CREATIVE CONCEPT The Sabaf Group has once again, in 2016, presented itself as the industry’s world
leader thanks to the use of advanced technologies and increasingly cutting-edge, interconnected machinery.
This scenario engendered the concept that accompanies the Annual Report this
year: a celebration of the importance of the human figure in the era of the fourth industrial generation.
At the heart of industry 4.0 there is just one element that prevents the production process from becoming just a sequence of cold and standardised steps. This
element is Man who, through the qualities intrinsic in his nature, thus not replicable by machines, lays the foundations for achieving objectives and the continuous improvement of the same.
These qualities, conceived as keywords, accompany the reader, cover to cover, until the final manifesto in which they are revealed to be fundamental to the
understanding and completion of the text, just as the presence of Man is necessary in the company processes.
“I cross out words so you will see them more. The fact that they are obscured makes you want to read them.” Jean-Michel Basquiat A message of integration and complementarity between man and the machine
expressed by the detail of the hands of Sabaf workers who operate together with
the machinery. The two elements merge into a single subject in black and white with particularly contrasting tones, giving you the feeling that the subjects are drawn directly by the light which brings out the details by the shadows it creates.
On the cover, the human intervention becomes necessary, thanks to the special
“heat-sensitive” printing technique used, to reveal a fundamental detail, the claim of the company in which human passion and technological research coexist and progress.
All Creative Agency
INDEX
20 CHAPTER 1 BUSINESS MODEL AND STRATEGIC APPROACH
32 CHAPTER 2 INTERNATIONAL DIMENSION AND RELEVANT MARKETS
40 CHAPTER 3 CORPORATE GOVERNANCE, RISK MANAGEMENT, COMPLIANCE AND GENERAL REMUNERATION POLICY
64 CHAPTER 4 SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
108 CHAPTER 5 REPORT ON OPERATIONS
120 CHAPTER 6
158
CHAPTER 7
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
198
CHAPTER 8 REPORT ON REMUNERATION
4
LETTER TO SHAREHOLDERS FROM THE MANAGING DIRECTOR ALBERTO BARTOLI Dear Shareholders and Partners, I hereby write my fifth and final letter as managing director of the Sabaf Group.
and with high quality standards to the cycles of an increasingly uncertain market.
working at this Company, to leave my role, one year in advance of its natural expiry.
We recently also introduced into the company the principles of Lean Manufacturing
I joined, as administrative and financial director in 1994, what was then a small
guiding principle is the direct participation and responsibility of every single
In fact, in mid-January, with quite a degree of sadness, I decided, after 23 years of
family-based company, but which was already set to become bigger and more professionally managed.
Casting my mind back over everything that has been achieved since then (the
constant growth in turnover whilst maintaining a substantial margin, the 1998
Stock Exchange listing, the development of firstly the Sustainability Report and
whose objective is continuous, collective and individual improvement. The new
person, making everyone active participants in the business processes, with respect to which each individual must be proactive, identifying any wastage, putting forward more economic and functional solutions and possible opportunities for
improvement. People at Sabaf are responding very enthusiastically to this new
challenge, because continuous improvement is inherent to this company’s culture.
then the integrated report, the obtaining of certifications, the awards for best
Finally, I am convinced that the Group’s path of growth will inevitably involve some
such outstanding results, not so much and not only in terms of numbers, but also
been done with A.R.C., the Padua company of which we acquired 70% in 2016.
budgets, the foreign offices), I can proudly say that few companies can boast of
and above all in terms of values, of the concentration of knowledge and of the
new acquisitions, perhaps in sectors adjacent to our own, on the model of what has
will to meet the continuous challenges that the competitive context imposes. Now
On the other hand, I do have one regret, which is linked to China. The efforts made
is sometimes not even fully understood by the very people working within the
highest potential in the world, whose penetration remains one of the absolute
that I am leaving, I can say emphatically that working at Sabaf is a privilege, which company.
have been significant, but we are still on the fringes of the market that has the priorities for a company like Sabaf which is striving to be an international player.
These results have been possible thanks to the governance introduced, which has
I believe that the 2016 results are very satisfying. In a year in which the market of
vision of family capitalism that sees, at all costs, the shareholders involved in key
increase its net margins. The year 2017 has begun positively and there are many
ensured that the company was run with managerial criteria, surpassing the narrow roles, even contrary to meritocratic principles.
domestic appliances has greatly shrunk, the Sabaf group has managed even to signs pointing towards it being a year of very satisfactory results.
In the past five years, the years of my leadership, the market challenges have been
Abiding by the principles of Adriano Olivetti, I have tried in my own small way to
internationalisation. In addition to the main headquarters in Ospitaletto, we now
a little and I hope you all to continue working with passion, always putting the
increasingly demanding. We have reacted to them by intently taking the path of
have two excellent production hubs in Brazil and in Turkey, which will become increasingly important in the future, and in which the continuous improvement of
product quality and the reduction of costs has already, in 2016, produced excellent
make people aware of the work by people at Sabaf. I believe that I have succeeded company first. This is the only way to achieve our ambitious professional and personal goals.
results. I hope that, in both countries, this path can be continued.
The progression towards a digital factory began some time ago at Sabaf, thanks to
constant investments in Research and Development. Here is the new paradigm, which is based upon production that will use interconnected machines linked to
the internet, able to achieve increasing flexibility, to respond in faster timescales
Thanks to you all. Alberto Bartoli
SABAF - ANNUAL REPORT 2016
INTRODUCTION TO ANNUAL REPORT
INTRODUCTION TO ANNUAL REPORT Sabaf’s path towards Integrated Reporting The publication of Sabaf’s Annual Report, now in its twelfth edition, confirms the group’s commitment, undertaken since 2005, to the integrated reporting of its economic, social and environmental performances. In confirmation of the significance of integrated reporting as a new and emerging model of corporate reporting, works have continued at international level on the issue. In fact, in December 2013, “The International <lR> Framework” was presented by the International Integrated Reporting Council (llRC), which defines the guidelines to be followed when preparing an Integrated Report and the key contents of the same. Integrated Reporting is a major evolution of company reporting, increasingly focused on creating greater cohesion and efficiency in the reporting process and the adoption of “integrated thinking”. Sabaf, one of the first companies internationally to grasp the trend of integrated reporting, intends to continue along this path, taking inspiration from the contents of the international Framework, in the awareness that integrated, complete and transparent information is able to benefit both companies themselves, through better understanding of the strategy and greater internal cohesion, and the community of
investors, which can thus clearly understand the link between strategy, governance and company performances. Sabaf also adopts a virtuous approach in relation to compliance with new regulatory obligations on non-financial reporting. On 30 December 2016, Italian Legislative Decree no. 254 entered into force which, in implementation of Directive 2014/95/ EU on the disclosure of non-financial information and diversity information, requires public interest bodies to report all information relevant to the activity performed by the company and their impacts starting from annual periods beginning on 1 January 2017. In particular, companies must provide information on the management model, policies and risks relating to aspects such as diversity, environment, society, human rights, staff and bribery, also reporting the performance indicators of the same. Sabaf, in line with its characteristic pioneering spirit, is assessing the need to define or update the existing policies and procedures to guarantee compliance with the requirements of the Decree. Moreover, the Group already provides in its Annual Report almost all the information required by the new regulation.
Methodological note Sections 1 – Business Model and Strategic Approach, 2 – International Dimension and Relevant Markets and 4 – Social and Environmental Sustainability constitute the sustainability report at 31 December 2016, prepared in accordance with the Sustainability Reporting Guidelines G4 defined by the Global Reporting Initiative (GRI) in 2013, and they include the indicators required by the “core” reporting option. The sustainability report also makes reference to the AA 1000 standards issued by AccountAbility, as regards the social reporting process and dialogue with stakeholders. In line with previous years, the process of defining the contents and determining materiality was based upon the principles laid down by the GRI (materiality, stakeholder inclusiveness, sustainability context, completeness, comparability, accuracy, timeliness, clarity, reliability and balance). The reporting perimeter of the sustainability report is the same as the consolidated financial statements, with the sole exception of A.R.C. s.r.l., a company whose control was acquired by the Group in 2016. That company fell within the perimeter of the consolidated financial statements from 1 July 2016, but it has not been included in the reporting perimeter of the sustainability report as all information required was not yet available at the preparation date. Extending the reporting perimeter to A.R.C. would not have had a significant impact, in view of its small size (2016 sales of 5.1 million Euro, 18 employees in late 2016) compared to the Sabaf Group. Any further exceptions are clearly disclosed in the document.
Section 3 – Governance, Risk Management, Compliance and Remuneration sets out significant information on the corporate governance structure and the corporate risk management system. Sections 5 – Management Report, 6 –Consolidated Financial Statements and 7 – Financial Statements of Sabaf S.p.A. constitute the Annual Financial Report at 31 December 2016. Finally, the Remuneration Report is included, as prepared in accordance with Article 123-ter of the Consolidated Law on Finance. This year, once again, the “non-financial indicators” include results achieved in the management and development of intangible capital, the main driver that enables monitoring of the capacity of the business strategy to create value in a medium to longterm perspective. In order to guarantee the reliability of the information set out in the Sustainability Report, we have included directly measurable quantities, limiting the use of estimates as much as possible. The calculations are based upon the best available information or on sample surveys. Estimated quantities are clearly indicated as such. The Annual Report was approved by the Board of Directors on 20 March 2017 and presented to the shareholders’ meeting on 27 April 2017.
5
6
Materiality analysis The GRI-G4 Guidelines require the contents of the Sustainability Report to be defined on the basis of a materiality analysis. Sabaf, in compliance with the requirements of GRI-G4, launched as early as 2014, with the involvement of company management, a process of identification of the material (relevant) issues to be included in the Annual Report, i.e. those issues: - of significant economic, environmental or social impact for Sabaf’s business - that could substantially affect the assessments and decisions of the stakeholders. In line with this perspective, materiality considers not only the point of view of the organisation but also that of the stakeholders.
The issues were confirmed as those most significant also for 2016. It is noted that in defining the material issues, the following aspects are considered pre-conditions for operating and are therefore considered very significant both for Sabaf and for the stakeholders: a) creation and distribution of sustainable value b) a transparent and effective governance system to support the business c) constant attention to compliance with the law in the conduct of its activities
Occupation
Assessment of career performance and development
14
Remuneration and incentive policies
Product and process research and innovation, with regard also to safety and environmental performance
3
Health and safety of personnel and contractors
18
Customer satisfaction and customer support
9
12
Atmospheric emissions, waste and management of environmental impact
Distinctive image of the Group and reputation of the brand
Eco-efficiency and management of product and process quality
important
SIGNIFICANCE FOR SABAF STAKEHOLDERS
very important
Materiality Matrix
Management of relationships with suppliers, supplier assessment and business conditions Safeguarding human rights and rights of workers Diversity and equal opportunities
16
Internal communication
10 11
Establishment in international markets and personalisation of products for emerging markets
5 7
6
4
Partnerships with multinational groups
8
Staff training
Labour relations
1
2
17
15 Recruitment policies, with regard also to technical competencies
important
SIGNIFICANCE TO SABAF
13
very important
SABAF - ANNUAL REPORT 2016
7
INTRODUCTION TO ANNUAL REPORT
Material issue ID
MATERIAL ISSUE
IMPORTANCE OF THE ISSUE TO SABAF
LINK TO GRI-G4 ASPECTS
1
Staff training
Training activities with the aim of ensuring the continued professional development of employees
Training and Education (G4-LA9)
Sabaf
2
Labour relations
Relationship between Sabaf and internal trade union representatives, based on principles of transparency and mutual trust
Freedom of Association and Collective Bargaining (G4-HR4)
Sabaf
Trade unions
3
Remuneration and incentive policies
- Setting the fixed and variable components of employees’ salaries - Incentive system based on the attainment of pre-set objectives, with the aim of achieving company targets
- Market Presence (G4-EC5) - Training and Education (G4-LA11) - Equal Remuneration for Men and Women (G4-LA13)
Sabaf
Trade unions
4
Atmospheric emissions, waste and management of environmental impact
Definition of monitoring activities and the reduction of the emission of polluting substances into the atmosphere and of waste generated by Sabaf’s production processes
- Materials (G4-EN1, G4-EN2) - Energy (G4-EN3, G4-EN5) - Water (G4-EN8, G4-EN9, G4-EN10) - Emissions (G4-EN15, G4-EN16, G4-EN20, G4-EN21) - Effluents and Waste (G4-EN22, G4-EN23, G4-EN24) - Overall (G4-EN31)
Sabaf
Environment, Community
5
Product and process research and innovation, with regard also to safety and environmental performance
Identification of new technological and production solutions (with specific focus on safety and environmental performance) that allow the Company to reinforce its leadership in the industrial sector to which it belongs
Product and Services (G4-EN27) Customer Health and Safety (G4-PR1)
Sabaf
Customers, Community, Environment
6
Partnerships with multinational groups
Openness of Sabaf to strategic partnerships with major players in the sector
(*)
Sabaf
Customers
7
Establishment in international markets and personalisation of products for emerging markets
The replication of Sabaf’s business model in emerging countries, adapting to local cultures
(*)
Sabaf
Customers, Community
8
Distinctive image of the Group and reputation of the brand
Operating while maintaining the distinctive image of the brand synonymous with reliability, quality and innovation - that Sabaf has acquired in the market
(*)
Sabaf
Customers, Financial backers
9
Customer satisfaction and customer support
Ability to respond effectively to customer expectations at all stages of the relationship (from design to post-sales support)
Product and Service Labeling (G4-PR5)
Sabaf
Customers
10
Eco-efficiency and management of product and process quality
Research of the best product or process performance or solutions in terms of environmental impact Design of new eco-efficient products
See items 4 and 5
Sabaf
Customers, Environment, Community
11
Management of relationships with suppliers, supplier assessment and business conditions
The commitment by Sabaf to create a relationship with the supplier chain based on principles of business integrity, propriety and contractual fairness The sharing of Sabaf values with suppliers. The definition, by Sabaf, of minimum criteria for the development of a longterm relationship with suppliers, based on principles of social responsibility
- Supplier Assessment for Labor Practices (G4-LA14) - Assessment (G4-HR9) - Supplier Human Rights Assessment (G4-HR10)
Sabaf
Customers, Environment, Community
12
Health and safety of personnel and contractors
Management, in compliance with regulations regarding health and safety at work, of matters relating to the health and safety of employees: training, prevention, monitoring, improvement objectives
Occupational Health and Safety (G4-LA6, G4-LA7, G4-LA8)
Sabaf
Suppliers
13
Recruitment policies, with regard also to technical competencies
Personnel recruitment policies aimed at ensuring equal opportunities for all candidates, avoiding any form of discrimination Assessment of candidates based on competencies, previous working experience and potential
Employment (G4-LA1)
Sabaf
Society
14
Occupation
Focus on maintaining stable relationships, with an awareness of the importance of human capital to the implementation of company strategy
Employment (G4-LA2, G4-LA3)
Sabaf
15
Internal communication
Activities and projects aimed at developing a continuous dialogue between the company and its employees
(*)
Sabaf
16
Diversity and equal opportunities
Commitment to ensuring equal opportunities for women or for minorities
Diversity and equal opportunity (G4-LA12)
Sabaf
17
Safeguarding human rights and rights of workers
Safeguarding human rights as prescribed by “The Universal Declaration of Human Rights” and the principles set out in the rules of the International Labour Organisation The socially responsible management of employment processes and working conditions in the supply chain, in accordance with the requirements of norm SA8000
- Non-discrimination (G4-HR3) - Child Labor (G4-HR5) - Forced or Compulsory Labor (G4-HR6) - Assessment (G4-HR9) - Supplier Human Rights Assessment (G4-HR10)
Sabaf
18
Assessment of career performance and development
- Internal development of favoured competencies instead of acquiring these externally - Development based on merit
- Training and Education (G4- LA11)
Sabaf
(*) With regard to a particular issue (not directly linked to an aspect covered by the GRI-G4 guidelines), Sabaf sets out the management approach adopted in the document, along with the relative indicators.
INTERNAL EXTERNAL IMPACT IMPACT
Suppliers
8
Sabaf adheres to the CECED Code of Conduct Sabaf adheres to the code of conduct of CECED Italy, an association that represents over 100 companies in the domestic appliances industry. The CECED Code of Conduct assets the commitment of the European domestic appliances industry in sustaining ethical and fair behaviour. The Code aims to promote correct and sustainable standards in working conditions and in environmental protection to sustain fair competition on the global markets. Its members, the manufacturers, voluntarily undertake to create decent working conditions, which involve the respect of common standards relating to minimum age, working hours, health and safety, respect of freedom of association and collective bargaining, along with compliance with environmental rules. The signatory companies also undertake to raise the awareness of their suppliers with respect to the principles of the Code of Conduct and encourage them to pursue them. They also ask that, through the latter, the same principles are suggested to the entire supply chain. The Sabaf Annual Report also represents, in that sense, the tool through which the Group reports year by year on the practical implementation of the principles of the Code and on the progress achieved, as specifically required from the member companies.
Sabaf adheres to the Global Compact Sabaf, in April 2004, formally joined Global Compact, the United Nations initiative for companies that are committed to supporting and promoting ten universally accepted principles on human rights, labour rights, environmental protection and anti-corruption. With the publication of the 2015 Annual Report, we renew our commitment to making the Global Compact and its principles an integral part of our strategy, culture and daily operations and we also undertake explicitly to declare this commitment to all employees, partners, customers and the public in general. The Annual Report describes in detail the actions undertaken by the Sabaf Group in support of the ten principles; the references are contained in the index of GRI indicators, according to the guidelines “Making the connection. The GRI Guidelines and the UNGC Communication on Progress”.
Alberto Bartoli
SABAF - ANNUAL REPORT 2016
INTRODUCTION TO ANNUAL REPORT
The Global Compact 10 principles Human rights PRINC IPLE I BUSINESSES SHOULD SUPPORT AND RESPECT THE PROTECTION OF INTERNATIONALLY PROCLAIMED HUMAN RIGHTS; AND
PRINC IPLE II MAKE SURE THAT THEY ARE NOT, EVEN INDIRECTLY, COMPLICIT IN HUMAN RIGHTS ABUSES.
Labour PRIN CIPLE III BUSINESSES SHOULD UPHOLD THE FREEDOM OF ASSOCIATION AND THE EFFECTIVE RECOGNITION OF THE RIGHT TO COLLECTIVE BARGAINING.
PRIN CIPLE IV THE ELIMINATION OF ALL FORMS OF FORCED AND COMPULSORY LABOUR.
PRINC IPLE V THE EFFECTIVE ABOLITION OF CHILD LABOUR.
PRINC IPLE V I THE ELIMINATION OF DISCRIMINATION IN RESPECT OF EMPLOYMENT AND OCCUPATION.
Environment PRIN CIPLE V II BUSINESSES SHOULD SUPPORT A PRECAUTIONARY APPROACH TO ENVIRONMENTAL CHALLENGES AND
PRINC IPLE V III UNDERTAKE INITIATIVES TO PROMOTE GREATER ENVIRONMENTAL RESPONSIBILITY; AND
PRINC IPLE IX ENCOURAGE THE DEVELOPMENT AND DIFFUSION OF ENVIRONMENTALLY FRIENDLY TECHNOLOGIES.
Anti-Corruption PRIN CIPLE X BUSINESSES SHOULD WORK AGAINST CORRUPTION IN ALL ITS FORMS, INCLUDING EXTORTION AND BRIBERY.
9
10
Key Performance Indicators in brief (KPI) ECONOMIC CAPITAL 2016
2015
2014
REVENUES FROM SALES
€/000
130,978
138,003
136,337
GROSS OPERATING PROFIT (EBITDA)
€/000
25,365
26,172
25,952
OPERATING PROFIT (EBIT)
€/000
12,530
14,091
13,175
PRE-TAX PROFIT
€/000
12,446
13,474
12,157
NET PROFIT
€/000
9,009
8,998
8,338
WORKING CAPITAL
€/000
46,084
48,163
45,844
INVESTED CAPITAL
€/000
135,767
136,948
137,671
SHAREHOLDERS’ EQUITY
€/000
112,309
111,040
110,738
NET DEBT
€/000
23,458
25,908
26,933
9.2
10.3
9.6
5,467
4,613
16,146
PROFITABILITY OF INVESTED CAPITAL (EBIT/INVESTED CAPITAL)
%
€/000
DIVIDENDS PAID
1
1 On 12 November 2014 the shareholders were paid an extraordinary dividend of €1.00 per shares (total dividends paid of 11,533,000 Euro).
€/000
NET PROFIT
2016
2015
2014
9,009
8,998
8,338
SABAF - ANNUAL REPORT 2016
INTRODUCTION TO ANNUAL REPORT
11
HUMAN CAPITAL
AVERAGE AGE OF STAFF
EDUCATION LEVEL
EXITING TURNOVER
TRAINING HOURS PER EMPLOYEE
(sum of ages of employees/total employees at 31/12)
(number of graduates/total employees at 31/12)
(resigned and dismissed employees/ total employees at 31/12)
(training hours/average employees)
YEARS
%
38.6 37.7 37.2
57.2 55.7 54.4
TRAINING INVESTMENTS/ TURNOVER
HOURS OF STRIKES FOR INTERNAL REASONS
%
N°
0.23 0.33 0.31
0 0 0
ACCIDENT FREQUENCY RATE
ACCIDENT SEVERITY RATE
JOBS CREATED
(number of accidents - excluding commuting accidents - x 1,000,000/ total hours worked)
(days of absenc - excluding commuting accidents - x 1,000/total hours worked)
(lost)
9.21 13.73 11.08
0.04 0.40 0.39
(23) 33 (4)
%
HOURS
%
15.4
8.7
25.1
18.9
11.9
20
TOTAL EMPLOYEES
N°
%
15.7 17.5 14.4
2016 2015 2014
SICKNESS RATE (sickness hours/total workable hours)
%
736
65.5
34.5
759
65.1
34.9
726
64.9
35.1
%
3.28 2.93 2.88
2016 2015 2014
N°
2016 2015 2014
12
RELATIONAL CAPITAL
VALUE OF EXTERNALISED GOODS AND SERVICES: brass moulding and aluminium die-casting €/000
VALUE OF EXTERNALISED GOODS AND SERVICES: other processes
2,635
€/000
4,010
3,226 3,502
4,284
3,672 10,000
%
10,000
REJECTS AT CUSTOMERS (charges from
AVERAGE SALES PER CUSTOMER
customers and credit notes to customers for returns/turnover)
(total sales/number of customers)
0.09
€/000
382 416
0.57
464
0.07 1
500
PERCENTAGE OF SALES DERIVING FROM NEW CUSTOMERS
PERCENTAGE INCIDENCE OF TOP 10 CUSTOMERS
(sales from new customers/sales) %
%
1.01
47
1.24
48
1.02
47 2
100
CUSTOMER COMPLAINTS
PERCENTAGE INCIDENCE OF TOP 20 CUSTOMERS %
67
N°
395 320
68
291
70 100
500
NUMBER OF ANALYSTS WHO CONTINUOUSLY OVERSEE THE STOCK
CERTIFIED SUPPLIERS TURNOVER (certified suppliers turnover/purchases) %
68.1
N°
1 2
50.1
2
54.7 100
10
SABAF - ANNUAL REPORT 2016
PERCENTAGE OF AMOUNT OF SUPPLIERS IN PROVINCE OF BRESCIA
CASES BROUGHT AGAINST THE GROUP COMPANIES
4
N°
13
INTRODUCTION TO ANNUAL REPORT
36.2
%
28.8
0
32.9
2 10
100
DONATIONS/EARNINGS
0.40
%
0.49 0.48 1
PRODUCTION CAPITAL FIXED CAPITAL
NET TOTAL INVESTMENTS
93,967 92,797
%
11,762 12,065
96,152
MATERIAL INVESTMENTS/ TURNOVER
7.2
0.8
0.7
QUANTITY OF SALES OF LIGHT ALLOY TAPS ON TOTAL TAPS AND THERMOSTATS
QUANTITY OF SALES OF HIGH ENERGY EFFICIENCY BURNERS ON TOTAL BURNERS
100
100
80.8
%
%
%
8.4
1
10,141
100
8.8
1.0
20,000
€/000
€/000
200,000
BUDGET (investments + current expenses) IT/TURNOVER
73.6
68.1
14.5
13.4
9.6
Key 2016
2015
2014
14
ENVIRONMENTAL CAPITAL
BRASS
ALUMINIUM ALLOYS
10,000
STEEL
10,000
MATERIALS USED (t)
10,000
697
1,025
6,703
1,030
URBAN
7,431
7,405
HAZARDOUS WASTE
10,000
6,790
6,287
NON-HAZARDOUS WASTE
10,000
WASTE (t)
500
7,250
152
166
2,210
200
m3x000
METHANE CONSUMPTION
2,396
2,374
5,573
5,378
MWh
ELECTRICITY CONSUMPTION
3,432
27,189
3,376
29,384
3,120
5,453
29,773 10,000
50,000
t
CO2 EMISSIONS
%
CURRENT ENVIRONMENTAL COSTS/ TURNOVER AT 31/12
16,541
0.43
17,384
0.4 0.4
18,071Â 50,000
1
%
ENVIRONMENTAL INVESTMENTS/ TURNOVER AT 31/12
%
INCIDENCE OF HAZARDOUS WASTE (kg hazardous waste / total die-cast production)
0.53
3.4
0.47
4.1
0.34
4.4 1
10
Key 2016
2015
2014
SABAF - ANNUAL REPORT 2016
INTRODUCTION TO ANNUAL REPORT
INTELLECTUAL CAPITAL
2016
2015
2014
€/000
231
297
341
%
1.5
1.4
1.8
%
2.3
3.0
2.0
INTANGIBLE INVESTMENTS/TURNOVER
%
0.4
0.6
0.5
CURRENT QUALITY COSTS/TURNOVER
%
0.24
0.19
0.11
INVESTMENTS FOR QUALITY/TURNOVER
%
0.10
0.05
0.08
VALUES OF WASTE/TURNOVER
%
0.87
1.22
1.25
INCIDENCE OF QUALITY COSTS/TURNOVER
%
0.96
1.80
1.31
CAPITALISED INVESTMENTS IN RESEARCH AND DEVELOPMENT
HOURS SPENT DEVELOPING NEW PRODUCTS/HOURS WORKED
HOURS SPENT ON PROCESS ENGINEERING/HOURS WORKED
(hours spent on jobs for construction of new machines for new products or to increase production capacity/total hours worked)
(production waste/turnover)
(production waste + charges and returns from customers/ turnover)
NUMBER OF SAMPLES FOR CUSTOMERS
N°
1,154 1,069 1,143
NUMBER OF CODES PROVIDED TO TOP 10 CUSTOMERS
N°
2,303 2,278 2,158
15
16
Economic Value Generated and Distributed Set out below is an analysis of the determination and distribution of economic value between the stakeholders, prepared in accordance with GRI guidelines. The table was prepared distinguishing three levels of economic value. That generated, that distributed and that retained by the Group. Economic value represents the total wealth created by Sabaf, which is subsequently distributed between the different stakeholders: suppliers (operating costs), collaborators, lenders, shareholders, public administration and society (external donations).
THOUSANDS OF EURO
2016
2015
ECONOMIC VALUE GENERATED BY GROUP
134,937
142,648
(7,711)
Revenues
130,978
138,003
(7,025)
2,752
3,689
(937)
Financial income
101
67
34
Adjustments of value
842
1,230
(388)
Write-down of receivables
(189)
(356)
167
Exchange rate differences
435
(89)
524
Income/expenses from sale of tangible and intangible assets
18
104
(86)
118,396
126,098
(7,702)
76,809
83,844
(7,035)
559
559
0
32,112
32,526
(414)
621
596
25
Remuneration of shareholders 2
5,467
4,613
854
Remuneration of public administration 3
3,351
4,475
(1,124)
36
44
(8)
ECONOMIC VALUE RETAINED BY GROUP
16,541
16,550
(9)
Amortisations
12,853
12,185
668
Provisioning
127
49
78
Use of provisions
(67)
(69)
2
3,628
4,385
(757)
Other income
ECONOMIC VALUE DISTRIBUTED BY GROUP Remuneration of suppliers of which for environmental costs Remuneration of collaborators Remuneration of lenders
External donations
Reserves
2 The amount is estimated based upon the proposed dividend. 3 This includes deferred taxes.
VARIATION
IN SI GH T 1
20
CHAPTER 1 BUSINESS MODEL AND STRATEGIC APPROACH
SABAF - ANNUAL REPORT 2016
CHAPTER 1 - BUSINESS MODEL AND STRATEGIC APPROACH
SABAF 4.0 “Industry 4.0” means the fourth industrial revolution, i.e. the one which will lead to production almost entirely based upon the use of intelligent machines, interconnected and connected to the internet. These machines, however, are not able to work alone: the more powerful data calculation and storage capacity will go hand in hand with better efficiency in drawing value from the same. Currently, only 1% of the data collected is used by businesses to perfect their processes based upon available information. For us, as we have already, for about a decade, been on the path towards industry 4.0, through the use of robots and the capacity of the different work phases to intercommunicate, the new frontier consists of achieving greater flexibility, to respond increasingly quickly and with high quality
standards to the cycles of an increasingly uncertain market. Our aim is to make available and usable in real time the data deriving from these integrations to the people directly involved in the processes, because it is only human knowledge that can guarantee the real 4.0 revolution, particularly in a vertically-structured and integrated company like Sabaf. We must learn to use everything to the best possible extent to draw from it better performances, saving time, waste, costs and energy. We must all become the minds of new and powerful processes. Sabaf’s knowledge, its history, tradition, expertise and the new frontier of work. This is what “Industry 4.0” means for us.
21
BUSINESS MODEL In line with its shared values and mission, the Company believes that there is a successful business and cultural model to be consolidated as a priority through organic growth. Innovation, safety, personal development and socio-environmental sustainability are the distinctive features of the Sabaf model.
Sabaf and lean philosophy A Japanese model, lean production, total quality. These are the formulas with which the manufacturing industry is attempting to keep in step with the times, the global challenges that make the market uncertain and the competitive benefits not forever captured. Sabaf has long been oriented towards the philosophy of continuous improvement and it applies, in its factory as in its office activities, numerous techniques typical of lean manufacturing and lean office. It is a necessary path so as not to miss out on market shares in a situation made complicated by the difficult economic period, not only for the domestic appliances industry. We also know that continuous improvement is an objective that concerns us all, at every level. If we want to remain in step with the times, everyone must strive to do everything excellently that they already know how to do well. Everyone is invited to bring out the skills they possess and to share with others their experience and knowledge acquired in the field. We know that every resource that is poorly used or unused is a wasted resource; this means energy, time, people, intelligence, raw materials. Finally, we know that continuous improvement means the willingness of people to change, as Charles Darwin taught us it is not
the strongest or most intelligent species that survives, but the one that adapts best to change. To make more structured and to continue to support this path, in 2016 an ambitious training programme was launched on the topic of lean philosophy and lean production, which we called “The path of excellence”. This involved, first and foremost, all the managers, who underwent a 32 hour training course, focused mainly on developing human skills (the search for excellence as an opportunity for human and professional growth). A second phase of the training path, begun in early 2017, is being provided to almost 200 people, engaged both in office and production activities. The initial feedback has been extremely positive; people have welcomed the initiative enthusiastically and shown a willingness and desire to get involved. Any outside observer would be surprised: it is well-known just how strong the resistance to change is in some organisations and how much scepticism can be met when faced with innovations. But there are those, like us, who have grown up with the traditional passion of “doing well”, typical of Brescia, a fundamental characteristic of our DNA, in further confirmation of the validity of the human factor at Sabaf, the true strength on which to build our future.
INPUT
ECONOMIC CAPITAL • Net debt 23,458,000 € • Shareholders’ equity 112,309,000 € • Invested capital 135,767,000 € • Market capitalisation at 31 December / Shareholders’ equity 1.07
HUMAN CAPITAL
RELATIONAL CAPITAL
• Collaborators 736 • Higher education: graduate employees 57.2% • Training hours per employee 15.7 • Training investments on turnover 0.23%
• S ales deriving from top 10 customers 47% • No. of customers 293 • Purchases from suppliers in Brescia province 36.2%
BUSINESS APPROACH
OUTPUT
Innovation, human resource development and continuous learning
+
Quality, internal and external safety, eco-friendliness
Internal and vertical production of:
Sustainability
components and products
ECONOMIC CAPITAL
HUMAN CAPITAL
RELATIONAL CAPITAL
• No. of new recruits 80 • Exiting turnover 13.04% • Striking hours on workable hours 0.36% • Accident frequency ratio 9.21 • Accident severity ratio 0.04
• Production sites 5 • Tangible investments on sales 8.8% • Value of tangible assets 79,334,000 €
D I S T I N C T I V E FA C T O R S
Internationalisation
• Sales revenues -5.0% • EBITDA in percentage of sales 19.4%
PRODUCTIVE CAPITAL
• Average sales per customer 382,000 € • No. of samples for customers 1,154 • Customer complaints 395 • Cases brought against Group companies 4 • Donations/profit 0.40%
+
machinery, tools, and moulds based upon specific know-how
PRODUCTIVE CAPITAL • Burners sold (No. of pieces) 35,100,000 • High efficiency burners 14.5% • Taps and thermostats sold (No. Pieces) 18,800,000 • Light alloy taps and thermostats sold 80.8%
SABAF - ANNUAL REPORT 2016
INTELLECTUAL CAPITAL
Brass 697t Aluminium alloy 6,703t Steel 7,250t Electricity consumed 27,189MWh Methane consumed 3,432,000m3 Water used 93,519m3
• Hours spent developing new products 1.5% • Hours spent on process engineering 2.3%
INPUT
ENVIRONMENTAL CAPITAL • • • • • •
23
CHAPTER 1 - BUSINESS MODEL AND STRATEGIC APPROACH
PRODUCTS Taps and thermostats
Hinges
• Ton. hazardous waste on total die-cast pieces 3.4% • CO2 emissions 16,541t
Accessories
INTELLECTUAL CAPITAL • No. of patents 31 • No. codes provided to top 10 customers 2,303 • Incidence of current quality costs on turnover 0.24%
OUTPUT
ENVIRONMENTAL CAPITAL
+
Burners
24
Strategic approach and value creation
VISION
MISSION
STRATEGIC FOCUS Innovation
1
Integration of R&D for products and manufacturing processes
Eco-efficiency
Safety
Establishment in international markets
Widening of components range and international partnerships
SCOPE OF ACTION
2
Intense vertical integration of production, in which high-value phases are performed using exclusive technologies
3
Ability to combine major automation with flexibility and large production runs with customisation
CREATION OF SUSTAINABLE VALUE
Enhanced exploitation of intangible assets and intellectual capital
4
Constant flow of capital expenditure aimed at strengthening competitive advantage
SABAF - ANNUAL REPORT 2016
CHAPTER 1 - BUSINESS MODEL AND STRATEGIC APPROACH
Values, vision and mission Sabaf sees as an original value and thus a fundamental criterion of every choice the Individual, hence it has a focused business vision which gives dignity and freedom to the Individual within accepted rules of conduct. The centrality of the Individual is a universal value, i.e. a hyper-rule applicable regardless of differences in time and space. In respect of that universal value, the Sabaf Group operates by promoting cultural diversity through the criterion of spatial and temporal equity. Such a moral commitment requires the abandonment of all decisions that do
not respect the physical, cultural and moral integrity of the individual, even if those decisions may be efficient, economically convenient and legally acceptable. Respecting the value of the Individual means, primarily, attributing to hierarchical propriety the dimension of the category of Being as opposed to Doing and Having, and thus protecting and developing the “essential� manifestations that allow the fullness of the Individual to be expressed.
VALUES Innovation
COMMUNICATE
PEOPLE
BELIEVE
Change
ACT
Safety
Transparency
THINK
25
26
The Sabaf Charter of Values Sabaf’s Charter of Values is the tool through which its Board of Directors expresses the values, standards of conduct and methods of managing relationships between Sabaf and its stakeholders. All Group companies are required formally to incorporate it. The Charter of Values is also a reference document within the Organisation, Management and Control Model in accordance with Italian Legislative Decree 231/2001 and, as such, it presents a series of general rules of conduct with which the Group’s collaborators must comply.
VISION
To combine business decisions and results with ethical values by going beyond family capitalism and opting for a managerial rationale oriented not only towards the creation of value but also towards the respect of values.
To consolidate a leading position in technology and in the market in the design, production and sales of the full range of components for domestic appliances for gas cooking, through constant attention to innovation, safety and the enhancement of internal resources.
MISSION
To link the company’s growth to socioenvironmental sustainability, promoting open dialogue with the legitimate expectations of the company’s stakeholders.
SABAF - ANNUAL REPORT 2016
CHAPTER 1 - BUSINESS MODEL AND STRATEGIC APPROACH
Innovation
Success on international markets
Innovation represents for Sabaf one of the essential elements of its business model and one of its main “strategic levers”. Thanks to continuous innovation, the Group has succeeded in achieving excellent results, identifying some of the most advanced and effective technological and production solutions currently available and establishing a virtuous cycle of continuous improvement of processes and products, ultimately acquiring technological expertise with characteristics that are difficult for its competitors to replicate. The know-how acquired over the years in the development and internal construction of machinery, tools and moulds, which is integrated synergistically with the know-how in the development and production of our products, is a critical success factor for the Group. Its investments in innovation have allowed the company to become a leader at global level in a very specialist niche sector and to achieve over time high levels of technological development, specialisation and productive flexibility. The production sites in Italy and abroad are designed to guarantee products in accordance with the highest levels of technology currently available and they represent a cutting-edge model both for respect of the environment and for the safety of workers.
Sabaf pursues its growth through success on the international markets, seeking to replicate its business model in emerging countries and to adapt it to the local culture. In line with the values of reference and its mission, the Group is seeking to bring cutting-edge know-how and technologies to those Countries, operating in full respect of the rights of individuals, the environment and observing the code of conduct of the United Nations for transnational countries. That choice is guided by the awareness that only by operating in a socially responsible manner is it possible to ensure that industrial experiences in the emerging markets have long-term development.
Eco-efficiency Sabaf’s product innovation strategy is based, as a priority, on the search for superior performances from the perspective of environmental impact. The attention to environmental issues materialises both in innovative production processes that have a lower energy impact in the manufacture of products and, above all, in the design of ecoefficient products during their daily use. The efforts of innovation are oriented towards the development of burners that reduce combustible consumption (methane or other gases) and emissions used (in particular carbon dioxide and carbon monoxide).
Safety Safety has always been one of the essential elements of Sabaf’s business plan. Safety for Sabaf does not simply mean complying with existing standards, but it is a management philosophy aimed at the continuous improvement of its performances, in order to provide to end users an increasingly safe product. The Group, as well as investing in the research and development of new products, has chosen to contribute actively to spreading the culture of safety, both encouraging the sale of products with thermoelectric safety devices, and implementing a communication policy aimed at promoting the use of products with thermoelectric safety devices. For some time, Sabaf has promoted throughout the world - at various institutional levels - the introduction of rules making it mandatory to adopt products with thermoelectric safety devices. Safety has shown itself to be a critical success factor, also because the Company has been able to anticipate the demand for products with safety devices in the European market and to stimulate the dissemination of those products even in developing countries. Sabaf has also become a promoter of the prohibition on using zamak (zinc and aluminium alloy) for the production of gas taps for cooking, in view of its intrinsic dangers. To date, however, in Brazil, Mexico and in other South American countries it is still permitted to use zamak, actually limiting Sabaf’s business opportunities in the taps segment, as it has no intention of considering manufacturing taps using zamak.
Expansion of the range of components and partnership with multinational groups Continuous expansion of the range is aimed at increasing the loyalty of customers through the broadest satisfaction of their requirements. The possibility for Sabaf to offer a complete range of components also represents a further distinctive element compared to its competitors. That expansion is pursued both through internal research, and through the expansion of external lines, even in related sectors. An example of this is the 2016 acquisition of the majority share of A.R.C. s.r.l., a company leader in Italy in the production of burners for professional cooking. The Group also intends to consolidate further its collaborative relationships with its customers and to strengthen its positioning as the sole supplier of a complete range of products in the market of cooking components , also thanks to the capacity to adapt its production processes to the specific requirements of customers.
Enhancing the value of intangible assets and intellectual capital Enhancing the value of intangible assets is essential to compete effectively on the international market. Sabaf is attentive to monitoring and increasing the value of its intangible assets: the high technical and professional skill of its people, its image synonymous with quality and reliability, its reputation as a company attentive to social and environmental problems and the requirements of its interlocutors. The promotion of the idea of work and relationships with stakeholders as the “passion of a project based upon common values in which everyone can recognise themselves symmetrically” is not just a moral commitment but the true guarantee of enhancing the value of intangible assets. In this perspective, the sharing of values represents the link between the promotion of a business culture oriented towards social responsibility and the enhancement of intellectual capital.
27
28
Social responsibility in business processes To transform into intervention decisions and management activities the values and principles of sustainable development, Sabaf applies a structured methodology, whose crucial factors are the following:
1
2
3
the sharing of values, mission and strategy of sustainability;
training and communication;
an internal control system able to monitor risks (including ethical and reputational risks) and to verify the implementation of commitments towards stakeholders;
4
5
6
key performance indicators (KPI), capable of monitoring economic, social and environmental performances;
a clear and complete reporting system, able effectively to inform the different categories of stakeholders;
a stakeholder engagement system, to address the expectations of all stakeholders and to receive useful feedback for continuous improvement.
Precautionary approach The awareness of social and environmental implications that accompany the activities performed by the Group, together with consideration of the importance held as much by the cooperative approach with stakeholders as the good reputation of the Group itself, has inspired Sabaf to adopt a precautionary approach in the management of economic, social and environmental variables which it handles on a daily basis. To this end, the Group has developed specific analyses of the main risks of the different dimensions of operations. Detailed information on the internal control system and the risk management system is illustrated in Section 3 “Governance, Risk Management, Compliance and General Remuneration Policy�.
SABAF - ANNUAL REPORT 2016
CHAPTER 1 - BUSINESS MODEL AND STRATEGIC APPROACH
STAKEHOLDER ENGAGEMENT Sabaf is committed to continuously strengthening the social value of its business activities through the attentive management of relationships with stakeholders. The company intends to establish an open and transparent dialogue, encouraging moments of discussion in order to identify legitimate expectations, increase loyalty towards the Company, manage risks and identify new opportunities. Identifying the stakeholders is an essential starting point for defining the socioenvironmental reporting processes. The “map of stakeholders” provides a summary representation of Sabaf’s main interlocutors, identified based upon the peculiar aspects of the business, the characteristic aspects of the market and the intensity of the relationships with the latter.
The Annual Report represents the preferred communication tool for the presentation of significant performances achieved in the year in the economic, social and environmental field. Set out below are the initiatives of involvement with respect to each stakeholder which are carried out periodically (generally on a two or three yearly basis). The significant issues emerging from those activities are set out in the section Social and Environmental Sustainability.
Customers Society
Staff
Public Administration
Shareholders
Competitors
Environment Lenders
Employees
Customers
Suppliers
Shareholders
Society and Institutions
QUESTIONNAIRE
QUESTIONNAIRE DEDICATED TO FINANCIAL ANALYSTS AND INVESTMENT FUND MANAGERS
MULTI-STAKEHOLDER PANELS
EMPLOYEE SATISFACTION SURVEYS AND COMPANY CLIMATE ANALYSIS MEETINGS WITH EMPLOYEES PANEL MEETINGS WITH TRADE UNION ORGANISATIONS
CUSTOMER SATISFACTION SURVEY
Suppliers
PERIODIC MEETINGS
MEETINGS WITH ETHICAL FUNDS MANAGERS
DIALOGUE WITH UNIVERSITIES
Stakeholder
Stakeholder engagement initiatives undertaken
29
KN OW LED GE 2
32
CHAPTER 2 INTERNATIONAL DIMENSION AND RELEVANT MARKETS
SABAF - ANNUAL REPORT 2016
CHAPTER 2 - INTERNATIONAL DIMENSION AND RELEVANT MARKETS
INTERNATIONAL PRESENCE The Sabaf Group is one of the world’s main producers of components for gas cooker domestic appliances, with a market share of approximately 50% in Europe and over 10% globally. The relevant market is represented by manufacturers of domestic appliances and, in particular, kitchens, worktops and ovens. Most of its sales consist of the supply of original equipment, while sales of components for spare parts are negligible.
MANAGEMENT AND PRODUCTION
Market share of approximately 50% in Europe and over 10% globally
SALES NETWORK
SALES NETWORK
PRODUCTION SITE
PRODUCTION SITE
PRODUCTION SITE
Main production lines Taps and thermostats
Burners
Hinges
Accessories
They are components that regulate the flow of gas to covered or uncovered burners (of the oven or grill); thermostats are characterised by the presence of a temperature control device to constantly maintain the chosen temperature.
They are components that, by mixing the gas with air and combustion of the gases used, produce one or more ring burners.
They are components that allow for the movement and balance when opening and closing the door of the oven, washing machine or dishwasher.
The Group also manufactures and markets a wide range of accessories, which supplement the offer of the main product lines.
33
34
Sales by product line
â‚Ź/000
0
year
5,000
10,000
15,000
20,000
25,000
30,000
40,000
9,007
Brass taps
32,393
Light alloy taps 7,669
Thermostats
2016
35,000
37,338
Standard burners 21,215
Special burners 12,613
Accessor. & other revenues 2,289
Professional burners
8,424
Hinges
12,689
Brass taps
33,784
Light alloy taps 10,596
Thermostats
2015
37,789
Standard burners 21,622
Special burners 13,577
Accessor. & other revenues Professional burners
7,946
Hinges
13,741
Brass taps
34,006
Light alloy taps 12,288
Thermostats
2014
36,160
Standard burners 20,251
Special burners 12,928
Accessor. & other revenues Professional burners
6,963
Hinges
14,613
Brass taps
27,618
Light alloy taps 13,350
Thermostats
2013
38,222
Standard burners 18,943
Special burners 11,571
Accessor. & other revenues Professional burners
6,650
Hinges
18,601
Brass taps
23,524
Light alloy taps 13,074
Thermostats
2012
39,337
Standard burners 18,850
Special burners 11,226
Accessor. & other revenues Professional burners
-
Hinges
6,121
T O TA L
130,978
138,003
136,337
130,967
130,733
SABAF - ANNUAL REPORT 2016
35
CHAPTER 2 - INTERNATIONAL DIMENSION AND RELEVANT MARKETS
SABAF’S INTERNATIONAL DEVELOPMENT: CHALLENGES AND OPPORTUNITIES €/000
Sales by geographical area
SCENARIO ANALYSIS
PERFORMANCE DATA
Italy The crisis of recent years has significantly transformed the domestic appliances sector in Italy. Today, the best Italian manufacturers of cooking appliances are focused on highend or special products, highly suited to exports and they continue to record excellent results. Sabaf offers to Italian customers a very high quality and a differentiated range of components, helping them to 36,365 | 27.8%
41,244 | 29.9%
promote the “made in Italy” on the international markets. The largest share (estimated at around 80%) of Sabaf’s sales in Italy is in fact for domestic appliances exported by our customers. Only a marginal share is for the market of Italian consumers, which continues to suffer from the crisis of the property sector and from negative demographic dynamics.
42,277 | 31.0%
42,662 | 32.6%
45,597 | 34.9%
Western Europe Also in Western Europe, the production of domestic goods has significantly decreased in recent years: some manufacturers have ceased their activities, others have outsourced (mainly to Poland and Turkey). 8,553 | 6.5%
7,438 | 5.4%
The high-end productions remain in Western Europe, where Sabaf aims to significantly increase its share.
8,716 | 6.4%
7,465 | 5.7%
7,337 | 5.6%
Eastern Europe and Turkey Turkey is now the European country in which the highest number of domestic appliances is produced. In this context, the opening of a production plant in Turkey and the development of new commercial relationships is a key element to support the strategy of growth. The Turkish domestic market is prospectively of increasing importance: the average age of the population, the number of new 34,123 | 26.1%
35,125 | 25.5%
families and the rising incomes are converging indicators in signalling a lasting and growing demand for durable goods. The Group’s strategy involves further developing its activities in Turkey in the coming years. The Group is active also on the other Eastern European markets, where it intends to enter into new partnership agreements with customers and to strengthen those already in existence.
36,198 | 26.6%
Key
29,300 | 22.4%
2016
2015
33,236 | 25.4%
2014
2013
2012
36
SCENARIO ANALYSIS
PERFORMANCE DATA
Asia and Oceania China, with its production of approximately 26 million cooker tops per year, is the world’s most important market. After many years of just a commercial presence, in 2015 Sabaf launched production in China of a special burner, which guarantees to built-in work surfaces efficiency higher than 63%. The Group, aware that offering increasingly competitive high quality products compa8,088 | 6.2%
7,019 | 5.0%
red to those supplied by local competitors, aims to forge long-term partnerships with the main manufacturers of Chinese cooker tops. Another market with great potential is the Indian market, for which Sabaf has developed a range of dedicated burners and where its sales are constantly increasing, albeit at modest absolute values.
