fair value being recorded

under other comprehensive income, meaning that it will no longer be possible to regroup the changes to fair value accumulated under other

comprehensive income in the income statement. Insofar as this option is not exercised, these will be assigned to the FVPL category, under

which all changes to the fair value will be recorded in the income statement. KTM currently plans to take advantage of its right to choose

the FVOCI option for carrying amounts of EUR 10k (other non-current financial assets).

Otherwise, no significant changes are expected with regard to the measurement categories in connection with the new classification

provisions; likewise, no equity effects are expected.

3. Impairment loss:

IFRS 9 replaces the previous “Incurred Loss” model from IAS 39 with the “Expected Credit Loss” model. In this regard, IFRS 9 defines

different levels for the purposes of establishing the amount of the losses and interest receipts that are to be recorded.

» Level 1: Recording of the expected losses in the amount of the cash value of an expected 12-month loss on acquisition

» Level 2: Recording of the expected losses over the entire term to maturity by means of an increase to the default risk since acquisition

» Level 3: All receivables with objective evidence of impairment losses are assigned to this level and expected losses are taken into

account over the entire term to maturity

Effects on KTM:

Trade receivables do not exhibit any significant financing components. For that reason, the simplified process for establishing the expected

credit loss is used; this involves accounting for all instruments with a risk provision, which is independent of their credit quality, in the

amount of the expected losses over the term to maturity. In the case of trade receivables, this amounts to fewer than twelve months and

therefore corresponds to the 12-month loss.

In order to determine the expected credit loss, historic default data are collected for receivables over the last eight to ten years and split into

geographic regions. Current economic factors and forecasts are also taken into account. In that regard, an expected credit loss of 0.06 % of

trade receivables was determined for 2017.

The application of the new impairment loss model will therefore lead to the earlier recording of expected losses and, as a result, to higher

impairment loss figures. For the 2017 financial year, an additional impairment loss of less than EUR 100k was expected for trade receiva-

bles. This led to a corresponding reduction in the retained earnings as at January 1st 2018.

Cash and cash equivalents are mainly comprised of cash on hand and cash balances at credit institutions that have received good credit-

worthiness ratings from external rating agencies. For that reason, the credit risk is classified as low. According to the 12-month loss model,

only insignificant impairment losses are expected.

There are no indications of any additional impairment loss requirements for financial assets.

081N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

4. Hedge accounting:

The most significant changes to hedge accounting are the expanded range of possible hedged items and hedging transactions, as well as

the new requirements concerning the effectiveness of hedge accounting, particularly the removal of the previous 80-125 % corridor.

Effects on KTM:

The requirements set out in IFRS 9 will be applied with effect from the 2018 financial year. Since the new requirements are intended to

better illustrate risk management within the group, and since the range of possible hedged items and hedging transactions has been

extended, the existing hedging relationships can continue to be accounted for as hedging relationships under IFRS 9.

IFRS 9 introduces the concept of the cost of hedging. For this, the fair value of an option, the forward element of a forward contract and

any foreign currency basis spreads can be excluded from the designation of a financial instrument as a hedging instrument and accounted

for as the cost of hedging. In this regard, fluctuations in the value of these components that have optionally not been designated are

recorded as hedging costs under other comprehensive income and reclassified in the income statement in the event that the hedged item is

recognized in profit or loss. KTM plans to implement this concept during the 2018 financial year.

Overall, as at January 1st 2018, no changes are expected with regard to the reserves under equity as a result of the application of the

accounting provisions for hedging relationships under IFRS 9.

Furthermore, no significant impacts are expected for the consolidated financial statements as a result of the application of the new hedge

accounting provisions under IFRS 9. We will not be taking advantage of our right to choose to continue recording hedging in accordance

with the provisions of IAS 39 until further notice.

» IFRS 16 leases

IFRS 16 governs the identification, recognition, measurement, reporting, and disclosure requirements for leasing agreements. The standard

specifies a single accounting treatment for lessees. This model requires the lessee to record all assets and liabilities under lease arrange-

ments in the statement of financial position, except where the lease is for a term of twelve months or fewer or the asset is of low value (in

which cases application is optional).

KTM AG intends to apply the standard IFRS 16 to its consolidated financial statements with effect from January 1st 2019. Modified

retrospective recognition will be applied to ensure that the cumulative effect of the restatement is reflected in the equity as at January 1st

2019. The use of modified retrospective recognition will enable the following concessions to be applied:

» All leasing contracts that are due to expire within 12 months from the date of first-time application (i.e. until December 31st 2019)

can be reported in accordance with the old regulations under IAS 17. This option can be applied to each individual lease. At present,

KTM AG intends to avail itself of this option for the purposes of its consolidated financial statements.

» The marginal capital interest rate as at January 1st 2019 can be used to determine leasing liabilities. The following options are available

with regard to the determination of the right of use asset and can be selected for each individual lease:

1. Accounting will be performed as if IFRS 16 were still being applied. However, the marginal capital interest rate as at

January 1st 2019 will be used. Since the right of use asset is amortized on a straight-line basis, with the leasing liability being

calculated in accordance with the effective interest method, a difference arises, which is to be recorded in the equity. Or:

2. The right of use asset is capitalized in the amount of the leasing liability to ensure that the leasing liability as at January 1st 2019

corresponds to the right of use asset, meaning that no equity amendments are required. .

At present, KTM AG intends to apply the second option for its consolidated financial statements to ensure that the right of use asset

corresponds to the leasing liability as at January 1st 2019.

As at December 31st 2017, the group has payment obligations associated with irredeemable operating leases that amount to EUR 69.4

million. A preliminary assessment has shown that these agreements fall under the definition of a leasing agreement under IFRS 16 and the

group must therefore account for the corresponding right of use assets and leasing liabilities under the application of IFRS 16. However, it

is expected that advantage will be taken of the exemptions for short-term leases and low-value assets. It can be expected that the capitali-

zation of leases will bring about an increase in the carrying amount of property, plant, and equipment, as well as an increase in financial

liabilities.

082 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Lease obligations exist in the following areas in particular: Vehicle-fleet leasing, rental of business premises and offices, rental of movable

property, etc.

In the case of finance leases for which KTM is the lessee, assets and liabilities are already being accounted for today.

» Other amended standards and interpretations are either irrelevant to the KTM group or have no material impact.

The financial reporting of the entities included within the consolidated financial statements is based on uniform financial reporting rules. These

rules were applied by all consolidated entities. All subsidiaries prepare their separate financial statements as at the same date as the consolida-

ted financial statements.

The financial statements of all major domestic and foreign entities included in the Company’s financial statements by full consolidation for which

an audit is required by national regulations or was performed voluntarily were audited by independent certified public accountants, and unquali-

fied audit opinions were issued on them.

2. SCOPE OF CONSOLIDATION

The scope of consolidation is based on the application of IFRS 10 and IFRS 11. KTM AG and all material subsidiaries are fully consolidated in

the consolidated financial statements. Subsidiaries are companies controlled by the group. The group controls a company if it is exposed to, or

has rights to, variable returns from its involvement in the entity and has the ability to influence these returns by means of its power over the

company. The financial statements of subsidiaries are included in the consolidated financial statements from the moment control begins until

the moment control ends.

A materiality threshold was set in the group to determine the scope of consolidation. Companies whose business is dormant or of low volume and

that are insignificant for the presentation of a true and fair view of the net assets, financial position, and earnings position are not consolidated

but are reported as other non-current assets and measured at amortized cost.

Accordingly, 43 companies are fully consolidated in the KTM group, in addition to the group parent. The entities included in the consolidated

financial statements are specified in the schedule of equity holdings as of December 31st 2017 (see Annex to the notes to the financial

statements).

An associate is an entity over which the group has significant influence. Significant influence is the power to participate in the financial and

operating policy decisions of the investee entity, but is not control or joint control of the policy-making processes. The results, assets, and

liabilities of material associates are accounted for in these financial statements using the equity method. Under the equity method, investments

in associates are included in the consolidated balance sheet at cost, adjusted for changes in the group’s share of the profit or loss and other

income of the associate after the acquisition date. Nine associates are accounted for using the equity method in the KTM group.

The end of the reporting period for all companies included in the KTM AG consolidated financial statements is December 31st 2017. Where an

associate accounted for using the equity method prepares its financial statements to a different date, an interim set of financial statements is

prepared for consolidation purposes.

083N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Changes in the scope of consolidation during the 2017 financial year were as follows:

Full consolidation At equity

2017 2016 2017 2016

Balance as at January 1st 42 39 6 3

Additions 2 3 6 3

Disposals -1 0 -3 0

Balance as at December 31st 43 42 9 6

thereof in Austria 7 8 5 3

thereof abroad 36 34 4 3

WP Suspension North America, Inc.

By way of a sale and purchase agreement dated July 31st 2017, KTM North America, Inc., USA acquired 100 % of the shares in WP Suspension

North America Inc., USA from WP Performance Systems GmbH, Austria. The initial consolidation of WP Suspension North America Inc. took

place on July 31st 2017.

The following assets and liabilities were absorbed into the group:

EURk

Fixed assets 66

Cash and other current assets 99

Trade receivables due from third parties 88

Inventories 518

Trade payables -541

Other current liabilities -7

Purchase price 223

Cash taken over 79

Net cash outflow on acquisition 144

The carrying amount of equity represents the fair value on the acquisition date.

The trade receivables include outstanding gross amounts for contractual receivables, amounting to EUR 91k, of which EUR 3k has been

assessed as being likely to be uncollectible as at the acquisition date.

In the five months to December 31st 2017, WP North America Inc., USA contributed revenues of EUR 681k and a profit of EUR 2k to the

consolidated result. Had the acquisition taken place on January 1st 2017, WP North America Inc., USA would have contributed revenues of

EUR 1,678k and a profit of EUR 131k to the consolidated result for the 2017 financial year.

The costs associated with the business combination, which comprised EUR 3k in legal fees, were included in the administration expenses.

084 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

KTM do Brasil Ltda

The initial consolidation of KTM do Brasil Ltda, which had previously been accounted for at cost due to non-materiality, took place on December

31st 2017. As the initial consolidation took place on the basis of materiality considerations rather than as a result of a company acquisition,

there is no purchase price in this regard.

The following assets and liabilities were absorbed into the group:

EURk

Fixed assets 79

Cash and other current assets 729

Trade receivables due from third parties 50

Inventories 463

Trade payables -390

Other current liabilities -43

Negative difference -888

Purchase price 0

Cash taken over 593

Net cash inflow on acquisition 593

The carrying amount of equity represents the fair value on the acquisition date.

The trade receivables include outstanding gross amounts for contractual receivables, amounting to EUR 64k, of which EUR 14k has been

assessed as being likely to be uncollectible as at the acquisition date.

The difference (credit item) of EUR 888k arising on initial consolidation was recognized as other operating income.

KTM Technologies GmbH and Kiska GmbH

By way of a sale and purchase agreement dated June 30th 2017, the 74 % share in KTM Technologies GmbH, Anif held by KTM AG was sold to

KTM Industries AG, together with the 26 % share held in Kiska GmbH, Anif.

Kiska GmbH was previously recognized as an entity accounted for using the equity method in the consolidated financial statements. Further

information regarding the disposal of this company can be found in Note 14.

The deconsolidation of KTM Technologies GmbH took place on June 30th 2017. The following assets and liabilities were deconsolidated:

EURk

Fixed assets 679

Cash and other current assets 1,971

Trade receivables 139

Deconsolidated assets 2,789

Employee benefits 13

Trade payables 1,119

Other current liabilities 971

Deconsolidated liabilities 2,103

Deconsolidated net assets 686

085N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

The values cited correspond to the carrying amounts at the time of deconsolidation.

As a result of the loss of control, interests held by non-controlling shareholders amounting to EUR 178k were derecognized.

The consideration received as a result of the disposal of the interests amounted to EUR 1,020k. This resulted in a capital gain on disposal of

EUR 512k, which is recognized under other operating income.

The net cash outflow on disposal is recognized in the cash flow from investing activity and breaks down as follows

EURk

Fees received 1,020

Inventory of cash and cash equivalents disposed of -1,383

Net cash outflow on the disposal of subsidiaries -363

KTM Events & Travel Services AG

The liquidation of KTM Events & Travel Services AG was completed in April 2017. The deconsolidation of this company had already taken place

during the 2015 financial year. The difference between the liquidation proceeds from the 2015 deconsolidation and the actual liquidation

proceeds amounted to EUR 2k and was included under miscellaneous investment income.

WP Performance Sports GmbH

By way of a sale and purchase agreement dated December 15th 2017, the remaining 26 % share of WP Performance Sports GmbH was

purchased by KTM AG for a purchase price of EUR 26k. The resulting difference, which amounted to EUR 7k, was recorded in the consolidated

equity as profit neutral in accordance with IFRS 10.

Motorcycle Distributors Australia Pty Ltd.

In July 2017, KTM Sportmotorcycle GmbH acquired a 26 % share of Motorcycle Distributors Australia Pty Ltd., Australia. In the consolidated

financial statements, the company is recognized as an entity accounted for using the equity method. On July 4th 2017, KTM New Zealand Ltd.,

in which KTM Sportmotorcycle GmbH also holds a 26 % share, was merged into a subsidiary of Motorcycle Distributors Australia Pty Ltd.

During the course of the acquisition of the 26 % share in Motorcycle Distributors Australia Pty Ltd., Australia, a call option for the purchase of

25 % shares (right to exercise) and a put option on a 49 % share (obligation to purchase if exercised) was agreed with the other shareholder. The

put option can only be exercised by the other shareholder if the call option has previously been exercised by KTM Sportmotorcycle GmbH. It is

exercised on the basis of set multipliers and other variables. Furthermore, KTM Sportmotorcycle GmbH has a preemption right for the purchase

of the remaining share in the event that the other shareholder does not exercise the put option. The options are accounted for on the reporting

date at their cost of acquisition, which is EUR 0.00.

Other

On December 31st 2017, the holdings in four flagship stores (KTM Wien GmbH, Vösendorf, KTM Braumandl GmbH, Wels, MX – KTM Kini

GmbH, Wiesing, and KTM Regensburg GmbH, Regensburg) and Cero Design Studio S.L., Barcelona, Spain were taken into account for the first

time using the equity method; these had previously been accounted for as other non-current assets.

With effect from December 14th 2017, 25 % of the share in KTM MIDDLE EAST AL SHAFAR LLC, Dubai was disposed of.

086 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Changes in the scope of consolidation during the 2016 financial year are described below:

KTM Logistikzentrum GmbH

Under a sale-and-purchase agreement dated September 16th 2016, KTM Immobilien GmbH acquired an additional 83.63 % of the shares of

Oberbank Mattigtal Immobilienleasing GmbH, Linz. The holding thus rose from 10 % to 93.63 %. Oberbank Mattigtal Immobilienleasing GmbH

was the owner of the KTM logistics center in Munderfing, which it leased to the KTM group under a finance lease. As a result of the company’s

acquisition, the finance lease was cancelled ahead of term (see Note 28). At the extraordinary general meeting held on September 16th 2016,

Oberbank Mattigtal Immobilienleasing GmbH, Linz, resolved to change its name to KTM Logistikzentrum GmbH and to transfer its registered

office to Mattighofen. The initial consolidation of KTM Logistikzentrum GmbH took place as from September 16th 2016.

The following assets and liabilities were absorbed into the group:

EURk

Fixed assets 26,068

Cash and other current assets 4,884

Liabilities owed to credit institutions -21,147

Other current liabilities -161

Other current liabilities (financial) -4,854

Non-controlling interest -287

Difference (debit item) 242

Purchase price 4,745

Cash taken over 4,883

Net cash inflow on acquisition 138

The carrying amount of equity represents the fair value on the acquisition date. The non-controlling interest was recognized on the basis of the

proportionate carrying amount of the assets and liabilities.

The difference (debit item) of EUR 242k arising on initial consolidation was recognized as an expense.

After the initial consolidation, liabilities owed to credit institutions by KTM Logistikzentrum GmbH to credit institutions were repaid by KTM AG

on its behalf and converted into an intercompany loan for the same amount.

Further information as per IFRS 3.B64q is not provided on grounds of immateriality, as the business combination has no effect on the statement

of comprehensive income. Expenses in connection with the logistics center were already incorporated into KTM’s results before initial consolida-

tion, on account of the preexisting finance lease relationship.

KTM Sportmotorcycle MEA DMCC

The KTM group holds 100 % of the shares of the newly established sales subsidiary KTM Sportmotorcycle MEA DMCC, Dubai. The initial

consolidation took place on December 1st 2016.

WP Performance Sports GmbH

WP Performance Sports GmbH was founded in Mattighofen in November 2016 and has been fully consolidated as from December 1st 2016.

The KTM group holds 74 % of the shares.

087N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Cero Design Studio S.L.

In March 2016, a 26 % holding was acquired in Cero Design Studio S.L., the registered office of which is in Barcelona, Spain. The shares are

recognized at cost of acquisition.

Mattighofen Museums-Immobilien GmbH (now: KTM MOTOHALL GmbH), Mattighofen

During the 2015 financial year, 49 % of the shares of Mattighofen Museums-Immobilien GmbH (now: KTM MOTOHALL GmbH), Mattighofen,

were acquired. It has been accounted for using the equity method since the 2016 financial year.

W Verwaltungs AG (formerly: WP AG)

In July 2016, KTM AG acquired 24 % of the shares of WP AG, Munderfing (now: W Verwaltungs AG, Wels). In the consolidated financial

statements, the company is recognized as an entity accounted for using the equity method.

KTM Asia Motorcycle Manufacturing Inc

KTM group also acquired a 34 % holding in KTM Asia Motorcycle Manufacturing Inc., Philippines. In the consolidated financial statements, the

company is recognized as an entity accounted for using the equity method.

The following is an abridged representation of the structure of the KTM group:

KTM AG

KTM Immobilien GmbH

KTM Sport-motorcycle GmbH

Sales companies

KTM Sportcar GmbH

Husqvarna Motorcycles GmbH

Sales companies

WP Performance Sports GmbH

WP Gruppe *)

Organizational chart (abridged)*) As of January 2018, KTM AG holds 99.86 % of W Verwaltungs AG (formerly: WP AG).

KTM AG is the ultimate group parent of the KTM group. The corporate purpose of KTM AG includes the development and production of

motorcycles under the KTM and Husqvarna brands, as well as the X-Bow super sports car. All group head office functions such as purchasing,

quality management, logistics, motorsport, finance and accounting, and human resources are contained within KTM AG. It holds direct equity

interests in the material group companies with sites in Austria and controls most of the KTM group’s financing arrangements.

