Sabaf

Investor Presentation • Sep 30, 2019

INVESTOR PRESENTATION

Ospitaletto, 30 September 2019

Table of contents

• I. COMPANY PROFILE
• II. C.M.I. ACQUISITION
• III. 6M 2019 PERFORMANCE
• IV. BUSINESS PLAN 2018 2022

COMPANY PROFILE

Sabaf Group – Timeline and history

Sabaf Group – Divisions

Product range - Gas

Product range - Hinges

Product range – Electronic components

Industrial Footprint

Total Group employees : 1,071

Market

Global leader

• in the segment of components for domestic gas cooking appliances, with over 400 customers in 56 different countries. A strong leadership in Europe (market share above 40%), estimated market share worldwide of about 10%
• in the segment of hinges with estimated market share worldwide of about 35%

Weight of top 10 customers on total Group sales is 46% (49% in 2017)

Each top 10 customer represents less than 8% of total Group sales

Long-term agreements and strong relationships with all the main players in the household appliances business, based on mutual trust, technical cooperation, co-engineering and tailor-made products

Product & technology

Continuous product innovation: about 90 active patents

Knowledge:

• ➢ Mechanic: forefront process technology - internal development of special machinery, high performance molds for robotic die-casting, high speed and high precision tools not available on the market
• ➢ Electronic: strong skills in new product development

Cost and quality leadership: highly automated plants and low incidence of direct labor, € 60 mn investments (8.6% of sales) in the past 5 years, to reinforce competitiveness and to ensure the highest quality standards

Strong operational leverage: great flexibility in production volumes growth, ready to satisfy customers requests

Intellectual capital: highly specialized and qualified staff (40+ R&D engineers)

Stock price and main shareholders

Market cap: € 151 mn at 26 September 2019

% OF SHARE CAPITAL

THE ACQUISITION OF CMI

CMI - Rational for the acquisition

The Sabaf Group is already active in the sector of hinges for household appliances through Faringosi Hinges. The acquisition of C.M.I. allows the Group to achieve a leadership position on a global scale, proposing also in this area as a reference partner for all manufacturers of household appliances.

Sabaf combines its consolidated leadership in gas burners and valves with the new leadership in the hinges sector.

The combination of mechanical and electronic know-how, the result of the recent acquisition of Okida Elektronik, allows Sabaf to offer itself as a creator and developer of innovative solutions in the flourishing world of smart appliances.

CMI - Company overview

The C.M.I. Group is one of the main players in the design, production and sale of hinges for household appliances and is active with production units in Italy (Crespellano, BO) and Poland. C.M.I. also controls C.G.D. s.r.l.

CMI Italy: develops and produces oven and dishwasher hinges

CGD: is specialised in the production of moulds for steel and sheet metal pressed components

CMI Polska: assembles diswasher hinges

C.M.I. was previously controlled by the Chinese group Guandong Xingye Investment, which held 91.5% of the share capital; the remaining 8.5% was held by Eros Gherardi - the company's founder - and by other private shareholders.

CMI - Timeline and history

CMI - Product portfolio

The hinges for ovens and dishwashers represent the largest part of the CMI business

CMI supplies some of the main international manufacturers of household appliances

Innovative solutions are developed jointly with customers and are based on proprietary patents

A total of 41 patents for ovens, dishwashers and refrigerators are registered in different countries

DISHWASHER HINGES

• They represent around 60% of CMI's business
• The sector in which CMI has reached the highest level of innovation: the only manufacturer of self-balancing hinges (patented technology)
• Variable fulcrum hinges
• Fixed fulcrum hinges with 2 springs
• Hinges with variable lateral fulcrum

OVEN HINGES

• They represent around 25% of CMI's business
• Fixed fulcrum hinges
• Variable fulcrum hinges
• Sliding hinges

CMI - Sales and profitability

Sales by market

CMI - Acquisition valuation

Acquisition of 68.5% share in CMI: • 60% from Guandong Xingye Investment (Chinese industrial group working in the same sector) • 8.5% from Mr. Eros Gherardi (the founder) and other private investors Closing: 31st July 2019 Valuation: approx 6.3 x EBITDA 2018 100% Equity Value: Eur 19.55 mn Net financial debt at 31 Dec 2019: Eur 5.5 mn Call & Put options on the residual share of 31.5% owned by Guandong Xingye Investment The acquisition has been wholly financed through a bank loan expiring in 2026 Mr. Paolo Santini remains at the head of CMI as CEO and General Manager