6,907 | 5.0%
4,727 | 3.6%
5,106 | 3.9%
Central and South America For its future development Sabaf can rely upon a presence, including one of production, that is now consolidated (a plant in Brazil has been operational since 2001). Despite the difficulties suffered by the Brazilian market in recent years, the Sabaf Group believes that the potential 20,847 | 15.9%
20,815 | 15.1%
for development in this area is still extremely significant, in view of the large dimensions of the market and the trends of demographic growth. The product range intended for the local market has been significantly expanded, also to satisfy the specific nature of the demand.
18,324 | 13.4%
24,375 | 18.6%
21,895 | 16.7%
Middle East and Africa Sabaf boasts a longstanding presence and reputation in the Middle East and Africa. The socio-political and economic difficulties of the area strongly affected the 2016 performances in this area. 11,698 | 8.9%
16,759 | 12.1%
However, the Group continues to consider the Middle East and Africa as being among the most promising markets in the medium-term, also in view of the demographic dynamics and the growing rate of urbanisation.
16,871 | 12.4%
17,547 | 13.4%
14,150 | 10.8%
North America and Mexico Sabaf’s presence in North America is relatively recent, but its sales and market shares have been constantly increasing in recent years. The future plans also involve
11,304 | 8.6%
9,603 | 7.0%
the development of products co-designed with the main customers and more direct control of the market, possibly also by way of a production site.
7,044 | 5.2%
Key
4,891 | 3.7%
2016
2015
3,412 | 2.6%
2014
2013
2012
SABAF - ANNUAL REPORT 2016
CHAPTER 2 - INTERNATIONAL DIMENSION AND RELEVANT MARKETS
TRENDS IN THE SECTOR OF MANUFACTURERS OF COOKING APPLIANCES For years in the sector, there has been a clear trend towards the outsourcing of the design and manufacture of components to highly specialist suppliers which, like Sabaf, are active in the main world markets and able to provide a range of products that meets the specific needs of the different markets. In addition, the trend towards the internationalisation of production has increased, with it being increasingly outsourced to countries with low cost labour in which the saturation levels are lower.
The entry of new players on the international scenario has also determined a situation of excess supply, generating strong competition and evolving into a greater concentration of the sector. However, that trend is less evident for cooking appliances than other domestic appliances: in the cooking segment, in fact, design and aesthetics, on one side, and the lower investment intensity, on the other, allow even small manufacturers, if they are strongly innovative, to succeed.
THE RELEVANT MARKETS In Western Europe, which represents about half of the final destination market of Sabaf’s products, the saturation level reached by cooking appliances (the share of families that own the domestic appliance) is close to 100%. Purchases of new appliances therefore mainly come from replacement purchases. Moving house, purchasing or renovating a home are often occasions for purchasing a new cooking appliance. The market performance is therefore directly influenced by the trend of the economy in general and in particular by the levels of available income for families, the confidence of consumers and the trend of real estate activities.
In this context, the sector of domestic appliances has for some years been experiencing a situation of stagnating demand. In other markets, on the other hand, the saturation level is often lower. The higher rates of development of the economy and the more favourable demographic trend compared to Western Europe determine great opportunities for groups that, like Sabaf, can both collaborate with multinational manufacturers of domestic appliances and support local producers.
A heterogeneous context The sector of manufacturers of gas cooking appliances - Sabaf’s relevant market – is characterised by the presence of: • large multinational groups with established international presence in sales and production, owning strong brands • manufacturers located in countries with low cost labour aiming both to grasp the opportunities offered by the domestic markets and to develop quickly on a global scale • manufacturers focused on specific markets, where they boast of leadership positions • manufacturers (mainly Italian with a strong orientation to exports), which occupy segments in which the level of product differentiation is higher (for example, cooker tops and built-in ovens or largesized freestanding cookers)
37
RE SE AR CH 3
40
CHAPTER 3 CORPORATE GOVERNANCE, RISK MANAGEMENT, COMPLIANCE AND GENERAL REMUNERATION POLICY
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - CORPORATE GOVERNANCE
Corporate Governance Overview The corporate governance model adopted by Sabaf is based on the decision to strictly separate the interests and choices of the reference shareholder – the Saleri family – from those of the Company and the Group, and therefore assign corporate management to managers who are distinct from the reference shareholder. Expansion of the shareholder base following listing on the stock exchange, admission to the STAR segment (with the voluntary acceptance of stricter transparency and disclosure rules), and the desire to comply consistently with best practice in relation to corporate governance, represent the subsequent steps taken by Sabaf towards compliance of its corporate governance system with a model whose benchmark is that directors act in the Company’s interests and create value for shareholders and other stakeholders. As a further step along this path, Sabaf’s management believes that ethics founded on the centrality of the individual and respect for common values, set at the head of the creation of value, are able to help take decisions that are in line with the corporate culture and significantly contribute to assuring the Company’s sustainable long-term growth. For this purpose, Sabaf has prepared and published a Charter of Values, in accordance with the existing national and international regulatory principles, guidelines and documents with regard to human rights, corporate social responsibility and corporate governance. The document is the governance tool through which the Board of Directors clearly explains the Company’s values, standards of conduct and commitments in respect of all stakeholders – shareholders, employees, customers, suppliers, investors, the Public Administration, the community and the environment. The Charter of Values was approved by the Board of Directors on 11 February 2014 and is available on the website www.sabaf.it under the section “Sustainability”.
This section of the report highlights the decisions taken by Sabaf and the special features of its governance system, reviewed in the light of the new measures introduced by the Corporate Governance Code. Where possible, a comparison is also provided with other listed companies, using information taken from Assonime in its report “Corporate Governance in Italy: Corporate Governance, Remuneration and comply-or-explain”, published in November 2016 and based on the 2015 Corporate Governance reports (available on 15 July 2016) of 227 listed Italian companies, of which 92% (212 companies) have formally chosen to adhere to the Corporate Governance Code. The benchmark used below takes into account a panel of only “non-financial” companies, where available. A further comparison is provided of the composition and functioning of the Board of Directors, using data from the Italia Board Index Observatory 2016, published by Spencer Stuart, which analyses the characteristics and functioning of the Boards of Directors of the top 100 (industrial and financial) listed companies in Italy in order of capitalisation as at 11 March 2016, as well as a comparison with major European and non-European countries. The information below is a summary and does not replace the “Report on Corporate Governance and Ownership Structures”, prepared by the Issuer pursuant to article 123-bis of the Consolidated Law on Finance (TUF) for 2016 and available in the Investors/Corporate Governance section of the website www.sabaf.it.
SABAF S.p.A. 100%
ARC s.r.l. Sabaf Immobiliare s.r.l.
100%
100%
70%
100%
Sabaf do Brasil Ltda
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Turkey)
100% 100%
100%
100%
Sabaf US Corp. Sabaf Appliance Components Trading Ltd (China) Sabaf Appliance Components Ltd (China) SALES OFFICES (Poland)
Production companies
Companies in liquidation
Sales company
FOREIGN SUBSIDIARIES
ITALIAN SUBSIDIARIES
100%
Faringosi Hinges s.r.l.
Identified by the Sabaf Board of Directors as having “strategic importance” for the Group
The Group operates through production and sales companies in Italy and abroad. Specifically: a) Production is carried out by: • the Parent Company Sabaf S.p.A., valves and burners; • Italian company Faringosi Hinges Hinges, cerniere, • the subsidiary in Brazil, burners; • the subsidiary in Turkey, burners; • the subsidiary Sabaf Appliance Components in China, burners (start of production, 2015), • the subsidiary ARC srl, professional burners (acquired in 2016). b) The subsidiary Sabaf US carries out sales support activities. c) The subsidiary Sabaf Appliance Components Trading (China) went into liquidation in 2015. d) Sabaf Immobiliare manages the Group’s real estate assets.
41
42
Management and control model Sabaf has adopted a traditional management and control model, consisting of: -- Shareholders’ meetings, ordinary and extraordinary, called to pass resolutions pursuant to the laws in force and the By-laws; -- Board of Statutory Auditors, responsible for supervising: (i) compliance with the law and Articles of Incorporation and adherence to principles of proper management in the performance of corporate activities; (ii) the adequacy of the Company’s organisational structure, internal control and risk management system, and administrative/ accounting system; (iii) the procedures for effective implementation of the corporate governance rules envisaged in the Code; (iv) risk management; (v) the statutory review of the accounts and the independence of the auditing firm; -- Board of Directors, in charge of company administration and management of Company operations.
This model is supplemented, pursuant to the provisions of the Corporate Governance Code to which the Company adheres, by: a) board-level committees established when the bodies are renewed by the Board of Directors, each with responsibility for making proposals or providing consultancy on specific topics and having no decision-making powers: -- Control and Risk Committee which also assumes the functions of the Related Parties Committee; -- Remuneration and Nomination Committee which assumes the functions stipulated by the previous mandate of the Remuneration Committee as well as those relating to the appointment and composition of the supervisory bodies indicated by the Code; b) the Internal Audit Function responsible for verifying that the internal control and risk management system is adequate and operates properly. Finally, the Group’s administration and control model is completed by the presence of the Supervisory Committee, set up following the adoption by Sabaf in 2006 of the Organisational Management and Control Model pursuant to Legislative Decree 231/2001.
The Governance structure
Shareholders’ Meeting
Supervisory Committee
Board of Statutory Auditors
Board of Directors
Remuneration and Nomination Committee Committee for Control and Risks (Also Related Parties Committee)
Internal Audit Function OUTSOURCING
CEO KEY
Organizational reporting
SABAF - ANNUAL REPORT 2016
43
CHAPTER 3 - CORPORATE GOVERNANCE
BOARD OF DIRECTORS The Board of Directors currently in office is composed of the following twelve (12) members: (i) 6 executive, (ii) 1 non-executive and (iii) 5 non-executive and independent (including one appointed by the minority list, consistent with 43% of the sample analysed by Assonime in 2016).
POSITION
COMPONENTS*
Chairman
Giuseppe Saleri
Vice Chairman
Ettore Saleri
Composition of the Board of Directors
42%
EXECUTIVE DIRECTORS
42%
Cinzia Saleri
8%
Vice Chairman
Roberta Forzanini
CEO
Alberto Bartoli
Executive Director
Gianluca Beschi
Director
Giuseppe Cavalli
Director
Lead Independent Director
Director
Fausto Gardoni
Director
Nicla Picchi
SABAF
Renato Camodeca
Director
Anna Pendoli
Director
Alessandro Potestà
30%
50%
INDEPENDENT DIRECTORS PURSUANT TO TUF AND THE CODE
NON-EXECUTIVE DIRECTORS
Vice Chairman
28% ASSONIME AVERAGE 2016
Executive Directors
Independent directors pursuant
Non-executive Directors
to TUF and the Code
Average age of directors
Average overall age: Sabaf 56.4 vs 57.2 Assonime
50% 33% 17%
OVER 60
50 - 60
40 - 50
Observations 50% of the serving Board members are aged between 50 and 60; the average age is in line with the average of the sample analysed by Assonime (56.4 vs. 57.2 years). In the last three years the Board has met fewer times than the average of the sample analysed by Assonime (9 Sabaf BoD meetings in 2016) and with members’ attendance
always higher than 90%, which is in line with the other companies in the study (95% in 2016). The meetings were attended by the Board of Statutory Auditors and – in turn – Sabaf executives, invited to attend and discuss specific subjects on the agenda.
Average attendance to Meetings (2014-2016)1
Number of meetings (2014-2016) 2014
7 9.9
2014
93.0% 90.6%
2015
8 9.4
2015
93.0% 91.2%
2016
9 9.8
2016
95.0% 92.0%
Sabaf
*The curricula vitae of individual directors are available on the Company website.
Assonime Average
1 Assonime panel including financial companies.
44
COMPOSITION OF THE BOARD OF DIRECTORS
Giuseppe Saleri
Ettore Saleri
Cinzia Saleri
Chairman
Vice Chairman
Vice Chairman
Founder of Sabaf, of which he acquired full ownership in 1993. Promoter of its listing on the stock exchange in 1998.
Member of the Saleri family. Began his career at Sabaf in 1994. He later left the operational side of the business and helps manage the Group’s interests through the Holding company. Vice Chairman since 2009.
Member of the Saleri family. Helps manage the Group’s interests through the Holding company. Appointed Vice Chairman of Sabaf S.p.A. in 2012.
Giuseppe Cavalli
Renato Camodeca
Fausto Gardoni
Director
Director
Director
A mechanical engineer, he has held directorships at a number of Italian household appliance manufacturing companies. Currently General Manager of the Alfa Acciai Group.
University lecturer in Economics, former member of the Boards of Statutory Auditors and the Supervisory Committees of listed and non-listed companies. At Sabaf he is the Lead Independent Director.
Has held directorships at leading industrial organisations. Has held the position of Chairman of the Remuneration and Nomination Committee at Sabaf since 2009.
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - CORPORATE GOVERNANCE
Roberta Forzanini
Alberto Bartoli
Gianluca Beschi
Vice Chairman
Chief Executive Officer
Executive Director
Member of the Saleri family. Civil lawyer at the Court of Brescia, registered since 2000. Appointed Vice Chairman of Sabaf in May 2015.
Has roles of increasing responsibility in a number of industrial groups. At Sabaf since 1994 as Administration, Finance and Control Director. Appointed CEO in 2012.
Chartered accountant. Working at Sabaf since 1997 as Investor Relations Manager, Operational Control Manager and Head of Internal Control. Appointed Administration, Finance and Control Director in 2012.
Anna Pendoli
Nicla Picchi
Alessandro PotestĂ
Director
Director
Director
Real estate broker. Appointed from the minority lists as an Independent Director of Sabaf in May 2015.
A graduate in Law, now Partner at Studio Picchi & Associati, where he practises as a lawyer. With Sabaf since 2006, he is also the Chairman of the Supervisory Committee (pursuant to Legislative Decree 231) of Sabaf S.p.A. and of the subsidiary Faringosi-Hinges. Since 2015, he has been Chairman of the Control and Risk Committee.
Degree in Business Administration, has held management positions in the field of investments and Corporate Development. Currently the Senior Portfolio Manager at Quaestio Capital Management SGR S.p.A.
45
46
Average size of the Board
Average number of meetings of the Board
15 12
14 12 10
10
Average 9.3
During the financial year, the Board of Directors carried out a review of the size, membership (including professional competences, managerial skills and seniority) and activities of the Board of Directors and its Committees, opting for self-assessment by individual directors, coordinated by the Lead Independent Director. The results of the evaluation were generally positive and were discussed in the Board of Directors’ meeting of 20 December 2016.
Average 10.9
The comparison is made using data from the Italia Board Index Observatory 2016, published by Spencer Stuart, which analyses the characteristics and functioning of the Boards of Directors of the top 100 (industrial and financial) listed companies in Italy in order of capitalisation as at 11 March 2016, as well as a comparison with major European and non-European countries.
9
0
USA
UK
SWEDEN
NORWAY
FINLAND
DENMARK
HOLLAND
SPAIN
GERMANY
FRANCE
% of women in the Board of Directors
60 Average 57.9
56.4
40 30
Average 26%
50
70
40 33.3% 30
0
USA
UK
SWEDEN
NORWAY
FINLAND
DENMARK
HOLLAND
SPAIN
GERMANY
FRANCE
BELGIUM
ITALY
SABAF
USA
10 UK
SWEDEN
NORWAY
FINLAND
DENMARK
HOLLAND
SPAIN
GERMANY
FRANCE
ITALY
SABAF
BELGIUM
20
20 10
BELGIUM
0
Average Age of Directors
50
ITALY
2
SABAF
USA
4 UK
SWEDEN
NORWAY
6 FINLAND
DENMARK
HOLLAND
SPAIN
GERMANY
FRANCE
ITALY
SABAF
5
BELGIUM
8
0
Average number of independent directors Average 6.0
10 8 6
5
USA
UK
SWEDEN
NORWAY
FINLAND
DENMARK
HOLLAND
SPAIN
GERMANY
FRANCE
BELGIUM
ITALY
2
SABAF
4
0
Sabaf
Southern Europe
Northern Europe
English-speaking countries
Source: Spencer Stuart - Italia Board Index 2016
SABAF - ANNUAL REPORT 2016
47
CHAPTER 3 - CORPORATE GOVERNANCE
BOARD OF STATUTORY AUDITORS The Board of Statutory Auditors, appointed by the Shareholders’ Meeting on 5 May 2015 for the period 2015-2017, has 3 members, with an average age of 65 (above the Assonime average of 55.9), and 2 alternate auditors. The Chairman of the Board of Statutory Auditors was chosen by the minority shareholders.
POSITION
COMPONENTS*
Chairman
Antonio Passantino
Statutory Auditor
Enrico Broli
Statutory Auditor
Luisa Anselmi
Alternate Statutory Auditor
Paolo Guidetti
Alternate Statutory Auditor
Riccardo Rizza
Age of statutory auditors
Average overall age: 65 years
67%
33%
0%
OVER 60
50 - 60
40 - 50
Observations Over the last three years, Sabaf’s Board of Auditors has met fewer times than the average of the meetings of the Assonime sample (9.9 meetings on average in 2016). Members’ attendance at the meetings was, on average, around 96% in the period 2014-2016 (94% in 2016), and in line with the other companies assessed in the study.
Number of meetings (2014-2016)
In general, as well as conducting checks and attending the regular meetings pursuant to the laws in force, all members of the Sabaf Board of Statutory Auditors must attend the meetings of the Board of Directors and the Control and Risk Committee, the half-yearly collective meetings with the supervisory bodies and the individual meetings with the statutory auditing firm.
Average attendance to Meetings (2014-2016) 2
2014
5 9.5
2014
93.0% 96.0%
2015
5 10
2015
100.0% 95.6%
2016
6 9.9
2016
94.0% 96.0%
Sabaf
* The curricula vitae of individual auditors are available on the Company website.
Assonime Average
2 Assonime panel including financial companies.
48
CONTROL AND RISK COMMITTEE The serving Control and Risk Committee, formed within the Board, is composed entirely of 3 independent directors, in line with the majority of cases of the Assonime sample (3 members in 76% of cases). The Committee has also been allocated the relevant functions of the Related Parties Committee.
POSITION
Chairman Member Member
COMPONENTS
Number of meetings (2014-2016)
Nicla Picchi Giuseppe Cavalli Renato Camodeca
2014
5 6
2015
5 6.4
2016
5 6.5
Average attendance to Meetings (2014-2016) 3
Observations The Committee met 5 times in 2016 (Assonime average: 6.5 meetings). In the last three years, the number of meetings and the attendance of the directors to the committees was on average in line with Assonime’s sample.
2014
100% 94%
2015
87% 94.1%
2016
93% 94.4%
Sabaf
Assonime Average
REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee, set up within the Board, has 4 non-executive and in majority independent members (Assonime average: 3 members), with knowledge and experience of accounting, finance and remuneration policies, deemed suitable by the Board and of which 1 (Alessandro Potestà) appointed during 2016.
POSITION
COMPONENTS
Chairman
Fausto Gardoni
Member
Giuseppe Cavalli
Member
Renato Camodeca
Member
Alessandro Potestà
3 Assonime panel including financial companies.
Observations In the last three years the Committee has met more times than the Assonime average (except in 2014). In particular, in the last year, the Committee met 5 times with the purpose, among others, to prepare the incentive plan for 2016, assess the appointment of directors of the newly acquired company ARC srl and to determine their fees.
SABAF - ANNUAL REPORT 2016
49
CHAPTER 3 - CORPORATE GOVERNANCE
Number of meetings (2014-2016)
Average attendance to Meetings (2014-2016) 4-5
2014
1 3.3
2014
67% 94.1%
2015
7 3.3
2015
84% 95.5%
2016
5 3.8
2016
92% 95.8%
Sabaf
Assonime Average
INTERNAL AUDIT HEAD AND SUPERVISORY COMMITTEE Internal Audit
Supervisory Committee
On 5 May 2015, the Board of Directors, subject to the favourable opinion of the Control and Risk Committee and having heard the Board of Statutory Auditors, renewed the appointment of Protiviti S.r.l., an external company, to carry out the internal audit activity for the period 2015-2017, appointing Emma Marcandalli, Managing Director of the company, as the Manager in charge. The decision is based on the greater skills and efficiency that an external consultant specialised in internal control can guarantee, also taking into account the size of the Sabaf Group.
The appointment of the Supervisory Board was confirmed on 5 May 2015 by the Sabaf Board of Directors for the 2015-2017 period; it consists of a non-executive and independent member, and an external member.
The Internal Audit Manager is responsible for verifying that the internal control and risk management system is adequate and operates properly. He/she reports to the Board of Directors, is not responsible for any operating area and remains in office for the entire term of the Board that appointed him/her.
POSITION
COMPONENTS
Chairman
Nicla Picchi
Member
Emma Marcandalli
Also member of the Board of Directors as independent director
Also Internal Audit Manager. Representative of the external company to which management of Internal Audit activities has been outsourced
Sabaf’s Supervisory Committee met 7 times in 2016, requesting the attendance of the Company’s Management at the meetings in order to perform an in-depth review of specific topics.
4 Assonime Panel only for Remuneration Committee. 5 Assonime panel including financial companies .
50
INFORMATION FLOWS Sabaf’s management and control model operates through a network of information flows, which are regular and systematic, between the various company bodies. Each body, according to the time frames and procedures defined by the By-laws, the
Governance Model and other internal documents, reports to the functionally superior body regarding the activities conducted during the time period in question and those planned for the subsequent period, noting any observations and suggested actions.
Information flows within the Corporate Governance structure At all meetings of the CRC and of the control bodies
Board of Statutory Auditors Every three months, at the Board Meeting
Shareholders’ Meeting
Report on meetings of the Committee (At the first meeting of the Board)
Every six months, through a Report
Statement on activities carried out (at least once a year)
Board of Directors
Supervisory Committee
Remuneration and Nomination Committee
Report on activities carried out (At least every 6 months)
CEO
Internal Audit Function OUTSOURCING
Continuously
Director in Charge of the Internal Control System
At all CRC meetings
At all CRC meetings
At all SC meetings
Report on meetings of the Committee (At the first meeting of the Board)
Committee for Control and Risks
At all CRC meetings
KEY
Information Flows
Organizational Reporting
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - RISK MANAGEMENT
Risk Management Framework In conducting its business, Sabaf defines strategic and operational objectives, and identifies, assesses and manages the risks that could prevent these from being met In recent years Sabaf has progressively explored the concepts of risk assessment and risk management in order to develop a structured and regular process of risk identification, assessment and management, defined and formalised in Guidelines contained in the Company’s Corporate Governance Manual.
Business Analysis Analysis of Organizational Structure Catalogue of risks
Operational Guidelines: “Process of periodically identifying and measuring Sabaf Group risks”
RISK MANAGEMENT FRAMEWORK
RISK MAP
Risk Assessment Scales
The guidelines define the roles and responsibilities for risk assessment and risk management processes, indicating the parties to be involved, process frequency and assessment scales. Each risk is subject to an assessment which breaks down into the following variables:
RATING SCALES
-- probability of occurrence over a three-year time frame; -- estimation of the greatest impacts in terms of the financial position, damage to persons and damage to image, over the time frame subject to assessment; -- level of risk management and control.
1
2
3
4
1% Ebit
1% - 2.5% Ebit
2.5% - 10% Ebit
10% Ebit
Limited health effects
Medium health consequences
Serious health risks
Non-reversable effects
Effects at the local level
Effects at the regional level
Effects at the national level
Effects at the international level
Once every 3 years or more often
Once every 2 years
Once every 1 year
Several times each year
Qualitative indications
Unlikely/Remote
Not likely
Likely
Very likely
RISK MANAGEMENT LEVEL
Unsatisfactory
Needs Improvement
Adequate (with limited room for improvement)
Optimal
IMPACT
Economic and financial losses
Bodily injury
PROBABILITY
Damage to image
Frequency of occurrence
51
52
2016 RESULTS In the final quarter of 2016, the Internal Audit Function conducted the periodic risk assessment process to identify and assess Group risks, calling for the involvement of some Heads of Function at the Parent Company, also in their capacity as representatives for the Subsidiaries, each for their respective areas:
CEO Administration, Finance and Control Director Production Director
also in his capacity as Financial Reporting Officer also in his/her capacity as Employer for the purposes of Safety and Head of the Environment Department
Technical and Quality Director Director of Information Systems Procurement and Programming Manager Sales Area Managers Human Resources Manager Head of Quality General Manager of Sabaf Turkey
During the assessment process, which involves the control bodies, the risks take shape and are allocated on the map.
Supervisory Committee
Risk Assessment Process
INTERNAL AUDIT
1
Business Contact Persons
2
3
Supervisory Body
RISK MAP
Committee Control and Risk
4
Board of Directors
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - RISK MANAGEMENT
STRATEGIC RISKS
The results of Sabaf’s 2016 risk assessment highlight, among other things, the following 7 main risks, selected for their importance and consistency with the issues covered in this document:
Risks related to the trend in the business sector in which Sabaf operates
Risks related to instability in the emerging countries in which the Group operates
Risks of losing key staff and expertise and the difficulty of replacing them
Risks associated with the strategy of growth through acquisitions
2
3
4 5
6
7
1
Risks related to the difficulty of managing the Group due to internationalisation
Management of trade receivables
Protection of product exclusivity
RISKS IN EXECUTION
For more information on the Group’s financial risks, including those not mentioned here owing to their lack of relevance, please see Chapter 5 – Report on Operations.
53
54
MAIN RISKS FOR THE GROUP
1
Risks relating to market trends
The Sabaf Group operates in the white goods industry, which is characterized by the following trends: a) Continual concentration of the target market, following extraordinary transactions (mergers and acquisitions) among the players. b) Decrease of demand in mature markets in favour of volume growth in the emerging markets, however, characterized by different sales conditions, and an unstable macro-economic environment. c) Increased competition which requires aggressive pricing policies. RISK MANAGEMENT MEASURES To cope with this situation, the Group aims to retain and reinforce its leadership position wherever possible through: • the launch of new products characterised by superior performance compared with market standards, and tailored to the needs of the customer; • expansion on markets with high growth rates; • the maintenance of high quality and safety standards, which make it possible to differentiate the product through the use of resources and implementation of production processes that are not easily sustainable by competitors; • the improvement of the efficiency of production processes.
3
The current organizational structure requires extensive involvement in the decision-making process of the first-line management, which is therefore considered “key.” If one of these resources leaves the Company, it could be temporarily difficult for Sabaf to manage some critical activities. In some areas of the company, where the centralization of skills is more marked, such a risk may also exist at lower levels of the structure (those that report to the first-line management). Also the impact resulting from the loss of key resources in one of the foreign subsidiaries would be significant, since the local management structures are smaller, and skills are more centralised. RISK MANAGEMENT MEASURES Some years ago, the Group has started employee retention initiatives, including granting benefits to employees and signing non-competition and retention agreements with key figures.
4 2
Risks related to instability in the emerging countries in which the Group manufactures or sells
Risks relating to the loss of key staff and expertise and the difficulty of replacing them
Risks associated with the strategy of growth through acquisitions
For the future, the Group’s strategy envisions Sabaf’s growth through acquisitions, so it can go ahead with its continuous expansion into international markets and/or diversify its production lines.
The Sabaf Group has undertaken an internationalization process (sales and production), particularly focused on the emerging countries. There is in this regard the risk that political, economic, fiscal, or legislative instability may impact the Group’s sales and the related profitability.
Therefore, there are the following risks:
RISK MANAGEMENT MEASURES
RISK MANAGEMENT MEASURES
To counter this risk, the Group has adopted a policy of monitoring the economic and social integration of target countries for the Group, in order to ensure awareness in taking strategic and investment decisions in terms of exposure to risks. The Group has also made it feasible to make all the components manufactured at the Group’s foreign plants at the Ospitaletto site so that, in the event of interruption of production in a developing country, there is a possibility of activating back-up solutions in Italy.
• of not properly assessing the risks and opportunities of a possible strategic external acquisition; • of not to defining and properly structuring an integration plan if developed.
The Group is considering the opportunity to develop new tools for the evaluation of potential acquisitions and for the analysis and support of integration processes.
SABAF - ANNUAL REPORT 2016
5
Risks related to the difficulty of managing the Group due to internationalisation
The foreign expansion policy, undertaken by Sabaf by setting up manufacturing and commercial branches, increases the complexity of the context in which the Group operates. This increasing complexity could make it difficult and inefficient to manage business processes, due to lack of clarity on the roles and responsibilities of the Parent Company management vs. local management (i.e.: lack of coordination between the Group’s companies to achieve the growth targets; concentration of responsibilities and critical company knowledge within a few individuals, etc.). RISK MANAGEMENT MEASURES To support this expansion process, the Sabaf Group is working to define the appropriate safeguards that include, among other things, centralising within the management of corporate departments of the parent company, the main business functions, the establishment of ongoing and formalized relations with operating subsidiaries on financial issues, the implementation of SAP in all of the operating companies, and thorough analysis of how powers are delegated within the Group. In particular, the Group is continuing to implement a single governance system of for purchasing management and is considering setting up operational teams at the Parent Company with a coordinating role in respect of foreign companies to ensure the alignment of the the procedures and practices used by foreign branches compared those used by Sabaf.
6
CHAPTER 3 - RISK MANAGEMENT
7
Risks related to the failure to protect product exclusivity in the markets where the Group operates
Some Sabaf products are protected by patents. There is a risk that third parties (competitors) may infringe these patents and/or that the markets in which those patents are infringed do not adequately protect the holder of the patent. Doing business in countries where it is difficult to enforce rights over patents, exposes the Group to a greater risk of protection of its products. RISK MANAGEMENT MEASURES Sabaf has structured processes in place to manage innovation and protect intellectual property. In addition, the Group periodically monitors present/future patenting strategies on the basis of cost/opportunity assessments.
Risk related to the management of trade receivables
Considering the high concentration of Sabaf’s sales upon a small number of customers, in the event of their insolvency, there is the risk that they may be unable to meet their payment obligations to Sabaf. This risk is particularly felt in times of economic crisis (such as the current one) and in countries characterized by instability and uncertainty.
RISK MANAGEMENT MEASURES The risk is constantly monitored through the preliminary assessment of customers and checks that agreed payment terms are met. A credit insurance policy was taken out which covers approximately 60% of the credit risk. A further portion is partly guaranteed through letters of credit issued by major banks in favour of customers.
Key – Change compared to RA 2015:
Increasing
decreasing
Stable
55
56
Compliance Integrated Compliance THE INTERNAL CONTROL SYSTEM
INTERNAL AUDIT FUNCTION and INTERNAL AUDIT MANAGER
Quality
l pr ope tua
Specifically, Sabaf has an integrated risk-based Audit Plan, which is set out according to specific control objectives (e.g. operational risks, compliance with Legislative Decree 262/2005 and Legislative Decree 231/2001, the security and profiling of corporate information systems, etc.). The implementation of measures is outsourced to a single structure, Internal Audit, which is in turn responsible for reporting the results of the activities conducted to the delegated supervisory bodies.
Inte
llec
Cor ru and g
ssin
e roc
ta p
l da
ona
rty
ety Saf
Fra ud
and
s Per
• Accounting Control Model • Procedural Body • Quality and Environment Management System • Education and business training
th eal nt H
me
ptio
n
iron
Env
• Charter of Values • Corporate Governance Manual • Operational Guidelines • Model 231
For the purposes of meeting company objectives, the risk management activities conducted by Sabaf also take compliance requirements into account. The internal control system governing this activity is based on the following elements: -- the organisation of the internal control and risk management system; -- procedures and mechanisms for the concrete implementation of the control principles; -- processes of continuous auditing and monitoring carried out at the various levels of the organisation, both within the scope of business processes and through independent structures.
Information Security
All this translates into a culture and set of tools based on integrated compliance
INTEGRATED AUDIT ACTIVITIES
INTEGRATED COMPLIANCE AND THE CORPORATE GOVERNANCE MANUAL OPERATIONAL GUIDELINES
Following adherence to the Borsa Italiana Corporate Governance Code and in order to integrate the good governance practices set out in this sponsored document into its own processes, Sabaf adopted a Corporate Governance Manual* which governs principles, regulations and operational procedures. This Manual, adopted by Board resolution of 19 December 2006, has been updated several times over the years, in order to reflect changes in laws and regulations regarding Corporate Governance, as well as best practices adopted by the Company. The Manual contains certain operating guidelines, which were approved by the Board of Directors and updated most recently in September 2016. These guidelines were issued to ensure that the management and control bodies of Sabaf properly carry out their duties.
TOPICS COVERED
Self-assessment of the Board Management, coordination and control of Group subsidiaries Means of compliance with disclosure obligations to auditors, pursuant to Article 150 TUF Evaluation of the Group’s internal control system Process of periodically identifying and measuring Group risks Management of significant operations in which directors have an interest Assignment of professional mandates to the statutory auditing firm
* The latest version of the text, updated pursuant to the Corporate Governance Code, approved by the Board of Directors’ meeting of 29 September 2016, is available in the Corporate Governance section of the website www.sabaf.it.
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - COMPLIANCE
INTEGRATED COMPLIANCE AND LEGISLATIVE DECREE 231/2001 In 2006 Sabaf S.p.A. adopted the Organisational and Management Model pursuant to Legislative Decree 231/2001, designed to prevent the commission of criminal offences by employees and/or outside staff in the Company’s interest. Thereafter, the Company, through the supervision of the Supervisory Committee, has responded promptly to the need to adapt the Model and the control structure to
changes in legislation that have occurred over time. The Company tasks the Supervisory Committee with assessing the adequacy of the Model (i.e. its real ability to prevent offences), as well as with supervising the functioning and compliance of the protocols adopted.
ACTIVITIES CARRIED OUT IN 2016
SUPERVISORY COMMITTEE
-- Checks of the Model’s effectiveness and operational suitability, both through audits conducted by Internal Audit and interviews with staff assigned to sensitive activities. -- Investigative activities relating to the occupational health and safety management processes. -- Information and training of employees regarding the specific protocols regulated by the Model. -- Revision of “231” risk assessment and updating the Model, in order to confirm/re-evaluate the applicability of “231” crimes in respect of the context in which the company currently operates and to evaluate the applicability of new crimes (“Ecoreati” [environmental crimes] in Article 25(j) and “self-laundering” pursuant to art. 25(g) of Legislative Decree. no. 231/2001).
INTEGRATED COMPLIANCE AND LEGISLATIVE DECREE 262/2005 Sabaf considers the internal control and risk management system for financial information an integral part of its risk management system. In this regard, since 2008, Sabaf has integrated activities relating to the management of
the internal control system on financial reporting into its Audit and Compliance process. The Group has established an Accounting Control Model, approved by the Board of Directors for the first time on 12 February 2008, and subsequently revised and updated.
FEATURES OF THE ACCOUNTING CONTROL MODEL
Periodic Evaluation of adequacy and effective application of controls
Risk Assessment related to the income, equity and financial report.
Control Environment Administrative and accounting procedures Internal certification of completeness and correctness of information
In 2016 the accounting control model did not require any updating.
AUDIT ACTIVITIES
57
58
General Remuneration Policy In accordance with regulation on remuneration, the Board of Directors approved the “General Remuneration Policy” on 22 December 2011, and subsequently updated it on 20 March 2013 and 4 August 2015.
Purpose
The policy defines the criteria and guidelines to fix the remuneration of: (i) members of the Board of Directors, (ii) members of the Board of Statutory Auditors, (iii) executives with strategic responsibilities.
attract, motivate and increase the loyalty of
For more details on the above policy, see the complete text on the Company’s website.
align the interests of management and
PERSONS
SHAREHOLDERS
with appropriate professional expertise
See also the Remuneration Report for specific information on remuneration earned and paid out in 2016.
favour, in the medium/long term, the creation of
SUSTAINABLE VALUE for shareholders
BODIES INVOLVED IN THE APPROVAL PROCESS Fixed component On the basis of a proposal of the Board of Directors, and after obtaining the opinion of the Remuneration and Nomination Committee, it determines an overall maximum amount that includes a fixed amount and attendance fees, for the:
On the proposal of the Remuneration and Nomination Committee and subject to the opinion of the Board of Statutory Auditors, the Board of Directors determines, within the amount indicated above, additional remuneration for:
• All members of the Board of Directors
• Directors vested with special powers
Board of Directors
Remuneration and Nomination Committee
Remuneration and Nomination Committee
Board of Statutory Auditors
BoD
Shareholders’ Meeting
Key
Decision-making body
Proposing body
Advisory body
SABAF - ANNUAL REPORT 2016
CHAPTER 3 - GENERAL REMUNERATION POLICY
Variable Component Short-term:
On the proposal of the Remuneration and Nomination Committee and in line with the budget, the Board of Directors defines an MBO plan, for: • executive directors (excluding the Chairman and Deputy Chairmen) • other executives with strategic responsibilities • other managers identified by the Chief Executive who report directly thereto or who report to the above-mentioned managers
Remuneration and Nomination Committee
Long-term:
On the proposal of the Remuneration and Nomination Committee, the Board of Directors approves the long-term financial incentive for: • executive directors (excluding the Chairman and Deputy Chairmen) • other executives with strategic responsibilities
Remuneration and Nomination Committee
BoD
BoD
COMPONENTS OF REMUNERATION Fixed component
FIXED PART
Directors: the total amount for the remuneration of the members of the Board includes a fixed amount and attendance fees.
Fixed component (FC)
Statutory auditors: remuneration for Statutory Auditors is set by the Shareholders’ Meeting, which establishes a fixed amount. Other executives with strategic responsibilities: remuneration is in relation to the employment relationships governed by the Collective National Contract for Industrial Managers.
The total long-term variable component for the three years may not exceed 50% of the fixed annual gross salary; it may be only partially granted in the event that the objectives are not completely met. It is paid in full following the approval of the financial statements of the third year to which the incentive relates. The variable component is linked to a three-year MBO. This plan involves setting three targets (Group EBIT, Average Share Value and Group consolidated Free Cash Flow). In the event that 10% of the objectives assigned are met, an increase on 5% of the gross fixed annual salary and fees may be granted, weighted according to the target.
YEAR
FC
THREE-YEAR PERIOD
The short-term variable component may not exceed 25% of the fixed annual gross salary; it may be only partially granted in the event that the objectives are not completely met. 75% is paid out in the April of the following year, and 25% in the January of the second subsequent year. The annual variable component is linked to an MBO plan. This plan sets a common objective (Group EBIT, which is considered to be the Group’s main indicator of financial performance) and individual objectives, quantifiable and measurable, both economic-financial and technical-productive in nature.
Short-term incentive
Long-term incentive
Based on performance (MBO plans)
Directors and executives with strategic responsibilities in subsidiaries: remuneration is set at a fixed amount.
Variable component
VARIABLE PART
FC
FC + 25% Max
FC + 5% Max
Non-monetary benefits Third-party civil liability insurance policy: in favour of directors, statutory auditors, and executives and covering liability resulting from any illegal act or violation of obligations they should commit in exercising their respective responsibilities. Life insurance policy and cover for medical expenses: in favour of executives who, in addition to the provisions of the Collective National Contract for Industrial Managers, benefit from an additional policy to cover medical expenses not covered by FASI repayments. Company cars: company cars are assigned to executives.
59
60
CORPORATE ROLE
FIXED COMPONENTS
COMPONENTS OF REMUNERATION
FIXED ANNUAL REMUNERATION
POSITIONS IN SUBSIDIARIES
EXECUTIVE DIRECTORS
> Fixed remuneration for role of Director > Fixed remuneration for Directors with powers
> Fixed remuneration for positions in subsidiaries
VARIABLE COMPONENTS
ATTENDANCE FEE
N/A
NON-EXECUTIVE DIRECTORS > Fixed remuneration for role of Director > Fixed remuneration for Directors members of Committees
N/A
> Board of Directors attendance fee
EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
> CCNL (national collective bargaining agreement) for Industrial Managers
> Fixed remuneration for positions in subsidiaries
N/A
MEMBERS OF BOARD COMMITTEES
> Fixed remuneration for Directors with positions on Board committees
N/A
> Board committee attendance fee
STATUTORY AUDITORS
> Fixed emoluments
N/A
N/A
VARIABLE ANNUAL REMUNERATION
> Annual variable remuneration relating to MBO *
N/A
> Annual variable remuneration relating to MBO
N/A
N/A
LONG-TERM INCENTIVES
> three-year MBO *
N/A
> three-year MBO
N/A
N/A
OTHER BENEFITS
> Third party civil liability insurance policy > Life insurance policy NON-MONETARY BENEFITS
> Third party civil liability insurance policy
> Third party civil liability insurance policy
> Policy covering medical expenses (FASI) > Additional policy to cover medical expenses > Assignment of company car
* Excluding the Chairman and Deputy Chairman.
N/A
> Third party civil liability insurance policy
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CHAPTER 3 - GENERAL REMUNERATION POLICY
VARIABLE INCENTIVE PLANS
VARIABLE INCENTIVE PLAN
ANNUAL MBO
Long Term Incentives THREE YEARS (2015 – 2017)
related to industrial plan
related to budget for the year
TARGET
TARGET EXECUTIVE DIRECTORS *
CHIEF EXECUTIVE OFFICER
EXECUTIVES with strategic responsibilities
CHIEF FINANCIAL OFFICER
OTHER MANAGERS proposed by chief executive officer
TECHNICAL DIRECTOR
40%
GROUP EBIT
AVERAGE SHARE VALUE
> ebit threshold on budget for year
INDIVIDUAL OBJECTIVES
25%
> share value at the end of the relevant industrial plan
50%
GROUP EBITDA
> consolidated group ebitda understood as the sum for the relevant three years
60% 25%
FREE CASH FLOW
> business / financial > technical manufacturing
ANNUAL DISBURSEMENT PLAN FY 1
FY 2
31/12
I TRANCHE 75%
THREE-YEAR DISBURSEMENT PLAN FY 3
II TRANCHE 25%
LIMITS: 25% OF GROSS ANNUAL REMUNERATION
* Excluding the Chairman and the Deputy Chairmen.
> consolidated group fcf (equal to sum of fcf for the relevant three years)
FY 1
FY 2
I TRANCHE
FY 3
II TRANCHE
FY 4
III TRANCHE DISBURSEMENT
LIMITS: 50% OF GROSS ANNUAL REMUNERATION
CU RI OSI TY 4
64
CHAPTER 4 SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and collaborators SABAF and shareholders SABAF and customers SABAF and suppliers SABAF and lenders SABAF and competitors SABAF, Public Administration and Society SABAF and the environment Limited assurance report on the social report GRI index
65 83 85 87 89 89 91 92 98 101
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and collaborators SA8000 STANDARD Sabaf S.p.A.’s system of social responsibility is compliant with the requirements of the SA8000 standard, for which the company obtained the certification in 2005, renewed most recently in March 2015 for a further three years. The decision to certify the system is consequent to the belief in the importance of human assets and is particularly aimed at raising awareness among management, suppliers, employees and external collaborators on the full respect of the Social Responsibility principles established in the Standard. Through the implementation of SA8000, Sabaf S.p.A. has analysed and monitored the main ethical-social risk factors linked to issues of child labour, forced labour, health and
safety, freedom of association and the right to collective bargaining, discrimination, disciplinary procedures, working hours and wages. During the year, a dialogue has been maintained between the Management Representatives and the Workers’ Representatives on the concrete application of the SA8000 Standard. The social responsibility management system was verified by IMQ / IQ NET in March 2016. During the audit, significant evidence was obtained of the company’s commitment to supporting the System of Social Responsibility and no non-conformities were identified.
RECRUITMENT POLICY, COMPOSITION AND VARIATION OF PERSONNEL At 31 December 2016 there were 736 employees of the Sabaf Group, compared to 759 in late 2015 (-3.0%). 31/12/2016
31/12/2015
31/12/2014
Sabaf S.p.A. (Ospitaletto, Brescia - Italy)
353
180
533
367
185
552
370
186
556
Faringosi Hinges (Bareggio, Milan - Italy)
21
21
42
20
23
43
22
24
46
Sabaf do Brasil (Jundiaì, San Paolo - Brazil)
49
17
66
45
14
59
47
17
64
Sabaf Turkey (Manisa – Turkey)
52
34
86
57
38
95
32
28
60
Sabaf Appliance Components (kunshan) Co., Ltd.
7
2
9
6
4
10
-
-
-
482
254
736
495
264
759
471
255
726
TOTAL
As regards the contractual types adopted, there are 715 permanent employees (97.1%) and 21 temporary, job placement and apprenticeship employees (2.9%).
31.12.2016
31.12.2015 N°
1,000
Permanent
464
251
715
460
235
695
Job placement or apprenticeship
3
0
3
4
0
4
Temporary
15
3
18
31
29
60
482
254
736
495
264
759
TOTAL
TOTAL
736
759
726
66
Temporary personnel (with agency employment or assimilated contract)
N°
100
N°
100
71
28 YEARLY AVERAGE
47
38
24 10
During 2016 4 formerly temporary workers were recruited into the Sabaf Group (12 in 2015). In 2016 Sabaf hosted 6 young people on internships, 2 students on university courses and 4 secondary school pupils (11 in 2015).
Sabaf thereby offers to some students of schools in the province of Brescia with industrial curricula an initial direct contact with the world of work, with the opportunity to witness the technical skills they have learned in the classroom being applied “in the field”.
MOVEMENT OF PERSONNEL IN THE YEAR 2016 SABAF S.p.A.
FARINGOSI HINGES s.r.l.
31/12/15
RECRUITS LEAVERS
PROMOTIONS
31/12/16
31/12/15
RECRUITS LEAVERS
PROMOTIONS
31/12/16
Executives
9
0
0
0
0
0
9
Executives
1
0
0
0
0
0
1
Employees and managers
112
3
0
6
1
0
108
Employees and managers
14
0
0
0
1
0
13
Labourers and equivalent
431
3
0
14
4
0
416
Labourers and equivalent
28
1
0
0
1
0
28
TOTAL
552
6
0
20
5
0
533
TOTAL
43
1
0
0
2
0
42
PROMOTIONS
31/12/16
SABAF DO BRASIL Ltda 31/12/15
SABAF TURKEY
RECRUITS LEAVERS
PROMOTIONS
31/12/16
31/12/15
RECRUITS LEAVERS
Executives
0
0
0
0
0
0
0
Executives
3
0
0
0
0
0
3
Employees and managers
9
0
1
0
0
0
10
Employees and managers
13
0
1
0
2
0
12
Labourers and equivalent
50
20
6
16
4
0
56
Labourers and equivalent
79
33
9
39
11
0
71
TOTAL
59
20
7
16
4
0
66
TOTAL
95
33
10
39
13
0
86
SABAF - ANNUAL REPORT 2016
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF APPLIANCE COMPONENTS (KUNSHAN) CO., LTD. 31/12/15
RECRUITS LEAVERS
New recruits broken down by age bracket and gender
PROMOTIONS
31/12/16
Executives
1
0
0
0
0
0
1
Employees and managers
6
1
0
1
0
0
6
Labourers and equivalent
3
2
0
1
2
0
2
10
3
0
2
2
0
9
TOTAL
DESCRIPTION
2016
0
1
1
2
2
4
32
10
42
88
32
120
19
4
23
50
24
74
12
2
14
6
1
7
0
0
0
3
1
4
63
17
80
149
60
209
up to 20 years from 21 to 30 years from 31 to 40 years from 41 to 50 years over 50 years
GROUP TOTAL
TOTAL
31/12/15
RECRUITS LEAVERS
PROMOTIONS
31/12/16
Executives
14
0
0
0
0
0
14
Employees and managers
154
4
2
7
4
0
149
Labourers and equivalent
591
59
15
70
24
0
573
TOTAL
759
63
17
77
26
0
736
Resigned during year, by age bracket and gender DESCRIPTION
N°
2016
736
from 21 to 30 years from 31 to 40 years from 41 to 50 years
0
1
1
1
2
35
11
46
69
25
94
21
7
28
49
22
71
15
5
20
4
2
6
5
3
8
6
2
8
77
26
103
129
52
181
over 50 years TOTAL
2015
1
up to 20 years
1,000
759
2015
GROUP TOTAL
Reasons for termination of employment relationship in the year 2016 LABOURERS
TOTAL
Resignations
5
42
47
Retirement
0
5
5
End of contract
1
2
3
Dismissal
5
42
47
Failed trial period
0
1
1
11
92
103
TOTAL
47
47
50
TOTAL
N°
EMPLOYEES AND MANAGERS
DESCRIPTION
103 Resignations Retirement End of contract
5
3
1
Dismissal Failed trial period
68
Rate of Turnover by Geographic Area, age bracket and gender Italy (Sabaf e Faringosi)
Brazil 2016
DESCRIPTION
2015
0.53%
0.00%
0.35%
0.78%
0.00%
0.50%
up to 30 years
0.80%
0.50%
0.70%
1.81%
0.00%
1.18%
2.41%
1.00%
1.91%
0.52%
0.96%
0.67%
from 31 to 40 years from 41 to 50 years
over 50 years
1.07%
0.00%
0.70%
0.26%
0.00%
0.17%
over 50 years
TOTAL
4.81%
1.49%
3.65%
3.36%
0.96%
2.52%
TOTAL
up to 30 years from 31 to 40 years from 41 to 50 years
Turkey
from 31 to 40 years from 41 to 50 years over 50 years TOTAL
2015
22.45%
11.76%
19.70%
28.89%
21.43%
27.12%
6.12%
5.88%
6.06%
11.11%
14.29%
11.86%
4.08%
5.88%
4.55%
2.22%
0.00%
1.69%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
32.65% 23.53% 30.30% 42.22% 35.71% 40.68%
China 2016
DESCRIPTION
up to 30 years
2016
DESCRIPTION
2015
2016
DESCRIPTION
42.31%
20.59%
33.72%
87.72%
60.53%
76.84%
up to 30 years
25.00%
14.71%
20.93%
64.91%
52.63%
60.00%
5.77%
2.94%
4.65%
1.75%
0.00%
1.05%
from 31 to 40 years from 41 to 50 years
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
over 50 years
73.08% 38.24% 59.30% 154.39% 113.16% 137.89%
TOTAL
2015
0.00%
100%
22.22%
80.00%
0.00%
40.00%
28.57%
0.00%
22.22%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
28.57%
100%
44.44% 80.00%
0.00%
40.00%
Group 2016
DESCRIPTION
up to 30 years from 31 to 40 years from 41 to 50 years over 50 years TOTAL
2015
7.26%
4.33%
6.25%
14.14%
9.90%
12.65%
4.36%
2.76%
3.80%
9.85%
8.33%
9.35%
2.90%
1.57%
2.45%
0.81%
0.75%
0.79%
0.83%
0.00%
0.54%
0.20%
0.00%
0.13%
15.35%
8.66%
13.04% 25.05% 18.94% 22.92%
In 2016 the turnover significantly reduced compared to 2015. At Sabaf Turkey the Group experienced the greatest difficulties in retaining personnel, also because we operate in an area, that of Manisa, which is undergoing strong industrial development and where new employment opportunities are constantly being offered. The policies implemented, which include both monetary incentives and greater benefits, have in any case led to a higher loyalty level even in Turkey.
