Sabaf

Interim / Quarterly Report • May 11, 2017

INTERIM MANAGEMENT STATEMENT

AT 31 MARCH 2017

SABAF S.p.A. Via dei Carpini 1 – OSPITALETTO (BS), ITALY Share capital: €11,533,450 fully paid in www.sabaf.it

Summary

Group structure and corporate officers	3
Consolidated statement of financial position	4
Consolidated income statement	5
Consolidated statement of comprehensive income	6
Statement of changes in consolidated shareholders' equity	7
Consolidated cash flow statement	8
Consolidated net financial position	9
Explanatory notes	10
Statement of the Financial Reporting Officer	13

Group structure

Parent company

SABAF S.p.A.

Subsidiaries and equity interest owned by the Group

Wholly consolidated companies
Faringosi-Hinges S.r.l.	100%
Sabaf do Brasil Ltda.	100%
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited	100%
Sirteki (Sabaf Turkey)
Sabaf Appliance Components Trading (Kunshan) Co., Ltd.	100%
(in liquidation)
Sabaf Appliance Components (Kunshan) Co., Ltd.	100%
Sabaf Immobiliare s.r.l.	100%
A.R.C. s.r.l.	70%
Unconsolidated companies
Sabaf US Corp.	100%
Handan ARC Burners Co., Ltd.	35%

Board of Directors

Chairman	Giuseppe Saleri
Vice Chairman	Cinzia Saleri
Vice Chairman	Ettore Saleri
Vice Chairman	Roberta Forzanini
Managing Director ad interim	Gianluca Beschi
Director (*)	Renato Camodeca
Director (*)	Giuseppe Cavalli
Director (*)	Fausto Gardoni
Director	Alessandro Potestà
Director (*)	Anna Pendoli
Director (*)	Nicla Picchi
(*) independent directors

Board of Statutory Auditors

Chairman Antonio Passantino Statutory Auditor Luisa Anselmi Statutory Auditor Enrico Broli

Consolidated statement of financial position

(€/000)	31.03.2017	31.12.2016	31.03.2016
ASSETS
NON-CURRENT ASSETS
Tangible assets (property, plant, and
equipment)	72,710	73,064	74,234
Investment property	6,160	6,270	6,601
Intangible assets	9,258	9,284	7,565
Equity investments	306	306	204
Non-current financial assets	240	0	0
Non-current receivables	280	262	558
Deferred tax assets	4,861	4,781	4,841
Total non-current assets	93,815	93,967	94,003
CURRENT ASSETS
Inventories	32,844	31,484	31,722
Trade receivables	42,470	36,842	37,750
Tax receivables	1,815	3,163	2,836
Other current receivables	1,496	1,419	1,620
Current financial assets	68	0	190
Cash and cash equivalents	11,082	12,143	3,530
Total current assets	89,775	85,051	77,648
ASSETS HELD FOR SALE	0	0	0
TOTAL ASSETS	183,590	179,018	171,651
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital	11,533	11,533	11,533
Retained earnings, other reserves	98,144	90,471	99,073
Net profit for the period	3,074	9,009	1,557
Total equity interest of the Parent Company	112,751	111,013	112,163
Minority interests	1,300	1,296	0
Total shareholders' equity	114,051	112,309	112,163
NON-CURRENT LIABILITIES
Loans	17,607	18,892	5,669
Other financial liabilities	1,762	1,762	0
Post-employment benefit and retirement
reserves	2,979	3,086	2,908
Provisions for risks and charges	423	434	347
Deferred tax liabilities Total non-current liabilities	744 23,515	764 24,938	755 9,679
CURRENT LIABILITIES
Loans	16,050	14,612	22,642
Other financial liabilities	203	335	24
Trade payables	21,581	18,977	19,189
Tax payables	1,341	1,190	1,509
Other payables	6,849	6,657	6,445
Total current liabilities	46,024	41,771	49,809
LIABILITIES HELD FOR SALE	0	0	0
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	183,590	179,018	171,651

