Sabaf

Annual / Quarterly Financial Statement • Feb 11, 2016

INTERIM MANAGEMENT STATEMENT

AT 31 DECEMBER 2015

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

Contents

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 statement of cash flows	8
Consolidated net financial position	9
Explanatory notes	10
Statement of the Financial Reporting Officer	14

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%
Unconsolidated companies
Sabaf US Corp.	100%

Board of Directors

Chairman	Giuseppe Saleri
Vice Chairman	Cinzia Saleri
Vice Chairman	Ettore Saleri
Vice Chairman	Roberta Forzanini
Chief Executive Officer	Alberto Bartoli
Director	Gianluca Beschi
Director (*)	Renato Camodeca
Director (*)	Giuseppe Cavalli
Director (*)	Fausto Gardoni
Director (*)	Anna Pendoli
Director (*)	Nicla Picchi
(*) independent directors

Board of Statutory Auditors

Chairman	Antonio Passantino
Standing Statutory Auditor	Luisa Anselmi
Standing Statutory Auditor	Enrico Broli

Consolidated statement of financial position

	31.12.2015	30.09.2015	31.12.2014
(€'000)
ASSETS
NON-CURRENT ASSETS
Tangible assets (property, plant, and
equipment)	73,037	73,320	74,483
Real estate investment	6,712	6,822	7,228
Intangible assets	7,525	7,524	7,359
Investments	204	204	974
Non-current receivables	432	239	529
Deferred tax assets	4,887	5,409	5,579
Total non-current assets	92,797	93,518	96,152
CURRENT ASSETS
Inventories	31,009	31,911	30,774
Trade receivables	40,425	38,530	40,521
Tax receivables	2,489	2,438	2,390
Other current receivables	1,447	1,576	1,095
Current financial assets	69	0	0
Cash and cash equivalents	3,991	5,686	2,958
Total current assets	79,430	80,141	77,738
ASSETS HELD FOR SALE	0	0	0
TOTAL ASSETS	172,227	173,659	173,890
SHAREHOLDERS' EQUITY AND
LIABILITIES
SHAREHOLDERS' EQUITY
Share capital	11,533	11,533	11,533
Retained earnings, other reserves	90,509	89,329	90,867
Net profit for the period	8,998	7,747	8,338
Total equity interest of the Parent Company	111,040	108,609	110,738
Minority interests	0	0	0
Total shareholders' equity	111,040	108,609	110,738
NON-CURRENT LIABILITIES
Loans	6,388	7,575	10,173
Post-employment benefit and retirement
reserves	2,914	2,968	3,028
Reserves for risks and contingencies	395	510	605
Deferred tax	772	740	692
Total non-current liabilities	10,469	11,793	14,498
CURRENT LIABILITIES
Loans	23,480	23,750	19,613
Other financial liabilities	31	7	105
Trade payables	19,450	19,564	19,328
Tax payables	1,219	2,294	2,453
Other liabilities	6,538	7,642	7,155
Total current liabilities	50,718	53,257	48,654
LIABILITIES HELD FOR SALE	0	0	0
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	172,227	173,659	173,890