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
Breakdown of personnel by age
Breakdown of personnel by length of service
31.12.2016
31.12.2015
31.12.2016
31.12.2015
up to 30 years
16.8%
21.9%
up to 5 years
22.0%
24.6%
from 31 to 40 years
42.4%
42.9%
from 6 to 10 years
26.6%
29.1%
from 41 to 50 years
29.8%
29.0%
from 11 to 20 years
41.3%
37.2%
over 50 years
11.0%
6.2%
over 20 years
10.1%
9.1%
TOTAL
100%
100%
TOTAL
100%
100%
The low average age of the Group’s employees (38.6 years) confirms the strategy of recruiting young workers, favouring training and internal growth over the acquisition of skills externally, also in view of the specific nature of Sabaf’s business model.
Sabaf is aware of the fundamental importance of having a stable and qualified workforce that represents a key factor for preserving its competitive advantage.
The minimum age of personnel in the Group’s workforce is 24 years for Italy, 20 years for Turkey, 16 years for Brazil and 28 years for China.
Breakdown by department 2016
AREA
2015
Production
289
170
459
305
175
480
Quality
43
31
74
42
33
75
Research and Development
66
2
68
67
2
69
Logistics
25
1
26
20
1
21
Administration
9
23
32
9
23
32
Sales
10
13
23
10
14
24
Services
17
8
25
18
10
28
Purchases
6
4
10
6
4
10
Other
17
2
19
18
2
20
TOTAL
482
254
736
495
264
759
736
759 495
482 254 TOTAL
1,000
N°
N°
1,000
264
70
RECRUITMENT POLICY
Breakdown by level of education
In order to attract the best resources, the recruitment policy intends to guarantee equal opportunities to all candidates, avoiding any type of discrimination. The selection procedure involves, inter alia: -- the selection process being performed in at least two phases with two different representatives; -- for each position at least two candidates being considered. The evaluation of candidates is based upon skills, training, previous experience, expectations and potential, according to the specific business needs. New recruits of the Group are given the Charter of Values. At Sabaf S.p.A. a copy of the SA8000 Standard, for which the Company is certified, is also provided.
LEVEL OF EDUCATION
Degree Higher diploma Middle school diploma Primary school diploma TOTAL
2016
2015
67
24
91
12.4%
65
26
91
12.0%
232
98
330
44.8%
232
100
332
43.7%
181
130
311
42.3%
196
136
332
43.8%
2
2
4
0.5%
2
2
4
0.5%
482
254
736
100%
495
264
759
100%
TRAINING In the Sabaf Group, professional growth of employees is supported by a continuous training path. The Personnel Department, having liaised with the relevant managers, develops on an annual basis a training plan on the basis of which the specific courses to be provided are scheduled.
2016
Training to new recruits, apprentices, job placements
2015
3,187
1,222
4,409
5,728
727
6,455
IT systems
83
123
206
130
11
141
Technical training
321
29
350
636
13
649
3,112
983
4,094
2,661
830
3,491
Administration and organisation
510
379
888
387
466
853
Foreign languages
966
283
1,249
1,172
300
1,472
Lean Philosophy/ Production/Office
81
29
110
-
-
-
-
-
-
60
-
60
TOTAL TRAINING HOURS RECEIVED
8,260
3,046
11,306
10,774
2,347
13,121
Training hours provided by internal trainers
4,709
1,317
6,026
3,511
465
3,976
12,969
4,363
17,332
14,285
2,812
17,097
Safety, environment and social responsibility
Other
 TOTAL
The hours provided by internal trainers also include training given to collaborators on agency employment contracts (equal to 3,942 hours in 2016).
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
Per capita training hours received by category
2016
2015
Labourers
15.1
9.0
12.9
21.6
5.7
15.9
Employees and managers
26.1
23.4
25.2
21.1
21.4
21.2
Executives
34.7
70.5
37.3
37.9
82.8
41.1
TOTAL
17.8
12.1
15.9
21.9
9.2
17.5
In 2016 the total cost incurred for staff training activities of the Group was approximately 296,000 Euro (approximately 429,000 Euro in 2015). These costs are supplemented by the costs of training temporary staff, which in 2016 were approximately 62,000 Euro (roughly 23,000 Euro in 2015).
INTERNAL COMMUNICATION With the aim of developing continuous dialogue between the company and its collaborators, Sabaf publishes twice a year a Magazine which sets out the main information concerning the life of the Company and discusses issues of common interest. The Personnel Department has institutionalised two weekly time slots in which it is available to meet with collaborators for support and advice, even on topics not strictly related to the relationship between employee and employer, such as, for example, information on tax and social security regulations.
During 2016 the Personnel Department at Sabaf S.p.A. held 1,078 appointments with collaborators for problems related to the employment relationship or personal issues. Sabaf S.p.A. uses the HR PORTAL software, through which each worker, with personalised access, can consult the documents and information published by the company (payslips, tax and contribution details, etc.). There are also collective communications and company conventions.
DIVERSITY AND EQUAL OPPORTUNITIES Sabaf is constantly committed to providing equal opportunities to its female members of staff, who currently represent 34.5% of the workforce (34.8% in 2015).
In 2016 the Group companies granted in total 34 part-time contracts (to 2 employees, 31 female labourers and 1 male labourer), equal to 4.6% of the total (33 contracts in 2015).
The Group, in line with its organisational and production requirements, is attentive to the family requirements of its collaborators. Currently, the majority of requests for reduction of working hours made by workers are met.
25 disabled persons work in the Italian companies of the Group, of which 15 are parttime. The Group aims to encourage the insertion and integration of disabled persons into normal production processes. A convention is in place with a social solidarity cooperative for the insertion of personnel belonging to protected categories.
Percentage distribution of employment by gender 2016
TOTAL
2015
NUMBER
%
NUMBER
%
482
65.5
495
65.2
254
34.5
264
34.8
736
100
759
100
72
REMUNERATION, INCENTIVE AND DEVELOPMENT SYSTEM
Breakdown by category LABOURERS and EQUIVALENT
N°
1,000
371
381
202
Employees of Sabaf S.p.A. are positioned according to the rules of the National Collective Labour Agreement for the engineering industry, supplemented by second level agreements, which includes:
an extra allowance over minimum pay by level,
210
a production bonus by level, a fixed performance bonus for all levels,
EMPLOYEES and MANAGERS 101
100
an equal consolidated bonus for all levels;
N°
98 51
53
an equal variable performance bonus for all levels.
EXECUTIVES
N°
20
13
13
TOTAL
736
2015
1
2016
1
759
The managers of all offices of the Group originate from a geographical area close to the sites at which they work, except for the production director at Sabaf China, who has, however, lived in China for many years.
Non-EU workers 1 2016
2015
Non-EU workers
32
48
Percentage on total workers
5.6%
8.1%
BENCHMARK 2
3.10%
At 31 December 2016 there are 14 different nationalities present in the Italian companies of the Group.
The components of personnel costs are detailed in the explanatory notes to the consolidated financial statements. The incentive system includes economic incentives and numerous other benefits (guarantees provided by the Company in favour of employees against mortgages, sale or rental of apartments at subsidised values, company agreements for access to goods and services at favourable conditions). The Group believes that an essential element of the incentive system is represented by the training opportunities provided to collaborators, including the possibility of participating free of charge in numerous activities organised onsite and offsite. An incentive system is in place linked to collective and individual objectives (MBO), which in 2016 involved 36 employees of the Group. The maximum incidence of the variable component is 25% of fixed remuneration. The MBO mechanisms are described in the Remuneration Report.
We Produce Quality Bonus (WPQB) Sabaf S.p.A. introduced in 2016, at experimental level, an incentive system linked to objectives of production quality and efficiency. Quality improvement (reduction of waste and re-processing) and productivity objectives were assigned to 68 people involved in relevant business processes not included in the MBO system. The initiative was received very positively: as well as representing a tool to address challenging objectives (216 objectives were assigned, achieved and exceeded in 72% of cases), the WPQB stimulated team work and encouraged the sharing at all company levels of short and medium to long-term development plans. The good results in terms of quality and productivity have been reflected in the business profitability which was maintained at satisfactory levels even in a year of reduction of sales volumes. In addition, the variable result bonus (VRB), provided by the company’s supplementary contract for all employees and also benchmarked to quality and productivity indicators, benefited from it: for 2016 a variable result bonus of 1,184 Euro was granted, higher by 28% compared to 2015. The success of the project means it will be implemented again in 2017, involving a higher number of collaborators (80).
The social security forms in place for all employees of the Group are those required by the rules in force in the various countries in which the Group operates.
1 The figure refers only to the Italian companies of the Group. 2 FEDERMECCANICA, The metalworking industry in figures (June 2016) - Non-EU workers (2014) [L’industria metalmeccanica in cifre (gugno 2016) - Lavoratori extracomunitari (2014) http://www.federmeccanica.it].
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Ratio between monthly minimum wage provided by the collective contracts and the minimum wage paid by Group companies 3 2015
COLLECTIVE CONTRACT MINIMUM WAGE
MINIMUM WAGE PAID
MINIMUM INCREASE %
VALUES IN EURO Sabaf Spa
1,588.63
1,588.63
1,811.84
2,116.79
14%
33%
Faringosi Hinges
1,588.63
1,588.63
1,760.69
1,760.69
11%
11%
Turkey
286.61
286.61
314.81
314.81
10%
10%
Brazil
256.99
256.99
295.56
295.56
13%
13%
China
257.76
257.76
375.31
375.31
46%
46%
2016
COLLECTIVE CONTRACT MINIMUM WAGE
MINIMUM WAGE PAID
MINIMUM INCREASE %
VALUES IN EURO Sabaf Spa
1,588.63
1,588.63
1,811.84
2,167.41
14%
36%
Faringosi Hinges
1,588.63
1,588.63
1,769.34
1,769.34
11%
11%
Turkey
317.37
317.37
355.80
355.80
12%
12%
Brazil
355.36
355.36
400.23
400.23
13%
13%
China
248.63
248.63
362.02
362.02
46%
46%
Ratio between maximum wage and the median wages of Group companies 2016
2015
Italy
4.7
4.7
Turkey
11.5
11.9
Brazil
8.9
9.3
China
8.0
10.5
Ratio between average wage of female personnel and average wage of male personnel 2016
2015
Employees, managers and executives
64%
64%
Labourers
86%
83%
The indicators were determined as the ratio between the average gross annual wage of female employees and that of male employees for the individual Group companies. The Group indicator was determined by weighting the indicators of the individual companies by the number of employees of each one.
3 Values converted into Euros at year-end exchange rates.
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WORKING HOURS AND HOURS OF ABSENCE The weekly duration of standard work is fixed at 40 hours for the Italian companies and for Sabaf China and 44 hours for Sabaf do Brasil, spread across 5 working days, from Monday to Friday. For Sabaf Turkey, the duration is 45 weekly hours spread across 6 working days.
Overtime Average monthly number of workers who performed overtime Number of overtime hours Annual number of hours per capita 5
2016
BENCHMARK 4
2015
Employees
Labourers
Employees
Labourers
Employees
Labourers
107
358
76
264
-
-
9,714
21,554
12,520
35,343
-
-
65
38
81
60
50
61
Total hours of absence
2016
BENCHMARK 6
2015
Total hours of annual absence
39,650
46,661
86,311
31,550
36,412
67,962
-
Percentage hours of absence on workable hours
3.9%
9.2%
5.7%
3.1%
6.9%
4.4%
-
Average hours of absence per capita
81.0
181.5
115.6
63.7
136.8
89.2
104.8
Hours of sick leave Total hours of sickness per annum
2016
BENCHMARK7
2015
31,603
18,099
49,702
27,833
17,823
45,656
-
Percentage hours of sickness on workable hours
3.1%
3.6%
3.3%
2.7%
3.4%
2.9%
-
Per capita hours of sick leave
64.6
70.4
66.6
56.2
67.0
59.9
48.6
Hours for maternity/ paternity leave Total annual hours of maternity/ paternity leave Percentage of maternity leave on workable hours Per capita hours of maternity leave
2016
BENCHMARK 8
2015
4,224.5
26,566.5
30,791
481
17,403
17,884
-
0.4%
5.2%
2.0%
0.0%
3.3%
1.1%
-
8.6
103.3
41.3
1.0
65.4
23.5
16.8
The high number of hours of to maternity leave compared to the industry average reflects a higher percentage of female staff.
4 FEDERMECCANICA, The metalworking industry in figures (June 2016) - Per capita overtime hours (2014) [L’industria metalmeccanica in cifre (giugno 2016) – Ore pro-capite di lavoro straordinario (2014), http://www.federmeccanica.it]. 5 In relation to average number of employees. 6 Processing from FEDERMECCANICA, The metalworking industry in figures (June 2016) - Per capita hours of absence from work (2016) [L’industria metalmeccanica in cifre (gugno 2016) – Ore pro-capite di assenza dal lavoro (2016), http://www.federmeccanica.it]. 7-8 FEDERMECCANICA, The metalworking industry in figures (June 2016) - Per capita hours of absence from work (2014) [L’industria metalmeccanica in cifre (gugno 2016) – Ore pro-capite di assenza dal lavoro (2014), http://www.federmeccanica.it].
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
Parental leave 9 TYPE OF LEAVE
2016
2015 % of workers in labour force after 12 months
Mandatory maternity leave
0
14
14
0
10
10
100%
Early maternity leave
0
14
14
0
8
8
100%
Optional maternity/paternity leave
6
20
26
1
17
18
100%
Breastfeeding leave
0
4
4
0
6
6
100%
Assistance to disabled relatives (Law 104)
20
12
32
27
10
37
100%
Blood donation
7
0
7
6
0
6
-
Extended leave
4
2
6
3
1
4
100%
Extraordinary leave
1
0
1
2
1
3
100%
OTHER LEAVE
Recourse to Temporary Redundancy Fund (CIG - Cassa Integrazione Guadagni Ordinaria) 10
Number of CIG hours Average number of annual hours per capita
During the year the Italian group companies made recourse to the Temporary Redundancy Fund (Cassa Integrazione Guadagni Ordinaria), in periods characterised by low production requirements.
9 Data relating to Sabaf S.p.A. 10 Institution provided by Italian national legislation; the data relates only to Italian Group companies.
2016
2015
35,583
16,612
60.8
30.0
Given the relevant market situation, which still does not allow for the full use of the production plants in Ospitaletto, also given the streamlining of some processes and the increased automation, in late 2016 Sabaf S.p.A. agreed with the trade unions upon the activation for 2017 of the solidarity contract, which involves a maximum reduction of working hours of 9.79%.
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HEALTH AND SAFETY OF WORKERS AND THE WORKPLACE The Group’s commitment towards safeguarding the health and safety of its employees is total: the system of managing problems relating to health and safety in the workplace is in line with the OHSAS 18001 standard and, as well as guaranteeing compliance with existing laws and regulations, it is aimed at continuously improving the working conditions.
Since February 2012 the management system on the health and safety of workers at Faringosi Hinges has been certified in accordance with the OHSAS 18001 standard. The system was audited for re-certification by the body TUV NORD in February 2015. The last supervision audit, performed by the Certification Body TUV NORD in March 2016, certified the conformity of the system with the relevant rules; there were, in fact, no nonconformities but only suggestions for improvement.
Number and duration of accidents 2016
BENCHMARK 11
2015
-
Accidents at work
8
3
11
12
5
17
-
Accidents while commuting
1
0
1
2
0
2
-
Average duration of absences for accidents at work (days)
5.25
1.33
4.18
33.17
23
30.18
-
Average duration of absences for accidents while commuting (days)
2.00
0
2.00
33.5
0
33.5
-
Total hours of absence for accidents
329.5
39.5
369
2,840
844
3,684
-
Per capita hours of absence from work due to accident 12
0.67
0.15
0.49
5.73
3.17
4.84
4.9
10
H
H
10
5.73
TOTAL
0.49 4.84
3.17 0.67
0.15
11 FEDERMECCANICA, The metalworking industry in figures (June 2016) - Per capita hours of absence from work (2014) [L’industria metalmeccanica in cifre (gugno 2016) – Ore pro-capite di assenza dal lavoro (2014) http://www.federmeccanica.it]. 12 The calculation is based on the average annual workforce.
SABAF - ANNUAL REPORT 2016
Accident frequency index
Accident severity index
Number of accidents (excluding commuting accidents)
Days of absence (excluding commuting accidents)
x 1,000,000 / hours worked
x 1,000 / hours worked
2016
Index
10.01
7.58
2016
2015
9.21
14.31
12.52
Index
13.73
During 2016 no accidents of particular severity occurred. The training and awarenessraising activities on the use of personal protective equipment and safety devices continued in all plants of the Group.
0.05
0.01
2015
0.04
0.47
0.29
2016
2015
Plant, equipment, materials
74
42
Personal protective equipment
89
77
External training
25
27
Consultancy
85
134
Workplace analysis
9
24
Health checks (including pre-recruitment examinations)
40
44
Software and database
5
0
327
348
2016
2015
Plant, equipment, materials
81
62
TOTAL
81
62
IN THOUSANDS OF EURO
TOTAL
0.40
In compliance with existing laws, the Group companies have prepared and implement medical supervision plans for employees, with health checks targeted at the specific risks of the working activity performed. In particular, in 2016, 2,664 health checks were performed (2,707 in 2015).
Current costs for safety of workers
Investments for safety of workers IN THOUSANDS OF EURO
77
CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
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Sabaf a health promoting workplace In early 2016 Sabaf S.p.A. joined the WHP (Workplace Health Promotion) programme, to implement good practice in the field of workplace health promotion. Sabaf thus undertakes not only to implement all measures to prevent accidents and occupational diseases but also to offer to its workers opportunities to improve their health, reducing general risk factors and in general those mostly involved in the genesis of chronic diseases. Workplace health promotion is the result of joint efforts of employers, workers and the company. The following are contributory factors: • Improvement in the organisation of work and the workplace • Encouragement of staff to participate in healthy activities • Promotion of healthy choices • Encouragement of personal growth The central idea is simple: Sabaf aims to build, through a participatory process, a context that encourages the adoption of positive behaviours and choices for health. The WHP Programme involves developing activities (good practice) in 6 themed areas and requires the gradual implementation, year after year, of a minimum number of good practices in the different themed areas.
stopping smoking nutrition
physical activity
wellness and life-work balance
safe and sustainable mobility fighting addictions
To plan actions more coherent with the company context, as well as to assess the improvements achieved, Sabaf deemed it important to identify “from the outset” the existing situation with respect to the behaviours (health determinants and risk factors) of its workers. To that end, all workers were asked to complete an anonymous questionnaire. Based upon what emerged, the activities were planned for 2016.
SABAF - ANNUAL REPORT 2016
CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SOME SUGGESTIONS BY WORKERS
INTERVENTIONS MADE IN 2016
Clinic with nutritionist
An agreement has been activated with a nutritionist at more favourable prices for Sabaf collaborators. An impedance scale has been purchased which measures weight, body fat, lean mass and basal metabolic rate. At each periodic medical examination, the personal values can be monitored.
Indication of calories and fats for each portion in canteen
On the canteen counter for each dish, in addition to the colour corresponding to the ideal combination, the calorie counts are provided.
More varied and healthier menu, more variability of fruit and vegetables and availability of wholemeal foods
During 2016 the menu offered in the canteen was gradually expanded. The very varied offer currently includes every day even wholemeal pasta and bread. In addition to the seasonal menu, the variant of wholemeal products and, on a weekly basis, a special dish inspired by other culinary cultures has been introduced. The menu has been designed and suggested by a nutritionist. At each meal, it is possible to choose between at least 3 starters, 3 mains, 3 sides with fresh and cooked vegetables. As an alternative, yogurt and fruit are always available.
Change the vending machines menu. Ban unhealthy products
The automatic vending machines have been enhanced by more types of products, leaving the user the possibility to choose.
Free distribution of water in canteen
In the canteen, as well as the 0.5l bottle available with every meal, a water dispenser has been installed. Throughout the plant there are already 50 water dispensers, in addition to the hot and cold drink vending machines.
Information
There have been many informative interventions: place mats and notice boards with the food pyramid, menus and tables with the colours of food. The “Health Profile� magazine is distributed for free.
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Use of hazardous substances Only materials that fully satisfy the requirements of Directive 2002/95/EC (RoHS Directive) are used for production; this aims to restrict the use of hazardous substances such as lead, mercury, cadmium and hexavalent chromium.
INDUSTRIAL RELATIONS There are three internal trade unions at Sabaf S.p.A.: FIOM, FIM and UILM. In the Group companies, in December 2016 there were 145 employee members, amounting to 19.7% of the total (in 2015, 142 employees were members, equal to 18.7%). The relationships between Management and the Trade Unions are based upon transparency and mutual fairness. During the year in Sabaf S.p.A. 11 meetings took place between Management and the Trade Unions. The main subjects addressed were:
• communications relating to changes of the workforce and agency employment contracts, monitoring of temporary and job placement contracts, planning of recruitments, planning of training; • presentation of the commercial plan and economic-financial results • presentation and discussion of indicators determining the company performance bonus • recourse to temporary redundancy fund (CIG) The hours of participation in trade union activities during 2016 amounted to 0.69% of the workable hours.
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
PARTICIPATION IN TRADE UNION ACTIVITY 2016
2015
BENCHMARK 13
N° hours
2,891
2,708
-
Percentage of workable hours
0.19
0.17
-
N° hours per capita
3.9
3.6
-
N° hours
2,046
1,499
-
Percentage of workable hours
0.14
0.09
-
N° hours per capita
2.7
2.0
-
N° hours
5,452
798
-
Percentage of workable hours
0.36
0.05
-
N° hours per capita
7.3
1.0
-
10,389
5,005
-
Percentage of workable hours
0.69
0.31
-
N° hours per capita
13.92
6.57
8.3
SHAREHOLDERS’ MEETING
TRADE UNION LEAVE
STRIKES
TOTAL N° hours
%
20
H
10,000
H
10,389
13.92 5,005 6.57 0.69%
TOTAL
TOTAL PER CAPITA
10%
0.31%
10%
TOTAL %
During 2016 at Sabaf S.p.A. a total 26 hours of strikes were called, for problems of national nature. At Faringosi Hinges, Sabaf do Brasil, Sabaf Turkey and Sabaf Kunshan no strikes were called.
13 FEDERMECCANICA, The metalworking industry in figures (June 2016) - Per capita hours of absence from work (2014) [ L’industria metalmeccanica in cifre (giugno 2016) - Ore pro-capite di assenza dal lavoro (2014), http://www.federmeccanica.it].
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SOCIAL ACTIVITIES AND BENEFITS Sabaf S.p.A. has signed an agreement with a credit institution for the granting of mortgage loans under particularly favourable conditions, providing a surety guarantee in favour of its employees: at 31/12/2016 59 employees benefit from the agreement. The Company has rented to employees some apartments close to the Ospitaletto site. It
has also built a residential complex of 54 units, used as a priority and under favourable conditions for employees, who have purchased 29 of them. Various agreements have also been signed with commercial businesses for the purchase of products and services at special prices.
LITIGATION AND DISCIPLINARY MEASURES During 2016 136 disciplinary measures were taken against employees of the Group, broken down as follows:
15 verbal warnings 13 warnings to use personal protective equipment 68 written warnings 22 fines 7 suspensions 2 precautionary suspensions 9 dismissals
The main reasons for the disciplinary measures are unjustified absence, failure to respect working hours, lack of respect of rules regarding sickness absence and justified objective reasons. At 31 December 2016 there were no disputes in place with collaborators. Some disputes are in place with some former employees relating mainly to the challenge of dismissal measures.
SABAF - ANNUAL REPORT 2016
CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and shareholders COMPOSITION OF THE CAPITAL 2,210 shareholders were registered in the shareholders’ book at 10 March 2017, of which: -----
1,809 own up to 1,000 shares 313 own from 1,001 to 5,000 shares 40 own from 5,001 to 10,000 shares 48 own over 10,000 shares
45% of the capital is held by shareholders resident abroad. The presence of institutional investors in the capital is very significant (estimated at around 90% of the free float).
(30.72%) GIUSEPPE SALERI SAPA
(34.30%) OTHER
(20.00%) QUAESTIO CAPITAL MANAGEMENT SER
(14.98%) DELTA LLOYD AM
RELATIONSHIPS WITH INVESTORS AND FINANCIAL ANALYSTS Since the Stock Market listing (1998) the Company has considered financial communication to be strategically important. Sabaf’s financial communication policy is based upon principles of correctness, transparency and continuity, in the belief that that approach allows investors correctly to assess the Company. In that perspective, Sabaf guarantees the utmost openness to dialogue with financial analysis and institutional investors.
During 2016 the Company met the institutional investors at roadshows organised in Milan, Florence and London. Some investors, in addition, had meetings with management at the company headquarters in Ospitaletto, taking the opportunity to visit the production plants.
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REMUNERATION OF SHAREHOLDERS AND PERFORMANCE OF STOCK During 2016, the Sabaf stock recorded its maximum official price on 5 January (11.483 Euro) and its minimum on 28 November (8.700 Euro). The average traded volumes amounted to 5,254 shares per day, equal to an average equivalent value of 50,750 Euro (133,000 Euro in 2015).
11.39 10.75 10.12 9.478 8.841 8.204
March 2016
May 2016
July 2016
September 2016
November 2016 50 k
25 k
0k
VOLUME
March 2016
May 2016
July 2016
September 2016
November 2016
The dividend policy adopted by Sabaf is aimed at ensuring the valid remuneration of shareholders also by way of the annual dividend, maintaining a ratio between dividend and profit above 50%.
SOCIALLY RESPONSIBLE INVESTMENTS Frequently, the Sabaf stock has been subject to analysis also by analysts and managers of SRI funds, which on a number of occasions have also invested in Sabaf.
DISPUTES There are no disputes in place with shareholders.
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and customers SALES ANALYSIS
THE QUALITY SYSTEM
Countries and customers
Countries Customers
14
2016
2015
54
52
293
288
See the Management Report for the analysis of the breakdown of revenues by product family and by geographic area.
The quality management system is integrated with the environmental and workplace safety management systems, and it is aimed at allowing for the following objectives to be achieved: a. to increase customer satisfaction, through the understanding and satisfaction of their present and future needs; b. continuously to improve the processes and products; c. to involve partners and suppliers in the continuous improvement process, favouring the “comakership� logic; d. to develop human resources; e. to improve the business performance.
In coherence with the commercial policies followed, a large part of the active commercial relationships is characterised by relationships consolidated in the long-term. There are 31 Customers with annual sales of over one million Euro (34 in 2015). The distribution by classes of sales is the following:
Current costs for quality IN THOUSANDS OF EURO
2016
2015
Product certification
129
91
2016
2015
< 1,000 Euro
50
43
Quality system certification and management
26
27
from 1,001 to 50,000 Euro
176
174
Equipment and measuring devices (purchase)
103
84
from 50,001 to 100,000 Euro
23
26
Equipment and measuring devices (calibration)
30
47
from 100,001 to 500,000 Euro
50
43
Technical rules, software and magazines
5
2
from 500,001 to 1,000,000 Euro
13
11
Training
0
0
Tests at external laboratories
16
6
from 1,000,001 to 5,000,000 Euro
26
26
309
257
> 5,000,000 Euro
5
8
2016
2015
Equipment and measuring devices (purchase)
131
74
TOTAL
131
74
In addition to the management structure at the Ospitaletto site, the sales network is based on the subsidiary companies in Brazil, Turkey, the USA and China and on the representative office in Poland. There are 11 active agency relationships, mainly relating to non-European markets.
14 With sales exceeding 1,000 Euro.
TOTAL
Investments for quality IN THOUSANDS OF EURO
86
Sites that have obtained the quality certification according to the ISO 9001:2008 Standard:
1993
2008
Sabaf S.p.A
Sabaf do Brasil
2001
2015
Faringosi Hinges
Sabaf Turkey
During the year 2016, Sabaf’s Quality System was constantly monitored and maintained to ensure the correct implementation and respect of the requirements of the standard. The plan of internal inspection audits, defined both for the site of Ospitaletto and for the production plant in Brazil, was done and the results did not identify any system criticalities which, therefore, fully satisfies the standard.
In the month of October 2016 the Certification Body TUV NORD performed the periodic supervision audit on the quality management system of Faringosi Hinges s.r.l. The check confirmed the adequate implementation of the system. No non-conformities were identified.
In relation to third party audits on the quality management system, CSQ (Certification system of IMQ) performed the annual supervision inspection at the site of Ospitaletto in June 2016, and at the plant in Turkey in May 2016, confirming the adequacy of the system. The verification was carried out by sample at the Italian site and confirmed the quality system also for the Turkish plant. During 2017 all plants will be visited by the certification body for the renewal of the certificate.
During 2017 training and update courses are scheduled to investigate the new EN ISO 9001:2015 standard so as to prepare to adjust the system to the revision of the standard.
CUSTOMER SATISFACTION The customer satisfaction survey, conducted on a twice yearly basis, falls within the activities of stakeholder engagement which Sabaf undertakes in order to constantly improve the quality level of the services offered and to meet the expectations of customers.
The last survey, done in February 2015, confirmed the positive opinion of customers, emphasising among the strengths the promptness, professionalism and expertise in commercial assistance. Another analysis has been planned for the month of March 2017.
DISPUTES Sabaf has some initiatives in place to warn some producers against the counterfeiting of components and of cookers and cooker tops, which are promoting or selling devices having components that infringe our patents and trademarks.
SABAF - ANNUAL REPORT 2016
CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and suppliers SA8000 STANDARD AND SUPPLIERS In 2005 Sabaf S.p.A. obtained the certification of conformity to the requirements of the SA8000 standard (Social Accountability 8000) and, therefore, the Company requires from its suppliers compliance, in all their activities, with the principles of the standard, as a minimum criterion for establishing a lasting relationship based upon principles of social responsibility. The supply contracts include a clause of ethical nature inspired by the SA8000 Standard, which binds suppliers to guarantee respect of human and social rights and in particular: to avoid employing persons aged below the age established by the standard, to guarantee to workers a safe workplace, to protect trade union freedoms, to respect the legislation on working hours, to guarantee to workers respect of the legal minimum wage.
Any lack of compliance or lack of acceptance of the principles of the SA8000 Standard may determine the interruption of the supply relationships. During 2016, 13 audits were carried out at suppliers (19 in 2015), relating to the management of quality, environment and social responsibility, which did not identify any critical noncompliance. Against the non-critical non-compliance, the suppliers were asked to make the appropriate interventions.
ANALYSIS OF PURCHASES The Sabaf Group aims to encourage the development of the territory in which it operates and, therefore, when selecting its suppliers, it favours local companies:
The turnover achieved outside the European Union originates for the most part from suppliers situated in China. Chinese suppliers have signed the clause to comply with the principles of the SA8000 standard.
excluding intergroup relationships, the purchases made in Lombardy by Italian companies of the Group represent 48% of the total, the purchases by Sabaf do Brasil from Brazilian suppliers amount to 83% of the total, the purchases by Sabaf Turkey from Turkish suppliers is 77.3% of the total and the purchases of Sabaf Kunshan from Chinese suppliers is 95.5% of the total.
Territorial distribution of suppliers 2016 IN THOUSANDS OF EURO
TURNOVER
2015 %
TURNOVER
%
Province of Brescia
30,814
36.2
27,995
28.8
Italy
28,061
32.9
38,104
39.3
UE
10,246
12.0
11,000
11.3
Brazil
5,208
6.1
4,269
4.4
Turkey
5,578
6.5
5,339
5.5
China
4,282
5.0
6,908
7.1
978
1.1
3,437
3.5
85,167
100
97,011
100
Non-EU - Others TOTAL
Sabaf do Brasil and Sabaf Turkey purchase the materials required for production mainly from local suppliers. The main machines used (die-casting islands, transfer and
assembly lines) are, on the other hand, imported from Italy to guarantee homogeneous production processes at Group level, particularly in terms of quality and safety.
87
88
RELATIONSHIPS WITH SUPPLIERS AND CONTRACTUAL TERMS The relationships with suppliers are based upon long-term collaboration and focused upon contractual fairness, integrity and business correctness and the sharing of strategies of growth. To encourage the sharing with suppliers of the basic values of its business model, Sabaf has broadly distributed the Charter of Values. Sabaf guarantees absolute impartiality in its choice of suppliers and undertakes strictly to comply with the agreed payment terms.
Sabaf requires from its suppliers the ability to renew themselves technologically, so as always to be able to offer the best quality/price ratios, and it favours the choice of suppliers that have obtained or are obtaining certifications of quality and environmental systems. In 2016 the turnover of suppliers of the Sabaf Group with the certified quality system was 68.1% of the total (61.9% in 2015).
Breakdown of purchases by nature 2016 IN THOUSANDS OF EURO
TURNOVER
2015 %
TURNOVER
%
Raw materials
18,952
22.3
26,056
26.9
Components
28,394
33.3
28,027
28.9
Capital goods
11,465
13.5
11,581
11.9
Services and other purchases
26,356
30.9
31,347
32.3
TOTAL
85,167
100
97,011
100
Very short payment timescales are agreed with craftsman suppliers and those that are less structured (mainly at 30 days).
DISPUTES There are no disputes in place with suppliers.
SABAF - ANNUAL REPORT 2016
CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF and lenders RELATIONSHIPS WITH CREDIT INSTITUTIONS The Group operates with a low debt ratio (net debt / shareholders’ equity at 31 December 2016 of 0.21; net debt / EBITDA of 0.92) and it has ample unused short-term credit lines. At 31 December 2016 the net debt amounted to 23.5 million Euro - compared to the 25.9 million Euro of 31 December 2015.
The relationships with banks are always characterised by the utmost transparency. Relationships are always favoured with those institutions able to support the Group in all its financial requirements and to promptly propose solutions against specific requirements.
DISPUTES There are no disputes in place with lenders.
SABAF and competitors MAIN ITALIAN AND INTERNATIONAL COMPETITORS In Italy and in Europe Sabaf estimates that it holds a market share of over 50% in each product segment and it is the only company that provides the complete range of components for gas cooking appliances, while its competitors produce only part of the product range.
Burner Systems International (BSI) is a US group that acquired control of the French manufacturer Sourdillon, a longstanding competitor of Sabaf, and Harper Wyman, the leading manufacturer of components for gas cooking appliances for the North American market.
Sabaf’s main competitors on the international market are Copreci, Burner System International and Defendi.
Defendi is an Italian company, acquired in 2013 by the German group EGO, and it is mainly active in the production of burners in Italy, Brazil and Mexico.
Copreci is a cooperative located in Spain in the Basque Country, part of Mondragon Cooperative Corporation and with Sabaf it is the main manufacturer of taps and thermostats in Europe.
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Main Italian and international competitors TAPS
THERMOSTATS
BURNERS
HINGES
SABAF
X
X
X
X
Burner Systems International (U.S.A)
X
X
X
CMI (Italy)
X
Copreci (Spain)
X
Defendi Italy (Italy)
X
X X
Nuova Star (Italy)
X
Somipress (Italy)
X
2014 and 2015 economic data of main Italian competitors 15 2015
2014
IN THOUSANDS OF EURO
SALES
OPERATING INCOME
NET PROFIT
SALES
OPERATING INCOME
NET PROFIT
CMI
20,922
1,163
646
19,828
1,146
612
DEFENDI ITALY
53,608
1,006
1,087
54,694
2,930
2,257
NUOVA STAR
27,966
252
79
27,793
449
95
SOMIPRESS GROUP
40,946
3,417
2,046
40,072
3,160
1,720
SABAF GROUP
138,003
14,091
8,998
136,337
13,175
8,338
No further information is available on competitors, due to the difficulty in obtaining the data.
DISPUTES A dispute is in progress brought against a competitor following and alleged infringement of one of our patents.
15 Sabaf processing from financial statements of various companies. Latest available data.
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
SABAF, Public Administration and Society RELATIONSHIPS WITH THE PUBLIC ADMINISTRATION
RELATIONSHIPS WITH UNIVERSITIES AND THE STUDENT WORLD
In line with the relevant policies, Sabaf’s relationships with the Public Administration and the Treasury are based upon the utmost transparency and fairness. Locally, Sabaf has sought to establish an open dialogue with the various authorities to create harmonious industrial development. In that perspective, the Company systematically provides to the Municipality of Ospitaletto a copy of the analyses relating to atmospheric emissions caused by production at its plants.
Sabaf systematically organises company visits with groups of students and contributes its knowledge of best practices in relation to social responsibility to major conventions in various cities in Italy.
CHARITABLE INITIATIVES AND DONATIONS The amount of donations in 2016 was around 36,000 Euro (44,000 Euro in 2015), mainly aimed at supporting initiatives of social and humanitarian nature locally.
DISTANCE ADOPTIONS Sabaf supports the Association of Volunteers in International Service (AVSI), a nongovernmental and not for profit organisation working on international projects of development aid. The donations are aimed at supporting at a distance twenty children who live in various countries of the world.
RELATIONSHIPS WITH THE TRADE UNION ASSOCIATIONS Sabaf is one of the founders of CECED Italia, the association that develops and coordinates in Italy study activities promoted at European level by Ceced (European Committee of Domestic Equipment Manufacturers) with the related scientific, legal and institutional implications in the domestic appliances sector. Since 2014 Sabaf S.p.A. has been a member of the Brescia Industrial Association (AIB), which is part of the Confindustria system.
DISPUTES There are no significant disputes with public institutions or with other representatives of the community.
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SABAF and the environment HEALTH AND SAFETY, ENVIRONMENT AND ENERGY POLICY Programme and objectives The protection of the Health and Safety of Workers, the Environment and the efficient and rational use of Natural and Energy resources are for SABAF part of its strategic commitments. As part of the processes for the production of components for gas cookers, it is, for our Organisation, now a continuous challenge to achieve standards of work that guarantee the health and maximum safety of our staff and those who work on our behalf. The reduction of environmental impacts and the reduction in the use of natural and energy resources are an integral part of this challenge, starting with the product design process, through the different phases of its creation, in a perspective that looks at the whole operating life of that product. For this reason SABAF has adopted and keeps active an Integrated System for the Management of Health, Safety and the Environment, and Energy (EHS&En) which, integrating with the other Management Systems operating in the company, constitutes an effective means for pursuing the constant reduction of risks, environmental impacts and energy consumption through the following instruments: • Maintaining full compliance with the rules and laws in force and the other requirements using the same proactively as elements of continuous EHS&En supervision of the processes. • Prior assessment, commencing from the phases of design, modification of processes and purchase of products and services, of the EHS&En aspects. • The drafting, dissemination and constant implementation of the Policy in order to share the same with and involve all employees and collaborators in achieving our EHS&En performance targets. SABAF undertakes to pursue the following objectives: • Prevention of pollution and streamlining of energy use through continuous improvement of its processes and products, aiming them at maximising the profit to be achieved through minimising the environmental impacts and energy consumption. • Making more efficient the use of Natural and Energy resources in the production phase, with particular reference to water and energy consumption. • Reducing the quantity of waste produced and improving its quality in terms of hazardousness and recoverability. Since 2003 the environmental management system of the Ospitaletto production site (which covers about 80% of the Group’s total production) has been certified in accordance with the ISO14001 standard. During the year 2016, Sabaf’s Environmental Management System has been constantly monitored and maintained to guarantee the correct implementation and respect of the requirements of the standard. In relation to third party audits on the system, CSQ performed the supervision inspection, at the Ospitaletto site in July 2016, confirming the adequacy of the system. Sabaf S.p.A. obtained in 2008 the issuance by the Lombardy Region of the Integrated Environmental Authorisation in accordance with Italian Legislative Decree 18 February 2005, no. 59.
In 2015 the Ospitaletto site was certified in accordance with the ISO 50001 Standard, with a view to reducing the environmental impacts and containing the use of natural and energy resources. The supervision inspection, held in December 2016, confirmed the adequacy of the system.
DIALOGUE WITH ENVIRONMENTAL GROUPS AND INSTITUTIONS The Group has for some time promoted the dissemination of information regarding lower environmental impacts deriving from the use of gas in cookers rather than electricity: the use of combustible gas for heat production in fact provides much higher yields than those obtainable with electric cookers. In addition, the market of cookers worldwide increasingly requires high power and numerous hobs to rapidly cook meals. Cooker hobs powered electrically lead to an increase in peak energy consumptions, typically at mealtimes, further fuelling the demand for electricity which is already difficult to satisfy.
PROCESS INNOVATION AND ENVIRONMENTAL SUSTAINABILITY Washing of metals In the production process of taps, it is essential in a number of phases to proceed with the washing of metals. Traditionally, the washing of metals was done through systems that involved the use of chlorine-based solvents. From 2013 Sabaf began to assess alternatives that can guarantee equal or superior washing quality, at the same time minimizing the environmental impact and management costs. The identified solution involves the insertion into the production process of machines that use a washing system based upon modified alcohol, a solvent that, due to its properties, can be re-distilled (and therefore is recyclable). With an investment of over one million Euro, the replacement process involved the complete replacement of all washing systems present both in Italy and in Brazil. The environmental impact and the management costs have been substantially zeroed.
Product marking The existing rules require a series of distinctive characteristics to be indicated on products. Traditionally, the printing was always done with an inkjet system: the system only allows for three lines to be printed, for a predefined number of characters for each line, with an annual operating cost of about 60,000 Euro for ink, solvents and maintenance. Sabaf has decided to opt for a fibre optic laser writing system which allows for all necessary characters to be printed on products, without limitation. In recent years, with an investment of about 250,000 Euro, all inkjet systems have been replaced with fibre optic laser writing systems, zeroing the operating costs.
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
PRODUCT INNOVATION AND ENVIRONMENTAL SUSTAINABILITY Light-alloy taps
High efficiency burners
The production of aluminium alloy taps has several advantages compared to the production of brass taps: elimination of the phase of hot moulding the brass, lower lead content in the product, lower weight and consequent reduction in consumption for packaging and transportation. In 2016 the process of replacing brass taps with lightalloy taps, which now represent over 80% of the taps produced, continued.
For many years Sabaf has been at the cutting-edge in marketing burners that are characterised by significantly higher yields than standard ones. After the launch of Series III, AE and AEO, from 2012 Sabaf introduced a new family of high efficiency burners, the HE burners, able to reach a yield of up to 68%. HE burners are also characterised by almost total interchangeability with Series II burners. Recently, the DCC range of special burners was completed, which is characterised by energy efficiency exceeding 60%, the highest currently available on the market for burners with multiple rings. Specifically for the Chinese market, then, DCC burners have been created with brass gas ring and efficiency greater than 65%, at the top of what is currently available on that market. High efficiency burners already represent 14.5% of the total burners produced.
ENVIRONMENTAL IMPACT Materials used and product recyclability Sabaf’s main product lines - taps, thermostats and burners for gas cooking appliances for domestic use - are characterised by a high energy efficiency and by optimal use of natural resources. The use of combustible gas for heat production allows, in fact, for much higher yields than those that can be obtained with electrical cooking appliances. Sabaf’s products can also be easily recycled, as they are almost entirely constituted by brass, alloys of aluminium, copper and steel.
Sabaf also recycles its paper/cardboard, glass, cans and plastic. In 2016 recycling allowed for the recovery of paper/cardboard and of plastic packaging of 96,450 Kg.
MATERIALS USED Brass Aluminium alloy Zamak Steel
2016 CONSUMPTION (t)
2015 CONSUMPTION (t)
697
1,025
6,703
7,431
82
77
7,250
6,790
100% of the brass and around 65% of the aluminium alloys used are produced by way of scrap recovery; 35% of the aluminium alloys and 100% of the steel are, on the other hand, produced from mineral sources.
The ever reducing consumption of brass is linked to the gradual replacement of brass taps with aluminium alloy taps. Sabaf’s products fully satisfy the requirements of Directive 2002/95/EC (RoHS Directive) which aims to limit the use of hazardous substances, such as lead, in the production of electrical and electronic devices, a category that includes all domestic appliances, including gas cooking appliances (which are equipped with electronic ignition). In addition, Sabaf’s products are fully compliant with the requirements of Directive 2000/53/EC (End of Life Vehicles), i.e. the content of heavy metals (lead, mercury, cadmium, hexavalent chromium) is lower than the limits imposed by the Directive. In relation to the REACH Regulation (Regulation no. 1907/2006 dated 18.12.2006), Sabaf S.p.A. is classified as a downstream user of substances and preparations. The products supplied by Sabaf are classified as articles that do not give rise to the intentional issuance of substances during normal use; therefore, the registration of the substances contained in them is not required. Sabaf has contacted its suppliers in order to ensure that they fully comply with the REACH Regulation and to obtain confirmation of the fulfilments of the pre-registration and registration obligations of substances or preparations used by them. Sabaf also performs constant monitoring of legislative changes in relation to the REACH Regulation in order to identify and manage any new fulfilments in that regard.
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Energy sources ELECTRICITY
Indicator: Energy intensity 2016 CONSUMPTION (Mwh)
2015 CONSUMPTION (Mwh)
27,189
29,384
2016 CONSUMPTION (m3 X 1000)
2015 CONSUMPTION (m3 X 1000)
3,432
3,376
TOTAL
METHANE TOTAL
ENERGY INTENSITY
2016 CONSUMPTION
2015 CONSUMPTION
0.483
0.470
KWh on turnover
Sabaf S.p.A. and Sabaf do Brasil use methane as an energy source for the casting of aluminium and for the firing of enamelled covers. The production of Faringosi Hinges does not use methane as an energy source.
The energy diagnosis of the energy management system During 2015 Sabaf S.p.A. and Faringosi Hinges s.r.l. carried out an energy diagnosis, aimed at obtaining in-depth knowledge of the energy consumption profile of their activities and identifying and quantifying the energy saving opportunities.
MAIN ENERGY SOURCES USED
ANALYSIS OF ENERGY REQUIREMENT TO COMPLETION
The main sources used are:
The production processes that absorb the most energy are the foundry (54% of the process total) and the glazing line (15% of the process total).
-- electricity, for all electrically powered devices present, whether or not they are functional to the production process, which covers 73% of the total energy requirement -- natural gas, linked to the functioning of both the production plants (foundry ovens, burners for washing, enamelling ovens) and the service systems (heating), which covers 27% of the total energy requirement
The energy requirement of the auxiliary services is mainly attributable to the production of compressed air (70% of the auxiliary services total) and to the waste treatment systems of the foundry and glazing line (20% of the auxiliary services total). The energy requirement of the general services relates mostly to heating and lighting.
100% 53%
PROCESS (tep) AUXILIARY SERVICES (tep) GENERAL SERVICES (tep)
32% 15%
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
2016 Targets
and results achieved
As part of the energy diagnosis Sabaf had set itself the following improvement targets:
1
Search and repair of leaks of compressed air. RESULTS ACHIEVED: This activity led to a 10% performance improvement of the air production sector.
Adjustment of combustion parameters for hot air generators.
2
RESULTS ACHIEVED: Correct maintenance, greater awareness raising and knowledge of users and rational use have led to an improvement, and therefore an energy saving, of 12% compared to the year 2015.
Renewal of lighting systems.