The sales subsidiaries KTM Sportmotorcycle GmbH and Husqvarna Motorcycles GmbH distribute the two brands’ motorcycles and spare parts

directly to European dealers and global importers. Markets in the United States, Mexico, South Africa, Japan, and Greece are served via local

sales subsidiaries that carry their own inventories. The two companies also hold equity interests in a total of 23 domestic and foreign sales

subsidiaries that provide sales and marketing-related services in local markets on behalf of KTM Sportmotorcycle GmbH and Husqvarna

Motorcycles GmbH.

KTM Sportcar GmbH markets the X-Bow super sports car.

The KTM group’s land and buildings are vested in KTM Immobilien GmbH.

WP Performance Sports GmbH provides the after-sales service for products under the WP brand.

W Verwaltungs AG (formerly: WP AG) is the ultimate group parent of the WP group, one of the leading European system suppliers of

performance-defining components for the motorcycle and powersport industries.

088 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

3. CONSOLIDATION METHODS

Equity consolidation: The initial consolidation of new acquisitions is performed using the acquisition method in accordance with IFRS 3. This

means that at the acquisition date, i.e. the date when the power to exercise control is obtained, the remeasured identifiable assets and liabilities

of the acquired business entity are compared with the consideration paid and, if applicable, with the amount reported for the non-controlling

interests and the fair value of the interests already held at the acquisition date. Any positive balance is capitalized as goodwill; any negative

balance is recognized as an income item (“Gain on a bargain purchase”) in the consolidated income statement after reassessing the values

reported. Any acquisition related costs are recognized as an expense.

Transactions with owners of non-controlling interests that do not result in a loss of control are recognized directly, and exclusively, in equity

without any restatements of the assets and liabilities of the company or its goodwill.

With the equity method, the interests in associates are recognized in the consolidated statement of financial position at their cost of acquisition

plus any changes in the group’s portion of the net assets of the associate after the acquisition. The goodwill related to an entity measured by the

equity method is contained within the carrying amount of the investment and is not amortized separately.

IFRS 3 does not apply to common control transactions. In such cases, the KTM group follows the acquisition method in the same way as

under IFRS 3.

All receivables, payables, expenses, and income resulting from the settlement of accounts between consolidated entities, along with all profits

and losses from intragroup sales of inventories, have been eliminated. During the financial year just ended, no material results arose from

intragroup sales of property, plant, and equipment or intangible assets.

Deferred taxes from consolidation are recognized in the consolidation procedures that impact profit or loss.

Currency translation: In the separate financial statements of the consolidated entities, any transactions made in foreign currency are posted at

the exchange rate valid on the transaction date. On the reporting date, foreign currency items are translated at the closing rate. All foreign

exchange differences are recognized in the separate financial statements as expenses or income in the period in which they arise.

The group currency is the euro. Subsidiaries located outside the eurozone are regarded as economically independent entities. In line with the

concept of functional currency, the assets and liabilities shown in the separate financial statements of these entities, including any reported

goodwill and any valuation adjustments resulting from initial consolidation, are translated at the mean rate of exchange valid on the reporting

date and items in the consolidated income statement are translated using the average exchange rate for the financial year. Any foreign exchange

gains or losses resulting from such currency translation are recognized in other comprehensive income. Foreign exchange differences arising on

non-current financial receivables that represent net investments in foreign operations are recognized in other comprehensive income.

Movements in the exchange rates used for translating currencies material to the consolidated financial statements were as follows:

089N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Closing rate Average rateDecember 31st 2017

December 31st 2016

2017 2016

CHF 1.1702 1.0739 1.1163 1.0909

JPY 135.0100 123.4000 127.3040 120.4408

USD 1.1993 1.0541 1.1370 1.1032

ZAR 14.8054 14.4570 15.0634 16.1289

MXN 23.6612 21.7719 21.4285 20.6817

Source: Exchange rates as at December 31st 2017 as per the ECB

4. ACCOUNTING POLICIES

The financial reporting of the entities included within the consolidated financial statements is based on uniform accounting policies. These

policies are identical to those of the 2016 financial year, except for the standards applied for the first time.

The consolidated statement of financial position is divided between non-current and current assets. The consolidated income statement is

subdivided according to the cost of sales method. The consolidated statement of cash flows is drawn up according to the indirect method.

All current assets and liabilities will, in principle, be realized or discharged within a period of twelve months of the reporting date or within one

operating cycle, as the case may be. All other assets and liabilities will, in principle, be realized or discharged outside this period of time.

Consolidated income statement

Revenues, minus cash discounts, customer bonuses, and rebates, are recognized upon the passing of the risk as per the terms of the transaction

(Incoterms) or, as the case may be, at the time when performance was rendered. The rules under IAS 11 regarding make-to-order production

(percentage-of-completion method) are not applicable due to the nature of the products made.

Other operating income is realized when the economic benefit arising from the underlying contract becomes probable and a reliable determina-

tion of the income can be made.

In the income statement, the share of the profit or loss of associates accounted for using the equity method has been disclosed as a separate line

item in the result from operating activities. All the associates accounted for using the equity method are holdings that are integrated into the

operating activities of the KTM group as material suppliers or customers.

Interest income is realized pro rata temporis taking into account the effective yield. Dividend income is recognized when the right to dividend

payment arises.

090 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Consolidated statement of financial position

Property, plant, and equipment are recognized at cost less amortization. Amortization is determined by the straight line method and is based on

the following expected useful lives:

Useful life

Buildings 10-50 years

Machinery/tools 2-10 years

Fixtures and fittings, tools and equipment 3-8 years

The production costs of self-constructed property represent the specific actual costs, including an allocation of production overheads (indirect

materials and indirect labor). Financing costs resulting from the direct attribution of borrowings and/or from the application of an average interest

rate to the expenses incurred, are not capitalized due to the absence of qualifying assets as defined in IAS 23.

Property, plant, and equipment held under leasing contracts in which the material opportunities and risks devolve to the lessee are recognized as

finance leases. Such assets are recognized at the lower of the fair value or present value of the future expected minimum lease payments. They

are reported under property, plant, and equipment; the corresponding payment obligations are reported under financial liabilities. Amortization is

charged on a straight-line basis over the useful economic life, or over the term of the lease if shorter. Lease payments are divided into interest

and redemption components. The interest component of lease obligations is recognized directly in the consolidated income statement.

Goodwill is not amortized but subjected to an annual impairment test. The two brands “KTM” and “Husqvarna” are identified as cash-generating

units in KTM. The corporate assets of the cash-generating unit are compared with the value in use. Where the latter is lower, an impairment

charge is made accordingly, unless the fair value (net of costs to sell) is higher. The value in use is calculated using the discounted cash flow

method assuming a pre-tax WACC of 11.0 % (prior year: 10.4 %).

The cash flows used in the impairment test are based on the most recent medium-term planning figures approved by the Supervisory Board.

Medium-term planning usually entails a planning horizon of five years. Beyond the detailed planning horizon, cash flows for the fifth financial

period planned in detail are used as the basis for calculating a perpetuity value. The assumption is made that the business will be a going

concern and no growth discount rate is applied. Medium-term planning is based on internal assumptions concerning the future development of

sales, prices, and costs, the future development of new markets and the composition of the product mix. The assumptions are based mainly on

the wealth of experience gained over many years and management assessments.

Scenarios are calculated regarding the discount rate and budgeted future EBIT. All other conditions being equal, any increase in input tax for

WACC to 13.5 % (prior year: 13.2 %) or decline in budgeted future EBITs by up to 18.6 % (prior year: 20.8 %) would continue to provide

sufficient coverage for the carrying amount of the cash-generating unit.

Intangible assets, if acquired for valuable consideration, are capitalized at cost and are measured less amortization.

Unless stated separately, the amortization period for software and licenses is three to five years.

For intangible assets generated internally, the production period is subdivided into research, development, and model update phases. Costs

incurred during the research and model update phases are immediately recognized in profit or loss. Expenditure incurred during the development

phase is capitalized as an intangible asset if the developed product or process meets certain requirements confirming the future benefit of such

expenditure, i.e. primarily if technical feasibility and marketability have been achieved. Intangible assets generated internally are measured at

cost less amortization and impairments. Amortization is charged using the straight line method over a useful life of five years. Capitalized

development costs that can be clearly attributed to specific products or procedures are amortized from the commencement of series production.

091N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Intangible assets of indeterminate useful life, such as the “KTM” brand (recognized at a value of EUR 61,103k in the course of the initial

purchase price allocation), are not amortized but are instead subjected to an annual impairment test. Any necessary impairment is accounted for

in profit and loss. The Executive Board assumes an indeterminate useful life for the “KTM” brand because the rights are not subject to any

restrictions as to time, in law or by contract in the relevant markets and because the sustained public awareness of the brand indicates that

there has been no loss of economic value. The KTM brand is attributed to the “KTM” cash-generating unit.

Brand measurement is based on fair value less costs of disposal. Measurement is performed in accordance with the relief from royalty approach.

The royalty rate of 1.5 % of revenue, which forms the basis for measurement, has been derived from comparable publicly available license

agreements. The impairment test as at December 31st 2017 was performed analogously to the goodwill impairment test on the basis of the

current five-year planning figures. An asset-specific cost of capital of 12.9 % (prior year: 12.5 %) was taken as the discounting rate. This was

made up of the group pre-tax WACC of 9.9 % (prior year: 9.5 %) plus a risk premium for the brand of 3.0 % (prior year: 3.0 %). The risk

premium was derived on the basis of the WACC-to-WARA concept.

The parameters that are material to the measurement of the “KTM” brand are the discount rate, royalty, and budgeted revenues. A sensitivity

analysis regarding these parameters shows that, all other conditions being equal, sufficient coverage is provided for the carrying amount if a

consolidated input tax for WACC of 24.4 % (prior year: 23.6 %) is applied and, all other conditions being equal, at a royalty of 0.7 % (prior year:

0.7 %). All other conditions being equal, sufficient coverage is provided for the carrying amount in the event of a decline in the budgeted future

revenues by up to 56.0 % (prior year: 56.0 %).

Deferred tax items are included to account for future tax effects expected to result from business transactions that have already been recorded

either in the consolidated financial statements or in the tax accounts of the KTM group (temporary differences). Deferred taxes relating to tax

loss carryforwards are calculated taking into account their timely realizability. Deferred tax assets and deferred tax liabilities are reported on a

net basis if they are subject to the same tax jurisdiction and are of a similar duration. Deferred tax items for differences between the tax base of

fully consolidated interests or interests measured at equity and the corresponding consolidated equity are recognized only if realization is

probable within the foreseeable future. The calculation is based on the income tax rate customary in the relevant country at the time when the

difference in value is expected to reverse.

Financial instruments

Purchases and sales of all financial instruments are recognized as at the settlement date.

Primary financial instruments

» Securities (held for trading) are measured at their fair value as at the reporting date. Generally, the stock-exchange prices as at the reporting

date are taken as fair values. Changes in measurement are recognized in profit or loss.

» Other financial assets (financial assets available for sale) are measured at their fair value on the reporting date. As a matter of principle, the

stock-exchange prices valid as of the reporting date are recognized as the fair value; changes in the measurement are recognized in other com-

prehensive income, provided such changes are material. Other non-current financial assets include equity instruments that are not quoted in

an active market and whose fair value cannot be reliably measured. These are accounted for at cost less impairment. There are currently no

plans to dispose of these holdings.

Impairment losses are recognized for financial assets if there is objective evidence. Such objective evidence includes, for instance, financial

difficulties, insolvency, breach of contract or considerable delay in payment by the obligor or issuer. In the case of an investment in an equity

instrument, a significant or prolonged decline in the fair value below its cost is objective evidence of impairment. The group regards a decline

of 20 % as significant and a period of nine months as prolonged.

» Cash and cash equivalents include cash on hand and in banks, checks, and time deposits with a fixed term of not more than three months

(calculated from date of acquisition) and are measured at their fair value as of the reporting date.

Consolidated statement of financial position

Property, plant, and equipment are recognized at cost less amortization. Amortization is determined by the straight line method and is based on

the following expected useful lives:

Useful life

Buildings 10-50 years

Machinery/tools 2-10 years

Fixtures and fittings, tools and equipment 3-8 years

The production costs of self-constructed property represent the specific actual costs, including an allocation of production overheads (indirect

materials and indirect labor). Financing costs resulting from the direct attribution of borrowings and/or from the application of an average interest

rate to the expenses incurred, are not capitalized due to the absence of qualifying assets as defined in IAS 23.

Property, plant, and equipment held under leasing contracts in which the material opportunities and risks devolve to the lessee are recognized as

finance leases. Such assets are recognized at the lower of the fair value or present value of the future expected minimum lease payments. They

are reported under property, plant, and equipment; the corresponding payment obligations are reported under financial liabilities. Amortization is

charged on a straight-line basis over the useful economic life, or over the term of the lease if shorter. Lease payments are divided into interest

and redemption components. The interest component of lease obligations is recognized directly in the consolidated income statement.

Goodwill is not amortized but subjected to an annual impairment test. The two brands “KTM” and “Husqvarna” are identified as cash-generating

units in KTM. The corporate assets of the cash-generating unit are compared with the value in use. Where the latter is lower, an impairment

charge is made accordingly, unless the fair value (net of costs to sell) is higher. The value in use is calculated using the discounted cash flow

method assuming a pre-tax WACC of 11.0 % (prior year: 10.4 %).

The cash flows used in the impairment test are based on the most recent medium-term planning figures approved by the Supervisory Board.

Medium-term planning usually entails a planning horizon of five years. Beyond the detailed planning horizon, cash flows for the fifth financial

period planned in detail are used as the basis for calculating a perpetuity value. The assumption is made that the business will be a going

concern and no growth discount rate is applied. Medium-term planning is based on internal assumptions concerning the future development of

sales, prices, and costs, the future development of new markets and the composition of the product mix. The assumptions are based mainly on

the wealth of experience gained over many years and management assessments.

Scenarios are calculated regarding the discount rate and budgeted future EBIT. All other conditions being equal, any increase in input tax for

WACC to 13.5 % (prior year: 13.2 %) or decline in budgeted future EBITs by up to 18.6 % (prior year: 20.8 %) would continue to provide

sufficient coverage for the carrying amount of the cash-generating unit.

Intangible assets, if acquired for valuable consideration, are capitalized at cost and are measured less amortization.

Unless stated separately, the amortization period for software and licenses is three to five years.

For intangible assets generated internally, the production period is subdivided into research, development, and model update phases. Costs

incurred during the research and model update phases are immediately recognized in profit or loss. Expenditure incurred during the development

phase is capitalized as an intangible asset if the developed product or process meets certain requirements confirming the future benefit of such

expenditure, i.e. primarily if technical feasibility and marketability have been achieved. Intangible assets generated internally are measured at

cost less amortization and impairments. Amortization is charged using the straight line method over a useful life of five years. Capitalized

development costs that can be clearly attributed to specific products or procedures are amortized from the commencement of series production.

092 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

» Receivables and other assets upon initial recognition are measured at fair value and in subsequent periods are measured at amortized cost.

Foreign currency receivables are translated at the closing rate, less any impairment charges required on account of identifiable risks. Financial

receivables are classified as “Loans and receivables” and measured at amortized cost.

Individual allowances are only made against financial assets if they are regarded as uncollectible or partly uncollectible. Signs that an

individual allowance is required are financial difficulties, insolvency, breach of contract or considerable delay in payment on the part of the

customer. The individual allowances consist of numerous separate items, none of which is material if considered on its own. Financial assets

are only derecognized directly if the contractual rights to receive payment cease to exist (in particular in the case of insolvency). If, in a

subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the

impairment was recognized, the previously recognized impairment loss is reversed either directly or by adjusting the allowance account.

» Financial liabilities are measured at amortized cost. Financial liabilities are classified as “Other financial liabilities”. Any difference between

the amount received and the amount repayable is apportioned over the period to maturity using the effective interest method and recognized

in the financial result. Issuing costs incurred in connection with bonds are recognized as an expense over the time to maturity.

» Liabilities are measured at amortized cost. Liabilities denominated in foreign currencies are translated at the closing rate.

Derivative financial instruments and hedges

The group enters into derivative financial instruments (forward currency transactions and interest rate swaps) to hedge foreign currency and

interest rate risk. The aim of using derivative financial instruments is to offset fluctuations in cash flows from future transactions. Expected

revenues in foreign currencies serve as the basis for planning future cash flows.

In accordance with IAS 39, derivatives are generally measured at market value. The KTM group applies the rules for cash flow hedge

accounting defined by IAS 39 to these derivative financial instruments. Fair value hedge accounting is not applied within the KTM group.

A cash flow hedge is present if variable cash flows from recognized assets and/or liabilities or forecast business transactions that are subject to

a market price risk are being hedged. If the requirements for a cash flow hedge are met, the effective portion of the change in the market

value of hedging instruments must be recognized directly in consolidated equity. However, it is not recognized in profit or loss until the hedged

transaction takes place. Where foreign currency hedges are used, subsequent changes in the market value of the derivatives are recognized in

profit or loss. Thereafter the change in the market value is compared with the value of the foreign currency trade payables or receivables as

translated at the closing rate. Any changes in earnings that are caused by the ineffectiveness of the derivative financial instruments are

recognized in the consolidated income statement.

The application of hedge accounting requires certain conditions to be met. The hedging relationships must be documented and the effective-

ness of the hedge, as determined by regular periodic measurements, must lie between 80 % and 125 %. Effectiveness tests are conducted in

order to demonstrate that unrealized losses and unrealized gains are effectively offset.

To measure the effectiveness of a currency hedge, the hedged items and the hedging transactions are grouped together in socalled maturity

bands according to the hedged risk. The maturity bands should not cover more than one quarteryear. The hedging relationship is tested

prospectively by comparing the material conditions (maturity, etc.) of the hedged item and the hedging transaction. Hedge effectiveness is

measured retrospectively using the dollar offset approach. This involves comparing and assessing the changes in the fair value of the hedged

item and the changes in the fair value of the hedging transaction.

In the case of interest rate hedges, prospective effectiveness is measured using a sensitivity analysis and retrospective effectiveness testing is

performed using the dollar offset approach.

Hedging transactions that do not meet the criteria for hedging instruments within the meaning of IAS 39 qualify as trading transactions and

are classified as “at fair value through profit or loss” (held for trading). Changes in their market value are recognized in their full amount in

profit or loss in the current period and shown in the financial result.

093N O T E S / P R I N C I P L E S O F F I N A N C I A L R E P O R T I N G A N D A C C O U N T I N G P O L I C I E S

Derivatives are measured at fair value. The fair value is the market value and is determined using accepted methods of financial mathematics.

