Sabaf

Quarterly Report • Nov 10, 2015

INTERIM MANAGEMENT STATEMENT

AT 30 September 2015

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	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 Mexico S.A. de C.V. (in liquidation)	100%
Sabaf US Corp.	100%

Board of Directors

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

Board of Auditors

Chairman	Antonio Passantino
Statutory auditor	Luisa Anselmi
Statutory auditor	Enrico Broli

Consolidated statement of financial position

	30.09.2015	31.12.2014	30.09.2014
(€'000)
ASSETS
NON-CURRENT ASSETS
Tangible assets (property, plant, and
equipment)	73,320	74,483	74,188
Real estate investment	6,822	7,228	7,339
Intangible assets	7,524	7,359	7,377
Investments	204	974	821
Non-current receivables	239	529	546
Deferred tax assets	5,409	5,579	5,476
Total non-current assets	93,518	96,152	95,747
CURRENT ASSETS
Inventories	31,911	30,774	33,306
Trade receivables	38,530	40,521	39,496
Tax receivables	2,438	2,390	2,778
Other current receivables	1,576	1,095	1,438
Cash and cash equivalents	5,686	2,958	2,637
Total current assets	80,141	77,738	79,655
ASSETS HELD FOR SALE	0	0	0
TOTAL ASSETS	173,659	173,890	175,402
SHAREHOLDERS' EQUITY AND
LIABILITIES
SHAREHOLDERS' EQUITY
Share capital	11,533	11,533	11,533
Retained earnings, other reserves	89,329	90,867	102,678
Profit (loss) for the period	7,747	8,338	6,260
Total equity interest of the Parent Company	108,609	110,738	120,471
Minority interests	0	0	0
Total shareholders' equity	108,609	110,738	120,471
NON-CURRENT LIABILITIES
Loans	7,575	10,173	3,332
Post-employment benefit and retirement reserves	2,968	3,028	2,735
Reserves for risks and contingencies	510	605	544
Deferred tax	740	692	668
Total non-current liabilities	11,793	14,498	7,279
CURRENT LIABILITIES
Loans	23,750	19,613	17,281
Other financial liabilities	7	105	70
Trade payables Tax payables	19,564 2,294	19,328 2,453	19,978 2,559
Other liabilities	7,642	7,155	7,764
Total current liabilities	53,257	48,654	47,652
LIABILITIES HELD FOR SALE	0	0	0
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	173,659	173,890	175,402