3
RESULTS ACHIEVED: The new LED technology, installed almost all the way through the business and simultaneously the optimisation of the positioning of the drives, has led to an improved performance index by 41% compared to that of the previous year.
2017 Targets
1
Continuation of search and repair of leaks and optimisation of management of compressed air production process
2
Conclusion of activity of renewal of lighting systems
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96
Water 2016 CONSUMPTION (m3)
2015 CONSUMPTION (m3)
From aqueducts
46,879
50,187
From wells
46,640
38,894
TOTAL
93,519
89,081
WATER
All water used in the production processes by the Group companies is later disposed of: there are, as a result, no discharges of industrial type water. The water used in the die-casting and enamelling processes in Italy, recovered by way of a rainwater collection system or taken from wells, downstream of the production processes, is treated in concentration plants that have significantly reduced the quantities of water necessary and the waste produced.
The environmental improvement targets set for 2017 include optimising processes that involve the use of water.
Waste Swarfs and waste deriving from the production process are identified and collected separately, only then to be taken for recovery or disposal. Sprues from the die-casting of aluminium are directly re-used. The waste destined for disposal and recovery is summarised below:
WASTE (t)
2016
2015
URBAN
152
166
Non-hazardous (disposal)
1,474
1,286
Non-hazardous (recovery)
3,980
4,287
TOT. NON-HAZARDOUS
5,453
5,573
Hazardous (disposal)
1,188
1,531
Hazardous (recovery)
1,021
865
TOT. HAZARDOUS
2,209
2,396
It is noted that during 2016 no significant spills occurred.
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Atmospheric emissions
ENVIRONMENTAL INVESTMENTS
A good part of the Sabaf’s Group’s atmospheric emissions derive from activities defined as “producing negligible pollution”.
Current Environmental Costs
-- Three production processes are performed at Sabaf S.p.A.: 1. the production of components that constitute the burners (burner nozzle holder and gas rings) involves the melting and subsequent die-casting of aluminium alloy, sandblasting of pieces, a series of mechanical processes with the removal of material, the washing of some components, assembly and testing. That production process involves the emission of an insignificant amount of oil mists, along with dust and carbon dioxide; 2. the production of burner covers, in which steel is used as a raw material, which undergoes blanking and coining. The semi-finished covers are then washed, sandblasted, applied and enamel fired, a process which generates the emission of dust; 3. the production of taps and thermostats, in which mainly bars and moulded bodies in brass (in aluminium alloy for the new generation taps) and, in a very small amount, steel bars are used as a raw material. The production cycle is broken down into the following phases: mechanical processing with removal of material of bars and moulded bodies, washing of semi-finished products and components thus obtained, finishing of surfaces of male casing coupling using diamond machine tools, assembly and final testing of finished product. This process generates an insignificant amount of oily mist. -- At Faringosi Hinges steel is used as a raw material for the production of hinges, which undergoes a series of mechanical processes and assemblies that do not involve any significant emission. -- At Sabaf do Brasil the entire production process of the burners is carried out. From the analysis of the internal process no significant emissions are highlighted. -- At Sabaf Turkey the entire production process of the gas rings takes place along with the enamelling of the burner covers. From the internal process analysis, no significant emissions are highlighted. -- At Sabaf China the operations of mechanical processing and assembly of the burners takes place. The emissions are entirely negligible. The level of efficiency of the purification systems is guaranteed through their regular maintenance and periodic monitoring of all emissions. The monitoring performed during 2015 and 2016 highlighted the conformity with legal limits of all emissions.
CO2 EMISSIONS (t) 16
2016
2015
From methane consumption
6,563
6,600
From electricity consumption
9,978
10,784
16,541
17,384
TOTAL CO2 EMISSIONS
IN THOUSANDS OF EURO
2016
2015
Waste disposal
453
449
Consultancy
78
75
Emissions analysis
14
17
Training
2
6
Systems, equipment, materials
12
12
559
559
TOTAL
Environmental Investments IN THOUSANDS OF EURO
2016
2015
Systems, equipment, materials
690
650
TOTAL
690
650
Environmental investments in the year 2016 were made for the vat washing systems introduced to replace the old washing systems.
DISPUTES There are no significant pending disputes on environmental matters.
The use of methane gas for fuelling the smelt furnaces involves the emission into the atmosphere of NOX and SOX; however, these emissions are not very significant. Using a relatively clean fuel such as methane makes Sabaf’s contribution to greenhouse gas emissions negligible. There is no emission of CH4, N2O, HFCS, SF6, greenhouse gases. At Sabaf there are currently no substances harmful to the ozone layer, except for the refrigerant fluid used in some conditioners (R22) which is managed in compliance with the relevant regulations.
16 Calculations made on the basis of the following emission factors: 367 g/KWh for electricity 2015, 367 g/KWh for electricity 2016 (source: TERNA); 1,955 x 1000 m3 for methane 2015, 1,955 x1000 m3 for methane 2016 (source: MINISTRY OF THE ENVIRONMENT).
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100
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CHAPTER 4 - SOCIAL AND ENVIRONMENTAL SUSTAINABILITY
GRI Content Index KPMG S.p.A. has carried out a “limited assurance engagement” on the Sabaf 2016 Social Report and provides its overall conclusions therein. As far as the scope of activities and procedures are concerned, please refer to the Statement released by the independent auditor on pages 98-100.
GENERAL STANDARD DISCLOSURE
Principle of Global Compact
EXTERNAL ASSURANCE
Indicator description
PAGE (or direct reference)
G4-1
Statement from the CEO and Board President
4
✓
G4-2
Key impacts, risks and opportunities
6, 27, 35-37, 53-55
✓
Before the cover page
✓
33-34
✓
33, 190
✓
33, 35-36
✓
41, 83
✓
32, 34-35
✓
10-15, 34-36
✓
STRATEGY AND ANALYSIS
ORGANIZATIONAL PROFILE G4-3
Name of the organization
G4-4
Primary brands, products and services
G4-5
Location of the headquarter
G4-6
Countries where the organization operates
G4-7
Nature of ownership and legal form
G4-8
Markets served
G4-9
Scale of the organization
G4-10
Total number of employees by employment contract and gender, region and employment type
G4-11
Percentage of total employees covered by collective bargaining agreements
G4-12
Description of the organization’s supply chain
G4-13
Significant changes
G4-14
Precautionary approach or principle application modes
G4-15
Endorsement of externally developed economic, environmental and social charters and principles
G4-16
Memberships in industry associations
65-66
6
✓
72
3
✓
87-88
✓
4-5
✓
28, 51-55
✓
8, 41
✓
91
✓
IDENTIFIED MATERAIL ASPECTS AND BOUNDARIES G4-17
List of entities included in the organization’s consolidated financial statements and those non included in the sustainability report
5, 65
✓
G4-18
Process for defining the report content
5, 29
✓
G4-19
Material Aspects identified
6-7
✓
G4-20
For each material Aspect, report the Aspect Boundary within the organization
7
✓
G4-21
For each material Aspect, report the Aspect Boundary outside the organization
7
✓
G4-22
Effect of any restatements of information provided in previous reports, and the reasons for such restatements.
5
✓
G4-23
Significant changes from previous reporting periods
5
✓
102
GENERAL STANDARD DISCLOSURE
Indicator description
PAGE (or direct reference)
Principle of Global Compact
EXTERNAL ASSURANCE
STAKEHOLDER ENGAGEMENT G4-24
List of stakeholder groups engaged by the organization
29
✓
G4-25
Basis for identification and selection of stakeholders with whom to engage
29
✓
G4-26
Approach to stakeholder engagement
29, 86
✓
G4-27
Key topics and concerns that have been raised through stakeholder engagement and the related responses
5, 86
✓
REPORT PROFILE G4-28
Reporting period
5
✓
G4-29
Date of most recent previous report
5
✓
G4-30
Reporting cycle
5
✓
G4-31
Contact point for questions regarding the report or its contents
152
✓
G4-32
GRI content index and the ‘in accordance’ option the organization has chosen
5, 101
✓
G4-33
External Assurance
98-100
✓
42-50, 109-116, 121
✓
GOVERNANCE G4-34
Governance structure of the organization, including committees of the highest governance body
G4-38
Composition of the highest governance body
42-50
✓
G4-39
Report whether the Chair of the highest governance body is also an executive officer
59
✓
Organization’s values, principles, standards and norms of behaviour such as codes of conduct and codes of ethics.
8-9, 58
10
✓
PAGE (or direct reference)
Principle of Global Compact
EXTERNAL ASSURANCE
ETHICS AND INTEGRITY G4-56
SPECIFIC STANDARD DISCLOSURES
Indicator Description
Material Aspects, DMA and Indicators
CATEGORY: ECONOMIC Material aspect: Economic Performance
G4-DMA G4-EC1
Direct economic value created and distributed
16
✓
16
✓
6-7, 33-37
✓
Material aspect: Market Presence
G4-DMA G4-EC5
Ratios of standard entry level wage by gender compared to local minimum wage at significant locations of operation
73
6
✓
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SPECIFIC STANDARD DISCLOSURES
Indicator Description
Material Aspects, DMA and Indicators
PAGE (or direct reference)
Principle of Global Compact
EXTERNAL ASSURANCE
CATEGORY: ENVIRONMENTAL Material aspect: Materials
G4-DMA
5-6, 92-93
✓
G4-EN1
Materials used
93
7, 8
✓
G4-EN2
Recycled input materials
93
8
✓
Material aspect: Energy
G4-DMA
5-6, 92, 94
✓
G4-EN3
Energy consumption within the organization
94
7, 8
✓
G4-EN5
Energy intensity
94
8
✓
Material aspect: Water
G4-DMA
5-6, 96
G4-EN8
Total water withdrawal by source
G4-EN9
Water sources significantly affected by withdrawal of water
G4-EN10
Percentage and total volume of water recycled and reused
✓
96
7, 8
✓
Group business processes do not imply such water withdrawals which could significantly affect water sources balance
8
✓
96
8
✓
Material aspect: Emissions
G4-DMA
5-6, 97
✓
G4-EN15
Direct greenhouse gas emissions
97
7, 8
✓
G4-EN16
Indirect greenhouse gas emissions
97
7, 8
✓
G4-EN20
Emissions of ozone-depleting substances
97
7, 8
✓
G4-EN21
NOx, SOx and other significant air emissions
97
7, 8
✓
Material aspect: Effluents and Waste
G4-DMA
5-6, 96
✓
G4-EN22
Water discharge
96
8
✓
G4-EN23
Weight of waste and disposal method
96
8
✓
G4-EN24
Total number and volume of significant spills
96
8
✓
Material aspect: Products and Services
G4-DMA G4-EN27
5-6, 93 Initiatives aimed at mitigation of environmental impacts of products and services
93, 95
✓ 7, 8, 9
✓
Material aspect: Overall
G4-DMA G4-EN31
5-6 Environmental protection expenditures and investments
97
✓ 7, 8, 9
✓
104
SPECIFIC STANDARD DISCLOSURES
Indicator Description
Material Aspects, DMA and Indicators
PAGE (or direct reference)
Principle of Global Compact
EXTERNAL ASSURANCE
CATEGORY: LABOR PRACTICES AND DECENT WORK Material aspect: Employment
G4-DMA
5-6, 65
G4-LA1
Total number and rates of new employee hires and employee turnover by age group, gender and region
G4-LA2
Benefits provided to full-time employees that are not provided to temporary or part-time employees
G4-LA3
Return to work and retention rates after parental leave
64-66
✓ 6
72, 199-200 75
✓
✓ 6
✓
Material aspect: Occupational Health and Safety
G4-DMA
5-6, 76-77
✓
G4-LA6
Type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities
12, 76-77
✓
G4-LA7
Workers with hight incidence or risk of diseases related to their occupation
77
✓
G4-LA8
Health and safety topics covered in formal agreements with trade unions
80
✓
5-6, 70
✓
Material aspect: Training and Education
G4-DMA G4-LA9
Empoloyees training
70
6
✓
G4-LA11
Percentage of employees receiving regular performance and career development reviews, by gender
72
6
✓
Material aspect: Diversity and Equal Opportunity
G4-DMA G4-LA12
5-6, 71 Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership and other indicators of diversity
44-45, 71
✓ 6
✓
Material aspect: Equal Remuneration for Women and Men
G4-DMA G4-LA13
5-6, 73 Ratio of basic salary and remuneration of women to men by employee category
73
✓ 6
✓
Material aspect: Supplier Assessment for Labor Practices
G4-DMA G4-LA14
Percentage of new suppliers that were screened using labor practices criteria
5-6, 87
✓
87
✓
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SPECIFIC STANDARD DISCLOSURES
Indicator Description
Material Aspects, DMA and Indicators
PAGE (or direct reference)
Principle of Global Compact
EXTERNAL ASSURANCE
CATEGORY: HUMAN RIGHTS Material aspect: Non-discrimination
G4-DMA G4-HR3
5-6, 65, 70 Number of incidents of discrimination and corrective actions taken
No incidents of discrimination have been detected
✓ 6
✓
Material aspect: Freedom of Association and Collective Bargaining
G4-DMA G4-HR4
5-6 Operations and suppliers identified in which the right to exercise freedom of association and collective bargaining may be at significant risk
65, 87
✓ 3
✓
Material aspect: Child Labor
G4-DMA G4-HR5
5-6 Operations and suppliers identified as having significant risk for incidents of child labor
65, 87
✓ 5
✓
Material aspect: Forced or Compulsory Labor
G4-DMA G4-HR6
5-6 Operations and suppliers identified as having significant risk for incidents of forced or compulsory labor
65, 87
✓ 4
✓
Material aspect: Assessment
G4-DMA G4-HR9
5-6 Total number and percentage of operations that have been subject to human rights reviews or impact assessments
65, 87
✓ 1
✓
Material aspect: Supplier Human Rights Assessment
G4-DMA G4-HR10
5-6 Percentage of new suppliers that were screened using human rights criteria
8, 87
✓ 2
✓
CATEGORY: PRODUCT RESPONSIBILITY Material aspect: Customer Health and Safety
G4-DMA G4-PR1
Health and safety impacts of products and services
5-6, 85
✓
85-86
✓
5-6, 86
✓
86
✓
Material aspect: Product and Service Labeling
G4-DMA G4-PR5
Results of surveys measuring customer satisfaction
IMP ROV EM ENT 5
108
CHAPTER 5 REPORT ON OPERATIONS
SABAF - ANNUAL REPORT 2016
109
CHAPTER 5 - REPORT ON OPERATIONS
BUSINESS AND FINANCIAL SITUATION OF THE GROUP 2016
%
2015
%
2016-2015 CHANGE
% CHANGE
Sales revenue
130,978
100%
138,003
100%
(7,025)
-5.1%
EBITDA
25,365
19.4%
26,172
19.0%
(807)
-3.1%
EBIT
12,530
9.6%
14,091
10.2%
(1,561)
-11.1%
Pre-tax profit
12,446
9.5%
13,473
9.8%
(1,027)
-7.6%
Net Profit
9,009
6.9%
8,998
6.5%
11
+0.1%
Basic earnings per share (€)
0.792
-
0.781
-
0.011
+1.4%
Diluted earnings per share (€)
0.792
-
0.781
-
0.011
+1.4%
IN THOUSANDS OF EURO
In 2016, the Sabaf Group booked a 5.1% drop in sales; taking into consideration the same scope of consolidation, they decreased by 6.7%. Despite the drop in sales volumes, the Group managed to maintain satisfactory income-related performances and to achieve a % EBITDA better than 2015: 2016 EBITDA was equal to 19.4% of sales, compared with 19% in 2015, whereas, due to the greater impact of amortisation/ depreciation, EBIT stood at 9.6% of sales compared with 10.2% in 2015. Net profit of 2016, equal to € 9 million, was mainly unchanged in absolute terms, whereas in percentage terms it reached 6.9% of sales (6.5% in 2015).
The families of more mature products (brass valves and thermostats) were those most affected by the downturn because mainly intended for markets (North Africa and Middle East) that experienced a year of crisis. Burners suffered a moderate fall whereas in 2016 the increase in sales of hinges was still confirmed, thanks to the consolidation of important supply contracts and to the increased importance of the new special models. The geographical breakdown of revenues is shown below:
The subdivision of sales revenues by product line is shown in the table below:
Sales by product line
Sales by geographical area
IN THOUSANDS OF EURO
2016
%
2015
%
Brass valves
9,007
6.9%
12,689
9.2%
Light alloy valves
32,393
24.7%
33,784
Thermostats
7,699
5.9%
Standard burners
37,338
Special burners
IN THOUSANDS OF EURO
2016
%
2015
%
-29.0%
Italy
36,365
27.8%
41,244
29.9%
-11.8%
24.5%
-4.1%
Western Europe
8,553
6.5%
7,438
5.4%
+15.0%
10,596
7.7%
-27.3%
Eastern Europe
34,123
26.1%
35,125
25.5%
-2.9%
28.5%
37,789
27.4%
-1.2%
Middle East and Africa
11,698
8.9%
16,759
12.1%
-30.2%
21,215
16.2%
21,622
15.7%
-1.9%
Asia and Oceania
8,088
6.2%
7,019
5.0%
+15.2%
Accessories and other revenues
12,613
9.6%
13,577
9.8%
-7.1%
South America
20,847
15.9%
20,815
15.1%
+0.2%
TOTAL GAS PARTS
120,265
91.8%
130,057
94.3%
-7.5%
North America and Mexico
11,304
8.6%
9,603
7.0%
+17.7%
Professional burners
2,289
1.8%
0
0.0%
n.a.
130,978
100%
138,003
100%
-5.1%
Hinges
8,424
6.4%
7,946
5.7%
+6.0%
TOTAL
130,978 100.0% 138,003 100.0%
%
CHANGE
-5.1%
TOTAL
%
CHANGE
110
The crisis in the Middle Eastern and African markets (mainly Egypt), related exclusively to external factors (such as low oil price and shortage of strong currency), resulted in a drop in direct sales of more than € 5 million and also affected the sales of the Group in Italy, since our Italian customers are strong exporters to the Middle East. The positive trend of the other international markets, most notably the steady growth in North America, only partially offset the decline in sales in the Middle East, Africa and Italy. Average sales prices in 2016 were around 1.5% lower compared with 2015.
The impact of labour cost on sales increased from 23.6% to 24.5% due to the increased impact of overhead costs. Operating cash flow (net profit plus depreciation and amortisation) stood at € 21.9 million, equivalent to 16.7% of sales (€ 21.2 million and 15.3%, respectively in 2015). The impact of net financial expenses on sales remained very low (0.5% compared with 0.4% in 2015), due to the low level of debt and low interest rates.
The average effective purchase prices of the main raw materials (brass, aluminium alloys and steel) decreased allowing a 0.9% savings in sales. Consumption (purchases plus change in inventories) as a percentage of sales was 36.7% in 2016, compared with 38.7% in 2015; the deviation was also affected by the different mix of products sold.
The 2016 tax rate was 26.9% (33.2% in 2015) and benefited from tax incentives on investment of € 0.4 million.
The Group’s statement of financial position, reclassified based on financial criteria, is illustrated below:
Cash flows for the financial year are summarised in the table below:
IN THOUSANDS OF EURO
31/12/2016
31/12/2015
IN THOUSANDS OF EURO
2016
2015
Non-current assets
93,967
92,797
Opening liquidity
3,991
3,675
Short-term assets 1
72,908
75,370
Operating cash flow
25,931
19,131
Short-term liabilities 2
(26,824)
(27,207)
Cash flow from investments
(11,762)
(12,079)
Working capital 3
46,084
48,163
Free cash flow
14,169
7,052
0
69
Cash flow from financing activities
(2,894)
(5,392)
(4,284)
(4,081)
A.R.C. acquisition
(2,614)
0
135,767
136,948
Foreign exchange differences due to translation
(509)
(1,344)
Short-term net financial position
(2,804)
(19,520)
CASH FLOW FOR THE PERIOD
8,152
316
Medium/long-term net financial position
(20,654)
(6,388)
Closing liquidity
12,143
3,991
NET FINANCIAL DEBT
(23,458)
(25,908)
SHAREHOLDERS’ EQUITY
112,309
111,040
Short-term financial assets Provisions for risks and charges, Post-employment benefits, deferred taxes NET INVESTED CAPITAL
Net financial debt and liquidity shown in the tables above are defined in compliance with the net financial position detailed in Note 22 of the consolidated financial statements, as required by CONSOB memorandum of 28 July 2006. At 31 December 2016, working capital stood at € 46.1 million compared with € 48.2 million at the end of the 2015: its impact on sales was 35.2% (34.9% in 2015). Also to take advantage of interest rates at historical lows, during the financial year, the Group reformulated the average duration of its loans, entering into unsecured loan agreements totalling € 19.8 million repayable in 5 years and reducing the short-term bank exposure. At 31 December 2016, the short-term financial position was negative by just € 2.8 million, so the Group considered the liquidity risk negligible. In 2016, the Sabaf Group made net investments of € 11.8 million. The main investments in the financial year were aimed at increasing production capacity in Turkey and Brazil and the further automation of production of light alloy valves. Investments were also made
1 Sum of Inventories, Trade receivables, Tax receivables and Other current receivables. 2 Sum of Trade payables, Tax payables and Other liabilities. 3 Difference between short-term assets and short-term liabilities.
to improve production processes as well as maintenance and replacement investments designed to keep the capital equipment constantly updated. The controlling share of A.R.C. s.r.l. was also acquired by investing € 4.8 million (€ 2.6 million net of the financial position of the acquired company). The purposes of this transaction are closely examined in the next paragraph of this report. The free cash flow (operating cash flow less investments) was € 14.2 and benefited from an improved trend in working capital compared with € 7.1 million in 2015. During the financial year, the Group paid out dividends of € 5.5 million and purchased treasury shares for € 1.7 million; the net financial debt was € 23.5 million, versus € 25.9 million in 31 December 2015. Shareholders’ equity totalled € 112.3 million at 31 December 2016; the ratio between the net financial debt and the shareholders’ equity was 0.21 versus 0.23 in 2015.
SABAF - ANNUAL REPORT 2016
CHAPTER 5 - REPORT ON OPERATIONS
Economic and financial indicators
Commodity price volatility risk
2016
2015
ROCE (return on capital employed)
9.2%
10.3%
Dividends per share (€)
0.48 4
0.48
Net debt/equity ratio
21%
23%
Market capitalisation (31/12)/equity ratio
1.07
1.19
-5.1%
+1.2%
Change in sales
Please refer to the introductory part of the Annual Report for a detailed examination of other key performance indicators.
THE ACQUISITION OF A.R.C. In June 2016, the Group acquired the controlling share (70%) of A.R.C. s.r.l., leading company in the production of burners for professional cooking. The transaction allowed the Sabaf Group to enter into a new sector, contiguous with the traditional sector of components for household gas cooking appliances, and to enhance the consolidated international presence of the Group. Loris Gasparini, holding a 30% share in A.R.C., will manage the company as chief executive officer for a period of 5 years, at the end of which, a call option in favour of Sabaf for the residual 30% of the share capital and at the same time a put option in favour of Loris Gasparini can be exercised. A.R.C., which was consolidated starting from 1 July 2016, ended the 2016 financial year with sales of € 5.1 million (€ 4.4 million in 2015), EBITDA of € 1.1 million (€ 0.9 million in 2015) and a net profit of € 0.7 million (€ 0.6 million in 2015).
RISK FACTORS RELATED TO THE SEGMENT IN WHICH THE GROUP OPERATES Risks related to the overall conditions of the economy and trend in demand The Group’s financial position, results and cash flows are affected by several factors, such as gross domestic product, consumer and business confidence, interest rate trend, the cost of raw materials, the unemployment rate and the ease of access to credit. The protracted nature of the European crisis, which has become systematic over the years, has had an impact on the transformation of the white goods industry, the sector in which the Sabaf group operates. Indeed, the continuous contraction of demand on mature markets has been accompanied by a further concentration of end markets, a steady increase of sales volumes in emerging markets and, finally, tougher competition, phenomena that require aggressive policies in setting sales prices. To cope with this situation, the Group aims to retain and reinforce its leadership position wherever possible through: -- the launch of new products characterised by superior performance compared with market standards, and tailored to the needs of the customer; -- expansion on markets with high growth rates; -- the maintenance of high quality and safety standards, which make it possible to differentiate the product through the use of resources and implementation of production processes that are not easily sustainable by competitors; -- the improvement in efficiency of production processes.
4 Proposed dividend.
The Group uses metals and alloys in its production processes, chiefly brass, aluminium alloys and steel. The sales prices of products are generally renegotiated semi-annually or annually; as a result, Group companies may not be able to immediately pass on to customers changes in the prices of commodities that occur during the year, which has an impact on profitability. The Group protects itself from the risk of changes in the price of brass and aluminium with supply contracts signed with suppliers for delivery up to twelve months in advance or, alternatively, with derivative financial instruments. At the date of this report, the Sabaf Group has already fixed purchase prices for about 50% of its expected requirement for aluminium, steel and brass for 2017. Any further increase in the price of commodities not hedged could have negative effects on expected profits. For more information, see Note 35 of the consolidated financial statements as regards disclosure for the purposes of IFRS 7.
Exchange rate fluctuation risk The Sabaf Group operates primarily in euro. However, transactions also take place in other currencies, such as the U.S. dollar, the Brazilian real, the Turkish lira and the Chinese renminbi. Since sales in US dollars accounted for about 16% of consolidated sales, the possible depreciation against the euro and the real could lead to a loss in competitiveness on the markets in which sales are made in that currency (mainly South and North America). At 31 December 2016, the Group had forward sales contracts for a total of 7.5 million dollars, maturing until 31 December 2017. The Administration and Finance Department constantly monitors forex exposure, the trend in exchange rates and the operational management of related activities. For more information, see Note 35 of the consolidated financial statements as regards disclosure for the purposes of IFRS 7.
Risks associated with product responsibility Sabaf products carry a high intrinsic risk in terms of safety. The Group’s great attention to product quality and safety has made it possible to avoid incidents caused by product defects. Despite this, it is not possible to automatically exclude incidents of this nature. In order to transfer the risk of third-party liability damage arising from malfunctioning of its products, Sabaf has signed insurance policies with a deductible of up to € 10 million per individual claim.
Protection of product exclusivity There is a risk that some Group products, although patented, will be copied by competitors; the opening up of trade in countries in which it is difficult to enforce industrial patent rights exposes the Group to a greater risk of protection of its own products. Sabaf’s business model therefore bases the protection of product exclusivity mainly on design capacity and the internal production of special machines used in manufacturing processes, which result from its unique know-how that competitors would find difficult to replicate. In any case, Sabaf has structured processes in place to manage innovation and protect intellectual property. In addition, the Group periodically monitors the patent strategies adopted/to be adopted based on the assessments of cost/opportunity.
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112
Sales concentration risks The Group is characterised by a strong concentration in its sales, with 50% arising from revenue achieved with its ten biggest customers. Relations with customers are usually stable and over long periods, albeit usually regulated by agreements of less than one year, which can be renewed and with no guaranteed minimum levels. At the date of this report, there was no reason for the Group to foresee the loss of any significant customers in the coming months.
Trade receivable risk The high concentration of sales to a small number of customers, described in the previous section, generates a concentration of the respective trade receivables, with a resulting increase in the negative impact on economic and financial results in the event of insolvency of a customer. In particular, given the structural difficulties of the household appliance sector in mature markets, it is possible that situations of financial difficulty and insolvency among customers could arise. The risk is constantly monitored through the preliminary assessment of customers and checks that agreed payment terms are met. There is a credit insurance policy covering approximately 70% of the credit risk. A further portion is partly guaranteed through letters of credit issued by major banks in favour of customers. The remainder of the receivable risk is covered by a bad debt provision considered appropriate. For more information, see Note 35 of the consolidated financial statements, as regards disclosure for the purposes of IFRS 7.
Risks related to the presence in Turkey and risk of instability in emerging countries Today, Turkey represents the main production hub of household appliances at the European level. The strong competitiveness of the local industry attracted heavy foreign investments and favoured the growth of important local situations that are gaining a position of increasing importance on the international scenario. In this context, the Sabaf Group started a factory in Turkey at the end of 2012 where it realises today more than 10% of total production. The Turkish market represented in 2016 22% of total sales of the Group (a significant share of Sabaf components are assembled by customers on finished products then exported from Turkey). The recent social and political tensions in Turkey had no effect on the activities of the Sabaf Group, which continued normally. On the other hand, in consideration of the strategic importance of this Country for the sector and for the Group, the management assessed the risks that could arise from the impossibility to operate in Turkey as a result of dramatic events, even if considered unlikely today. In particular, we note that all the products made in Turkey today can be manufactured also in Italy, albeit at higher costs, in such a way as to ensure in this way the continuity of supplies to customers. 40% of Sabaf Group sales are made on markets outside Europe. Furthermore, products sold in Italy can be exported by customers in international markets, making the
percentage of sales earned directly and indirectly from emerging economies more significant. The Group’s main markets outside Europe include North Africa, the Middle East and South America. Any embargoes or major political or economic instability, or changes in the regulatory and/or local law systems, or new tariffs or taxes imposed in the future could affect a portion of Group sales and the related profitability. To combat this risk, the Group has adopted a policy of diversifying investments at international level, setting different strategic priorities that, as well as business opportunities, also consider the different associated risk profiles. In addition, the Group monitors the economic and social performance of the target countries, also through a local network, in order to make strategic and investment decisions fully aware of the exposure to associated risks.
Risks related to growth through acquisitions The strategy of the Group also provides for the possibility of growth through acquisitions, also in related sectors; the acquisition of control of A.R.C. during 2016 represented a step in that direction. The directors are aware that growth through acquisitions entails specific risk profiles, both during assessment and in the integration process. To this end, the Group intends to develop instruments for the construction of business cases and tools for analysing and supporting the integration processes.
Risks relating to the loss of key staff and expertise and the difficulty of replacing them Group results depend to a large extent on the work of executive directors and management. The loss of a key staff member for the Group without an adequate replacement and the inability to attract new resources could have negative effects on the future of the Group and on the quality of financial and economic results. To mitigate this risk, the Group has launched policies to strengthen the most critical internal organisational structures and loyalty schemes, including the signing of noncompetition agreements with key figures. On 23 January 2017, the Chief Executive Officer Alberto Bartoli resigned effective as from the date of the Shareholders’ Meeting scheduled for 27 April 2017, for strictly personal reasons. The Board of Directors entrusted the Remuneration and Nomination Committee with the task of outlining the professional profile fit for holding the position of Chief Executive Officer to continue the strategy, aimed at pursuing a longterm sustainable growth in the segment of gas cooking components and in related segments. The Board will place on the agenda of the next Shareholders’ Meeting the appointment of a director to replace Bartoli.
SABAF - ANNUAL REPORT 2016
RESEARCH AND DEVELOPMENT The most important research and development projects conducted in 2016 were as follows:
Burners
• three series of brass burners were developed for North America; • a special series of personalised burners was carried out in co-design with a leading North American customer; • an economical burner with a flat cover was developed to meet the marketing needs of a major Brazilian customer; • a new burner cup was industrialised for the Brazilian market and its flame-spreader was developed; • a new version of the high-efficiency double ring burner was developed for the Chinese market (Tower Plus); • a new line of burners was developed based on the Series II, with burner head in aluminium and brass for the up-market and semi-professional sector; • an oven burner with an economical nozzle holder was designed.
Valves
• the range of light alloy safety valve for kitchens was expanded by introducing also a version with an electric grill control; • the technical and economic feasibility for a new series of square ramp simple valves was studied for the US market; • within the organisation of production, the total traceability on the finished product (part ID through data matrix) was implemented on the first product line (valves with flame failure device for floors), which ensures the possibility of tracing for each part produced all the data relating to the tests carried out during the process. In the medium term, the Group intends to extend this system to other product lines. • interventions in the process aimed at increasing productivity and automation continued, for both the processing and assembly stages;
Hinges
• different solutions were developed for the application of soft opening/closing hidden cam hinge for oven doors with a damping unit fitted in the oven, customising them according to customer requirements; • two different types of motorisation for oven doors were developed, one with an electromechanical system and the other with magnetic linear motor. The improvement in production processes continued throughout the Group, accompanied by the development and internal production of machinery, tools and presses. Development costs to the tune of € 314,000 were capitalised, as all the conditions set by international accounting standards were met; in other cases, they were charged to the income statement.
INTEGRATED SUSTAINABILITY AND REPORTING Since 2005, Sabaf has drawn up an Annual Report on its economic, social and environmental sustainability performance. In 2005, this was a pioneering and almost experimental move, but today the trend suggests that integrated reporting unquestionably represents best practice. With reference to Italian Legislative Decree no. 254 of 30 December 2016, which implemented directive 2014/95/EU on reporting obligations on non-financial information for the 2017 financial year, the Group is considering the need to establish or update existing policies and procedures for the preparation of the information
CHAPTER 5 - REPORT ON OPERATIONS
required. Moreover, the Group already provides in the Annual Report almost all of the information required by the new regulations.
PERSONNEL The Sabaf Group had 754 employees at 31 December 2016 (759 at 31 December 2015). In 2016, the Sabaf Group suffered no on-the-job deaths or serious accidents that led to serious or very serious injuries to staff for which the Group was definitively held responsible, nor was it held responsible for occupational illnesses of employees or former employees, or causes of mobbing. For more information, see the “Sabaf and employees” section of the Annual Report.
ENVIRONMENT In 2016 there was no: • damage caused to the environment for which the Group was held definitively responsible; • definitive fines or penalties imposed on the Group for environmental crimes or damage. For more information, see the “Sabaf and employees” section of the Annual Report.
CORPORATE GOVERNANCE For a complete description of the corporate governance system of the Sabaf Group, see the report on corporate governance and ownership structure, available in the Investor Relations section of the company website.
INTERNAL CONTROL SYSTEM ON FINANCIAL REPORTING The internal control system on financial reporting is described in detail in the report on corporate governance and ownership structure. With reference to the “conditions for listing shares of parent companies set up and regulated by the law of states not belonging to the European Union” pursuant to articles 36 and 39 of the Market Regulations, the Company and its subsidiaries have administrative and accounting systems that can provide the public with the accounting situations prepared for drafting the consolidated report of the companies that fall within the scope of this regulation and can regularly supply management and the auditors of the Parent Company with the data necessary for drafting the consolidated financial statements. The Sabaf Group has also set up an effective information flow to the independent auditor and continuous information on the composition of the company officers of the subsidiaries, together with information on the roles covered, and requires the systematic and centralised gathering and regular updates of the formal documents relating to the articles of association and granting of powers to company officers. The conditions exist as required by article 36, letters a), b) and c) of the Market Regulations issued by CONSOB. In the course of the financial year, no acquisitions were made of companies in countries not belonging to the European Union which, considered independently, would have a significant relevance for the purposes of the regulation in question.
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114
MODEL 231 The Organisation, Management and Control Model, adopted pursuant to Legislative Decree 231/2001, is described in the report on company governance and ownership structure, which should be reviewed for reference.
PERSONAL DATA PROTECTION With reference to Legislative Decree 196 of 30 June 2003, in 2016 the Group continued its work to ensure compliance with current regulations.
DERIVATIVE FINANCIAL INSTRUMENTS For the comments on this item, please see Note 35 of the consolidated financial statements.
ATYPICAL OR UNUSUAL TRANSACTIONS Sabaf Group companies did not execute any unusual or atypical transactions in 2016.
SECONDARY OFFICES Neither Sabaf S.p.A. nor its subsidiaries have secondary operating offices.
MANAGEMENT AND COORDINATION Although Sabaf S.p.A. is actually controlled by the parent company, Giuseppe Saleri S.a.p.A., it is not subject to management and co-ordination of the parent company, since the Board of Directors of Sabaf S.p.A. enjoys complete operating autonomy and does not have to justify its actions to the parent company, except at the annual Shareholders’ Meeting held to approve the separate financial statements and, obviously, in the event of violation of the law and/or the Articles of Association. It should also be noted that the Articles of Association of the parent company explain that it does not exercise management and coordination activities with regard to Sabaf S.p.A. Sabaf S.p.A. exercises management and coordination activities over its Italian subsidiaries, Faringosi Hinges s.r.l., Sabaf Immobiliare s.r.l. and A.R.C. s.r.l.
INTRA-GROUP TRANSACTION AND RELATED-PARTY TRANSACTIONS The relationships between the Group companies, including those with the parent company, are regulated under market conditions, as well as the relationships with related parties, defined in accordance with the accounting standard IAS 24. The details of the intra-group transactions and other related-party transactions are given in Note 36 of the consolidated financial statements and in Note 36 of the separate financial statements of Sabaf S.p.A.
TAX CONSOLIDATION SCHEME Until the 2015 financial year, Italian companies of the Group have been part of the national tax consolidation scheme pursuant to articles 117/129 of the Unified Income Tax Law. In this scheme, Giuseppe Saleri S.a.p.A., the parent company of Sabaf S.p.A., acted as the consolidating company. In 2016, the conditions for the preparation of the tax consolidation scheme fell short, which consequently was discontinued.
SIGNIFICANT EVENTS AFTER YEAR-END AND BUSINESS OUTLOOK 2017 got off to a positive start and sales in the first quarter are expected to increase with a double-digit growth compared with 2016, which was marked by a very weak start. Although there are uncertainties on some of the main markets in which Sabaf operates, for the whole of 2017, the Group expects to be able to reach sales of around â‚Ź 140 million and increasing operating margins compared with 2016. If the economic situation were to change significantly, actual figures might diverge from forecasts.
SABAF - ANNUAL REPORT 2016
CHAPTER 5 - REPORT ON OPERATIONS
BUSINESS AND FINANCIAL SITUATION OF SABAF S.P.A. IN THOUSANDS OF EURO
CHANGE
2016
2015
CHANGE
Sales revenue
101,523
113,962
(12,439)
-10.9%
EBITDA
13,525
16,123
(2,598)
-16.1%
EBIT
4,070
8,847
(4,777)
-54.0%
Pre-tax profit (EBT)
3,593
8,159
(4,566)
-56.0%
NET PROFIT
2,460
5,642
(3,182)
-56.4%
%
31/12/2016
31/12/2015
Non-current assets 5
89,258
86,088
Short-term assets 6
54,475
60,493
Short-term liabilities 7
(22,441)
(24,932)
32,034
35,561
Financial assets
3,197
2,906
Provisions for risks and charges, Post-employment benefits, deferred taxes
(2,888)
(3,003)
121,601
121,552
(12,556)
(20,686)
(17,521)
(4,632)
NET FINANCIAL POSITION
(30,077)
(25,318)
SHAREHOLDERS’ EQUITY
91,524
96,234
Working capital
8
NET INVESTED CAPITAL Short-term net financial position Medium/long-term net financial position
IN THOUSANDS OF EURO
2016
2015
Opening liquidity
1,090
1,366
Operating cash flow
15,205
14,531
Cash flow from investments
(12,591)
(9,035)
2,614
5,496
(1,907)
(5,772)
707
(276)
1,797
1,090
Cash flow from financing activities CASH FLOW FOR THE PERIOD Closing liquidity
5 Excluding Financial assets. 6 Sum of Inventories, Trade receivables, Tax receivables and Other current receivables.
The impact of the labour costs on sales increased from 24.5% to 26%. Net finance expense as a percentage of sales was minimal, at 0.4% (substantially unchanged), given the low level of financial debt and the low interest rates. Operating cash flow (net profit plus depreciation and amortisation) decreased from €16.9 million to €11.5 million, with an impact on sales of 11.3% (vs. 12.6% in 2015). In 2016, Sabaf S.p.A. invested over € 7 million in plant and equipment. The main investments in the financial year were aimed at the further automation of production of light alloy valves and maintenance of fleet of machines constantly updated and fully efficient. Moreover, € 4.8 million were invested for the acquisition of the 70% share of A.R.C. s.r.l. At 31 December 2016, working capital stood at € 32 million compared with € 35.6 million the previous year: its percentage impact on sales stood at 31.6% from 31.2% at the end of 2015. Self-financing generated by operating cash flow was € 15.2 million, compared with € 14.5 million in 2015, thanks to the increase in working capital. The net financial debt was € 30.1 million, compared with € 25.3 million on 31 December 2015. At the end of the year, the shareholders’ equity amounted to € 91.5 million, compared with € 96.2 million in 2015. The net financial debt/shareholders’ equity ratio was 33%, 26% at the end of 2015.
Cash flows for the period are summarised in the table below:
Free cash flow
The 2016 financial year ended with a decrease in sales of 10.9% compared with 2015. The product family of valves and thermostats was weaker, while sales of burners recorded a moderate decline. The reduction in sales had a negative impact on gross operating profitability: EBITDA was € 13.5 million, or 13.3% of sales (€ 16.1 million in 2015, or 14.1%). EBIT in 2016 was € 4.1 million, or 4% of sales (€ 8.8 million in 2015, or 7.8%), and net profit was € 2.5 million, or 2.4% of sales (€ 5.6 million in 2015, or 5%).
The reclassification based on financial criteria is illustrated below:
IN THOUSANDS OF EURO
Net financial debt and the net short-term financial position shown in the tables above are defined in compliance with the net financial position detailed in Note 22 of the separate financial statements, as required by the CONSOB memorandum of 28 July 2006.
7 Sum of Trade payables, Tax payables and Other liabilities. 8 Difference between short-term assets and short-term liabilities.
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116
RECONCILIATION BETWEEN PARENT COMPANY AND CONSOLIDATED SHAREHOLDERS’ EQUITY AND NET PROFIT FOR THE PERIOD Pursuant to the CONSOB memorandum of 28 July 2006, a reconciliation statement of the result of the 2016 financial year and Group shareholders’ equity at 31 December 2016 with the same values of the parent company Sabaf S.p.A. is given below:
31.12.2016 DESCRIPTION
31.12.2015
Profit for the year
Shareholders’ equity
Profit for the year
Shareholders’ equity
Profit and shareholders’ equity of parent company Sabaf S.p.A.
2,460
91,524
5,642
96,234
Equity and consolidated company results
6,175
66,276
4,775
56,427
521
(49,900)
(1,303)
(45,616)
Goodwill
0
6,422
0
4,445
Put option on A.R.C. minorities
0
(1,522)
0
0
Intercompany eliminations
(60)
(491)
(116)
(450)
Minority interests
(87)
(1,296)
0
0
9,009
111,013
8,998
111,040
Elimination of the carrying value of consolidated equity investments
PROFIT AND SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO THE GROUP
Proposal for approval of the separate financial statements and proposed dividend As we thank our employees, the Board of Statutory Auditors, the Independent Auditor and the supervisory authorities for their invaluable cooperation, we would kindly ask the shareholders to approve the financial statements ended 31 December 2016 with a profit for the year of € 2,459,688. The Board of Directors proposes to distribute an ordinary dividend of € 0.48 per share to the shareholders, with the exclusion of the treasury shares on the ex-date, by distributing the entire profit for 2016 and, for the residual part, by distributing a portion of the extraordinary reserve. The dividend is scheduled for payment on 31 May 2017 (ex-date 29 May and record date 30 May 2017). Ospitaletto, 20 March 2017 The Board of Directors
SABAF - ANNUAL REPORT 2016
CHAPTER 5 - REPORT ON OPERATIONS
117
SH AR IN G 6
120
CHAPTER 6 CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016 Group structure and corporate bodies Consolidated statement of financial position Consolidated income statement Consolidated statement of comprehensive income Statement of changes in consolidated shareholders’ equity Consolidated cash flow statement Explanatory Notes Certification of the Consolidated Financial Statements Auditors’ Report on the Statutory Financial Statements
121 122 123 124 124 125 126 153 154
SABAF - ANNUAL REPORT 2016
121
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Group structure and corporate bodies Group structure Parent company SABAF S.p.A.
Subsidiaries and equity interest owned by the Group Faringosi Hinges s.r.l.
100%
Sabaf Appliance Components (Kunshan) Co. Ltd.
100%
Sabaf Immobiliare s.r.l.
100%
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Sabaf Turkey)
100%
Sabaf do Brasil Ltda.
100%
Sabaf Appliance Components Trading (Kunshan) Co. Ltd. in liquidation
100%
Sabaf US Corp.
100%
A.R.C. s.r.l.
70%
Board of Directors Chairman
Giuseppe Saleri
Director *
Renato Camodeca
Vice Chairman
Cinzia Saleri
Director *
Giuseppe Cavalli
Vice Chairman
Ettore Saleri
Director *
Fausto Gardoni
Vice Chairman
Roberta Forzanini
Director *
Anna Pendoli
Chief Executive Officer
Alberto Bartoli
Director *
Nicla Picchi
Director
Gianluca Beschi
Director
Alessandro PotestÃ
Board of Statutory Auditors
Independent Auditor
Chairman
Antonio Passantino
Statutory Auditor
Luisa Anselmi
Statutory Auditor
Enrico Broli
* Independent directors.
Deloitte & Touche S.p.A.
122
Consolidated statement of financial position IN THOUSANDS OF EURO
NOTES
31.12.2016
31.12.2015
Property, plant and equipment
1
73,064
73,037
Investment property
2
6,270
6,712
Intangible assets
3
9,284
7,525
Equity investments
4
306
204
ASSETS Non-current assets
Non-current receivables
5
262
432
Deferred tax assets
21
4,781
4,887
93,967
92,797
TOTAL NON-CURRENT ASSETS Current assets Inventories
6
31,484
31,009
Trade receivables
7
36,842
40,425
Tax receivables
8
3,163
2,489
Other current receivables
9
1,419
1,447
Current financial assets
10
0
69
Cash and cash equivalents
11
12,143
3,991
85,051
79,430
0
0
179,018
172,227
TOTAL CURRENT ASSETS Assets held for sale TOTAL ASSETS SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity Share capital
12
11,533
11,533
Retained earnings, other reserves
90,471
90,509
Profit for the year
9,009
8,998
111,013
111,040
Total equity interest of the Parent Company Minority interests TOTAL SHAREHOLDERS’ EQUITY
1,296
0
112,309
111,040
6,388
Non-current liabilities Loans
14
18,892
Other financial liabilities
15
1,762
0
Post-employment benefit and retirement reserves
16
3,086
2,914
Provisions for risks and charges
17
434
395
Deferred tax liabilities
21
764
772
24,938
10,469
TOTAL NON-CURRENT LIABILITIES Current liabilities Loans
14
14,612
23,480
Other financial liabilities
15
335
31
Trade payables
18
18,977
19,450
Tax payables
19
1,190
1,219
Other payables
20
6,657
6,538
41,771
50,718
TOTAL CURRENT LIABILITIES Liabilities held for sale TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
0
0
179,018
172,227
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Consolidated income statement IN THOUSANDS OF EURO
NOTES
2016
2015
Revenue
23
130,978
138,003
Other income
24
2,819
3,758
133,797
141,761
(47,346)
(54,366)
(754)
1,025
INCOME STATEMENT COMPONENTS Operating revenue and income
TOTAL OPERATING REVENUE AND INCOME Operating costs Materials
25
Change in inventories Services
26
(27,983)
(29,759)
Payroll costs
27
(32,112)
(32,526)
Other operating costs
28
(1,078)
(1,193)
841
1,230
(108,432)
(115,589)
25,365
26,172
(12,853)
(12,185)
18
104
12,530
14,091
101
67
Costs for capitalised in-house work TOTAL OPERATING COSTS
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITE-DOWNS/WRITE-BACKS OF NON-CURRENT ASSETS Depreciation and amortisation
1, 2, 3
Capital gains on disposals of non-current assets
EBIT Financial income Financial expenses
29
(620)
(596)
Exchange rate gains and losses
30
435
(89)
12,446
13,473
(3,350)
(4,475)
(87)
0
9,009
8,998
Base
0.792 euro
0.781 euro
Diluted
0.792 euro
0.781 euro
PROFIT BEFORE TAXES Income tax
31
Minority interests
PROFIT FOR THE YEAR
EARNINGS PER SHARE (EPS)
32
123
124
Consolidated statement of comprehensive income IN THOUSANDS OF EURO
2016
2015
PROFIT FOR THE YEAR
9,009
8,998
Total profits/losses that will not be subsequently reclassified under profit (loss) for the year: Actuarial post-employment benefit reserve evaluation
(41)
49
Tax effect
10
(14)
(31)
35
(340)
(3,400)
TOTAL OTHER PROFITS/(LOSSES) NET OF TAXES FOR THE YEAR
(371)
(3,365)
TOTAL PROFIT
8,638
5,633
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
Statement of changes in consolidated shareholders’ equity IN THOUSANDS OF EURO
Share capital
Share premium reserve
Legal reserve
Treasury shares
Translation reserve
Other reserves
Profit for the year
Total Group shareholders’ equity
Minority interests
Total shareholders’ equity
BALANCE AT 31 DEC 2014
Post-employment benefit discounting reserve
11,533
10,002
2,307
(5)
(3,648)
(616)
82,827
8,338
110,738
0
110,738
(4,613)
(4,613)
(4,613)
(3,725)
0
0
(718)
(718)
8,998
5,633
5,633
8,998
111,040
(5,467)
(5,467)
(5,467)
(3,531)
0
0
Allocation of 2014 profit • dividends paid out • carried forward purchase of treasury shares Total profit at 31 dec 2015
BALANCE AT 31 DEC 2015
3,725 (718)
11,533
10,002
2,307
(723)
(3,400)
35
(7,048)
(581)
86,552
0
111,040
Allocation of 2015 profit • dividends paid out • carried forward ARC acquisition and consolidation
3,531
1,210
ARC option
(1,522)
Purchase of treasury shares Total profit at 31 dec 2016
BALANCE AT 31 DEC 2016
(1,676)
11,533
10,002
2,307
(2,399)
(340)
(31)
(7,388)
(612)
88,561
1,210
(1,522)
(1,522)
(1,676)
(1,676)
9,009
8,638
86
8,724
9,009
111,013
1,296
112,309
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Consolidated cash flow statement 12M 2016
12M 2015
Cash and cash equivalents at beginning of year
3,991
3,675
Profit for the year
9,009
8,998
12,853
12,185
• Realised gains
(18)
(104)
• Net financial income and expenses
519
529
• Income tax
3,350
4,475
Change in post-employment benefit reserve
(184)
(129)
39
(210)
5,107
107
416
(170)
Change in trade payables
(1,286)
(58)
Change in net working capital
4,237
(121)
Change in other receivables and payables, deferred tax
1,363
(72)
Payment of taxes
(4,762)
(5,931)
Payment of financial expenses
(576)
(556)
Collection of financial income
101
67
25,931
19,131
(477)
(781)
• tangible
(11,465)
(11,581)
• financial
5
(26)
Adjustments for: • Depreciation and amortisation
Change in risk provisions Change in trade receivables Change in inventories
CASH FLOW FROM OPERATIONS
Investments in non-current assets • intangible
175
309
CASH FLOW ABSORBED BY INVESTMENTS
Disposal of non-current assets
(11,762)
(12,079)
Repayment of loans
(33,141)
(19,480)
Raising of loans
37,321
19,488
Short-term financial assets
69
(69)
Purchase of treasury shares
(1,676)
(718)
Payment of dividends
(5,467)
(4,613)
CASH FLOW ABSORBED BY FINANCING ACTIVITIES
(2,894)
(5,392)
A.R.C. acquisition
(2,614)
0
Foreign exchange differences
(509)
(1,344)
NET FINANCIAL FLOWS FOR THE YEAR
8,152
316
Cash and cash equivalents at end of year (Note 10)
12,143
3,991
Current financial debt
14,947
23,511
Non-current financial debt
20,654
6,388
NET FINANCIAL DEBT (NOTE 22)
23,458
25,908
125
126
Explanatory Notes Accounting Standards STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION The consolidated financial statements of the Sabaf Group for the financial year 2016 have been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union. Reference to IFRS also includes all current International Accounting Standards (IAS). The financial statements have been prepared in euro, the current currency in the economies in which the Group mainly operates, rounding amounts to the nearest thousand, and are compared with consolidated financial statements for the previous year, prepared according to the same standards. The report consists of the statement of financial position, the income statement, the statement of changes in shareholders’ equity, the cash flow statement, and these explanatory notes. The financial statements have been prepared on a historical cost basis except for some revaluations of property, plant and equipment undertaken in previous years, and are considered a going concern. The Company found that, despite the difficult economic and business climate, there were no significant uncertainties (as defined by paragraphs 25 and 26 of IAS 1) regarding the continuity of the Company, also due to the strong competitive position, high profitability and solidity of the financial structure.
