Elica

Audit Report / Information • Mar 29, 2021

ELICA S.p.A.

Registered office in Fabriano (AN), Via Ermanno Casoli No. 2 Share capital Euro 12,664,560.00 fully paid-in Marche Companies Registration Office Tax and VAT No.: 00096570429

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS' MEETING (in accordance with Article 153 of Legislative Decree 58/1998 and Article 2429, paragraph 2 of the Civil Code)

Dear Shareholders,

during the year ended 31/12/2020, we performed the supervisory activities required by law, in accordance with the "Conduct principles for the Board of Statutory Auditors in listed companies" and recommended by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili), the Consob provisions concerning corporate controls and activities of the Board of Statutory Auditors and the indications of the Self-Governance Code of the Company.

In particular, also in accordance with the recommendations issued by Consob, we performed the following:

• we verified compliance with law, the By-Laws and the regulations;
• during the year:
• i) we have met, in the performance of our duties, 24 times;
• ii) we attended one Shareholders' Meeting, 9 Board of Directors' meetings, 5 Control, Risks and Sustainability Committee meetings and 6 meetings of the Appointments and Remuneration Committee;

all meetings were held in compliance with the applicable laws, the By-Laws and the regulations governing their functioning. The motions were passed in compliance with law and the company By-Laws and were not imprudent, reckless or such as to compromise the integrity of the company's assets;

• periodically, we received information from the Directors on the general performance and on the outlook, as well as on the most significant operations, in terms of size and nature, carried out by the Company and its subsidiaries.

In relation to such, we can reasonably assure that the actions taken are in conformity with law and the By-Laws of the company and were not imprudent, risk related, in

potential conflict of interest or contrary to the motions passed, or such as to compromise the integrity of the company assets;

• the following assignments were awarded to the Audit Firm KPMG S.p.A. and its network:

Type of service	Service provider	Company	Fees
			(Euro thousands)
Audit	Kpmg SpA	Elica SpA	189
Audit	Kpmg SpA	Air Force SpA	14
Audit	Kpmg Cardenas Dosal, S.C.	Elicamex S.A.de C.V.	26
Audit	Kpmg Polska	Elica Group Polska
		S.p.z.o.o.	32
Audit	Kpmg China	Zhejiang Elica Putian
		Electric Co. Ltd	32
Audit	B S R & Co. LLP	Elica PB India
	(KPMG network)	Private Ltd	8
Audit	Kpmg Japan	Ariafina CO., LTD	10
Other services	Kpmg SpA	Elica SpA	42
Other services	Kpmg China	Zhejiang Elica Putian
		Electric Co. Ltd	2
	Total		355

• we constantly monitored the independence of the Audit Firm, noting the absence of any critical aspects;
• we held 4 meetings with the head of the independent audit firm, in accordance with Article 150, paragraph 3 of Legislative Decree 58/1998. During the meetings no significant information warranting disclosure became evident;
• we have noted the significant changes to the organisational structure of the Company, overseeing its adequacy for the efficient and lean management of the business; in relation to this, there are no matters to report;
• we assessed the adequacy of the internal control system and of the administration and accounting system and its reliability to correctly represent operations, through the obtaining of information from managers and we reviewed company documents and oversaw the financial disclosure process in accordance with Article 19 of Legislative Decree 39/2010;

• we reviewed the adequacy of the instructions given by the Parent Company to its subsidiaries to receive in a timely manner all necessary information to comply with the obligations required by law;

• we did not note the existence of atypical or unusual transactions;

• we note the following significant transactions:
• a) on 18/03/2020, in execution of Board of Directors' motion of 26/06/2017 (share capital increase of the Chinese subsidiary Zheijang Elica Putian Electric Co. Ltd, in one or more tranches, up to a maximum CYN 70 million), the company settled the final tranche of CYN 14.75 million (Euro 1,900,000.00);
• b) on 29/06/2020, in execution of Board of Directors' motion of 28/04/2020, the company signed a loan contract, for Euro 100 million (of which 90 Term Loan and 10 revolving), with final maturity at 5 years, on the basis of a club deal with a syndicate of 5 banks, including Banca IMI S.p.A. and BNL Gruppo BNL Paribas as coordinating banks;
• c) on 30/06/2020, the Shareholders' Meeting of the Polish subsidiary EGP allocated the net profit of PLN 12,986,110.23 for 2019 entirely as dividend to the sole shareholder Elica S.p.A., which was settled and recognised to the financial statements for an amount of Euro 2.914 million;
• d) closure of the legal dispute in Brazil:
  • i) on July 20 and 21, 2020, the Company signed a settlement of the legal dispute with the Brazilian company Esperança Real, which led to the cancellation of all the cases entered in the register, incurring legal expenses for an amount of Euro 522 thousand;
  • ii) on 4/08/2020, on the basis of the settlement reached, the Company paid Esperança Real the sum of Euro 4.150 million;
• e) the lesser use of production plant, together with their maintenance through regular servicing, has led management to consider it reasonable to extend the useful lives, compared to the latest estimates, of the following classes: i) General plant; ii) Industrial machinery and specific plant; iii) Equipment and Moulds, with consequent alteration of the depreciation rates for 2020 for the companies Elica S.p.A. - Elica Group Polska (Poland) - ElicaMex (Mexico);
• with regard to the events subsequent to December 31, 2020, we highlight:
• i) on February 16, 2021, Mr. Mauro Sacchetto resigned from the position of Chief Executive Officer and Director, with effect from March 16, 2021.