Consolidated Income Statement

	Q3 2015		Q3 2014		9M 2015		9M 2014
(€'000)
CONTINUING OPERATIONS
OPERATING REVENUE AND INCOME
Revenue	32,060	100.0%	30,681	100.0%	104,569	100.0%	101,966	100.0%
Other income	873	2.7%	840	2.7%	2,852	2.7%	2,853	2.8%
Total operating revenue and
income	32,933	102.7%	31,521	102.7%	107,421	102.7%	104,819	102.8%
OPERATING COSTS
Materials	(12,456)	-38.9%	(13,057)	-42.6%	(41,309)	-39.5%	(42,694)	-41.9%
Changes in inventories	205	0.6%	2,479	8.1%	2,082	2.0%	4,930	4.8%
Services	(6,925)	-21.6%	(7,431)	-24.2%	(22,888)	-21.9%	(22,631)	-22.2%
Payroll costs	(7,555)	-23.6%	(7,622)	-24.8%	(24,615)	-23.5%	(24,415)	-23.9%
Other operating costs	(364)	-1.1%	(167)	-0.5%	(1,116)	-1.1%	(862)	-0.8%
Costs for capitalised in-house work	311	1.0%	213	0.7%	938	0.9%	746	0.7%
Total operating costs	(26,784)	-83.5%	(25,585)	-83.4%	(86,908)	-83.1%	(84,926)	-83.3%
DEPRECIATION & AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITE DOWNS/WRITE-BACKS OF NON
CURRENT ASSETS (EBITDA)	6,149	19.2%	5,936	19.3%	20,513	19.6%	19,893	19.5%
Depreciation and amortisation Capital gains/(losses) on disposals of	(3,042)	-9.5%	(3,012)	-9.8%	(9,061)	-8.7%	(9,291)	-9.1%
non-current assets	14	0.0%	38	0.1%	59	0.1%	62	0.1%
Write-downs/write-backs of non current assets	0	0.0%	0	0.0%	0	0.0%	0	0.0%
EBIT	3,121	9.7%	2,962	9.7%	11,511	11.0%	10,664	10.5%
Financial income	26	0.1%	5	0.0%	44	0.0%	49	0.0%
Financial expense	(157)	-0.5%	(153)	-0.5%	(462)	-0.4%	(462)	-0.5%
Exchange rate gains and losses	280	0.9%	117	0.4%	400	0.4%	130	0.1%
Profits and losses from equity investments	0	0.0%	(123)	-0.4%	0	0.0%	(387)	-0.4%
PROFIT BEFORE TAXES	3,270	10.2%	2,808	9.2%	11,493	11.0%	9,994	9.8%
Income tax	(978)	-3.1%	(1,014)	-3.3%	(3,746)	-3.6%	(3,734)	-3.7%
Minority interests	0	0.0%	0	0.0%	0	0.0%	0	0.0%
NET PROFIT FOR THE PERIOD	2,292	7.1%	1,794	5.8%	7,747	7.4%	6,260	6.1%

Consolidated statement of comprehensive income

(€'000)	Q3 2015	Q3 2014	9M 2015	9M 2014
NET PROFIT FOR THE PERIOD	2,292	1,794	7,747	6,260
Overall earnings/losses that will not be subsequently restated under profit (loss) for the period: Actuarial post-employment benefit reserve evaluation	0	0	0	0
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	(3,757)	(124)	(5,088)	890
Cash flow hedges	0	0	0	(26)
Net of tax	0	0	0	5
	0	0	0	(21)
Total other profits/(losses) net of taxes for the year	(3,757)	(124)	(5,088)	869
TOTAL PROFIT	(1,465)	1,670	2,659	7,129

Statement of changes in consolidated shareholders' equity

	Share capital	Share premium reserve	Legal reserve	Treasur y 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									(4,613)	(4,613)		(4,613)
- carried forward								3,725	(3,725)	0		0
Treasury share acquisition				(175)						(175)		(175)
Total profit at 30 September 2015					(5,088)				7,747	2,659		2,659
Balance at 30 September 2015	11,533	10,002	2,307	(180)	(8,736)	0	(616)	86,552	7,747	108,609	0	108,609

Consolidated statement of cash flows

(€'000)	Q3 2015	Q3 2014	9M 2015	9M 2014
Cash and cash equivalents at beginning of
period (*)	5,288	2,494	3,675	5,111
Net profit/(loss) for the period	2,292	1.794	7,747	6,260
Adjustments for:
-Depreciation for the period	3,042	3,012	9,061	9,291
- Realised gains/losses - Write-downs / Write-backs of non-current	(14)	(38)	(59)	(62)
assets	0	0	0	0
- Profits and losses from equity investments	0	123	0	387
- Financial income and expenses	131	148	418	413
- Income tax	978	1,014	3,746	3,734
Payment of post-employment benefit reserve	(8)	(56)	(92)	(155)
Change in risk provisions	(52)	(90)	(95)	(128)
Change in trade receivables	5,680	7,061	2,002	(3,054)
Changes in inventories	386	(2,443)	(1,072)	(5,080)
Changes in trade payables	(4,127)	(4,842)	56	1,015
Change in net working capital	1,939	(224)	986	(7,119)
Change in other receivables and payables,
deferred tax	537	26	232	94
Payment of taxes	(3,008)	(1,595)	(3,777)	(2,172)
Payment of financial expenses	(121)	(138)	(402)	(417)
Collection of financial income	26	5	44	49
Cash flow from operations	5,742	3,981	17,809	10,175
Net investments	(1,670)	(2,179)	(9,603)	(7,318)
Repayment of loans	(5,727)	(4,985)	(15,228)	(11,542)
New loans	4,465	3,361	16,669	10,387
Short-term financial assets	0	0	0	0
Purchase/sale treasury shares	(175)	0	(175)	0
Payment of dividends	0	0	(4,613)	(4,613)
Cash flow from financing activities	(1,437)	(1,624)	(3,347)	(5,768)
Foreign exchange differences	(2,237)	(35)	(2,848)	437
Net financial flows for the period	398	143	2,011	(2,474)
Cash and cash equivalents at end of period	5,686	2,637	5,686	2,637
Current financial debt	23,757	17,351	23,757	17,351
Non-current financial debt	7,575	3.332	7,575	3,332
Net financial debt	25,646	18,046	25,646	18,046