FINANCIAL STATEMENTS The Group has adopted the following formats: • current and non-current assets and current and non-current liabilities are stated separately in the statement of the financial position; • an income statement that expresses costs using a classification based on the nature of each item; • a comprehensive income statement that expresses revenue and expense items not recognised in profit (loss) for the year as required or permitted by IFRS; • a cash flow statement that presents financial flows originating from operating activity, using the indirect method. Use of these formats permits the most meaningful representation of the Group’s operating results, financial position and cash flows.
SCOPE OF CONSOLIDATION The scope of consolidation at 31 December 2016 comprises the parent company Sabaf S.p.A. and the following companies controlled by Sabaf S.p.A.: • Faringosi Hinges S.r.l. • Sabaf Immobiliare s.r.l. • Sabaf do Brasil Ltda. • Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Sabaf Turkey) • Sabaf Appliance Components Trading (Kunshan) Co., Ltd. • Sabaf Appliance Components (Kunshan) Co., Ltd. • A.R.C. s.r.l. The participation in the controlled company A.R.C. s.r.l., acquired during the financial year, was consolidated starting from the date of acquisition and therefore for the period from 1 July 2016 to 31 December 2016.
Sabaf U.S. is not consolidated since it is irrelevant for the purposes of the consolidation. Handan A.R.C. Ltdd, Chinese company in which the Group holds a 35% share, was measured at cost in that at 31 December 2016 it has not yet started its activity and therefore it is considered irrelevant. The companies in which Sabaf S.p.A. simultaneously possesses the following three elements are considered subsidiaries: (a) power over the company; (b) exposure or rights to variable returns resulting from involvement therein; (c) ability to affect the size of these returns by exercising power. If these subsidiaries exercise a significant influence, they are consolidated as from the date in which control begins until the date in which control ends so as to provide a correct representation of the Group’s operating results, financial position and cash flows.
CONSOLIDATION CRITERIA The data used for consolidation have been taken from the income statements and statements of financial position prepared by the directors of the individual subsidiary companies. These figures have been appropriately amended and restated, when necessary, to align them with international accounting standards and with uniform group-wide classification criteria. The criteria applied for consolidation are as follows: a) Assets and liabilities, income and costs in the financial statements consolidated on a 100% line-by-line basis are incorporated into the Group financial statements, regardless of the entity of the equity interest concerned. In addition, the carrying value of equity interests is eliminated against the shareholders’ equity relating to investee companies. b) Positive differences arising from elimination of equity investments against the carrying value of shareholders’ equity at the date of first-time consolidation are attributed to the higher values of assets and liabilities when possible and, for the remainder, to goodwill. In accordance with the provisions of IFRS 3, the Group has changed the accounting treatment of goodwill on a prospective basis as from the transition date. Therefore, since 1 January 2004, the Group has not amortised goodwill and instead subjects it to impairment testing. c) Payable/receivable and cost/revenue items between consolidated companies and profits/losses arising from intercompany transactions are eliminated. d) If minority shareholders exist, the portion of shareholders’ equity and net profit for the period pertaining thereto is posted in specific items of the balance sheet and income statement.
INFORMATION RELATED TO IFRS 3 Starting from these consolidated financial statements, A.R.C. s.r.l., company active in the production of burners for professional cooking of which the Group acquired control at the end of June 2016, was consolidated. 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.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
The effects of this operation are shown in the following table:
ORIGINAL VALUES NON-CURRENT ASSETS Property, plant and equipment and intangible assets
303
Financial fixed assets
107
Non-current receivables and deferred tax assets
145
CURRENT ASSETS Inventories
891
Trade receivables
1,525
Other receivables
234
Cash and cash equivalents
2,186
TOTAL ASSETS
5,391
NON-CURRENT LIABILITIES Post-employment benefit reserve
(238)
CURRENT LIABILITIES Trade payables
(813)
Sundry payables
(308)
TOTAL LIABILITIES
(1,359)
FAIR VALUE OF NET ASSETS ACQUIRED
4,032
- % pertaining to Sabaf (70%) (a)
2,823
Total cost of acquisition (b)
4,800
Goodwill deriving from acquisition (b-a) (Note 3)
1,977
Acquired cash and cash equivalents (c)
2,186
Total cash outlay (b-c)
2,614
CONVERSION INTO EURO OF FOREIGN-CURRENCY INCOME STATEMENTS AND STATEMENTS OF FINANCIAL POSITION Separate financial statements of each company belonging to the Group are prepared in the currency of the country in which that company operates (functional currency). For the purposes of the consolidated financial statements, the financial statement of each foreign entity is expressed in euro, which is the Group’s functional currency and the reporting currency for the consolidated financial statements. Balance sheet items in accounts expressed in currencies other than euro are converted by applying current end-of-year exchange rates. Income statement items are converted DESCRIPTION OF CURRENCY
at average exchange rates for the year. Foreign exchange differences arising from the comparison between opening shareholders’ equity converted at current exchange rates and at historical exchange rates, together with the difference between the net result expressed at average and current exchange rates, are allocated to “Other Reserves” in shareholders’ equity. The exchange rates used for conversion into euro of the financial statements of the foreign subsidiaries, prepared in local currency, are shown in the following table:
EXCHANGE RATE IN EFFECT AT 31/12/2016
AVERAGE EXCHANGE RATE 2016
EXCHANGE RATE IN EFFECT AT 31/12/2015
AVERAGE EXCHANGE RATE 2015
Brazilian real
3.4305
3.8576
4.3117
3.7004
Turkish lira
3.7072
3.3435
3.1765
3.0255
Chinese renminbi
7.3202
7.3512
7.0608
6.9714
127
128
RECONCILIATION BETWEEN PARENT COMPANY AND CONSOLIDATED SHAREHOLDERS’ EQUITY AND NET PROFIT FOR THE YEAR 31.12.2016
31.12.2015
Profit for the year
Shareholders’ equity
Profit for the year
Shareholders’ equity
Profit and shareholders’ equity of parent company Sabaf S.p.A.
2,460
91,524
5,642
96,234
Equity and consolidated company results
6,175
66,276
4,775
56,427
521
(49,900)
(1,303)
(45,616)
Goodwill
0
6,422
0
4,445
Put option on A.R.C. minorities
0
(1,522)
0
0
Intercompany eliminations
(60)
(491)
(116)
(450)
Minority interests
(87)
(1,296)
0
0
9,009
111,013
8,998
111,040
DESCRIPTION
Elimination of consolidated equity investments’ carrying value
PROFIT AND SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO THE GROUP
SEGMENT REPORTING The Group’s Operating segments in accordance with IFRS 8 - Operating Segment are identified in the business segments that generate revenue and costs, whose results are periodically reassessed by top management in order to assess performance and decisions regarding resource allocation. The Group operating segments are the following: • gas parts (household and professional) • hinges
ACCOUNTING POLICIES The accounting standards and policies applied for the preparation of the consolidated financial statements at 31 December 2016, unchanged versus the previous year, are shown below:
Property, plant and equipment These are recorded at purchase or manufacturing cost. The cost includes directly chargeable ancillary costs. These costs also include revaluations undertaken in the past based on monetary revaluation rules or pursuant to company mergers. Depreciation is calculated according to rates deemed appropriate to spread the carrying value of tangible assets over their useful working life. Estimated useful working life, in years, is as follows: Buildings
33
Light constructions
10
General plants
10
Specific plant and machinery
6 – 10
Equipment
4 – 10
Furniture
8
Electronic equipment
5
Vehicles and other transport means
4–5
Ordinary maintenance costs are expensed in the year in which they are incurred; costs that increase the asset value or useful working life are capitalised and depreciated according to the residual possibility of utilisation of the assets to which they refer. Land is not depreciated.
Leased assets Assets acquired via finance lease contracts are accounted for using the financial method and are reported with assets at their purchase value, less depreciation. Depreciation of such assets is reflected in the consolidated annual financial statements applying the same policy followed for Company-owned property, plant and equipment. Set against recognition of such assets, the amounts payable to the financial lessor are posted among short- and medium-/long-term payables. In addition, financial charges pertaining to the period are charged to the income statement.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Goodwill Goodwill is the difference between the purchase price and fair value of investee companies’ identifiable assets and liabilities on the date of acquisition. As regards acquisitions completed prior to the date of IFRS adoption, the Sabaf Group has used the option provided by IFRS 1 to refrain from applying IFRS 3 – concerning business combinations – to acquisitions that took place prior to the transition date. Consequently, goodwill arising in relation to past acquisitions has not been recalculated and has been posted in accordance with Italian GAAPs, net of amortisation reported up to 31 December 2003 and any losses caused by a permanent value impairment. After the transition date, goodwill – as an intangible asset with an indefinite useful life – is not amortised but subjected annually to impairment testing to check for value loss, or more frequently if there are signs that the asset may have suffered impairment (impairment test).
Other intangible assets As established by IAS 38, other intangible assets acquired or internally produced are recognised as assets when it is probable that use of the asset will generate future economic benefits and when asset cost can be measured reliably. If it is considered that these future economic benefits will not be generated, the development costs are written down in the year in which this is ascertained. Such assets are measured at purchase or production cost and - if the assets concerned have a finite useful life - are amortised on a straight-line basis over their estimated useful life. The useful life of projects for which development costs are capitalised is estimated to be 10 years. The SAP management system is amortised over five years.
Impairment of value At each end of reporting period, the Group reviews the carrying value of its tangible and intangible assets to determine whether there are signs of impairment of the value of these assets. If there is any such indication, the recoverable amount of said assets is estimated so as to determine the total of the write-down. If it is not possible to estimate recoverable value individually, the Group estimates the recoverable value of the cash generating unit (CGU) to which the asset belongs. In particular, the recoverable value of the cash generating units (which generally coincide with the legal entity to which the capitalised assets refer) is verified by determining the value of use. The recoverable amount is the higher of the net selling price and value of use. In measuring the value of use, future cash flows net of taxes, estimated based on past experience, are discounted to their present value using a pre-tax rate that reflects fair market valuations of the present cost of money and specific asset risk. The main assumptions used for calculating the value of use concern the discount rate, growth rate, expected changes in selling prices and cost trends during the period used for the calculation. The growth rates adopted are based on future market expectations in the relevant sector. Changes in the sales prices are based on past experience and on the expected future changes in the market. The Group prepares operating cash flow forecasts based on the most recent budgets approved by the Board of Directors of the consolidated companies, draws up the forecasts for the coming years and determines the terminal value (current value of perpetual income), which expresses the medium and long term operating flows in the specific sector. If the recoverable amount of an asset (or CGU) is estimated to be lower than its carrying value, the asset’s carrying value is reduced to the lower recoverable amount, recognising impairment of value in the income statement. When there is no longer any reason for a write-down to be maintained, the carrying value of the asset (or of the cash-generating unit) - with the exception of goodwill - is increased
to the new value resulting from the estimate of its recoverable value, but not beyond the net carrying value that the asset would have had if it had not been written down for impairment of value. Reversal of impairment loss is recognised in the income statement.
Investment Property As allowed by IAS 40, non-operating buildings and constructions are assessed at cost net of depreciation and losses due to cumulative impairment of value. The depreciation criterion applied is the asset’s estimated useful life, which is considered to be 33 years. If the recoverable amount of the investment property – determined based on the market value of the properties – is estimated to be lower than its carrying value, the asset’s carrying value is reduced to the lower recoverable amount, recognising impairment of value in the income statement. When there is no longer any reason for a write-down to be maintained, the carrying value of the asset (or CGU) is increased to the new value stemming from the estimate of its recoverable amount – but not beyond the net carrying value that the asset would have had if it had not been written down for impairment of value. Reversal of impairment loss is recognised as income in the income statement.
Equity investments and non-current receivables Equity investments not classified as held for sale are stated in the accounts at cost, reduced for impairment. The original value is written back in subsequent years if the reasons for write-down cease to exist. Non-current receivables are stated at their presumed realisable value.
Inventories Inventories are measured at the lower of purchase or production cost – determined using the weighted average cost method – and the corresponding fair value represented by the replacement cost for purchased materials and by the presumed realisable value for finished and semi-processed products – calculated taking into account any manufacturing costs and direct selling costs yet to be incurred. Inventory cost includes accessory costs and the portion of direct and indirect manufacturing costs that can reasonably be assigned to inventory items. Inventories subject to obsolescence and low turnover are written down in relation to their possibility of use or realisation. Inventory write-downs are eliminated in subsequent years if the reasons for such write-downs cease to exist.
Receivables Receivables are recognised at their presumed realisable value. Their face value is adjusted to a lower realisable value via specific provisioning directly reducing the item based on in-depth analysis of individual positions. Trade receivables assigned without recourse, despite being transferred legally, continue to be stated with “Trade receivables” until they are collected, which is never prior to the due date. Trade receivables past due and nonrecoverable assigned without recourse are recorded under “Other current receivables”.
Current financial assets Financial assets held for trading are measured at fair value, allocating profit and loss effects to finance income or expense.
129
130
Provisions for risks and charges
Derivative instruments and hedge accounting
Provisions for risks and charges are provisioned to cover losses and debts, the existence of which is certain or probable, but whose amount or date of occurrence cannot be determined at the end of the year. Provisions are stated in the statement of financial position only when a legal or implicit obligation exists that determines the use of resources with an impact on profit and loss to meet that obligation and the amount can be reliably estimated. If the effect is significant, the provisions are calculated by updating future financial flows estimated at a rate including taxes such as to reflect current market valuations of the current value of the cash and specific risks associated with the liability.
The Group’s business is exposed to financial risks relating to changes in exchange rates, commodity prices and interest rates. The company uses derivative instruments (mainly forward contracts on currencies and commodity options) to hedge risks stemming from changes in foreign currencies relating to irrevocable commitments or to planned future transactions. Derivatives are initially recognised at cost and are then adjusted to fair value on subsequent closing dates. Changes in the fair value of derivatives designated and recognised as effective for hedging future cash flows relating to the Group’s contractual commitments and planned transactions are recognised directly in shareholders’ equity, while the ineffective portion is immediately posted in the income statement. If the contractual commitments or planned transactions materialise in the recognition of assets or liabilities, when such assets or liabilities are recognised, the gains or losses on the derivative that were directly recognised in equity are factored back into the initial valuation of the cost of acquisition or carrying value of the asset or liability. For cash flow hedges that do not lead to recognition of assets or liabilities, the amounts that were directly recognised in equity are included in the income statement in the same period when the contractual commitment or planned transaction hedged impacts profit and loss – for example, when a planned sale actually takes place. For effective hedges of exposure to changes in fair value, the item hedged is adjusted for the changes in fair value attributable to the risk hedged and recognised in the income statement. Gains and losses stemming from the derivative’s valuation are also posted in the income statement. Changes in the fair value of derivatives not designated as hedging instruments are recognised in the income statement in the period when they occur. Hedge accounting is discontinued when the hedging instrument expires, is sold or is exercised, or when it no longer qualifies as a hedge. At this time, the cumulative gains or losses of the hedging instrument recognised in equity are kept in the latter until the planned transaction actually takes place. If the transaction hedged is not expected to take place, cumulative gains or losses recognised directly in equity are transferred to the year’s income statement. Embedded derivatives included in other financial instruments or contracts are treated as separate derivatives when their risks and characteristics are not strictly related to those of their host contracts and the latter are not measured at fair value with posting of related gains and losses in the income statement.
Post-employment benefit reserve The post-employment benefit reserve (TFR) is provisioned to cover the entire liability accruing vis-à-vis employees in compliance with current legislation and with national and supplementary company collective labour contracts. This liability is subject to revaluation via application of indices fixed by current regulations. Up to 31 December 2006, post-employment benefits were considered defined-benefit plans and accounted for in compliance with IAS 19, using the projected unit-credit method. The regulations of this fund were amended by Italian Law no. 296 of 27 December 2006 and subsequent Decrees and Regulations issued during the first months of 2007 In the light of these changes, and, in particular, for companies with at least 50 employees, post-employment benefits must now be considered a defined-benefit plan only for the portions accruing before 1 January 2007 (and not yet paid at the end of the reporting period). Conversely, portions accruing after that date are treated as defined-contribution plans. Actuarial gains or losses are recorded immediately under “Other total profits/(losses)”.
Payables Payables are recognised at face value; the portion of interest included in their face value and not yet payable at period-end is deferred to future periods.
Loans Loans are initially recognised at cost, net of related costs of acquisition. This value is subsequently adjusted to allow for any difference between initial cost and repayment value over the loan’s duration using the effective interest rate method. Loans are classified among current liabilities unless the Group has the unconditional right to defer discharge of a liability by at least 12 months after the reference date.
Policy for conversion of foreign currency items Receivables and payables originally expressed in foreign currencies are converted into euro at the exchange rates in force on the date of the transactions originating them. Forex differences realised upon collection of receivables and payment of payables in foreign currency are posted in the income statement. Income and costs relating to foreign-currency transactions are converted at the rate in force on the transaction date. At year-end, assets and liabilities expressed in foreign currencies, with the exception of non-current items, are posted at the spot exchange rate in force at the end of the reporting period and related foreign exchange gains and losses are posted in the income statement. If conversion generates a net gain, this value constitutes a nondistributable reserve until it is effectively realised.
Revenue reporting Revenue is reported net of return sales, discounts, allowances and bonuses, as well as of the taxes directly associated with sale of goods and rendering of services. Sales revenue is reported when the company has transferred the significant risks and benefits associated with ownership of the goods and the amount of revenue can be reliably measured. Revenues of a financial nature are recorded on an accrual basis.
Financial income Finance income includes interest receivable on funds invested and income from financial instruments, when not offset as part of hedging transactions. Interest income is recorded in the income statement at the time of vesting, taking effective output into consideration.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Financial expenses Financial expenses include interest payable on financial debt calculated using the effective interest method and bank expenses.
Income taxes for the year Income taxes include all taxes calculated on the Group’s taxable income. Income taxes are directly recognised in the income statement, with the exception of those concerning items directly debited or credited to shareholders’ equity, in which case the tax effect is recognised directly in shareholders’ equity. Other taxes not relating to income, such as property taxes, are included among operating expenses. Deferred taxes are provisioned in accordance with the global liability provisioning method. They are calculated on all temporary differences emerging between the taxable base of an asset and liability and its book value in the consolidated financial statements, with the exception of goodwill that is not tax-deductible and of differences stemming from investments in subsidiaries for which cancellation is not envisaged in the foreseeable future. Deferred tax assets on unused tax losses and tax credits carried forward are recognised to the extent that it is probable that future taxable income will be available against which they can be recovered. Current and deferred tax assets and liabilities are offset when income taxes are levied by the same tax authority and when there is a legal right to settle on a net basis. Deferred tax assets and liabilities are measured using the tax rates that are expected to be applicable, according to the respective regulations of the countries where the Group operates, in the years when temporary differences will be realised or settled.
Estimates are used to measure tangible and intangible assets subject to impairment testing, as described earlier, as well as to measure provisions for bad debts, for inventory obsolescence, depreciation and amortisation, asset write-downs, employee benefits, taxes, and other provisions. Specifically:
Recoverable value of tangible and intangible assets
The procedure for determining impairment of value of tangible and intangible assets described in “Impairment of value” implies – in estimating the value of use – the use of the Business Plans of investees, which are based on a series of assumptions relating to future events and actions of the investees’ management bodies, which may not necessarily come about. In estimating market value, however, assumptions are made on the expected trend in trading between third parties based on historical trends, which may not actually be repeated.
Provisions for bad debts
Receivables are adjusted by the related bad debt provision to take into account their recoverable value. To determine the size of the write-downs, management must make subjective assessments based on the documentation and information available regarding, among other things, the customer’s solvency, as well as experience and historical payment trends.
Provisions for inventory obsolescence
Warehouse inventories subject to obsolescence and slow turnover are systematically valued, and written down if their recoverable value is less than their carrying value. Write-downs are calculated based on management assumptions and estimates, resulting from experience and historical results.
Employee benefits
Dividends Dividends are posted on an accrual basis when the right to receive them materialises, i.e. when shareholders approve dividend distribution.
Treasury shares
The current value of liabilities for employee benefits depends on a series of factors determined using actuarial techniques based on certain assumptions. Assumptions concern the discount rate, estimates of future salary increases, and mortality and resignation rates. Any change in the above-mentioned assumptions might have significant effects on liabilities for pension benefits.
Income tax
Treasury shares are booked as a reduction of shareholders’ equity. The carrying value of treasury shares and revenues from any subsequent sales are recognised in the form of changes in shareholders’ equity.
The Group is subject to different bodies of tax legislation on income. Determining liabilities for Group taxes requires the use of management valuations in relation to transactions whose tax implications are not certain at the end of the reporting period. Furthermore, the valuation of deferred taxes is based on income expectations for future years; the valuation of expected income depends on factors that might change over time and have a significant effect on the valuation of deferred tax assets.
Earnings per share
Other provisions and reserves
Basic EPS is calculated by dividing the profit or loss attributable to the direct parent company’s shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit or loss attributable to the direct parent company’s shareholders by the weighted average number of shares outstanding, adjusted to take into account the effects of all potential ordinary shares with a dilutive effect.
Use of estimates Preparation of the financial statements and notes in accordance with IFRS requires management to make estimates and assumptions that affect the carrying values of assets and liabilities and the disclosures on contingent assets and liabilities as of the end of the reporting period. Actual results might differ from these estimates.
When estimating the risk of potential liabilities from disputes, the Directors rely on communications regarding the status of recovery procedures and disputes from the lawyers who represent the Group in litigation. These estimates are determined taking into account the gradual development of the disputes, considering existing exemptions. Estimates and assumptions are regularly reviewed and the effects of each change immediately reflected in the income statement.
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132
New accounting standards Accounting standards and amendments applicable from 1 January 2016
The following IFRS accounting standards, amendments and interpretations were applied by the Group for the first time on 1 January 2016: • Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” (published on 21 November 2013): related to the recognition in the financial statements of the contributions made by employees or third parties to defined benefit plans. The application of these amendments did not have any effect on the Group’s consolidated financial statements. • Amendments to IFRS 11 Joint Arrangements – “Accounting for acquisitions of interests in joint operations” (published on 6 May 2014): related to the accounting for acquisitions of interests in a joint operation the activity of which is a business. The application of these amendments did not have any effect on the Group’s consolidated financial statements. • Amendments to IAS 16 – Property, plant and Equipment and to IAS 38 – Intangibles Assets – “Clarification of acceptable methods of depreciation and amortisation” (published on 12 May 2014): according to which a method of depreciation based on revenues is considered generally inappropriate, in that, revenues generated by an asset that includes the use of the asset to be depreciated generally reflect factors other than just consumption of the economic benefits of the asset, a requirement that is, however, required for depreciation. The adoption of this amendment did not have any effect on the Group’s consolidated financial statements. • Amendment to IAS 1 – “Disclosure Initiative” (published on 18 December 2014): the objective of the amendments is to provide clarifications with regard to elements of information that can be perceived as impediments to a clear and intelligible preparation of the financial statements. The adoption of this amendment did not have any effect on the Group’s consolidated financial statements. • On 18 December 2014, the IASB published the document “Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)”, (published on 18 December 2014), which contains amendments relating to issues arising following application of the consolidation exception granted to investment entities. Finally, as part of the annual process of improvement of the standards, on 12 December 2013 the IASB published the document “Annual Improvements to IFRSs: 2010-2012 Cycle” (including IFRS 2 Share Based Payments – Definition of vesting condition, IFRS 3 Business Combination – Accounting for contingent consideration, IFRS 8 Operating segments – Aggregation of operating segments and Reconciliation of total of the reportable segments’ assets to the entity’s assets, IFRS 13 Fair Value Measurement – Short-term receivables and payables) and on 25 September 2014 the document “Annual Improvements to IFRSs: 2012-2014 Cycle” (including: IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosure and IAS 19 – Employee Benefits) which partially integrate the existing standards.
IFRS and IFRIC accounting standard, amendments approved by the European Union, not yet universally applicable and not adopted early by the Group at 31 December 2016 • Standard IFRS 15 – Revenue from Contracts with Customers (published on 28 May 2014 and supplemented with further clarifications published on 12 April 2016), which is scheduled to replace IAS 18 – Revenue and IAS 11 – Construction Contracts, as well as interpretations IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising
Services. The standard establishes a new revenue recognition model, which will apply to all contracts signed with customers except those falling within the application of other IAS/IFRS standards, such as leases, insurance contracts and financial instruments. The fundamental passages for the recognition of revenues according to the new model are: ------
the identification of the contract with the customer; the identification of the contract’s performance obligations; the determination of the price; the allocation of the price to the contract’s performance obligations; the revenue recognition criteria when the entity satisfies each performance obligation.
The principle applies from 1 January 2018, but early application is permitted. Although the systematic analysis of the case and in particular a detailed analysis of the contracts with the customers have not yet been completed, the directors do not expect that the application of IFRS 15 can have a significant impact on the amounts recorded for the revenues and on the related disclosures in the Group’s consolidated financial statements. • Final version of IFRS 9 – Financial Instruments (published on 24 July 2014). The document includes the results of the phases relating to the classification and valuation, Impairment and Hedge accounting, of the IASB project designed to replace IAS 39. The new standard, which replaces the previous versions of IFRS 9, should be applied by financial statements from 1 January 2018 onwards. The directors do not expect that the application of IFRS 9 can have a significant impact on the amounts and on the disclosures in the Group’s consolidated financial statements. However, it is not possible to provide a reasonable estimate of the effect as long as the Group has not completed a detailed analysis.
IFRS accounting standards, amendments and interpretations not yet approved by the European Union On the reporting date of these consolidated financial statements, the competent bodies of the European Union have not yet concluded the approval process necessary for the adoption of the amendments and principles described below.
• On 13 January 2016, the IASB published the standard IFRS 16 – Leases, which will replace the standard IAS 17 – Leases, as well as interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard provides a new definition of lease and introduces a criterion based on the control (right of use) of an asset in order to distinguish the leasing contracts from the service contracts, identifying the discriminatory ones: the identification of the asset, the right of replacement of the same, the right to obtain substantially all of the economic benefits deriving from the use of the asset and the right to direct the use of the asset underlying the contract. The standard establishes a single model of recognition and measurement of the lease agreements for the lessee which requires the recognition of the asset to be leased (operating lease or otherwise) in assets offset by a financial debt, while also providing the opportunity not to recognise as leases the agreements whose subject matter are “low-value assets” and leases with a contract duration equal to or less than 12 months. By contrast, the Standard does not include significant changes for the lessors. The standard applies beginning on 1 January 2019 but early application is permitted, only for Companies that opted for early application of IFRS 15 - Revenue from Contracts with Customers. The directors do not expect that the application of IFRS 16 can have a significant impact on the accounting of the leasing contracts and on the related disclosures in the Group’s consolidated financial statements.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
• On 19 January 2016, the IASB published the document “Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)”, which contains the amendments to IAS 12. The aim of the document is to provide some clarification on the recognition of deferred tax assets on unrealised losses upon the occurrence of certain circumstances and on the estimate of taxable income for future years. The amendments apply from 1 January 2017 but early application is permitted. • On 29 January 2016, IASB published the document “Disclosure Initiative (Amendments to IAS 7)”, which contains the amendments to IAS 7. The aim of the document is to provide some clarification to improve disclosure on financial liabilities. In particular, the amendments require providing disclosures that enable the users of financial statements to understand changes in liabilities arising from financing activities. • IFRIC 22 Interpretation “Foreign Currency Transactions and Advance Consideration” (published on 8 December 2016). The interpretation aims to provide guidelines for foreign currency transactions if advances or non-cash payments are recognised in the financial statements, prior to the recognition of the related asset, cost or revenue. This document provides guidance on how an entity should determine the date of a transaction, and consequently, the spot exchange rate to be used when foreign currency transactions occur in which the payment is made or received in advance. IFRIC 22 is applicable from 1 January 2018, but early application is permitted. The directors do not expect a significant effect on the Group’s consolidated financial statements through the adoption of these changes. • Amendment to IAS 40 “Transfers of Investment Property” (published on 8 December 2016). These amendments clarify the transfers of a property to, or from, investment property. In particular, an entity must reclassify a property among, or from, investment property only when there is evidence that there was a change in the intended use of the property. This change must refer to a specific event that happened and must not be limited to a change of intention by the Management of an entity. The directors do not expect a significant effect on the Group’s consolidated financial statements through the adoption of these changes.
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134
Comments on significant balance sheet items 1. PROPERTY, PLANT AND EQUIPMENT PROPERTY
PLANT AND EQUIPMENT
OTHER ASSETS
ASSETS UNDER CONSTRUCTION
TOTAL
52,177
168,178
35,891
3,850
260,096
Increases
119
8,574
1,753
1,135
11,581
Disposals
-
(1,173)
(93)
(14)
(1,280)
Change in scope of consolidation
-
112
160
-
272
Reclassifications
-
2,750
105
(2,899)
(44)
Forex differences
(1,071)
(1,912)
(667)
(13)
(3,663)
AT 31 DECEMBER 2015
51,225
176,529
37,149
2,059
266,962
Increases
95
8,417
2,275
1,101
11,888
Disposals
(1)
(3,075)
(312)
-
(3,388)
Change in scope of consolidation
-
1,335
584
-
1,919
Reclassifications
1
875
177
(1,476)
(423)
Forex differences
(52)
657
430
86
1,121
51,268
184,738
40,303
1,770
278,079
AT 31 DECEMBER 2014
14,178
140,932
30,503
-
185,613
Depreciations for the year
1,450
7,277
2,421
-
11,148
Eliminations for disposals
-
(1,101)
(108)
-
(1,209)
Change in scope of consolidation
-
1
20
-
21
Reclassifications
5
35
20
-
60
Forex differences
(163)
(1,085)
(460)
-
(1,708)
AT 31 DECEMBER 2015
15,470
146,059
32,396
-
193,925
Depreciations for the year
1,442
7,961
2,328
-
11,731
Eliminations for disposals
-
(3,066)
(231)
-
(3,297)
Change in scope of consolidation
-
1,145
492
-
1,637
Reclassifications
5
40
21
-
66
Forex differences
59
588
306
-
953
16,976
152,727
35,312
-
205,015
AT 31 DECEMBER 2016
34,292
32,011
4,991
1,770
73,064
AT 31 DECEMBER 2015
35,755
30,470
4,753
2,059
73,037
COST AT 31 DECEMBER 2014
AT 31 DECEMBER 2016 ACCUMULATED DEPRECIATIONS
AT 31 DECEMBER 2016 NET CARRYING VALUE
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
The breakdown of the net carrying value of Property was as follows: 31.12.2016
31.12.2015
VAR.
Land
6,688
6,624
64
Industrial buildings
27,604
29,131
(1,527)
TOTAL
34,292
35,755
(1,463)
The net carrying value of industrial property includes an amount of € 2,211,000 (€ 2,297,000 at 31 December 2015) relating to industrial buildings held under finance leases.
The main investments in the financial year were aimed at increasing production capacity in Turkey and Brazil and the further automation of production of light alloy valves. Investments were also made to improve production processes as well as maintenance and replacement investments designed to keep the capital equipment constantly updated. Decreases mainly relate to the disposal of machinery no longer in use. Assets under construction include machinery under construction and advance payments to suppliers of capital equipment. At 31 December 2016, the Group found no endogenous or exogenous indicators of impairment of its property, plant and equipment. As a result, the value of property, plant and equipment was not submitted to impairment testing.
2. INVESTMENT PROPERTY COST AT 31 DECEMBER 2014
13,257
Increases
-
Disposals
(121)
AT 31 DECEMBER 2015
13,136
Increases
-
Disposals
-
AT 31 DECEMBER 2016
13,136
ACCUMULATED DEPRECIATIONS AT 31 DECEMBER 2014
6,029
Depreciations for the year
442
Eliminations for disposals
(47)
AT 31 DECEMBER 2015
6,424
Depreciations for the year
442
Eliminations for disposals
-
AT 31 DECEMBER 2016
6,866
NET CARRYING VALUE AT 31 DECEMBER 2016
6,270
AT 31 DECEMBER 2015
6,712
This item includes non-operating buildings owned by the Group: these are mainly properties for residential use, held for rental or sale. At 31 December 2016, the Group found no endogenous or exogenous indicators of
impairment of its investment property. As a result, the value of investment property was not submitted to impairment testing.
135
136
3. INTANGIBLE ASSETS GOODWILL
PATENTS, SOFTWARE AND KNOW-HOW
DEVELOPMENT COSTS
OTHER INTANGIBLE ASSETS
TOTAL
9,008
5,980
4,318
644
19,950
Increases
-
193
414
155
762
Reclassifications
-
66
(47)
-
19
Decreases
-
-
-
-
-
Forex differences
-
(8)
-
-
(8)
9,008
6,231
4,685
799
20,723
-
155
314
18
487
1,977
13
-
19
2,009
Reclassifications
-
62
(44)
(30)
(12)
Decreases
-
-
-
(15)
(15)
Forex differences
-
6
-
-
6
10,985
6,467
4,955
791
23,198
4,563
5,528
2,011
489
12,591
2015 Amortisation
-
209
336
67
612
Decreases
-
-
-
-
-
Forex differences
-
(5)
-
-
(5)
4,563
5,732
2,347
556
13,198
2016 Amortisation
-
266
352
98
716
Change in the scope of consolidation
-
3
-
8
11
Decreases
-
-
-
(15)
(15)
Forex differences
-
4
-
-
4
4,563
6,005
2,699
647
13,914
AT 31 DECEMBER 2016
6,422
462
2,256
144
9,284
AT 31 DECEMBER 2015
4,445
499
2,338
243
7,525
COST AT 31 DECEMBER 2014
AT 31 DECEMBER 2015 Increases Change in the scope of consolidation
AT 31 DECEMBER 2016
AMORTISATION/WRITE-DOWNS AT 31 DECEMBER 2014
AT 31 DECEMBER 2015
AT 31 DECEMBER 2016
NET CARRYING VALUE
SABAF - ANNUAL REPORT 2016
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CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Goodwill Goodwill recognised at 31 December 2016 is allocated: • to “Hinges” (CGU) cash generating units of € 4.445 million; • to the “Professional burners” CGU of € 1.977 million. This allocation, which derives from the acquisition of the equity investment in A.R.C. s.r.l. carried out during the financial year, is to be considered temporary for the moment, in that, in accordance with IFRS 3 revised, the evaluation of assets, liabilities and contingent liabilities at fair value at the date of acquisition will become final no later than 12 months from the date of acquisition.
The Group verifies the ability to recover goodwill at least once a year or more frequently if there are indications of value impairment. Recoverable value is determined through value of use, by discounting expected cash flows.
Goodwill allocated to the Hinges CGU
Sensitivity analysis
In the course of 2016, the Hinges CGU achieved better results, both in terms of sales development and profitability, which turned out to be greater than the budget. The 20172021 forward plan, drafted at the end of 2016, plans a further gradual improvement of sales and the maintaining of profitability, to be considered as durably acquired also in a future perspective. At 31 December 2016, the Group tested the carrying value of its CGU Hinges for impairment, determining its recoverable value, considered to be equivalent to its usable value, by discounting expected future cash flow in the forward plan drafted by the management. Cash flows for the period from 2017 to 2021 were augmented by the so-called terminal value, which expresses the operating flows that the CGU is expected to generate from the sixth year to infinity and determined based on the perpetual income. The value of use was calculated based on a discount rate (WACC) of 7.76% (8.45% in the impairment test conducted while preparing the consolidated financial statements at 31 December 2015) and a growth rate (g) of 1.50%, which is in line with historical data. The recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 12,851 million, compared with a carrying value of the assets allocated to the Hinges unit of € 7,279 million; consequently, the value recorded for goodwill at 31 December 2016 was deemed recoverable.
Goodwill allocated to the Professional burners CGU
At 31 December 2016, the Group tested the carrying value of its Professional burners CGU for impairment, determining its recoverable value, considered to be equivalent to its usable value, by discounting expected future cash flow in the forward plan prepared during the acquisition of the equity investment in A.R.C. and adjusted at the end of 2016 on the basis of further elements known. Cash flows for the 2017-2019 period were augmented by the so-called terminal value, which expresses the operating flows that the CGU is expected to generate from the fourth year to infinity and determined based on the perpetual income. The value of use was calculated based on a discount rate (WACC) of 5.79% and a growth rate (g) of 1.50%. The recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 7,396 million, compared with a carrying value of the assets allocated to the Professional burners unit of € 3,246 million (including minority interests); consequently, the value recorded for goodwill at 31 December 2016 was deemed recoverable.
The table below shows the changes in recoverable value depending on changes in the WACC discount rate and growth factor g: IN THOUSANDS OF EURO
GROWTH RATE
DISCOUNT RATE
1.00%
1.25%
1.50%
1.75%
2.00%
6.76%
14,247
14,779
15,363
16,004
16,713
7.26%
13,077
13,518
13,998
14,520
15,093
7.76%
12,081
12,451
12,851
13,284
13,754
8.26%
11,222
11,536
11,874
12,237
12,629
8.76%
10,474
10,743
11,031
11,340
11,671
Sensitivity analysis The table below shows the changes in recoverable value depending on changes in the WACC discount rate and growth factor g: IN THOUSANDS OF EURO DISCOUNT RATE
GROWTH RATE 1.00%
1.25%
1.50%
1.75%
2.00%
4.79%
8,517
9,103
9,778
10,565
11,492
5.29%
7,472
7,922
8,431
9,011
9,680
5.79%
6,645
7,000
7,396
7,842
8,346
6.29%
5,974
6,261
6,578
6,929
7,322
6.79%
5,419
5,655
5,913
6,197
6,511
Patents, software and know-how Software investments include the application development of the Group’s management system (SAP) and CAD development.
Development costs The main investments in the year relate to the development of new products, including special burners in brass and personalised burners for some customers (research and development activities conducted over the year are set out in the Report on Operations).
138
4. EQUITY INVESTMENTS 31.12.2015
CHANGE IN SCOPE OF CONSOLIDATION
OTHER CHANGES
31.12.2016
139
-
-
139
ARC Handan Burners Co.
-
101
-
101
Other equity investments
65
6
(5)
66
204
107
(5)
306
Sabaf US
TOTAL
The subsidiary Sabaf U.S. operates as a commercial base for North America. The carrying value of the investment is deemed recoverable taking into consideration expected developments on the North American market.
Handan ARC Burners Co. is a Chinese joint venture built at the end of 2015, in which A.R.C. s.r.l. holds 50% (therefore, the Group’s share is 35%). The aim of Handan ARC Burners is to produce and market in China burners for professional cooking; the first machineries were installed during 2016 and the start of production is expected for the beginning of 2017.
5. NON-CURRENT RECEIVABLES 31.12.2016
31.12.2015
CHANGE
Tax receivables
225
395
(170)
Guarantee deposits
37
35
2
Other
-
2
(2)
TOTAL
262
432
(170)
31.12.2016
31.12.2015
CHANGE
Commodities
9,740
10,407
(667)
Semi-processed goods
10,893
10,564
329
Finished products
13,308
12,155
1,153
Obsolescence provision
(2,457)
(2,117)
(340)
TOTAL
31,484
31,009
475
Tax receivables relate to indirect taxes expected to be recovered after 2017.
6. INVENTORIES
The value of final inventories at 31 December 2016 remained substantially unchanged compared with the end of the previous year. The obsolescence provision reflects the improved estimate of the obsolescence risk, based on specific analyses conducted at the end of the year on slow-moving and non-moving products.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
7. TRADE RECEIVABLES Total trade receivables Bad debt provision NET TOTAL
31.12.2016
31.12.2015
CHANGE
37,576
41,439
(3,863)
(734)
(1,014)
280
36,842
40,425
(3,583)
At 31 December 2016, trade receivables included balances totalling USD 5,658,000, booked at the EUR/USD exchange rate in effect on 31 December 2016, i.e. 1.0541. The amount of trade receivables recognised in the financial statements includes € 1.1 million of receivables assigned without recourse to factoring companies (€ 2.3 million at 31 December 2015) and approximately € 22.4 million in insured receivables (€ 23.5
million at 31 December 2015). The bad debt provision was adjusted to the better estimate of the credit risk at the end of the reporting period. The reduction in trade receivables is attributable not only to the decline in sales but also to lower receivables past due compared to the previous year, as shown in the following table:
31.12.2016
31.12.2015
CHANGE
Current receivables (not past due)
32,616
35,497
(2,881)
Outstanding up to 30 days
3,296
2,498
798
Outstanding from 30 to 60 days
218
570
(352)
Outstanding from 60 to 90 days
136
812
(676)
1,310
2,062
(752)
37,576
41,439
(3,863)
31.12.2016
31.12.2015
CHANGE
From Giuseppe Saleri SapA for IRES
1,158
1,204
(46)
From inland revenue for income tax
1,028
614
414
From inland revenue for VAT
533
70
463
Other tax receivables
444
601
(157)
3,163
2,489
674
Outstanding for more than 90 days TOTAL
8. TAX RECEIVABLES
TOTAL
Until the 2015 financial year, Italian companies of the Group have been part of the national tax consolidation scheme pursuant to articles 117/129 of the Unified Income Tax Law. In this scheme, Giuseppe Saleri S.a.p.A., the parent company of Sabaf S.p.A., acted as the consolidating company. In 2016, the conditions for the preparation of the tax consolidation scheme fell short, which consequently was discontinued. The receivable from Giuseppe Saleri S.a.p.A. recognised at 31 December 2016 derives from the full deductibility of IRAP from IRES relating to the expenses incurred for
employees for the 2006-2011 period (Italian Legislative Decree 201/2011), for which the consolidating company presented an application for a refund and which will revert to the Sabaf Group companies for the share pertaining to them as soon as it is refunded. Other tax receivables mainly refer to receivables in respect of indirect Brazilian and Turkish taxes.
139
140
9. OTHER CURRENT RECEIVABLES 31.12.2016
31.12.2015
CHANGE
706
865
(159)
168
170
(2)
Other
545
412
133
TOTAL
1,419
1,447
(28)
Credits to be received from suppliers Advances to suppliers
At 31 December 2016 Credits to be received from suppliers included € 411,000 related to the relief due to the parent company as an energy-intensive business (so-called “energy-intensive bonuses”) for the years 2014 and 2015, of which € 194,000 received at the beginning of 2017.
14. LOANS 31.12.2016
Property leasing Property mortgages Unsecured loans Short-term bank loans Advances on bank receipts or invoices Interest payable
10. CURRENT FINANCIAL ASSETS
TOTAL
31.12.2016
31.12.2015
CHANGE
Currency derivatives
-
69
(69)
TOTAL
0
69
(69)
11. CASH AND CASH EQUIVALENTS Cash and cash equivalents, which amounted to € 12,143,000 at 31 December 2016 (€ 3,991,000 at 31 December 2015) consisted of bank current account balances of approximately € 8.4 million and sight deposits of approximately € 3.7 million.
12. SHARE CAPITAL
CURRENT
NON CURRENT
CURRENT
NON CURRENT
145
1,611
142
1,756
-
-
934
-
6,656
17,281
2,707
4,632
7,802
-
13,666
-
2
-
5,988
-
7
-
43
-
14,612
18,892
23,480
6,388
During the financial year, the Group reformulated the average duration of its loans, entering into 4 unsecured loan agreements totalling € 19.8 million repayable in five years in quarterly fixed instalments, with rates ranging from 0.60% to 1%. Only one of the outstanding unsecured loans of € 5 million at 31 December 2016 has covenants, defined with reference to the consolidated financial statements at the end of the reporting period, as specified below: • Commitment to maintain a ratio of net financial position to shareholders’ equity of less than 1 • Commitment to maintain a ratio of net financial position to EBITDA of less than 2 widely observed at 31 December 2016. All outstanding bank loans are denominated in euro, with the exception of a short-term loan of USD 2 million and a short-term loan of 1.5 million Turkish lira. Note 35 provides information on financial risks, pursuant to IFRS 7.
15. OTHER FINANCIAL LIABILITIES
The parent company’s share capital consists of 11,533,450 shares with a par value of € 1.00 each. The share capital paid in and subscribed did not change during the year.
13. TREASURY SHARES During the financial year Sabaf S.p.A. acquired 171,061 treasury shares at an average unit price of € 9,794; there have been no sales. At 31 December 2016, the parent company Sabaf S.p.A. held 233,139 treasury shares, equal to 2.021% of share capital (62,078 treasury shares at 31 December 2015), reported in the financial statements as an adjustment to shareholders’ equity at a unit value of € 10,289 (the market value at year-end was € 10.4). There were 11,300,311 outstanding shares at 31 December 2016 (11,471,372 at 31 December 2015).
31.12.2015
31.12.2016
Option on minorities Payables to A.RC. shareholders Currency derivatives Derivative instruments on interest rates TOTAL
31.12.2015
CURRENT
NON CURRENT
CURRENT
NON CURRENT
-
1,522
-
-
60
240
-
-
238
-
17
-
37
-
14
-
335
1,762
31
0
In June 2016, as part of the acquisition of 70% of A.R.C. S.r.l., Sabaf signed with Loris Gasparini (current minority shareholder by 30% of A.R.C.) an agreement that aimed to regulate Gasparini’s right to leave A.R.C. and the interest of Sabaf to acquire 100% of the shares after expiry of the term of five years from the signing of the purchase agreement of 24 June 2016, by signing specific option agreements. Therefore, the agreement envisaged specific option rights to purchase (by Sabaf) and sell (by Gasparini) exercisable as from 24 June 2021, the remaining shares of 30% of A.R.C.,
SABAF - ANNUAL REPORT 2016
141
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
with strike prices contractually defined on the basis of final income parameters from A.R.C. at 31 December 2020.
The payable to the A.R.C. shareholders of € 300,000 at 31 December 2016 is related to the part of the price still to be paid to the sellers, which was deposited on an escrow account and will be released in favour of the sellers at constant rates in 5 years, in accordance with contractual agreements and guarantees issued by the sellers.