This determination is based on the market data (interest rate, exchange rate, etc.) prevailing on the reporting date. The forward rate applicable

on the reporting date is used for measuring forward currency transactions. In the case of positive market values, the credit standing of the

counterparty is included in the measurement by means of a credit value adjustment (CVA). In the case of negative market values, a debit value

adjustment (DVA) is deducted in order to account for the own risk of default. Special models are used to estimate the measurement. They are

checked for plausibility by means of bank valuations.

Inventories are measured at the lower of cost or net realizable value on the reporting date. Net realizable value is the estimated proceeds less

estimated selling costs. Inventories are measured using the average cost method based on an analysis of coverage, with write-downs being made

for limited usability. The economic value of existing inventories is also reviewed on a case-by-case basis and additional allowances are made as

required for slow-moving items or items with limited possibilities of sale.

Costs of acquisition include all costs that were incurred in order to bring the object to its required condition and to the relevant location. Costs of

conversion comprise direct material and production costs based on normal capacity usage, plus appropriate portions of materials and production

over-heads. Administrative overheads and selling costs, on the other hand, do not form part of the costs of conversion. Interest on borrowings is

not capitalized, as the inventories do not constitute qualifying assets as defined in IAS 23.

The obligations relating to social capital consist of obligations relating to severance pay and anniversary bonuses. KTM AG is obligated by law to

issue severance pay upon termination by the employer or upon retirement to all employees in Austria whose employment relationship com-

menced before January 1st 2003. This defined benefit obligation depends on the number of years of service and on the employee’s relevant

remuneration at the time of departure. It amounts to between two and twelve monthly remuneration payments. For all employees in Austria who

joined after December 31st 2002, KTM AG pays 1.53 % of their remuneration each month into a staff severance pay fund that invests the

contributions in an account maintained for the employee; at the end of the employment relationship, the amount thus accumulated is paid out or

the claim thereto is passed on. KTM AG’s obligation extends only to the payment of the contributions, which are recognized as expenses in the

financial year for which they were paid (defined contribution obligation).

Defined benefit obligations in respect of severance pay and anniversary bonuses are measured according to the projected unit credit method

prescribed by IAS 19 (Employee Benefits), based on actuarial reports. The projected unit credit method (also known as the years of service

method) takes account of both the benefits vested as at the reporting date and future expected increases in salaries. This method is used to

determine the present value of the defined benefit obligation (DBO), which is compared, where required, to the fair value of the plan assets as at

the reporting date.

KTM AG is obligated under collective-bargaining agreements to pay its employees in Austria anniversary bonuses upon attaining a certain

number of years of service (as from 25 years of service) (defined benefit obligation). In accordance with IAS 19, the actuarial result is directly

recognized in the consolidated income statement. The interest result is recognized under “Other financial result”.

Any differences (actuarial gains or losses) resulting at year-end between the budgeted severance payment obligations and the actual value of the

benefits are taken directly to other comprehensive income, net of any deferred taxation.

Provisions are made if a liability is owed to third parties as a result of a past event, a claim is likely to be asserted, and a reliable estimate of the

amount expected to become payable is possible.

Provisions relating to warranties are established and charged through profit or loss at the time when the products are sold.

Government grants are taken into account as soon as there is assurance that they will be received by the KTM group and that the group can

comply with the requirements that are imposed. In principle, subsidies are accounted for in the consolidated income statement by way of direct

offset against the costs they are intended to cover.

Investment grants from public funds which cannot yet be allocated to expenses incurred and/or which must be repaid are disclosed in the

consolidated financial statements under non-current liabilities.

094 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

KTM AG has entered into a supplier finance program (a revolving facility for the financing of trade payables) with an Austrian credit institution.

Under this program, the credit institution offers suppliers the option to have their accounts receivable from KTM AG discounted at the credit

institution and paid out in advance of the due date. As the financing costs are based on the good creditworthiness rating of the KTM group, the

program offers participating suppliers a low-cost way to obtain early settlement of their KTM AG receivables and thus optimize their working

capital. KTM AG settles the liability on the due date by paying the invoiced amount to the credit institution.

The program has been reviewed for compliance with civil law and with the stipulations of IAS 39. KTM AG remains legally bound by the original

obligation as, from its point of view, only the identity of the creditor changes while the content of the obligation remains unaltered. Furthermore,

the program does not cause any new (additional) obligation to arise on the part of KTM AG to the credit institution. As the program leads to no

substantial quantitative or qualitative changes in the contractual terms (as per the criteria set out in IAS 39.40 and IAS 39 AG 62), the liabilities

concerned (EUR 82,569k; prior year: EUR 64,949k) are disclosed under trade payables and the cash flows under cash flow from operating

activities.

Estimates and uncertainties in judgements and assumptions

In the consolidated financial statements, certain estimates and assumptions have to be made that affect the recognized assets and liabilities, the

disclosure of contingent liabilities as at the reporting date and the presentation of income and expenses for the financial year. Estimates and

assumptions are based on empirical values that the Executive Board deems appropriate. The amounts actually arising may differ from the

estimates if assumed parameters develop contrary to expectations. If new conditions become known, they are duly taken into account and

previous assumptions are revised accordingly.

» Assumptions are made in particular to assess the recoverability of goodwill and intangible assets of indeterminate useful life. Goodwill of EUR

78,588k (prior year: EUR 78,614k) was recognized at the reporting date, along with the “KTM” brand, which is valued at EUR 61,103k (prior

year: EUR 61,103k). The annual impairment tests and sensitivity analysis performed are described in the note on accounting policies.

» In cash flow hedge accounting, assessments are made regarding the occurrence of future cash flows. The planning of future cash flows is

derived from sales planning and order volume planning, reviewed against actual figures on a monthly basis and checked for plausibility based

on past experience. In line with the internal guideline on currency hedges, foreign currency hedges are generally entered into on a rolling basis

and cover a period of up to eighteen months. The hedge ratio of the individual currencies is determined based on uncertainty in the planning

for the relevant market, on the volatility of the currency and on the hedging costs. Currencies are aggregated by type based on their signifi-

cance (volume, relevance to results) and different methods are applied accordingly. However, the hedge ratio per currency must not exceed 80

% of the foreign currency exposure. For details on sensitivities to currency and interest rate risks, please refer to the explanations provided in

Note 27.2 “Financial risk management”.

» Furthermore, estimation uncertainty exists with the recognition and measurement of obligations relating to social capital. Assumptions are

made concerning the following factors: Empirical values and demographic assumptions such as the retirement age of women/men and staff

turnover, as well as financial assumptions such as the discount rate and future wage and salary trends. Liabilities for severance pay entitle-

ments of EUR 14,712k (prior year: EUR 14,396k) were recorded as at the reporting date. For further explanations, see Note 23 “Employee

benefits”.

» Regarding provisions, estimates have been made in order to assess probabilities and determine the expected amount for measuring the

obligation. These assumptions essentially concern provisions relating to guarantees and warranties. Based on past experience, a direct

relationship has been established for each product group between revenues and the guarantee and warranty expenses incurred. On the basis

of longstanding experience, the Executive Board expects this relationship to remain stable. The average percentage value of guarantee and

warranty expenses in terms of revenue is checked several times a year and adjusted if necessary. The amount recognized as a provision is

calculated from the average percentage of revenue accounted for by guarantee and warranty expenses over a three-year observation period. As

at December 31st 2017 provisions relating to guarantees and warranties of EUR 10,480k (prior year: EUR 9,388k) were recorded. An average

increase in the guarantee cost percentage of 10 % would have led to an increase in the provision of EUR 985k (prior year: EUR 769k). For

movements in the provisions relating to guarantees and warranties, see Note 24 “Provisions”.

095N O T E S / N O T E S T O T H E C O N S O L I D A T E D I N C O M E S T A T E M E N T

The following judgements were made in respect of the application of accounting policies within the KTM group:

» Inclusion of group companies in the scope of consolidation

Evaluation of whether a controlling influence exists within the meaning of IFRS 10. Further details are provided under Note 15, “Other

non-current assets”.

» Finance leases

Evaluations were made with respect to the criteria for classification as a finance lease. Further details are provided under Note 12, “Property,

plant, and equipment” and Note 28, “Finance leases”.

» Derecognition of receivables in connection with ABS agreements

Evaluations were made with respect to the conditions for derecognition under IAS 39. Further details are provided under Note 27, “Other

financial instruments”.

» Investment property

The KTM logistics center is predominantly used by the KTM group itself. A small portion is let to third parties outside the group. These

subleases to non-group tenants concern companies that have long-term relationships with the KTM group for the supply of goods or services,

and represent an outsourced part of the KTM value chain. As the subleasing does not serve the purpose of earning rental income, but is

instead carried out in the interests of the operating business, the section that is let to non-group third parties is disclosed under property,

plant, and equipment and is not regarded as investment property.

» Supplier finance

Assessments were made regarding the disclosure of liabilities in relation to the supplier finance program. Further details are provided under

Note 4, “Accounting policies”.

096 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

III. NOTES TO THE CONSOLIDATED INCOME STATEMENT

5. REVENUE

Revenue by region

EURk 2017 2016

Austria 54,515 55,038

Other Europe 645,720 548,524

North America 381,263 327,704

Other countries 250,219 210,553

1,331,717 1,141,819

Revenue by product group

EURk 2017 2016

Offroad sport motorcycles 546,743 526,082

Street sport motorcycles 515,087 381,983

Sportminicycles 55,461 44,749

X-Bows 5,712 5,000

Total - vehicles 1,123,003 957,814

Parts, garments and accessories as well as other revenues less revenue reductions 208,714 184,005

1,331,717 1,141,819

6. PRESENTATION OF EXPENSES BY FUNCTION

The expense items shown in the consolidated income statement according to the cost of sales method can be classified by their function as

follows:

Cost of sales

EURk 2017 2016

Cost of materials and cost of purchased services 824,381 684,965

Personnel expenses 70,508 57,465

Depreciation of property, plant and equipment and amortization of intangible assets 19,590 16,090

Amortization of capitalized development costs 28,520 25,851

Other operating expenses 14,120 7,910

957,119 792,281

Cost of sales includes income from foreign currency translation differences of EUR 12,310k (prior year: EUR 2,720k) that is measured at fair

value through profit or loss. These exclude differences arising on the measurement of financial instruments.

097N O T E S / N O T E S T O T H E C O N S O L I D A T E D I N C O M E S T A T E M E N T

Selling and racing expenses

EURk 2017 2016

Cost of materials and cost of purchased services 36,912 18,184

Personnel expenses 65,117 53,819

Depreciation of property, plant and equipment and amortization of intangible assets 4,418 4,501

Other operating expenses 81,254 88,045

Sponsorship income and contributions -29,725 -12,451

157,976 152,096

Research and development expenses

EURk 2017 2016

Cost of materials and cost of purchased services 6,202 5,751

Personnel expenses 14,574 13,846

Depreciation of property, plant and equipment and amortization of intangible assets 3,525 3,678

Other operating expenses 17,928 11,465

42,230 34,740

Subsidies -13,275 -8,722

28,955 26,017

Expenses disclosed under research and development expenses comprise research costs and non-capitalizable development costs.

Personnel expenses before the effects of capitalizing development costs were EUR 44,482k (prior year: EUR 38,197k).

During the 2017 financial year, gross research and development expenses amounted to EUR 107,201k (previous year: EUR 92,580k). Of these,

development costs of EUR 64,970 (prior year: EUR 57,841k) were capitalized.

Infrastructure and administration expenses

EURk 2017 2016

Cost of materials and cost of purchased services 742 491

Personnel expenses 20,157 17,377

Depreciation of property, plant and equipment and amortization of intangible assets 9,107 6,583

Rental and leasing expenses 6,469 3,958

Insurance expenses 3,529 2,577

Other operating expenses 7,820 12,581

47,825 43,566

Sponsorship income and contributions are deducted from the corresponding expenses, as are subsidies.

During the 2017 financial year, total personnel expenses before the effects of capitalizing development costs were EUR 205,598k

(prior year: EUR 171,331k).

Expenses for the auditor of the financial statements

The expenses attributable to the 2017 financial year for the auditor of the financial statements, KPMG Austria GmbH Wirtschaftsprüfungs- und

Steuerberatungsgesellschaft, amount to EUR 214k (prior year: EUR 208k). Expenses in relation to other assurance services were EUR 12k (prior

year: EUR 10k). Expenses in relation to miscellaneous audit-related advisory services were EUR 35k (prior year: EUR 47k).

098 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Employees

Employees (annual average):

2017 2016

Manual workers 1,408 1,156

Clerical staff 1,797 1,581

3,204 2,737

Employees as at December 31st:

2017 2016

Manual workers 1,426 1,250

Clerical staff 1,819 1,681

3,245 2,931

thereof in Austria 2,776 2,491

thereof abroad 469 440

Employee numbers as stated include agency and external staff.

7. OTHER OPERATING EXPENSES

Other operating expenses of EUR 31,318k (prior year: EUR 27,526k) comprise customer service, guarantee, and warranty expenses of EUR

31,293k (prior year: EUR 27,329k) and miscellaneous expenses of EUR 24k (prior year: EUR 197k).

8. OTHER OPERATING INCOME

Other operating income of EUR 2,574k (prior year: EUR 107k) comprises income from the deconsolidation of KTM Technologies GmbH, Anif

and Kiska GmbH, Anif in the amount of EUR 1,389k, the difference (credit item) of EUR 888k in connection with the initial consolidation of

KTM do Brasil, Sao Paulo, Brazil and income from asset sales amounting to EUR 217k (prior year: EUR 107k) and other income of EUR 80k.

During the previous year, other operating income included all income from the derecognition of a finance lease.

9. SHARE OF THE PROFIT/LOSS OF ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD

EURk 2017 2016

Kiska GmbH, Anif 55 357

KTM New Zealand Ltd., Auckland, New Zealand 39 36

W Verwaltungs AG, Wels (formerly: WP AG, Munderfing) 1,798 1,964

KTM Asia Motorcycle Manufacturing Inc., Binan, Laguna, Philippines -221 0

Motorcycle Distributors Australia Pty Ltd, West Perth, Australia 352 0

Four flagship stores and miscellaneous -62 0

1,961 2,357

099

By way of a sale and purchase agreement dated June 30th 2017, the holding in Kiska GmbH, Anif, was sold to KTM Industries GmbH, Wels. For

that reason, the profit share set out above only relates to the first half of 2017. Further statements in this regard can be found under point 2 of

the scope of consolidation.

During the 2017 financial year, the holdings in four flagship stores and in Cero Design Studio S.L. were taken into account for the first time

using the equity method; these had previously been accounted for as other non-current assets.

10. OTHER FINANCIAL RESULT

The other financial result is made up as follows:

EURk 2017 2016

Foreign exchange valuation of bank deposits -769 69

Valuation of securities 0 178

Proceeds from the disposal of securities 258 0

Impairment of non-current financial assets -738 -718

Interest expenses for employee benefits -246 -284

Loss from the disposal of non-consolidated subsidiaries -21 0

Loss from the disposal of subsidiaries accounted for using the equity method -171 0

Income from other investments 244 68

-1,443 -686

11. TAX EXPENSES

The group’s tax expenses and tax income are attributable to current taxes and deferred taxes as follows:

EURk 2017 2016

Current tax:

Austria 13,330 9,985

Abroad 5,663 4,143

18,993 14,128

Deferred tax:

Austria 8,957 7,385

Abroad 411 -58

Consolidation level -312 814

9,056 8,141

28,049 22,269

Income taxes comprise taxes on income payable in each country as well as deferred taxes. The Austrian companies of the KTM group are subject

to a corporate income tax rate of 25 %. The calculation of foreign taxes is based on the laws and regulations that are in force or have been

adopted in the individual countries. The tax rates applicable to foreign entities vary from 8.7 % to 38.0 %.

N O T E S / N O T E S T O T H E C O N S O L I D A T E D I N C O M E S T A T E M E N T

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G100

The expected tax expense for the financial year (derived from applying the group tax rate of 25 % to the profit before tax of EUR 107,012k

(prior year: EUR 94,378k)) and the actual tax expenses disclosed are reconciled as follows:

EURk 2017 2016

Expected tax expense -26,753 -23,595

Effects of foreign tax rates -1,211 -968

Changes to the tax rate -374 0

Non-temporary differences -1,092 -601

Investment benefits 3,161 2,090

Utilization of loss carryforwards not recognized as deferred tax assets 0 -331

Withholding tax 312 400

Taxes in relation to prior periods -2,276 152

Effect of the share on entities accounted for using the equity method 490 606

Consolidation effects -317 0

Other 11 -22

-28,049 -22,269

On December 22nd 2017, the “H.R. 1 – Tax Cuts and Jobs Act” was signed in the USA. This had an impact on the way in which taxes are

accounted for in consolidated financial statements. IAS 12.47 stipulates that deferred taxes are to be measured using the tax rate that is valid or

anticipated at the end of the reporting period. The new regulations, which provide for an adjustment of the federal corporate income tax rate

from 35 % to 21 %, have therefore already been taken into account within the scope of accounting as at December 31st 2017. The calculation

of deferred tax assets therefore results in a deferred tax expense of EUR 374k as a result of the changes to the tax rate.

Total deferred tax assets and liabilities were calculated from the following statement of financial position items:

EURk December 31st 2017

December 31st 2016

Deferred tax assets:

Inventories 5,307 6,161

Financial investments 544 506

Employee benefits 3,306 3,063

Provisions 2,673 2,381

Liabilities 1,112 1,910

12,942 14,021

Deferred tax liabilities:

Receivables and other current assets -1,988 -1,101

Intangible assets -62,159 -51,519

Property, plant, and equipment -832 -2,298

Other -71 -90

-65,050 -55,008

-52,108 -40,987

Of which deferred tax assets 2,964 3,317

Of which deferred tax liabilities -55,072 -44,305

Deferred tax assets in relation to financial assets include EUR 2,177k (prior year: EUR 2,025k) in relation to the remaining sevenths of write-

downs of equity holdings to going concern value pursuant to sec. 12 para. 3 no. 2 of the Austrian Corporate Tax Act (KStG). During the year

under re-view, sevenths of write-downs to going concern value amounting to EUR 585k (prior year: EUR 480k) were released. Deferred tax

assets were recognized for all remaining sevenths in accordance with section 12 of the KStG, as the requirements set out in IAS 12.34 ff.

were met.

101

The temporary differences in the item “Intangible assets” result mainly from the development costs not capitalizable for tax purposes and the

quasi-permanent differences as a result of the valuation of the “KTM” brand.

As at December 31st 2017 (as at the previous year end), it was to be assumed either that under current tax regulations the differences between

the value for tax purposes of equity interests in consolidated subsidiaries and the proportion of equity recognized in the consolidated IFRS

financial statements (outside-basis differences), which arise largely from retained profits/uncovered losses, will remain untaxed in the foreseea-

ble future, or that their reversal can be controlled by the group.

