Annual Report 2017
Creative concept
Using the "paper-cut" technique, each word was represented by objects, icons, elements cut out by hand to create paper worlds. These were photographed to construct coloured dividers to make the book easier to consult.
Every organisation’s goal is to improve, personal and business Increase in different daily situations. We have chosen eight words that, taken individually, represent areas where Sabaf constantly devotes great attention and effort to increase their value. This concept is amplified by the initials of these nouns that together form the word “Increase,” which is the focus of the 2017 Annual Report. It is a metaphor that represents the value of a great organisation, such as Sabaf, where each part gives value and increases the other, in the increasingly fundamental team-game necessary to compete in today’s market.
All Creative Agency
Index INTRODUCTION TO THE ANNUAL REPORT
10
Letter of the Chief executive officer to the stakeholders
12
Key performance indicators in summary (KPI)
13
Products and markets
20
CONSOLIDATED NON-FINANCIAL STATEMENT
28
Methodological note
29
Business model, strategic approach and sustainable creation of value
30
Strategic approach and creation of value
30
Sustainable value creation
30
Values, vision and mission
30
Business model
31
Governance of Social Responsibility and Stakeholder Engagement
35
Materiality analysis
39
Corporate Governance, Risk Management and Compliance
44
Corporate governance
44
Risk Management
56
Compliance
58
Sabaf and employees
64
Risks
64
Personnel management policy
64
The people of the Sabaf Group
65
Recruitment policy
67
Personnel training
71
Internal Communication
72
Diversity and equal opportunities
72
Working hours and hours of absence
74
Remuneration, incentive and enhancement systems
76
Occupational health and safety and working environment
78
Industrial relations
84
Disputes and disciplinary measures
85
Sabaf and environment
86
Risks
86
Health and safety, environmental and energy policy
86
Environmental impact
88
Environmental investments
91
Disputes
91
Sabaf, the management of product quality and customer relations
92
Risks
92
Quality management policy
92
Sabaf and supply chain management
94
Risks
94
Supply chain management policy
94
Sabaf, Public Administration and Community
97
Sabaf and shareholders
98
Sabaf and lenders
100
Sabaf and competitors
100
REPORT ON OPERATIONS
114
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
126
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
168
REPORT ON REMUNERATION
214
Innovation
Driven by ongoing research and by continuous process and product innovations ensuring social progress, we offer cutting-edge solutions rooted in an experimental approach with a view to creating long-term value.
Introduction to the Annual Report
Letter of the Chief executive officer to the stakeholders Key performance indicators in summary (KPI) Products and markets
10
12 13 20
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
The publication of the Sabaf Group Annual Report, now in its thirteenth edition,
Sabaf adopts a virtuous approach also in relation to the compliance with the new
reporting of its economic, social and environmental performance.
2016, Legislative Decree 254 came into force, which, in implementation of
confirms the Group's commitment, undertaken since 2005, to the integrated
Sabaf, one of the first companies at international level to take advantage of
the trend of integrated reporting, intends to continue along this path, drawing inspiration from the International Framework on Sustainability Reporting of
the International Integrated Reporting Council (llRC), aware that integrated, complete and transparent reporting can help both companies themselves,
through a better understanding of the strategy and greater internal cohesion, and the investment community, which can thus understand more clearly the link between strategy, governance and business performance.
The Annual Report provides an overview of the Group's business model and
regulatory requirements in relation to non-financial reporting. On 30 December Directive 2014/95/EU on Non-financial and diversity information, requires relevant public interest entities (PIEs) to communicate non-financial and diversity
information starting with the 2017 financial statements. Therefore, as PIEs, Sabaf prepared the Consolidated Non-financial Statement in which the main policies
practised by the company, the management models, risks, the activities carried
out by the Group during the year 2017 and the related performance indicators
with regard to the issues expressly referred to in Legislative Decree 254/2016 (environmental, social, staff-related, respect for human rights, fight against
corruption) are presented, and to the extent necessary to ensure understanding of the company's business, its performance, results and impacts.
the process of creating corporate value. The Business Model and the main
The Group's commitment was also confirmed by the "Oscar di Bilancio" award, a
perspective of capital used (financial, social and relational, human, intellectual,
(FERPI), which for over fifty years has been awarding prizes to the most virtuous
results achieved (Summary Key Performance Indicators) are presented from the infrastructural and natural) to create value over time, generating results for
the business, with positive impacts on the community and stakeholders as a whole. "Non-financial indicators" include the results achieved in managing and
enhancing intangible capital, the main driver that allows monitoring the ability
of the company's strategy to create value in a perspective of medium/long-term
historic contest promoted and organised by the Italian Public Relations Federation
businesses in financial reporting and in dealing with all stakeholders. In the 2017
edition, Sabaf was awarded the "Oscar" in the category of "Small and MediumSized Listed Companies", for having prepared financial statements that stand out for reporting quality of both financial and sustainability aspects.
sustainability.
11
Letter of the Chief executive officer to the stakeholders Dear shareholders and stakeholders, I sign this first letter as the Group's Chief Executive Officer seven months after my arrival at Sabaf.
An excellent company whose quality I had known, but whose values, ethics and ability to grow while respecting work, people and sustainability I was also able to
We have the expertise and cutting-edge technologies to ensure that we have the conditions for a sustainable and profitable development. We will continue
to invest in these assets, leveraging a young and motivated team whose determination and high level training we consider fundamental.
appreciate during this period.
The Industry 4.0 factory here is already a reality that must allow us to be flexible
These are characteristics that we must not take for granted and which we do not
context like the current one. And to whose fluctuations we want to respond with
intend to disregard in the growth project with which we want to face the future.
Here I found a healthy group with enormous potential: the challenge is to seize the potential to the full to trigger further both organic growth and growth through acquisitions, through a policy of acquisitions that can also increase our product
and ready to seize market opportunities even in a continuously uncertain greater competitiveness and productivity gains, both through further process
improvements and through significant differentiation of products and markets. This in order to absorb in a wider scenario what, in some cases, can be local or contingent criticalities.
offer in sectors adjacent to those currently in place.
In short, we want to grow by exploiting the "muscles" that the Group has
2017 was a year of high volumes and good margins, which allowed the company
strengthen our company and our image, with a view to achieving profitability
to return to levels close to 2010. 2018 is expected to be positive, although at a slightly slower pace than the previous year: this is the basis that we intend to consolidate for a qualitative leap forward.
It is not a question of making Sabaf different from what it is, on the contrary; it
developed over the years and that in the near future can help us to further that we intend to maintain, because it is the guarantee of a calm and determined
growth for the future. We intend to continue a determined investment policy: all the profitability generated, once the dividends have been paid, will be invested in the development of our company.
is a question of making it more aware of its own means and its role as a global
We know how difficult it is for this country to adopt an effective industrial policy:
plan to grow and this growth will obviously continue to be driven by the factory
We do not, however, intend to make this an alibi and I would also like to point
player in the market of components for household appliances and similar. We
of Ospitaletto, and by our factories in Turkey and Brazil, where many of our customers operate, as fuel and flywheel.
The whole world remains our field of action: China, India, the United States and
South America are borders in which we want to play an increasingly important
role. These are the markets where growth is most significant and we cannot ignore them.
for example, energy costs are much higher here than elsewhere.
out that in recent months we have signed the company's supplementary contract after negotiations that were sometimes difficult, but which were carried out without any strike. This confirms our desire for openness and inclination towards social responsibility, through a constructive approach to industrial relations.
We hope that this will be the trait that will characterise Sabaf's future: growth, work ethics, mutual respect between the company and its stakeholders.
Pietro Iotti
12
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
Key performance indicators in summary (KPI) ECONOMIC CAPITAL 2017
2016
2015
SALES REVENUES
€/000
150,223
130,978
138,003
EBITDA
€/000
30,955
25,365
26,172
EBIT
€/000
18,117
12,530
14,091
PRE-TAX PROFIT
€/000
17,804
12,446
13,474
NET PROFIT
€/000
14,835
9,009
8,998
WORKING CAPITAL
€/000
50,753
46,084
48,163
INVESTED CAPITAL
€/000
140,588
135,835
136,948
SHAREHOLDERS’ EQUITY
€/000
115,055
112,309
111,040
NET FINANCIAL DEBT
€/000
25,533
23,458
25,908
12.9
9.2
10.3
5,386
5,467
4,613
ROCE (RETURN ON CAPITAL EMPLOYED)
%
€/000
DIVIDENDS PAID OUT
€/000
NET PROFIT
2017
2016
20,000
14,835
2015
20,000
9,009
20,000
8,998 13
HUMAN CAPITAL
AVERAGE AGE OF PERSONNEL
LEVEL OF EDUCATION
LEAVING TURNOVER
HOURS OF TRAINING PER EMPLOYEE
(sum of employee age/total employees at 31/12)
(number of graduates/total employees at 31/12)
(employees resigned and dismissed/ total employees at 31/12)
(hours of training/average employees)
YEARS
%
39.0 38.6 37.7
57.3 57.2 55.7
INVESTMENTS IN TRAINING/TURNOVER
HOURS OF STRIKE FOR INTERNAL CAUSES
%
N°
0.28 0.23 0.33
0 0 0
INJURY FREQUENCY RATE
INJURY SEVERITY INDEX
JOBS CREATED
(number of injuries - excluding injuries while travelling to/from work - x 1,000,000/total hours worked)
(days of absence (excluding injuries while travelling to/from work) x 1,000/ total hours worked)
(lost)
