Sabaf — Investor Presentation 2018

Oct 22, 2018

FINANCIAL PRESENTATION

STAR CONFERENCE

London, 23 - 24 October 2018

Table of contents

• I. COMPANY PROFILE
• II. PRELIMINARY SALES Q3 AND 9 MONTHS 2018
• III. OKIDA ACQUISITION
• IV. BUSINESS PLAN 2018 2022
• V. FIRST HALF 2018 PERFORMANCE

COMPANY PROFILE

Product range - the heart of gas cooking appliances

Industrial Footprint

6

Total Group employees

Market, product & technology

MARKET

• ✓ Global leader in the segment of components for domestic gas cooking appliances, with over 300 customers in 60 different countries. A strong leadership in Europe (market share above 40%), estimated market share worldwide of about 10%
• ✓ Weight of top 10 customers on total Group sales is less than 50%
• ✓ Each top 10 customer represents less than 10% of total Group sales
• ✓ Long-term agreements and strong relationships with customers, based on mutual trust, technical cooperation, coengineering and tailor-made products

PRODUCT & TECHNOLOGY

• ✓ Continuous product innovation: over 30 active patents
• ✓ Knowledge: forefront process technology internal development of special machinery, high performance molds for robotic diecasting, high speed and high precision tools not available on the market
• ✓ Cost and quality leadership: highly automated plants and low incidence of direct labor, € 58 mn investments (8.4% 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)

7

Stock price and main shareholders

Market cap: € 166 mn at 15 October 2018

2018 paid dividend: € 0.55 per share (0.48 € per share paid in 2017)

PRELIMINARY SALES Q3 AND 9 MONTHS 2018

Preliminary sales Q3 and 9 months 2018

Preliminary sales Q3

Sales by market

€ x 000	Q3 2018	Q3 2017
Italy	6,121	7,146	3% -14
Western Europe	2,870	2,670	5% +7
Eastern Europe (incl. Turkey)	10,901	10,841	6% +0
Middle East & Africa	4,940	3,116	+58 5%
Asia (excl. ME)	2,516	2,963	1% -15
Latin America	7,124	5,376	5% +32
North America	3,916	3,429	2% +14
Total	38,388	35,541	+8.0%

Sales by product

€ x 000	Q3 2018	Q3 2017
Brass valves	927	1,319	-29 7%
Light alloy valves	8,913	9,071	7% -1
Thermostats	1,770	1,497	2% 18
Standard burners	10,397	9,686	3% 7
Special burners	7,484	6,705	6% 11
Accessories	4,171	3,618	3% +15
Professional burners	1,209	1,322	-8 5%
Hinges	2,597	2,323	+11 8%
Electronic components	920	0	+100 0%
Total	38,388	35,541	+8.0%

Preliminary sales 9M 2018 Western Europe 2,870 2,670 +7.5% Eastern Europe (incl. Turkey) 10,901 10,841 +0.6% Middle East & Africa 4,940 3,116 +58.5% Asia (excl. ME) 2,516 2,963 -15.1% Latin America 7,124 5,376 +32.5%

Total 38,388 35,541 +8.0% Sales by market

€ x 000	9M 2018	9M 2017
Italy	24,429	28,124	1% -13
Western Europe	8,989	8,682	5% +3
Eastern Europe (incl. Turkey)	34,533	31,912	2% +8
Middle East & Africa	10,128	9,526	+6 3%
Asia (excl. ME)	5,510	7,976	9% -30
Latin America	19,524	16,916	+15 4%
North America	11,288	9,641	1% +17
Total	114,401	112,777	+1.4%

Sales by product

€ x 000	9M 2018	9M 2017
Brass valves	3,365	4,905	4% -31
Light alloy valves	29,206	29,461	9% -0
Thermostats	5,349	5,553	7% -3
Standard burners	30,572	30,697	4% -0
Special burners	21,094	20,625	3% +2
Accessories	12,050	11,176	8% +7
Professional burners *	4,186	3,723	4% +12
Hinges	7,659	6,637	+15 4%
Electronic components	920	0	+100 0%
Total	114,401	112,777	+1.4%