It was also to be assumed either that the differences between the value for tax purposes of equity interests in holdings accounted for using the

equity method and the carrying amount of those holdings (outside-basis differences) will remain untaxed in the foreseeable future, since there

are no plans to dispose of the holdings.

In accordance with IAS 12.39, no deferred tax was recognized in connection with the taxable temporary differences of EUR 53,659k

(prior year: EUR 46,690k) arising in connection with holdings in subsidiaries and entities accounted for using the equity method.

Movements in deferred taxes are as follows:

EURk 2017 2016

Deferred tax (net) at January 1st -40,987 -34,147

Deferred taxes recognized in the income statement -9,056 -8,141

Deferred taxes recognized in other comprehensive income -2,028 1,199

Currency translation differences -37 101

Deferred tax (net) at December 31st -52,108 -40,987

N O T E S / N O T E S T O T H E C O N S O L I D A T E D I N C O M E S T A T E M E N T

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G102

IV. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

12. PROPERTY, PLANT, AND EQUIPMENT

The tables below provide a breakdown of property, plant, and equipment along with movements during the 2017 and 2016 financial years:

EURk Land Buildings Machinery Fixtures and fittings, tools

and equipment

Advance payments made and

assets under construction

Total

COST OF ACQUISITION AND PRODUCTIONas of January 1, 2016 10,700 107,874 131,475 56,313 14,514 320,876

Additions 442 1,020 11,169 9,422 16,909 38,962

Additions due to consolidation scope 4,066 22,800 0 0 0 26,866

Transfers 0 13,663 6,081 2,280 -21,985 39

Disposals -1,031 -27,059 -635 -2,997 0 -31,722

Currency translation 4 128 0 368 6 506

as of December 31, 2016 14,181 118,426 148,090 65,386 9,444 355,527

as of January 1,2017 14,181 118,426 148,090 65,386 9,444 355,527

Additions 1,643 12,493 17,981 13,142 18,557 63,816

Additions due to consolidation scope 0 0 43 256 0 299

Transfers 0 28 5,133 252 -5,413 0

Disposals -135 -103 -4,618 -4,084 0 -8,940

Disposals due to consolidation scope 0 0 -608 -555 0 -1,163

Currency translation -13 -1,181 0 -1,601 -107 -2,902

as of December 31, 2017 15,676 129,663 166,021 72,796 22,481 406,637

ACCUMULATED DEPRECIATION

as of January 1, 2016 0 25,615 96,197 37,825 0 159,637

Additions 0 3,915 14,581 7,378 0 25,874

Additions due to consolidation scope 0 798 0 0 0 798

Transfers 0 0 69 -69 0 0

Disposals 0 -1,016 -629 -2,783 0 -4,428

Currency translation 0 38 1 319 0 358

as of December 31, 2016 0 29,350 110,219 42,670 0 182,239

as of January 1,2017 0 29,350 110,219 42,670 0 182,239

Additions 0 4,234 16,969 8,511 0 29,714

Additions due to consolidation scope 0 0 17 143 0 160

Disposals 0 -39 -4,600 -3,960 0 -8,599

Disposals due to consolidation scope 0 0 -336 -307 0 -643

Currency translation 0 -441 0 -1,209 0 -1,650

as of December 31, 2017 0 33,104 122,269 45,848 0 201,221

Carrying amounts December 31, 2016 14,181 89,076 37,871 22,716 9,444 173,288

Carrying amounts December 31, 2017 15,676 96,559 43,752 26,948 22,481 205,416

103

The disposals of EUR 26,043k under buildings for the 2016 financial year relate to the cancellation of the finance lease relating to the KTM

logistics center. This is offset by net additions of EUR 26,068k from changes in the scope of consolidation, which are due to the initial consoli-

dation of KTM Logistikzentrum GmbH.

Additions to machines during the 2017 financial year include an amount of EUR 2,286k (prior year: EUR 1,291k) in relation to assets held under

finance leases, which had no cash flow effect. For more details, please refer to Note 28, “Finance leases”.

In the consolidated statement of cash flows, an adjustment of EUR 4,411k (prior year: EUR 4,887k) has been made to other additions to

property, plant, and equipment to reflect transactions that had no cash flow effect.

The application of IAS 36 did not result in any impairment losses or reversals of impairment losses in respect of property, plant, and equipment

during the year.

13. INTANGIBLE ASSETS

The breakdown of intangible assets and the development of that item over the 2017 financial year as well as over the 2016 financial year are

shown in the following tables:

EURk Goodwill Development costs

Concessions, industrial property rights and similar

rights and benefits as well as licenses derived therefrom

Advance payments made

and assets under construction

Total

COST OF ACQUISITION AND PRODUCTIONas of January 1, 2016 95,821 157,372 91,316 11,593 356,102

Additions 242 57,841 9,038 310 67,431

Transfers 0 0 11,551 -11,590 -39

Disposals 0 -37,743 -5,766 0 -43,509

Currency translation 22 0 87 0 109

as of December 31, 2016 96,085 177,470 106,226 313 380,094

as of January 1,2017 96,085 177,470 106,226 313 380,094

Additions 0 64,970 3,980 4,956 73,906

Transfers 0 0 86 -86 0

Disposals 0 -2,369 0 0 -2,369

Disposals due to consolidation scope 0 0 -548 0 -548

Currency translation -35 0 -108 0 -143

as of December 31, 2017 96,050 240,071 109,636 5,183 450,940

N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G104

EURk Goodwill Development costs

Concessions, industrial property rights and similar

rights and benefits as well as licenses derived therefrom

Advance payments made

and assets under construction

Total

ACCUMULATED DEPRECIATION

as of January 1, 2016 17,255 44,076 14,992 0 76,323

Additions 242 25,851 5,490 0 31,583

Transfers 0 0 0 0 0

Disposals 0 -37,743 -5,766 0 -43,509

Currency translation -26 0 71 0 45

as of December 31, 2016 17,471 32,184 14,787 0 64,442

as of January 1,2017 17,471 32,184 14,787 0 64,442

Additions 0 28,520 7,523 0 36,043

Disposals 0 -2,369 0 0 -2,369

Disposals due to consolidation scope 0 0 -389 0 -389

Currency translation -9 0 -46 0 -55

as of December 31, 2017 17,462 58,335 21,875 0 97,672

Carrying amounts December 31, 2016 78,614 145,286 91,439 313 315,653

Carrying amounts December 31, 2017 78,588 181,736 87,761 5,183 353,269

In the consolidated statement of cash flows, an adjustment of EUR 1,265k (prior year: EUR 901k) has been made to additions to intangible

assets to reflect transactions that had no cash flow effect.

During the 2017 financial year, an impairment charge of EUR 1,650k (prior year: EUR 214k) was recorded against development costs in relation

to an asset that was not available for use, due to the termination of projects. In addition, one project available for use was subjected to an

impairment charge of EUR 15k (prior year: EUR 2,663k) owing to changes in the assumptions made regarding future sales and the resultant

impairment to value.

Capitalized goodwill results from equity consolidation and breaks down as follows:

EURk December 31st 2017

December 31st 2016

Goodwill in the KTM cash-generating unit 78,588 78,614

In accordance with IAS 36 “Impairment”, the goodwill disclosed is not amortized but is tested for impairment on an annual basis. Testing during

the 2017 financial year did not reveal a need to record an impairment loss. For the method of calculation, see the Accounting policies section.

By means of an assignment agreement dated September 17th 2013, KTM AG acquired the license right for the use of the Husqvarna brand from

Pierer Industrie AG for EUR 10,000k. The license right is being amortized over its remaining useful life of 10 years.

Another intangible asset is the value of the “KTM” brand. This was recognized at EUR 60,000k in the consolidated financial statements of

KTM AG following the capital increase effected in December 2004 and the ensuing full consolidation of the KTM group, and subsequently

increased by EUR 1,103k in 2010 due to a payment on account made to KTM Kühler GmbH, Mattighofen; the brand value is subjected to an

annual impairment test in accordance with IAS 36. As of December 31st 2017, this test did not reveal a need to record an impairment loss.

For the method of calculation, see the Accounting policies section.

105

14. COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD

As at December 31st 2017, associates comprise investments in W Verwaltungs AG, Wels (formerly: WP AG, Munderfing), minority interests in

importers and four flagship stores.

By way of a sale and purchase agreement dated July 6th 2016, KTM AG purchased 1,200,000 of the 5,000,000 registered shares of no par

value into which the share capital of WP AG, Munderfing (now: W Verwaltungs AG, Wels) is divided from KTM Industries AG, Wels for a purchase

price of EUR 14,400k. This represents a holding of 24 %. Due to the significant influence held by KTM AG, the WP group is included in the

consolidated financial statements of KTM AG as an associate and accounted for using the equity method.

The acquisition is a “common control transaction”, as WP AG, Munderfing (now: W Verwaltungs AG, Wels) was controlled by KTM Industries AG

(the immediate parent company of the KTM group) both before and after it took place. The acquisition method was applied in the same way as

under IFRS 3.

The WP group is one of the leading European suppliers of suspension components for motorcycles and powersport products. Relations between

this company and the KTM group are set out in Note 31.

The following table shows summarized IFRS financial information for W Verwaltungs AG (formerly: WP AG) for the financial year from January 1st

to December 31st 2017. The full amounts are dis-closed, i.e. they have not been adjusted to reflect KTM AG’s proportionate holding and no

consolidation adjustments have been made.

EURk December 31st 2017

December 31st 2016

Non-current assets 64,768 63,303

Current assets 53,013 43,211

Equity 58,174 53,460

Non-current liabilities 23,710 29,490

Current liabilities 35,897 23,564

EURk 2017 2016

Revenue 179,738 166,106

Earnings before taxes (EBT) 9,513 11,374

Total comprehensive income 7,702 14,091

thereof profit for the year 7,581 14,228

thereof other comprehensive income 121 -137

The reconciliation from equity to carrying amount for the holding in W Verwaltungs AG (formerly: WP AG) is as follows:

EURk December 31st 2017

December 31st 2016

Equity of the owners of the parent company 57,510 52,794

thereof relating to KTM AG holdings with 24% in shares 13,802 12,671

Goodwill 3,785 3,785

Consolidation effects -90 -65

Carrying amount 17,497 16,390

Other holdings in associates are not considered to be material on an individual basis.

N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G106

As at December 31st 2016, Kiska GmbH was once again included in the consolidated financial statements of KTM AG as an associate.

Kiska GmbH is a design business that provides development and design services for KTM. By way of a sale and purchase agreement dated

June 30th 2017, the 26 % holding in Kiska GmbH was sold to KTM Industries AG. The resulting capital gain on disposal of EUR 877k was

recognized as other operating income.

In July 2017, KTM Sportmotorcycle GmbH acquired a 26 % share of Motorcycle Distributors Australia Pty Ltd., Australia. On July 4th 2017,

KTM New Zealand Ltd., in which KTM Sportmotorcycle GmbH also holds a 26 % share, was merged into a subsidiary of Motorcycle Distributors

Australia Pty Ltd. For that reason, on June 30th 2017, the equity measurement was performed at the level of KTM New Zealand Ltd. for the last

time. With effect from the second half of 2017, the consolidated financial statements of Motorcycle Distributors Australia Pty Ltd. will be used

for the equity measurement.

The reporting date of Kiska GmbH is March 31st and the reporting date for KTM New Zealand Ltd. and Motorcycle Distributors Australia Pty Ltd.

is June 30th. These reporting dates were set when the companies were founded, before KTM acquired its holdings. A change in the end of the

reporting period is not sought on account of materiality considerations. For the purposes of accounting under the equity method, unaudited

interim financial statements as at December 31st were used.

KTM Asia Motorcycle Manufacturing Inc., Philippines, was jointly founded in June 2016 in partner-ship with Ayala Corp. The KTM group holds

26 % of the company. The company began assembling KTM motorcycles in the Philippines from CKD (completely knocked down) kits in

mid-2017. The company was not yet operationally active as at December 31st 2016. Only immaterial expenses had been incurred, in relation to

the establishment of the company, and no revenue had been earned. On these grounds, the company was not accounted for using the equity

method as at December 31st 2016. The company was accounted for using the equity method during the 2017 financial year following the

commencement of operational activities.

With effect from December 14th 2017, 25 % of the share in KTM MIDDLE EAST AL SHAFAR LLC, Dubai was disposed of. The resulting loss,

which amounted to EUR 171k, was recorded under other financial result.

The companies accounted for using the equity method also include the holding in KTM MOTOHALL GmbH (formerly:

Mattighofen Museums-Immobilien GmbH), Mattighofen, which amounts to EUR 2,349k (prior year: EUR 2,349k), which functions purely as a

project company (for the construction of KTM Motohall) and makes no operating profit or loss.

During the 2017 financial year, the holdings in four flagship stores and in Cero Design Studio S.L. were taken into account for the first time

using the equity method; these had previously been accounted for as other non-current assets and have therefore been reclassified from other

non-current assets to companies accounted for using the equity method.

Movements in the carrying amounts of companies accounted for using the equity method were as follows during the 2017 financial year:

EURk W Verwaltungs AG (formerly: WP AG)

Other associates

Total

Balance as at January 1st 2017 16,390 6,311 22,702Acquisition of holdings in entities accounted for using the equity method (including capital increase)

0 3,766 3,766

Reclassification adjustment of holdings (of other non-current assets) 0 372 372

Disposal of holdings in entities accounted for using the equity method 0 -2,995 -2,995

Pro rata annual profit 1,798 163 1,961

Other comprehensive income – cash flow hedge reserve -4 0 -4

Other comprehensive income – IAS 19 reserve 33 0 33

Other comprehensive income – foreign currency translation 0 -141 -141

Dividends -720 -156 -876

Balance as at December 31st 2017 17,497 7,320 24,817

107

Movements in the carrying amounts of companies accounted for using the equity method were as follows during the 2016 financial year:

EURk WP AG (now: W Verwaltungs AG)

Other associates

Total

Balance as at January 1st 2016 0 3,064 3,064

Acquisition of holdings in entities accounted for using the equity method 14,400 2,959 17,359

Share of net profit for the year 1,964 393 2,357

Other comprehensive income – cash flow hedge reserve 25 0 25

Other comprehensive income – IAS 19 reserve 1 0 1

Other comprehensive income – foreign currency translation 0 11 11

Dividends 0 -116 -116

Balance as at December 31st 2016 16,390 6,311 22,702

15. OTHER NON-CURRENT ASSETS

EURk December 31st 2017

December 31st 2016

Non-consolidated subsidiaries 0 507

Companies not accounted for using the equity method 0 420

Receivables arising from financing activities 3,514 0

Other 10 0

3,524 927

With effect from June 30th 2017, 100 % of the share in A + U Management GmbH (formerly: KTM Finance GmbH), Switzerland, was divested.

The resulting capital gain on disposal, which amounted to EUR 2k, was recorded under other financial result.

With effect from July 31st 2017, 51 % of the share in Kiska Inc., USA was sold to Kiska GmbH, Anif. The sale took place at the carrying amount

of the holding and was therefore profit-neutral.

During the 2017 financial year, the holdings in four flagship stores and in Cero Design Studio S.L. were taken into account for the first time

using the equity method; these had previously been accounted for as other non-current assets and have therefore been reclassified from other

non-current assets to companies accounted for using the equity method.

The receivables arising from financing activities include a non-current loan to KTM MOTOHALL GmbH (see Note 31 for details) and other

non-current financing activities.

16. INVENTORIES

EURk December 31st 2017

December 31st 2016

Raw materials and supplies 39,981 29,569

Work in progress 10,850 16,763

Finished goods and merchandise 154,467 118,213

205,298 164,544

N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G108

EURk December 31st 2017

December 31st 2016

Inventories (gross) 225,496 190,667

Write-down -20,198 -26,123

Inventories (net) 205,298 164,544

Inventories of EUR 81,571k (prior year: EUR 93,041k), excluding raw materials and supplies, were recognized at their net realizable value.

17. TRADE RECEIVABLES

Trade receivables are made up as follows:

EURk December 31st 2017

December 31st 2016

From third parties 93,289 93,694

From associates 2,322 4,660

From non-consolidated associates and non-consolidated subsidiaries 0 885

From affiliated companies 650 0

96,261 99,239

The gross value of third-party trade receivables is stated net of individual allowances of EUR 2,261k (prior year: EUR 3,418k). No general

allowances were made.

Movements in allowances on receivables were as follows:

EURk

Balance as at January 1st 2016 1,908

Exchange rate differences -18

Additions 2,222

Utilization -507

Reversals -187

Balance as at December 31st 2016 = balance as at January 1st 2017 3,418

Exchange rate differences -75

Additions 506

Utilization -277

Reversals -1,311

Balance as at December 31st 2017 2,261

Expenses for the complete derecognition of trade receivables amounted to EUR 78k (prior year: EUR 172k).

109N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

18. OTHER CURRENT ASSETS

Other current assets are made up as follows:

EURk December 31st 2017

December 31st 2016

Receivables from derivative financial instruments 11,625 3,169

Receivables from financing activities 160 774

Asset backed securities financing (ABS) 6,258 2,722

Securities 0 2,047

Others 4,634 7,459

Other current financial assets 22,677 16,171

Subsidies 19,309 6,864

Advance payments for inventories 2,277 6,983

Receivables from value added taxes (from tax group settlement with KTM Industries AG) 4,866 0

Other current non-financial assets 26,452 13,847

Other current assets 49,128 30,018

19. CONSOLIDATED EQUITY

Movements in consolidated equity are shown in the consolidated statement of changes in equity (see Annex I/7).

As of December 31st 2017, the share capital amounts to EUR 10,845k and is subdivided into 10,845,000 registered shares having a par value

of EUR 1.00 each. The shares grant the customary rights due to stockholders under the Austrian Stock Corporations Act [Aktiengesetz]. These

include the right to payout of the dividend resolved upon at the Annual General Meeting as well as the right to vote at the Annual General

Meeting.

Following the delisting from the Vienna Stock Exchange in June 2016, the shares were changed from bearer shares to registered shares in

September.

The figure of stock outstanding remained unchanged during 2017 at 10,845,000.

All shares have been paid up in full. The nominal capital shown in the consolidated financial statements is equal to the figure reported in the

separate financial statements of KTM AG.

During the 2017 financial year, it was agreed that a dividend of EUR 2.00 per share (prior year: EUR 2.00) would be paid out in relation to the

2016 financial year; this corresponds to a total payment of EUR 21,690k (prior year: EUR 21,690k). As unidentified small shareholders failed to

claim dividends amounting to EUR 19k, only EUR 21,671k in dividends was paid out.

In addition, it is planned that a dividend of EUR 2.00 per share will be agreed upon for the 2017 financial year.