Sabaf Group – Interim management statement at 31 March 2017 4

Consolidated Income Statement

	Q1 2017		Q1 2016		12M 2016
(€/000)
INCOME STATEMENT COMPONENTS
OPERATING REVENUE AND INCOME
Revenue	37,073	100.0%	30,860	100.0%	130,978	100.0%
Other income	710	1.9%	611	2.0%	2,819	2.2%
Total operating revenue and
income	37,783	101.9%	31,471	102.0%	133,797	102.2%
OPERATING COSTS
Materials	(14,879)	-40.1%	(11,448)	-37.1%	(47,346)	-36.1%
Change in inventories	1,481	4.0%	622	2.0%	(754)	-0.6%
Services	(7,937)	-21.4%	(6,948)	-22.5%	(27,983)	-21.4%
Payroll costs	(9,007)	-24.3%	(8,117)	-26.3%	(32,112)	-24.5%
Other operating costs	(269)	-0.7%	(217)	-0.7%	(1,078)	-0.8%
Costs for capitalised in-house work	388	1.0%	220	0.7%	841	0.6%
Total operating costs	(30,223)	-81.5%	(25,888)	-83.9%	(108,432)	-82.8%
OPERATING PROFIT BEFORE DEPRECIATION & AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITE DOWNS/WRITE-BACKS OF NON CURRENT ASSETS (EBITDA)	7,560	20.4%	5,583	18.1%	25,365	19.4%
Depreciation and amortisation	(3,212)	-8.7%	(3,133)	-10.2%	(12,853)	-9.8%
Capital gains/(losses) on disposals of
non-current assets Write-downs/write-backs of non	(9)	0.0%	10	0.0%	18	0.0%
current assets	0	0.0%	0	0.0%	0	0.0%
EBIT	4,339	11.7%	2,460	8.0%	12,530	9.6%
Financial income	88	0.2%	22	0.1%	101	0.1%
Financial expenses	(140)	-0.4%	(135)	-0.4%	(620)	-0.5%
Exchange rate gains and losses Profits and losses from equity	137	0.4%	(3)	0.0%	435	0.3%
investments	0	0.0%	0	0.0%	0	0.0%
PROFIT BEFORE TAXES	4,424	11.9%	2,344	7.6%	12,446	9.5%
Income tax	(1,346)	-3.6%	(787)	-2.6%	(3,350)	-2.6%
Minority interests	(4)	0.0%	0	0.0%	(87)	-0.1%
NET PROFIT FOR THE PERIOD	3,074	8.3%	1,557	5.0%	9,009	6.9%

Consolidated statement of comprehensive income

(€/000)	Q1 2017	Q1 2016	12M 2016
NET PROFIT FOR THE PERIOD	3,074	1,557	9,009
Total profits/losses that will not be subsequently reclassified under profit (loss) for the year
Actuarial post-employment benefit reserve evaluation	0	0	(41)
Tax effect	0	0	10
	0	0	(31)
Total profits/losses that will be subsequently reclassified under profit (loss) for the year Forex differences due to translation of financial statements in foreign currencies	(531)	153	(340)
Total other profits/(losses) net of taxes for the year	(531)	153	(371)
TOTAL PROFIT	2,543	1,710	8,638

(€/000)	Share capital	Share premiu m reserve	Legal reserv e	Treasury shares	Translati on reserve	Update d post emplo yment benefit reserve	Other reserves	Profit for the year	Total Group shareholde rs' equity	Minority interests	Total sharehol ders' equity
Balance at 31 December 2015	11,533	10,002	2,307	(723)	(7,048)	(581)	86,552	8,998	111,040	0	111,040
Allocation of 2015 profit - dividends
paid out - carried								(5,467)	(5,467)		(5,467)
forward							3,531	(3,531)	0		0
Other movements
Purchase of treasury shares				(1,676)					(1,676)		(1,676)
ARC acquisition and consolidation										1,210	1,210
ARC option							(1,522)		(1,522)		(1,522)
Total profit at 31 December 2016					(340)	(31)		9,009	8,638	86	8,724
Balance at 31
December 2016	11,533	10,002	2,307	(2,399)	(7,388)	(612)	88,561	9,009	111,013	1,296	112,309
Retained earnings FY 2016							9,009	(9,009)	0		0
Purchase of treasury shares				(805)					(805)		(805)
Total profit at 31 March 2017					(531)			3,074	2,543	4	2,547
Balance at 31 March 2017	11,533	10,002	2,307	(3,204)	(7,919)	(612)	97,570	3,074	112,751	1,300	114,051