Sabaf Group – Interim management statement at 31 December 2015 4

Consolidated income statement

	Q4 2015		Q4 2014		12M 2015		12M 2014
(€'000)
CONTINUING OPERATIONS
OPERATING REVENUE AND INCOME
Revenues	33,434	100.0%	34,371	100.0%	138,003	100.0%	136,337	100.0%
Other income	906	2.7%	895	2.6%	3,758	2.7%	3,748	2.7%
Total operating revenue and
income	34,340	102.7%	35,266	102.6%	141,761	102.7%	140,085	102.7%
OPERATING COSTS
Materials	(13,057)	-39.1%	(11,778)	-34.3%	(54,366)	-39.4%	(54,472)	-40.0%
Change in inventories	(1,057)	-3.2%	(2,483)	-7.2%	1,025	0.7%	2,447	1.8%
Services	(6,871)	-20.6%	(7,244)	-21.1%	(29,759)	-21.6%	(29,875)	-21.9%
Payroll costs	(7,911)	-23.7%	(7,765)	-22.6%	(32,526)	-23.6%	(32,180)	-23.6%
Other operating costs	(77)	-0.2%	(180)	-0.5%	(1,193)	-0.9%	(1,042)	-0.8%
Costs for capitalised in-house work	292	0.9%	243	0.7%	1,230	0.9%	989	0.7%
Total operating costs	(28,681)	-85.8%	(29,207)	-85.0%	(115,589)		-83.8% (114,133)	-83.7%
DEPRECIATION & AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITE DOWNS/WRITE-BACKS OF NON CURRENT ASSETS (EBITDA)	5,659	16.9%	6,059	17.6%	26,172	19.0%	25,952	19.0%
Depreciation & amortisation	(3,124)	-9.3%	(3,001)	-8.7%	(12,185)	-8.8%	(12,292)	-9.0%
Capital gains/(losses) on disposals of non-current assets	45	0.1%	1	0.0%	104	0.1%	63	0.0%
Write-downs/write-backs of non current assets	0	0.0%	(548)	-1.6%	0	0.0%	(548)	-0.4%
OPERATING PROFIT (EBIT)	2,580	7.7%	2,511	7.3%	14,091	10.2%	13,175	9.7%
Financial income	23	0.1%	12	0.0%	67	0.0%	61	0.0%
Financial expense	(134)	-0.4%	(130)	-0.4%	(596)	-0.4%	(592)	-0.4%
Exchange rate gains and losses Profits and losses from equity	(489)	-1.5%	(11)	0.0%	(89)	-0.1%	119	0.1%
investments	0	0.0%	(219)	-0.6%	0	0.0%	(606)	-0.4%
PROFIT BEFORE TAXES	1,980	5.9%	2,163	6.3%	13,473	9.8%	12,157	8.9%
Income tax	(729)	-2.2%	(85)	-0.2%	(4,475)	-3.2%	(3,819)	-2.8%
Minority interests	0	0.0%	0	0.0%	0	0.0%	0	0.0%
NET PROFIT FOR THE PERIOD	1,251	3.7%	2,078	6.0%	8,998	6.5%	8,338	6.1%

Consolidated statement of comprehensive income

(€'000)	Q4 2015	Q4 2014	12M 2015	12M 2014
NET PROFIT FOR THE PERIOD	1,251	2,078	8,998	8,338
Overall earnings/losses that will not be subsequently restated under profit (loss) for the period:
Actuarial post-employment benefit reserve evaluation	44	(283)	49	(283)
Tax effect	(9)	78	(14)	78
	35	(205)	35	(205)
Overall earnings/losses that will be subsequently restated under profit (loss) for the period: Forex differences due to translation of financial statements in foreign currencies Cash flow hedges	1,688 0	(73) 0	(3,400) 0	817 (26)
Tax effect	0	0	0	5
	0	0	0	(21)
Total other profits/(losses) net of taxes for the year	1,723	(278)	(3,330)	591
TOTAL PROFIT	2,974	1,800	5,668	8,929

Statement of changes in consolidated shareholders' equity

	Share capital	Share premium reserve	Legal reserve	Own shares	Translatio n reserve	Cash flow hedge reserve	Update d post employ ment benefit	Other reserves	Net profit for the year	Total Group shareholder s' equity	Minorit y interests	Total sharehold ers' equity
(€'000)							reserve
Balance at 31 December 2013	11,533	10,002	2,307	(5)	(4,465)	21	(411)	90,869	8,104	117,955	0	117,955
Allocation of 2013 earnings - dividends paid
out - carried forward								3,491	(4,613) (3,491)	(4,613) 0		(4,613) 0
Extraordinary dividend payment								(11,533)		(11,533)		(11,533)
Total profit at 31 December 2014					817	(21)	(205)		8,338	8,929		8,929
Balance at 31 December 2014	11,533	10,002	2,307	(5)	(3,648)	0	(616)	82,827	8,338	110,738	0	110,738
Allocation of 2014 earnings - dividends
paid out - carried									(4,613)	(4,613)		(4,613)
forward								3,725	(3,725)	0		0
Purchase of own shares				(718)						(718)		(718)
Total profit at 31 December 2015					(3,400)		35		8,998	5,633		5,633
Balance at 31 December 2015	11,533	10,002	2,307	(723)	(7,048)	0	(581)	86,552	8,998	111,040	0	111,040