The revaluation reserve was generated in 2005 during the course of the gradual acquisition of the former KTM group GmbH. The amount

derived from the pro-rated increase in the after-tax value of the KTM brand attributable to the portion of the shares already owned by the group

parent company (formerly: CROSS Holding AG, now: KTM AG) before control was obtained.

110 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

The cash flow hedge reserve (after taxes) developed as follows:

EURk

Balance as at January 1st 2016 764

Realization of hedged item (recognition in operating income) -1,619

Realization of hedged item (recognition in the financial result) 751

Addition -2,271

Cash flow hedge reserve in relation to entities accounted for using the equity method 25

Balance as at December 31st 2016 = balance as at January 1st 2017 -2,350

Realization of hedged item (recognition in operating income) 1,967

Realization of hedged item (recognition in the financial result) 193

Addition 4,362

Cash flow hedge reserve in relation to entities accounted for using the equity method -4

Balance as at December 31st 2017 4,168

As of December 31st 2017, ineffective components of the derivative financial instruments classified as cash flow hedges yielded a net result

(after tax) of EUR 0k (prior year: EUR 0k).

The foreign currency translation reserve comprises all exchange rate differences arising as a consequence of the currency translation of the

annual financial statements of consolidated subsidi-aries that had been drawn up in foreign currency.

Net investments in foreign subsidiaries of KTM AG included a loan of USD 3,863k to KTM North America, Inc., USA, with no fixed date for

repayment; this was repaid in October 2017. The cumulative effects of foreign currency translation are still included under other comprehensive

income.

Movements in the foreign currency translation reserve item were as follows:

EURk

Balance as at January 1st 2016 1,075

Foreign currency translation of foreign subsidiaries 1,014

Foreign currency translation of companies accounted for using the equity method -11

Net investments of foreign operations 87

Balance as at December 31st 2016 2,165

Foreign currency translation of foreign subsidiaries -2,878

Foreign currency translation of companies accounted for using the equity method -141

Net investments of foreign operations -602

Balance as at December 31st 2017 -1,456

Reserves including retained earnings include actuarial gains of EUR 33k (prior year: losses of EUR 1k) in relation to companies measured at

equity.

111N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

The following subsidiaries are included in non-controlling investments:

Group company Co-shareholders 2017 Share of equity 2016 Share of equity

% EURk % EURk

KTM Technologies GmbH, Anif Kiska Holding GmbH 0.00 0.00 26.00 26.00

KTM Immobilien GmbH, Mattighofen

K KraftFahrZeug Holding GmbH 0.39 62.40

0.39 62.40

WP Performance Sports GmbH, Mattighofen

WP Performance Systems GmbH 0.00 0.00 26.00 26.00

KTM Logistikzentrum GmbH, Mattighofen

P Immobilienverwaltung GmbH 6.00 6.00 6.00 6.00

Capital management

Capital management is aimed at maintaining an adequate capital base in order to remain able to achieve a return for the shareholders that is in

line with the company’s risk situation, to further develop the future of the company and to generate benefits for other stakeholders, too. Only the

consolidated equity as reported under IFRS is regarded as capital by Management. As of the reporting date, the consolidated equity ratio was

44.7 % (prior year: 40.5 %).

The principal key figures used for capital management purposes are net financial debt, gearing, free cash flow, and working capital.

Net financial debt is made up of the following:

EURk December 31st 2017

December 31st 2016

Bonds 0 83,061

Promissory note loans 119,629 119,572

Non-current financial liabilities 67,292 92,982

Current financial liabilities 28,448 22,760

215,369 318,375

Cash and cash equivalents -142,366 -236,752

Receivables arising from financing activities -3,674 -774

Net financial debt 69,329 80,850

The other key figures are as follows:

EURk December 31st 2017

December 31st 2016

Gearing 14 % 19 %

Free cash flow 39,262 18,838

Working capital 92,470 103,700

Gearing = net financial debt/equity incl. non-controlling interest

Free cash flow = cash flow from operating activity - cash flow from investing activity

Working Capital = receivables + inventory - liabilities

112 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

20. BONDS AND FINANCIAL LIABILITIES

A five-year bond (ISIN: AT0000A0UJP7) with an issue volume of EUR 85,000k was successfully placed on April 24th 2012. The bond was

listed on the Second Regulated Market of the Vienna Stock Exchange with a denomination of EUR 500.00 and was issued with a fixed coupon

paying interest at 4.375 %. During the 2016 financial year, bonds with a value of EUR 1,966k (nominal value: EUR 1,900k) were purchased

and offset against the financial liability. The bond was repaid according to schedule in April 2017.

Group companies’ liability owed to credit institutions is secured by pledge agreements recorded in the land register and duly filed with a total

value of EUR 29,052k (prior year: EUR 29,052k).

Composition of financial liabilities

EURkDecember 31st 2017 December 31st 2016

Nominal value Carrying mount Nominal value Carrying mount

Non-current financial liabilities:

Promissory note loan 120,000 119,629 120,000 119,572

Research loans 43,125 43,125 61,875 61,875

Promotional loans 8,025 8,025 12,610 12,610

Investment loans 14,061 14,061 17,485 17,485

Liabilities from financial leasing 2,081 2,081 1,013 1,013

187,292 186,921 212,983 212,554

Current financial liabilities:

Bonds 0 0 83,100 83,061

Research loans 18,750 18,750 13,125 13,125

Promotional loans 4,585 4,585 4,544 4,544

Investment loans 3,422 3,422 3,415 3,415

Liabilities from financial leasing 952 952 278 278

Other 739 739 1,398 1,398

28,448 28,448 105,860 105,822

215,740 215,369 318,843 318,376

21. OTHER NON-CURRENT AND CURRENT LIABILITIES

Other non-current liabilities essentially comprise the following:

EURk December 31st 2017

December 31st 2016

Security deposits = other non-current financial liabilities 7,773 6,923

Sundry other non-current non-financial liabilities 471 504

Other non-current liabilities 8,244 7,426

113N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

Other current liabilities essentially comprise the following:

EURk December 31st 2017

December 31st 2016

Current employee liabilities 32,328 24,720

Tax allocation of group taxation (Pierer Konzerngesellschaft mbH) 12,077 0

Liabilities tax offices 4,840 1,257

Other current non-financial liabilities 49,245 25,977

Liabilities from derivative financial instruments 2,018 7,051

of which derivatives held as cash flow hedge 2,018 7,051

Sales bonus 20,260 17,004

Price bonus 2,895 3,757

Sundry other current financial liabilities 7,799 11,194

Other current financial liabilities 32,972 39,006

Other current liabilities 82,218 64,983

Current employee benefits mainly include liabilities for unconsumed vacations, liabilities for employee bonuses, liabilities to district health

insurance funds, and wage and salary liabilities.

22. TRADE PAYABLES

Trade liabilities are made up as follows:

EURk December 31st 2017

December 31st 2016

To third parties 205,132 153,684

To affiliated companies 3,708 2,844

To associates 249 3,556

209,089 160,084

23. EMPLOYEE BENEFITS

Social capital obligations comprise employee entitlements that fall due upon retirement at the age fixed by law or on completion of a certain

number of years of service in the company and therefore constitute benefits similar to pensions. These benefits were calculated in accordance

with the provisions of IAS 19.

The obligations relating to social capital consist of obligations relating to severance pay of EUR 14,712k (prior year: EUR 14,396k) and

obligations to pay anniversary bonuses of EUR 2,985k (prior year: EUR 2,914k). The present value of the defined benefit obligations is reported

in the consolidated statement of financial position. Obligations relating to social capital are not financed through a fund.

114 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Net liability under defined benefit plans in respect of severance pay developed as follows:

EURk 2017 2016

as of January 1 14,396 12,627

Current service cost 683 709

Interest expense 208 242

Severance payments -245 -216

Additions/disposals -154 285

Actuarial gain/loss -178 759

Other 0 19

as of December 31 14,712 14,396

The actuarial gain/loss is made up of the following factors:

EURk 2017 2016

Change in expected values 357 261

Change in demographic assumptions -61 27

Change in financial assumptions -474 470

Actuarial gain/loss -178 759

The measurement of the obligation is based on the following assumptions:

2017 2016

Discount rate 2.00 % 1.50 %

Trend in wages and salaries 2.50 % 2.25 %

Retirement age (years) women/men (with transitional provisions) 65 years 62 years

The discount rate was determined taking into account the very long average terms and the long average remaining lifespans. The discount rate is

the market yield on high quality fixed-interest corporate bonds at the end of the reporting period.

Employee turnover is determined on a company-specific basis and takes account of age and length of service. The actuarial measurements are

based on country-specific mortality tables. The chosen retirement age is the statutory retirement age in each country.

A sensitivity analysis of the claims to severance pay calculated on the basis of actuarial principles showed a change in actuarial parameters with

the following effects during the 2017 financial year:

Change in assumption Change in DBO when theparameter decreases

Change in DBO when theparameter increases

Discount rate 0.5 percentage points 6.6 % -6.0 %

Trend in wages and salaries 0.5 percentage points -6.0 % 6.5 %

115N O T E S / N O T E S T O T H E C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

A sensitivity analysis of the claims to severance pay calculated on the basis of actuarial principles showed a change in actuarial parameters with

the following effects during the 2016 financial year:

Change in assumption Change in DBO when theparameter decreases

Change in DBO when theparameter increases

Discount rate 0.5 percentage points 7.1 % -6.5 %

Trend in wages and salaries 0.5 percentage points -6.5 % 7.0 %

The following table shows the expected amounts for the defined benefit plans over the next few years:

EURk December 31st 2017

December 31st 2016

Within the next 12 months 1,005 707

Between 2 and 5 years 3,245 2,998

Between 6 and 10 years 3,655 3,144

More than 10 years 16,075 15,862

Total expected payments 23,981 22,712

Movements in obligations relating to claims to anniversary bonuses were as follows:

EURk 2017 2016

as of January 1 2,914 2,308

Current service cost 297 235

Interest expense 40 46

Anniversary bonus payments -228 0

Additions/disposals -1 69

Actuarial gain/loss -26 259

Changes in consolidation scope -11 0

Others 0 -3

as of December 31 2,985 2,914

The weighted average durations of the obligations for severance pay and anniversary bonuses at December 31st 2017 were 13 and 17 years

respectively (prior year: 14 and 16 years).

For employees of Austrian group companies whose employment commenced on or after January 1st 2003, contributions amounting to 1.53 % of

wages or salary were paid into a statutory staff severance pay fund. Total contributions of EUR 1,363k were paid during the year (prior year:

EUR 1,168k).

116 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

24. PROVISIONS

Movements in short-term provisions are shown in the table below:

EURk Provisions relating to guarantees and warranties

Provisions for litigations Total current provisions

as of January 1, 2016 8,088 775 8,863

Utilization -8,088 -337 -8,425

Reversals 0 -334 -334

Additions 9,388 715 10,103

as of December 31, 2016 9,388 819 10,207

as of January 1, 2017 9,388 819 10,207

Utilization -9,388 -340 -9,728

Reversals 0 -10 -10

Additions 10,480 115 10,595

as of December 31, 2017 10,480 584 11,063

The KTM group establishes provisions relating to guarantees and warranties. The amounts of expected expenses are primarily based on previous

experience. For more details, see the note on estimates and uncertainties in judgements and assumptions.

25. STATEMENT OF CASH FLOWS

The changes in the statement of financial position items presented in the cash flow statement can-not be derived directly from the statement of

financial position since non-cash effects due to currency translation and other non-cash items are eliminated. The effects associated with

changes in the scope of consolidation have been eliminated and are accounted for as cash flow from investing activities.

Other non-cash income and expenses are made up as follows:

EURk 2017 2016

- profits/+ losses on disposal of intangible assets and property, plant, and equipment 38 1,251

+ addition/- reversal from employee benefits 535 1,806

- gains/+ losses from the disposal of financial assets -238 0

- remaining other non-cash income/+ expenses -3,575 -3,151

-3,239 -94

The remaining other non-cash income/expenses mainly comprise changes in the measurement of foreign-currency receivables and payables and

movements in allowances to receivables and inventories.

117N O T E S / O T H E R N O T E S

The change in accounting for financial liabilities and the values shown in the statement of cash flows can be reconciled as follows:

Changes affecting cash

flowChanges that do not affect cash flow

Carrying amount January

1st 2017

Change Acquisition Reclassifica-tion

Transactioncosts

Accrued interest

Carrying amount

December 31st 2017

Current financial liabilities 105,543 -86,450 0 8,966 96 -659 27,496Non-current financial liabilities 211,542 -17,736 0 -8,966 0 0 184,840Leasing liabilities (current) 278 -278 0 952 0 0 952Leasing liabilities (non-current) 1,013 -267 2,286 -952 0 0 2,081

Total 318,376 -104,730 2,286 0 96 -659 215,369

V. OTHER NOTES

26. RISK REPORT

Risk principles

As a group of companies doing business on a global scale, the KTM group faces a multitude of possible risks that are monitored by means of a

comprehensive risk management system. The Executive Board and Supervisory Board are periodically informed about risks that may have a

major impact on the group’s business developments. Management takes timely action to avoid, minimize, and hedge risks.

An internal control system adapted to the company’s needs and incorporating basic principles such as segregation of duties and dual control has

been integrated into the financial reporting process. Internal and external audits ensure that the processes are continually improved and

optimized. Furthermore, a uniform reporting system is in place throughout the group, for the ongoing management and control of the risk

management process.

Continuous growth depends on a variety of factors, such as demand behavior, product development, changes in foreign exchange rates, the

general economic setting in the individual markets, prices of goods purchased from others, or talent management.

Annual model planning: The assessment of the market situation as well as annual model planning have a major impact on the development of the

group’s revenue and income. Increased market research activities and a model policy reflecting the resulting findings are means of responding to

a market environment characterized by rapidly changing situations. Group reporting processes were further refined during the 2017 financial year

to ensure that the Executive Board is informed even sooner, and more comprehensively, about the degree of target achievement and about

changes concerning markets and competition.

118 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Industry-specific and operational risks

Restrictions relating to motorcycling: The revenue of the KTM group depends, inter alia, on the possible offroad uses of its motorcycles and is

therefore considerably influenced by the national legal framework conditions regulating offroad motorsport, motorcycle registration and driver’s

licenses in the countries where the vehicles are sold.

Technical innovation, racing: Technical innovation and the introduction of new products make a significant contribution to KTM’s competitive

positioning. To this end, new trends must be identified promptly. To counteract the risk, our own products’ innovative capacity must be ensured.

KTM therefore places a high value on the early recognition of motorcycle trends, on research and development regarding engineering and

functionality, and on researching customer wishes so as to achieve innovative product development close to the market. Racing achievements are

not only an important marketing instrument for the company but also form the basis for product development and set standards for series

development. Valuable experience is gathered whenever products can be tested under racing conditions at racing events. Before being intro-

duced into series production, all technical innovations are moreover subjected to comprehensive testing by the quality management system so as

to eliminate, to the greatest extent possible, any technical defects that could have a negative effect on earnings development.

Product liability risk: In its business environment, the KTM group is also exposed to damage claims arising as a result of accidents and injuries.

This applies especially to the US, where claims asserted in product liability cases involve higher amounts of liability. Appropriate insurance has

been taken out to hedge these risks.

Procurement risk: In view of the current developments on the national and international markets, the procurement risk faced by the KTM group

mainly involves the timely introduction of suitable measures to ensure the supply of parts if suppliers become insolvent or supply bottlenecks

materialize. KTM is therefore exposed to this risk only indirectly. To minimize risk and ensure the availability of materials, KTM places great

emphasis on using predetermined criteria to carefully select new suppliers and on sustainably collaborating with existing suppliers and/or further

developing such cooperations in stable supplier relationships with a long-term approach.

As the quality of KTM’s products is strongly determined by the quality and characteristics of the subcomponents to be sourced, particular

attention is paid to the creditworthiness, operating facilities, and production processes of suppliers. The continuous availability of parts is

ensured by appropriate monitoring.

Market related risks

Cyclical risk: The focus of activities of the KTM group is on the motorcycle industry. The sales opportunities for motorcycles are determined by

the general economic trend prevailing in the countries and regions where motorcycle manufacturers do business. As these last years have shown,

the motorcycle industry is generally a cyclical industry and is moreover subject to strong fluctuations regarding demand. This risk is counteracted

by relevant market research and market forecasts, which are then taken into account in the planning process.

Competition and pricing pressure: The market for motorcycles in the industrialized countries is characterized by intense competition; KTM’s

strongest competitors are four Japanese, three European and, to a lesser extent, one US manufacturer, some of which possess greater financial

resources and have higher sales figures and market shares. The street motorcycle market is, in addition, characterized by high pricing pressure,

and new competitors are trying to enter the market by relying on a low-price strategy. Thanks to KTM’s successful market strategy, market

leadership has been achieved in Europe.

Sales risk: The largest individual sales markets of the KTM group are the European market and the U.S. market. A slump in these markets could

have a negative impact on the business activities of the KTM group. Entering new markets essentially involves a cost risk for the KTM group as,

in some of these markets, the trend of sales as well as the political framework conditions are difficult to assess. By collaborating with its

strategic partner Bajaj Auto Ltd., Pune, India, KTM continues to work steadily towards the implementation of a global product strategy.

119N O T E S / O T H E R N O T E S

Financial risks

With regard to financial risks (currency risks, interest rate risks, default risks, and liquidity risks), please refer to the relevant comments

under Note 27.2.

IT risks

Within the KTM group, an IT security and risk management system is operated with the aim of making it possible to recognize and manage

company-relevant risks in the area of information security. In addition, evidence of compliance and the exercising of due diligence when handling

and using information and equipment for the processing of information is to be provided by customers, the Executive Board of the KTM group

and the general managers of each participating company, and that evidence must be documented.

The ever-increasing threat of IT and cyber risks is countered within the KTM group through the ongoing development of IT security measures and

the use of state-of-the-art security technologies. Cyber attacks are averted using a multi-level technical concept, which makes use of state-of-

the-art security features, such as an intrusion prevention system and additional upstream or internal technical security systems. In addition,

behaviorbased security solutions are used with a view to identifying security-related abuse. Incidents are identified and handled by a malware

incident response process. In parallel, regular internal and external vulnerability analyses are performed and any vulnerabilities identified are

countered by means of an established patch and update management process. Regular internal and external security audits are documented,

evaluated and prioritized by means of risk management measures and a solution is then applied.

Care is taken to ensure that all users of the KTM group’s IT system possess the requisite knowledge and awareness for the use of the IT system

within the scope of their role through the provision of regular IT security awareness training. This training is provided in a preventative and

traceable manner.