Pursuant to the provisions of IAS 32, the assignment of an option to sell (put option) in the terms described above required the initial recording of a liability corresponding to the estimated redemption value, expected at the time of any exercise of the option: to this end, a non-current financial liability of € 1.522 million was recognised in these consolidated financial statements. Note that, during the subsequent periods until the date the option is exercised, the Group will be obliged to evaluate as and when the outlay estimate and to determine the adjustment to the recorded liability, opting for the application of the fair value measurement criteria in compliance with IAS 39.
Other financial liabilities also included: • the negative fair value of term sales contracts totalling USD 7.5 million at an exchange rate of 1.104 agreed with regard to the foreign exchange rate risk described in Note 35. Exchange rate losses of the same amount were recorded in the income statement; • the negative fair value of IRS hedging rate risks of unsecured loans pending, for a notional amount of approximately € 13 million and expiry until 31 December 2021. Exchange rate losses in the same amount were recognised in the income statement.
16. POST-EMPLOYMENT BENEFIT AND RETIREMENT RESERVES Post-employment benefits are calculated as follows:
31.12.2016
31.12.2015
CHANGE
2,961
2,914
47
FINANCIAL ASSUMPTIONS
125
-
125
3,086
2,914
172
Postemployment benefit reserve Retirement reserve TOTAL
31.12. 2016
31.12.2015
Discount rate
1.15%
1.60%
Inflation
1.75%
2.00%
31.12. 2016
31.12.2015
Mortality rate
ISTAT 2010 M/F
ISTAT 2010 M/F
Disability rate
INPS 1998 M/F
INPS 1998 M/F
Staff turnover
3% - 6%
3% - 6%
5% - 7% per year
5% - 7% per year
pursuant to legislation in force on 31 December 2016
pursuant to legislation in force on 31 December 2016
DEMOGRAPHIC THEORY
Following the revision of IAS 19 - Employee benefits, from 1 January 2013 all actuarial gains or losses are recorded immediately in the comprehensive income statement (“Other comprehensive income”) under the item “Actuarial income and losses”.
Advance payouts Retirement age
17. PROVISIONS FOR RISKS AND CHARGES 31.12.2015
PROVISIONS
UTILISATIONW
RELEASE OF EXCESS PORTION
EXCHANGE RATE DIFFERENCES
31.12.2016
Reserve for agents’ indemnities
297
-
-
(66)
-
231
Product guarantee fund
60
35
(35)
-
-
60
Reserve for legal risks
38
100
(10)
-
15
143
395
135
(45)
(66)
15
434
TOTAL
The reserve for agents’ indemnities covers amounts payable to agents if the Group terminates the agency relationship. The product guarantee fund covers the risk of returns or charges by customers for products already sold. The fund was adjusted at the end of the year, on the basis of analyses conducted and past experience.
The reserve for legal risks, set aside for moderate disputes, was adjusted to reflect the outstanding disputes. The provisions booked to the provision for risks, which represent the estimate of future payments made based on historical experience, have not been time-discounted because the effect is considered negligible.
142
18. TRADE PAYABLES TOTAL
31.12.2016
31.12.2015
CHANGE
18,977
19,450
(473)
Average payment terms did not change versus the previous year. At 31 December 2016, there were no overdue payables of a significant amount and the Group did not receive any injunctions for overdue payables.
19. TAX PAYABLES 31.12.2016
31.12.2015
CHANGE
-
157
(157)
361
-
361
Withholding taxes
788
844
(56)
Other tax payables
41
218
(177)
1,190
1,219
(29)
31.12.2016
31.12.2015
CHANGE
To employees
3,965
4,032
(67)
To social security institutions
2,139
2,022
117
To agents
268
317
(49)
Advances from customers
181
103
78
Other current payables
104
64
40
6,657
6,538
119
To Giuseppe Saleri SapA for income tax To inland revenue for income tax
TOTAL
20. OTHER CURRENT PAYABLES
TOTAL
At the beginning of 2017, payables due to employees and social security institutions were paid in accordance with the scheduled expiry dates.
21. DEFERRED TAX ASSETS AND LIABILITIES 31.12.2016
31.12.2015
Deferred tax assets
4,781
4,887
Deferred tax liabilities
(764)
(772)
NET POSITION
4,017
4,115
SABAF - ANNUAL REPORT 2016
143
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
The table below analyses the nature of the temporary differences that determine the recognition of deferred tax liabilities and assets and their movements during the year and the previous year.
Tax incentives
Actuarial post-employment benefit reserve evaluation
Other temporary differences
TOTAL
1,771
843
200
327
4,115
81
-
(141)
-
(31)
(37)
-
-
-
-
10
-
10
1
20
-
-
(107)
-
(7)
(93)
-
22
-
-
-
-
-
22
23
1,062
67
1,771
595
210
289
4,017
Depreciation and amortisation and leasing
Provisions and value adjustments
Fair value of derivative instruments
Goodwill
(26)
1,014
(14)
48
6
To shareholders’ equity
-
Forex differences Change in scope of consolidation
AT 31 DECEMBER 2015 To the income statement
AT 31 DECEMBER 2016
Deferred tax assets relating to goodwill, equal to € 1,771,000, refer to the exemption of the value of the equity investment in Faringosi Hinges s.r.l. made in 2011 pursuant to Italian law Decree 98/2011. The future tax benefit can be made in ten annual portions starting in 2018.
Deferred tax assets relating to tax incentives are commensurate to investments made in Turkey, for which the Group benefited from reduced taxation recognised on income generated in Turkey.
22. NET FINANCIAL POSITION As required by the CONSOB memorandum of 28 July 2006, we disclose that the Company’s net financial position is as follows:
31.12.2016
31.12.2015
CHANGE
12
11
1
A.
Cash (Note 11)
B.
Positive balances of unrestricted bank accounts (Note 11)
8,376
3,822
4,554
C.
Other cash equivalents
3,755
158
3,597
D.
LIQUIDITY (A+B+C)
12,143
3,991
8,152
E.
Current bank payables (Note 14)
7,811
19,697
(11,886)
F.
Current portion of non-current debt (Note 14)
6,801
3,783
3,018
G.
Other current financial payables (Note 15)
335
31
304
H.
CURRENT FINANCIAL DEBT (E+F+G)
14,947
23,511
(8,564)
I.
NET CURRENT FINANCIAL DEBT (H-D)
2,804
19,520
(16,716)
J.
Non-current bank payables (Note 14)
17,281
4,632
12,649
K.
Other non-current financial payables (Note 14)
3,373
1,756
1,617
L.
NON-CURRENT FINANCIAL DEBT (J+K)
20,654
6,388
14,266
M.
NET FINANCIAL DEBT (I+L)
23,458
25,908
(2,450)
The consolidated cash flow statement shows changes in cash and cash equivalents (letter D of this schedule).
144
Comments on key income statement items 23. REVENUE In 2016, sales revenues totalled € 130,978,000, down by € 7,025,000 (-5.1%) compared with 2015. Taking into consideration the same scope of consolidation (i.e. excluding the contribution of A.R.C.), the drop in revenues was 6.7%.
Revenue by product family 2016
%
2015
%
% CHANGE
Brass valves
9,007
6.9%
12,689
9.2%
-29.0%
Light alloy valves
32,393
24.7%
33,784
24.5%
-4.1%
Thermostats
7,699
5.9%
10,596
7.7%
-27.3%
Standard burners
37,338
28.5%
37,789
27.4%
-1.2%
Special burners
21,215
16.2%
21,622
15.7%
-1.9%
Accessories
12,613
9.6%
13,577
9.8%
-7.1%
Household gas parts
120,265
91.8%
130,057
94.3%
-7.5%
Professional gas parts
2,289
1.8%
0
0.0%
n.a.
Hinges
8,424
6.4%
7,946
5.7%
+6.0%
TOTAL
130,978
100%
138,003
100%
-5.1%
2016
%
2015
%
% CHANGE
Italy
36,365
27.8%
41,244
29.9%
-11.8%
Western Europe
8,553
6.5%
7,438
5.4%
+15.0%
Eastern Europe
34,123
26.1%
35,125
25.5%
-2.9%
Middle East and Africa
11,698
8.9%
16,759
12.1%
-30.2%
Asia and Oceania
8,088
6.2%
7,019
5.0%
+15.2%
South America
20,847
15.9%
20,815
15.1%
+0.2%
North America and Mexico
11,304
8.6%
9,603
7.0%
+17.7%
130,978
100%
138,003
100%
-5.1%
Revenues by geographical area
TOTAL
The 2016 sales performance was negatively affected by the crisis of the Middle East and African markets (mainly Egypt), which recorded a downturn in direct sales of more than € 5 million. The crisis in the Middle Eastern and African markets (mainly Egypt) also affected the sales of the Group in Italy, since our Italian customers are strong exporters to the Middle East. The positive trend of the other international markets, most notably the steady growth in North America, only partially offset the decline in sales in the Middle East, Africa and Italy.
The analysis by product family shows a sharp decline in more mature products (brass valves and thermostats), mainly intended for markets in crisis. A good increase in sales of hinges was confirmed also in 2016, thanks to the positive trend of the North American market and to the launch of new supply contracts. Average sales prices in 2016 were around 1.5% lower compared with 2015.
SABAF - ANNUAL REPORT 2016
24. OTHER INCOME
25. MATERIALS
2016
2015
CHANGE
1,684
2,822
(1,138)
Contingent income
146
263
(117)
Rental income
85
117
(32)
Use of provisions for risks and charges
67
69
(2)
Other income
837
487
350
2,819
3,758
(939)
Sale of trimmings
TOTAL
145
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Lower revenues from the sale of trimmings were determined by a revision of production processes, which allowed to increase their re-utilisation as an alternative to sales.
2016
2015
CHANGE
Commodities and outsourced components
42,540
49,431
(6,891)
Consumables
4,806
4,935
(129)
47,346
54,366
(7,020)
TOTAL
In 2016, the effective purchase prices of the main raw materials (aluminium alloys, steel and brass) were on average lower than in 2015, allowing a saving of 0.9% of sales. Consumption (purchases plus change in inventories) as a percentage of sales was 36.7% in 2016, compared with 38.7% in 2015.
26. COSTS FOR SERVICES 2016
2015
CHANGE
Outsourced processing
8,435
9,823
(1,388)
Natural gas and power
4,622
4,902
(280)
Maintenance
4,071
3,556
515
Transport
1,848
2,059
(211)
Advisory services
1,639
1,670
(31)
Directors’ fees
1,181
1,101
80
Travel expenses and allowances
693
884
(191)
Insurance
675
506
169
Commissions
648
651
(3)
Canteen
395
430
(35)
Temporary agency workers
125
164
(39)
3,651
4,013
(362)
27,983
29,759
(1,776)
Other costs TOTAL
The lower costs for outsourced processing were related to lower production volumes in Italy. The increase in maintenance costs was due to activities in progress for the ongoing adaptation of plants, machinery and equipment at the premises of all the factories of the Group. Other costs included expenses for the registration of patents, waste disposal, cleaning, leasing third-party assets and other minor charges.
Costs for advisory services related to technical (€ 437,000), sales (€ 375,000) and legal, administrative and general (€ 827,000) services.
146
27. PERSONNEL COSTS 2016
2015
CHANGE
Salaries and wages
22,284
21,974
310
Social Security costs
7,088
7,110
(22)
1,216
1,340
(124)
1,524
2,102
(578)
32,112
32,526
(414)
Temporary agency workers Post-employment benefit reserve and other costs TOTAL
Average Group headcount in 2016 totalled 755 employees (588 blue-collars, 153 whitecollars and supervisors, 14 managers), compared with 748 in 2015 (590 blue-collars, 145 white-collars and supervisors, 13 managers). The average number of temporary staff was 40 in 2016 (72 in 2015). During the financial year, the Group made use of the temporary lay-off scheme in periods characterised by low production requirements: this allowed savings in personnel costs of € 689,000 (€ 333,000 in 2015).
2016
2015
CHANGE
Non-income taxes
488
498
(10)
Other operating expenses
205
127
78
Contingent liabilities
69
163
(94)
Losses and write-downs of trade receivables
189
356
(167)
Provisions for risks
127
18
109
Other provisions
-
31
(31)
1,078
1,193
(115)
Non-income taxes chiefly relate to property tax. Provisions refer to the allocations to the reserves described in Note 17.
29. FINANCIAL EXPENSES
31. INCOME TAXES 2016
2015
CHANGE
3,454
3,935
(481)
Deferred tax liabilities
73
611
(538)
Balance of previous FY
(176)
(71)
(105)
TOTAL
3,351
4,475
(1,124)
Current taxes
Reconciliation between the tax burden booked in the financial statements and the theoretical tax burden calculated according to the statutory tax rates currently in force in Italy is shown in the following table:
2016
2015
Theoretical income taxes
3,280
3,705
Permanent tax differences
202
51
Taxes related to previous years
(138)
(44)
Tax effect from different foreign tax rates
(109)
(114)
Effect of non-recoverable tax losses
162
149
Booking of tax incentives for investments in Turkey
(408)
(165)
Adjustment of the deferred taxation for a change in the IRES rate
-
425
(71)
(55)
2,918
3,952
433
523
3,351
4,475
Other differences
2016
2015
CHANGE
Interest paid to banks
243
260
(17)
Interest paid on finance lease contracts
22
29
(7)
IRS spreads payable
37
14
23
Banking expenses
264
237
27
Other financial expense
55
55
0
621
595
26
TOTAL
In 2016, the Group reported net foreign exchange gains of € 435,000, versus net losses of € 89,000 in 2015.
The current income taxes include the IRES of € 2,078,000, the IRAP of € 452,000 and foreign income taxes of € 924,000 (€ 2,616,000, € 1,177,000 and € 538,000 respectively in 2015).
28. OTHER OPERATING COSTS
TOTAL
30. EXCHANGE RATE GAINS AND LOSSES
Income taxes booked in the accounts, excluding IRAP and withholding taxes (current and deferred) IRAP (current and deferred) TOTAL
Theoretical taxes were calculated applying the current corporate income tax (IRES) rate, i.e. 27.50%, to the pre-tax result. IRAP is not taken into account for the purpose of reconciliation because, as it is a tax with a different assessment basis from pre-tax profit, it would generate distorting effects. No significant tax disputes were pending at 31 December 2016.
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
32. EARNINGS PER SHARE Basic and diluted EPS are calculated based on the following data: EARNINGS
2016
2015
Euro ‘000
Euro ‘000
Profit for the year
9,009
8,998
NUMBER OF SHARES
2016
2015
Weighted average number of ordinary shares for determining basic earnings per share
11,376,320
11,523,219
Dilutive effect from potential ordinary shares
-
-
Weighted average number of ordinary shares for determining diluted earnings per share
11,376,320
11,523,219
EARNINGS PER SHARE (€)
2016
2015
Basic earnings per share
0.792
0.781
Diluted earnings per share
0.792
0.781
Basic earnings per share are calculated on the average number of outstanding shares minus treasury shares, equal to 157,130 in 2016 (10,231 in 2015). Diluted earnings per share are calculated taking into account any shares approved but not yet subscribed, of which there were none in 2016 and 2015.
33. DIVIDENDS On 25 May 2016, shareholders were paid an ordinary dividend of € 0.48 per share (total dividends of € 5,467,000). The Directors have recommended payment of an unchanged dividend of € 0.48 per share this year. This dividend is subject to approval of shareholders in the annual Shareholders’ Meeting and was not included under liabilities. The dividend proposed is scheduled for payment on 31 May 2017 (ex-date 29 May and record date 30 May).
34. INFORMATION BY BUSINESS SEGMENT Below is the information by business segment for 2016 and 2015.
2016 FY
2015 FY
Gas parts (household and professional)
Hinges
TOTAL
Gas parts (household and professional)
Hinges
TOTAL
Sales
122,636
8,342
130,978
130,048
7,955
138,003
Ebit
11,643
887
12,530
13,493
598
14,091
147
148
35. INFORMATION ON FINANCIAL RISK Categories of financial instruments In accordance with IFRS 7, a breakdown of the financial instruments is shown below, among the categories set forth in IAS 39.
FINANCIAL ASSETS
31.12.2016
31.12.2015
Amortised cost • Cash and cash equivalents
12,143
3,991
• Trade receivables and other receivables
38,261
41,872
-
69
Income statement fair value • Derivative to hedge cash flows
FINANCIAL LIABILITIES
31.12.2016
31.12.2015
33,504
29,868
Amortised cost • Loans • Other financial liabilities
1,822
-
• Trade payables
18,977
19,450
275
31
Income statement fair value • Derivative to hedge cash flows
The Group is exposed to financial risks related to its operations, mainly: • credit risk, with special reference to normal trade relations with customers; • market risk, relating to the volatility of prices of commodities, foreign exchange and interest rates; • liquidity risk, which can be expressed by the inability to find financial resources necessary to ensure Group operations. It is part of the Sabaf Group’s policies to hedge exposure to changes in prices and in fluctuations in exchange and interest rates via derivative financial instruments. Hedging is done using forward contracts, options or combinations of these instruments. Generally speaking, the maximum duration covered by such hedging does not exceed 18 months. The Group does not enter into speculative transactions. When the derivatives used for hedging purposes meet the necessary requisites, hedge accounting rules are followed.
Credit risk management Trade receivables involve producers of domestic appliances, multinational groups and smaller manufacturers in a few or single markets. The Company assesses the creditworthiness of all its customers at the start of supply and systemically on at least an annual basis. After this assessment, each customer is assigned a credit limit. A credit insurance policy is in place, which guarantees cover for approximately 60% of trade receivables. Credit risk relating to customers operating in emerging economies is generally attenuated by the expectation of revenue through letters of credit.
Forex risk management The key currencies other than the euro to which the Group is exposed are the US dollar, the Brazilian real and the Turkish lira, in relation to sales made in dollars (chiefly on some Asian and American markets) and the production units in Brazil and Turkey. Sales in US dollars represented 16% of total revenue in 2016, while purchases in dollars represented 2% of total revenue. Transactions in dollars were partly hedged by these derivative financial instruments: at 31 December 2016, the Group had in place forward sales contracts for a total of 7,500,000 dollars, maturing on 31 December 2017.
Sensitivity analysis With reference to financial assets and liabilities in US dollars at 31 December 2016, a hypothetical and immediate revaluation of 10% of the euro against the dollar would have led to a loss of € 331,000, without considering the pending forward sale contracts.
Interest rate risk management At 31 December 2016, gross financial debt of the Group was at a floating rate for approximately 70% and at a fixed rate for approximately 30%; to reach an optimum mix of floating and fixed rates in the structure of the loans, the Group also used derivative financial instruments. At 31 December 2016, three interest rate swap (IRS) contracts totalling € 13 million were in place, mirrored in mortgages with the same residual debt, through which the Group transformed the floating rate of the mortgages into fixed rate. Considering the IRS in place, at the end of 2016, the fixed-rate portion amounted to approximately 70% of the total financial debt. The derivative contracts were not designated as a cash flow hedge and were therefore recognised using the “income statement fair value” method.
Sensitivity analysis With reference to financial assets and liabilities at variable rate at 31 December 2016 and 31 December 2015, a hypothetical increase (decrease) in the interest rate of 100 base points versus the interest rates in effect at the same date – all other variables being equal - would lead to the following effects:
Increase of 100 base points Decrease of 100 base points
31.12.2016
31.12.2015
FINANCIAL EXPENSES
FINANCIAL EXPENSES
20
116
-
(116)
Commodity price risk management A significant portion of the Group’s acquisitions is represented by brass, steel and aluminium alloys. Sale prices of products are generally renegotiated annually; as a result, the Group is unable to pass on to customers any changes in the prices of commodities during the year. The Group protects itself from the risk of changes in the price of brass and aluminium with supply contracts signed with suppliers for delivery up to twelve months in advance or, alternatively, with derivative financial instruments. In 2016 and 2015, the Group did not use financial derivatives on commodities. To stabilise the rising costs of commodities, Sabaf preferred to execute transactions on the physical market, fixing prices with suppliers for immediate and deferred delivery.
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149
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Liquidity risk management The Group operates with a low debt ratio (net financial debt / shareholders’ equity at 31 December 2016 of 21%, net financial debt / EBITDA of 0.92) and has unused short-term lines of credit. To minimise the risk of liquidity, the Administration and Finance Department:
maintains a correct balance of net financial debt, financing investments with capital and with medium to long-term debt. verifies systematically that the short-term accrued cash flows (amounts received from customers and other income) are expected to accommodate the deferred cash flows (short-term financial debt, payments to suppliers and other outgoings); regularly assesses expected financial needs in order to promptly take any corrective measures.
• •
•
Below is an analysis by expiration date of financial payables at 31 December 2016 and 31 December 2015: AT 31 DECEMBER 2016 CARRYING VALUE
CONTRACTUAL FINANCIAL FLOWS
WITHIN 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
FROM 1 TO 5 YEARS
MORE THAN 5 YEARS
Short-term bank loans
7,811
7,811
5,811
2,000
-
-
Unsecured loans
23,937
24,388
1709
5,129
17,550
-
Finance leases
1,756
2,007
47
141
754
1,065
300
300
-
60
240
-
1,522
1,522
-
-
1,522
-
TOTAL FINANCIAL PAYABLES
35,326
36,028
7,567
7,330
20,066
1,065
Trade payables
18,977
18,977
18,340
637
-
-
TOTAL
54,303
55,005
25,907
7,967
20,066
1,065
CARRYING VALUE
CONTRACTUAL FINANCIAL FLOWS
WITHIN 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
FROM 1 TO 5 YEARS
MORE THAN 5 YEARS
Short-term bank loans
19,697
19,697
17,697
2,000
-
-
Unsecured loans
7,339
7,506
700
2,099
4,707
-
934
942
-
942
-
-
1,898
2,195
47
141
754
1,253
TOTAL FINANCIAL PAYABLES
29,868
30,340
18,444
5,182
5,461
1,253
Trade payables
19,450
19,450
18,350
1,100
-
-
TOTAL
49,318
49,790
36,794
6,282
5,461
1,253
Payables to ARC shareholders ARC option
AT 31 DECEMBER 2015
Property mortgages Finance leases
The various due dates are based on the period between the end of the reporting period and the contractual expiration date of the commitments, the values indicated in the table correspond to non-discounted cash flows. Cash flows include the shares of
principal and interest; for floating rate liabilities, the shares of interest are determined based on the value of the reference parameter at the end of the reporting period and increased by the spread set forth in each contract.
150
Hierarchical levels of fair value assessment The following table shows the assets and liabilities valued at fair value at 31 December 2016, by hierarchical level of fair value assessment.
The revised IFRS 7 requires that financial instruments reported in the statement of financial position at fair value must be classified based on a hierarchy that reflects the significance of the input used in determining the fair value. IFRS 7 makes a distinction between the following levels: • Level 1 – quotations found on an active market for assets or liabilities subject to assessment; • Level 2 – input other than prices listed in the previous point, which can be observed (prices) or indirectly (derivatives from prices) on the market; • Level 3 – input based on observable market data
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
-
238
-
238
Other financial liabilities (currency derivatives) Other financial liabilities (derivatives on interest rates) Other financial liabilities (ARC put option)
-
37
-
37
-
-
1,522
1,522
TOTAL LIABILITIES
0
275
1,522
1,797
36. RELATED-PARTY TRANSACTIONS Transactions between consolidated companies were eliminated from the consolidated financial statements and are not reported in these notes. The table below illustrates the impact of all transactions between the Group and other related parties on the balance sheet and income statement.
Impact of related-party transactions on balance sheet items TOTAL 2016
PARENT COMPANY
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Trade receivables
36,842
-
221
-
221
0.60%
Tax receivables
3,163
1,158
-
-
1,158
36.61%
Trade payables
18,977
-
-
2
2
0.01%
TOTAL 2015
PARENT COMPANY
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Trade receivables
40,425
-
39
-
39
0.10%
Tax receivables
2,489
1,204
-
-
1,204
48.37%
Trade payables
1,219
157
-
-
157
12.88%
Impact of related-party transactions on income statement items
Other income Services
Other income Services
TOTAL 2016
PARENT COMPANY
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
2,819
10
-
-
10
0.35%
(27,983)
-
(181)
(22)
(203)
0.73%
TOTAL 2015
PARENT COMPANY
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
3,758
10
-
-
10
0.27%
(29,759)
-
(180)
(34)
(214)
0.72%
Transactions with the parent company, Giuseppe Saleri S.a.p.A., comprise: • administration services provided by Sabaf S.p.A. to the parent company; • transactions as part of the domestic tax consolidation scheme, which generated the payables and receivables shown in the tables (Note 8).
Transactions are regulated by specific contracts regulated at arm’s length conditions. Transactions with non-consolidated subsidiaries were solely of a commercial nature.
SABAF - ANNUAL REPORT 2016
151
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Fees to directors, statutory auditors and executives with strategic responsibilities Please see the 2016 Report on Remuneration for this information.
37. SHARE-BASED PAYMENTS At 31 December 2016, there were no equity-based incentive plans for the Group’s directors and employees.
38. SIGNIFICANT NON-RECURRING EVENTS AND TRANSACTIONS Pursuant to CONSOB memorandum of 28 July 2006, no events or significant non-recurring transactions occurred during 2016.
39. ATYPICAL AND/OR UNUSUAL TRANSACTIONS Pursuant to CONSOB memorandum of 28 July 2006, the Group declares that no atypical and/or unusual transactions as defined by the CONSOB memorandum were executed during 2016.
40. COMMITMENTS Guarantees issued The Sabaf Group has issued sureties to guarantee consumer and mortgage loans granted by banks to Group employees for a total of € 5,510,000 (€ 6,010,000 at 31 December 2015).
41. SCOPE OF CONSOLIDATION AND SIGNIFICANT EQUITY INVESTMENTS Companies consolidated using the full line-by-line consolidation method COMPANY NAME
REGISTERED OFFICES
SHARE CAPITAL
SHAREHOLDERS
OWNERSHIP %
Faringosi Hinges s.r.l.
Ospitaletto (BS)
EUR 90.000
Sabaf S.p.A.
100%
Sabaf Immobiliare s.r.l.
Ospitaletto (BS)
EUR 25.000
Sabaf S.p.A.
100%
Jundiaì (SP, Brazil)
BRL 24.000.000
Sabaf S.p.A.
100%
Manisa (Turkey)
TRK 28.000.000
Sabaf S.p.A.
100%
Kunshan (China)
EUR 200.000
Sabaf S.p.A.
100%
Kunshan (China)
EUR 4.400.000
Sabaf S.p.A.
100%
Campodarsego (PD) - Italy
EUR 45.000
Sabaf S.p.A.
70%
Sabaf do Brasil Ltda Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki Sabaf Appliance Components Trading Ltd. Sabaf Appliance Components Ltd. A.R.C. s.r.l.
Non-consolidated companies valued at cost REGISTERED OFFICES
SHARE CAPITAL
SHAREHOLDERS
OWNERSHIP %
HOLDING %
Sabaf US Corp.
Plainfield (USA)
USD 100.000
Sabaf S.p.A.
100%
100%
Handan ARC Burners Co., Ltd.
Handan (China)
RMB 7.000.000
A.R.C. s.r.l.
50%
35%
COMPANY NAME
152
42. GENERAL INFORMATION ON THE PARENT COMPANY Registered and administrative office: Via dei Carpini, 1 25035 Ospitaletto (Brescia)
Contacts: Tel.: +39 030 - 6843001 Fax: +39 030 - 6848249 E-mail: info@sabaf.it Website: web: www.sabaf.it
Tax information: R.E.A. Brescia: 347512 Tax Code: 03244470179 VAT number: 01786910982
APPENDIX Information as required by Article 149-duodecies of the CONSOB Issuers’ Regulation The following table, prepared pursuant to Article 149-duodecies of the CONSOB Issuers’ Regulation, shows fees relating to 2016 for auditing and for services other than auditing provided by the Independent Auditor and its network.
IN THOUSANDS OF EURO Audit
Certification services
Other services
PARTY PROVIDING THE SERVICE
RECIPIENT
FEES PERTAINING TO THE 2016 FINANCIAL YEAR
Deloitte & Touche S.p.A.
Parent company
57
Deloitte & Touche S.p.A.
Italian subsidiaries
28
Deloitte network
Sabaf do Brasil
24
Deloitte network
Sabaf Turkey
22
Deloitte & Touche S.p.A.
Parent company
21
Deloitte & Touche S.p.A.
Italian subsidiaries
11
Deloitte & Touche S.p.A.
Parent company
14 2
Deloitte network
Sabaf do Brasil
23
TOTAL
1 Signing of Unified Tax Return, IRAP and 770 forms 2 Audit agreed upon procedures relating to interim management reports, auditing of statements and training activities. 3 Tax assistance regarding transfer pricing.
150
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
in accordance with Article 154 bis of Italian Legislative Decree 58/98 Alberto Bartoli, the Chief Executive Officer, and Gianluca Beschi, the Financial Reporting Officer of Sabaf S.p.A., have taken into account the requirements of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of 24 February 1998 and can certify • •
the adequacy, in relation to the business characteristics and the actual application
of the administrative and accounting procedures for the formation of the consolidated financial statements during the 2016 financial year. They also certify that: •
the Consolidated financial statements: - were prepared in accordance with the international accounting policies recognised in the European Community in accordance with EC regulation 1606/2002 of the European Parliament and Council of 19 July 2002 and with the measures issued in implementation of Article 9 of Italian Legislative Decree 38/2005; - are consistent with accounting books and records; - provide a true and fair view of the operating results, financial position and cash flows of the issuer and of the companies included in the consolidation;
•
the report on operations contains a reliable analysis of the performance and results of operations and the situation of the issuer and the companies included in the scope of consolidation, along with a description of the key risks and uncertainties to which they are exposed.
Ospitaletto, 20 March 2017
Chief Executive Officer
The Financial Reporting Officer
Alberto Bartoli
Gianluca Beschi
153
154
SABAF - ANNUAL REPORT 2016
CHAPTER 6 - CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2016
155
PA SS IO N 7
158
CHAPTER 7 SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016 Corporate bodies Statement of financial position Income statement Comprehensive income statement Statement of changes in shareholders’ equity Cash flow Statement Explanatory notes Certification of Separate Financial Statements Auditors’ Report on the Separate Financial Statements Board of Statutory Auditors’ Report Shareholders’ Meeting
159 160 161 162 162 163 164 191 192 194
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Corporate bodies Board of Directors Chairman
Giuseppe Saleri
Director *
Renato Camodeca
Vice Chairman
Cinzia Saleri
Director *
Giuseppe Cavalli
Vice Chairman
Ettore Saleri
Director *
Fausto Gardoni
Vice Chairman
Roberta Forzanini
Director *
Anna Pendoli
Chief Executive Officer
Alberto Bartoli
Director *
Nicla Picchi
Director
Gianluca Beschi
Director
Alessandro PotestĂ
Board of Statutory Auditors
Independent Auditor
Chairman
Antonio Passantino
Statutory Auditor
Luisa Anselmi
Statutory Auditor
Enrico Broli
* Independent directors.
Deloitte & Touche S.p.A.
159
160
Statement of financial position IN EURO
NOTES
31.12.2016
31.12.2015
Property, plant and equipment
1
31,092,204
31,939,736
Investment property
2
1,645,412
1,837,259
Intangible assets
3
3,095,000
3,197,864
Equity investments
4
50,098,459
45,819,480
Non-current financial assets
5
2,137,353
1,837,054
36
1,897,353
1,837,054
11,621
9,183
ASSETS Non-current assets
of which from related parties Non-current receivables Deferred tax assets
21
3,315,263
3,284,696
91,395,312
87,925,272
6
23,492,840
24,674,840
7
27,465,436
32,870,713
36
1,191,581
2,008,185
TOTAL NON-CURRENT ASSETS Current assets Inventories Trade receivables of which from related parties
8
2,477,294
1,749,451
36
1,083,666
1,113,702
Other current receivables
9
1,039,324
1,197,919
Current financial assets
Tax receivables of which from related parties
10
1,060,000
1,069,431
of which from related parties
36
1,000,000
1,000,000
Cash and cash equivalents
11
TOTAL CURRENT ASSETS Assets held for sale TOTAL ASSETS
1,796,980
1,089,671
57,331,874
62,652,025
0
0
148,727,186
150,577,297
11,533,450
11,533,450
77,530,764
79,058,252
SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity Share capital
12
Retained earnings, other reserves Profit for the year TOTAL SHAREHOLDERS’ EQUITY
2,459,688
5,642,123
91,523,902
96,233,825
17,281,379
4,631,730
Non-current liabilities Loans
14
Other financial liabilities
15
240,000
0
Post-employment benefit and retirement reserves
16
2,435,538
2,527,275
Provisions for risks and charges
17
322,979
326,140
Deferred tax liabilities
21
129,289
150,017
20,409,185
7,635,162
TOTAL NON-CURRENT LIABILITIES Current liabilities Loans
14
14,054,604
21,762,487
Other financial liabilities
15
298,161
13,610
Trade payables
18
16,010,381
18,202,899
of which to related parties
36
104,142
852,935
Tax payables
19
641,944
787,676
Other payables
20
TOTAL CURRENT LIABILITIES Liabilities held for sale TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
5,789,009
5,941,638
36,794,099
46,708,310
0
0
148,727,186
150,577,297
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Income statement IN EURO
NOTES
2016
2015
23
101,523,407
113,962,039
36
6,680,209
7,274,762
24
2,278,649
2,733,344
103,802,056
116,695,383
(36,875,454)
(43,860,895)
(1,182,000)
(402,180)
26
(26,031,824)
(28,750,556)
36
(4,151,074)
(4,162,137)
Payroll costs
27
(26,382,450)
(27,967,750)
Other operating costs
28
(647,178)
(821,303)
841,526
1,230,058
TOTAL OPERATING COSTS
(90,277,380)
(100,572,626)
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTISATION, CAPITAL GAINS/ LOSSES, WRITE-DOWNS/WRITE-BACKS OF NON-CURRENT ASSETS
13,524,676
16,122,757
(9,020,829)
(8,736,191)
87,113
157,965
29
(521,021)
1,302,841
36
(521,021)
1,302,841
4,069,939
8,847,372
84,559
73,091
INCOME STATEMENT COMPONENTS Operating revenue and income Revenue of which from related parties Other income TOTAL OPERATING REVENUE AND INCOME Operating costs Materials
25
Change in inventories Services of which by related parties
Costs for capitalised in-house work
Depreciations and amortisation
1,2,3
Capital gains/(losses) on disposals of non-current assets Write-downs/write-backs of non-current assets of which by related parties
EBIT Financial income Financial expenses
30
(512,872)
(500,483)
Exchange rate gains and losses
31
(48,356)
(260,920)
3,593,270
8,159,060
(1,133,582)
(2,516,937)
2,459,688
5,642,123
PROFIT BEFORE TAXES Income tax
PROFIT FOR THE YEAR
32
161
162
Comprehensive income statement IN EURO PROFIT FOR THE YEAR
2016
2015
2,459,688
5,642,123
(35,894)
37,619
8,615
(8,114)
(27,279)
29,505
2,432,409
5,671,628
Total profits/losses that will not be subsequently reclassified under profit (loss) for the year: • Actuarial post-employment benefit reserve evaluation • Tax effect Total other profits/(losses) net of taxes for the year
TOTAL PROFIT
Statement of changes in shareholders’ equity IN THOUSANDS OF EURO BALANCE AT 31 DEC 2014
Share capital
Share premium reserve
Legal reserve
11,533
10,002
2,307
Treasury shares
Cash flow hedge reserve
Actuarial post-employment benefit reserve evaluation
Other reserves
(5)
0
(535)
64,714
Total Profit for the shareholders’ year equity 7,878
95,894
(4,613)
(4,613)
Allocation of 2014 profit • dividends paid out • to reserve
3,265
Purchase of treasury shares
(718)
(718)
Total profit at 31 December 2015
BALANCE AT 31 DEC 2015
(3,265)
11,533
10,002
2,307
(723)
0
29
0
5,642
5,671
(506)
67,979
5,642
96,234
(5,467)
(5,467)
Allocation of 2015 profit • dividends paid out • to reserve
175
Purchase of treasury shares
(1,676)
(1,676)
Total profit at 31 December 2016
BALANCE AT 31 DEC 2016
(175)
11,533
10,002
2,307
(2,399)
0
(27)
0
2,460
2,433
(533)
68,154
2,460
91,524
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Cash flow Statement IN THOUSANDS OF EURO
2016
2015
Cash and cash equivalents at beginning of year
1,090
1,366
Profit for the year
2,460
5,642
9,021
8,736
(87)
(158)
Adjustments for: • Depreciation and amortisation • Realised gains • Write-downs/write-backs of non-current assets
521
(1,303)
• Net financial income and expenses
428
427
• Non-monetary foreign exchange differences
(60)
281
• Income tax
1,133
2,517
Change in post-employment benefit reserve
(131)
(149)
(3)
(189)
Change in risk provisions
Change in trade receivables
5,405
1,825
Change in inventories
1,182
402
Change in trade payables
(2,192)
630
Change in net working capital
4,395
2,857
367
75
(2,450)
(3,814)
(474)
(465)
Change in other receivables and payables, deferred tax Payment of taxes Payment of financial expenses Collection of financial income
85
73
15,205
14,531
(735)
(646)
• tangible
(7,298)
(9,601)
• financial
(4,800)
(1,394)
CASH FLOW FROM OPERATIONS Investments in non-current assets • intangible
242
2,606
CASH FLOW ABSORBED BY INVESTMENTS
Disposal of non-current assets
(12,591)
(9,035)
Repayment of loans
(19,077)
(7,834)
Raising of loans
24,243
8,463
69
(1,069)
(1,675)
(719)
Change in financial assets Sale of treasury shares Payment of dividends
(5,467)
(4,613)
CASH FLOW ABSORBED BY FINANCING ACTIVITIES
(1,907)
(5,772)
707
(276)
Cash and cash equivalents at end of year (Note 11)
1,797
1,090
Current financial debt
14,353
21,776
Non-current financial debt
17,521
4,632
NET FINANCIAL DEBT (NOTE 22)
30,077
25,318
TOTAL FINANCIAL FLOWS
163
164
Explanatory notes Accounting standards STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION The separate financial statements of Sabaf S.p.A. for the financial year 2016 have been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the European Union. Reference to IFRS also includes all current International Accounting Standards (IAS). The separate financial statements are drawn up in euro, which is the currency in the economy in which the Company operates. The income statement, the comprehensive income statement and the statement of financial position schedules are prepared in euro, while the cash flow statement, the statement of changes in shareholders’ equity and the values reported in the explanatory notes are in thousands of euro. The financial statements have been prepared on a historical cost basis except for some revaluations of property, plant and equipment undertaken in previous years, and are considered a going concern. The Company found that, despite the difficult economic and business climate, there were no significant uncertainties (as defined by paragraphs 25 and 26 of IAS 1) regarding the continuity of the Company, also due to the strong competitive position, high profitability and solidity of the financial structure. Sabaf S.p.A., as the Parent Company, also prepared the consolidated financial statements of the Sabaf Group at 31 December 2016.
FINANCIAL STATEMENTS The Company has adopted the following formats: • current and non-current assets and current and non-current liabilities are stated separately in the statement of the financial position; • an income statement that expresses costs using a classification based on the nature of each item; • a comprehensive income statement that expresses revenue and expense items not recognised in profit for the year as required or permitted by IFRS; • a cash flow statement that presents financial flows originating from operating activity, using the indirect method. Use of these formats permits the most meaningful representation of the Company’s capital, business and financial status.
ACCOUNTING POLICIES The accounting standards and policies applied for the preparation of the separate financial statements at 31 December 2016, unchanged versus the previous year, are shown below:
Property, plant and equipment These are recorded at purchase or manufacturing cost. The cost includes directly chargeable ancillary costs. These costs also include revaluations undertaken in the past based on monetary revaluation rules or pursuant to company mergers. Depreciation is calculated according to rates deemed appropriate to spread the carrying value of tangible assets over their useful working life. Estimated useful working life, in years, is as follows: Buildings
33
Light constructions
10
General plant
10
Specific plant and machinery
6 - 10
Equipment
4
Furniture
8
Electronic equipment
5
Vehicles and other transport means
5
Ordinary maintenance costs are expensed in the year in which they are incurred; costs that increase the asset value or useful working life are capitalised and depreciated according to the residual possibility of utilisation of the assets to which they refer. Land is not depreciated.
Investment Property Investment property is valued at cost, including revaluations undertaken in the past based on monetary revaluation rules or pursuant to company mergers. The depreciation is calculated based on the estimated useful life, considered to be 33 years. If the recoverable amount of the investment property – determined based on the market value of the properties – is estimated to be lower than its carrying value, the asset’s carrying value is reduced to the lower recoverable amount, recognising impairment of value in the income statement. When there is no longer any reason for a write-down to be maintained, the carrying value of the asset (or cash generating unit) is increased to the new value stemming from the estimate of its recoverable amount – but not beyond the net carrying value that the asset would have had if it had not been written down for impairment of value. Reversal of impairment loss is recognised in the income statement.
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Intangible assets
Inventories
As established by IAS 38, intangible assets acquired or internally produced are recognised as assets when it is probable that use of the asset will generate future economic benefits and when asset cost can be measured reliably. If it is considered that these future economic benefits will not be generated, the development costs are written down in the year in which this is ascertained.
Inventories are measured at the lower of purchase or production cost – determined using the weighted average cost method – and the corresponding fair value represented by the replacement cost for purchased materials and by the presumed realisable value for finished and semi-processed products – calculated taking into account any manufacturing costs and direct selling costs yet to be incurred. Inventory cost includes accessory costs and the portion of direct and indirect manufacturing costs that can reasonably be assigned to inventory items. Inventories subject to obsolescence and low turnover are written down in relation to their possibility of use or realisation. Inventory write-downs are eliminated in subsequent years if the reasons for such write-downs cease to exist.
Such assets are measured at purchase or production cost and - if the assets concerned have a finite useful life - are amortised on a straight-line basis over their estimated useful life. The useful life of projects for which development costs are capitalised is estimated to be 10 years. The SAP management system is amortised over five years.
Equity investments and non-current receivables Equity investments not classified as held for sale are booked at cost, reduced for impairment. Non-current receivables are stated at their presumed realisable value.
Impairment of value At each end of the reporting period, Sabaf S.p.A. reviews the carrying value of its property, plant and equipment, intangible assets and equity investments to determine whether there are signs of impairment of the value of these assets. If there is any such indication, the recoverable amount of said assets is estimated so as to determine the total of the write-down. If it is not possible to estimate the recoverable value individually, the Company estimates the recoverable value of the cash generating unit (CGU) to which the asset belongs. In particular, the recoverable value of the cash generating units (which generally coincide with the legal entity to which the capitalised assets refer) is verified by determining the value of use. The recoverable amount is the higher of the net selling price and value of use. In measuring the value of use, future cash flows net of taxes, estimated based on past experience, are discounted to their present value using a pre-tax rate that reflects fair market valuations of the present cost of money and specific asset risk. The main assumptions used for calculating the value of use concern the discount rate, growth rate, expected changes in selling prices and cost trends during the period used for the calculation. The growth rates adopted are based on future market expectations in the relevant sector. Changes in the sales prices are based on past experience and on the expected future changes in the market. The Company prepares operating cash flow forecasts based on the most recent budgets approved by the Boards of Directors of the investees, draws up four-year forecasts and determines the terminal value (current value of perpetual income), which expresses the medium and long term operating flows in the specific sector. Furthermore, the Company checks the recoverable value of its investees at least once a year when the separate financial statements are prepared. If the recoverable amount of an asset (or CGU) is estimated to be lower than its carrying value, the asset’s carrying value is reduced to the lower recoverable amount, recognising impairment of value in the income statement. When there is no longer any reason for a write-down to be maintained, the carrying value of the asset (or of the cash-generating unit) is increased to the new value stemming from the estimate of its recoverable value – but not beyond the net carrying value that the asset would have had if it had not been written down for impairment of value. Reversal of impairment loss is recognised in the income statement.
Receivables Receivables are recognised at their presumed realisable value. Their face value is adjusted to a lower realisable value via specific provisioning directly reducing the item based on in-depth analysis of individual positions. Trade receivables assigned without recourse, despite being transferred legally, continue to be stated with “Trade receivables” until they are collected. Advance payments obtained with regard to the sale of trade receivables are recognised under current loans.
Current and non-current financial assets Financial assets held for trading are measured at fair value, allocating profit and loss effects to finance income or expense.
Provisions for risks and charges Provisions for risks and charges are provisioned to cover losses and debts, the existence of which is certain or probable, but whose amount or date of occurrence cannot be determined at the end of the year. Provisions are stated in the statement of financial position only when a legal or implicit obligation exists that determines the use of resources with an impact on profit and loss to meet that obligation and the amount can be reliably estimated. If the effect is significant, the provisions are calculated by updating future financial flows estimated at a rate including taxes such as to reflect current market valuations of the current value of the cash and specific risks associated with the liability.
Post-employment benefit reserve The post-employment benefit reserve (TFR) is provisioned to cover the entire liability accruing vis-à-vis employees in compliance with current legislation and with national and supplementary company collective labour contracts. This liability is subject to revaluation via application of indices fixed by current regulations. Up to 31 December 2006, post-employment benefits were considered defined-benefit plans and accounted for in compliance with IAS 19, using the projected unit-credit method. The regulations of this fund were amended by Italian Law no. 296 of 27 December 2006 and subsequent Decrees and Regulations issued during the first months of 2007 In the light of these changes, and, in particular, for companies with at least 50 employees, post-employment benefits must now be considered a defined-benefit plan only for the portions accruing before 1 January 2007 (and not yet paid as at the end of the reporting period). Conversely, portions accruing after that date are treated as defined-contribution plans. Actuarial gains or losses are recorded immediately under “Other total profits/(losses)”.
165
166
Payables Payables are recognised at face value; the portion of interest included in their face value and not yet payable at period-end is deferred to future periods.
Loans Loans are initially recognised at cost, net of related costs of acquisition. This value is subsequently adjusted to allow for any difference between initial cost and repayment value over the loan’s duration using the effective interest rate method. Loans are classified among current liabilities unless the Company has the unconditional right to defer discharge of a liability by at least 12 months after the reference date.
Policy for conversion of foreign currency items Receivables and payables originally expressed in foreign currencies are converted into euro at the exchange rates in force on the date of the transactions originating them. Forex differences realised upon collection of receivables and payment of payables in foreign currency are posted in the income statement. Income and costs relating to foreign-currency transactions are converted at the rate in force on the transaction date. At year-end, assets and liabilities expressed in foreign currencies are posted at the spot exchange rate in force at the end of the reporting period and related foreign exchange gains and losses are posted in the income statement. If conversion generates a net gain, this value constitutes a non-distributable reserve until it is effectively realised.
Derivative instruments and hedge accounting The Company’s business is exposed to financial risks relating to changes in exchange rates, commodity prices and interest rates. The Company may decide to use derivative financial instruments to hedge these risks. Derivatives are initially recognised at cost and are then adjusted to fair value on subsequent closing dates. Changes in the fair value of derivatives designated and recognised as effective for hedging future cash flows relating to the Company’s contractual commitments and planned transactions are recognised directly in shareholders’ equity, while the ineffective portion is immediately posted in the income statement. If the contractual commitments or planned transactions materialise in the recognition of assets or liabilities, when such assets or liabilities are recognised, the gains or losses on the derivative that were directly recognised in equity are factored back into the initial valuation of the cost of acquisition or carrying value of the asset or liability. For cash flow hedges that do not lead to recognition of assets or liabilities, the amounts that were directly recognised in equity are included in the income statement in the same period when the contractual commitment or planned transaction hedged impacts profit and loss – for example, when a planned sale actually takes place. For effective hedges of exposure to changes in fair value, the item hedged is adjusted for the changes in fair value attributable to the risk hedged and recognised in the income statement. Gains and losses stemming from the derivative’s valuation are also posted in the income statement. Changes in the fair value of derivatives not designated as hedging instruments are recognised in the income statement in the period when they occur. Hedge accounting is discontinued when the hedging instrument expires, is sold or is exercised, or when it no longer qualifies as a hedge. At this time, the cumulative gains or losses of the hedging instrument recognised in equity are kept in the latter until the planned transaction actually takes place. If the transaction hedged is not expected to take place, cumulative gains or losses recognised directly in equity are transferred to the year’s income statement.
Embedded derivatives included in other financial instruments or contracts are treated as separate derivatives when their risks and characteristics are not strictly related to those of their host contracts and the latter are not measured at fair value with posting of related gains and losses in the income statement.
Revenue reporting Revenue is reported net of return sales, discounts, allowances and bonuses, as well as of the taxes directly associated with sale of goods and rendering of services. Sales revenue is reported when the company has transferred the significant risks and benefits associated with ownership of the goods and the amount of revenue can be reliably measured. Revenues of a financial nature are recorded on an accrual basis.
Financial income Finance income includes interest receivable on funds invested and income from financial instruments, when not offset as part of hedging transactions. Interest income is recorded in the income statement at the time of vesting, taking effective output into consideration.