2017 2016 2015
2017 2016 2015
%
13.3
10.4
15.4
8.5
25.1
18.9
TOTAL EMPLOYEES
N°
%
14.68 9.21 13.73
2016 2015
14
0.13 0.04 0.40
1 This figure also takes into account the staff of A.R.C. at 31 December 2016.
ILLNESS RATE
756
65.6
34.4
736
65.5
34.5
759
65.1
34.9
2 (23) 33 1
19.8 15.7 17.5
(hours of illness/total hours worked)
%
N°
2017
HOURS
%
%
2.50 3.28 2.93
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
RELATIONAL CAPITAL
VALUE OF GOODS AND SERVICES OUTSOURCED: brass moulding and aluminium die-casting €/000
2,761
VALUE OF GOODS AND SERVICES OUTSOURCED: other processing €/000
2,635
3,386 3,226
4,010
3,502 10,000
%
10,000
CUSTOMER WASTE (charges from customers and credit
AVERAGE TURNOVER BY CUSTOMER
notes to customers for returns/turnover)
(total turnover/number of customers)
0.09
€/000
366
0.09
382
0.57
416 1
500
PERCENTAGE OF TURNOVER FROM NEW CUSTOMERS
PERCENTAGE OF TOP 10 CUSTOMERS
(turnover from new customers/turnover) %
0.76
%
46
1.01
47
1.24
48 2
100
PERCENTAGE OF TOP 20 CUSTOMERS %
CUSTOMER COMPLAINTS
65
N°
335 395
67
320
68 100
500
TURNOVER FROM CERTIFIED SUPPLIERS
NUMBER OF ANALYSTS WHO FOLLOW THE SECURITY CONTINUOUSLY
(turnover from certified suppliers/purchases) %
70.9
N°
1 1
68.1
2
50.1 100
10
15
TURNOVER PERCENTAGE OF SUPPLIERS IN THE PROVINCE OF BRESCIA
LAWSUITS FILED AGAINST GROUP COMPANIES 4
N°
30.4
%
36.2
4
28.8
0 10
100
PERK/PROFIT 0.14
%
0.40 0.49 1
PRODUCTIVE CAPITAL FIXED ASSETS
TOTAL NET INVESTMENTS
93,802
93,967
92,797
11,762
12,065
1.0
0.8
QUANTITIES SOLD OF HIGH ENERGY EFFICIENCY BURNERS ON TOTAL BURNERS 100
%
100
%
%
8.4
1.1
QUANTITIES SOLD OF LIGHT ALLOY VALVES ON TOTAL VALVES AND THERMOSTATS
100
8.8
1
%
14,127
REAL INVESTMENT/TURNOVER
9.1
(investments + current
20,000
€/000
€/000
100,000
IT BUDGET
expenditure) /TURNOVER
87.8
80.8
73.6
19.7
14.5
13.4
Key 2017
16
2016
2015
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
ENVIRONMENTAL CAPITAL
BRASS
10,000
ALUMINIUM ALLOYS
10,000
STEEL
10,000
MATERIALS USED (t)
540
697
8,070
1,025
SIMILAR TO URBAN
500
6,703
HAZARDOUS WASTE
7,431
10,000
7,631
7,250
6,790
NON-HAZARDOUS WASTE
10,000
WASTE (t)
189
152
2,095
166
m3x1,000
NATURAL GAS CONSUMPTION
2,210
2,396
5,453
5,573
MWh
ELECTRICITY CONSUMPTION
4,059
30,841
3,432
27,189
3,376
6,201
29,384 10,000
50,000
t
CO2 EMISSIONS
%
ENVIRONMENTAL CURRENT EXPENDITURE/TURNOVER AT 31/12
12,332
0.39
10,795
0.43 0.40
11,836 50,000
1
%
ENVIRONMENTAL INVESTMENTS/ TURNOVER AT 31/12 0.02
0.21
0.53
0.21
0.47
kg/€
TOT WASTE/VALUE OF PRODUCTION
0.21 1
10
Key 2017
2016
2015
17
INTELLECTUAL CAPITAL
2017
2016
2015
€/000
337
231
297
%
1.4
1.5
1.4
%
2.5
2.3
3.0
INVESTMENTS IN INTANGIBLE ASSETS/TURNOVER
%
0.6
0.4
0.6
CURRENT EXPENDITURE ON QUALITY/TURNOVER
%
0.20
0.24
0.19
INVESTMENTS ON QUALITY/ TURNOVER
%
0.12
0.10
0.05
VALUES OF WASTE/TURNOVER
%
0.74
0.87
1.22
IMPACT OF QUALITY COSTS/TURNOVER
%
0.83
0.96
1.80
CAPITALISED INVESTMENTS IN RESEARCH AND DEVELOPMENT
HOURS DEDICATED TO THE DEVELOPMENT OF NEW PRODUCTS/ HOURS WORKED HOURS DEDICATED TO PROCESS ENGINEERING/HOURS WORKED (hours dedicated to orders for the 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)
18
NUMBER OF SAMPLES FOR CUSTOMERS
N°
1,245 1,154 1,069
NUMBER OF CODES PROVIDED TO THE FIRST 10 CUSTOMERS
N°
1,620 2,303 2,278
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
Generated and Distributed Economic Value The analysis of the determination and distribution of economic value among stakeholders, prepared in accordance with the indications of the GRI is shown below. The table was prepared distinguishing between three levels of economic value. The generated one, the distributed one and the one retained by the Group. The economic value represents the overall wealth created by Sabaf, which is then distributed among the various stakeholders: suppliers (operating costs), employees, lenders, shareholders, public administration and community (external perks).
THOUSANDS OF EURO
2017
2016
CHANGE
ECONOMIC VALUE GENERATED BY THE GROUP
155,408
134,937
20,471
Revenue
150,223
130,978
19,245
3,325
2,752
573
214
101
113
Value adjustments
1,474
842
632
Bad debt provision
(93)
(189)
96
Exchange rate differences
274
435
(161)
Income/expenses from the sale of property, plant and equipment and intangible assets
(12)
18
(30)
Value adjustments to property, plant and equipment and intangible assets
0
0
0
Profits/losses from equity investments
3
0
3
133,063
118,396
14,667
88,636
76,809
11,827
580
559
21
35,328
32,112
3,216
804
621
183
Remuneration of shareholders 2
5,386
5,467
(81)
Remuneration of the Public Administration 3
2,888
3,351
(463)
21
36
(15)
ECONOMIC VALUE RETAINED BY THE GROUP
22,345
16,541
5,804
Depreciations and amortisation
12,826
12,853
(27)
Provisions
26
127
(101)
Use of provisions
(36)
(67)
31
9,529
3,628
5,901
Other income Financial income
ECONOMIC VALUE DISTRIBUTED BY THE GROUP Remuneration of suppliers of which for environmental expenses Remuneration of employees Remuneration of lenders
External perks
Reserves
2 The amount is estimated on the basis of the proposed dividend. 3 Includes deferred taxes.
19
Products and markets The Sabaf Group is one of the world's leading manufacturers of components for household gas cooking appliances, with a market share of about 50% in Europe and over 10% worldwide. The reference market is represented by manufacturers of household appliances and in particular of kitchens, hobs and ovens. Most of sales are made by the supply of original equipment, while sales of spare parts are negligible.
The sector of manufacturers of gas cooking appliances is characterised by the presence of: • large multinational groups with a consolidated international presence in sales and production, with strong brands; • manufacturers located in Countries with low labour costs that aim both to seize the opportunities offered by domestic markets and to develop rapidly on a global scale; • manufacturers focused on specific markets, where they have leadership positions; • manufacturers (mainly Italian manufacturers with a strong vocation for export) occupying segments where the level of product differentiation is highest (for example, built-in hobs and ovens or large free-standing kitchens).
Market share of about 50% in Europe and over 10% worldwide.
The product range Valves and thermostats
Burners
Hinges
Accessories
These are the components that regulate the flow of gas to the covered (of the oven or grill) or uncovered burners; the thermostats are characterised by the presence of a thermoregulator to keep the chosen temperature constant.
These are the components that, by mixing the gas with air and burning the gases used, produce one or more flame rings.
These are the components that allow movement and balancing when opening and closing the oven door, washing machine door or dishwasher door.
The Group also produces and markets a wide range of accessories, which integrate the offer of the main product lines.
SALES BY PRODUCT FAMILY Sales of light alloy valves, which have now almost completely replaced brass valves, are steadily increasing. Continuous improvements in the production process allowed competitiveness to be further enhanced.
There was a good increase in sales of hinges, benefiting from solid partnerships with the main customers and the development of new products that anticipated market requirements.
In recent years, sales of thermostats have been affected by the difficulties of the main end market (North Africa).
Starting from 2016, the Group entered the professional burners sector, through the acquisition of A.R.C. This is a business that, thanks to its integration with Sabaf, offers excellent prospects for further development.
The product family with the highest growth rates is that of special burners, where innovation has been strongest in recent years. Standard burners are the most popular products, also produced in Turkey and Brazil.
20
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
Sales by product family
â‚Ź/000
0
year
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
5,991
Brass taps
39,351
Light alloy taps 7,376
Thermostats
2017
41,070
Standard burners 27,184
Special burners 15,267
Accessor & other revenues 8,905
Hinges 5,079
Professional burners
9,007
Brass taps
32,393
Light alloy taps 7,699
Thermostats
2016
37,338
Standard burners 21,215
Special burners 12,613
Accessor & other revenues 8,424
Hinges 2,289
Professional burners
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 7,946
Hinges Professional burners
-
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 6,963
Hinges Professional burners
-
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 6,650
Hinges Professional burners
-
TOTA L
150,223 130,978 138,003 136,337
130,967 21
The industrial footprint SABAF S.P.A. Valves and thermostats Standard burners Special burners Revenue € 115.7 million 542 employees
ORDE M
E
PR OG
RE
S
FARINGOSI HINGES S.R.L. Oven hinges Washing machine hinges Revenue € 8.9 million 46 employees
ARC S.R.L. Professional burners Household special burners Revenue € 5.1 million 24 employees
S O
SABAF DO BRASIL LTDA Standard burners Special burners Revenue € 11.6 million 87 employees
SABAF APPLIANCE COMPONENTS (KUNSHAN) CO. LTD Wok burners Revenue € 1 million 8 employees
150.2
803
GROUP SALES 2017
TOTAL GROUP EMPLOYEES AT 31/12/2017
million €
22
SABAF BEYAZ ESYA Standard burners Revenue € 20 million 96 employees
employees
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
THE REFERENCE MARKETS In Western Europe, which accounts for about half of the final destination market for Sabaf products, the saturation level reached by cooking appliances (the portion of families of household appliances) is close to 100%. Therefore, purchases of new appliances are mainly represented by replacement purchases. The move, purchase or renovation of a house often provide opportunities to purchase a new cooking appliance. Therefore, the market trend is directly affected by the general economic trend and in particular by the levels of disposable income for households, consumer confidence and the trend in real estate activity.
However, the level of saturation is often lower in other markets. The higher economic development rates and the more favourable demographic trend compared to Western Europe are creating great opportunities for groups such as Sabaf, which can both work with multinational manufacturers of household appliances and support local producers.
COUNTRIES AND CUSTOMERS COUNTRIES
100
59
CUSTOMERS 4
500
54 339
2017
2016
293
2017
2016
In line with the followed commercial policies, most of the active commercial relations are characterised by relations consolidated over the long term. There are 32 customers with annual sales of more than € 1 million (31 in 2016). The distribution by class of turnover is as follows:
IN EURO
2017
2016
> 5,000,000
7
5
from 1,000,001 to 5,000,000
25
26
from € 500,001 to 1,000,000
16
13
from 100,001 to 500,000
52
50
< 100,000
310
249
In addition to the management structure at the Ospitaletto headquarters, the commercial network is based on the subsidiaries in Brazil, Turkey, the USA and China. There are 11 agency relationships, mainly relating to non-European markets.
4 With sales over € 1,000.
23
Sabaf's international development: challenges and opportunities PERFORMANCE DATA 5
ANALYSIS OF THE SCENARIO
Italy In the last ten years, the production of household appliances in Italy has been strongly reduced: some players left the sector and others relocated part of their activities to Turkey and Eastern Europe. There are still manufacturers focused mainly on the up-market or on special products, strongly dedicated to exports, which
36,523 | 24.3%
36,365 | 27.8%
continue to show excellent results. The importance of the Italian market for Sabaf is consequently lower than in the past. The majority (estimated at approximately 80%) of Sabaf's sales in Italy are destined for household appliances exported by our customers.
41,244 | 29.9%
42,277 | 31.0%
42,662 | 32.6%
Western Europe The same trend that characterised Italy was also seen in the other Western European countries: in Western
11,678 | 7.8%
8,553 | 6.5%
Europe, up-market products remain high, where Sabaf is significantly increasing its share.
7,438 | 5.4%
8,716 | 6.4%
7,465 | 5.7%
Eastern Europe and Turkey Turkey is now the state where the largest number of household appliances is produced. In this context, the opening of a production plant in Turkey and the development of new trade relations are key elements in support of the growth strategy. Sabaf estimates that about 75% of sales in Turkey are exported by our customers (mainly in Europe); however, the Turkish domestic market is of increasing importance: the average age of the 42,824 | 28.5%
34,123 | 26.1%
population, the number of new households and the increase in income are converging indicators of a growing demand for durable goods. The Group's strategy is to further develop its activities in Turkey in the coming years. The Group is also active in other Eastern European markets, where it intends to conclude new partnership agreements with customers and strengthen those already in place.
35,125 | 25.5%
Key 24
5 Sales by geographical area (â‚Ź/000) and percentage incidence on Group sales.
36,198 | 26.6%
2017
2016
29,300 | 22.4%
2015
2014
2013
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
PERFORMANCE DATA 5
ANALYSIS OF THE SCENARIO
Asia and Oceania China, with its production of about 26 million hobs per year, is the most important market in the world. After many years of commercial presence only, in 2015 Sabaf started to produce in China a special burner that guarantees an efficiency of more than 63% for the built-in hobs. The Group, aware that it offers high quality products that are increasingly competitive compared to those 10,516 | 7.0%
8,088 | 6.2%
supplied by local competitors, aims to establish longterm partnerships with the main Chinese hob manufacturers. Another market with great potential is the Indian market, for which Sabaf developed a range of dedicated burners and where sales are constantly increasing, even if still with modest absolute values.
7,019 | 5.0%
6,907 | 5.0%
4,727 | 3.6%
Central and South America For future development, Sabaf can count on a consolidated production presence (a factory in Brazil has been operating since 2001). The Sabaf Group believes that the development potential of this area is still extremely interesting, considering 22,938 | 15.3%
20,847 | 15.9%
the significant size of the market and the demographic growth trends. The product range for the local market was recently expanded, with the production of special burners in Brazil, also to meet the specific nature of demand.