Statement of changes in consolidated shareholders' equity

Consolidated statement of cash flows

(€/000)	Q1 2017	Q1 2016	12M 2016
Cash and cash equivalents at beginning of period	12,143	3,991	3,991
Net profit/(loss) for the period	3,074	1,557	9,009
Adjustments for:
- Depreciation for the period	3,212	3,133	12,853
- Realised gains/losses	9	(10)	(18)
- Financial income and expenses	52	113	519
- Income tax	1,346	787	3,350
Payment of post-employment benefit reserve	(116)	(6)	(184)
Change in risk provisions	(11)	(48)	39
Change in trade receivables	(5,628)	2,675	5,107
Change in inventories	(1,360)	(713)	416
Change in trade payables	2,604	(261)	(1,286)
Change in net working capital	(4,384)	1,701	4,237
Change in other receivables and payables,
deferred tax	329	(1,049)	1,363
Payment of taxes	(175)	(167)	(4,762)
Payment of financial expenses	(131)	(126)	(576)
Collection of financial income	88	22	101
Cash flow from operations	3,293	5,907	25,931
Net investments	(2,929)	(4,165)	(11,762)
Repayment of loans	(3,350)	(6,324)	(33,141)
New loans	3,371	4,760	37,321
Change in financial assets	(308)	(121)	69
Purchase of treasury shares	(805)	(587)	(1,676)
Payment of dividends	0	0	(5,467)
Cash flow from financing activities	(1,092)	(2,272)	(2,894)
A.R.C. acquisition	0	0	(2,614)
Foreign exchange differences	(333)	69	(509)
Net financial flows for the period	(1,061)	(461)	8,152
Cash and cash equivalents at end of period	11,082	3,530	12,143
Current financial debt	16,253	22,666	14,947
Non-current financial debt	19,369	5,669	20,654
Net financial debt	24,540	24,805	23,458

Consolidated net financial position

	(€/000)	31.03/2017	31/12/2016	31.03/2016
A.	Cash	11	12	14
B.	Positive balances of unrestricted bank accounts	7,931	8,376	2,887
C.	Other cash equivalents	3,140	3,755	629
D.	Liquidity (A+B+C)	11,082	12,143	3,530
E.	Current bank overdrafts	9,657	7,811	18,847
F.	Current portion of non-current debt	6,393	6,801	3,795
G.	Other current financial payables	203	335	24
H.	Current financial debt (E+F+G)	16,253	14,947	22,666
I.	Net current financial debt (H-D)	5,171	2,804	19,136
J.	Non-current bank payables	16,033	17,281	3,948
K.	Other non-current financial payables	3,336	3,373	1,721
L.	Non-current financial debt (J+K)	19,369	20,654	5,669
M.	Net financial debt (L+I)	24,540	23,458	24,805

Explanatory notes

Accounting standards and area of consolidation

The Interim Management Statement of the Sabaf Group at 31 March 2017 is prepared in compliance with the Stock Exchange (Borsa) Regulation which establishes, among the requirements for maintaining the listing on the STAR segment of the MTA, the publication of interim management reports. This report, drafted in continuity with the past, does not contain the information required in accordance with IAS 34.

Accounting standards and policies are the same as those adopted for preparation of the consolidated financial statements at 31 December 2016, which should be consulted for reference. All the amounts contained in the statements included in this Interim Management Statement are expressed in thousands of euro.

We also draw attention to the following points:

• The Interim Management Statement was prepared according to the "separation-of-periods principle" whereby the quarter in question is treated as a separate financial period. This means that the quarterly income statement reflects the ordinary and non-recurring items pertaining to the period on an accruals basis;
• the financial statements used in the consolidation process are those prepared by the subsidiaries for the period ended 31 March 2017, adjusted to comply with Group accounting policies, where necessary;
• the parent company, Sabaf S.p.A., and the subsidiaries Faringosi-Hinges S.r.l., Sabaf Immobiliare S.r.l., A.R.C. S.r.l., Sabaf do Brasil Ltda, Sabaf Turkey, Sabaf Appliance Components Trading (Kunshan) Co. Ltd (in liquidation) and Sabaf Appliance Components (Kunshan) Co. Ltd have been consolidated on a 100% line-by-line basis;
• the companies Sabaf US Corp. and Handan ARC Burners Co., Ltd. were not consolidated as they are irrelevant for the purposes of the consolidation;
• A.R.C. s.r.l., a company active in the production of burners for professional cooking, of which the Group acquired control in late June 2016, was consolidated commencing from the date of acquiring control. The 31 March 2016 data, shown for comparative purposes in this interim management report, thus excludes A.R.C.;
• The evaluation of A.R.C. in accordance with IFRS 3 revised, namely recognising the fair value of assets, liabilities and contingent liabilities at the acquisition date, is to be considered temporary for the moment, in that, in accordance with IFRS 3 revised, the evaluation becomes final within 12 months from the acquisition date.
• the area of consolidation has not undergone changes compared to 31 December 2016.

