Sabaf

Quarterly Report • Nov 8, 2016

INTERIM MANAGEMENT STATEMENT

AT 30 SEPTEMBER 2016

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 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%
A.R.C. S.r.l.	70%
Equity investments booked at net equity
Handan ARC Burners Co., Ltd.	35%
Unconsolidated companies
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 Pendoli
Director (*)	Nicla Picchi
Director	Alessandro Potestà

(*) independent directors

Board of Auditors

Chairman	Antonio Passantino
Statutory auditor	Luisa Anselmi
Statutory auditor	Enrico Broli

Consolidated statement of financial position

	30.09.2016	31.12.2015	30.09.2015
(€ '000)
ASSETS
NON-CURRENT ASSETS
Tangible assets (property, plant, and
equipment)	74,023	73,037	73,320
Real estate investment	6,380	6,712	6,822
Intangible assets	9,348	7,525	7,524
Equity investments	311	204	204
Non-current receivables	536	432	239
Deferred tax assets	4,793	4,887	5,409
Total non-current assets	95,391	92,797	93,518
CURRENT ASSETS
Inventories	32,706	31,009	31,911
Trade receivables	39,448	40,425	38,530
Tax receivables	2,350	2,489	2,438
Other current receivables	1,332	1,447	1,576
Current financial assets	53	69	0
Cash and cash equivalents	6,724	3,991	5,686
Total current assets	82,613	79,430	80,141
ASSETS HELD FOR SALE	0	0	0
TOTAL ASSETS	178,004	172,227	173,659
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Share capital	11,533	11,533	11,533
Retained earnings, other reserves	91,847	90,509	89,329
Net profit for the period	6,297	8,998	7,747
Total equity interest of the Parent Company	109,677	111,040	108,609
Minority interests	1,242	0	0
Total shareholders' equity	110,919	111,040	108,609
NON-CURRENT LIABILITIES
Loans	7,980	6,388	7,575
Other financial liabilities	1,762	0	0
Post-employment benefit and retirement reserves	3,077	2,914	2,968
Reserves for risks and contingencies	331	395	510
Deferred tax	736	772	740
Total non-current liabilities	13,886	10,469	11,793
CURRENT LIABILITIES
Loans	26,465	23,480	23,750
Other financial liabilities	107	31	7
Trade payables	17,316	19,450	19,564
Tax payables	1,772	1,219	2,294
Other payables	7,539	6,538	7,642
Total current liabilities	53,199	50,718	53,257
LIABILITIES HELD FOR SALE	0	0	0
TOTAL LIABILITIES AND