6M 2019 PERFORMANCE SABAF GROUP

Performance data

Income statement

€ x 000	H1 2019 H1 2019		H1 2018	H1 2018	Δ % 19 - 18	Δ % 19 - 18	FY 2018		FY 2018 FY 2017		Δ % FY 2017 18 - 17
SALES	74,826 74,826	100.0%	100.0% 76,013 76,013	100.0%	100.0% -1.6%	-1.6%	150,642	150,642 100.0%	150,223	100.0% 100.0%	150,223 +0.3%
Materials	(27,878) (27,878)	(37.3%)	(37.3%) (34,556) (34,556)	(45.5%)	(45.5%)		(62,447)	(62,447)	(41.5%) (59,794)	(41.5%) (39.8%)	(59,794)
Payroll	(17,659) (17,659)	(23.6%)	(23.6%) (18,273) (18,273)	(24.0%)	(24.0%)		(34,840)	(34,840)	(23.1%) (35,328)	(23.1%) (23.5%)	(35,328)
Change in stock	(3,687) (3,687)	(4.9%) (4.9%)	6,472	6,472 8.5%	8.5%		4,603	3.1% 4,603	2,380	3.1% 1.6%	2,380
Other operating costs/income	(12,708) (12,708)	(17.0%)	(17.0%) (14,380) (14,380)	(18.9%)	(18.9%)		(27,999)	(27,999)	(18.6%) (26,526)	(18.6%) (17.7%)	(26,526)
EBITDA	12,894 12,894	17.2%	17.2% 15,276 15,276	20.1%	20.1% -15.6%	-15.6%	29,959	29,959	19.9% 30,955	19.9% 20.6%	30,955 -3.2%
Depreciation	(6,689) (6,689)	(8.9%) (8.9%)	(6,303)	(6,303) (8.3%)	(8.3%)		(12,728)	(12,728)	(8.4%) (12,826)	(8.4%) (8.5%)	(12,826)
Gains/losses on fixed assets	48 48	0.1% 0.1%	11	11 0.0%	0.0%		28	0.0% 28	(12)	0.0% (0.0%)	(12)
Impairment of fixed assets	-			-			(850)	-0.6%
EBIT	6,253 6,253	8.4% 8.4%	8,984 8,984	11.8%	11.8% -30.4%	-30.4%	16,409	16,409	10.9% 18,117	10.9% 12.1%	18,117 -9.4%
Net financial expense	(554) (554)	(0.7%) (0.7%)	(315)	(315) (0.4%)	(0.4%)		(833)	(0.6%) (833)	(590)	(0.6%) (0.4%)	(590)
Foreign exchange gains/losses	(1,041) (1,041)	(1.4%) (1.4%)	1,072	1,072 1.4%	1.4%		5,384	3.6% 5,384	277	3.6% 0.2%	277
EBT	4,658 4,658	6.2% 6.2%	- 9,741 9,741	13.0%	-52.2% 0.0%	-52.2%	20,960	20,960	13.9% 17,804	13.9% 11.9%	17,804 +17.7%
Income taxes	(1,024) (1,024)	(1.4%) (1.4%)	(2,412)	(2,412) (3.2%)	0.0%		(5,162)	(3.4%) (5,162)	(2,888)	(3.4%) (1.9%)	(2,888)
Minorities	(121) (121)	(0.2%) (0.2%)	(103)	(103) (0.1%)	(3.2%)		(184)	(0.1%) (184)	(81)	(0.1%) (0.1%)	(81)
NET INCOME	3,513 3,513	4.7% 4.7%	7,226 7,226	9.7%	(0.1%) -51.4% 0.0%	-51.4%	15,614	15,614	10.4% 14,835	9.9% 10.4%	14,835 +5.3%

Δ % 18 - 17

+0.3%

-3.2%

-9.4%

+17.7%

+5.3%

Performance data Balance Sheet

x 000 €	H1 2019	H1 2018	FY 2018	FY 2017
Fixed assets	116,061	92,451	120,950	93,802
Inventories	35 141 ,	38 293 ,	39 179 ,	32 929 ,
Trade receivables	46 712 ,	49 084 ,	46 932 ,	42 263 ,
receivables Tax	2 958 ,	2 792 ,	3 043 ,	3 065 ,
Other receivables current	2 114 ,	1 572 ,	1 534 ,	1 057 ,
Trade payables	(21 450) ,	(25 083) ,	(21 215) ,	(19 975) ,
payables Tax	(1 703) ,	(2 353) ,	(3 566) ,	(1 095) ,
Other payables	(8 289) ,	(7 649) ,	(7 600) ,	(7 491) ,
Net working capital	55,483	56,656	58,307	50,753
Capital Employed	171,544	149,107	179,257	144,555
Equity	115,064	110,398	119,346	115,055
Provisions for risks and severance indemnity	6,162	3,949	6,387	4,034
Net debt	50,318	34,760	53,524	25,466
Sources of finance	171,544	149,107	179,257	144,555