(*) the balance of cash and cash equivalents at 1 January 2015 differed by €717,000 compared with the balance at 31 December 2014 because of a change in the consolidation method of Sabaf Appliance Components (Kunshan)

Consolidated net financial position

	(€'000)	30.09.2015	31.12.2014	30.09.2014
A.	Cash	15	9	11
B.	Positive balances of unrestricted bank accounts	5,376	2,691	2,354
C.	Other cash equivalents	295	258	272
D.	Liquidity (A+B+C)	5,686	2,958	2,637
E.	Current bank overdrafts	19,985	15.890	16,226
F.	Current portion of non-current debt	3,765	3,723	1,055
G.	Other current financial payables	7	105	70
H.	Current financial debt (E+F+G)	23,757	19,718	17,351
I.	Current net financial debt (H-D)	18,071	16,760	14,714
J.	Non-current bank payables	5,782	8,275	1,398
K.	Other non-current financial payables	1,793	1,898	1,934
L.	Non-current financial debt (J+K)	7,575	10,173	3,332
M.	Net financial debt (L+I)	25,646	26,933	18,046

Explanatory notes

Accounting standards and area of consolidation

The Interim Management Statement of the Sabaf Group at 30 September 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 30 September 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 Turchia, 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 subsidiaries Sabaf Mexico S.A. de C.V. (in liquidation) and Sabaf U.S. have not been consolidated as they are immaterial for the purposes of consolidation.
• from 1 January 2015 the Chinese subsidiary Sabaf Appliance Components (Kunshan) Co. Ltd. was consolidated on a line-by-line basis. This company began operating in 2015 (until 31 December 2014 it was consolidated using the equity method).
• compared with the previous financial year, information regarding sales by geographical area was changed, including sales in the Middle East under sales in Africa, rather than under sales in Asia and Oceania. This different breakdown enables a better representation of the performance of an area with more consistent characteristics (Middle East and Africa) and makes it possible to keep the performance of other Asia markets (mainly China and India) separate. As a result, the figures for 3Q 2014 and January-September 2014 were reclassified in order to make the comparison consistent.

The Interim Management Statement at 30 September 2015 has not been independently audited.

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

(amounts in €'000)	Q3 2015	Q3 2014	% change	9M 2015	9M 2014	% change	FY 2014
Italy	8,810	8,134	+8.3%	31,472	32,105	-2.0%	42,277
Western Europe	1,694	1,913	-11.4%	5,662	6,663	-15.0%	8,716
Eastern Europe	8,564	9,434	-9.2%	27,511	26,622	+3.3%	36,198
Middle East and Africa	3,326	3,878	-14.2%	12,328	13,470	-8.5%	16,871
Asia and Oceania	1,516	1,849	-18.0%	4,667	4,663	+0.1%	6,907
South America	5,372	3,576	+50.2%	15,793	13,326	+18.5%	18,324
North America and Mexico	2,778	1,897	+46.4%	7,136	5,117	+39.5%	7,044
Total	32,060	30,681	+4.5%	104,569	101,966	+2.6%	136,337