20,815 | 15.1%
18,324 | 13.4%
24,375 | 18.6%
Middle East and Africa Sabaf has a long-standing presence and reputation in the Middle East and Africa. The social, political and economic difficulties of the area inevitably condition the performance on these markets. 13,009 | 8.6%
11,698 | 8.9%
The Group also considers the Middle East and Africa among the most promising markets in the medium term, also in view of demographic trends and the growing rate of urbanisation.
16,759 | 12.1%
16,871 | 12.4%
17,547 | 13.4%
North America and Mexico Sabaf's presence in North America is relatively recent, but sales and market share have been growing steadily in recent years. Future plans also include the
12,735 | 8.5%
11,304 | 8.6%
development of products co-designed with major customers and a more direct coverage on the market, possibly also through a production site.
9,603 | 7.0%
Key
7,044 | 5.2%
2017
2016
4,891 | 3.7%
2015
2014
2013
25
Network
Sabaf Group: a complex system, a network where interconnection and communication make the difference.
Consolidated non-financial statement (prepared pursuant to Article 4 of Legislative Decree 254/2016)
Methodological note Business model, strategic approach and sustainable creation of value Corporate Governance, Risk Management and Compliance Sabaf and employees Sabaf and environment Sabaf, the management of product quality and customer relations Sabaf and supply chain management Sabaf, Public Administration and Community Sabaf and shareholders Sabaf and lenders Sabaf and competitors
28
29 30 44 64 86 92 94 97 98 100 100
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Methodological note PREPARATION CRITERIA The consolidated non-financial statement of the Sabaf Group (hereinafter also referred to as the “Statement”), prepared in accordance with Art. 4 of Legislative Decree 254/2016 (hereinafter also referred to as the “Decree”), contains information (policies practised, risks, management models and performance indicators) on environmental, social, personnel, human rights and anti-corruption issues, to the extent necessary to ensure understanding of the activities carried out by the Group, its performance, results and impact. Each section also describes the main risks, generated or suffered, related to the above issues and deriving from the Group's activities. The Sabaf Group identified the GRI-G4 Sustainability Reporting Guidelines (hereinafter also referred to as "GRI-G4") defined by the Global Reporting Initiative (GRI) in 2013 as the "reference standard" for fulfilling the obligations of Legislative Decree 254/2016, as the most widely recognised and internationally disseminated Guideli-
nes. This Statement is prepared in accordance with the GRI-G4 core reporting option. The process of defining the contents and determining the relevant aspects, also in relation to the areas envisaged by the Decree, was based on the principles envisaged by GRI-G4 (materiality, stakeholder inclusiveness, sustainability context, completeness, comparability, accuracy, timeliness, clarity, reliability and balance). To help readers find the information in the document, the GRI Content Index is at the bottom of the statement. This Statement was approved by the Board of Directors on 26 March 2018 and will be prepared annually. In accordance with one of the options envisaged by Art. 5 of Legislative Decree 254/2016, it constitutes a separate report from the Report on operations.
REPORTING BOUNDARY
REPORTING PROCESS
The reporting boundary of qualitative and quantitative data and information contained in the Consolidated Non-Financial Statement of the Sabaf Group refers to the performance of the Sabaf Group (hereinafter also referred to as "the Group") for the year ended 31 December 2017. In fact, as envisaged by Legislative Decree 254/2016, Art. 4, this Consolidated Non-financial Statement includes the data of the parent company (Sabaf S.p.A.) and its subsidiaries consolidated on a line-by-line basis. Any limitations to this boundary refer to individual performance indicators and are properly indicated in the Statement. It is also pointed out that, compared to the previous reporting year, the company A.R.C. s.r.l. was included in the boundary in 2017; therefore, the 2016 data represented in the Statement do not include A.R.C. s.r.l.
The preparation of the Group's Consolidated Non-Financial Statement was based on a structured reporting process that involved all Italian and foreign structures, departments and companies responsible for the relevant areas and the related data and information that are the subject matter of the Group's non-financial reporting. They were asked to contribute to the identification and evaluation of significant projects/ initiatives to be described in the document and to data collection, analysis and consolidation phase, each for its own area of competence. In particular, the data and information included in this Statement derive from the company information system used for the management and accounting of the Group and from a non-financial reporting system (data collection sheets) specifically implemented to meet the requirements of Legislative Decree 254/2016 and GRI-G4. In order to ensure the reliability of the information contained in the Statement, directly measurable quantities have been included, limiting the use of estimates as much as possible. Calculations are based on the best information available or on sample surveys. The estimated quantities are clearly indicated as such. The economic and financial data and information are derived from the Consolidated Financial Statements at 31 December 2017.
29
Business model, strategic approach and sustainable creation of value Strategic approach and creation of value SUSTAINABLE VALUE CREATION For the Sabaf Group, respect for business ethics and socially responsible behaviour are the fundamental elements of its business model. Accordingly, the Group developed a strategy and a governance model that can guarantee sustainable growth over time.
The Sabaf Group is aware that sustainable growth depends on the degree of harmony and the sharing of values with its stakeholders: compliance with common values increases mutual trust, encourages the development of common knowledge, and therefore contributes to the containment of transaction costs and control costs; in essence, it benefits the Group and all its stakeholders.
VALUES, VISION AND MISSION Sabaf takes the Person as its original value and therefore as the fundamental criterion of every choice: this results in an entrepreneurial vision that ensures dignity and freedom to the Person within shared rules of behaviour. The centricity of the Person represents a universal value, i.e. a hyper-standard applicable without differences in time and space. In compliance with this universal value, the Sabaf Group operates by promoting cultural diversity through the criterion of equity in space and time. Such a moral commitment implies an a priori renunciation of all choices that do not respect
the physical, cultural and moral integrity of the Person, even if such decisions can be efficient, economically convenient and legally acceptable. Respecting the value of the Person means that, first of all, the dimension of the category of Being in relation to Doing and Having is the overriding consideration, and therefore implies the protection and enhancement of the "essential" manifestations expressing the fullness of the Person.
The Charter of Values of Sabaf The Charter of Values is the governance tool through which the Sabaf Group clearly explains the Company’s values, standards of behaviour and commitments in relations with its stakeholders – shareholders, employees, customers, suppliers, lenders, the Public Administration, the community and the environment. The spirit of the Charter is to reconcile the principles of economic management with ethics based on the centricity of Man, as an essential condition for the sustainable growth of business in the long term. Sustainable growth, intended as the ability to combine at the same time: • economic sustainability, i.e. operate in such a way that company choices increase the value of the company not only in the short term but above all are able to guarantee business continuity in the long term through the application of an advanced model of corporate governance; • social sustainability, i.e. promote ethical behaviour in business and reconcile the legitimate expectations of the various stakeholders in accordance with common shared values; • environmental sustainability, i.e. produce by minimising the direct and indirect environmental impacts of its production activities to preserve the natural environment for the benefit of future generations in compliance with current laws on the subject.
30
The Charter aims to give a vision of ethics, focusing mainly on positive and just actions to be taken and not only on incorrect behaviour to be avoided. This vision is the basis for a positive use of freedom by decision-makers, where ethical references guide decisions in a manner consistent with the Group's culture of social responsibility. The Sabaf Group aims to develop a process based on people being given a sense of responsibility within shared rules of behaviour with which to voluntarily comply. According to this approach, it is still imperative to comply absolutely with the law and regulations in force in Italy and in the other countries where the Group operates, as well as with all the internal regulations of the Group and the values declared in the Charter. The Charter of Values also represents a reference document as part of the Organisation, Management and Control Model pursuant to Legislative Decree 231/2001 and, as such, sets out a series of general rules of behaviour Group employees are required to comply with.
SABAF | RAPPORTO ANNUALE 2017
DICHIARAZIONE CONSOLIDATA DI CARATTERE NON FINANZIARIO
BUSINESS MODEL Vision
Mission
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.
Consolidate the technological and market leadership in the design, production and distribution of the entire range of components for household gas cooking appliances through constant attention to innovation, safety and the enhancement of internal expertise. Associate the growth of company services with social and environmental sustainability, promoting an open dialogue with the legitimate expectations of stakeholders.
Strategic pillars of Sabaf's Business Model In line with its shared values and mission, the Company believes that there is a successful industrial and cultural model to be consolidated both through organic growth and growth through acquisitions. The distinctive features of the Sabaf model are set below:
Table summarising the Policies of the Sabaf Group with reference to the contents of Legislative Decree 254/2016 TOPIC ENVISAGED BY LEGISLATIVE DECREE 254/2016
REFERENCE POLICIES
ENVIRONMENT BASIC PRINCIPLES • Raise staff awareness and train the personnel to promote environmental awareness • Minimise direct and indirect environmental impacts • Adopt a precautionary approach to environmental impacts • Encourage the development and diffusion of environmentally friendly technologies and products • Define environmental objectives and improvement programmes • Search for the right balance between economic objectives and environmental sustainability
• Charter of Values • Manual of the Integrated Management System of Health and Safety, Environment and Energy in compliance with ISO 14001, ISO 50001 and OHSAS 18001 standards
HUMAN RIGHTS BASIC PRINCIPLES • Adopt socially responsible behaviour • Promote respect for the fundamental human rights of workers in all countries where the Group operates • Avoid all forms of discrimination and favouritism in respect of employment and occupation • Enhance and respect diversity
• Charter of Values • Manual of the Social Responsibility Management System in compliance with SA8000 Standard
Safety has always been one of the essential elements of Sabaf's business project. Safety for Sabaf is not just a matter of complying with existing standards but a management philosophy oriented towards the continuous improvement of its performance, in order to guarantee the end user an increasingly safe product. In addition to investing in research and development of new products, the Group has chosen to play an active role in disseminating a safety culture: Sabaf has long been promoting the introduction of regulations worldwide - in the various institutional venues - that make it compulsory to adopt products with thermoelectric safety devices. Sabaf also promoted the ban on the use of zamak (zinc and aluminium alloy) for the production of gas valves for cooking, in consideration of the intrinsic danger. To date, the use of zamak is still permitted in Brazil, Mexico and other South American countries, limiting business opportunities in the valves segment for Sabaf.
• Charter of Values • Manual of the Integrated Management System of Health and Safety, Environment and Energy in compliance with ISO 14001, ISO 50001 and OHSAS 18001 standards
• Organisation, management and control Model pursuant to Legislative Decree 231/2001
SUPPLY CHAIN BASIC PRINCIPLES • Ensure absolute impartiality in the choice of suppliers • Establish long-term relationships based on fairness in negotiations, integrity and contractual fairness
Sabaf pursues its growth through its success in international markets by trying to replicate its industrial model in emerging countries and adapting it to the local culture. In line with its reference values and mission, the Group is seeking to bring know-how and cutting-edge technologies to these countries, operating in full respect of human rights and the environment and in compliance with the United Nations Code of Conduct for Transnational Corporations. This choice is driven by the awareness that only by operating in a socially responsible way is it possible to ensure long-term development of industrial experience in emerging markets.
Safety
ANTI-CORRUPTION BASIC PRINCIPLES • Raise awareness among all those who work for Sabaf so that they behave correctly and transparently in the performance of their activities • Comply with local anti-corruption regulations
For Sabaf, innovation represents one of the essential elements of Sabaf's industrial model and one of its main strategic levers. Thanks to continuous innovation, the Group has managed to achieve excellent results, identifying technological and production solutions that are among the most advanced and effective currently available and establishing a virtuous circle of continuous improvement of processes and products, until acquiring technological competence with characteristics that are difficult to match for competitors. The know-how acquired over the years in the development and internal production of machinery, tools and presses, which is integrated synergistically with the know-how in the development and production of our products, represents the critical success factor of the Group. The investments in innovation allowed the company to become a world leader in a highly specialised sector and to achieve high levels of technological development, specialisation and production flexibility over time. The production sites in Italy and abroad are designed to guarantee products according to the highest levels of technology available today and represent a cutting-edge model both for environmental protection and safety of the employees.
Sabaf's product innovation strategy is based on the search for improved environmental performance. Attention to environmental issues is reflected both in innovative production processes that have a lower energy impact in the manufacture of products, and, above all, in the design of eco-efficient products during their daily use. Innovation efforts are directed towards the development of burners that reduce fuel consumption (natural gas or other gases) and emissions (carbon dioxide and carbon monoxide, in particular) in users.