12

Preliminary sales Outlook

OUTLOOK

• ✓ For the entire 2018 financial year, the Group expects to achieve sales between €152 and €154 million, growing between 1.3% and 2.7%. Taking into consideration the same scope of consolidation, sales are expected to be in line with 2017 (€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

OKIDA ACQUISITION

Company overview

• Okida Elektronik Sanayi Limited Şirket («Okida») was founded in 1987 by Mr. Gurol Oktug and was 100% owned by Oktug family.
• Leader in Turkey in the design, manufacture and sale of electronic control boards, timers, display and power units for ovens, hoods, vacuum cleaners, refrigerators and freezers.
• The Company's production site is located in Esenyurt, in the European area of Istanbul.
• 87 employees at 30.09.2018, 12 in R&D department. The General Manager is the founder Gürol Oktug.

• Okida has a well diversified customers portfolio of 30 reputable customers in Turkey and abraad, with which the Comapany has established long term commercial relationships.

Products portfolio

ACCESSORIES / OTHER PRODUCTS

Revenues 1/2

Revenues 2/2

• Export represents ca. 37% of revenues in 2017, up by 27% compared to 2011. Major export markets include Europe (20% of revenues) followed by Middle East (15% of revenues), and Russia & South America (ca. 3% of revenues).
• Other than direct exports, a very large portion of products sold to domestic custmers (ca. 60% of revenues in Turkey) is installed on appliances which also are exported.
• Oven segment is the largest revenue generating segment at 50%, split by 80% timers and 20% controls (50% button controlled and 50% touch controlled).
• In addition to the above, Okida also recently entered into refrigeration controls.
• Okida's price lists are in strong currencies (Euro/US Dollar).

Strategy and Strenghts

STRATEGY Steering away from mass manufacturing at lower margins, Okida is focused on medium sized household appliances manufacturers, both in Turkey and abroad as reliable supplier with quality products, offering short lead times and the ability to manufacture customized solutions at very competitive prices.

	and stable at levels of excellence. Constant growth profitability
STRENGHTS	Turkey is a very important for the production of household appliances. industrial district
	Even Okida's sales to customers based in Turkey are then largely intended for finished products forwarded to foreign markets.
	Possibile strong thanks to Sabaf's widespread presence among all the main sales synergies manufacturers of household appliances worldwide.
	The acquisition of Okida represents for Sabaf the first step of the entry in the market of electronics for household appliances, reducing the Sabaf dependence on gas cooking.

Acquisition Main information

Acquisition of 100% of Okida:

• 30% Sabaf S.p.A.
• 70% Sabaf Beyaz Eşya Parçalari (Sabaf Turkey)

Signing: 16 July 2018 Closing: 4 September 2018

Preliminary Enterprise Value: USD 26.9 million (Euro 23.8 milion ) = 5.05 x EBITDA 2017

Okida reported a positive net financial position of USD 3.1 million (Euro 2.6 million) at 31 December 2017

Purchase price: mechanism to adjust the purchase price to be determined on the basis of the Company's EBITDA as at 31 December 2018 as well as the net financial position and the net working capital at the closing date of the transaction

The acquisition has been wholly financed through a bank loan with a duration of 72 months

Mr. Gurol Oktug will remain at the head of Okida as General Manager for a period of not less than 12 month

Acquisition Update

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

Tangible commercial synergies with Sabaf, already in progress and better than expected

More than 30 projects in pipeline

Oven and Cooktop control

Cooker hoods control

Refrigerator and freezer control

Paper dispender and hand driers

Hinges electronic motor control

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

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

EBITDA margin • > 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
• 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

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 growth:
• 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
• ✓ 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

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

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
• ✓ 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

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

INDUSTRIAL FOOTPRINT

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

Growth by acquisitions Investment sectors

GROWTH BY ACQUISITIONS

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

Growth by acquisitions Target profile

Target parameters
TURNOVER		Up to € 70 mn sales
EBITDA		than 10%. Steady results over the past years Higher No bussinesses turnarounds to be restructured
SHAREHOLDING		Preference for entrepreneur ownership ownership entrepreneurial
EBITDA MULTIPLES		Non-dilutive

M&A TEAM

Dedicated to development of business contacts, creation of an internal Data Base, analysis and evaluation of opportunities, management of negotiations