• ii) on March 16, 2021, the Board of Directors appointed:

  • by co-optation, with our approval, Giulio Cocci as Director and subsequently Chief Executive Officer;
  • Stefania Santarelli, as Group Chief Financial Officer;
  • Emilio Silvi, with our favourable opinion, as Group Corporate Financial Reporting Manager;

• with regards to the impairment tests carried out according to the criteria and assumptions approved by the Board of Directors of February 12, 2021, we indicate that the tests on goodwill did not result in an impairment, while those on investments resulted in an impairment of Euro 2 million for the Chinese subsidiary Zhejiang Elica Putian Electric Co. Ltd;

• with regard to other intangible assets, we highlight the write-down of intangibles for Euro 0.9 million in Elica S.p.A. and for Euro 1.8 million in the Chinese subsidiary Zhejiang Elica Putian Electric Co. Ltd;
• with regards to inter-company transactions or related party transactions, as adequately outlined in the notes to the financial statements and to which reference should be made in terms of their characteristics and significance, such are appropriate and are in the company's interest;
• no petitions were received pursuant to Article 2408 of the Civil Code;
• on February 13, March 12, April 28 and May 7, 2020, as required by Article 2389, paragraph 3 of the Civil Code, we issued favourable opinions on the remuneration of Executive Directors;
• we verify that the company has complied with the Self-Governance Code promoted by Borsa Italiana S.p.A.; the Directors reported on such in the "Corporate Governance and Ownership Structure Report", approved by the Board of Directors on March 16, 2021;
• we verified the company processes to draw up the remuneration policies of the Executive Directors, the Senior Executives and other key figures, both over the short and long-term, as outlined in the Remuneration Report, drawn up as per Article 123 ter and 84-quater of the Issuers' Regulation;
• during the meeting of March 5, 2020 we evaluated our independence in accordance with point 8.C.1 of the Self-Governance Code of listed Companies;
• we verified during the meeting of March 12, 2020 the correct application of the assessment criteria and procedures adopted by the Board of Directors to assess the independence of its members, as per point 3.C.5 of the Self-Governance Code of listed companies and did not note any irregularities;
• we examined the declarations of the Chief Executive Officer and the Corporate Financial Reporting Manager, pursuant to Article 154-bis of the Consolidated Finance Act;
• we have noted that the company has updated and reorganised by business process the Organisation and Management Model as per Legislative Decree No. 231/2001, which was approved by the Board of Directors on February 12, 2021;

• we held meetings with the Supervisory Board, reviewing the periodic reports prepared and received information on the activities scheduled for 2021;

• we have noted that in accordance with Legislative Decree No. 254/2016 (implementing EU Directive 2014/95), the company has prepared, with regards to 2020, the consolidated non-financial report (NFR), which presents information on governance, the environment, employees, social aspects and on risks of a nonfinancial nature which indicate, again this year, the Group's close focus on sustainability. The non-financial report was approved by the Board of Directors on March 16, 2021; we do not report any observations in this regard.

In relation to the separate financial statements, we confirm that:

• they were prepared in accordance with International Accounting Standards (IAS/IFRS), as presented by the Board of Directors in the notes to the financial statements.

In particular, in the Directors' Report and in the Notes to the financial statements, the Directors have complied with that established by the regulatory provisions concerning disclosure on the risk management system and the internal control system in relation to the financial disclosure process;

• the Notes to the Financial Statements also provide information deemed appropriate to better represent the Company's equity, financial and operating situation;
• the information provided in the Directors' Report is complete and exhaustive, including with regard to subsequent events and the outlook, also considering the situation of uncertainty at the global level relating to the global health emergency caused by the COVID-19 pandemic.

The Audit Firm KPMG S.p.A. today issued:

• the Auditors' Reports on parent company and consolidated financial statements without any exceptions or matters to be noted. Both the reports expressed an opinion on the consistency of the Directors' Report and of certain specific information contained in the corporate governance and ownership structure report with the financial statements, and on their compliance with law;
• the additional report required by Article 11 of Regulation (EC) 537/2014, upon which no significant deficiencies in terms of internal control regarding the financial disclosure process requiring reporting to the heads of "governance" were noted. As an attachment to the additional report, the Independent Audit Firm sent to the Board of Statutory Auditors the statement regarding its independence, as required by Article 6 of Regulation (EC) 537/2014, indicating no situations which may compromise such independence. This report will be forwarded by the Board of Statutory Auditors to the Board of Directors;
• the report as per Legislative Decree 254/2016 and Consob Regulation No. 20267 on the Non-Financial Report of Elica S.p.A. and its subsidiaries regarding the 2020

financial year, approved by the Board of Directors on March 16, 2021, on the basis of the specific appointment conferred.

In the course of the supervisory activity and based on the information obtained, no significant omissions and/or significant matters or irregularities that would require reporting to the Supervisory Authority or mention in the present report were noted.

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Taking account of that outlined above, we do not indicate, to the extent of our remit, reasons which would prevent approval of the financial statements at 31/12/2020, as presented, nor observations regarding the proposal to cover the losses for the year, drawn up by the Board of Directors.

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The Group consolidated financial statements have been reviewed by us and we report no further observations in this regard.

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In concluding this report, we consider it necessary to:

• i) underline this period of particular difficulty for many countries, including Italy, due to the global COVID-19 pandemic and the consequent health emergency;
• ii) recommend the continuance of the close monitoring of the development of the pandemic and its impacts on company and Group activities, in addition to the introduction of all possible measures to offset and reduce the related social, economic and financial impacts.

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Dear Shareholders,

with the Shareholders' Meeting held to approve the financial statements for the financial year ending December 31, 2020, the mandates of the Board of Directors and the Board of Statutory Auditors conclude and we therefore invite you to resolve upon the matter. We thank you for the trust you have placed in us.

Lì, 25/03/2021

THE BOARD OF STATUTORY AUDITORS

FREZZOTTI GIOVANNI	- Chairman
BELLI MASSIMILIANO	- Standing Auditor

NICOLINI MONICA - Standing Auditor