• Charter of Values • Manual of the Social Responsibility Management System in compliance with SA8000 Standard
HEALTH AND SAFETY BASIC PRINCIPLES • Reach working standards that guarantee health and maximum safety, also through the modernisation and continuous improvement of workplaces • Minimise any form of exposure to risks at work • Disseminate the culture of risk prevention through systematic and effective training • Promote the protection not only of oneself, but also of colleagues and third parties • Encourage the diffusion of products with security systems
Success on international markets
Eco-efficiency
PERSONNEL BASIC PRINCIPLES • Encourage continuous learning, professional growth and knowledge sharing • Provide clear and transparent information on the tasks to be carried out and the position held • Encourage teamwork and the dissemination of creativity in order to allow the full expression of individual skills • Adopt criteria of merit and competence in employment relationships • Encourage the involvement and satisfaction of all the personnel
Innovation
• Charter of Values
31
Widening the range of components and partnerships with multinational groups The continuous expansion of the range aims to increase customer loyalty through the widest satisfaction of needs. The possibility of offering a complete range of components is an additional distinguishing feature for Sabaf compared to its competitors. This expansion is pursued both through internal research and through growth through acquisitions, including in adjacent sectors. An example of this is the acquisition in 2016 of the majority shareholding in A.R.C. s.r.l., leading company in the production of burners for professional cooking. The Group also intends to further strengthen its collaboration with customers and its position as sole supplier of a complete range of products in the cooking components market, also thanks to its ability to adapt production processes to specific customer needs.
Enhancement of intangible assets and of its intellectual capital Sabaf carefully monitors and increases the value of its intangible assets: the high technical and professional competence of the people who work there, the image synonymous with quality and reliability, the reputation of a company attentive to social and environmental issues and the requirements of its stakeholders. The promotion of the idea of work and relations with stakeholders as a passion for a project based on common values in which everyone can recognise themselves symmetrically represents not only a moral commitment, but the real guarantee of enhancement of intangible assets. In this perspective, the sharing of values represents the link between the promotion of a corporate culture oriented towards social responsibility and the enhancement of its intellectual capital.
INPUT
ECONOMIC CAPITAL
• • • •
HUMAN CAPITAL
Net financial debt € 25,533,000 Shareholders' Equity € 115,055,000 Invested capital € 140,588,000 Market capitalisation at 31 December /Shareholders’ Equity 2.00
• 756 employees • Advanced education: employees with a degree or diploma 57.3% • Training hours by employee 19.8 • Investments in training on turnover 0.28%
BUSINESS APPROACH
OUTPUT
Innovation, enhancement of internal resources and continuous learning
+
Quality, internal and external safety, eco-compatibility
RELATIONAL CAPITAL
D I S T I N C T I V E F E AT U R E S Internal and verticalised production of:
Sustainability
components and products
ECONOMIC CAPITAL
HUMAN CAPITAL
RELATIONAL CAPITAL
• No. of new employees 101 • Leaving turnover 12% • Strike hours on hours worked 0.10% • Injury frequency rate 14.7 • Injury severity index 0.13
• Production sites 6 • Real investment on turnover 9.1% • Value of property, plant and equipment € 78,766,000
• Turnover from the top 10 customers 46% • No. of Customers 339 • Purchases from suppliers in the province of Brescia 30.4%
Internationalisation
• Sales revenue +14.7% • EBITDA as a percentage of sales 20.6%
PRODUCTIVE CAPITAL
• Average turnover by customer € 366,000 • Customer complaints 335 • Lawsuits filed against Group companies 4 • Perk/profit 0.14% • No. of samples for customers 1,245
+
machinery, tools and presses based on specific know-how
PRODUCTIVE CAPITAL
• Burners sold No. of parts 35,200,000 • High efficiency burners 19.7% • Valves and thermostats sold No. of Parts 19,700,000 • Light alloy valves and thermostats sold 87.8%
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
ENVIRONMENTAL CAPITAL
Brass 540 t Aluminium alloys 8,070 t Steel 7,631 t Electricity consumed 30,841 MWh Natural gas consumed 4,059,000 m3 Water used 112,801 m3
• H ours dedicated to the development of new products 1.4% • Hours dedicated to process engineering 2.5%
INPUT
• • • • • •
INTELLECTUAL CAPITAL
PRODUCTS Valves and thermostats
Hinges
+
Burners
Accessories
INTELLECTUAL CAPITAL
• Waste to value of production 0.21 Kg/€ • CO2 emissions 12,332 t
• No. of Patents 33 • No. of codes provided to the first 10 customers 1,620 • Impact of quality current expenditure on turnover 0.20%
OUTPUT
ENVIRONMENTAL CAPITAL
33
Sabaf 4.0 "Industry 4.0" indicates the fourth industrial revolution, i.e., the one that will lead to a production almost entirely based on the use of intelligent machines, interconnected and connected to the Internet. However, these machines are not yet able to work alone: because a more powerful data processing and storage capacity will have to be combined with a better efficiency in obtaining value. Today, only 1% of the data collected is used by companies to refine their processes on the basis of the information available. For us, who have been on the road to Industry 4.0 for about ten years, through the use of robots and the ability of the different work phases to communicate with each other, the new frontier is to achieve greater flexibility, to respond faster and with high quality standards to cycles in an increasingly volatile market.
Our goal is to make the data resulting from these integrations available and usable in real time to the people directly involved in the processes, because it is only the knowledge of man that can guarantee the true revolution 4.0, especially in a verticalised and integrated reality like Sabaf. We must learn to use all this to the best of our ability to achieve higher performance, saving time, waste, costs and energy. We must all become the minds of new and powerful processes. Sabaf's knowledge, its history, tradition, skills and new frontiers of work. Here's what "Industry 4.0" means to us
Sabaf and the lean philosophy Japanese model, lean production, total quality. These are the formulas by which the manufacturing industry tries to keep up with the times, with the global challenges that make the market uncertain and competitive advantages not acquired forever. Sabaf has been committed to the philosophy of continuous improvement for some time and applies, both in the factory and in the office, many techniques typical of lean manufacturing and lean office. This is a necessary way not to lose market share in a reality made complicated by the difficult economic moment, not only for the household appliances sector. We also know that continuous
34
improvement is an objective that must concern everyone, at all levels. If we want to keep up with the times, everyone must make every effort to do excellently what they already know how to do well. Everyone is invited to bring out their own skills and to share their experience and knowledge with others. We are aware that every resource that is misused or not used is a wasted resource, whether it is energy, time, people, intelligence or raw materials. Finally, we know that continuous improvement implies people's propensity to change, as Charles Darwin taught us: it is not the strongest or the smartest species to survive, but the one that best adapts to change.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
GOVERNANCE OF SOCIAL RESPONSIBILITY AND STAKEHOLDER ENGAGEMENT
Social responsibility in business processes
To transform the values and principles of sustainable development into intervention choices and management activities, Sabaf applies a structured methodology, the key factors of which are as follows:
1
2
3
sharing values, mission and sustainability strategy;
training and communication;
an internal control system capable of monitoring risks (including social, environmental and reputational risks) and verifying the implementation of commitments to stakeholders;
4
5
6
key performance indicators (KPIs), which can monitor economic, social and environmental performance;
a clear and complete reporting system, able to effectively inform the different categories of stakeholders;
a stakeholder engagement system, to compare with the expectations of all stakeholders and to receive useful feedback for continuous improvement.
The precautionary approach The awareness of the social and environmental aspects that accompany the Group's activities, together with the consideration of the importance of a cooperative approach with stakeholders and the Group's good reputation, has led Sabaf to adopt a precautionary approach in managing the economic, social and environmental variables that it has to manage on a daily basis. To this end, the Group analysed specifically the main risks of the different operating dimensions. Detailed information on the internal control system and on the risk management system is provided in the next paragraph. “Corporate Governance, Risk Management and Compliance�.
35
Stakeholder Engagement Sabaf is committed to constantly strengthening the social value of its business activities through careful management of relations with stakeholders.
The company intends to establish an open and transparent dialogue, encouraging opportunities for discussion in order to identify lawful expectations, increase trust in the Company, manage risks and identify new opportunities.
Customers
Community
Employees
Public Administration
Shareholders
Competitors
Enviroment Lenders
The identification of stakeholders is an essential starting point for defining social and environmental reporting processes. The "stakeholder map" provides a summary representation of Sabaf's main stakeholders, identified on the basis of their business characteristics, the characteristic aspects of the market and the intensity of their relations with the latter. The Annual Report is the preferred communication tool for presenting the significant economic, social and environmental performance achieved during the year.
EMPLOYEES
CUSTOMERS
SUPPLIERS
Employee satisfaction survey and climate analysis Meetings with employees Meetings with trade unions
36
Customer Satisfaction Survey
Questionnaire Regular meetings
Suppliers
The initiatives for involving each stakeholder that are carried out periodically are described below (generally every two or three years). The relevant issues arising from these activities are reported in the following paragraphs.
SHAREHOLDERS
Questionnaire dedicated to financial analysts and investment fund managers Meetings with ethical fund managers
COMMUNITY AND INSTITUTIONS
Multi-stakeholder Panel Dialogue with universities
Stakeholder
Stakeholder engagement initiatives undertaken
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Sabaf complies with the Code of Conduct of CECED Sabaf complied with the Code of Conduct of CECED Italia, an association representing over 100 companies in the household appliances industry. The CECED Code of Conduct confirms the commitment of the European household appliance industry to ethical and fair behaviour. The Code aims to promote fair and sustainable standards in working conditions and environmental protection to support fair competition in global markets. The producers complying with the Code commit themselves voluntarily to implement decent working conditions, which include compliance with common standards regarding minimum age, working hours, hygiene and safety conditions, respect for freedom of association and collective bargaining, as well as respect for environmental standards. The signatory companies also undertake to raise awareness among their suppliers of the principles of the Code of Conduct and encourage them to pursue them. They also require that the same principles be proposed to the whole supply chain through the latter. The Annual Report of Sabaf is also the tool through which the Group reports year by year on the practical implementation of the principles of the Code and the progress achieved, as specifically required of the companies complying with it.
37
Sabaf complies with the Global Compact In April 2004, Sabaf complied formally with the Global Compact, the United Nations initiative for companies that commit to upholding and promoting the ten universally accepted principles of human rights, labour rights, environmental protection and anti-corruption. With the publication of the 2017 Annual Report, we renew our commitment to making the Global Compact and its principles an integral part of our strategy, culture and day-to-day operations, and we also commit to explicitly declare our commitment to all employees, partners, customers and the general public. The consolidated non-financial statement sets out in detail the actions taken by the Sabaf Group in support of the ten principles; the references are contained in the table of contents of GRI indicators, according to the guideline "Making the connection. The GRI Guidelines and the UNGC Communication on Progress�.
THE 10 PRINCIPLES OF THE GLOBAL COMPACT Human rights P R I N C I PL E I Businesses should support and respect the protection of internationally proclaimed human rights; and P R I N C I PL E I I make sure that they are not - even if indirectly - complicit in human rights abuses.
Labour P R I N C I PL E I I I Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining P R I N C I PL E I V The elimination of all forms of forced and compulsory labour. P R I N C I PL E V The effective abolition of child labour. P R I N C I PL E V I The elimination of discrimination in respect of employment and occupation
Environment P R I N C I PL E V I I Businesses should support a precautionary approach to environmental challenges and P R I N C I PL E V I I I undertake initiatives to promote greater environmental responsibility; and P R I N C I PL E I X encourage the development and diffusion of environmentally friendly technologies.
Fight against corruption P R I N C I PL E X Businesses should work against corruption in all its forms, including extortion and bribery.
38
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
MATERIALITY ANALYSIS The GRI-G4 Guidelines require that the contents of the Non-Financial Statement be defined on the basis of a materiality analysis. In compliance with the requests of GRI-G4, Sabaf has started since 2014 a process of identifying the (relevant) material aspects to be reported, i.e. those aspects: • of significant economic, environmental or social impact for Sabaf's business; • that could substantially affect the assessments and decisions of stakeholders. From this perspective, materiality takes into consideration not only the point of view of the organisation but also that of stakeholders. In consideration of business priorities and the development of the external context, the most important aspects were updated in 2017.