Sabaf Group – Interim management statement at 30 September 2016 4

Consolidated Income Statement

	Q3 2016 Q3 2015			9M 2016		9M 2015
(€ '000)
CONTINUING OPERATIONS
OPERATING REVENUE AND INCOME
Revenue	33,206	100.0%	32,060	100.0%	98,059	100.0%	104,569	100.0%
Other income	606	1.8%	873	2.7%	1,956	2.0%	2,852	2.7%
Total operating revenue and
income	33,812	101.8%	32,933	102.7%	100,015	102.0%	107,421	102.7%
OPERATING COSTS
Materials	(11,026)	-33.2%	(12,456)	-38.9%	(36,396)	-37.1%	(41,309)	-39.5%
Change in inventories	(1,858)	-5.6%	205	0.6%	638	0.7%	2,082	2.0%
Services	(6,743)	-20.3%	(6,925)	-21.6%	(21,111)	-21.5%	(22,888)	-21.9%
Payroll costs	(7,608)	-22.9%	(7,555)	-23.6%	(24,185)	-24.7%	(24,615)	-23.5%
Other operating costs	(208)	-0.6%	(364)	-1.1%	(659)	-0.7%	(1,116)	-1.1%
Costs for capitalised in-house work	212	0.6%	311	1.0%	645	0.7%	938	0.9%
Total operating costs	(27,231)	-82.0%	(26,784)	-83.5%	(81,068)	-82.7%	(86,908)	-83.1%
AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITE DOWNS/WRITE-BACKS OF NON CURRENT ASSETS (EBITDA)	6,581	19.8%	6,149	19.2%	18,947	19.3%	20,513	19.6%
Depreciation & amortisation	(3,265)	-9.8%	(3,042)	-9.5%	(9,596)	-9.8%	(9,061)	-8.7%
Capital gains/(losses) on disposals of non-current assets	10	0.0%	14	0.0%	18	0.0%	59	0.1%
Write-downs/write-backs of non current assets	0	0.0%	0	0.0%	0	0.0%	0	0.0%
EBIT	3,326	10.0%	3,121	9.7%	9,369	9.6%	11,511	11.0%
Financial income	17	0.1%	26	0.1%	49	0.0%	44	0.0%
Financial expense	(159)	-0.5%	(157)	-0.5%	(444)	-0.5%	(462)	-0.4%
Exchange rate gains and losses Profits and losses from equity	78	0.2%	280	0.9%	204	0.2%	400	0.4%
investments	0	0.0%	0	0.0%	0	0.0%	0	0.0%
PROFIT BEFORE TAXES	3,262	9.8%	3,270	10.2%	9,178	9.4%	11,493	11.0%
Income tax	(868)	-2.6%	(978)	-3.1%	(2,849)	-2.9%	(3,746)	-3.6%
Minority interests	(32)	-0.1%	0	0.0%	(32)	0.0%	0	0.0%
NET PROFIT FOR THE PERIOD	2,362	7.1%	2,292	7.1%	6,297	6.4%	7,747	7.4%

Consolidated statement of comprehensive income

(€ '000)	Q3 2016	Q3 2015	9M 2016	9M 2015
NET PROFIT FOR THE PERIOD	2,362	2,292	6,297	7,747
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	(778)	(3,757)	600	(5,088)
Total other profits/(losses) net of taxes for the year	(778)	(3,757)	600	(5,088)
TOTAL PROFIT	1,584	(1,465)	6,897	2,659

Statement of changes in consolidated shareholders' equity

	Share capital	Share premium reserve	Legal Reserv e	Treasury shares	Translatio n 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 2014	11,533	10,002	2,307	(5)	(3,648)	(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 treasury 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)	(581)	86,552	8,998	111,040	0	111,040
Allocation of 2014 earnings - dividends paid out - carried forward							3,531	(5,467) (3,531)	(5,467)		(5,467)
Purchase of
treasury shares				(1,271)					(1,271)		(1,271)
ARC consolidation										1,210	1,210
Put option 30% ARC							(1,522)		(1,522)		(1,522)
Total profit at 30 September 2016					600			6,297	6,897	32	6,929
Balance at 30 September 2016	11,533	10,002	2,307	(1,994)	(6,448)	(581)	88,561	6,297	109,677	1,242	110,919

Consolidated statement of cash flows

(€ '000)	Q3 2016	Q3 2015	9M 2016	9M 2015
Cash and cash equivalents at beginning of
period	5,105	5,288	3,991	3,675
Net profit/(loss) for the period	2,362	2,292	6,297	7,747
Adjustments for:
- Depreciation and amortisation for the period	3,265	3,042	9,596	9,061
- Realised gains/losses	(10)	(14)	(18)	(59)
- Financial income and expenses	142	131	395	418
- Income tax	868	978	2,849	3,746
Payment of post-employment benefit reserve	(22)	(8)	(75)	(92)
Change in risk provisions	(42)	(52)	(64)	(95)
Change in trade receivables	4,181	5,680	2,501	2,002
Change in inventories	1,937	386	(806)	(1,072)
Change in trade payables	(4,659)	(4,127)	(2,947)	56
Change in net working capital	1,459	1,939	(1,252)	986
Change in other receivables and payables,
deferred tax	539	537	1,314	232
Payment of taxes	(753)	(3,008)	(2,311)	(3,777)
Payment of financial expenses	(149)	(121)	(414)	(402)
Collection of financial income	17	26	49	44
Cash flow from operations	7,676	5,742	16,366	17,809
Net investments	(2,414)	(1,670)	(9,374)	(9,603)
Repayment of loans New loans	(6,270) 3,200	(5,727) 4,465	(17,353) 22,246	(15,228) 16,669
Purchase/sale of own shares	(139)	(175)	(1,271)	(175)
Payment of dividends	0	0	(5,467)	(4,613)
Cash flow from financing activities	(3,209)	(1,437)	(1,845)	(3,347)
ARC acquisition	0	0	(2,614)	0
Foreign exchange differences	(434)	(2,237)	200	(2,848)
Net financial flows for the period	1,619	398	2,733	2,011
Cash and cash equivalents at end of period	6,724	5,686	6,724	5,686
Current financial debt	26,572	23,757	26,572	23,757
Non-current financial debt	9,742	7,575	9,742	7,575
Net financial debt	29,590	25,646	29,590	25,646