FIRST HALF 2018 PERFORMANCE

Performance data Income statement

€ x 000 € x 000	H1 2018		H1 2017		Δ % 18 - 17	FY 17		FY 16		Δ % 17-16
SALES	76,013	100.0%	77,236	100.0%	-1.6%	150,223	100.0%	130,978	100.0%	+14.7%
Materials	(34,556)	(45.5%)	(33,039)	(42.8%)		(59,794)	(39.8%)	(47,346)	(36.1%)
Payroll	(18,273)	(24.0%)	(18,417)	(23.8%)		(35,328)	(23.5%)	(32,112)	(24.5%)
Change in stock	6,472	8.5%	5,195	6.7%		2,380	1.6%	(754)	(0.6%)
Other operating costs/income	(14,380)	(18.9%)	(14,193)	(18.4%)		(26,526)	(17.7%)	(25,401)	(19.4%)
EBITDA	15,276	20.1%	16,782	21.7%	-9.0%	30,955	20.6%	25,365	19.4%	+22.0%
Depreciation	(6,303)	(8.3%)	(6,469)	(8.4%)		(12,826)	(8.5%)	(12,882)	(9.8%)
Gains/losses on fixed assets	1 1	0.0%	7	0.0%		(12)	(0.0%)	1 8	0.0%
EBIT	8,984	11.8%	10,320	13.4%	-12.9%	18,117	12.1%	12,501	9.5%	+44.9%
Net financial expense	(315)	(0.4%)	(154)			(590)	(0.4%)	(519)
				(0.2%)					(0.4%)
Foreign exchange gains/losses	1,072	1.4%	101	0.1%		274	0.2%	435	0.3%
Equity investements profits/losses	-	0.0%	-	0.0%		3	0.0%	-	0.0%
EBT	9,741	12.8%	10,267	13.3%	-5.1%	17,804	11.9%	12,417	9.5%	+43.4%
Income taxes	(2,412)	(3.2%)	(2,787)	(3.6%)		(2,888)	(1.9%)	(3,342)	(2.6%)
Minorities	(103)	(0.1%)	(28)	(0.0%)		(81)	(0.1%)	(81)	(0.1%)
NET INCOME	7,226	9.5%	7,452	9.6%	-3.0%	14,835	9.9%	8,994	6.9%	+64.9%

Performance data Balance sheet

€ x 000	H1 2018	H1 2017	FY 2017	FY 2016
Fixed assets	92,451	93,962	93,802	94,141
Inventories	38 293 ,	36 046 ,	32 929 ,	31 484 ,
Trade receivables	49 084 ,	49 113 ,	42 263 ,	36 842 ,
Tax receivables	2 792 ,	2 177 ,	3 065 ,	3 163 ,
Other receivables current	1 572 ,	1 470 ,	1 057 ,	1 419 ,
Trade payables	(25 083) ,	(25 822) ,	(19 975) ,	(18 977) ,
payables Tax	(2 353) ,	(1 760) ,	(1 095) ,	(1 190) ,
Other payables	(7 649) ,	(7 853) ,	(7 491) ,	(6 657) ,
Net working capital	56,656	53,371	50,753	46,084
Capital Employed	149,107	147,333	144,555	140,225
Equity	110,398	111,322	115,055	112,377
Provisions for risks and severance indemnity	3,949	4,318	4,034	4,390
Net debt	34,760	31,693	25,466	23,458
Sources of finance	149,107	147,333	144,555	140,225

Performance data Key perfomance indicators

	H1 2018	H1 2017	FY 2017	FY 2016
Debt / Equity	0.31	0.28	0.22	0.21
Debt / EBITDA	1.14	0.94	0.82	0.92
ROI	12.1%	13.9%	12.9%	9.2%
NWC / Sales	37.3%	34.6%	33.8%	35.2%
DSO	116	114	101	101
DPO	72	75	59	66
DSI	110	105	97	105