We apply the same high quality standards in the area of data security and data protection as we do for our products.

Other risk factors

Risks due to the legal framework: As the KTM group markets its motorcycles in a large number of countries, it is exposed to the risk of changes

in national regulations, terms of licenses, taxes, trade restrictions, prices, income, and exchange restrictions as well as to the risk of political,

social, and economic instability, inflation, and interest rate fluctuations.

Motorcycles registered for road use must comply with relevant provisions concerning noise and exhaust gas emissions in order to be approved for

sale in each country. In addition, the possible offroad uses of motorcycles are considerably influenced by the national legal framework in the

countries where the vehicles are sold. To counteract the risk, the regulations in each country are analyzed in detail prior to market entry and

subsequently monitored on an ongoing basis so that any changes can be responded to in a timely manner.

Business and environmental risk: Although risk cannot be fully excluded as regards forces of nature, KTM tries to minimize the risk of production

processes being affected, by providing appropriate contingency plans and insurance.

Personnel-related risks: With regard to the growth course in particular, risks may arise if key staff leave the company. Efficient personnel

management as well as the constant pursuit of personnel development programs are designed to counteract the risk of managerial staff leaving

the company.

The risk of a shortage of skilled staff is minimized by a comprehensive apprentice training program in our own apprentice workshop.

The aim is to recruit employees from the region and to retain them in the long term.

120 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

27. FINANCIAL INSTRUMENTS

27.1. Classification and fair value

The fair value of a financial instrument is determined by means of quoted market prices for identical instruments in active markets (Level 1). If

no quoted market prices in active markets are available for the instrument, the fair value is determined by means of measurement techniques for

which the material inputs are based exclusively on observable market data (Level 2). In all other cases, the fair value is determined on the basis

of measurement techniques for which at least one material input is not based on observable market data (Level 3).

Reclassifications from one level to another are taken into account at the end of the reporting period. There were no transfers between levels

during the financial year.

The table below shows the carrying amounts and fair values of financial assets (financial instruments shown on the assets side) by class and

IAS 39 measurement category. Nevertheless, it does not provide information on the fair value or measurement level of financial assets not

measured at fair value, where the carrying amount is a reasonable approximation of fair value or where the asset is an equity instrument

measured at acquisition cost.

EURk Note Carrying amount

Dec. 31, 2017

Fair value Dec. 31,

2017

Fair value Level 1 Level 2 Level 3 Total

Loans and receivables Cash and cash equivalents 142,366 - - - - -

Trade receivables 17 96,261 - - - - - Other financial assets 15, 18 14,566 - - - - -

Sum 253,193

Available for sale Other non-current financial assets 15 10 - - - - -

Sum 10

Fair value - Hedging instruments Other current assets - derivatives with positive market value (cash flow hedge)

18 11,625 11,625 - 11,625 - 11,625

Sum 11,625

Total sum 264,828

121N O T E S / O T H E R N O T E S

EURk Note Carrying amount

Dec. 31, 2016

Fair value Dec. 31,

2016

Fair value Level 1 Level 2 Level 3 Total

Loans and receivables Cash and cash equivalents 236,752 - - - - -

Trade receivables 17 99,239 - - - - -

Other financial assets 18 10,955 - - - - -

Sum 346,946

Available for sale Other non-current financial assets 15 927 - - - - -

Sum 927

Held for trading

Other current assets - securities 2,047 2,047 2,047 - - 2,047

Sum 2,047

Fair value - Hedging instruments Other current assets - derivatives with positive market value (cash flow hedge)

18 3,169 3,169 - 3,169 - 3,169

Sum 3,169

Total sum 353,089

Receivables sold in connection with the current ABS program are derecognized in accordance with the rules under IAS 39. Under the

ABS program, trade receivables insured on a revolving monthly basis are sold up to a maximum volume of EUR 120,000k (prior year:

EUR 75,000k). As at the reporting date, trade receivables of EUR 107,310k (prior year: EUR 54,071k) had been sold to third parties.

Up to a contractually defined amount, KTM continues to bear a risk from credit risk related defaults. As at December 31st 2017, the maximum

ensuing risk of loss was EUR 1,195k (prior year: EUR 391k). The expected loss is recorded as a liability and expensed at the time of sale. As at

December 31st 2017, the carrying amount of the ongoing commitment was EUR 1,195k (prior year: EUR 391k) and is disclosed under other

current liabilities. The carrying amount represents the fair value of the ongoing commitment. Expenses of EUR 804k (prior year: EUR 6k) were

recognized in the income statement during the period under review; the cumulative total since the commencement of the transaction is

EUR 1,195k (prior year: EUR 391k). During the 2017 financial year, the ABS program was increased by EUR 45,000k. An amount of

EUR 653k was recorded in the income statement in this regard.

122 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

The table below shows the carrying amounts and fair values of financial liabilities (financial instruments shown on the liabilities side), broken

down by class and IAS 39 measurement category. However, it does not provide information on the fair value or measurement level of financial

liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

EURk Note Carrying amount

Dec. 31, 2017

Fair value Dec. 31,

2017

Fair value Level 1 Level 2 Level 3 Total

At amortized cost

Financial liabilities 20 92,707 94,234 - - 94,234 94,234

Finance lease liabilities 20 3,033 - - - -

Trade payables 22 209,089 - - - - -

Bond 20 - - - - - -

Promissory note loan 20 119,629 123,070 - - 123,070 123,070 Other current and non-current financial liabilities

21 38,727 - - - - -

Sum 463,185

Fair Value - Hedging instruments

Other financial liabilities - derivates with negative market value (cash flow hedge)

21 2,018 2,018 - 2,018 - 2,018

Sum 2,018

Total sum 465,204

EURk Note Carrying amount

Dec. 31, 2016

Fair value Dec. 31,

2016

Fair value Level 1 Level 2 Level 3 Total

At amortized cost

Financial liabilities 20 114,452 116,254 - - 116,254 116,254

Finance lease liabilities 20 1,291 - - - -

Trade payables 22 160,084 - - - - -

Bond 20 83,061 85,439 85,439 - - 85,439

Promissory note loan 20 119,572 123,112 - - 123,112 123,112 Other current and non-current financial liabilities

21 38,878 - - - - -

Sum 517,337

Fair Value - Hedging instruments Other financial liabilities - derivates with negative market value (cash flow hedge)

21 7,051 7,051 - 7,051 - 7,051

Sum 7,051

Total sum 524,388

123N O T E S / O T H E R N O T E S

Fair value determination

The table below shows the valuation techniques used to determine fair value as well as the significant unobservable input factors used.

Financial instruments measured at fair value

Type Measurement technique Significant unobservable input factors

Connection between significant unobservable input factors and measurement at fair value

Forward currency transactions and interest rate swaps

Market comparison method:Fair values are based on the market values determined using recognized valuation models. They are regularly checked for plausibility.

Not applicable Not applicable

Securities Securities are measured at the current stock-exchange price on the reporting date.

Not applicable Not applicable

Financial instruments not measured at fair value

Type Measurement technique Significant unobservable input factorsBonds Exchange-listed bonds are measured at the

closing price on the reporting date.Not applicable

Promissory note loans, Financial liabilities Discounted cash flows Risk premium for own credit risk

Set-off of financial assets and liabilities

The group enters into set-off agreements with banks in connection with derivatives. Generally, the amounts owed under such agreements by

each counterparty on a given day for all outstanding transactions in the same currency are aggregated into a single net amount payable by one

party to the other. In certain cases – e.g. when a credit event such as a default occurs – all outstanding transactions under the agreement are

terminated, their value as of termination is determined and only a single net amount is payable for settling all transactions. These items are not

set off in the statement of financial position, since the net set-off of multiple transactions under the same framework agreements does not

generally occur.

The tables below show financial assets and liabilities that have been offset along with amounts that are subject to a set-off agreement but which

have not been set off as they do not fulfill the criteria for set-off prescribed under IFRS.

124 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

EURk Note Financialassets(gross)

Offset on-balance-

sheet amounts(gross)

Recognizedfinancial assets

(net)

Effect of masterset-off

agreements

Net amounts

Financial assets 2017

Other financial assets - derivates with positive market value

18

Foreign currency forwards 11,625 0 11,625 -230 11,396

Total 11,625 0 11,625 -230 11,396

Financial liabilities 2017

Other financial liabilities - derivates with negative market value

21

Foreign currency forwards 1,725 0 1,725 -230 1,496

Interest rate swaps 293 0 293 0 293

Total 2,018 0 2,018 -230 1,789

Financial assets 2016

Other financial assets - derivates with positive market value

18

Foreign currency forwards 3,169 0 3,169 -2,043 1,126

Total 3,169 0 3,169 -2,043 1,126

Financial liabilities 2016

Other financial liabilities - derivates with negative market value

21

Foreign currency forwards 6,503 0 6,503 -2,043 4,460

Interest rate swaps 548 0 548 0 548

Total 7,051 0 7,051 -2,043 5,008

The table below shows the net profit or loss from the financial instruments by IAS 39 measurement category. The results shown include net

gains/losses, total interest income/expenses and impairment losses:

EURk from interest from subse-quent fair value

measurement

from allowance

from result of disposal

Net result (total)

2017

Loans and receivables 1,882 0 805 -78 2,609

Available for sale 244 0 -738 -20 -514

Fair value - Held for trading 0 0 0 258 258

At amortized cost -6,229 0 0 0 -6,229Total -4,103 0 67 160 -3,876

2016

Loans and receivables 1,865 0 -2,035 -172 -342

Available for sale 68 0 -718 0 -650

Fair value - Held for trading 0 178 0 0 178

At amortized cost -8,776 0 0 0 -8,776Total -6,843 178 -2,753 -172 -9,589

Changes in allowances and the derecognition of loans and receivables are disclosed in other operating expenses for the relevant overhead areas.

The remaining components of the net result are included in financial income and expenses.

125N O T E S / O T H E R N O T E S

27.2. FINANCIAL RISK MANAGEMENT

Principles of financial risk management

The KTM group is subject to credit, market, and liquidity risks regarding its assets, liabilities, and planned transactions. Financial risk manage-

ment is aimed at controlling and limiting those risks. The Executive Board and the Supervisory Board are informed on a regular basis about risks

that can have a major impact on the group’s business developments.

The principles of financial risk management are laid down and monitored by the Supervisory Board as well as by the Executive Board. Group

Treasury is responsible for their implementation. To protect itself against the financial risks described below, the KTM group uses derivative

financial instruments in order to safely hedge cash flows from operating activities against fluctuations in ex-change rates and/or interest rates.

With foreign currency hedges, the timescale for hedging generally covers current open items and any transactions planned for the next twelve

months. In exceptional cases, strategic hedge positions involving longer time periods may be entered into in consultation with the

Supervisory Board.

Currency risks

As an enterprise doing business on a global scale, the KTM group is influenced by general global economic data such as changes in currency

parities or developments in the financial markets. As the US dollar represents the highest individual foreign currency risk faced by the KTM

group, movements in the US dollar exchange rate are of particular importance to the development of the group’s revenue and income. Approxi-

mately 23 % of revenues were earned in US dollars during the 2017 financial year (prior year: 24 %). Such currency shifts can, for the most

part, be offset over at least one model year by taking currency hedging measures and employing hedging strategies in particular; for the 2018

financial year, the US dollar business was hedged by means of positions involving EUR/USD rates ranging from 1.0732 to 1.1511.

The group is exposed to further currency risks where financial assets and liabilities are settled in a currency other than the local currency of the

relevant company. The companies of the group predominantly perform their invoicing in local currency and largely take out financing in local

currency. Financial investments are primarily made in the local currency of the investing group company. For these reasons, most resulting

currency positions will be closed out naturally.

Sensitivity analyses have been performed on currency risks in relation to financial instruments in order to show the effects that hypothetical

changes in the exchange rates have on profit or loss (after taxes) and on the consolidated equity. The relevant balances as of the reporting date

and foreign currency purchases and sales budgeted for 2017 were used as a basis. It was assumed that the risk faced on the reporting date

essentially represents the risk present during the financial year. The group tax rate of 25 % was used as the tax rate. Furthermore it was

assumed in the analysis that all other variables, in particular the interest rates, remained constant. Currency risks relating to financial instru-

ments of a monetary nature that are denominated in a currency other than the functional currency were included in the analysis.

Currency risks relating to euro items in subsidiaries whose functional currency is not the euro were attributed to the currency risk of the

subsidiary’s functional currency. Risks from foreign currency positions other than the euro were aggregated at group level. Exchange rate related

differences due to the translation of financial statements into the group currency were disregarded.

A sensitivity analysis is conducted for currency risk. In this respect, effects of changes in the ex-change rate of ±10 % are shown as profit or

loss, other income, and equity.

126 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

The KTM group bases the analysis on the following assumptions:

» For the sensitivity of profit and loss, the group’s bank balances, receivables and payables are considered, as are future receipts and payments

in foreign currency that are not accounted for in the functional currency of the group company. Account is also taken of open derivatives on

cash flow hedges where the underlying transaction has already been realized on the reporting date (recognized as income). Exposure, taking

account of derivative currency hedges, is indicated in the table below.

» For the sensitivity of other income, account is taken of open derivatives from cash flow hedges where the hedged item has not yet been

realized as at the reporting date (movements are not recognized in profit or loss). The exposure corresponds to the notional amount of the

open derivatives.

EURk Exposures Sensitivity Devaluaton of EUR by 10 %

Sensitivity Revaluaton of EUR by 10 %

Dec. 31, 2017

EUR - USD 15,086 -1,288 1,054

EUR - GBP 45,877 -3,823 3,128

EUR - CAD 22,473 -1,873 1,532

EUR - JPY -62,065 5,172 -4,232

EUR - CHF 20,214 -1,684 1,378

EUR - ZAR 18,956 -1,584 1,296

EUR - SEK 15,640 -1,303 1,066

Others 28,473 -2,374 1,942Sensitivity of profit or loss(receivables and liabilities)

-8,756 7,164

Sensitivity of other comprehensive income (by cash flow hedge derivates)

12,897 -10,552

Sensitivity of equity 4,141 -3,388

+ expense / - income

Dec. 31, 2016

EUR - USD 48,403 -4,053 3,316

EUR - GBP 27,024 -2,253 1,843

EUR - CAD 24,775 -2,065 1,689

EUR - JPY -53,208 4,434 -3,628

EUR - CHF 15,040 -1,253 1,025

EUR - ZAR 17,705 -1,480 1,211

EUR - SEK 7,509 -625 511

Others 21,738 -1,419 1,161Sensitivity of profit or loss(receivables and liabilities)

-8,713 7,129

Sensitivity of other comprehensive income (by cash flow hedge derivates)

14,305 -11,704

Sensitivity of equity 5,592 -4,575

+ expense / - income

127N O T E S / O T H E R N O T E S

Interest rate risks

Certain financial instruments on both the assets side and the liabilities side carry interest at variable rates. Thus the risk consists in rising

interest expenses or falling interest income resulting from an adverse change in market interest rates.

The KTM group has refinanced part of its debt at variable rates and is thus exposed to the risk of interest rate fluctuations on the market.

Regular monitoring of the money and capital markets and the use of interest rate swaps (fixed interest rate payer swaps) serve to respond to this

risk. Under the interest rate swaps entered into, the entity receives variable interest payments and, in return, pays fixed interest on the notional

amounts of the contracts entered into.

Interest rate risks thus result mainly from primary financial instruments carrying interest at variable rates (cash flow risk). Sensitivity analyses

were performed on the interest rate risks of these financial instruments in order to show the effects that hypothetical changes in the market

interest rate level have on profit or loss (after tax) and on the consolidated equity. The relevant balances as of the reporting date were used as a

basis. It was assumed that the risk faced on the reporting date essentially represents the risk present during the financial year. The group tax

rate of 25 % was used as the tax rate. Furthermore it was assumed in the analysis that all other variables, in particular the exchange rates,

remained constant.

For interest rate risk, exposures at the reporting date in the form of carrying amounts were as follows:

EURk Note fixed interest

variableinterest

not interest bearing

Total

Dec. 31, 2017

Cash and cash equivalents 1) 0 142,366 0 142,366

Receivables from financing activities 15 0 3,514 0 3,514

Financing volume ABS programm 0 -107,310 0 -107,310

Financial liabilities and finance lease liabilities

20 -134,541 -80,828 0 -215,369

Total -134,541 -42,258 0 -176,799

Dec. 31, 2016

Cash and cash equivalents 1) 81,783 154,969 0 236,752

Financing volume ABS programm 0 -54,071 0 -54,071

Financial liabilities and finance lease liabilities

20 -143,347 -91,968 0 -235,314

Bond 20 -83,061 0 0 -83,061

Total -144,625 8,931 0 -135,695

1) Variable interest subject to zero percent floor for reference interest rate

A sensitivity analysis was performed on interest rate risk. This showed the effects of changes in the interest rate of ±50 basis points on profit or

loss, other comprehensive income and equity.

EURk Dec. 31, 2017 Dec. 31, 2016

SensitivityDecrease of

interest level by 50Bp

SensitivityIncrease of

interest level by 50Bp

SensitivityDecrease of

interest level by 50Bp

SensitivityIncrease of

interest level by 50Bp

Sensitivity of profit or loss(receivables and liabilities)

74 -74 0 146

Sensitivity of other comprehensive income(by cash flow hedge derivates)

-136 133 -245 240

Sensitivity of equity -61 59 -245 386

+ expense / - income

128 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Default risks (credit and creditworthiness risks)

The risk of default on receivables from customers can be rated as low, as ongoing checks of the creditworthiness of new and existing customers

are performed and collateral is requested. Like-wise, the default risk for other financial assets is to be regarded as low, as the counterparties are

obligors of optimum creditworthiness. The default risk on derivative financial instruments with positive market value is limited to their replace-

ment cost; as all the counterparties are banks of good creditworthiness, the default risk can be classified as low.

Default risks are largely hedged in the KTM group by means of credit insurance and bankable security (guarantees, letters of credit). The default

risks and related controls are defined in internal guidelines.

On the assets side, the amounts reported also represent the maximum default risk. In addition, there are no general set-off agreements, with the

exception of the set-off agreement described un-der Note 27.1 to the consolidated financial statements.

The carrying amounts of the receivables comprise the following:

EURk Note Carrying amount

of which: neither

impaired nor overdue as of

the balance sheet date

of which: not impaired as of the balance sheet date and overdue wihtin the following time bands

of which: impaired

less than 30 days

30 to 60 days

60 to 90 days

more than 90 days

Dec. 31, 2017

Trade receivables 17 96,261 76,361 11,484 2,110 1,123 3,873 1,311

Other financial receivables 15, 18 14,566 14,566 0 0 0 0 0Total 110,827 90,927 11,484 2,110 1,123 3,873 1,311

Dec. 31, 2016

Trade receivables 17 99,239 83,114 11,228 901 700 2,480 816

Other financial receivables 15, 18 10,955 10,955 0 0 0 0 0

Total 110,194 94,069 11,228 901 700 2,480 816

As regards the current portfolio of trade and other receivables that are neither impaired nor past due, there are no indications as of the reporting

date that the obligors will not meet their payment obligations. There are no concentration risks. For a reconciliation of the impairment loss to the

portfolio of trade receivables, see Note 17.