Sales breakdown by geographical area (Euro x 1000)

(amounts in €'000)	Q3 2015	Q3 2014	% change	9M 2015	9M 2014	% change	FY 2014
Brass valves	2,820	3,166	-10.9%	9,858	10,858	-9.2%	13,741
Light alloy valves	7,650	7,855	-2.6%	25,765	24,880	+3.6%	34,006
Thermostats	2,221	2,258	-1.6%	8,092	9,542	-15.2%	12,288
Standard burners	9,273	8,332	+11.3%	28,502	26,667	+6.9%	36,160
Special burners	4,982	4,245	+17.4%	16,107	14,940	+7.8%	20,251
Accessories	3,012	3,371	-10.6%	10,186	9,640	+5.7%	12,928
Total gas parts	29,958	29,227	+2.5%	98,510	96,527	+2.1%	129,374
Hinges	2,102	1,454	+44.6%	6,059	5,439	+11.4%	6,963
Total	32,060	30,681	+4.5%	104,569	101,966	+2.6%	136,337

Management Statement

Earnings

In 3Q 2015, the Sabaf Group booked sales revenue of €32.1 million, an increase of 4.5% compared with the figure of €30.7 million registered in 3Q 2014. The performance of European markets was essentially unchanged compared with the same period of 2014; the increase in sales is entirely due to the growth recorded in South America (where all markets with the exception of Brazil improved considerably) and in North America, an area which confirmed the positive trend recorded for several quarters.

While average sales prices were down by around 1% and higher costs of raw materials impacted by 0.9% of sales, the Group benefited from a positive effect from exchange rates equal to 1.6% of sales. EBITDA for 3Q 2015 amounted to €6.1 million, with a 19.2% margin on sales, up by 3.6% vs. €5.9 million (19.3% margin on sales) in 3Q 2014. EBIT was € 3.1 million, equivalent to 9.7% of sales, and 5.4% higher than the € 3 million of the same quarter in 2014 (9.7% of sales). The result before tax, which benefited from the recording of positive exchange rate differences of €0.3 million, was 3.3 million, a 16.5% increase compared with €2.8 million in 3Q 2014. The net result for the period was €2.3 million, up 27.8% on the figure of €1.8 million for 3Q 2014.

In the first nine months of 2015, revenue came to €104.6 million, an increase of 2.6% compared to the same period of 2014; EBITDA was €20.5 million (accounting for 19.6% of sales, an improvement of 3.1%), EBIT came in at €11.5 million (accounting for 11% of sales, up by 7.9%) and net profit was €7.7 million (up 23.8% versus the first nine months of 2014).

Equity and cash flow

Quarter investments were €1.7 million, bringing total investments since the start of the year to €9.6 million (€7.3 million in the first nine months of 2014).

As at 30 September 2015, net financial debt was € 25.6 million (€ 27.3 million as at 30 June 2015), while shareholders' equity amounted to € 108.6 million.

Significant non-recurring, atypical and/or unusual transactions

During the third quarter of 2015, 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

Group sales in the fourth quarter are expected to be slightly down compared with the same period of 2014, which was very buoyant. The Group believes it can achieve marginal growth in sales for the whole of 2015, accompanied by a more significant improvement in profitability. These targets assume a macroeconomic scenario not affected by unpredictable events. If the economic situation were to change significantly, actual figures might diverge from forecasts.

The Group is currently negotiating with its main customers for 2016; at this time, it is not possible to make forecasts regarding volumes for next year.

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 30 September 2015 of Sabaf S.p.A. corresponds to the Company's records, books and accounting entries.

Ospitaletto (BS), 10 November 2015

Financial Reporting Officer Gianluca Beschi