Consolidated statement of cash flows

(€'000)	Q4 2015	Q4 2014	12M 2015	12M 2014
Cash and cash equivalents at beginning of period (*)	5,686	2,637	3,675	5,111
Net profit/(loss) for the period	1,251	2,078	8,998	8,338
Adjustments for:
- Depreciation for the period - Realised gains/losses	3,124 (45)	3,001 (1)	12,185 (104)	12,292 (63)
- Write-downs/write-backs of non-current assets	0	548	0	548
- Profits and losses from equity investments	0	219	0	606
- Financial income and expenses	111	118	529	531
- Income tax	729	85	4,475	3,819
Payment of post-employment benefit reserve	(37)	(3)	(129)	(158)
Change in risk provisions	(115)	61	(210)	(67)
Change in trade receivables	(1,895)	(1,025)	107	(4,079)
Change in inventories	902	2,532	(170)	(2,548)
Change in trade payables	(114)	(650)	(58)	365
Change in net working capital	(1,107)	857	(121)	(6,262)
Change in other receivables and payables,
deferred tax	(304)	116	(72)	210
Payment of taxes	(2,154)	(153)	(5,931)	(2,325)
Payment of financial expenses	(154)	(136)	(556)	(553)
Collection of financial income	23	12	67	61
Cash flow from operations	1,322	6,802	19,131	16,977
Net investments	(2,476)	(4,173)	(12,079)	(11,491)
Repayment of loans New loans	(4,252) 2,819	(5,451) 14,660	(19,480) 19,488	(16,993) 25,047
Short-term financial assets	(69)	0	(69)	0
Purchase/sale of own shares	(543)	0	(718)	0
Payment of dividends	0	(11,533)	(4,613)	(16,146)
Cash flow from financing activities	(2,045)	(2,324)	(5,392)	(8,092)
Foreign exchange differences	1,504	16	(1,344)	453
Net financial flows for the period	(1,695)	321	316	(2,153)
Cash and cash equivalents at end of period	3,991	2,958	3,991	2,958
Current financial debt	23,511	19,718	23,511	19,718
Non-current financial debt	6,388	10,173	6,388	10,173
Net financial debt	25,908	26,933	25,908	26,933

(*) the balance of cash and cash equivalents at 01/01/2015 differs in the amount of €717,000 from the balance at 31/12/2014 owing to the change in the method of consolidation for Sabaf Appliance Components (Kunshan)

Consolidated net financial position

	(€'000)	31.12.2015	30.09.2015	31.12.2014
A.	Cash	11	15	9
B.	Positive balances of unrestricted bank accounts	3,822	5,376	2,691
C.	Other cash equivalents	158	295	258
D.	Liquidity (A+B+C)	3,991	5,686	2,958
E.	Current bank overdrafts	19,697	19,985	15,890
F.	Current portion of non-current debt	3,783	3,765	3,723
G.	Other current financial payables	31	7	105
H.	Current financial debt (E+F+G)	23,511	23,757	19,718
I.	Current net financial debt (H-D)	19,520	18,071	16,760
J.	Non-current bank payables	4,632	5,782	8,275
K.	Other non-current financial payables	1,756	1,793	1,898
L.	Non-current financial debt (J+K)	6,388	7,575	10,173
M.	Net financial debt (L+I)	25,908	25,646	26,933

Explanatory notes

Accounting standards and area of consolidation

The Interim Management Statement of the Sabaf Group at 31 December 2015 was prepared in accordance with the requirements of Article 154-ter of Legislative Decree 58/98 (Consolidated Finance Act or "TUF"), which was introduced by Legislative Decree 195 of 6 November 2007 (known as the "Transparency Decree"). As such, it does not contain the information required by IAS 34. Accounting standards and policies are the same as those adopted for preparation of the consolidated financial statements at 31 December 2014, 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 December 2015, 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., Sabaf do Brasil Ltda, Sabaf Turkey, Sabaf Appliance Components Trading (Kunshan) Co. Ltd and Sabaf Appliance Components (Kunshan) Co. Ltd have been consolidated on a 100% line-by-line basis;
• the subsidiary Sabaf US Corp. has not been consolidated as its contribution is considered immaterial for the purposes of consolidation;
• Chinese subsidiary Sabaf Appliance Components (Kunshan) Co. Ltd has been consolidated on a line-by-line basis since 1 January 2015, having launched operations in 2015 (until 31 December 2014, this company was consolidated at equity).
• disclosure relating to sales by geographical area has changed compared with the previous year, with sales in the Middle East combined with those in Africa rather than with those in Asia and Oceania. This change in breakdown provides a better representation of the performance of a region with more homogeneous characteristics (Middle East and Africa), and keeps the performance of other Asian markets (mainly China and India) separate. The amounts of the fourth quarter of 2014 and of the period January-December 2014 were consequently restated to make comparison possible.

The Interim Management Statement at 31 December 2015 has not been independently audited.