Liquidity risks

It is a material objective of financial risk management in the KTM group to ensure solvency and financial flexibility at all times. Factors contribut-

ing to liquidity risks include, in particular, proceeds from revenues being below the planning assumptions due to weaker demand. For this

purpose, the group maintains a liquidity reserve in the form of unused credit lines (cash credits and guarantee credits) and, if needed, in the

form of cash in banks with excellent creditworthiness. Top priority is given to ensuring liquidity over the short and medium term. Another major

control parameter is the maximization of free cash flow by cost-cutting measures, proactive working capital management and reduced invest-

ment expenditure. From today’s perspective, sufficient commitments have been given concerning the creditworthiness of our strategic financing

partners and therefore the security of current liquidity reserves.

Non-current liquidity requirements are met by the issuance of shares and by taking out bank loans.

129N O T E S / O T H E R N O T E S

The contractually agreed (undiscounted) cash flows (payments of interest and principal) and the remaining terms to maturity of the financial

liabilities comprise the following:

EURk Note Carrying amount

Dec. 31, 2017

Cash flows 2018 Cash flows 2019 to 2022 Cash flows from 2023 onfixed

interestvariable interest

redemp-tion

fixed interest

variable interest

redemp-tion

fixed interest

variable interest

redemp-tion

At amortized cost

Financial liabilities 20 92,707 980 336 26,758 1,289 318 62,710 68 - 2,500

Finance lease liabilities 20 3,033 - 27 952 - 28 2,081 - - -

Trade payables 22 209,089 - - 209,089 - - - - - -

Bond 20 - - - - - - - - - -

Promissory note loan 20 119,629 1,267 562 - 5,041 2,196 8,000 3,933 838 112,000

Other current and non-current financial liabilities

21 38,727 - - 38,727 - - - - - -

Sum 463,185 2,247 925 275,526 6,331 2,541 72,791 4,000 838 114,500

Fair Value - Hedging instruments

Other financial liabilities - derivates with negative market value (cash flow hedge)

21 2,018 207 - 2,279 414 - -261 - - -

Sum 2,018 207 - 2,279 414 - -261 - - -

Total sum 465,204 2,454 925 277,804 6,745 2,541 72,531 4,000 838 114,500

EURk Note Carrying amount

Dec. 31, 2016

Cash flows 2017 Cash flows 2018 to 2021 Cash flows from 2022 onfixed

interestvariable interest

redemp-tion

fixed interest

variable interest

redemp-tion

fixed interest

variable interest

redemp-tion

At amortized cost

Financial liabilities 20 114,452 1,173 494 21,084 2,207 687 88,207 129 0 3,763

Finance lease liabilities 20 1,291 - 13 278 - 22 1,013 - - -

Trade payables 22 160,084 - - 160,084 - - - - - -

Bond 20 83,061 1,178 - 85,000 - - - - - -

Promissory note loan 20 119,572 1,272 562 - 5,062 2,232 8,000 5,166 1,363 112,000

Other current and non-current financial liabilities

21 38,878 - - 38,878 - - - - - -

Sum 517,337 3,623 1,069 305,324 7,270 2,942 97,220 5,295 1,363 115,763

Fair Value - Hedging instruments

Other financial liabilities - derivates with negative market value (cash flow hedge)

21 7,051 273 - 6,249 818 - 255 - - -

Sum 7,051 273 - 6,249 818 - 255 - - -

Total sum 524,388 3,895 1,069 311,572 8,088 2,942 97,474 5,295 1,363 115,763

130 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

27.3. DERIVATIVES AND HEDGES

The following derivative financial instruments used as hedging instruments are employed as of December 31st 2017:

Foreign currency forwards Currency Nominalamount in

1,000 local currency

Fair valueEURk

ExposuresEURk

Terms ofup to 1 year

Terms of 1 - 5 years

December 31, 2017

USD 151,000 8,790 150,762 116,000 35,000

JPY 3,265,000 -1,495 36,225 3,265,000 0

CAD 41,100 577 50,252 41,100 0

GBP 36,650 707 70,694 36,650 0

CHF 15,550 960 23,343 15,550 0

SEK 107,800 282 26,941 107,800 0

DKK 0 0 3,600 0 0

PLN 28,900 -117 11,335 28,900 0

NOK 56,200 267 9,973 56,200 0

CZK 160,700 -90 10,478 160,700 0

ZAR 65,000 20 21,299 65,000 0

Interest rate swaps (Payer) 22,500 -293 0 0 22,500

December 31, 2016

USD 135,800 -4,625 160,189 118,800 17,000

JPY 2,410,000 -525 39,564 2,410,000 0

CAD 50,700 -634 56,570 49,700 1,000

GBP 40,250 2,637 69,359 39,250 1,000

CHF 18,900 -198 23,848 18,900 0

SEK 111,600 72 19,941 111,600 0

DKK 10,250 0 2,694 10,250 0

PLN 19,250 61 10,428 19,250 0

NOK 48,200 -72 8,160 48,200 0

CZK 83,450 9 9,123 83,450 0

ZAR 50,000 -60 19,585 50,000 0

Interest rate swaps (Payer) 30,000 -548 0 0 30,000

In cash flow hedge accounting, both variable future cash flows arising from non-current liabilities with maturity dates up to 2020 and future

operating cash flows (receipts as well as payments) planned for the next eighteen months are hedged.

As at December 31st 2017 (as well as during the prior year) there were no derivative financial instruments for which no hedging relationships

were able to be established.

Forward currency transactions

The KTM group enters into forward currency transactions to hedge intended future revenue and cost of materials denominated in foreign

currency against the risk of exchange rate fluctuations.

131N O T E S / O T H E R N O T E S

Interest rate swaps

In order to control the interest rate risk in relation to variable rates of interest, amortizing interest rate swaps with a nominal value of

EUR 30,000k and a term of 6 years were entered into during the 2014 financial year. As at December 31st 2017, the outstanding notional

amount was EUR 22,500; (prior year: EUR 30,000k).

28. LEASES

Finance leases

Since the 2016 financial year, finance leases have been entered into for tools (special leasing) for a term of between 3 and 5 years, in

connection with which interest payments amounting to EUR 22k (prior year: EUR 0k) were accrued during the 2017 financial year.

The carrying amount of assets held under finance leases is as follows:

EURk Machinery

2017

Costs of acquisition 3,602

- Accumulated depreciation and amortization 591

Carrying amount December 31st 2017 3,011

2016

Costs of acquisition 1,316

- Accumulated depreciation and amortization 325

Carrying amount December 31st 2016 1,291

The cash value of the minimum lease payments on the relevant reporting dates was as follows:

EURk Minimum lease payments Interest payments Present value of minimum lease payments

2017

< 1 year 979 27 952

> 1 to 5 years 2,109 28 2,081

> 5 years - - -

3,088 55 3,033

2016

< 1 year 291 13 278

> 1 to 5 years 1,035 23 1,013

> 5 years - - -

1,327 36 1,291

Payment obligations under finance leases are disclosed in the consolidated statement of financial position under financial liabilities

(see Note 20).

Interest on finance leases of EUR 293k was recorded during the prior year. This related to the finance lease for the logistics center,

which was paid off ahead of term in September 2016.

132 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Operating leases

The KTM group makes use of operating leases, which are not recognized in the consolidated statement of financial position, mainly for the use of

property, machinery, IT equipment, and the vehicle fleet. The leases provide for payments mainly based on variable rental amounts.

Payments from minimum lease payments (rental and lease expenses) recorded as expenses amounted to EUR 15,202k during the 2017

financial year (prior year: EUR 12,221k). The reported operating lease expenses from operating leases do not include any payments under

subleases recognized as expense items or any material conditional rent payments.

Future obligations under operating leases are as follows:

EURk December 31st 2017

December 31st 2016

Up to 1 year 15,573 12,328

2-5 years 43,574 36,943

Over five years 10,291 10,214

69,438 59,485

The definition of operating lease expenses is set on a group-wide basis. This item includes long-term rents for land and buildings.

Material operating leases are as follows:

» Land and buildings: The rental agreements/leases have remaining terms to maturity of up to 41 years.

» IT infrastructure, licenses, and software: The rental agreements/leases have terms of up to 5 years.

» Vehicles and machinery: The rental agreements/leases have terms of up to 6 years.

In some cases, the contracts may optionally be terminated following the expiry of a minimum term. There are no price adjustment clauses.

29. EVENTS AFTER THE REPORTING DATE

On January 9th 2018, KTM AG acquired 75.9 % of the shares in W Verwaltungs AG (formerly: WP AG), Wels, thereby increasing its holding from

24.0 % to 99.9 %. W Verwaltungs AG (formerly: WP AG) was therefore fully consolidated as at January 1st 2018.

The WP group is a subsidiary of KTM Industries AG and previously acted as a supplier of automotive parts to the KTM group. The integration of

the WP group into KTM AG should bring about increases in efficiency and greater potential for synergies.

In the present consolidated financial statements, W Verwaltungs AG (formerly: WP AG) is shown as a company accounted for using the equity

method.

On the basis of the agreements that were entered into after the reporting date, all of the following items must be considered as provisional for

reasons of time, as per IFRS 3.

133N O T E S / O T H E R N O T E S

The fair values of the identifiable assets and liabilities of W Verwaltungs AG upon the attainment of control (effective as of the 2018 financial

year) were as follows:

EURk

Non-current assets 62,121

Current assets 53,394

Net assets 53,633

Non-current liabilities 23,710

Current liabilities 38,173

Addition of non-controlling interests 788

Fair value of the share previously accounted for using the equity method 16,800

Goodwill 17,059

Consideration (payment in two instalments during 2018) -53,103

Acquired cash and cash equivalent 15,133

Net cash outflow on acquisition -37,970

The recognition of the “WP” brand at its fair value, which is included with the non-current assets at a carrying amount of EUR 5,813k, is

currently being examined. The goodwill amounting to EUR 17,059k is based on the earning potential of the company that, according to IFRS,

cannot be assigned to individual capitalizable items. The full amount of the goodwill is assigned to the “WP” cash-generating unit.

The previous holding was accounted for using the equity method. Immediately prior to the attainment of control, the previous holding was

remeasured at its fair value. This resulted in an expense of EUR 697k, which will be accounted for in profit and loss in the consolidated financial

statements for the 2018 financial year.

Within the scope of the company acquisition, fair values of trade receivables amounting to EUR 1,351k, receivables from affiliated companies

amounting to EUR 3,712k and other receivables and assets amounting to EUR 2,660k were acquired. The receivables that are likely to be

uncollectible are to be regarded as immaterial.

Further events that occurred after December 31st 2017 and that are material for the measurement of the assets and liabilities have either been

reflected in these financial statements or are not known.

30. SEGMENT REPORTING

As a result of the delisting of KTM AG from the Vienna Stock Exchange during the 2016 financial year and the full repayment of the bond during

the 2017 financial year, KTM AG is no longer classified as a capital market-oriented company within the meaning of IFRS 8.2b(i). For that

reason, segment reporting will not be carried out.

31. RELATED PARTY DISCLOSURES

KTM Industries AG, Wels, which is indirectly controlled by Mr. Stefan Pierer, holds 51.67 % of the voting rights in KTM AG, Mattighofen, directly

and indirectly through K KraftFahrZeug Holding GmbH, Wels, and, on account of the factual situation, is the controlling shareholder of KTM AG,

Mattighofen.

Mr. Stefan Pierer serves as Chairman of the Executive Board of KTM AG, Mattighofen.

134 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Executive Board and Supervisory Board

During the Supervisory Board meeting of June 2016, a decision was made with regard to the departure by mutual consent of

Mr. Friedrich Roithner from the Executive Board of KTM AG with effect from the end of July 20th 2016. On July 20th 2016, an Extraordinary

General Meeting of KTM AG was held in Mattighofen. At this meeting, a resolution was passed electing Mr. Friedrich Roithner to the Supervisory

Board with effect from July 21st 2016 (for the remainder of the term of office of the Supervisory Board elected at the 28th Ordinary General

Meeting on April 21st 2016).

During the 2017 financial year, the fixed total compensation paid by group companies to the Executive Board members of KTM AG in

consideration of their services as managing directors and Executive Board members within the KTM group amounted to EUR 1,329k (prior

year: EUR 1,323k). Liabilities of EUR 5,599k (prior year: EUR 4,900k) have been recognized in relation to variable remuneration. Furthermore,

no pension expenses, in the form of contributions to pension funds and provisions for pensions, were posted in the financial year 2017. Following

the expiration of the agreed contractual term, the members of the Executive Board receive a one-off payment (severance pay). During the 2017

financial year, severance payments of EUR 1k (prior year: EUR 41k) were paid to members of the Executive Board. As of December 31st 2017,

liabilities of EUR 3,561k exist for Executive Board severance payments (prior year: EUR 2,076k).

At the General Meeting held in April 2018, it will be proposed that the remuneration to be paid to the Supervisory Board for the 2017 financial

year (payout during the 2018 financial year) shall amount to a total of EUR 26k (prior year: EUR 24k).

There are no stock option plans.

KTM AG has entered into a long-term posting agreement with KTM Industries AG concerning the Chairman of the Executive Board, Mr. Stefan

Pierer. A further posting agreement existed for Mr. Friedrich Roithner until July 20th 2016.

By means of an assignment agreement dated September 17th 2013, KTM AG acquired the license right for the use of the Husqvarna brand from

Pierer Industrie AG for EUR 10,000k. The license right is being amortized over its remaining useful life of 10 years and is periodically tested for

impairment. Pierer Industrie AG is a subsidiary of Pierer Konzerngesellschaft mbH (ultimate group parent company). Mr. Stefan Pierer is the

owner of Pierer Konzerngesellschaft mbH and also chairman of the Executive Board of KTM AG. A valuation was performed in order to verify the

measurement of the license right and the acquisition was approved by the Supervisory Board of KTM AG. The transaction was therefore carried

out at arm’s length.

Furthermore, there was an offset of a group allocation from KTM Industries AG to KTM AG of EUR 2,530k (prior year: EUR 1,722k).

Mr. Rajiv Bajaj, Deputy Chairman of the Supervisory Board, is the General Manager of Bajaj Auto Ltd., Pune, India. Srinivasan Ravikumar,

member of the Supervisory Board, is a director of Bajaj Auto International Holdings B.V., Amsterdam, Netherlands, and President of Business

Development and Assurance, Bajaj Auto Ltd., Pune, India. Bajaj Auto International Holdings B.V., Amsterdam, Netherlands, a subsidiary of

Bajaj Auto Ltd., Pune, India, held 47.99 % of KTM AG as at December 31st 2017. As at December 31st 2017, liabilities from Bajaj Auto Ltd.,

Pune, India amounted to EUR 5,389k, and receivables amounted to EUR 221k (prior year: receivables of EUR 4,255k and payables of EUR 2k).

Bajaj Auto International Holdings B.V., Amsterdam, Netherlands, granted KTM AG two short-term, arm’s-length, interest-carrying loans of

EUR 10,000k each from October 24th 2016 to December 22nd 2016 and from January 11th 2017 to April 7th 2017.

A cooperation with the Indian Bajaj group has been in place since 2007. The Bajaj group is India’s second largest manufacturer of motorcycles,

selling approximately 3.67 million motorcycles and three wheelers during the last financial year (reporting date: March 31st 2017). The

cooperation focuses on the joint development of entry level street motorcycles, which are produced in India and distributed under the “KTM”

brand by both companies in their respective core markets.

The WP group and Pankl group are subsidiaries of KTM Industries AG and act as suppliers of automotive parts to the KTM group. WP is also

charged rent at arm’s length rates for use of the KTM logistics center.

In July 2016, KTM AG acquired 24 % of the shares of WP AG (now: W Verwaltungs AG) from KTM Industries AG, Wels for a purchase price of

EUR 14,400k. The transaction was approved at the Supervisory Board meeting of June 21st 2016.

135N O T E S / O T H E R N O T E S

Arm’s-length deliveries of motorcycles and spare parts are made to KTM New Zealand Ltd. and KTM MIDDLE EAST AL SHAFAR LLC,

two former general importers in the KTM group that were accounted for using the equity method. The holding in KTM MIDDLE EAST AL

SHAFAR LLC was sold during the 2017 financial year. In addition, 26 % of Motorcycle Distributors Australia was purchased; this company acts

as an importer for the Australia and New Zealand market. In July 2017, KTM New Zealand Ltd. was merged into a subsidiary of Motorcycle

Distributors Australia.

Arm’s-length deliveries of motorcycles and spare parts are made to authorized KTM dealers in which the KTM group holds minority investments

and which are accounted for using the equity method (prior year: as other non-current financial assets).

KTM Asia Motorcycle Manufacturing Inc., Philippines, was jointly founded in June 2016 in partnership with Ayala Corp. The KTM group holds

26 % of the company. The company began assembling KTM motorcycles in the Philippines from CKD (completely knocked down) kits in

mid-2017. The company was not yet operationally active as of December 31st 2016.

Mattighofen Museums-Immobilien GmbH (now: KTM MOTOHALL GmbH), which was founded in 2015, is held by Pierer Konzerngesellschaft

GmbH (51 %) and KTM Immobilien GmbH (49 %). Receivables of EUR 3,107k existed as at December 31st 2017 (prior year: EUR 17k). As at

July 1st 2017, the receivables included a granted loan carrying interest at arm’s length with a term ending on June 30th 2020 and amounting to

EUR 3,087k. In proportion to its shareholding during the 2016 financial year, KTM Immobilien GmbH paid a capital contribution of EUR 2,300k

to KTM MOTOHALL GmbH (formerly: Mattighofen Museums-Immobilien GmbH).

KTM AG has granted an arm’s length, interest-carrying loan to TRUE Management & Investment GmbH, which is within the sphere of influence

of Mr. Hubert Trunkenpolz, a member of the Executive Board. The loan has a maturity date of December 31st 2017, subject to annual options to

prolongation up to a final date of February 28th 2018. The loan was repaid early in March 2017. As of the December 31st 2016 reporting date,

loan receivables in the amount of EUR 100k were recognized.

No other loans or advances have been granted to members of the Executive Board or the Supervisory Board of KTM AG as of the reporting date.