Performance data Cash flow statement

€ x 000	H1 2019	H1 2018	FY 2018	FY 2017
Cash at the beginning of the period	13,426	11,533	11,533	12,143
Net profit Depreciation Other income statement adjustments	3,634 6,689 1,949	7,329 6,303 2,633	15,798 12,728 7,237	14,916 12,826 3,252
Change in net working capital - Change in inventories - Change in receivables - Change in payables	4,038 220 235 4,493	(5,364) (6,821) 5,108 (7,077)	(4,374) (3,003) 556 (6,821)	(1,445) (5,421) 998 (5,868)
Other changes in operating items	(2,288)	(1,472)	(3,128)	(2,347)
Operating cash flow	14,477	7,716	25,814	22,779
Investments, net of disposals	(4,118)	(6,632)	(11,467)	(13,944)
Free Cash Flow	10 359 ,	1 084 ,	14 347 ,	8 835 ,
Cash flow from financial activity Own shares buyback Dividends OKIDA acquisition Forex	(6,745) - (6,060) (317) 298	5,023 (2,086) (6,071) (2,279)	30,009 (2,359) (6,071) (24,077) (9,956)	978 (2,110) (5,384) (2,929)
Net financial flow	(2,465)	(4,329)	1,893	(610)
Cash at the end of the period	10,961	7,204	13,426	11,533
Current financial debt Non-current financial debt Net financial debt	22,523 38,756 50,318	17,631 24,333 34,760	22,606 44,344 53,524	17,363 19,703 25,533

Performance data Sales by market and product

Sales by market	H1 2019	H1 2018
Italy	16,733	18,308	6% -8
Western Europe	6,500	6,119	2% +6
Eastern Europe (incl. Turkey)	24,286	23,632	+2 8%
Middle East & Africa	3,196	5,188	4% -38
Asia (excl. ME)	4,438	2,994	+48 2%
Latin America	12,103	12,400	4% -2
North America	7,570	7,372	7% +2
Total	74,826	76,013	-1 6%

Sales by product	H1 2019	H1 2018
Valves and thermostats	21,860	26,311	9% -16
Burners	32,757	33,785	0% -3
Accessories	6,579	7,878	-16 5%
Professional burners	3,134	2,977	3% +5
Hinges	5,730	5,062	2% +13
Electronic components *	4,766	0
Total	74,826	76,013	6% -1

* Electronic components have been consolidated from September 2018

€ x 000

Outlook 2019

The trend in demand during the third quarter remains dissimilar in the various markets in which the Group operates.

Including the contribution from the recent acquisition of CMI, which will be consolidated as from August, the Group expects to achieve sales of approximately €162 million and EBITDA of between €28 and €29 million for the whole of 2019. Net of CMI, sales are expected to be around €150 million.

These forecasts assume a macroeconomic scenario not affected by unpredictable events. If the economic situation were to change significantly, actual figures might diverge from the forecasts.

Efforts in place to reduce operating costs

• Actions on indirect costs
• Actions on logistics costs
• Overtime reduction
• Lean methods to improve flexibility
• Improved production efficiency and reduction of set-up costs

BUSINESS PLAN 2018 - 2022

Business plan 2018 - 2022 Key points 1/2

• ORGANIC: CAGR between 4% and 6% (€ 180 200 mn sales by 2022)
• BY ACQUISITIONS (€ 70 100 mn sales by 2022)
• € 200 - 230 mn by 2020

400

Estimated sales growth between 65% and 100% (2022 compared to 2017)

EBITDA margin • around 20% of sales

Business plan 2018 - 2022 Key points 2/2

• Organic growth: € 80 - 90 mn capex in 5 years (about 8% of sales per year)
• Growth by acquisition: up to € 140 mn investment in 5 years (of which € 50 mn already invested in 2018 and 2019)

• Estimated Dividends € 30 – 40 mn in 5 years (between € 6 and 8 mn per year)

  • Lower payout than in previous years, to support future growth
• Financial debt: up to € 120 mn by 2022

Organic growth Market development - Europe & Turkey

EUROPE (Turkey excluded)

2018-2022 GROWTH FACTORS

• ✓ Reinforce the leadership in this market, in order to strengthen the presence and commercial relationship
  • Multi-year agreements recently undersigned with some of the major European market players. These agreements grant significant growth and allow high mid-term visibility
  • Expected market share increase

TURKEY

2018-2022 GROWTH FACTORS

• ✓ Increase of local production, enhancing previous years success. Wider range of products manufactured locally
• ✓ Expected volume increase from current customers
• ✓ New contracts with new customers for valves and hinges
• ✓ Okida estimated growth (CAGR) around 20%

Organic growth Market development - Brazil

BRAZIL

2018-2022 GROWTH FACTORS

• ✓ Enter in the mid range and free-standing cookers markets:
  • High volumes / low cost burners project
  • Special burners project
• ✓ Enhancement of commercial relationships with major international Groups, also through co-engineering and development of customized products
• ✓ Market growth within present top customers