It is noted that in defining material aspects, the following topics are considered preconditions for operating and are therefore considered very important for both Sabaf and its stakeholders: a) creation and distribution of sustainable value over time; b) a transparent and effective governance system to support business; c) constant attention to compliance with the law in the performance of its activities. 6
VERY SIGNIFICANT
Materiality matrix
Remuneration and incentive policy
3
Health and safety of personnel and contractors Customer satisfaction and customer support
8
11
Emissions into the atmosphere, waste and of environmental impact management
Production quality and efficiency
SIGNIFICANT
SIGNIFICANCE FOR STAKEHOLDERS
Research and innovation of products and processes also with reference to safety and environmental performance
Management of relations with suppliers, supplier assessment and contractual conditions
Organic growth and growth through acquisitions
7
6
4
Partnership with multinational groups
9
10
5
1 Personnel training
2 Industrial relations
Protection of Human and Workers' Rights Diversity and equal opportunities
13
12
SIGNIFICANT
VERY SIGNIFICANT
SIGNIFICANCE FOR SABAF
6 This includes the fight against corruption, which is an essential aspect of managing the Group's business and therefore included in the preconditions, and is discussed in this document in the section "Corporate Governance, Risk Management and Compliance".
39
Material aspects ID
MATERIAL ASPECT
IMPORTANCE OF THE ASPECT FOR SABAF
LINK TO THE GRI-G4 ASPECTS
INTERNAL IMPACTS
EXTERNAL IMPACTS
1
Personnel training
Training activities with the aim of guaranteeing the continuous professional growth of employees
Training and education (G4-LA9)
Sabaf
2
Industrial relations
Relations between Sabaf and the internal trade union representatives, based on the principles of transparency and mutual correctness
Freedom of Association and Collective Bargaining (G4-HR4)
Sabaf
Trade unions
3
Remuneration and incentive policy
Definition of fixed and variable components of remuneration for employees Incentive system based on the achievement of preestablished targets in order to pursue company targets
Market Presence (G4-EC5) Training and education (G4-LA11) Equal Remuneration for Woman and Man (G4-LA13)
Sabaf
Trade unions
4
Emissions into the atmosphere, waste and management of environmental impacts
Definition of monitoring and reduction activities of emissions of polluting substances into the atmosphere and of waste generated by the production processes of Sabaf
Energy (G4-EN3, G4-EN5) Emissions (G4-EN15, G4-EN16, G4-EN20, G4-EN21) Effluents and Waste (G4-EN22, G4-EN23, G4-EN24)
Sabaf
Environment, Community
5
Research and Identification of new technological and production innovation of products solutions (also with particular attention to safety and and processes also environmental performance) that allow the company with reference to safety to strengthen its leadership in the industrial sector and environmental to which it belongs performance
Product and Services (G4-EN27) Customer Health and Safety (G4-PR1)
Sabaf
Customers, Community, Environment
6
Partnership with multinational groups
Sabaf's opening to strategic collaborations with the main players in the sector
(*)
Sabaf
Customers
7
Organic growth and growth through acquisitions
Boost the Group's expansion, both through organic growth and through acquisitions, maintaining the excellence of its economic results and preserving its financial solidity
(*)
Sabaf
Customers, Community
40
(*) With regard to these aspects (not directly related to an Aspect envisaged by the GRI-G4 Guidelines), Sabaf indicates in the document the management approach adopted and the related indicators.
SABAF | ANNUAL REPORT 2017
INTRODUCTION TO ANNUAL REPORT
ID
MATERIAL ASPECT
IMPORTANCE OF THE ASPECT FOR SABAF
LINK TO THE GRI-G4 ASPECTS
INTERNAL IMPACTS
EXTERNAL IMPACTS
8
Customer satisfaction and customer support
Ability to respond effectively to customer expectations, at all stages of the relationship (from design to after-sales service)
Product and Service Labeling (G4-PR5)
Sabaf
Customers
9
Production quality and efficiency
Search for better product or process performance and solutions in terms of environmental impact Designing new eco-efficient products
Please refer to aspects 4 and 5
Sabaf
Customers, Environment , Community
10
Management of relations with suppliers, supplier assessment and contractual conditions
Sabaf's commitment to defining a relation with the supply chain based on the principles of fairness in negotiations, integrity and contractual fairness Sharing corporate values with suppliers Sabaf defines minimum criteria for the creation of a lasting relationship with suppliers, based on the principles of social responsibility
Supplier Assessment for Labor Practices (G4-LA15) Supplier Human Rights Assessment (G4-HR11)
Sabaf
Suppliers, Environment, Community
11
Health and safety of personnel and contractors
Management, in compliance with the regulations on occupational health and safety, of topics related to the health and safety of workers: training, prevention, monitoring, improvement objectives
Occupational Health and Safety (G4-LA6)
Sabaf
Suppliers
12
Diversity and equal opportunities
Commitment to ensuring equal opportunities for women and protected categories.
Diversity and equal opportunity (G4-LA12)
Sabaf
Protection of Human and Workers' Rights
Protection of human rights as provided for in the "Universal Declaration of Human Rights" and the principles laid down in the conventions of the International Labour Organisation Socially responsible management of work processes and working conditions in the supply chain according to the requirements of the SA8000 standard
Non- discrimination (G4-HR3) Child Labor (G4-HR5) Forced or Compulsory Labor (G4-HR6) Supplier Human Rights Assessment (G4-HR11)
Sabaf
13
Suppliers
41
Competence
While we invest considerably in cutting-edge technology, we are particularly committed to developing the skills and professionalism of our staff, so as to create a sustainable competitive advantage.
Corporate Governance, Risk Management e Compliance Corporate Governance OVERVIEW The corporate governance model of Sabaf has always been based on a strict separation between the shareholding structure and management of the Company and of the Group. This model was confirmed also following the changes in the shareholding structure in 2016 and 2017, where, however, the Saleri family is the main shareholder.
The purpose of this section is to highlight the choices made by Sabaf and the peculiarities of its governance system, revised in the light of the new features introduced by the Corporate Governance Code. Where possible, a comparison with other listed companies is also provided, using the information collected by Assonime in its document Notes and Studies "Corporate Governance in Italy: self-discipline, remuneration and compliance-or-explain", published in February 2018 and concerning the Corporate Governance reports for the 2016 financial year of 221 listed Italian companies, available at 15 July 2017, 90% of which (i.e. 199 companies) has formally chosen to comply with the Corporate Governance Code. The benchmark used below takes into account, where available, a panel of "non-financial" companies only.
SABAF S.p.A.
Finally, a further comparison is provided on the composition and operation of the Board of Directors, using the data provided by the 2017 Italia Board Index Observatory, published by Spencer Stuart, which analyses the characteristics and operation of the Boards of Directors of the top 100 listed Italian (industrial and financial) companies in order of capitalisation as of February 2017, as well as providing a comparison with the main European and non-European countries. The information below is a summary but does not replace the "Report on corporate governance and ownership structure" prepared by the Issuer pursuant to Art. 123-bis of the TUF for 2017 and available on the Company's website: www.sabaf.it, under the section Investors/Corporate Governance.
Subsidiary companies identified by the Board of Directors of Sabaf having “strategic importance” for the Group 100%
100%
The Group operates through manufacturing and commercial companies in Italy and abroad, all of which are 100% owned by the Parent Company. Specifically:
ARC s.r.l. Sabaf Immobiliare s.r.l.
100%
70%
100%
Sabaf do Brasil Ltda
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Turkey)
100% 100%
Sabaf US Corp.
100%
Sabaf Appliance Components Trading Ltd (China)
100%
Sabaf Appliance Components Ltd (China)
FOREIGN SUBSIDIARIES
ITALIAN SUBSIDIARIES
Faringosi Hinges s.r.l.
100%
a) Production activity is carried out by: • the Parent Company Sabaf S.p.A., valves and burners, • the Italian company Faringosi Hinges, hinges, • the subsidiary in Brazil, burners, • the subsidiary in Turkey, burners, • the subsidiary Sabaf Appliance Components in China, burners (production started in 2015), • the subsidiary ARC s.r.l., professional burners (acquired in 2016). b) The subsidiary Sabaf US carries out commercial supporting activities. c) The subsidiary Sabaf Appliance Components Trading (China) was liquidated in 2015.
Manufacturing company
44
Company gone into liquidation
Trading company
d) The company Sabaf Immobiliare is engaged in the management of the real estate assets.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
THE GOVERNANCE STRUCTURE Sabaf adopted a traditional model of management and control, characterised by the presence of:
This model is supplemented, in accordance with the provisions of the Corporate Governance Code the Company complied with, by:
-- S hareholders’ Meetings (ordinary and extraordinary) called to pass resolutions pursuant to the laws in force and the Company’s Bylaws; -- Board of Statutory Auditors, in charge of 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 Corporate Governance Code; (iv) risk management; (v) the regulatory audit of the accounts and the independence of the auditing firm; -- Board of Directors, in charge of company administration and management of Company operations.
a) the Committees set up when the Board of Directors renews the bodies within its members, each one with proposal and advisory functions on specific matters and without decision-making powers, such as: -- Control and Risk Committee that also takes on the functions of the RelatedParty Committee; -- Remuneration and Nomination Committee that takes on the functions envisaged by the previous mandate of the Remuneration Committee and integrates them with those relating to the appointment and composition of the control bodies indicated by the Code; b) the Internal Audit department in charge of checking the operation and adequacy of the internal control and risk management system. Finally, the Group's administration and control model is completed by the presence of the Supervisory Body, set up following the adoption of the organisation, management and control model pursuant to Legislative Decree 231/2001, adopted by Sabaf since 2006.
The Governance Structure
Board of Statutory Auditors
Shareholders’ Meeting
Supervisory Body
Board of Directors
Remuneration and Nomination Committee Control and Risk Committee (also Related-Party Committee)
Internal Audit Department OUTSOURCING
Chief Executive Officer Director in charge of the Internal Control System
KEY
Organisational carry-overs
45
BOARD OF DIRECTORS The Board of Directors currently in office is composed of 12 members 7 including: (i) 6 executive directors, (ii) 1 non-executive director and (iii) 5 non-executive and independent directors (including an expression of the minority list, consistently with 44% of the sample analysed by Assonime in 2017).
COMPONENTS
Chairman
Giuseppe Saleri
Vice Chairman
Ettore Saleri
Vice Chairman
Cinzia Saleri
Vice Chairman
Roberta Forzanini
Chief Executive Officer
Pietro Iotti
Executive Director
Gianluca Beschi
Director
Giuseppe Cavalli
Director
Fausto Gardoni
Director
Lead Independent Director
Director
Nicla Picchi
Director
Anna Pendoli
Director
Alessandro PotestĂ
Renato Camodeca
Composition of the Board of Directors
42% 8%
44% 30%
50%
26%
SABAF
ASSONIME AVERAGE 2017
Executive Directors INDEPENDENT DIRECTORS PURSUANT TO TUF AND/OR CODE
NON-EXECUTIVE DIRECTORS
EXECUTIVE DIRECTORS
OFFICE
Non-executive Directors
Indipendent directors pursuant to TUF and the Code
Policy on the composition of corporate bodies On 26 March 2018, the Board of Directors of Sabaf S.p.A. adopted a Policy on the composition of the Corporate Bodies. This Policy sets out the Company's guidelines on the characteristics considered functional to ensuring an optimal composition of the corporate bodies (Board of Directors and Board of Statutory Auditors), with the aim of guiding the names put forward by the Shareholders when renewing the Corporate Bodies, so that the benefits that can derive from a balanced composition of the Board and Board of Statutory Auditors inspired by criteria of diversity are taken into consideration.