Consolidated net financial position

	(€ '000)	30.09.2016	31.12.2015	30.09.2015
A.	Cash	19	11	15
B.	Positive balances of unrestricted bank accounts	5,042	3,822	5,376
C.	Other cash equivalents	1,663	158	295
D.	Liquidity (A+B+C)	6,724	3,991	5,686
E.	Current bank overdrafts	22,119	19,697	19,985
F.	Current portion of non-current debt	4,346	3,783	3,765
G.	Other current financial payables	107	31	7
H.	Current financial debt (E+F+G)	26,572	23,511	23,757
I.	Current net financial debt (H-D)	19,848	19,520	18,071
J.	Non-current bank payables	6,332	4,632	5,782
K.	Other non-current financial payables	3,410	1,756	1,793
L.	Non-current financial debt (J+K)	9,742	6,388	7,575
M.	Net financial debt (L+I)	29,590	25,908	25,646

Explanatory notes

Accounting standards and area of consolidation

The Interim Management Statement of the Sabaf Group at 30 September 2016 was prepared in accordance with Italian Stock Exchange Regulations, which stipulate that the publication of quarterly reports is one of the requirements for maintaining a listing in the STAR segment of the MTA (Electronic Stock Market). The present report, prepared in continuity with the past, does not contain the information required under IAS 34.

Accounting standards and policies are the same as those adopted for preparation of the consolidated financial statements at 31 December 2015, 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 2016, 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 (in liquidation) and Sabaf Appliance Components (Kunshan) Co., Ltd have been consolidated on a 100% line-by-line basis.
• As of June 30, 2016, A.R.C. s.r.l. was also consolidated. This company is active in the production of burners for professional cooking and the Group acquired control of it at the end of June 2016. In this interim management statement, therefore, the economic results of A.R.C. have contributed to the profit for the Sabaf Group only in 3Q 2016;
• The evaluation of A.R.C. in accordance with IFRS 3 revised, namely recognizing the fair value of assets, liabilities and contingent liabilities at the acquisition date, is to be considered temporary for the moment, since, in accordance with IFRS 3 revised, the evaluation becomes final within 12 months of the acquisition date;
• the subsidiary Sabaf US Corp. has not been consolidated as its contribution is considered immaterial for the purposes of consolidation.

The Interim Management Statement at 30 September 2016 has not been independently audited.

(amounts in € '000)	Q3 2016	Q3 2015	% change	9M 2016	9M 2015	% change	FY 2015
Italy	7,448	8,810	-15.5%	28,414	31,472	-9.7%	41,244
Western Europe	2,445	1,694	+44.3%	5,996	5,662	+5.9%	7,438
Eastern Europe	8,488	8,564	-0.9%	25,576	27,511	-7.0%	35,125
Middle East and Africa	3,129	3,326	-5.9%	8,039	12,328	-34.8%	16,759
Asia and Oceania	2,467	1,516	+62.7%	5,568	4,667	+19.3%	7,019
South America	6,097	5,372	+13.5%	15,858	15,793	+0.4%	20,815
North America and Mexico	3,132	2,778	+12.7%	8,608	7,136	+20.6%	9,603
Total	33,206	32,060	+3.6%	98,059	104,569	-6.2%	138,003