The Interim Management Statement at 31 March 2017 has not been independently audited.

Sales breakdown by geographical area (Euro x 1000)
----------------------------------------------------

	Q1 2017	%	Q1 2016	%	% change	12M 2016	%
Italy	11,016	29.7%	10,843	35.1%	+1.6%	36,365	27.8%
Western Europe	3,104	8.4%	1,686	5.5%	+84.1%	8,553	6.5%
Eastern Europe	9,559	25.8%	7,784	25.2%	+22.8%	34,123	26.1%
Middle East and Africa	3,260	8.8%	2,138	6.9%	+52.5%	11,698	8.9%
Asia and Oceania	1,583	4.3%	1,437	4.7%	+10.2%	8,088	6.2%
South America	5,456	14.7%	4,486	14.5%	+21.6%	20,847	15.9%
North America and Mexico	3,095	8.3%	2,486	8.1%	+24.5%	11,304	8.6%
Total	37,073	100%	30,860	100%	+20.1%	130,978	100%

Sales breakdown by geographical area (Euro x 1000)

	Q1 2017	%	Q1 2016	%	% change	12M 2016	%
Brass valves	1,646	4.5%	2,031	6.6%	-19.0%	9,007	6.9%
Light alloy valves	9,648	26.0%	8,153	26.4%	+18.3%	32,393	24.7%
Thermostats	2,110	5.7%	1,940	6.3%	+8.8%	7,699	5.9%
Standard burners	10,276	27.7%	8,791	28.5%	+16.9%	37,338	28.5%
Special burners	6,494	17.5%	4,777	15.5%	+35.9%	21,215	16.2%
Accessories	3,749	10.1%	3,136	10.1%	+19.5%	12,613	9.6%
Total gas parts	33,923	91.5%	28,828	93.4%	+17.7%	120,265	91.8%
Professional burners	1,115	3.0%	0	-	n/a	2,289	1.8%
Hinges	2,035	5.5%	2,032	6.6%	+0.1%	8,424	6.4%
Total	37,073	100%	30,860	100%	+20.1%	130,978	100%

Management Statement

The Sabaf Group recorded sales revenue of €37.1 million in the first quarter of 2017, up 20.1% from €30.9 million in the same quarter of 2016. Taking into consideration the same area of consolidation, sales increased by 16.5%.

All markets contributed to this growth: the areas characterised by a negative economic context during 2016, such as the Middle East and North Africa, showed a gradual recovery, while the North American and South American markets confirmed the developments already noted in previous quarters. The product family that recorded the biggest improvement was that of special burners, up by 35.9% compared to the first quarter of the previous financial year.

The increase in sales volumes, together with the constant improvement in production efficiency, determined a significant increase of profitability: the EBITDA of the period was €7.6 million, equal to 20.4% of sales, up by 35.4% compared to the €5.6 million (18.1% of sales) of the first quarter of 2016. EBIT for the quarter was €4.3 million, or 11.7% of sales, up by 76.4% compared to €2.5 million in the same period of 2016 (8% of sales). Net profit for the period was €3.1 million, up 97.4% on the figure of €1.6 million for the first quarter of 2016.

Net investments for the quarter came to € 2.9 million (€4.2 million in Q1 2016 and €11.8 million for the whole of 2016). At 31 March 2017 net indebtedness was €24.5 million, as compared with €23.5 million at 31 December 2016.

Significant non-recurring, atypical and/or unusual transactions

During the first quarter of 2017, the Group did not engage in significant transactions qualifying as non-recurring, atypical and/or unusual, as envisaged by the CONSOB communication of 28 July 2006.

Outlook

The sales performance has remained very positive also in the second quarter of the year. Even though visibility on the second half-year is currently reduced, the Group presently estimates that it will be able to achieve in the whole of 2017 sales of approximately €145 million and operating margins improved on 2016 (the previous forecast indicated sales for approximately €140 million). If the economic situation were to change significantly, actual figures might diverge from forecasts.

Statement of the Financial Reporting Officer pursuant to Article 154-bis (2) TUF

The Financial Reporting Officer delegated to prepare the corporate accounting documents Mr. Gianluca Beschi certifies, in accordance with paragraph 2 article 154-bis of Italian Legislative Decree no. 58/1998 (Consolidated Law on Finance), that the accounting information contained in the Interim Management Statement at 31 March 2017 of Sabaf S.p.A. corresponds to the documentary records, books and accounting ledgers.

Ospitaletto (BS), 11 May 2017

Financial Reporting Officer Gianluca Beschi