Financial expenses Financial expenses include interest payable on financial debt calculated using the effective interest method and bank expenses.
Income taxes for the year Income taxes include all taxes calculated on the Company’s taxable income. Income taxes are directly recognised in the income statement, with the exception of those concerning items directly debited or credited to shareholders’ equity, in which case the tax effect is recognised directly in shareholders’ equity. Other taxes not relating to income, such as property taxes, are included among operating expenses. Deferred taxes are provisioned in accordance with the global liability provisioning method. They are calculated on all temporary differences that emerge from the taxable base of an asset or liability and its book value. Current and deferred tax assets and liabilities are offset when income taxes are levied by the same tax authority and when there is a legal right to settle on a net basis. Deferred tax assets and liabilities are measured using the tax rates that are expected to be applicable in the years when temporary differences will be realised or settled.
Dividends Dividends are posted on an accrual basis when the right to receive them materialises, i.e. when shareholders approve dividend distribution.
Treasury shares Treasury shares are booked in a specific reserve as a reduction of shareholders’ equity. The carrying value of treasury shares and revenues from any subsequent sales are recognised in the form of changes in shareholders’ equity.
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Use of estimates
New accounting standards
Preparation of the separate financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the carrying values of assets and liabilities and the disclosures on contingent assets and liabilities at the end of the reporting period. Actual results might differ from these estimates. Estimates are used to measure tangible and intangible assets and investments subject to impairment testing, as described earlier, as well as to measure the ability to recover prepaid tax assets, provisions for bad debts, for inventory obsolescence, depreciation and amortisation, asset write-downs, employee benefits, taxes, other provisions and reserves. Specifically:
Accounting standards and amendments applicable from 1 January 2016
Recoverability of value of tangible and intangible assets and investments
The procedure for determining impairment of value of tangible and intangible assets described in “Impairment of value” implies – in estimating the value of use – the use of the Business Plans of investees, which are based on a series of assumptions relating to future events and actions of the investees’ management bodies, which may not necessarily come about. In estimating market value, however, assumptions are made on the expected trend in trading between third parties based on historical trends, which may not actually be repeated.
The following IFRS accounting standards, amendments and interpretations were applied for the first time by the Company from 1 January 2016: • Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” (published on 21 November 2013): related to the recognition in the financial statements of the contributions made by employees or third parties to defined benefit plans. The adoption of these amendments did not have any effect on the Company’s separate financial statements. • Amendments to IFRS 11 Joint Arrangements – “Accounting for acquisitions of interests in joint operations” (published on 6 May 2014): related to the accounting for acquisitions of interests in a joint operation the activity of which is a business. The adoption of these amendments did not have any effect on the Company’s separate financial statements.
Provisions for inventory obsolescence
• Amendments to IAS 16 – Property, plant and Equipment and to IAS 38 – Intangibles Assets – “Clarification of acceptable methods of depreciation and amortisation” (published on 12 May 2014): according to which a method of depreciation based on revenues is considered generally inappropriate, in that, revenues generated by an asset that includes the use of the asset to be depreciated generally reflect factors other than just consumption of the economic benefits of the asset, a requirement that is, however, required for depreciation. The adoption of this amendment did not have any effect on the Company’s separate financial statements.
Employee benefits
• Amendment to IAS 1 – “Disclosure Initiative” (published on 18 December 2014): the objective of the amendments is to provide clarifications with regard to elements of information which can be perceived as impediments to a clear and intelligible preparation of the financial statements. The adoption of this amendment did not have any effect on the Company’s separate financial statements.
Provisions for bad debts
Receivables are adjusted by the related bad debt provision to take into account their recoverable value. To determine the size of the write-downs, management must make subjective assessments based on the documentation and information available regarding, among other things, the customer’s solvency, as well as experience and historical payment trends. Warehouse inventories subject to obsolescence and slow turnover are systematically valued, and written down if their recoverable value is less than their carrying value. Write-downs are calculated based on management assumptions and estimates, resulting from experience and historical results. The current value of liabilities for employee benefits depends on a series of factors determined using actuarial techniques based on certain assumptions. Assumptions concern the discount rate, estimates of future salary increases, and mortality and resignation rates. Any change in the above-mentioned assumptions might have an effect on liabilities for pension benefits.
Income tax
Determining liabilities for Company taxes requires the use of management valuations in relation to transactions whose tax implications are not certain at the end of the reporting period. Furthermore, the valuation of deferred taxes is based on income expectations for future years; the valuation of expected income depends on factors that might change over time and have a significant effect on the valuation of deferred tax assets.
Other provisions and reserves
When estimating the risk of potential liabilities from disputes, the Directors rely on communications regarding the status of recovery procedures and disputes from the lawyers who represent the Company in litigation. These estimates are determined taking into account the gradual development of the disputes, considering existing exemptions. Estimates and assumptions are regularly reviewed and the effects of each change immediately reflected in the income statement.
• Amendment to IAS 27 Equity Method in Separate Financial Statements (published on 12 August 2014): the document introduces the option of using the shareholders’ equity method for valuing investments in subsidiaries, companies under joint control and associate companies in the separate financial statements of an entity. The adoption of this amendment did not have any effect on the Company’s separate financial statements. Finally, as part of the annual process of improvement of the standards, on 12 December 2013 the IASB published the document “Annual Improvements to IFRSs: 20102012 Cycle” (including IFRS 2 Share Based Payments – Definition of vesting condition, IFRS 3 Business Combination – Accounting for contingent consideration, IFRS 8 Operating segments – Aggregation of operating segments and Reconciliation of total of the reportable segments’ assets to the entity’s assets, IFRS 13 Fair Value Measurement – Short-term receivables and payables) and on 25 September 2014 the document “Annual Improvements to IFRSs: 2012-2014 Cycle” (including: IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 – Financial Instruments: Disclosure and IAS 19 – Employee Benefits) which partially integrate the existing standards.
IFRS and IFRIC accounting standards, amendments and interpretations approved by the European Union, not yet universally applicable and not adopted early by the Company at 31 December 2016
• Standard IFRS 15 – Revenue from Contracts with Customers (published on 28 May 2014 and supplemented with further clarifications published on 12 April 2016), which is scheduled to replace IAS 18 – Revenue and IAS 11 – Construction Contracts, as well as interpretations IFRIC 13 – Customer Loyalty Programmes,
167
168
IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenues-Barter Transactions Involving Advertising Services. The standard establishes a new revenue recognition model, which will apply to all contracts signed with customers except those falling within the application of other IAS/IFRS standards, such as leases, insurance contracts and financial instruments. The fundamental passages for the recognition of revenues according to the new model are: • the identification of the contract with the customer; • the identification of the contract’s performance obligations; • the determination of the price; • the allocation of the price to the contract’s performance obligations; • the revenue recognition criteria when the entity satisfies each performance obligation.
• On 19 January 2016, the IASB published the document “Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)”, which contains the amendments to IAS 12. The aim of the document is to provide some clarification on the recognition of deferred tax assets on unrealised losses upon the occurrence of certain circumstances and on the estimate of taxable income for future years. The amendments apply from 1 January 2017 but early application is permitted.
The principle applies from 1 January 2018, but early application is permitted. Although the systematic analysis of the case and in particular a detailed analysis of the contracts with the customers have not yet been completed, the directors do not expect that the application of IFRS 15 can have a significant impact on the amounts recorded for the revenues and on the related disclosures in the Company’s separate financial statements.
• IFRIC 22 Interpretation “Foreign Currency Transactions and Advance Consideration” (published on 8 December 2016). The interpretation aims to provide guidelines for foreign currency transactions if advances or non-cash payments are recognised in the financial statements, prior to the recognition of the related asset, cost or revenue. This document provides guidance on how an entity should determine the date of a transaction, and consequently, the spot exchange rate to be used when foreign currency transactions occur in which the payment is made or received in advance. IFRIC 22 is applicable from 1 January 2018, but early application is permitted. The directors do not expect a significant effect on the Company’s separate financial statements through the adoption of these changes.
• Final version of IFRS 9 – Financial Instruments (published on 24 July 2014). The document includes the results of the phases relating to the classification and valuation, Impairment and Hedge accounting, of the IASB project designed to replace IAS 39. The new standard, which replaces the previous versions of IFRS 9, should be applied by financial statements from 1 January 2018 onwards. The directors do not expect that the application of IFRS 9 can have a significant impact on the amounts and on the disclosures in the Company’s separate financial statements. However, it is not possible to provide a reasonable estimate of the effect as long as the Company has not completed a detailed analysis of the related contract.
IFRS accounting standards, amendments and interpretations not yet approved by the European Union On the reporting date of these separate financial statements, the competent bodies of the European Union have not yet concluded the approval process necessary for the adoption of the amendments and principles described below.
• On 13 January 2016, the IASB published the standard IFRS 16 – Leases, which will replace the standard IAS 17 – Leases, as well as interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard provides a new definition of lease and introduces a criterion based on the control (right of use) of an asset in order to distinguish the leasing contracts from the service contracts, identifying the discriminatory ones: the identification of the asset, the right of replacement of the same, the right to obtain substantially all of the economic benefits deriving from the use of the asset and the right to direct the use of the asset underlying the contract. The standard establishes a single model of recognition and measurement of the lease agreements for the lessee which requires the recognition of the asset to be leased (operating lease or otherwise) in assets offset by a financial debt, while also providing the opportunity not to recognise as leases the agreements whose subject matter are “low-value assets” and leases with a contract duration equal to or less than 12 months. By contrast, the Standard does not include significant changes for the lessors. The standard applies beginning on 1 January 2019 but early application is permitted, only for Companies that opted for early application of IFRS 15 - Revenue from Contracts with Customers. The directors do not expect that the application of IFRS 16 can have a significant impact on the accounting of the leasing contracts and on the related disclosures in the Company’s separate financial statements.
• On 29 January 2016, IASB published the document “Disclosure Initiative (Amendments to IAS 7)”, which contains the amendments to IAS 7. The aim of the document is to provide some clarification to improve disclosure on financial liabilities. In particular, the amendments require providing disclosures that enable the users of financial statements to understand changes in liabilities arising from financing activities.
• Amendment to IAS 40 “Transfers of Investment Property” (published on 8 December 2016). These amendments clarify the transfers of a property to, or from, investment property. In particular, an entity must reclassify a property among, or from, investment property only when there is evidence that there was a change in the intended use of the property. This change must refer to a specific event that happened and must not be limited to a change of intention by the Management of an entity. The directors do not expect a significant effect on the Company’s separate financial statements through the adoption of these changes.
SABAF - ANNUAL REPORT 2016
169
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Comments on the main items of the statement of financial position 1. PROPERTY, PLANT AND EQUIPMENT PROPERTY
PLANT AND EQUIPMENT
OTHER ASSETS
ASSETS UNDER CONSTRUCTION
TOTAL
6,208
147,785
29,579
3,709
187,281
Increases
67
7,802
1,038
749
9,656
Disposals
-
(2,891)
(106)
-
(2,997)
Reclassification
-
2,668
63
(2,786)
(55)
6,275
155,364
30,574
1,672
193,885
Increases
53
5,325
1,462
758
7,598
Disposals
(1)
(2,982)
(236)
-
(3,219)
-
684
19
(1,003)
(300)
6,327
158,391
31,819
1,427
197,964
AT 31 DECEMBER 2014
2,535
127,774
25,579
0
155,888
Depreciations for the year
176
5,847
1,841
-
7,864
Eliminations for disposals
-
(1,701)
(106)
-
(1,807)
AT 31 DECEMBER 2015
2,711
131,920
27,314
0
161,945
Depreciations for the year
176
6,200
1,702
-
8,078
Eliminations for disposals
-
(2,973)
(178)
-
(3,151)
2,887
135,147
28,838
0
166,872
AT 31 DECEMBER 2016
3,440
23,244
2,981
1,427
31,092
AT 31 DECEMBER 2015
3,564
23,444
3,260
1,672
31,940
COST AT 31 DECEMBER 2014
AT 31 DECEMBER 2015
Reclassification
AT 31 DECEMBER 2016 ACCUMULATED DEPRECIATION
AT 31 DECEMBER 2016 NET CARRYING VALUE
The breakdown of the net carrying value of Property was as follows:
31.12.2016
31.12.2015
CHANGE
Land
1,291
1,291
-
Industrial buildings
2,149
2,273
(124)
TOTAL
3,440
3,564
(124)
170
The main investments in the financial year were aimed at the further automation of production of light alloy valves. Investments were also made to improve production processes as well as maintenance and replacement investments designed to keep the capital equipment constantly updated. Decreases mainly relate to the disposal of obsolete machinery.
Assets under construction include machinery under construction and advance payments to suppliers of capital equipment. At 31 December 2016, the Company found no endogenous or exogenous indicators of impairment of its property, plant and equipment. As a result, the value of property, plant and equipment was not submitted to impairment testing.
2. INVESTMENT PROPERTY COST AT 31 DECEMBER 2014
6,675
Increases
-
Disposals
-
AT 31 DECEMBER 2015
6,675
Increases
-
Disposals
-
AT 31 DECEMBER 2016
6,675
ACCUMULATED DEPRECIATIONS AT 31 DECEMBER 2014
4,646
Depreciations for the year
192
AT 31 DECEMBER 2015
4,838
Depreciations for the year
192
AT 31 DECEMBER 2016
5,030
NET CARRYING VALUE AT 31 DECEMBER 2016
1,645
AT 31 DECEMBER 2015
1,837
This item includes non-operating buildings owned by the Group. During the year this item did not undergo any changes except for depreciation and amortisation for the year. At 31 December 2016, the Company found no endogenous or exogenous indicators of
impairment of its investment property. As a result, the value of investment property was not submitted to impairment testing.
SABAF - ANNUAL REPORT 2016
171
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
3. INTANGIBLE ASSETS PATENTS, KNOW-HOW AND SOFTWARE
DEVELOPMENT COSTS
OTHER INTANGIBLE ASSETS
TOTAL
5,855
4,308
1,786
11,949
Increases
192
414
21
627
Reclassifications
66
(46)
-
20
-
-
-
-
6,113
4,676
1,807
12,596
Increases
108
313
53
474
Reclassifications
54
(87)
207
174
-
-
-
-
6,275
4,902
2,067
13,244
5,416
2,011
1,290
8,717
203
336
142
681
-
-
-
-
5,619
2,347
1,432
9,398
254
350
147
751
-
-
-
-
5,873
2,697
1,579
10,149
AT 31 DECEMBER 2016
402
2,205
488
3,095
AT 31 DECEMBER 2015
494
2,329
375
3,198
COST AT 31 DECEMBER 2014
Decreases
AT 31 DECEMBER 2015
Decreases
AT 31 DECEMBER 2016
AMORTISATION AND WRITE-DOWNS AT 31 DECEMBER 2014 2015 amortisation Decreases
AT 31 DECEMBER 2015 2016 amortisation Decreases
AT 31 DECEMBER 2016
NET CARRYING VALUE
Intangible assets have a finite useful life and, as a result, are amortised throughout their life. The main investments in the year relate to the development of new products, mainly related to the expansion of the range of burners (research and development activities carried out during the financial year are set out in the Report on Operations). Software investments include the application development of the management system (SAP) and CAD development. Other intangible assets refer, in the main, to improvements to third-party leased assets.
At 31 December 2016, the Company found no endogenous or exogenous indicators of impairment of its intangible assets. As a result, the value of property, plant and equipment was not submitted to impairment testing.
172
4. EQUITY INVESTMENTS In subsidiaries Other equity investments TOTAL
31.12.2016
31.12.2015
CHANGE
50,039
45,760
4,279
59
59
-
50,098
45,819
4,279
The change in equity investments in subsidiaries is broken down in the table below: SABAF SABAF APPLIANCE A.C. SABAF U.S. COMPOTRADING NENTS (CHINA) (CHINA)
SABAF IMMOBILIARE
FARINGOSI HINGES
SABAF DO BRASIL
SABAF MEXICO
13,475
10,329
8,469
548
139
3,400
Increases/reductions of capital
-
-
-
-
-
Equity investment liquidation
-
-
-
(548)
AT 31 DEC 2015
13,475
10,329
8,469
Purchase of equity investments
-
-
AT 31 DEC 2016
13,475
SABAF TURKEY
A.R.C. S.R.L.
TOTAL
200
13,351
0
49,911
1,000
-
(1,346)
-
(346)
-
-
-
-
-
(548)
0
139
4,400
200
12,005
0
49,017
-
-
-
-
-
-
4,800
4,800
10,329
8,469
0
139
4,400
200
12,005
4,800
53,817
HISTORICAL COST AT 31 DEC 2014
PROVISION FOR WRITE-DOWNS AT 31 DEC 2014
0
1,882
0
548
0
2,683
0
0
0
5,113
Write-downs (write-backs) (Note 28)
-
(1,882)
-
-
-
574
-
-
-
(1,308)
Equity investment liquidation
-
-
-
(548)
-
-
-
-
-
(548)
AT 31 DEC 2015
0
0
0
0
0
3,257
0
0
0
3,257
Write-downs (write-backs) (Note 28)
-
-
-
-
-
521
-
-
-
521
AT 31 DEC 2016
0
0
0
0
0
3,778
0
0
0
3,778
AT 31 DEC 2016
13,475
10,329
8,469
0
139
622
200
12,005
4,800
50,039
AT 31 DEC 2015
13,475
10,329
8,469
0
139
1,143
200
12,005
0
45,760
NET CARRYING VALUE
PORTION OF SHAREHOLDERS’ EQUITY (CALCULATED IN COMPLIANCE WITH IAS/IFRS) AT 31 DEC 2016
30,027
5,546
10,628
0
(25)
683
266
14,805
3,025
64,955
AT 31 DEC 2015
28,679
4,922
7,145
0
(32)
1,302
293
14,085
0
56,394
DIFFERENCE BETWEEN SHAREHOLDERS’ EQUITY AND CARRYING VALUE AT 31 DEC 2016
16,552
(4,783)
2,159
0
(164)
61
66
2,800
(1,775)
14,916
AT 31 DEC 2015
15,204
(5,407)
(1,324)
0
(171)
159
93
2,080
-
10,634
SABAF - ANNUAL REPORT 2016
173
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Faringosi Hinges s.r.l In the course of 2016, the Faringosi Hinges achieved better results, both in terms of sales development and profitability, which turned out to be greater than the budget. The 2017-2021 forward plan, drafted at the end of 2016, plans a further gradual improvement of sales and the maintaining of profitability, to be considered as durably acquired also in a future perspective. At 31 December 2016, Sabaf S.p.A. tested the carrying value of the equity investment for impairment, determining its recoverable value, considered to be equivalent to its usable value plus available liquidity, by discounting expected future cash flows in the forward plan drafted by the management.
Cash flows for the period from 2017 to 2021 were augmented by the so-called terminal value, which expresses the operating flows that the investee is expected to generate from the sixth year to infinity and determined based on the perpetual income. The value of use was calculated based on a discount rate (WACC) of 7.76% (8.45% in the impairment test conducted while drafting the separate financial statements at 31 December 2015) and a growth rate (g) of 1.50%, which is in line with historical data. The recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 12.700 million, compared with a carrying value of the equity investment of € 10.329 million; consequently, the value recorded for equity investment at 31 December 2016 was deemed recoverable.
Sensitivity analysis The table below shows the changes in recoverable value depending on changes in the WACC discount rate and growth factor g:
IN THOUSANDS OF EURO DISCOUNT RATE
GROWTH RATE 1.00%
1.25%
1.50%
1.75%
2.00%
6.76%
14,086
14,619
15,202
15,844
16,553
7.26%
12,922
13,363
13,842
14,365
14,937
7.76%
11,930
12,300
12,700
13,133
13,603
8.26%
11,076
11,390
11,727
12,091
12,483
8.76%
10,332
10,601
10,889
11,198
11,529
Sabaf do Brasil
Sabaf Appliance Components Trading
In 2016, Sabaf do Brasil continued to obtain positive results, which improved compared with 2015. The increase in shareholders’ equity (converted into euros at the end-of-year exchange rate) also benefits from the revaluation of the Brazilian real.
Sabaf Appliance Components Trading (Kunshan) Co., Ltd., was founded during 2012 in order to perform the function as distributor. During 2015, this activity was centralised at Sabaf Appliance Components; however, the company went into liquidation; the process of liquidation will end in 2017.
Sabaf U.S. The subsidiary Sabaf U.S. operates as a commercial support for North America. The difference between the carrying value and the shareholders’ equity of the investee is attributable to the non-durable losses taking into consideration expected development on the North American market.
Sabaf Appliance Components Sabaf Appliance Components (Kunshan) Co., Ltd. has been producing burners for the Chinese market since 2015. Furthermore, the company has performed the function as distributor on the Chinese market of Sabaf products manufactured in Italy and Turkey. Low production volumes have enabled the company to reach the break-even point in 2016. At 31 December 2016, the value of the equity investment decreased by € 521,000, adjusting it to the shareholders’ equity at the end of the year, in that the loss was considered permanent.
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Sabaf Turkey) Sabaf Turkey achieved extremely satisfactory results in 2016 as well. The conversion into euro of the shareholders’ equity at the end of the financial year was affected by the strong devaluation of the Turkish lira at the end of 2016; however, the shareholders’ equity remains higher than the carrying value of the equity investment.
174
A.R.C. s.r.l. In June 2016, the Company acquired the controlling share (70%) of A.R.C. s.r.l., leading company in the production of burners for professional cooking. The transaction allowed Sabaf to enter into a new sector, contiguous with the traditional sector of components for household gas cooking appliances, and to enhance the consolidated international presence of the Sabaf Group. At 31 December 2016, the Company tested the carrying value of the equity investment for impairment, determining its recoverable value, considered to be equivalent to its usable value plus available liquidity, by discounting expected future cash flows in the forward plan prepared during the acquisition of the equity investment in A.R.C. and adjusted at the end of 2016 on the basis of further elements known.
Cash flows for the period from 2017 to 2019 were augmented by the so-called terminal value, which expresses the operating flows that the investee is expected to generate from the sixth year to infinity and determined based on the perpetual income. The value of use was calculated based on a discount rate (WACC) of 5.79% and a growth rate (g) of 1.50%. The portion pertaining to Sabaf S.p.A. of the recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 6.938 million, compared with a carrying value of the equity investment of € 4.8 million; consequently, the carrying value recorded for equity investment at 31 December 2016 was deemed recoverable.
Sensitivity analysis The table below shows the changes in recoverable value depending on changes in the WACC discount rate and growth factor g:
IN THOUSANDS OF EURO DISCOUNT RATE
GROWTH RATE 1.00%
1.25%
1.50%
1.75%
2.00%
4.79%
7,718
8,129
8,601
9,152
9,801
5.29%
6,989
7,304
7,660
8,067
8,535
5.79%
6,413
6,661
6,938
7,250
7,603
6.29%
5,945
6,146
6,368
6,614
6,889
6.79%
5,559
5,724
5,905
6,104
6,323
As part of the acquisition of 70% of A.R.C. S.r.l., Sabaf S.p.A. signed with Loris Gasparini (current minority shareholder by 30% of A.R.C.) an agreement that aimed to regulate Gasparini’s right to leave A.R.C. and the interest of Sabaf to acquire 100% of the shares after expiry of the term of five years from the signing of the purchase agreement of 24 June 2016, by signing specific option agreements. Therefore, the agreement envisaged specific option rights to purchase (by Sabaf) and sell (by Gasparini) exercisable as from 24 June 2021, the remaining shares of 30% of A.R.C., with strike prices contractually defined on the basis of final income parameters from A.R.C. at 31 December 2020.
The option for the purchase of the residual 30% of A.R.C. represents a derivative instrument; since the exercise price defined by contract was considered representative of the fair value of the portion that can be potentially acquired, no value was recorded in the separate financial statements ended 31 December 2016.
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
5. NON-CURRENT FINANCIAL ASSETS Financial receivables from subsidiaries Fixed bank account TOTAL
31.12.2016
31.12.2015
CHANGE
1,897
1,837
60
240
-
240
2,137
1,837
300
At 31 December 2016 and at 31 December 2015, financial receivables from subsidiaries consist of an interest-bearing loan of USD 2 million, maturing in March 2017, granted to the subsidiary Sabaf do Brasil with the aim of optimising the Group’s exposure to foreign exchange rate risk.
As part of the acquisition of 70% of A.R.C., Sabaf S.p.A. paid to a fixed bank account the total amount of € 300,000, of which € 240,000 falling due after 12 months. This amount was deducted from the consideration agreed to guarantee the commitments assumed by the sellers and is payable in equal instalments over five years. (Note 15)
6. INVENTORIES 31.12.2016
31.12.2015
CHANGE
Commodities
7,455
8,758
(1,303)
Semi-processed goods
9,310
9,326
(16)
Finished products
8,773
8,461
312
Provision for inventory write-downs
(2,045)
(1,870)
(175)
TOTAL
23,493
24,675
(1,182)
The value of final inventories at 31 December 2016 was lower than the previous year as a result of the decline in production and sales volumes. The obsolescence provision, which refers € 470,000 to commodities, € 645,000 to semi-processed goods and €
930,000 to finished products, reflects the improved estimate of the risk of obsolescence, based on specific analyses conducted at the end of the year on slow-moving and nonmoving articles.
7. TRADE RECEIVABLES Total trade receivables Bad debt provision NET TOTAL
31.12.2016
31.12.2015
CHANGE
28,065
33,821
(5,756)
(600)
(950)
350
27,465
32,871
(5,406)
At 31 December 2016, trade receivables included balances totalling USD 2,925,000, booked at the EUR/USD exchange rate in effect on 31 December 2016, i.e. 1.0541. The amount of trade receivables recognised in the financial statements includes € 1.1 million of receivables assigned without recourse to factoring companies (€ 2.3 million at 31 December 2015) and approximately € 14 million in insured receivables (€ 13.9
million at 31 December 2015). The bad debt provision was adjusted to the better estimate of the credit risk at the end of the reporting period. The reduction in trade receivables is attributable not only to the decline in sales but also to lower receivables past due compared to the previous year, as shown in the following table:
31.12.2016
31.12.2015
CHANGE
Current receivables (not past due)
24,378
28,280
(3,902)
Outstanding up to 30 days
2,242
2,233
9
Outstanding from 31 to 60 days
184
415
(231)
Outstanding from 61 to 90 days
64
730
(666)
1,197
2,163
(966)
28,065
33,821
(5,756)
Outstanding for more than 90 days TOTAL
175
176
8. TAX RECEIVABLES From Giuseppe Saleri SapA for IRES From inland revenue for income tax From inland revenue for VAT TOTAL
10. CURRENT FINANCIAL ASSETS
31.12.2016
31.12.2015
CHANGE
1,083
1,114
(31)
992
605
387
402
30
372
Currency derivatives
2,477
1,749
728
TOTAL
Until the 2015 financial year, Sabaf S.p.A. has been part of the national tax consolidation scheme pursuant to Articles 117/129 of the Unified Income Tax Law. In this scheme, Giuseppe Saleri S.a.p.A., the parent company of Sabaf S.p.A., acted as the consolidating company. In 2016, the conditions for the preparation of the tax consolidation scheme fell short, which consequently was discontinued. The receivable from Giuseppe Saleri S.a.p.A. recognised at 31 December 2016 derives from the full deductibility of IRAP from IRES relating to the expenses incurred for employees for the 2006-2011 period (Italian Legislative Decree 201/2011), for which the consolidating company presented an application for a refund and which will revert to Sabaf as soon as it is refunded. The tax receivable for income taxes is generated by the higher tax payments on account paid in during the year compared with the tax due.
Financial receivables from subsidiaries Fixed bank account (Note 5)
31.12.2016
31.12.2015
CHANGE
1,000
1,000
-
60
-
60
-
69
(69)
1,060
1,069
(9)
At 31 December 2016 and at 31 December 2015, financial receivables from subsidiaries consist of an interest-bearing loan of € 1 million to Sabaf Appliance Components Co., Ltd. to support the Chinese subsidiary’s working capital. The loan has a term of 12 months and was renewed in December 2016 for the same period.
11. CASH AND CASH EQUIVALENTS The item Cash and cash equivalents, equal to € 1,797,000 at 31 December 2016 (€ 1,090,000 at 31 December 2015) refers almost exclusively to bank current account balances.
12. SHARE CAPITAL
9. OTHER CURRENT RECEIVABLES 31.12.2016
31.12.2015
CHANGE
Credits to be received from suppliers
678
857
(179)
Advances to suppliers
54
33
21
Due from INAIL
58
32
26
Other
249
276
(27)
TOTAL
1,039
1,198
(159)
At 31 December 2016, credits to be received from suppliers included € 411,000 related to the relief due to the Company as an energy-intensive business (so-called “energyintensive bonuses”) for the years 2014 and 2015, of which € 194,000 received at the beginning of 2017.
At 31 December 2016 the parent company’s share capital consists of 11,533,450 shares with a par value of € 1.00 each. The share capital paid in and subscribed did not change during the year.
13. TREASURY SHARES During the financial year, Sabaf S.p.A. acquired 171,061 treasury shares at an average unit price of € 9.794; there have been no sales. At 31 December 2016, the Company held 233,139 treasury shares, equal to 2.021% of share capital (62,078 treasury shares at 31 December 2015), reported in the financial statements as an adjustment to shareholders’ equity at a unit value of € 10.289 (the market value at year-end was € 10.4). There were 11,300,311 outstanding shares at 31 December 2016 (11,471,372 at 31 December 2015).
SABAF - ANNUAL REPORT 2016
16. POST-EMPLOYMENT BENEFIT RESERVE
14. LOANS 31.12.2016
Unsecured loans Short-term bank loans Advances on bank receipts or invoices Interest payable TOTAL
31.12.2015
CURRENT
NON CURRENT
CURRENT
NON CURRENT
6,656
17,281
2,707
4,632
7,397
-
13,194
-
2
-
5,825
-
-
-
36
-
14,055
17,281
21,762
4,632
During the financial year, the Company reformulated the average duration of its loans, entering into 4 unsecured loan agreements totalling € 19.8 million repayable in five years in quarterly fixed instalments, a rates ranging from 0.60% to 1%. Only one of the outstanding unsecured loans of € 5 million at 31 December 2016 has covenants, defined with reference to the consolidated financial statements at the end of the reporting period, as specified below: • Commitment to maintain a ratio of net financial position to shareholders’ equity of less than 1 • Commitment to maintain a ratio of net financial position to EBITDA of less than 2 widely observed at 31 December 2016. All outstanding bank loans are denominated in euro, with the exception of a short-term loan of USD 2 million. Note 35 provides information on financial risks, pursuant to IFRS 7.
15. OTHER FINANCIAL LIABILITIES 31.12.2016
31.12.2015
CURRENT
NON CURRENT
CURRENT
NON CURRENT
Payables to A.RC. shareholders
60
240
-
-
Currency derivatives
201
-
17
-
Derivative instruments on interest rates
37
-
14
-
298
240
31
0
TOTAL
177
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
The payable to the A.R.C. shareholders of € 300,000 at 31 December 2016 is related to the part of the price still to be paid to the sellers, which was deposited on an fixed account (Note 5) and will be released in favour of the sellers at constant rates in 5 years, in accordance with contractual agreements and guarantees issued by the sellers. Other financial liabilities also include: • the negative fair value of term sales contracts totalling USD 6 million at an exchange rate of 1.1061 agreed with regard to the foreign exchange rate risk described in Note 35. Exchange rate losses of the same amount were recorded in the income statement; • the negative fair value of IRS hedging rate risks of unsecured loans pending, for a notional amount of approximately € 13 million and expiry until 31 December 2021. Exchange rate losses in the same amount were recognised in the income statement.
31.12.2016
31.12.2015
CHANGE
Post-employment benefit reserve
2,436
2,527
(91)
TOTAL
2,436
2,527
(91)
Following the revision of IAS 19 - Employee benefits, from 1 January 2013 all actuarial gains or losses are recorded immediately in the comprehensive income statement (“Other comprehensive income”) under the item “Actuarial income and losses”. Post-employment benefits are calculated as follows:
Financial assumptions 31.12.2016
31.12.2015
Discount rate
1.15%
1.60%
Inflation
1.75%
2.00%
Demographic theory 31.12.2016
31.12.2015
Mortality rate
ISTAT 2010 M/F
ISTAT 2010 M/F
Disability rate
INPS 1998 M/F
INPS 1998 M/F
Staff turnover
6%
6%
5% per year
5% per year
pursuant to legislation in force on 31 December 2016
pursuant to legislation in force on 31 December 2015
Advance payouts Retirement age
178
17. PROVISIONS FOR RISKS AND CHARGES 31.12.2015
PROVISIONS
UTILISATION
RELEASE OF EXCESS PORTION
31.12.2016
Reserve for agents’ indemnities
266
-
-
(53)
213
Product guarantee fund
60
35
(35)
-
60
-
50
-
-
50
326
85
(35)
(53)
323
Reserve for legal risks TOTAL
The reserve for agents’ indemnities covers amounts payable to agents if the Company terminates the agency relationship. The product guarantee fund covers the risk of returns or charges by customers for products already sold.
The reserve for legal risks is allocated for disputes of a modest size. The provisions booked to the provisions for risks, which represent the estimate of future payments made based on historical experience, have not been discounted because the effect is considered negligible.
18. TRADE PAYABLES TOTAL
31.12.2016
31.12.2015
CHANGE
16,010
18,203
(2,193)
The decrease in trade payables compared to the previous financial year is related to lower purchase volumes; average payment terms did not change versus the previous year. The amount of trade payables in currencies other than the euro is not significant.
At 31 December 2016, there were no overdue payables of a significant amount and the Company did not receive any injunctions for overdue payables.
19. TAX PAYABLES 31.12.2016
31.12.2015
CHANGE
To inland revenue for IRPEF tax deductions
642
788
(146)
TOTAL
642
788
(146)
SABAF - ANNUAL REPORT 2016
179
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
20. OTHER CURRENT PAYABLES 31.12.2016
31.12.2015
CHANGE
To employees
3,472
3,658
(186)
To social security institutions
1,937
1,861
76
Advances from customers
108
88
20
To agents
241
281
(40)
Other current payables
31
54
(23)
5,789
5,942
(153)
TOTAL
At the beginning of 2017, payables due to employees and social security institutions were paid in accordance with the scheduled expiry dates.
21. DEFERRED TAX ASSETS AND LIABILITIES 31.12.2016
31.12.2015
Deferred tax assets
3,315
3,285
Deferred tax liabilities
(129)
(150)
NET POSITION
3,186
3,135
The table below analyses the nature of the temporary differences that determine the recognition of deferred tax liabilities and assets and their movements during the year and the previous year.
Goodwill
Actuarial postemployment benefit reserve evaluation
Other temporary differences
TOTAL
0
1,993
203
94
3,576
(140)
(19)
(222)
(25)
(27)
(433)
-
-
-
-
(8)
-
(8)
353
793
(19)
1,771
170
67
3,135
40
(23)
76
-
-
(50)
43
-
-
-
-
8
-
8
393
770
57
1,771
178
17
3,186
Amortisation and leasing
Provisions and value adjustments
Fair value of derivative instruments
353
933
To the income statement
-
To shareholders’ equity
AT 31 DECEMBER 2014
AT 31 DECEMBER 2015 To the income statement To shareholders’ equity
AT 31 DECEMBER 2016
Deferred tax assets relating to goodwill refer to the exemption of the value of the investment in Faringosi Hinges s.r.l. made in 2011 pursuant to Italian law Decree 98/2011. The future tax benefit can be made in ten annual portions starting in 2018.
180
22. NET FINANCIAL POSITION As required by the CONSOB memorandum of 28 July 2006, we disclose that the Company’s net financial position is as follows: 31.12.2016
31.12.2015
CHANGE
4
6
(2)
1,793
1,084
709
0
0
0
A.
Cash (Note 11)
B.
Positive balances of unrestricted bank accounts (Note 11)
C.
Other cash equivalents
D.
LIQUIDITY (A+B+C)
1,797
1,090
707
E.
Current bank payables (Note 14)
7,399
19,055
(11,656)
F.
Current portion of non-current debt (Note 14)
6,656
2,707
3,949
G.
Other current financial payables (Note 15)
298
14
284
H.
CURRENT FINANCIAL DEBT (E+F+G)
14,353
21,776
(7,423)
I.
NET CURRENT FINANCIAL POSITION (H-D)
12,556
20,686
(8,130)
J.
Non-current bank payables (Note 14)
17,281
4,632
12,649
K.
Other non-current financial payables
240
0
240
L.
NON-CURRENT FINANCIAL DEBT (J+K)
17,521
4,632
12,889
M.
NET FINANCIAL DEBT (I+L)
30,077
25,318
4,759
The cash flow statement shows changes in cash and cash equivalents (letter D of this schedule).
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Comments on key income statement items 23. REVENUE In 2016, sales revenue totalled € 101,523,000, down by € 12,439,000 (-10.9%) compared with 2015.
Revenue by geographical area 2016
%
2015
%
% CHANGE
Italy
31,431
30.9%
38,081
33.4%
-17.5%
Western Europe
6,868
6.8%
6,481
5.7%
+6.0%
Eastern Europe and Turkey
27,365
26.9%
28,322
24.8%
-3.4%
Asia and Oceania (excluding Middle East)
7,064
7.0%
6,347
5.6%
+11.3%
Central and South America
10,373
10.2%
11,991
10.5%
-13.5%
Middle East and Africa
11,254
11.1%
16,479
14.5%
-31.7%
North America and Mexico
7,168
7.1%
6,261
5.5%
+14.5%
101,523
100%
113,962
100%
-10.9%
TOTAL
Revenue by product family 2016
%
2015
%
% CHANGE
Brass valves
9,002
8.9%
12,673
11.1%
-29.0%
Light alloy valves
32,406
31.9%
33,663
29.6%
-3.7%
Thermostats
7,690
7.6%
10,513
9.2%
-26.9%
TOTAL VALVES AND THERMOSTATS
49,098
48.4%
56,849
49.9%
-13.6%
Standard burners
21,483
21.2%
22,983
20.2%
-6.5%
Special burners
19,438
19.1%
20,773
18.2%
-6.4%
TOTAL BURNERS
40,921
40.3%
43,756
38.4%
-6.5%
Accessories and other revenues
11,504
11.3%
13,357
11.7%
-13.9%
TOTAL
101,523
100.0%
113,962
100%
-10.9%
The 2016 sales performance was negatively affected by the crisis of the Middle East and African markets (mainly Egypt), which recorded a downturn in direct sales of more than € 5 million. The crisis in these markets also affected the sales realised in Italy, since our Italian customers are strong exporters to the Middle East. The positive trend of the other international markets, most notably the steady growth in North America, only partially
offset the decline in sales in the Middle East, Africa and Italy. The analysis by product family shows a sharp decline in more mature products (brass valves and thermostats), mainly intended for markets in crisis. Average sales prices in 2016 were around 1.3% lower compared with 2015.
181
182
24. OTHER INCOME
26. COSTS FOR SERVICES 2016
2015
CHANGE
Outsourced processing
7,587
9,202
(1,615)
(126)
Property rental
3,995
4,032
(37)
260
(124)
Electricity and natural gas
3,526
3,874
(348)
85
116
(31)
Maintenance
2,813
2,661
152
88
158
(70)
Advisory services
1,377
1,488
(111)
10
10
-
Transport and export expenses
1,134
1,392
(258)
848
506
342
Directors’ fees
1,061
1,049
12
2,279
2,733
(454)
Insurance
562
443
119
Commissions
545
574
(29)
Travel expenses and allowances
478
674
(196)
Waste disposal
352
364
(12)
Canteen
282
315
(33)
Temporary agency workers
99
145
(46)
2,221
2,538
(317)
26,032
28,751
(2,719)
2016
2015
CHANGE
Sale of trimmings
958
1,403
(445)
Services to subsidiaries
154
280
Contingent income
136
Rental income Use of provisions for risks and charges Services to parent company Other income TOTAL
Lower income from the sale of trimmings is due to the recovery in the production process of a greater portion of generated trimmings. Services to subsidiaries and to the parent company refer to administrative, commercial and technical services within the scope of the Group. Other income includes the charge to customers for sharing the development and industrialisation of new products.
Other costs TOTAL
25. PURCHASES OF MATERIALS 2016
2015
CHANGE
Commodities and outsourced components
33,692
40,279
(6,587)
Consumables
3,183
3,582
(399)
36,875
43,861
(6,986)
TOTAL
In 2016, the effective purchase prices of the main raw materials (aluminium alloys, steel and brass) were on average lower than in 2015, allowing a saving of 1.1% of sales. Consumption (purchases plus change in inventories) as a percentage of sales was 37.5% in 2016, compared with 38.8% in 2015.
The fall in outsourced processing costs was due to the partial insourcing of certain phases of burner production. The reduction in energy costs results from lower production volumes and, to a lesser extent, from the reduction in the price of electrical energy and gas (on average -3% compared with 2015). Moreover, during the financial year, steps were taken to improve energy efficiency (installation of LED lighting systems, repair of compressed air leaks). The change in maintenance costs is linked to the normal cyclic nature of maintenance operations; the maintenance policies, aimed at guaranteeing constant efficiency of all the production plants, did not register any changes. Costs for advisory services related to technical (€ 343,000), sales (€ 374,000) and legal, administrative and general (€ 660,000) services. Other costs included expenses for the registration of patents, leasing third-party assets, cleaning costs, costs related to the research and development activity and other minor charges.
SABAF - ANNUAL REPORT 2016
27. PAYROLL COSTS Salaries and wages Social Security costs Temporary agency workers Post-employment benefit reserve and other costs TOTAL
2016
2015
CHANGE
18,322
18,767
(445)
5,959
6,131
(172)
845
1,182
(337)
1,256
1,888
(632)
26,382
27,968
(1,586)
Average of the Company headcount in 2016 totalled 543 employees (424 blue-collars, 110 white-collars and supervisors, 9 managers), compared with 552 in 2015 (428 bluecollars, 115 white-collars and supervisors, 9 managers). The average number of temporary staff, with supply contract, was 26 in 2016 (32 in 2015). During the financial year, the Company used the temporary lay-off scheme in periods characterised by low production requirements: this allowed savings in personnel costs of € 689,000 (€ 333,000 in 2015).
28. OTHER OPERATING COSTS 2016
2015
CHANGE
171
360
(189)
181
179
2
Contingent liabilities
56
159
(103)
Reserves for risks
85
8
77
Other provisions
-
31
(31)
Other operating expenses
154
84
70
TOTAL
647
821
(174)
Losses and write-downs of trade receivables Non-income related taxes and duties
183
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Non-income taxes mainly include IMU, TASI and the tax for the disposal of urban solid waste. Provisions for risks and other provisions relate to sums set aside for the risks described in Note 17.
29. WRITE-DOWNS/WRITE-BACKS OF NON-CURRENT ASSETS Write-back of Faringosi Hinges Write-down of Sabaf Appliance Components Write-down of other equity investments TOTAL
2016
2015
CHANGE
-
1,882
(1,882)
(521)
(574)
53
-
(5)
5
(521)
1,303
(1,824)
The write-down of the equity investment in Sabaf Appliance Components is commented in Note 4, to which reference is made.
30. FINANCIAL EXPENSES 2016
2015
CHANGE
Interest paid to banks
241
248
(7)
Banking expenses
229
210
19
Other financial expense
43
42
1
513
500
13
TOTAL
31. EXCHANGE RATE GAINS AND LOSSES During the 2016 financial year, the Company reported net foreign exchange losses of € 48,000 (net loss of € 261,000 in 2015).
184
32. INCOME TAX Current taxes Deferred tax assets and liabilities Taxes related to previous financial years TOTAL
34. SEGMENT REPORTING 2016
2015
CHANGE
1,314
2,126
(812)
(43)
433
(476)
(137)
(42)
(95)
1,134
2,517
(1,383)
Current taxes include IRES of € 1,034,000 and IRAP of € 280,000 (€ 1,734,000 and € 392,000 respectively in 2015). Reconciliation between the tax burden booked in the financial statements and the theoretical tax burden calculated according to the statutory tax rates currently in force in Italy is shown in the following table:
Within the Sabaf Group, the Company operates exclusively in the gas parts segment for household cooking. The information in the consolidated financial statements is divided between the various segments in which the Group operates.
35. INFORMATION ON FINANCIAL RISK Categories of financial instruments In accordance with IFRS 7, a breakdown of the financial instruments is shown below, among the categories set forth in IAS 39.
31.12.2016
31.12.2015
-
69
FINANCIAL ASSETS
2016
2015
988
2,244
4
(496)
Taxes related to previous financial years
(131)
(37)
AMORTISED COST
Adjustment of the deferred taxation for a change in the IRES rate (Note 21)
-
390
• Cash and cash equivalents
1,797
1,090
Other differences
7
16
• Trade receivables and other receivables
28,505
34,069
IRES (CURRENT AND DEFERRED)
868
2,117
• Non-current loans
1,897
1,837
IRAP (current and deferred)
266
400
• Current loans
1,000
1,000
1,134
2,517
300
-
201
-
37
14
31,336
26,394
300
-
16,010
18,203
Theoretical income tax Permanent tax differences
TOTAL
Theoretical taxes were calculated applying the current corporate income tax (IRES) rate, i.e. 27.50%, to the pre-tax result. IRAP is not taken into account for the purpose of reconciliation because, as it is a tax with a different assessment basis from pre-tax profit, it would generate distorting effects.
Tax position No significant tax disputes were pending at 31 December 2016.
Income statement fair value • Derivative cash flow hedges (on currency)
• Other financial assets
FINANCIAL LIABILITIES
Income statement fair value • Derivative cash flow hedges (on currency) • Derivative cash flow hedges (on interest rates)
AMORTISED COST • Loans
33. DIVIDENDS On 25 May 2016, shareholders were paid an ordinary dividend of € 0.48 per share (total dividends of € 5,467,000). The Directors have recommended payment of an unchanged dividend of € 0.48 per share this year. This dividend is subject to approval of shareholders in the annual Shareholders’ Meeting and was not included under liabilities in these financial statements. The dividend proposed is scheduled for payment on 31 May 2017 (ex-date 29 May and record date 30 May).
• Other financial liabilities • Trade payables
SABAF - ANNUAL REPORT 2016
185
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
The Company is exposed to financial risks related to its operations, mainly: • credit risk, with special reference to normal trade relations with customers; • market risk, relating to the volatility of prices of commodities, foreign exchange and interest rates; • liquidity risk, which can be expressed by the inability to find financial resources necessary to ensure Company operations. It is part of Sabaf’s policies to hedge exposure to changes in prices and in fluctuations in exchange and interest rates via derivative financial instruments. Hedging is done using forward contracts, options or combinations of these instruments. Generally speaking, the maximum duration covered by such hedging does not exceed 18 months. The Company does not enter into speculative transactions. When the derivatives used for hedging purposes meet the necessary requisites, hedge accounting rules are followed.
Interest rate risk management At 31 December 2016, gross financial debt of the Company was at a floating rate for approximately 70% and at a fixed rate for approximately 30%; to reach an optimum mix of floating and fixed rates in the structure of the loans, the Company also used derivative financial instruments. At 31 December 2016, three interest rate swap (IRS) contracts totalling € 13 million were in place, mirrored in mortgages with the same residual debt, through which the Company transformed the floating rate of the mortgages into fixed rate. Considering the IRS in place, at the end of 2016, the fixed-rate portion amounted to approximately 70% of the total financial debt. The derivative contracts were not designated as a cash flow hedge and were therefore recognised using the “income statement fair value” method.
Sensitivity analysis
Credit risk management Trade receivables involve producers of domestic appliances, multinational groups and smaller manufacturers in a few or single markets. The Company assesses the creditworthiness of all its customers at the start of supply and systemically on at least an annual basis. After this assessment, each customer is assigned a credit limit. A credit insurance policy is in place, which guarantees cover for approximately 50% of trade receivables. Credit risk relating to customers operating in emerging economies is generally attenuated by the expectation of revenue through letters of credit.
Forex risk management The main exchange rate to which the Company is exposed is the euro/USD in relation to sales made in dollars (mainly in North America) and, to a lesser extent, to some purchases (mainly from Asian manufacturers). Sales in US dollars represented 10.6% of total revenue in 2016, while purchases in dollars represented 2.7% of total revenue. The operations in dollars were partially hedged through forward sales contracts. At 31 December 2016, there were forward sales of dollars, maturing on 31 December 2017, for a total of USD 6 million. Sensitivity analysis With reference to financial assets and liabilities in US dollars at 31 December 2016, a hypothetical and immediate revaluation of 10% of the euro against the dollar would have led to a loss of € 210,000, without considering the pending forward sale contracts.