Organic growth Market development - North America

NORTH AMERICA

2018-2022 GROWTH FACTORS

✓ Expected annual double-digit:

• Long-term agreements and special projects with present customers, which are the major market players
• Sub-assemblies supply and customized components
• Top range professional products for high-end new customers
• New projects will allow to gain market share vs competitors
• ✓ Planning to operate through a production plant in North America

RISK FACTORS

• ✓ Exchange rate
• ✓ Import duties and other US protectionist policies

Organic growth Market development - India 1/2

INDIA

2018-2022 GROWTH FACTORS

• ✓ India is considered a high potential market, in which Sabaf Group is just at the beginning of its development. At present, only 30% of Indian people use gas as a cooking source, the remaining part still using biomass sources
• ✓ Expected annual double-digit growth
• ✓ The Group aims to increase the customer base, through:
  • Agreements with domestic market leaders
  • Development of specific burners and valves for Indian market, in order to fit local cooking needs (e.g. Series 4 burners)
  • Increase demand for safety and quality
• ✓ Sabaf will operate through a PRODUCTION PLANT

Organic growth Market development - India 2/2

Potential turnover 2022

Present volumes: 1.3 mn units (gas components)

Production of Gas Components Start of production 2021
INVESTMENTS
12,000 Sqm
6,000 Sqm € 4.8 mn

Organic growth Market development - China

CHINA

2018-2022 GROWTH FACTORS

• ✓ Supply agreements with global market leaders
• ✓ Development of new commercial relationships with big Chinese manufacturers
• ✓ Beginning of new projects with high-potential «newcomers»
• ✓ Evaluation of local partnerships for JV
• ✓ Arc Handan JV deployment for wok burners

Organic growth Products

PRODUCTS GROWTH FACTORS

• ✓ Annual investments in R&D: 3% of sales (in line with historical trend)
• ✓ Greater care to specific markets needs and customization in order to increase client loyalty
• ✓ Focus on:
  • Special burners: high performances and combustion efficiency
  • "Easy to clean" burners
  • "Precise flame setting" valves
  • "Advanced assisted cooking" solutions
  • Professional burners: also for use in high-range domestic cookers
• ✓ New concepts and new products, in an advanced development stage, are still confidential and not disclosed

35

Organic growth Process and industrial footprint

PROCESS IMPROVEMENTS

• ✓ Forefront process technology, based on automation and robotization of all production phases
• ✓ Increase of machining and assembling productivity through high-speed machinery
• ✓ Higher efficiency through scraps reduction
• ✓ Further interconnection of production with SAP management system (Industry 4.0)
• ✓ Lean manufacturing and strong reduction of working capital
• ✓ Increase of factories flexibility (lower dependence on production volumes)

INDUSTRIAL FOOTPRINT

• ✓ Increase of Turkey local production
• ✓ Planning to operate through a production plant in North America
• ✓ Set up a production plant in India

Organic Growth by New Projects In-Progress (additional sales)

	Total Projects	Main Projects	Estimated additional annual sales	Period	Markets
Burners and valves	31	6	15 - 18 mn €	2019 - 2021	North America Europe South America Far East
Electronic components	48	30	4 - 6 mn €	2019 - 2021	Europe and Middle East South America (new market) North America (new market)
Hinges	19	9	3 - 4 mn €	2019 - 2021	Europe
Total	98	45	22 - 28 mn €

Growth by acquisitions Transactions completed

One year after the acquisition, we confirm the significant growth potential of Okida

Tangible products and commercial synergies with Sabaf's customers, already in progress and better than expected

More than 30 main projects in pipeline:

• Oven and Cooktop control
• Paper dispenser and hand driers
• Cooker hoods control
• Hinges electronic motor control
• Refrigerator and freezer control

Continuous growth by acquisitions

INVESTMENT SECTORS

Aimed to a greater product diversification and higher wordwide presence, in order to allow the Group to entry in different markets, in addition to the traditional sector of gas cooking

DISCLAIMER

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

The Company's business is in the domestic appliance industry, with special reference to the gas cooking sector, and its outlook is predominantly based on its interpretation of what it considers to be the key economic factors affecting this business. Forwardlooking statements with regard to the Group's business involve a number of important factors that are subject to change, including: the many interrelated factors that affect consumer confidence and worldwide demand for durable goods; general economic conditions in the Group's markets; actions of competitors; commodity prices; interest rates and currency exchange rates; political and civil unrest; and other risks and uncertainties.

Pursuant to Article 154/2, paragraph 2 of the Italian Consolidated Finance Act (Testo Unico della Finanza), the company's Financial Reporting Officer Gianluca Beschi declares that the financial disclosure contained in this financial presentation corresponds to the company's records, books and accounting entries.

For further information, please contact

Gianluca Beschi - +39.030.6843236 gianluca.beschi@sabaf.it