Sales breakdown by geographical area (Euro x 1000)

Sales breakdown by geographical area (Euro x 1000)

(amounts in € '000)	Q3 2016	Q3 2015	% change	9M 2016	9M 2015	% change	FY 2015
Brass valves	2,502	2,820	-11.3%	7,042	9,858	-28.6%	12,689
Light alloy valves	7,774	7,650	1.6%	24,907	25,765	-3.3%	33,784
Thermostats	1,532	2,221	-31.0%	5,958	8,092	-26.4%	10,596
Standard burners	9,388	9,273	1.2%	27,548	28,502	-3.3%	37,789
Special burners	5,739	4,982	15.2%	15,642	16,107	-2.9%	21,622
Accessories	3,056	3,012	1.5%	9,488	10,186	-6.9%	13,577
Total gas parts	29,991	29,958	+0.1%	90,585	98,510	-8.0%	130,057
Professional burners	1,196	0	n/a	1,196	0	n/a	0
Hinges	2,019	2,102	-3.9%	6,278	6,059	+3.6%	7,946
Total	33,206	32,060	+3.6%	98,059	104,569	-6.2%	138,003

Management Statement

Earnings

In 3Q 2016, the Sabaf Group booked sales revenue of € 33.2 million, an increase of 3.6% compared with the figure of € 32.1 million registered in 3Q 2015. Taking into consideration the same area of consolidation (i.e. excluding the contribution of A.R.C.), sales in the third quarter were stable compared with the same period last year. In the third quarter, the Group was again affected by the difficult economic situation in the Middle East and North Africa, which penalized both direct sales to these markets and the activity of Italian export customers in the area. By contrast, very positive results were achieved in South America, thanks to the production in Brazil of a special burner for the local market, and in North America, where Sabaf is constantly increasing its presence in the high-end market.

EBITDA for 3Q 2016 amounted to € 6.6 million, with a 19.8% margin on sales, up by 7% vs. € 6.1 million (19.2% margin on sales) in 3Q 2015. EBIT was € 3.3 million, equivalent to 10% of sales, and 6.6% higher than the € 3.1 million of the same quarter in 2015 (9.6% of sales). Profit before taxes for the period came in at € 3.3 million, largely unchanged compared with the third quarter of 2015. The net result for the period was € 2.4 million, up 3.1% on the figure of € 2.3 million for 3Q 2015.

In the first nine months of 2016, revenue came to € 98.1 million, a decrease of 6.2% compared to the same period of 2015; EBITDA was € 18.9 million (accounting for 19.3% of sales), down by 7.6%, EBIT came in at € 9.4 million (accounting for 9.6% of sales), a decrease of 18.6%, and net profit was € 6.3 million, down by 18.7% versus the first nine months of 2015.

Equity and cash flow

Quarter investments were € 2.4 million, bringing total investments since the start of the year to € 9.4 million (€ 9.6 million in the first nine months of 2015).

As at 30 September 2016, net financial debt was € 29.6 million (€ 34.3 million as at 30 June 2016), while shareholders' equity amounted to € 111 million.

Significant non-recurring, atypical and/or unusual transactions

During the third quarter of 2016, 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 in line with the same period of 2015. The Group therefore believes that it can close 2016 with sales of approximately € 132 million, down by between 4% and 5% compared with the amount of € 138 million in 2015. The Group also foresees that for the full year 2016, gross operating margin (EBITDA %) will total a value similar to 2015, when it amounted to 19%.

Negotiations with customers for 2017 are still ongoing; at present, the Group expects to be able to reach sales of around €140 million and improved operating margins compared to 2016.

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.

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

Pursuant to Article 154-bis, paragraph 2 of Legislative Decree 58/1998 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 the Interim Management Statement of Sabaf S.p.A. at 30 September 2016 corresponds to the company's records, books and accounting entries.

Ospitaletto (BS), 8 November 2016

Financial Reporting Officer Gianluca Beschi