With reference to financial assets and liabilities at variable rate at 31 December 2016 and 31 December 2015, a hypothetical increase (decrease) in the interest rate of 100 base points versus the interest rates in effect at the same date – all other variables being equal - would lead to the following effects: 31.12.2016
31.12.2015
FINANCIAL EXPENSES
FINANCIAL EXPENSES
Increase of 100 base points
20
80
Decrease of 100 base points
-
(80)
Commodity price risk management A significant portion of the purchase costs of the company is represented by brass and aluminium alloys. Sales prices of products are generally renegotiated annually; as a result, the Company is unable to immediately pass on to customers any changes in the prices of commodities during the year. The Company protects itself from the risk of changes in the price of brass and aluminium with supply contracts signed with suppliers for delivery up to twelve months in advance or, alternatively, with derivative financial instruments. In 2016 and 2015, the Company did not use financial derivatives on commodities. To stabilise the rising costs of commodities, Sabaf preferred to execute transactions on the physical market, fixing prices with suppliers for immediate and deferred delivery.
Liquidity risk management The Group operates with a low debt ratio (net financial debt / shareholders’ equity at 31 December 2016 of 32.9%, net financial debt / EBITDA of 2.22) and has unused shortterm lines of credit. To minimise the risk of liquidity, the Administration and Finance Department: • maintains a correct balance of net financial debt, financing investments with capital and with medium to long-term debt. • verifies systematically that the short-term accrued cash flows (amounts received from customers and other income) are expected to accommodate the deferred cash flows (short-term financial debt, payments to suppliers and other outgoings); • regularly assesses expected financial needs in order to promptly take any corrective measures.
186
Below is an analysis by expiration date of financial payables at 31 December 2016 and 31 December 2015:
AT 31 DECEMBER 2016 CARRYING VALUE
CONTRACTUAL FINANCIAL FLOWS
WITHIN 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
FROM 1 TO 5 YEARS
MORE THAN 5 YEARS
Unsecured loans
23,937
24,388
1,709
5,129
17,550
-
Short-term bank loans
7,399
7,399
5,399
2,000
-
-
300
300
-
60
240
-
TOTAL FINANCIAL PAYABLES
31,636
32,087
7,108
7,189
17,790
0
Trade payables
16,010
16,010
15,373
637
-
-
TOTAL
47,646
48,097
22,481
7,826
17,790
0
CARRYING VALUE
CONTRACTUAL FINANCIAL FLOWS
WITHIN 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
FROM 1 TO 5 YEARS
MORE THAN 5 YEARS
Unsecured loans
7,339
7,506
700
2,099
4,707
-
Short-term bank loans
19,055
19,055
17,055
2,000
-
-
TOTAL FINANCIAL PAYABLES
26,394
26,561
17,755
4,099
4,707
0
Trade payables
18,203
18,203
17,232
971
-
-
TOTAL
44,597
44,764
34,987
5,070
4,707
0
Payables to ARC shareholders
AT 31 DECEMBER 2015
The various due dates are based on the period between the end of the reporting period and the contractual expiration date of the commitments, the values indicated in the table correspond to non-discounted cash flows. Cash flows include the shares of principal and
interest; for floating rate liabilities, the shares of interest are determined based on the value of the reference parameter at the end of the reporting period increased by the spread set forth in each contract.
Hierarchical levels of fair value assessment The revised IFRS 7 requires that financial instruments reported in the statement of financial position at fair value must be classified based on a hierarchy that reflects the significance of the input used in determining the fair value. IFRS 7 makes a distinction between the following levels: • Level 1 – quotations found on an active market for assets or liabilities subject to assessment;
• Level 2 – input other than prices listed in the previous point, which can be observed (prices) or indirectly (derivatives from prices) on the market; • Level 3 – input based on observable market data The following table shows the assets and liabilities valued at fair value at 31 December 2016, by hierarchical level of fair value assessment.
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Other financial liabilities (currency derivatives)
-
201
-
201
Other financial liabilities (derivatives on interest rates)
-
37
-
37
Option on minorities A.R.C.
-
-
0
0
TOTAL LIABILITIES
0
238
0
238
SABAF - ANNUAL REPORT 2016
187
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
36. RELATIONS BETWEEN GROUP COMPANIES AND WITH RELATED PARTIES The table below illustrates the impact of all transactions between Sabaf S.p.A. and other related parties on the balance sheet and income statement items and related parties, with the exception of the directors’ fees, auditors and key management personnel which is stated in the Report on Remuneration.
Impact of related-party transactions or positions on statement of financial position items TOTAL 2016
SUBSIDIARIES
PARENT COMPANY
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Non-current financial assets
2,137
1,897
-
-
1,897
88.77%
Trade receivables
27,465
1,192
-
-
1,192
4.34%
Tax receivables
2,477
-
1,084
-
1,084
43.76%
Current financial assets
1,060
1,000
-
-
1,000
94.34%
Trade payables
16,010
104
-
2
106
0.66%
TOTAL 2015
SUBSIDIARIES
PARENT COMPANY
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Non-current financial assets
1,837
1,837
-
-
1,837
100%
Trade receivables
32,871
2,008
-
-
2,008
6.11%
Tax receivables
1,749
-
1,114
-
1,114
63.69%
Current financial assets
1,069
1,000
-
-
1,000
93.55%
Trade payables
18,203
853
-
-
853
4.69%
Impact of related-party transactions on income statement accounts TOTAL 2016
SUBSIDIARIES
PARENT COMPANY
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
101,523
6,680
-
-
6,680
6.58%
Other income
2,279
399
10
-
409
17.95%
Materials
36,895
916
-
-
916
2.48%
Services
Revenue
26,032
4,129
-
22
4,151
15.95%
Capital gains on non-current assets
87
66
-
-
66
75.86%
Write-downs of non-current assets
521
521
-
-
521
100%
Financial income
85
82
-
-
82
96.47%
TOTAL 2015
SUBSIDIARIES
PARENT COMPANY
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
113,962
7,275
-
-
7,275
6.38%
Other income
2,733
400
10
-
410
15.00%
Materials
43,861
727
-
-
727
1.66%
Services
28,751
4,162
-
34
4,196
14.59%
Capital gains on non-current assets
158
100
-
-
100
63.29%
Write-downs of non-current assets
1,303
1,303
-
-
1,303
100%
73
73
-
-
73
100%
Revenue
Financial income
188
Relations with subsidiaries mainly consist of: • trade relations, relating to the purchase and sale of semi-processed goods or finished products with Sabaf do Brasil, Faringosi Hinges, Sabaf Turkey and Sabaf Kunshan Trading; • sales of machinery to Sabaf Brasile, Sabaf Turkey and Sabaf Kunshan Trading, which generated the capital gains highlighted; • rental of property from Sabaf Immobiliare; • intra-group loans; • group VAT settlement. Relations with the parent company Giuseppe Saleri S.a.p.A., which does not exercise management or coordination activities pursuant to Article 2497 of the Italian Civil Code, consist of provision of administrative services. Related-party transactions are regulated by specific contracts regulated at arm’s length conditions.
37. SIGNIFICANT NON-RECURRING EVENTS AND TRANSACTIONS Pursuant to CONSOB memorandum of 28 July 2006, no events or significant nonrecurring transactions occurred during 2016.
38. ATYPICAL AND/OR UNUSUAL TRANSACTIONS Pursuant to CONSOB memorandum of 28 July 2006, the Company declares that no atypical and/or unusual transactions as defined by the CONSOB memorandum were executed during 2016.
39. COMMITMENTS Guarantees issued Sabaf S.p.A. also issued sureties to guarantee mortgage loans granted by banks to employees for a total of € 5,510,000 (€ 6,010,000 at 31 December 2015).
40. FEES TO DIRECTORS, STATUTORY AUDITORS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES Fees to directors, statutory auditors and executives with strategic responsibilities are described in the Report on Remuneration that will be presented to the shareholders’ meeting called to approve these separate financial statements.
41. SHARE-BASED PAYMENTS At 31 December 2016, there were no equity-based incentive plans for the Company’s directors and employees.
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
List of investments with additional information required by Consob (Communication DEM76064293 of 28 July 2006) IN SUBSIDIARIES 1 REGISTERED OFFICES
COMPANY NAME
SHARE CAPITAL AT 31 DECEMBER SHAREHOLDERS 2016
OWNERSHIP %
SHAREHOLDERS’ EQUITY AT 31 DECEMBER 2016
2016 PROFIT (LOSS)
Faringosi Hinges s.r.l.
Ospitaletto (BS)
EUR 90,000
Sabaf S.p.A.
100%
EUR 5,546,105
EUR 629,046
Sabaf Immobiliare s.r.l.
Ospitaletto (BS)
EUR 25,000
Sabaf S.p.A.
100%
EUR 23,409,330
EUR 1,517,481
Sabaf do Brasil Ltda
Jundiaì (Brazil)
BRL 24,000,000
Sabaf S.p.A.
100%
BRL 36,458,354
BRL 5,649,678
Sabaf US Corp.
Plainfield (USA)
USD 100,000
Sabaf S.p.A.
100%
USD -26,387
USD 8,564
Sabaf Appliance Components (Kunshan) Co., Ltd.
Kunshan (China)
EUR 4,400,000
Sabaf S.p.A.
100%
CNY 5,335,695
CNY -4,015,644
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki
Manisa (Turkey)
TRY 28,000,000
Sabaf S.p.A.
100%
TRY 52,641,491
TRY 10,977,294
Sabaf Appliance Components Trading (Kunshan) Co., Ltd. in liquidazione
Kunshan (China)
EUR 200,000
Sabaf S.p.A.
100%
CNY 1,950,327
CNY -136,963
A.R.C. s.r.l.
Campodarsego (PD)
EUR 45,000
Sabaf S.p.A.
70%
EUR 4,321,471
EUR 667,167
Other significant equity investments: None
Origin, possibility of utilisation and availability of reserves AMOUNT
POSSIBILITY OF UTILISATION
AVAILABLE SHARE
AMOUNT SUBJECT TO TAXATION FOR THE COMPANY IN THE CASE OF DISTRIBUTION
10,002
A, B, C
10,002
0
Revaluation reserve, Law 413/91
42
A, B, C
42
42
Revaluation reserve, Law 342/00
1,592
A, B, C
1,592
1,592
Legal reserve
2,307
B
0
0
Other retained earnings
65,769
A, B, C
65,425
0
(532)
0
0
79,180
77,061
1,634
DESCRIPTION CAPITAL RESERVE: Share premium reserve
RETAINED EARNINGS:
VALUATION RESERVE: Post-employment benefit actuarial reserve TOTAL
KEY A: for share capital increase B: to hedge losses C: for distribution to shareholders
1 Values taken from the separate financial statements of subsidiaries, prepared in accordance with locally applicable accounting standards.
189
190
Statement of Revaluations of equity assets at 31 december 2016
Investment property
Plants and machinery
GROSS VALUE
CUMULATIVE DEPRECIATION
NET VALUE
Law 72/1983
137
(137)
0
1989 merger
516
(433)
83
Law 413/1991
47
(41)
6
1994 merger
1,483
(1,001)
482
Law 342/2000
2,870
(2,282)
588
5,053
(3,894)
1,159
Law 576/75
205
(205)
0
Law 72/1983
2,224
(2,224)
0
1989 merger
6,140
(6,140)
0
1994 merger
6,820
(6,820)
0
15,389
(15,389)
0
Industrial and commercial equipment
Law 72/1983
161
(161)
0
Other assets
Law 72/1983
50
(50)
0
20,653
(19,494)
1,159
TOTAL
GENERAL INFORMATION Sabaf S.p.A. is a company organised under the legal system of the Republic of Italy. Registered and administrative office: Via dei Carpini, 1 25035 Ospitaletto (Brescia)
Contacts: Tel: +39 030 - 6843001 Fax: +39 030 – 6848249 E-mail: info@sabaf.it Website: www.sabaf.it
Tax information: R.E.A. Brescia: 347512 Tax Code: 03244470179 VAT Number: 01786911082
APPENDIX Information pursuant to article 149 duodecies of the CONSOB Issuers’ Regulation The following table, prepared pursuant to Article 149-duodecies of the CONSOB Issuers’ Regulation, shows fees relating to 2016 for auditing services and for services other than auditing provided by the Independent Auditor. No services were provided by entities belonging to the network.
PARTY PROVIDING THE SERVICE
FEES PERTAINING TO THE 2016 FINANCIAL YEAR
Audit
Deloitte & Touche S.p.A.
57
Certification services
Deloitte & Touche S.p.A.
22
Other services
Deloitte & Touche S.p.A.
14 3
IN THOUSANDS OF EURO
TOTAL
2 Signing of Unified Tax Return, IRAP and 770 forms. 3 Audit agreed upon procedures relating to interim management reports, auditing of statements and training activities.
73
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
CERTIFICATION OF SEPARATE FINANCIAL STATEMENTS pursuant to Article 154-bis of Italian Legislative Decree 58/98
Alberto Bartoli, the Chief Executive Officer, and Gianluca Beschi, the Financial Reporting Officer of Sabaf S.p.A., have taken into account the requirements of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of 24 February 1998 and can certify • the adequacy, in relation to the business characteristics and • the actual application of the administrative and accounting procedures for the formation of the separate financial statements during the 2016 financial year. They also certify that: • the separate financial statements: - were prepared in accordance with the international accounting policies recognised in the European Community in accordance with EC regulation 1606/2002 of the European Parliament and Council of 19 July 2002 and with the measures issued in implementation of Article 9 of Italian Legislative Decree 38/2005; - are consistent with accounting books and records; - provide a true and fair view of the financial position and performance of the issuer; • the report on operations contains a reliable analysis of the performance and results of operations and the situation at the issuer, along with a description of the key risks and uncertainties to which it is exposed. Ospitaletto, 20 March 2017
Chief Executive Officer
The Financial Reporting Officer
Alberto Bartoli
Gianluca Beschi
191
192
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
193
194
SABAF S.P.A. REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’ MEETING OF SABAF S.P.A.
in accordance with Art. 2429, 2nd Paragraph of the Italian Civil Code and Art. 153 of Italian Legislative Decree no. 58/1998 Dear Shareholders, We hereby report to you on the supervisory activity performed during the 2016 financial year. This report is drafted in accordance with Art. 2429, 2nd Paragraph of the Italian Civil Code and Art. 153 of Italian Legislative Decree no. 58/1998, in light of the CONSOB recommendations, the Rules of Conduct of the Board of Statutory Auditors of listed companies issued by CNDCEC and the indications contained in the Self-Regulation Code of Borsa Italiana, which applies to your Company. We note below the activity performed.
1. Supervisory activity on compliance with the law and the articles of association and respect of the principles of correct administration During the 2016 financial year, the Board met on six occasions and attended nine meetings of the Board of Directors, five meetings of the Control and Risks Committee and two meetings of the Company’s Control Bodies (Board of Statutory Auditors, Control and Risks Committee, Supervisory Body, Appointed Executive, Head of the Internal Audit Function, Independent Auditing Company). During the Board of Directors’ meetings, the Board of Statutory Auditors obtained information on the general management performance, on its outlook, as well as on the most significant economic, financial and capital operations performed by the Company and by its subsidiaries. In that regard, it is noted that, during 2016: • we have not identified or received information on any atypical and/or unusual operations performed with third parties, with related parties or within the group. That fact is also confirmed by the Directors in their management report; • no significant operations that require a mention in this report have been performed; • intergroup operations and operations with related parties are of ordinary nature and reduced significance compared to the group’s activity as a whole, as highlighted in note no. 36 of the Separate Financial Statements and in the corresponding note of the Consolidated Financial Statements. The Board believes that the conditions under which those operations were concluded are congruous and compliant with the Company’s interests. The Board of Statutory Auditors has expressed its favourable opinion with reference to the work plan prepared by the Head of the Internal Audit Function. In conclusion, based upon the activity performed, we have not identified any violations of the law and/or the articles of association or any manifestly imprudent or risky operations or operations in potential conflict of interest or such as to compromise the integrity of the company’s finances.
2. Supervisory activity on the adequacy of the organisational structure and the internal control system The Board has overseen the existence of an adequate organisational structure in relation to the company’s dimensions. In that regard, it is noted that the Company has for some time now adopted an Organisation Model compliant with the provisions of Italian Legislative Decree 231/2001, recently updated in relation to the latest organisational and regulatory changes. During the financial year, the Board of Statutory Auditors maintained a constant information flow with the Supervisory Body. The information acquired has not identified any criticalities with respect to the correct implementation of the organisation model that must be highlighted in this report. With reference to the adequacy of the internal control system, the Board expresses its positive assessment and acknowledges that there are no findings to be reported to the Shareholders’ Meeting. The information sources based upon which the Board has been able to express its assessment are the following:
• periodic meetings with the Company assigned the Internal Audit Function and with the Representative of that Function. During those meetings, the Board had the opportunity to assess the activity performed and the results of the same. In that regard, it is noted that the Company itself performs the Internal Audit Function also with reference to the strategic subsidiaries; • periodic meetings with the Independent Auditing Company; • the report of the Head of the Internal Audit Function on the control system, examined during the meeting of the Control and Risks Committee held on 1 February 2017; • attendance at meetings of the Control and Risks Committee; • the report of the Control and Risks Committee to the Board of Directors on the adequacy and effective functioning of the internal control system and the risk management system; • meetings with the Appointed Executive; • examination of the company procedures, therein including those provided within the Organisation Model adopted by Sabaf (and by the subsidiary Faringosi Hinges S.r.l.) in application of Italian Legislative Decree 231/2001 and those established by the Appointed Executive in charge of preparing the corporate accounting documents, in accordance with Italian Law 262/2005. As already highlighted by the Directors in the Management Report, it is worth noting that on 23 January 2017, the Managing Director submitted his resignation commencing from the shareholders’ meeting convened to approve the financial statements (27 April 2017). The Board has been informed that activities are in progress with a view to identifying the new Managing Director.
3. Supervisory activity on the adequacy of the administrative-accounting system and the auditing activity The Board has overseen the adequacy of the administrative-accounting system, as well as the reliability of the latter correctly to represent the management facts, by way of: • obtaining information from the Appointed Executive; • examining the procedures in support of the administration function; • periodic meetings with the Company assigned the Internal Audit Function and with the Representative of that Function; • meetings and periodic reports of the Independent Auditing Company. Based upon the information gathered, no findings have emerged. The Managing Director and the Appointed Executive have certified with a specific report attached to the 2016 financial statements: • the adequacy and effective application of the administrative and accounting procedures for producing the financial statements; • the conformity of the same to the international accounting standards and their correspondence to the records of the accounting ledgers and deeds as well as their suitability to provide a true and accurate representation of the Company’s capital, economic and financial situation. A similar declaration has been made with reference to the consolidated financial statements. With reference to the statutory auditing activity, it is noted that the same was entrusted, by resolution of the shareholders’ meeting dated 28 April 2009, to Deloitte & Touche S.p.A. for the period 2009/2017. During the financial year, the Board held periodic meetings with representatives of the Independent Auditing Company during which no significant data and information emerged that requires a mention in this report. The procedures adopted in relation to the work plan submitted by the Independent Auditing Company have been examined. We have also received the technical information requested in relation to the accounting standards applied, as well as the accounts representation criteria of the most significant economic, capital and financial facts. It is also noted that the Independent Auditing Company submitted on 5 April 2017 the report referred to in Art. 19, 3rd paragraph of Italian Legislative Decree 39/2010, which does not highlight any fundamental issues found during the audit or any significant deficiencies identified in the internal control system in relation to the financial reporting process. The Independent Auditing Company, in accordance with the provisions of Art. 17, 9th Paragraph of Italian Legislative Decree 39/2010, has confirmed its independence to the Board of Statutory
SABAF - ANNUAL REPORT 2016
CHAPTER 7 - SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2016
Auditors and has communicated the overall fees for the auditing and other services rendered by the same, and by other entities belonging to the same network, to the Company and to the subsidiaries, as set out in the appendices to the separate and consolidated financial statements. The Board of Statutory Auditors confirms that in the financial year just ended and up to today’s date no critical profile has emerged in relation to the independence of the Independent Auditing Company. Finally, it is acknowledged that the supervisory activity described in this paragraph and in the paragraph above has allowed the Board of Statutory Auditors to fulfil its internal control and statutory audit committee function, pursuant to Art. 19 of Italian Legislative Decree 39/2010, with respect to which it has no findings to report.
4. Proposals in relation to the separate Financial Statements and the consolidated Financial Statements, their approval and the matters under the remit of the Board of Statutory Auditors The Company drafted the 2016 financial statements in accordance with international accounting standards (IAS/IFRS). The separate Financial Statements show a financial year profit of Euro 2,459,688 and a shareholders’ equity of Euro 91,523,902. Those financial statements were audited by the Company Deloitte & Touche Spa which issued its report dated 5 April 2017 without findings or information requests. The financial statements, together with the management report, were made available to us within the legal timescales and we have no particular comments to report. The Company has also drafted the 2016 consolidated financial statements of the Sabaf Spa Group. The consolidated financial statements show a net financial year profit of Euro/thousand 9,009 and shareholders’ equity of Euro/thousand 112,309. Those financial statements have also been subject to statutory audit by Deloitte & Touche Spa which issued its report on 5 April 2017 without findings or information requests. It is also acknowledged that the Independent Auditing Company has expressed, in the reports set out above, a positive opinion with reference to the coherence of the management report and the information contained in the corporate governance report and ownership structure indicated in Art. 123 bis of Italian Legislative Decree 58/98, both with respect to the separate financial statements and the consolidated financial statements. Insofar as the Board is responsible, we have overseen the general layout of the separate financial statements and the consolidated financial statements, verifying their compliance with the law and the relevant accounting standards. In particular, the outcomes of the impairment test conducted with reference to the value of the investments held in the subsidiaries, Faringosi Hinges S.r.l. and the newly acquired A.R.C. S.r.l., indicated in the separate financial statements, and the goodwill value recorded with reference to the same in the consolidated financial statements, have been assessed. The test, conducted by external professionals specifically instructed based upon the provisional plans developed by the Board of Directors of the subsidiary, led: • For Faringosi Hinges S.r.l., to the determination of the recoverable value of the investment of between Euro 11.7 and 13.8 million, higher values than the book value of the same, amounting to Euro 10.329 million. Based upon those valuations, the Board of Directors has kept unchanged the book value of the investment with respect to the initial historical cost (amounting to Euro 10.329 million), as restored in the previous financial year; • For A.R.C. S.r.l., to the determination of the recoverable value of the investment of between Euro 6.4 and 7.7 million, higher values than the book value of the same, amounting to Euro 4.8 million. Based upon those valuations, the Board of Directors has kept unchanged the book value of the investment with respect to the acquisition cost incurred in the financial year (amounting to Euro 4.8 million). In that regard, the Board has no comments to make. Finally, we acknowledge that no derogations have been made from the accounting standards adopted.
5. Methods of concrete implementation of the corporate governance rules Your Company has accepted the Self-Regulation Code approved by the Corporate Governance Committee of listed companies. In the annual Report on Corporate Governance and Ownership Structures, drafted in accordance with Art. 123 bis of Italian Legislative Decree 58/1998, the Board of Directors acknowledges the acceptance of the Self-Regulation Code and the methods of concrete implementation of the corporate governance rules adopted by the Company, in accordance with Art. 123 bis, 2nd paragraph, letter a). During the financial year, the Board has overseen the methods of concrete application of the corporate governance rules adopted by the Company and, in that regard, it believes that the same have been effectively and correctly applied. Insofar as we are aware, we inform you of the following:
• the Board of Directors has checked the continued existence of the requirements of independence for the directors qualified as such upon their appointment. The Board of Statutory Auditors has checked the correct application of the assessment criteria and procedures adopted by the Board; • we have performed the self-assessment of the requirement of independence for the members of the Board of Statutory Auditors, as required by the Self-Regulation Code, both initially, after appointment and later, on an annual basis (most recently during the meeting held on 2 March 2017), with methods compliant with those adopted by the directors; • we have respected the provisions of the management regulation and those on the processing of confidential and privileged corporate information.
6. Supervisory activities on relationships with subsidiary and parent companies The Board has overseen the adequacy of the instructions imparted by the Company to the subsidiaries, in accordance with Art. 114, 2nd Paragraph of Italian Legislative Decree 58/1998. In that regard, it is noted that the Company, by way of the Managing Director, the Administration, Finance and Control Director and the other managers with strategic responsibilities, performs constant control over the operations of the subsidiaries, also due to the use, by the same, of a common accounting and management system (SAP), which is constantly accessible to management of the parent company. From the periodic meetings with management and the Company assigned the Internal Audit no elements of criticality have emerged which require a mention in this report. Finally, it is acknowledged that, at today’s date, no communications have been received from the Control Bodies of the subsidiary and/or parent companies containing findings to be noted in this report.
7. Supervisory activity over operations with related parties In relation to the provisions of Art. 2391 bis of the Italian Civil Code, we acknowledge that the Board has adopted a procedure for the regulation of Operations with Related Parties, whose main objective is to define the guidelines and criteria for identifying Operations with Related Parties and structuring the roles, responsibilities and operating methods so as to guarantee, for those operations, adequate information transparency and the respective procedural and substantial correctness. That procedure has been prepared in compliance with what was established by the Consob Regulation on Related Parties (no. 17221 dated 12 March 2010 as amended and supplemented) and it has recently been updated. The Board has overseen the effective application of the rules by the Company and it has no comments in that regard.
8. Conclusions During the supervisory activity conducted during the financial year, no omissions, censurable facts, irregularities or circumstances that require reporting to the Supervisory Authority or a mention herein were identified. It is also acknowledged that the Board has not received reports in accordance with Art. 2408 of the Italian Civil Code, nor has it become aware of cases and/or lawsuits to be noted in this report. With reference to the financial statements, the Board has acknowledged the resolution proposals submitted by the Board of Directors, both with reference to the approval of the draft financial statements and to the proposal of distribution of the dividend. In that regard, it is noted that the dividend that the Board proposes to distribute, albeit in a higher amount than the financial year profit emerging from the separate financial statements, amounts to approximately 60% of the group’s consolidated profit, a result towards which the subsidiary companies greatly contributed.
Ospitaletto, 5 April 2017 Chairman of the Board of Statutory Auditors Dott. Antonio Passantino Statutory Auditor Dott. Enrico Broli Statutory Auditor Dott.ssa Luisa Anselmi
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INT EG RAT ION 8
198
CHAPTER 8 REPORT ON REMUNERATION
pursuant to Article 123-ter of the TUF and
Article 84-quater of the Issuers’ Regulations
SABAF - ANNUAL REPORT 2016
CHAPTER 8 - REPORT ON REMUNERATION
SECTION I - REMUNERATION POLICY Sabaf S.p.A.’s General Remuneration Policy (hereinafter also “remuneration policy”), approved by the Board of Directors on 22 December 2011 and updated on 20 March 2013 and 4 August 2015, defines the criteria and guidelines for the remuneration of members of the Board of Directors, executives with strategic responsibilities and members of the Board of Statutory Auditors. The remuneration policy was prepared: • pursuant to Article 6 of the Corporate Governance Code of listed companies, approved in March 2010 and subsequent amendments and supplements; • in line with Recommendations 2004/913/EC and 2009/385, which were incorporated into law with Article 123-ter of the Consolidated Law on Finance (TUF). This Policy, applied from the date of approval by the Board of Directors, was fully implemented as of 2012 following the appointment of the corporate bodies.
term, and maintains an appropriate level of competitiveness for the company in the sector in which it operates.
Fixed annual component Directors
At the proposal of the Board of Directors, having obtained the opinion of the Remuneration and Nomination Committee, the shareholders determine a maximum total for the remuneration of all members of the Board, including a fixed amount and attendance fees.
With the introduction of the Policy, the remuneration system was extended to include a long-term incentive component, which was previously not provided for.
In accordance with this maximum total, at the proposal of the Remuneration and Nomination Committee and subject to the opinion of the Board of Statutory Auditors, the Board of Directors determines additional remuneration for directors vested with special powers.
Corporate bodies and persons involved in preparing, approving and implementing the remuneration policy
The fixed component is such that it is able to attract and motivate individuals with appropriate expertise for the roles entrusted to them within the Board, and is set with reference to the remuneration awarded for the same positions by other listed Italian industrial groups of a similar size.
The General Remuneration Policy was approved by the Board of Directors on 22 December 2011 and updated on 20 March 2013 and 4 August 2015, at the proposal of the Remuneration Committee, as explained in the paragraphs below. No independent experts or advisors contributed to the preparation of the policy, nor were the remuneration policies of other companies used for reference purposes. Specifically, it is the responsibility: • of the Remuneration and Nomination Committee: - to make proposals to the Board of Directors, in the absence of the persons directly concerned, for remuneration of the CEO and directors holding specific positions, - to make suggestions concerning the setting of targets to which the annual variable component and long-term incentives should be linked, in order to ensure alignment with shareholders’ long-term interests and the company’s strategy, - to evaluate the criteria for the remuneration of executives with strategic responsibilities and make appropriate recommendations to the Board, - to monitor the application of decisions adopted by the Board; • of the Board of Directors, to properly implement the remuneration policy; • of the Human Resources Department, to actually enact what is decided upon by the Board. The Remuneration and Nomination Committee currently in office comprises four nonexecutive members, the majority of them independent (Fausto Gardoni, Giuseppe Cavalli and Renato Camodeca and Alessandro Potestà), with the knowledge and experience in accounting, finance and remuneration policies that is deemed adequate by the Board of Directors.
It is the practice of Sabaf S.p.A. to appoint exponents of the Saleri family, controlling shareholder of the Company through the Company Giuseppe Saleri S.a.p.A., as Chairman and Vice Chairmen. To these directors, although executives, are not recognised variable compensations, but only additional compensations to those as directors for the particular offices held. Directors who sit on committees formed within the Board (Internal Control and Risk Committee, Remuneration and Nomination Committee) are granted remuneration that includes a fixed salary and attendance fees intended to reward the commitment required of them.
Other executives with strategic responsibilities
Employment relationships with other executives with strategic responsibilities are governed by the Collective National Contract for Industrial Managers. In this regard, fixed remuneration is determined so that it is sufficient in itself to guarantee an appropriate basic salary level, even in the event that the variable components are not paid owing to a failure to reach objectives.
Board of Statutory Auditors
The amount of remuneration for Auditors is set by the Shareholders’ Meeting, which establishes a fixed amount for the Chairman and the other Statutory Auditors.
Purpose of the remuneration policy
Annual variable component
The Company’s intention is that the General Remuneration Policy: • attracts, motivates and increases the loyalty of persons with appropriate professional expertise; • brings the interests of the management into line with those of the shareholders; • favours the creation of sustainable value for shareholders in the medium to long
The Chief Executive Officer, other executives with strategic responsibilities and other managers identified by the CEO from amongst managers who report directly to him or who report to the above-mentioned managers, are granted annual variable remuneration related to an MBO plan.
199
200
This plan sets a common objective (Group EBIT, which is considered to be the Group’s main indicator of financial performance) and quantifiable and measurable individual objectives, both economic-financial and technical-productive in nature. All objectives are set by the Board of Directors, at the proposal of the Remuneration and Nomination Committee, in accordance with the budget. The variable component may not exceed 25% of the fixed annual gross salary; it may be only partially granted in the event that the objectives are not completely met. 75% of the variable component is paid out in the April of the following year, and 25% in the January of the second subsequent year. Non-executive directors are not granted any variable remuneration.
Long-term incentives A long-term financial incentive dependent on measurable and predetermined performance targets relating to the creation of value for shareholders over the long term has been established. The incentive extends over three years (2015-2017) and is exclusively aimed at the Chief Executive Officer and executives with strategic responsibilities. The performance targets, set in accordance with the three-year business plan, are proposed by the Remuneration and Nomination Committee to the Board of Directors, as the body responsible for approving the long-term financial incentive. The targets that set the parameters for the long-term incentive (consolidated Group EBITDA, share value and consolidated Group free cash flow) were defined by the Board of Directors on 4 August 2015, on the recommendation of the Remuneration and Nomination Committee. The total long-term variable component for three years may not exceed 50% of the fixed annual gross salary; it may be only partially granted in the event that the objectives are not completely met. In the event that the objectives assigned are exceeded by more than 10%, an increase of 5% of the fixed annual gross salary and remuneration is granted, weighted based on the weight of the objective. The variable component is paid in full following the approval of the financial statements of the third year to which the incentive relates (2017). At the date of this report for the two executives with strategic responsibilities identified as such by the Board of Directors on 4 August 2016 a long-term incentive was not instituted.
Incentives based on financial instruments The remuneration policy in force does not provide for the use of incentives based on financial instruments (stock options, stock grants, phantom stocks or others).
Remuneration for offices in subsidiaries Directors and other executives with strategic responsibilities may be granted remuneration – exclusively as a fixed amount – for offices held in subsidiaries. As well as the approval of the subsidiaries’ corporate bodies, this remuneration is subject to the favourable opinion of the Remuneration and Nomination Committee.
Non-monetary benefits The Company has taken out a third-party civil liability insurance policy in favour of directors, statutory auditors and executives for unlawful acts committed in the exercise of their respective duties, in violation of obligations established by law and the Bylaws, with the sole exclusion of deliberate intent. The stipulation of this policy was approved by the Shareholders’ Meeting. The Company also provides a life insurance policy and cover for medical expenses (FASI) for executives, as established by the Collective National Contract for Industrial Managers; moreover, it has stipulated an additional policy to cover medical expenses not covered by FASI reimbursements. Lastly, at the proposal of the Remuneration and Nomination Committee, and having consulted with the CEO, the Board of Directors also assigns company cars to executives.
Indemnity against the early termination of employment There are no agreements for directors or other executives with strategic responsibilities governing ex ante financial settlements following the early termination of the employment relationship. For the end of the relationship for reasons other than just cause or justified reasons provided by the employer, it is the Company’s policy to pursue consensual agreements to end the employment relationship, in accordance with legal and contractual obligations. The Company does not provide directors with benefits subsequent to the end of their mandate. The Company has entered into a non-competition agreement with the CEO and with certain executives who report to him, the terms of which were approved by the Board of Directors, after obtaining the opinion of the Remuneration and Nomination Committee.
Claw Back clauses The Company has decided not to establish mechanisms for the ex-post adjustment of the variable remuneration component or claw back clauses to demand the return of all or part of the variable components of remuneration paid out (or to withhold deferred sums), which were determined on the basis of data subsequently found to be clearly incorrect. This decision was made as the variable incentive plans are based on pre-established, quantifiable and measurable performance data, both economic-financial and technicalproductive in nature, the achievement of which is verified in advance. The company reserves the unilateral right to include claw back clauses in future annual and/or long-term variable incentive plans.
SABAF - ANNUAL REPORT 2016
CHAPTER 8 - REPORT ON REMUNERATION
SECTION II - REMUNERATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BOARD OF STATUTORY AUDITORS AND OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES IN 2016 This section, which details remuneration paid to directors and statutory auditors: • adequately describes each of the items that make up the remuneration, showing their consistency with the Company’s remuneration policy approved the previous year; • analytically illustrates the remuneration paid in the financial year under review (2016), for any reason and in any form, by the Company or by subsidiaries or affiliates, identifying any components of this remuneration that relate to activities undertaken in previous years to the year under review.
The components of the remuneration paid to directors for 2016 The remuneration granted to directors for 2016, in accordance with the Policy described in Section I, consisted of the following components: • fixed remuneration, approved by the Shareholders’ Meeting of 5 May 2015, totalling €225,000, of which €15,000 are to be allocated indiscriminately to every director, and €10,000 to every non-executive member of the Internal Control and Risk Committee and/or the Remuneration and Nomination Committee; • additional remuneration, approved by the Shareholders’ Meeting of 5 May 2015, totalling €755,000 divided among Directors vested with special powers (Chairman, Vice Chairmen and Chief Executive Officer) as detailed in the table below; • additional remuneration, approved by the Shareholders’ Meeting of 28 April 2016, totalling €15,000, attributed entirely to the newly-elected director by the Shareholders’ Meeting itself; • an attendance fee of €1,000, due to non-executive directors only, for every occasion on which they attend Board of Directors’ meetings and the meetings of committees formed within the Board. With regard to the variable incentive plan established for 2015, the remuneration that accrued and was paid out during the year with regard to the CEO, Alberto Bartoli, and the remuneration accrued by the Director Gianluca Beschi was an overall €79,993. With reference to the MBO 2016 plan, given the failure to achieve the objectives assigned, a compensation has not been accrued. There are no incentive plans based on financial instruments, or compensation for termination of employment. The Company has entered into a non-competition agreement with the CEO and with certain executives who report to him, the terms of which were approved by the Board of Directors, after obtaining the opinion of the Remuneration and Nomination Committee.
Remuneration of Statutory Auditors for 2016 The remuneration granted to the Statutory Auditors for 2016 consists of a fixed payment determined by the Shareholders’ Meeting of 5 May 2015.
Remuneration of executives with strategic responsibilities for 2016 The executive with strategic responsibilities (three persons, two of whom are already directors at Sabaf, identified as strategic directors by the Board of Directors on 4 August 2016) receives a fixed remuneration component for employment totalling €379,426, and a variable component totalling €67,150, disbursed in 2016 in relation to the 2015 variable incentive plan (MBO). Other remuneration totalling €91,500 was also disbursed by subsidiaries. In 2016, overall variable remuneration of €33,050 was accrued for the achievement of some of the objectives of the 2016 MBO plan. Its payment is deferred and dependent upon the continuation of the employment relationship. There are no incentive plans based on financial instruments outstanding.
For details on the fees paid in the 2016 financial year, please refer to the tables below (Tab. 1 and Tab. 2), which contain remuneration paid to directors and statutory auditors, listed by name, and, at the aggregate level, other executives with strategic responsibilities currently in office, taking into account any roles held for less than the entire year. Remuneration received from subsidiaries and/or affiliates, with the exception of that waived or paid back to the Company, is also indicated separately. With particular reference to Table 1, the column: • “Fixed remuneration” shows, for the portion relating to 2016, the fixed remuneration approved by the Board of Directors on 5 May 2015; meeting attendance fees as approved by the Board of Directors on 5 May 2015; employee compensation due for the year gross of social security contributions and income taxes owed by the employee. Eventual flat-rate reimbursements are excluded. • “Remuneration for attendance at Committee meetings”, shows, for the portion relating to 2016, the remuneration due to directors who attended the meetings of the Committees set up within the Board and the related attendance fees as approved by the Board of Directors on 5 May 2015. • “Bonus and other incentives” includes the remuneration paid in 2016 to executives with strategic responsibilities for objectives met in the year, set out in the 2015 MBO plan. This value corresponds to the sum of the amounts provided in Table 2 in the “Bonus for the year - payable/paid”, “Bonus of previous years - payable/paid” and “Other bonuses” columns. • “Non-monetary benefits” shows, according to accrual and tax liability criteria, the value of outstanding insurance policies and the company cars assigned. • “Other remuneration” shows, for the portion attributable to 2016, any other remuneration resulting from other services provided. • “Indemnity for end of office or termination of employment relationship” records the portions for the year relating to payments accrued under the scope of the Non-Competition Agreement signed by the CEO and Executives with strategic responsibilities. • “Total” shows the sum of the amounts provided under the previous items.
201
202
For a breakdown of other items, see attachment 3A, statement 7-bis and 7-ter of Consob Regulation 11971 of 14 May 1999.
children, directly or through subsidiaries, trust companies or third parties, as shown in the shareholder register, communications received and other information acquired from the same parties. This includes all persons who held office during the year, even for only part of the year. The number of shares held is shown by individual director and in aggregate form for executives with strategic responsibilities.
Finally, pursuant to Article 84-quater, paragraph four of the Consob Issuers’ Regulations, Table 3 shows shareholdings in Sabaf S.p.A. held by directors and executives with strategic responsibilities, as well as their non-separated spouses and dependent
TAB. 1 - Remuneration paid to members of the Board of Directors and Board of Statutory Auditors and other executives with strategic responsibilities in 2016 FIGURES IN EURO
Name and surname
Office
Period of office
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Nonmonetary benefits
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination employment relationship
Profit sharing
BOARD OF DIRECTORS Giuseppe Saleri
Chairman
1 Jan - 31 Dec 2016
Approval of 2017 F.S.
(I) Remuneration at Sabaf S.p.A.
120,000 (a)
0
0
0
0
0
120,000
0
0
8,000
0
0
0
0
0
8,000
0
0
128,000
0
0
0
0
0
128,000
0
0
140,000 (a)
0
0
0
0
0
140,000
0
0
8,000
0
0
0
0
0
8,000
0
0
148,000
0
0
0
0
0
148,000
0
0
140,000 (a)
0
0
0
0
0
140,000
0
0
0
0
0
0
0
0
0
0
0
140,000
0
0
0
0
0
140,000
0
0
(II) Remuneration from subsidiaries and affiliates (III) TOTAL (a) Of which €15,000 as Director and €105,000 as Chairman.
Ettore Saleri
Vice Chairman
1 Jan - 31 Dec 2016
Approval of 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
(a) Of which €15,000 as Director and €125,000 as Vice Chairman.
Cinzia Saleri
Vice 1 Jan Approval of Chairman 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
(a) Of which €15,000 as Director and €125,000 as Vice Chairman.
SABAF - ANNUAL REPORT 2016
Name and surname
Roberta Forzanini
Office
Period of office
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CHAPTER 8 - REPORT ON REMUNERATION
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Profit sharing
Nonmonetary benefits
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination employment relationship
Vice 1 Jan Approval of Chairman 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A.
140,000 (a)
0
0
0
0
0
140,000
0
0
0
0
0
0
0
0
0
0
0
140,000
0
0
0
0
0
140,000
0
0
290,000 (a)
0
0 (b)
0
0
0
290,000
0
0
11,000
0
0
0
0
0
11,000
0
0
301,000
0
0
0
0
0
301,000
0
0
(II) Remuneration from subsidiaries and affiliates (III) TOTAL (a) Of which €15,000 as Director and €125,000 as Vice Chairman.
Alberto Bartoli
CEO
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
(a) Of which €15,000 as Director and €275,000 as Chief Executive Officer. (b) Compensation accrued in the 2016 financial year in reference to the MBO plan – for details, please refer to what is reported in Tab. 2.
Gianluca Beschi
Director
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
0
0 (b)
0
14,371
0
173,870
0
0
40,000
0
0
0
0
0
40,000
0
0
199,499
0
0
0
14,371
0
213,870
0
0
159,499
(a)
(a) Of which €15,000 as director and €144,499 as Administration, Finance and Control Director. (b) Compensation accrued in the 2016 financial year in reference to the MBO plan – for details, please refer to what is reported in Tab. 2.
Renato Camodeca
Director
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
24,000 (a)
28,000 (b)
0
0
0
0
52,000
0
0
0
0
0
0
0
0
0
0
0
24,000
28,000
0
0
0
0
52,000
0
0
(a) Of which €15,000 as director and €9,000 in board meeting attendance fees. (b) Of which €20,000 as a member of the Internal Control and Risk Committee and the Remuneration and Nomination Committee (i.e., €10,000 each) and €8,000 in Committee meeting attendance fees.
Giuseppe Cavalli
Director
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
23,000 (a)
27,000 (b)
0
0
0
0
50,000
0
0
0
0
0
0
0
0
0
0
0
23,000
27,000
0
0
0
0
50,000
0
0
(a) Of which €15,000 as director and €8,000 in board meeting attendance fees. (b) Of which €20,000 as a member of the Internal Control and Risk Committee and the Remuneration and Nomination Committee (i.e., €10,000 each) and €7,000 in Committee meeting attendance fees.
204
Name and surname
Fausto Gardoni
Office
Director
Period of office
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Profit sharing
Nonmonetary benefits
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination employment relationship
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
24,000 (a)
15,000 (b)
0
0
0
0
39,000
0
0
0
0
0
0
0
0
0
0
0
24,000
15,000
0
0
0
0
39,000
0
0
(a) Of which €15,000 as director and €9,000 in board meeting attendance fees. (b) Of which €10,000 as a member of the Remuneration and Nomination Committee and €5,000 in Committee meeting attendance fees.
Nicla Picchi
Director
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
23,000 (a)
13,000 (b)
0
0
0
15,000
51,000
0
0
0
0
0
0
0
5,000
5,000
0
0
23,000
13,000
0
0
0
20,000 (c)
56,000
0
0
(a) Of which €15,000 as director and €8,000 in board meeting attendance fees. (b) Of which €10,000 as a member of the Internal Control and Risk Committee and €3,000 in Committee meeting attendance fees. (c) Of which €15,000 as member of the Sabaf S.p.A. Supervisory Body and €5,000 as member of the Supervisory Body of the subsidiary Faringosi Hinges S.r.l.
Anna Pendoli
Director
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
24,000 (a)
0
0
0
0
0
24,000
0
0
0
0
0
0
0
0
0
0
0
24,000
0
0
0
0
0
24,000
0
0
15,000
0
0
0
0
0
15,000
0
0
0
0
0
0
0
0
0
0
0
15,000
0
0
0
0
0
15,000
0
0
(a) Of which €15,000 as director and €9,000 in board meeting attendance fees.
Alessandro Potestà
Director
28 Apr Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
SABAF - ANNUAL REPORT 2016
Name and surname
Office
Period of office
205
CHAPTER 8 - REPORT ON REMUNERATION
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Nonmonetary benefits
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination employment relationship
Profit sharing
BOARD OF STATUTORY AUDITORS Antonio Passantino
Chairman
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
Luisa Anselmi
Chairman
(II) Remuneration from subsidiaries and affiliates (III) TOTAL
0
0
0
0
24,000
0
0
0
0
0
0
0
0
0
0
0
24,000
0
0
0
0
0
24,000
0
0
16,000
0
0
0
0
0
16,000
0
0
0
0
0
0
0
0
0
0
0
16,000
0
0
0
0
0
16,000
0
0
16,000
0
0
0
0
0
16,000
0
0
0
0
0
0
0
0
0
0
0
16,000
0
0
0
0
0
16,000
0
0
Nonmonetary benefits
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination employment relationship
Statutory 1 Jan Approval of Auditor 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
Name and surname
0
1 Jan Approval of 31 Dec 2016 2017 F.S.
(I) Remuneration at Sabaf S.p.A.
Enrico Broli
24,000
Office
Period of office
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Profit sharing
OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES Other executives with 1 Jan strategic responsibilities 31 Dec 2016 (n° 3) (a)
N/A
(I) Remuneration at Sabaf S.p.A.
379,426
0
33,050 (b)
0
49,781
0
462,257
0
41,713
(II) Remuneration from subsidiaries and affiliates
94,000
0
0
0
0
0
94,000
0
0
473,426
0
33,050
0
49,781
0
556,257
0
41,713
(III) TOTAL
(a) Of which 2 have been identified as strategic managers by the Board of Directors on 4 August 2016 (and already executives at Sabaf). (b) Compensation accrued in the 2016 financial year in reference to the MBO plan – for details, please refer to what is reported in Tab. 2.
206
TAB. 2 - Monetary incentive plans for members of the administration body and other executives with strategic responsibilities FIGURES IN EURO Name and surname
Office
Plan
Payable / Paid
Deferred
Deferment period
No longer payable
Bonus for the year Alberto Bartoli
Payable / Paid
Still Deferred
Other bonuses
Bonus of previous years
CEO
Remuneration at Sabaf S.p.A.
2015 MBO Plan (March 2015)
-
-
0
0
54,000
0
0
Remuneration at Sabaf S.p.A.
2016 MBO Plan (March 2016)
0
0
75% 17 Mar 25% 17 Dec
-
-
-
0
0
0
-
0
54,000
0
0
TOTAL
Gianluca Beschi
Executive Director
Remuneration at Sabaf S.p.A.
2015 MBO Plan (March 2015)
-
-
-
0
25,993
0
0
Remuneration at Sabaf S.p.A.
2016 MBO Plan (March 2016)
0
0
75% 17 Mar 25% 17 Dec
-
-
-
0
0
0
-
0
25,993
0
0
TOTAL
Other executives with strategic responsibilities (n° 3)
Remuneration at Sabaf S.p.A.
2015 MBO Plan (March 2015)
-
-
-
0
67,150
0
0
Remuneration at Sabaf S.p.A.
2016 MBO Plan (March 2016)
0
33,050
75% 17 Mar 25% 17 Dec
-
-
-
0
0
33,050
-
0
67,150
0
0
TOTAL
SABAF - ANNUAL REPORT 2016
207
CHAPTER 8 - REPORT ON REMUNERATION
TAB. 3 - Shareholdings of members of the administration and control bodies and other executives with strategic responsibilities FIGURES IN EURO Surname and Name
Office
Type of Ownership
Investee Company
No. shares held at 31 Dec 2015
No. shares acquired
No. shares sold
No. shares held at 31 Dec 2016
Saleri Giuseppe
Chairman
Indirect through the subsidiary Giuseppe Saleri S.a.p.A.
Sabaf S.p.A.
5,850,003
-
2,306,690
3,543,313
Roberta Forzanini
Vice Chairman
Direct
Sabaf S.p.A.
4,051
-
2,080
1,971
Bartoli Alberto
CEO
-
-
Direct Indirect through spouse
7,500 Sabaf S.p.A.
7,500
1,000
1,000
Cavalli Giuseppe
Independent Director
Indirect through spouse
Sabaf S.p.A.
5,000
-
-
5,000
Anna Pendoli
Director
Direct
Sabaf S.p.A.
450,000
-
-
450,000
Executives with strategic responsibilities (n° 3)
-
Direct
Sabaf S.p.A.
4,300
-
-
4,300
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