46
7 The Curriculum Vitae of the individual members are available on the Company's website.
The Policy sets out the following characteristics for the composition of each of the two bodies: 1. Independence 2. Training and professional experience 3. Gender 4. Age and seniority in office 5. Numbers For further information, the Policy on the composition of the Corporate Bodies is published on the Company's website and described in the Report on corporate governance and ownership structure, in compliance with the provisions of art. 123-bis, (2), (d-bis) of the Consolidated Law on Finance.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Average age of directors
Observations
50%
50% of the members of the Board in office are between 50 and 60 years old; the average age is in line with the average of the Assonime sample (56 vs 56.5 years old). In the last three years, the Board has met a number of times lower than the average number of meetings of the Assonime sample (8 meetings of the BoD of Sabaf in 2017) with an average attendance rate of 95%, in line with other companies of the research (92% in 2017).
33% 17%
OVER 60
The meetings were attended by the Board of Statutory Auditors and - in turn - the managers of Sabaf, who were invited to attend and report on specific issues on the agenda.
The comparison was carried out using the data provided by the 2017 Italia Board Index Observatory, published by Spencer Stuart, which analyses the characteristics and operation of the Boards of Directors of the top 100 listed Italian (industrial and financial) companies in order of capitalisation as of February 2017, as well as providing a comparison with the main European and non-European countries. During the financial year, the Board of Directors carried out its assessment of the size, membership (including professional competences, managerial skills and seniority) and operation of the Board of Directors and its Committees, opting for the self-assessment of individual directors, coordinated by the Lead Independent Director.
Overall average age: Sabaf 56 years old vs 56.5 years old Assonime
50 - 60
40 - 50
Number of meetings (2015-2017) 2015
8 9.4
2016
9 9.8
2017
9 10.2 10
The results of the assessment were generally positive, and were discussed at the Board of Directors' meeting of 19 December 2017.
Average attendance at the Meetings (2015-2017)(*) 2015
93% 91%
2016
95% 92%
2017
95% 92% 100 %
Sabaf
(*) Assonime panel including financial companies
Assonime Average
47
Composition of the Board of Directors
48
Giuseppe Saleri
Ettore Saleri
Cinzia Saleri
Chairman
Vice Chairman
Vice Chairman
Founder of Sabaf, of which he acquired full ownership in 1993. Promoter of listing on the stock exchange in 1998.
Member of the Saleri family, he began his career at Sabaf in 1994. Subsequently, he abandoned his operational role and followed the interests of the Group through the Holding. Deputy Chairman since 2009.
Member of the Saleri family, she follows the interests of the Group through the Holding. Appointed Vice Chairman of Sabaf S.p.A. in 2012.
Giuseppe Cavalli
Renato Camodeca
Fausto Gardoni
Director
Director
Director
Mechanical engineer, he held management positions in the production sector in various Italian manufacturing companies in the household appliances sector. Today, he is General Manager of the Alfa Acciai Group.
He is a university professor of economics, a former member of the Boards of Statutory Auditors and of the Supervisory Boards of listed and unlisted companies, and he is Lead Independent Director at Sabaf.
At the top of leading industrial companies with management responsibilities. In Sabaf since 2009, he holds the position of Chairman of the Remuneration and Nomination Committee.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Roberta Forzanini
Pietro Iotti
Gianluca Beschi
Vice Chairman
Chief Executive Officer
Executive Director
Member of the Saleri family, Civil Lawyer of the Court of Brescia, enrolled with the bar association since 2000. Appointed Vice Chairman of Sabaf in May 2015.
Mechanical Engineer, he holds positions of increasing responsibility in several industrial companies. In Sabaf since 2017, he holds the position of Chief Executive Officer.
Certified public accountant, at Sabaf since 1997 as Investor Relations Manager, Head of Management Control and Head of Internal Control. In 2012, he was appointed Director of Administration, Finance and Control.
Anna Pendoli
Nicla Picchi
Alessandro PotestĂ
Director
Director
Director
She carries out the profession of real estate broker, Appointed by the minority lists of Independent directors of Sabaf in May 2015.
Degree in Law, Partner of Studio Picchi & Associati where she works as a lawyer. In Sabaf since 2006, she is also Chairman of SB 231 of Sabaf S.p.A. and of the subsidiary Faringosi-Hinges. She has been chairman of the Control and Risk Committee since 2015.
Degree in Economics and Commerce, he held management positions in investments and Corporate Development. Today he is Senior Portfolio Manager at Quaestio Capital Management SGR S.p.A.
49
2
0
50 4
USA
UK
SWEDEN
NORWAY
FINLAND
DENMARK
8 Average 6.0
56
58
20,0
10,0
0,0
5 40,0 33.3%
30,0
DENMARK
NETHERLAND
SPAIN
GERMANY
FRANCE
BELGIUM
SWEDEN UK USA
SWEDEN UK USA
NORWAY
Average 26.0 %
50,0
NORWAY
% of Women in the BoD
FINLAND
0
FINLAND
DENMARK
60 ITALY
6
NETHERLAND
62 2
SPAIN
4
GERMANY
Average Age of Directors 8
FRANCE
0 14
12
Average 9.3
10
SABAF
Average 10.9
12
BELGIUM
USA
15
ITALY
64
Average 57.9
UK
SWEDEN
NORWAY
FINLAND
DENMARK
NETHERLAND
SPAIN
GERMANY
FRANCE
BELGIUM
20
SABAF
USA
UK
SWEDEN
NORWAY
FINLAND
DENMARK
NETHERLAND
SPAIN
GERMANY
FRANCE
BELGIUM
ITALY
SABAF
10
NETHERLAND
SPAIN
GERMANY
FRANCE
6 ITALY
54
BELGIUM
52
ITALY
56
SABAF
5
SABAF
Average size of the BoD Average number of meetings of the BoD
8
0,0
Average number of Independent Directors
10
Sabaf South Europe
North Europe Anglo-Saxon countries
Source: Spencer Stuart - Italia Board Index 2017
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
BOARD OF STATUTORY AUDITORS The Board of Statutory Auditors, appointed by the Shareholders' Meeting on 5 May 2015 for the period 2015 to 2017, is composed of 3 members 8 with an average age of 65 years (higher than the Assonime average, 56.4 years). The Chairman of the Board of Statutory Auditors is the expression of the minority list.
OFFICE
COMPONENTS
Chairman
Antonio Passantino
Statutory Auditor
Enrico Broli
Statutory Auditor
Luisa Anselmi
Age of statutory auditors
Overall average age: Sabaf 65 years old vs 56.4 years old Assonime
67%
33%
0%
OVER 60
40 - 50
50 - 60
Number of meetings (2015-2017)
Observations The Board of Statutory Auditors of Sabaf met on average 6 times in the last three years (7 meetings in 2017), a number of times lower than the average number of meetings of the Assonime sample (10 meetings on average). The average attendance of members at meetings was 98% in the period 2015 to 2017 (100% in 2017), in line or higher than that of other listed companies of the research. In general, the commitment of the Board of Statutory Auditors of Sabaf is achieved not only by carrying out checks and attending the periodic meetings required by law, but also by involving all members in the meetings of the Board of Directors and of the Control and Risk Committee, in the half-yearly collective meetings with the Control Bodies and individual meetings with the independent auditors.
2015
5 10
2016
6 9.9
2017
7 10.1 10
Average attendance at the Meetings (2015-2017) (*) 2015
100% 95.6%
2016
94.0% 96.0%
2017
100% 96.0% 100
Sabaf
8 The Curriculum Vitae of each statutory auditor is available on the Company's website. (*) Assonime panel including financial companies
Assonime Average
51
CONTROL AND RISK COMMITTEE The Control and Risk Committee currently in office, set up within the Board, is composed of 3 members, in line with the vast majority of cases in the Assonime sample (3 members, 78% in cases). In line with the choice made by about 57% of the Assonime panel, the CRC of Sabaf is made up exclusively of independent directors. The Committee was also assigned the functions pertaining to the Related-Party Committee.
OFFICE
Chairman Member Member
COMPONENTS
Number of meetings (2015-2017)
Nicla Picchi Giuseppe Cavalli Renato Camodeca
2015
7 6.4
2016
5 6.5
2017
5 6.6
10
Average attendance at the Meetings (2015-2017) (*)
Observations In 2017, the Committee met on 5 occasions (Assonime average: 6.6 meetings). In the last three years, the number of meetings and the attendance of the directors to the committees are on average in line with the Assonime sample.
2015
87% 94.1%
2016
93% 94.4%
2017
93% 94.4% 100
REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee, set up within the Board, comprises four non-executive members, the majority of them independent (in line with the choice made by 44% of the Assonime panel), with the knowledge and experience in accounting, finance and remuneration policies that is deemed adequate by the Board of Directors.
OFFICE
Chairman Member Member Member
COMPONENTS
Fausto Gardoni Giuseppe Cavalli Renato Camodeca Alessandro PotestĂ
Observations In the last three years, the Committee met a number of times higher than the Assonime average. In particular, during the last financial year, the Committee met 8 times with the aim, among other things, of preparing the 2017 incentive plan, outlining the profile and remuneration of the new Chief Executive Officer and updating the Group's Remuneration Policy.
Number of meetings (2015-2017) (*) 2015
7 3.3
2016
5 3.8
2017
10 4.1 10
Average attendance at the Meetings (2015-2017) (*) (**) 2015
84% 95.5%
2016
92% 95.8%
2017
95% 96.2% 100
Sabaf
52
(*) Assonime panel including financial companies (**) Assonime panel referred only to the Remuneration Committee
Assonime Average
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
GOVERNANCE OF SUSTAINABILITY Sabaf has always believed that social and environmental aspects are an integral part of the Group's strategy and, as such, are the responsibility of the Board of Directors. With reference to the governance of these topics, at the meeting of the Board of Directors on 3 August 2017, which, among other things, granted powers to executive directors following the appointment of the new Chief Executive Officer, it was confirmed that the criteria for implementing Corporate Social Responsibility ("CSR") are the responsibility of the Board itself. In confirmation of the Group's commitment with regard to sustainability issues, Sabaf has adopted a Social Responsibility System in 2005 that complies with the international standard SA8000 and, also starting from that same year, Sabaf publishes its economic, social and environmental sustainability performance jointly in its Annual Report.
Within the SA8000 Certified System, Sabaf, in addition to having identified a Head of Social Responsibility Management System, created a Social Performance Team (SPT) made up of Representatives of the Social Responsibility Department and some Workers' Representatives for Social Responsibility, to whom the following tasks are also assigned: • encourage a constant dialogue between the Workers and the Company Management; • identify and assess the risks related to the aspects of Ethics and Social Responsibility; • monitor the activities carried out in the workplace and check the implementation and effectiveness of the Social Responsibility System. All Sabaf employees, as part of their responsibilities and competences, are required to implement CSR every day in the performance of their activities.
CORPORATE SOCIAL RESPONSIBILITY
Development intangible assets
Economic Sustainability
Enviroment Sustainability Social Sustainability
INTERDEPENDENCE
53
INTERNAL AUDIT AND SUPERVISORY BODY
Internal Audit On 5 May 2015, the Board of Directors, subject to the favourable opinion of the Control and Risk Committee, as well as after hearing the Board of Statutory Auditors, renewed the engagement of an independent external company, Protiviti s.r.l., to carry out the functions of the Internal Audit Department for the period from 2015 to 2017. It then identified Emma Marcandalli, the company’s Managing Director, as Head of that department. This choice is related to the greater skills and efficiency that an external
subject specialised in internal control issues can guarantee, also taking into account the size of the Sabaf Group. The Head of the Internal Audit department is responsible for verifying that the internal control and risk management system is working properly. He/She reports hierarchically to the Board of Directors and is not responsible for any operational areas and remains in office for the entire term of the Board that appointed him/her.
Supervisory Body The appointment of the Supervisory Body was renewed on 5 May 2015 by the Board of Directors of Sabaf for the period 2015 to 2017; it is composed of a non-executive and independent member and an external member.
OFFICE
Chairman
Nicla Picchi
Member
Emma Marcandalli
Also a member of the Board of Directors, as independent director
54
COMPONENTS
Also Head of Internal Audit. Representative of the Company that manages Internal Audit activities on an outsourcing basis.
During 2017, the Supervisory Body of Sabaf met 4 times, asking the Company's management to attend the meetings in order to carry out in-depth analysis on specific aspects.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
INFORMATION FLOWS The administration and control model of Sabaf operates through a network of periodic and systematic information flows between the various corporate bodies. Each body, according to the timing and methods defined by the Bylaws, the
Governance Model and other internal documents, reports to the functionally superior body on the activities carried out in the reference period and those planned for the following period, any observations noted and suggested actions.