Sales breakdown by geographical area (€'000)
----------------------------------------------	--	--	--	--

(amounts in €'000)	4Q 2015	4Q 2014	% change	12M 2015	12M 2014	% change
Italy	9,772	10,172	-3.9%	41,244	42,277	-2.4%
Western Europe	1,776	2,053	-13.5%	7,438	8,716	-14.7%
Eastern Europe	7,614	9,576	-20.5%	35,125	36,198	-3.0%
Middle East and Africa	4,431	3,401	+30.3%	16,759	16,871	-0.7%
Asia and Oceania	2,352	2,244	+4.8%	7,019	6,907	+1.6%
South America	5,022	4,998	+0.5%	20,815	18,324	+13.6%
North America and Mexico	2,467	1,927	+28.0%	9,603	7,044	+36.3%
Total	33,434	34,371	-2.7%	138,003	136,337	+1.2%

Sales breakdown by product category (€'000)

(amounts in €'000)	4Q 2015	4Q 2014	% change	12M 2015	12M 2014	% change
Brass valves	2,831	2,883	-1.8%	12,689	13,741	-7.7%
Light alloy valves	8,019	9,126	-12.1%	33,784	34,006	-0.7%
Thermostats	2,504	2,746	-8.8%	10,596	12,288	-13.8%
Standard burners	9,287	9,493	-2.2%	37,789	36,160	+4.5%
Special burners	5,515	5,311	+3.8%	21,622	20,251	+6.8%
Accessories	3,391	3,288	+3.1%	13,577	12,928	+5.0%
Total gas parts	31,547	32,847	-4.0%	130,057	129,374	+0.5%
Hinges	1,887	1,524	+23.8%	7,946	6,963	+14.1%
Total	33,434	34,371	-2.7%	138,003	136,337	+1.2%

Management Statement

Earnings

In 4Q 2015, the Sabaf Group booked sales revenue of €33.4 million, a decrease of 2.7% compared with the figure of €34.4 million registered in 4Q 2014. Sales fell over the period on European markets, particularly in Eastern Europe. Conversely, all markets outside Europe registered positive growth rates.

With average sales prices down approximately 0.6% and higher commodity prices, which had an impact amounting to 0.5% of revenues, the Group benefited from a positive exchange rate effect equal to 0.8% of sales.

EBITDA for 4Q 2015 amounted to €5.7 million, with a 16.9% margin on sales, down by 6.6% versus €6.1 million (17.6% margin on sales) in 4Q 2014. EBIT was €2.6 million, equivalent to 7.7% of sales, and 2.7% higher than the €2.5 million of the same quarter in 2014 (7.3% of sales). Pre-tax profit, which was affected by the booking of negative exchange rate differences of €0.5 million, was €2 million, a fall of 8.5% from the figure of €2.2 million in 4Q 2014. Net profit for the period came in at €1.3 million, down 39.8% compared with €2.1 million in 4Q 2014 (when positive non-recurring items of €0.9 million were recorded under income taxes). An adjustment to deferred tax assets was booked during the period (cut in the IRES rate from 27.5% to 24% from 2017), and was negative at €0.4 million.

Revenues for full-year 2015 came in at €138 million, up 1.2% compared with €136.3 million in 2014. Gross profitability remained broadly unchanged: EBITDA was €26.2 million (with a 19% margin on sales, up 0.8%), while EBIT registered a more significant improvement, coming in at €14.1 million (with a 10.2% margin on sales, an increase of 7% compared with €13.2 million in 2014). Finally, net profit was €9 million (6.5% of sales, +7.9% compared with 2014).

Equity and cash flow

Quarter investments totalled €2.5 million, bringing total investments for the year to €12.1 million (€11.5 million in FY 2014).

At 31 December 2015, net financial debt was €25.9 million, compared with €25.6 million at 30 September 2015 and €26.9 million at 31 December 2014.

Significant non-recurring, atypical and/or unusual transactions

During the fourth quarter of 2015 the Group engaged in no significant transactions qualifying as non-recurring, atypical and/or unusual, as envisaged by the CONSOB communication of 28 July 2006.

Outlook

2016 got off to a highly uncertain start, owing to political, economic and financial tensions that affect the main markets on which Sabaf operates. Sales in the first quarter are expected to fall compared with 2015, which was marked by a highly positive start.

However, agreements reached with some of our leading customers for 2016 point to an increase in our supply share, and the launch of supply for significant new projects. If the macroeconomic environment stabilises, the Group therefore believes it will be able to improve sales and profitability in the full year compared with 2015. 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, Gianluca Beschi, hereby declares, pursuant to paragraph 2, Article 154-bis of Legislative Decree 58/1998 (Consolidated Finance Act) that the accounting information contained in the Interim Management Statement at 31 December 2015 of Sabaf S.p.A. corresponds to the Company's records, books and accounting entries.

Ospitaletto (BS), 11 February 2016

Financial Reporting Officer Gianluca Beschi