Further related party disclosures

Mr. Gerald Kiska serves on the Supervisory Board of KTM Industries AG, Wels, and acts as managing shareholder of Kiska GmbH, Anif, in

which KTM AG, Mattighofen, held an interest of 26.0 % until June 30th 2017. Furthermore, Mr. Kiska was appointed to the position of general

manager of KTM Technologies GmbH, Anif, in which KTM AG held a 76 % share until June 30th 2017. Expenses of EUR 19,222k were incurred

for services provided by Kiska GmbH, Anif, during the financial year (prior year: EUR 13,679k). As of December 31st 2017, accounts payable to

Kiska GmbH stood at EUR 2,488k (prior year: EUR 3,473k).

During the 2017 financial year, Wohnbau-west Bauträger Gesellschaft m.b.H., a direct subsidiary of Pierer Konzerngesellschaft mbH, provided

services as general contractor in relation to the planning, construction, and extension of the KTM logistics center in Munderfing on behalf of

KTM Logistikzentrum GmbH. Construction services supplied by Wohnbau-west Bauträger Gesellschaft m.b.H. in 2017 amounted to EUR 6,508k

(prior year: EUR 0k).

By way of a sale and purchase agreement dated June 30th 2017, the 74 % share in KTM Technologies GmbH, Anif held by KTM AG was

sold to KTM Industries AG for a purchase price of EUR 1,020k, together with the 26 % share held in Kiska GmbH, Anif for a purchase price

of EUR 3,701k.

With effect from July 31st 2017, 51 % of the share held in Kiska Inc., USA was sold to Kiska GmbH, Anif at the carrying amount of the holding,

which amounted to USD 51k.

By way of a sale and purchase agreement dated July 31st 2017, KTM North America, Inc., USA acquired 100 % of the shares in WP Suspension

North America Inc., USA from WP Performance Systems GmbH, Austria for a purchase price of EUR 223k.

136 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

Since the 2017 financial year, the KTM AG group has formed a group for corporation tax purposes with Pierer Konzerngesellschaft mbH, Wels

and has formed a tax group for VAT purposes with KTM Industries AG, Wels. As at the reporting date, liabilities arising as a result of tax

compensation for Pierer Konzerngesellschaft mbH in the amount of EUR 12,077k remained outstanding, together with receivables from sales

tax credits for KTM Industries, amounting to EUR 4,866k.

Material operating business transactions with related parties and the amount of the outstanding balances with related parties (summarized at

group level) were as follows:

EURk Revenue Expenses Receivables Liabilities

Investments accounted for using the equity method 100,602 168,792 31,129 478

thereof WP group 7,746 161,070 789 2,822

KTM Industries AG, Wels 49 7,912 4,702 0

Wethje Carbon Composites GmbH, Hengersberg, Germany 2 1,662 0 51

Pankl Gruppe, Kapfenberg 571 16,231 6 361

Bajaj Auto Ltd., Pune, India 12 99,173 221 5,389

TRUE Management GmbH, Thalheim bei Wels 0 38 0 0

Pierer Konzerngesellschaft mbH, Wels 0 12,778 0 12,077

KTM Technologies GmbH, Anif 656 4,789 510 0

Kiska GmbH, Anif 728 19,222 0 2,488

Wohnbau-west Bauträger Gesellschaft m.b.H 0 6,508 0 1

Other companies 134 896 1 13

102,755 337,999 36,569 20,858

Material business transactions with related parties and the amount of the outstanding balances with related parties (summarized at group level)

were as follows in the preceding year:

EURk Revenue Expenses Receivables Liabilities

Investments accounted for using the equity method 10,324 153,962 3,018 3,654

thereof WP group 3,495 139,328 57 180

Other non-current financial assets 3,183 2,507 1,201 123

Other non consolidated subsidiaries 2,055 218 105 11

KTM Industries AG, Wels 27 5,325 112 2,267

Wethje Carbon Composites GmbH, Hengersberg, Germany 108 903 43 90

Pankl Gruppe, Kapfenberg 0 5,565 0 426

Bajaj Auto Ltd., Pune, India 0 65,452 4,255 2

TRUE Management & Investment GmbH, Thalheim bei Wels 2 25 2 0

Pierer Konzerngesellschaft mbH, Wels 412 516 0 0

Other companies 800 761 862 29

16,911 235,235 9,598 6,601

All supplies and services are agreed at arm’s-length prices.

137K O N Z E R N A N H A N G /

32. CORPORATE BODIES OF KTM AG

The following individuals were members of the Supervisory Board in 2017:

» Friedrich Roithner, Chairman

» Rajiv Bajaj, Deputy Chairman

» Ernst Chalupsky

» Srinivasan Ravikumar

» Friedrich Lackerbauer (Employee representative)

» Franz Hattinger (Employee representative) (from June 20th 2017)

» Horst Resch (Employee representative) (until June 20th 2017)

The following individuals were members of the Executive Board with collective power of representation in 2017:

» Stefan Pierer, Chairman

» Harald Plöckinger

» Viktor Sigl

» Hubert Trunkenpolz

Mattighofen, February 13th 2018

The Executive Board

Stefan Pierer Harald Plöckinger Hubert Trunkenpolz Viktor Sigl

138 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

SCHEDULE OF EQUITY HOLDINGSANNEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF KTM AG, MATTIGHOFEN, AUSTRIA, AS OF DECEMBER 31, 2017

EURk Initialconsolidation

date

Dec. 31. 2017 Dec. 31. 2016Interest

%Consolidation

typeInterest

%Consolidation

type

Affiliated companies:

KTM Immobilien GmbH, Mattighofen Sept. 1, 1999 99.61 FC 99.61 FC

KTM North America, Inc., Amherst, Ohio, USA Sept. 1, 1993 100.00 FC 100.00 FC

KTM-Motorsports, Inc., Amherst, Ohio, USA Sept. 1, 2000 100.00 FC 100.00 FC

KTM Japan K.K., Tokyo, Japan Sept. 1, 2002 100.00 FC 100.00 FC

KTM-Racing AG, Frauenfeld, Switzerland Jan. 28, 2003 100.00 FC 100.00 FC

KTM Sportcar GmbH, Mattighofen Mar. 1, 2005 100.00 FC 100.00 FC

KTM Motorcycles S.A. Pty. Ltd., Northriding, South Africa Mar. 1,2009 100.00 FC 100.00 FC

KTM Sportmotorcycle Mexico C.V. de S.A., Lerma, Mexico Jun. 1, 2009 100.00 FC 100.00 FC

KTM South AEst Europe S.A., Elefsina, Greece Nov. 1, 2010 100.00 FC 100.00 FC

KTM Technologies GmbH, Anif - 0.00 - 74.00 FC

KTM Sportmotorcycle GmbH, Mattighofen May 1, 2011 100.00 FC 100.00 FC

KTM-Sportmotorcycle India Private Limited, Pune, India Jun. 1, 2012 100.00 FC 100.00 FC

Husqvarna Motorcycles GmbH, Mattighofen Jan. 1, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle Germany GmbH, Ursensollen, Germany

Dec. 31, 2013 100.00 FC 100.00 FC

KTM Switzerland Ltd., Frauenfeld, Switzerland Dec. 31, 2013 100.00 FC 100.00 FCKTM Sportmotorcycle UK Limited, Brackley, United Kingdom

Dec. 31, 2013 100.00 FC 100.00 FC

KTM-Sportmotorcycle Espana S.L., Terrassa, Spain Dec. 31, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle France SAS, Saint Priest, France Dec. 31, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle Italia s.r.l., Merano (former: Gorle), Italy

Dec. 31, 2013 100.00 FC 100.00 FC

KTM-Sportmotorcycle Nederland B.V., Malden, Netherlands Dec. 31, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle Scandinavia AB, Örebro, Sweden Dec. 31, 2013 100.00 FC 100.00 FC

KTM-Sportmotorcycle Belgium S.A., Wavre, Belgium Dec. 31, 2013 100.00 FC 100.00 FC

KTM Canada Inc., St-Bruno, Canada Dec. 31, 2013 100.00 FC 100.00 FC

KTM Hungária Kft., Törökbálint, Hungary Dec. 31, 2013 100.00 FC 100.00 FC

KTM Central AEst Europe s.r.o., Bratislava, Slovakia Dec. 31, 2013 100.00 FC 100.00 FC

KTM Österreich GmbH, Mattighofen Dec. 31, 2013 100.00 FC 100.00 FC

KTM Nordic Oy, Vantaa, Finland Dec. 31, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle d.o.o., Marburg, Slovenia Dec. 31, 2013 100.00 FC 100.00 FC

KTM Czech Republic s.r.o., Pilsen, Czech Republic Dec. 31, 2013 100.00 FC 100.00 FC

KTM Sportmotorcycle SAE PTE. Ltd. Singapore, Singapore Jan. 1, 2014 100.00 FC 100.00 FC

Husqvarna Motorcycles Italia S.r.l. Merano (former: Albano Sant'Alessandro), Italy

Dec. 31, 2013 100.00 FC 100.00 FC

Husqvarna Motorcycles Germany GmbH, Ursensollen, Germany

Dec. 31, 2013 100.00 FC 100.00 FC

Husqvarna Motorcycles Espana S.L., Terrassa, Spain Dec. 31, 2013 100.00 FC 100.00 FC

Husqvarna Motorcycles UK Ltd., Brackley, United Kingdom Dec. 31, 2013 100.00 FC 100.00 FC

Husqvarna Motorcycles France SAS, Saint Priest, France

Dec. 31, 2013 100.00 FC 100.00 FC

139S C H E D U L E O F E Q U I T Y H O L D I N G S

EURk Initialconsolidation

date

Dec. 31. 2017 Dec. 31. 2016Interest

%Consolidation

typeInterest

%Consolidation

type

HQV Motorcycles Scandinavia AB, Örebro, Sweden Dec. 31, 2013 100.00 FC 100.00 FC

Husqvarna Motorcycles North America, Inc. Murrieta, CA, USA

Dec. 1, 2013 100.00 FC 100.00 FC

Husqvarna Motorsports, Inc. Murrieta, CA, USA Apr. 1, 2015 100.00 FC 100.00 FC

Husqvarna Motorcycles S.A. Pty. Ltd., Northriding, South Africa

Apr. 1, 2015 100.00 FC 100.00 FC

KTM Events & Travel Services AG, Frauenfeld, Switzerland 1)

- 0.00 - 100.00 -

KTM Logistikzentrum GmbH, Mattighofen Sept. 16, 2016 93.63 FC 93.63 FC

WP Performance Sports GmbH, Munderfing Nov. 30, 2016 100.00 FC 74.00 FC

KTM Sportmotorcycle MAE DMCC, Dubai Nov. 30,2016 100.00 FC 100.00 FC

WP Suspension North America, Inc. Murrieta, CA, USA Aug. 31, 2017 100.00 FC 0.00 -

KTM do Brasil Ltda., Sao Paulo, Brazil Dec. 31, 2017 100.00 FC 100.00 AE

Associated companies

KTM New ZAEland Ltd., Auckland, New ZAEland 2) - 0.00 - 26.00 AE

Kiska GmbH, Anif - 0.00 - 26.00 AE

KTM MIDDLE AEST AL SHAFAR LLC, Dubai, United Arab Emirates

- 0.00 - 25.00 AE

W Verwaltungs AG, Wels (former: WP AG, Munderfing) - 24.00 AE 24.00 AE

KTM Asia Motorcycle Manufacturing Inc., Binan, Laguna, Philippines

- 34.00 AE 34.00 AE

KTM MOTOHALL GmbH (former: Mattighofen Museums-Immobilien GmbH), Mattighofen

- 49.00 AE 49.00 AE

Motorcycle Distributors Australia Pty Ltd, West Perth, Australia

- 26.00 AE 0.00 -

KTM Wien GmbH, Vösendorf - 26.00 AE 76.00 AC

KTM Braumandl GmbH, Wels - 26.00 AE 26.00 AC

MX - KTM Kini GmbH, Wiesing - 26.00 AE 26.00 AC

KTM Regensburg GmbH, Regensburg, Germany - 26.00 AE 26.00 AC

Cero Design Studio S.L., Barcelona, Spain - 26.00 AE 26.00 AC

Other non-current financial assets:

KTM Australia Pty Ltd., Perth, Australia 1) - 0.00 - 100.00 AC

A + U Management GmbH (former: KTM Finance GmbH), Frauenfeld, Switzerland

- 0.00 - 100.00 AC

Project Moto Rütter & Holte GmbH, Oberhausen, Germany

- 0.00 - 26.00 AC

KISKA, Inc. Murrieta, USA - 0.00 - 51.00 AC

VC: Full consolidationAE: at-EquityAC: at cost

1) Liquidation in financial year 20172) Merger in Motorcycle Distributors Australia Pty Ltd.

140 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

AUDITOR’S REPORT KTM AG, MATTIGHOFEN, AUSTRIA REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017, 13 FEBRUARY 2018

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

AUDIT OPINION

We have audited the consolidated financial statements of KTM AG,Mattighofen, Austria, and its subsidiaries (the Group), which comprise the

Consolidated Statement of Financial Position as at 31 December 2017, the Consolidated Income Statement/Consolidated Statement of Other

Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cashflows for the year then ended, and

the Notes to the Consolidated Financial Statements.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of

31 December 2017, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with

International Financial Reporting Standards (IFRSs) as adopted by the EU and the Austrian Generally Accepted Accounting Principles.

BASIS FOR OUR OPINION

We conducted our audit in accordance with Austrian Standards on Auditing. These standards require the audit to be conducted in accordance

with International Standards on Auditing (ISAs). Our responsibilities under those standards are described in the „Auditor‘s Responsibilities“

section of our report. We are independent of the audited Group in accordance with Austrian Generally Accepted Accounting Principles and

professional regulations, and we have fulfilled our other responsibilities under those relevant ethical requirements. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

RESPONSIBILITIES OF MANAGEMENT AND THE AUDIT COMMITTEE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International

Financial Reporting Standards (IFRSs) as adopted by the EU, Austrian Generally Accepted Accounting Principles and for such internal control as

management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,

whether due to fraud or error.

Management is also responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to

going concern and using the going concern basis of accounting, unless management either intents to liquidate the Group or to cease operations,

or has no realistic alternative but to do so.

The audit committee is responsible for overseeing the Group’s financial reporting process.

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AUDITOR‘S RESPONSIBILITIES

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material

misstatement - whether due to fraud or error - and to issue an auditor‘s report that includes our audit opinion. Reasonable assurance represents

a high level of assurance, but provides no guarantee that an audit conducted in accordance with Austrian Standards on Auditing (and therefore

ISAs), will always detect a material misstatement, if any. Misstatements may result from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated

financial statements.

As part of an audit in accordance with Austrian Standards on Auditing, we exercise professional judgment and maintain professional skepticism

throughout the audit.

Moreover:

» We identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, we design

and perform audit procedures responsive to those such risks and obtain sufficient and appropriate audit evidence to serve as a basis for our

audit opinion. The risk of not detecting material misstatements resulting from fraud is higher than for one resulting from error, as fraud may

involve collusion, forgery, intentional omissions, misprepresentations or override of internal control.

» We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circum-

stances, but not for the purpose of expressing an opinion on the effectiveness of the Group‘s internal control.

» We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

management.

» We conclude on the appropriateness of management‘s use of the going concern basis of accounting and, based on the audit evidence

obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group‘s ability to

continue as a going concern. If we conclude that a material uncertainty about the entity‘s ability to continue as a going concern, we are

required to draw attention in our audit report to the respective note in the consolidated financial statements. If such disclosures are not

appropriate, we will modify our audit opinion. Our conclusions are based up to the date of our auditor‘s report. However, future events or

142 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

conditions may cause the Group to cease to continue as a going concern.

» We evaluate the overall presentation, structure and content of the consolidated financial statements, including the notes, and whether the

consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

» We obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to

express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group

audit. We remain solely responsible for our audit opinion.

» We communicate to the audit committee regarding, among other matters, the planned scope and timing of our audit as well as significant

findings, including any significant deficiencies in internal control that we identify during our audit.

GROUP MANAGEMENT REPORT

In accordance with the Austrian Generally Accepted Accounting Principles, the group manage¬ment report is to be audited as to whether it is

consistent with the consolidated financial state¬ments and prepared in accordance with legal requirements.

Management is responsible for the preparation of the group management report in accordance with Generally Accepted Accounting Principles.

We have conducted our audit in accordance with generally accepted standards on the audit of group management reports as applied in Austria.

OPINION

In our opinion, the group management report is consistent with the consolidated financial statements and has been prepared in accordance with

legal requirements.

STATEMENT

Based on our knowledge gained in the course of the audit of the consolidated financial statements and our understanding of the Group and its

environment, we did not note any material misstatements in the group management report.

Linz, 13 February 2018

KPMG Austria GmbH

Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Ernst PichlerWirtschaftsprüfer(Austrian Chartered Accountant)

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STATEMENT OF ALL LEGAL REPRESENTATIVES FOR THE 2017 FINANCIAL YAER, KTM AG, MATTIGHOFEN

We confirm to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, liabilities, financial

position and profit or loss of the group as required by the applicable accounting standards and that the group management report gives a true

and fair view of the development and performance of the business and the position of the group, together with a description of the principal risks

and uncertainties the group faces.

We confirm to the best of our knowledge that the separate financial statements give a true and fair view of the assets, liabilities, financial

position and profit or loss of the parent company as required by the applicable accounting standards and that the management report gives a

true and fair view of the development and performance of the business and the position of the company, together with a description of the

principal risks and uncertainties the company faces.

Mattighofen, March 2018

The Executive Board of KTM AG

Stefan Pierer Harald Plöckinger Hubert Trunkenpolz Viktor Sigl

144 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S K T M A G

INVESTOR RELATIONSVIKTOR SIGL

Stallhofnerstraße 3

5230 Mattighofen, Austria

Phone: +43 7742 6000-144

E-Mail: ir@ktm.com

IMPRINTOwner and publisher:

KTM AG, Stallhofnerstrasse 3, 5230 Mattighofen, Austria

Registered at the Regional Court Ried im Innkreis:

FN 107673 v

Concept: KTM

Design: www.grafik-buero.at

Photos: KTM archives, Husqvarna archives, WP Husqvarna archives

While every care was taken in compiling this annual report and checking that the data it contains is correct, slight differences

in totals from adding up rounded amounts and percentages, typographical errors and misprints cannot be excluded.

This report and the forward-looking statements it contains were prepared on the basis of all the data and information available

at the time of going to press. We wish to point out, however, that various factors may cause the actual results deviate from the

forward-looking statements given in the report.

KTM AG

Stallhofnerstraße 3

5230 Mattighofen, Austria

M: ir@ktm.com

W: www.ktmgroup.com