Information flows within the governance structure At each meeting of the CRC and of the control bodies
Shareholders’ Meeting
Information on Committee meetings (At the first useful meeting of the BoD) Information on activities carried out (At least once a year)
Remuneration and Nomination Committee
At each meeting of CRC
At each meeting of the SB
Information on Committee meetings (At the first useful meeting of the BoD) Report on activities carried out (At least every 6 months)
Chief Executive Officer
Internal Audit Department Continuously
At each meeting of CRC
Board of Directors
Supervisory Body
OUTSOURCING
Every 3 months, on the occasion of the BoD
Every 6 months, through a Report
Board of Statutory Auditors
Control and Risk Committee
Director in charge of the Internal Control System
At each meeting of CRC
KEY
Information flows
Organisational carry-overs
55
Risk Management In the course of its business, Sabaf defines its strategic and operational objectives and identifies, assesses and manages risks that could prevent the achievement of these objectives.
In recent years, Sabaf has gradually moved closer to the concepts of risk assessment and risk management, developing a structured process of periodic identification, assessment and management of risks, defined and formalised in a Guideline of the Corporate Governance Manual.
Business Analysis Organisational Structure Analyses Risk Catalogue
Guidelines Operational: “Process of periodic identification and assessment of Group risks ”
RISK MANAGEMENT FRAMEWORK
RISK MAP
Risk Assessment Scale
The Guidelines define the roles and responsibilities of the risk assessment and risk management processes, indicating the subjects to be involved, the frequency of the process and the assessment scales.
ASSESSMENT SCALES
PROBABILITY
IMPACT
Economic-financial losses
HSE
2
3
4
< € 0.2 mil
€ 0.2 - € 0.5 mil
€ 0.5 - € 1.2 mil
> € 1.2 mil
Limited damage to health / Moderate damage to health Serious damage to health / Very serious damage to safety / environment / safety / environment safety / environment health / safety / environment
Reputational damage
Negligible impacts on stakeholder confidence
Moderate impacts on stakeholder confidence
Significant impacts on stakeholder confidence
Damaged stakeholder confidence
Operational damage
No impact on business processes
Low impacts on efficiency / continuity
Significant impacts on efficiency / continuity
Critical impacts on efficiency / continuity
Once every 3 years or more
Once every 2 years
Once a year
Several times a year
Unlikely/ Remote
Not very likely
Likely
Very likely
Optimal
Adequate (with room for improvement)
To be strengthened
Nonexistent / lacking
Frequency of occurrence
Quality indicators
RISK MANAGEMENT LEVEL
56
1
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Each risk is subject to an assessment that is broken down as follows: • probability of occurrence foreseeable over a three-year future time horizon; • estimate of the average of the economic-financial impacts, HSE, reputational and operational damage, within the time frame being assessed; • level of risk management and control. For more information on the main risks identified by the Group, please refer to the Management Report.
In the last quarter of 2017, the Internal Audit Department began the periodic risk assessment process for the identification and assessment of Group risks, with the broad involvement of certain Parent Company department heads, also in their capacity as representatives for the Subsidiaries, each for their respective areas. Along the assessment process, which also involves all the control bodies, the risks take shape and are positioned on the map.
Risk Assessment Process
INTERNAL AUDIT
2
1
3
Business Referees
Supervisory Body
Control and Risk Committee
4 Board of Directors
STRATEGIC RISKS
RISK MAP
RISKS IN EXECUTION
57
Compliance INTEGRATED COMPLIANCE
Internal control system INTERNAL AUDIT DEPARTMENT AND DIRECTOR IN CHARGE
Quality En nd lP
rop
ert
y
ty
fe sa
Int
ell
ec
tua
up orr dC an
ha
ud
alt He
Fra
nt, me
tio
n
on vir
cy
iva
Pr
• Charter of Values • Corporate Governance Manual • Operating guidelines • Model 231 • Accounting Control Model • Quality Management System • Integrated Management System of Health and Safety, Environment and Energy • System for the management of Social Responsibility • Body of procedures • Training and business information
Information Security
INTEGRATED AUDIT ACTIVITIES
The risk management activity carried out by Sabaf also takes into account compliance requirements in order to achieve the company's objectives. The internal control system is based on the following elements: • organisation of the internal control and risk management system; • procedures and mechanisms for the concrete implementation of the control principles; • continuous verification and monitoring processes carried out at various levels of the organisation, both within the company processes and through independent structures.
58
In particular, Sabaf prepares an integrated and risk-based Audit Plan, broken down according to specific control objectives (operational risks, compliance risks with Law 262/2005 and Legislative Decree 231/2001, security of company information systems, etc.). The execution of the interventions is assigned, in outsourcing, to a single structure, the Internal Audit, in turn responsible for reporting the results of the activities carried out to the competent control bodies.
All this translates into an integrated compliance culture and tools
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Integrated compliance and the Corporate Governance Manual OPERATING GUIDELINES
Following compliance with the Corporate Governance Code for listed companies and in order to internalise the good governance practices sponsored in this document in its processes, Sabaf adopted a Corporate Governance Manual 9 that regulates principles, rules and operating procedures. This Manual, adopted by Board resolution of 19 December 2006, has been updated several times over the years, in order to reflect new laws and regulations in Corporate Governance, as well as best practices adopted by the Company over time. The Manual includes some operating guidelines, also approved by the Board of Directors and updated from September 2016, prepared for the purpose of the correct carrying-out of the activities pertaining to Sabaf's management and control bodies.
REGULATED SUBJECTS
Self-Assessment of the BoD Management, coordination and control of Group subsidiaries Means of compliance with disclosure obligations to Statutory Auditors, pursuant to Art. 150 of the TUF Assessment of the Group's internal control system Process of periodic identification and assessment of Group risks Management of significant operations in which directors have an interest Assignment of professional mandates to the Independent Auditors
Integrated compliance and Legislative Decree 231/2001 In 2006, Sabaf S.p.A. adopted the Organisation, Management and Control Model, as suggested by Legislative Decree 231/2001 10 , aimed at preventing the commission of specific types of offences by employees and/or collaborators in the interest or for the benefit of the Company. In the following years, the Company, under the supervision of the Supervisory Body, promptly responded to the need to adapt the Model and the control structure to the regulatory changes that had occurred from time to time.
The Company entrusts the Supervisory Body with the task of assessing the adequacy of the Model itself, i.e. its real capacity to prevent offences, as well as to supervise the operation and correct observance of the adopted protocols. In 2008, the subsidiary Faringosi Hinges s.r.l. also adopted Model 231 and appointed the SB, ensuring, in line with the parent company, its proper updating and effective operation.
ACTIVITIES CARRIED OUT IN 2017
SUPERVISORY BODY
-- Systematic verifications on the effectiveness and operations of the Model, both through checks conducted by Internal Audit and through conversations with personnel involved in sensitive activities. -- Investigation activities regarding the occupational health and safety management processes. -- Information and training for employees concerning specific protocols regulated by the Model. -- Launch of in-depth analyses in preparation for the 231 risk assessment review with the aim of assessing the applicability of the new offences introduced in 2017.
The latest version of the document in accordance with the provisions of the Corporate Governance Code, approved by the Board of Directors on 29 September 2016, is available on the Company website, at www.sabaf.it under the Investors - Corporate Governance section. 10 The latest version of the document, approved by the Board of Directors on 29 September 2016, available on the Company website, at www.sabaf.it under the Investors - Corporate Governance section 9
59
Integrated compliance and Anti-corruption The Sabaf Group, aware of the negative effects of corrupt practices in business management, is committed to preventing and combating the occurrence of offences in the carrying-out of its activities.
Risk analysis and assessment in case of violation of anticorruption regulations is included in the annual Risk Assessment process (cf. ÂŤAdaptation to anti-corruption regulationsÂť).
Sabaf is committed to preventing unlawful behaviour by disseminating the contents of its Charter of Values (i.e. distributed to all Group employees as well as to commercial agents who operate on behalf of the Group worldwide) and of the Organisation, Management and Control Model pursuant to Legislative Decree 231/2001 (adopted by Sabaf S.p.A. and Faringosi Hinges s.r.l. ).
The Group, as further confirmation of its commitment to fight against unlawful behaviour, intends to integrate, in a dedicated system, the rules for preventing and combating corruption already in force with the aim of strengthening the principles and behaviour that must be observed in running the business.
With reference to the risks related to some countries where the Group operates (e.g. Turkey, China and Brazil), which are considered particularly critical (ref. Corruption Perception Index of Transparency International), Sabaf is attentive to compliance with local anti-corruption regulations, also through a strong commitment to the management, coordination and control of the Parent Company, aimed at guaranteeing - among other aspects - the prevention and combating of corrupt offences.
60
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Integrated Compliance and Law 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, Sabaf has integrated the activities relating to the management of the internal control system on financial reporting into its Audit and Compliance process since 2008.
The Group defined its own Accounting Control Model, approved for the first time by the Board of Directors on 12 February 2008, subsequently revised and updated.
ELEMENTS CHARACTERISING THE ACCOUNTING CONTROL MODEL
Periodic assessment of adequacy and effective application of controls
Risk Assessment related to economic, equity and financial reporting.
Control Environment Administrative and accounting procedures
AUDIT ACTIVITY
Internal certifications of completeness and correctness of information
No updates to the Accounting Control Model were necessary in 2017.
61
Results
Driven by long-term sustainability, we measure our results in economic, social and environmental terms.
Sabaf and employees Risks The management of relations with the employees of the Sabaf Group cannot disregard the identification, assessment and management of potential risks. The relevant risk categories in this area are: Strategic risks, which could affect the achievement of the Group's development objectives, such as the lack of adequate skills, the loss of key resources or the difficulty of replacing them. Legal and compliance risks, related to contractual liabilities, compliance with the regulations applicable to the Group and the commitments set out in the Charter of Values, such as the correct application of labour contracts in force in the various countries in which the Group operates, health and safety regulations, compliance with the criteria of fairness and impartiality in the management of human resources. Operational risks, which may lead to malfunctions in the carrying-out of current activities, such as high turnover or conflicting industrial relations.
In order to deal with these potential risks, the Group adopted certified systems for managing social responsibility (compliant with SA8000 standard) and managing occupational health and safety (compliant with OHSAS 18001 standard). The Sabaf Group also implements structured policies in the following areas: • selection and recruitment of personnel; • training; • internal communication; • remuneration and incentive systems; • company welfare; • industrial relations. The combination of these systems and policies enables the Group to fully manage these risks. The following paragraphs outline, for each of these aspects, the characteristics of the "Sabaf model" and the performance achieved.
Personnel management policy THE SOCIAL RESPONSIBILITY AND HEALTH AND SAFETY MANAGEMENT SYSTEM Sabaf's commitment to social responsibility and the protection of workers' health and safety are strategic elements for Sabaf and the achievement of labour standards that guarantee respect for human rights, health and maximum safety is a constant challenge. For this reason, Sabaf S.p.A. adopted and maintains a Social Responsibility Management System that, by integrating with the other management systems operating in the company (health, safety, environment and energy and quality), constitutes an effective means for constant risk reduction. This objective is achieved through the following instruments: • maintaining full compliance with applicable laws, directives, local regulations and other signed requirements (SA8000, Global Compact, Code of Conduct of Ceced); • the full implementation of the Charter of Values; • the prior assessment of human rights, health and safety aspects; • the development of a process based on people being given a sense of responsibility within shared rules of behaviour. The Group is committed to pursuing the following objectives, which are also set out in the Charter of Values: • promote respect for the fundamental human rights of workers in all countries where the Group operates, as identified in the principles established in the SA8000 standard, in the Global Compact and in the Code of Conduct of Ceced, relating to child labour, forced and compulsory labour, occupational health and safety, freedom of association and right to collective bargaining, discrimination, disciplinary procedures, working hours and remuneration criteria;
64
• carry out their activities by creating a group of motivated people who can operate in a work environment that encourages and rewards fairness and respect for others; • produce profits without ever losing sight of the respect for the rights of its workers; • identify and analyse potential hazards and risks in business processes, in order to make workplaces safer and more comfortable; • avoid any form of discrimination and favouritism during the recruitment phase of personnel, whose selection must be made on the basis of the applicants' profiles meeting the company's requirements; • value and respect diversity, avoiding any form of discrimination in career advancement on the grounds of gender, sexual orientation, age, nationality, state of health, political opinions, race and religious beliefs at all stages of the employment relationship; • adopt criteria of merit and competence in employment relationships, based also on the achievement of collective and personal objectives; • avoid all forms of harassment of workers; • enhance the contribution of human capital in decision-making processes, encouraging continuous learning, professional growth and knowledge sharing; • provide clear and transparent information on the tasks to be carried out and the position held, the performance of the Group and market developments; • establish a responsible and constructive dialogue with trade unions, fostering a climate of mutual trust in compliance with the principles of fairness and transparency, respecting their roles.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
The SA8000 Standard Sabaf has been using a Social Responsibility Management System certified and compliant with the SA8000 standard since March 2009. During 2017, the company, in line with its shared values and company mission, continued its commitment in this area, adapting its Management System to the new international standard SA8000:2014. On 16 June 2017, IMQ certified the compliance of the System with the new Standard, certifying its consistency with a business model based on compliance with ethical requirements, the enhancement of people and social and environmental sustainability.