Performance data Cash flow statement

	H1 2018	H1 2017	FY 2017	FY 2018
€ x 000
Cash at the beginning of the period	11,533	12,143	12,143	3,991
Net profit Depreciation Other income statement adjustments	7,329 6,303 2,633	7,452 6,469 2,931	14,916 12,826 3,252	9,075 12,853 3,735
Change in net working capital - Change in inventories - Change in receivables - Change in payables	(5,364) (6,821) 5,108 (7,077)	(4,562) (12,271) 6,845 (9,988)	(1,445) (5,421) 998 (5,868)	416 5,107 (1,286) 4,237
Other changes in operating items	(1,472)	(329)	(2,347)	(3,969)
Operating cash flow	7,716	6,535	22,779	25,931
Investments, net of disposals	(6,632)	(7,036)	(13,944)	(11,762)
Free Cash Flow	1,084	(501)	8,835	14,169
Cash flow from financial activity Own shares buyback Dividends ARC acquisition Forex	5,023 (2,086) (6,071) (2,279)	1,500 (937) (5,384) (1,233)	978 (2,110) (5,384) - (2,929)	4,249 (1,676) (5,467) (2,614) (509)
Net financial flow	(4,329)	(6,555)	(610)	8,152
Cash at the end of the period	7,204	5,588	11,533	12,143
Current financial debt Non-current financial debt Net financial debt	17,631 24,333 34,760	19,452 18,022 31,886	17,363 19,703 25,533	14,947 20,654 23,458

38

Performance data EBIT bridge H1 2017 – H1 2018

Performance data Sales by market

€ x 000 € x 000	H1 2018 FY 17	H1 2017 FY 16
Italy	18,308	20,978	.7% -12
Western Europe SALES	150,223 6,119	6,012 100.0%	130,978 8% +1 100.0%
Eastern Europe (incl. Turkey)	23,632	21,071	2% +12
Middle East & Africa Materials	5,188 (59,794)	6,410 (39.8%)	1% -19 (47,346) (36.1%)
Asia (excl. ME)	2,994	5,013	-40 3%
Payroll Latin America	(35,328) 12,400	(23.5%) 11,540	(32,112) (24.5%) +7.4%
Change in stock North America	2,380 7,372	1.6% 6,212	(754) (0.6%) +18 .7%
Other operating costs/income	(26,526)	(17.7%)	(25,401) (19.4%)
EBITDA Total	30,955 76,013	20.6% 77,236	25,365 19.4% -1.6%

Gains/losses on fixed assets € x 000	(12) FY 2017	(0.0%) FY 2016	18
EBIT Italy	18,117 36,523	12.1% 36,365	12,501 9.5% 4% +0
Western Europe	11,678	8,553	+36 .5%
Net financial expense Eastern Europe (incl. Turkey)	(590) 42,824	(0.4%) 34,123	(519) (0.4%) .5% +25
Foreign exchange gains/losses Middle East & Africa	274 13,009	0.2% 11,698	435 0.3% +11 2%
Asia (excl. ME) Equity investements profits/losses	10,516	8,088 3 0.0%	0 0% +30 0.0%
Latin America	22,938	20,847	0% +10
North America EBT	12,735 17,804	11,304 11.9%	.7% +12 12,417 9.5%
Total	150,223	130,978	+14.7%

Performance data Sales by product

€ x 000	H1 2018	H1 2017
Brass valves	2,439	3,586	0% -32
Light alloy valves	20,293	20,390	-0 .5%
Thermostats	3,579	4,056	8% -11
Standard burners	20,175	21,011	-4 0%
Special burners	13,610	13,920	2% -2
Accessories	7,878	7,558	+4 2%
Professional burners	2,977	2,401	0% +24
Hinges	5,062	4,314	3% +17
Total	76,013	77,236	-1.6%

€ x 000	FY 2017	FY 2016
Brass valves	5,991	9,007	-33 .5%
Light alloy valves	39,351	32,393	.5% +21
Thermostats	7,376	7,699	-4 2%
Standard burners	41,070	37,338	0% +10
Special burners	27,184	21,215	1% +28
Accessories	15,267	12,613	+21 0%
Professional burners *	5,079	2,289	9% +121
Hinges	8,905	8,424	+5.7%
Total	150,223	130,978	+14.7%

* Professional burners sales consolidated from the 1st of July 2016

October 15th – 19th

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