Suppliers, sub-suppliers and sub-contractors, who are required to sign a commitment to comply with the requirements of the Standard, an integral part of contracts. Audits are also carried out on suppliers. The customers, by committing themselves within the household appliance industry to support ethical and fair behaviour, also through compliance with the code of conduct of CECED.
The process of implementing the Social Responsibility System has been characterised by many events.
The institutions, to which Sabaf confirms its commitment to carry out its activities in order to overcome mere compliance with the law.
During the System planning phase, the roles of the persons designated to carry out the activities envisaged by the SA8000:2014 standard were defined in the company organisation chart. The company management appointed its SA8000 representatives, with the task of ensuring compliance with the requirements of the Standard. The representation of workers in terms of social responsibility was taken on by the members of the trade union representatives who applied for this role. Together they have set up the Social Performance Team (SPT), an active working group for the planning and implementation of the System itself.
The community: Sabaf complies with the Global Compact, the United Nations initiative for companies that commit to upholding and promoting the ten principles: human rights, labour, environmental protection and anti-corruption. The adaptation of the Social Responsibility Management System to the new SA8000 Standard involved the definition, approval and sharing of a new Manual (Edition 02) - implemented with an Integrated Management perspective among the Company's Management Systems - which, in relation to each requirement, contains the company practices and relative Procedures.
In order that the main stakeholders can actively participate in the implementation of the Social Responsibility System in collaboration with the company management, particular attention was paid to their involvement in the methods described below.
To be eligible for SA8000 compliance, Sabaf must comply with local, national and other applicable laws, prevailing industry standards, other requirements it complies with, and the principles of many international instruments, including the Universal Declaration of Human Rights, ILO Conventions and United Nations Conventions.
Sabaf workers through specific training sessions for department managers (more than 200 hours in 2017). Understanding the importance of adopting a Social Responsibility System is also facilitated by sharing information material on company electronic notice boards, on the HR PORTAL workers' portal, on the network and on the company website.
No episodes of discrimination were observed and no transactions/activities with a high risk of recourse to child labour and forced or compulsory labour were identified in 2017.
The trade unions: awareness and the convinced involvement of trade union workers' representatives are fundamental for the full implementation of the System.
The people of the Sabaf Group The Sabaf Group had 756 employees at 31 December 2017 compared to 736 at the end of 2016Â (+2.72%).
31.12.2017
31.12.2016
31.12.2015
Sabaf S.p.A. (Ospitaletto, Brescia - Italy)
337
177
514
353
180
533
367
185
552
Faringosi-Hinges S.r.l. (Bareggio, Milan - Italy)
22
21
43
21
21
42
20
23
43
A.R.C. s.r.l. 11 (Campodarsego, Padua - Italy)
14
4
18
-
-
-
-
-
-
Sabaf do Brasil (JundiaĂ - SĂŁo Paulo - Brazil)
61
16
77
49
17
66
45
14
59
Sabaf Turchia (Manisa - Turkey)
56
40
96
52
34
86
57
38
95
Sabaf Appliance Components (Kunshan) Co., Ltd.
6
2
8
7
2
9
6
4
10
496
260
756
482
254
736
495
264
759
TOTAL
11 Figures consolidated starting from 2017.
65
As regards the types of contract adopted, there are 722 employees with permanent contracts (95.5%) and 34 with fixed-term contracts and in cross training or apprenticeship (4.5%).
31/12/2017
Permanent
31/12/2016
473
249
722
464
251
715
Cross training or apprenticeship
1
0
1
3
0
3
Fixed term
22
11
33
15
3
18
496
260
756
482
254
736
TOTAL
Temporary personnel (with temporary work contract or similar) 100
N°
N°
100
60 46
38
28 14
ANNUAL AVERAGE
10
In 2017, 4 former temporary workers were hired by the companies of the Sabaf Group (4 in 2016). In 2017, Sabaf hosted 5 young people in internships (6 in 2016), including 4 students attending secondary school.
Sabaf offers some students from schools in the province of Brescia first-hand direct contact with the world of work: in this way, they can see the technical knowledge acquired in the classroom applied "on the job".
Breakdown of personnel by age
Breakdown of the personnel by length of service
31.12.2017
31.12.2016
31.12.2017
31.12.2016
< 30 years old
16.0%
16.8%
< 5 years
24.5%
22.0%
31 – 40 years old
40.6%
42.4%
6 – 10 years
18.9%
26.6%
41 – 50 years old
30.7%
29.8%
11 – 20 years
45.1%
41.3%
over 50 years old
12.7%
11.0%
over 20 years
11.5%
10.1%
TOTAL
100%
100%
TOTAL
100%
100%
The low average age of Group employees (39 years old) confirms the strategy of hiring young workers, giving priority to training and internal growth rather than acquiring skills from outside, also in consideration of the specific nature of Sabaf's industrial model. The minimum age for Group personnel is 26 years old for Italy, 21 years old for Turkey, 18 years old for Brazil and 29 old years for China.
66
Sabaf is aware of the fundamental importance of having a stable and qualified workforce that is a key factor in maintaining its competitive advantage.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Breakdown by department 2017
AREA
2016
Production
301
172
473
289
170
459
Quality
42
32
74
43
31
74
Research and development
66
2
68
66
2
68
Logistics
26
0
26
25
1
26
Administration
10
25
35
9
23
32
Sales
8
12
20
10
13
23
Services
17
11
28
17
8
25
Purchases
8
4
12
6
4
10
Other
18
2
20
17
2
19
TOTAL
496
260
756
482
254
736
756 496
1,000
N°
N°
1,000
736 482
260
254
TOTAL
Recruitment policy In order to attract the best resources, the recruitment policy aims to ensure equal opportunities for all candidates, avoiding any kind of discrimination. The selection procedure requires, inter alia: • the selection process to be carried out in at least two stages with two different contacts; • that at least two applicants be assessed for each position.
The assessment of the applicants is based on their skills, training, previous experience, expectations and potential, tailoring them to the specific needs of the company. All new employees of the Group are given the Charter of Values. Sabaf S.p.A. also delivers a copy of the SA8000:2014 standard, for which the company is certified.
67
Breakdown by qualification 2017
QUALIFICATION
2016
Degree
64
29
93
12.3%
67
24
91
12.4%
High school leaving diploma
248
92
340
45.0%
232
98
330
44.8%
Middle school leaving certificate
180
134
314
41.5%
181
130
311
42.3%
4
5
9
1.2%
2
2
4
0.5%
496
260
756
100%
482
254
736
100%
Elementary school leaving certificate TOTAL
Change in personnel in 2017 SABAF S.p.A.
FARINGOSI HINGES s.r.l.
31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
9
1
0
0
0
0
10
Managers
1
0
0
0
0
0
1
White collars and Middle Managers
108
4
1
4
1
2
110
White collars and Middle Managers
13
1
0
1
0
0
13
Blue collars and equivalent
416
2
0
19
3
(2)
394
Blue collars and equivalent
28
1
0
0
0
0
29
TOTAL
533
7
1
23
4
0
514
TOTAL
42
2
0
1
0
0
43
Managers
A.R.C. s.r.l.
SABAF DO BRASIL 31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
Managers
0
0
0
0
0
0
0
Managers
0
0
0
0
0
0
0
White collars and Middle Managers
3
1
0
0
0
0
4
White collars and Middle Managers
10
0
1
1
0
0
10
Blue collars and equivalent
15
1
0
2
0
0
14
Blue collars and equivalent
56
25
3
13
4
0
67
TOTAL
18
2
0
2
0
0
18
TOTAL
66
25
4
14
4
0
77
SABAF TURKEY
SABAF CHINA
31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
31.12.16
NEW EMPL.
LEAVING EMPL.
PROM. 31.12.17
Managers
3
0
0
0
0
0
3
Managers
1
0
0
0
0
0
1
White collars and Middle Managers
12
1
4
2
0
0
15
White collars and Middle Managers
6
0
0
0
0
0
6
Blue collars and equivalent
71
33
22
28
20
0
78
Blue collars and equivalent
2
0
0
1
0
0
1
TOTAL
86
34
26
30
20
0
96
TOTAL
9
0
0
1
0
0
8
68
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Group total NEW EMPL.
31.12.1612
LEAVING EMPL.
PROM. 31.12.17
Managers
14
1
0
0
0
0
15
White collars and Middle Managers
152
7
6
8
1
2
158
Blue collars and equivalent
588
62
25
63
27
(2)
583
TOTAL
754
70
31
71
28
0
756
New employees, by age group and gender DESCRIPTION
up to 20 years old from 21 to 30 years old from 31 to 40 years old from 41 to 50 years old over 50 years old TOTAL
2017
N°
1,000
756
754
GROUP TOTAL
Resigned during the year, by age group and gender
2016
DESCRIPTION
5
2
7
0
1
1
32
13
45
32
10
42
24
13
37
19
4
23
7
2
9
12
2
14
up to 20 years old from 21 to 30 years old from 31 to 40 years old from 41 to 50 years old
2
1
3
0
0
0
over 50 years old
70
31
101
63
17
80
TOTAL
2017
2016
2
2
4
1
0
1
23
7
30
35
11
46
24
17
41
21
7
28
12
1
13
15
5
20
9
2
11
5
3
8
70
29
99
77
26
103
WHITE COLLARS AND MIDDLE MANAGERS
BLUE COLLARS
TOTAL
Resignations
8
36
44
Retirement
1
5
6
Termination of the contract
0
1
1
Dismissal
0
32
32
DESCRIPTION
Failure to pass the probationary period TOTAL
12 Including A.R.C. employees.
1
14
15
10
88
98
N°
Reasons for terminating employment in 2017 50
44
TOTAL
98
32
15
Resignations Retirement Termination of the contract
6 1
Dismissal Failure to pass the probationary period
69
Turnover rate by Geographical area, age group and gender Italy (Sabaf, Faringosi e A.R.C.) 2017
DESCRIPTION
< 30 years old from 31 to 40 years old from 41 to 50 years old over 50 years old TOTAL
Brazil 2016
0.54%
0.00%
0.35%
0.53%
0.00%
0.35%
< 30 years old
2.68%
0.99%
2.09%
0.80%
0.50%
0.70%
1.61%
0.00%
1.04%
2.41%
1.00%
1.91%
1.07%
0.00%
0.70%
1.07%
0.00%
0.70%
from 31 to 40 years old from 41 to 50 years old over 50 years old
5.90%
0.99%
4.18%
4.81%
1.50%
3.66%
TOTAL
Turkey
from 31 to 40 years old from 41 to 50 years old over 50 years old TOTAL
2016
9.84%
18.75%
11.69%
22.45%
11.76%
19.70%
6.56%
12.50%
7.79%
6.12%
5.88%
6.06%
3.28%
0.00%
2.60%
4.08%
5.88%
4.55%
1.64%
0.00%
1.30%
0.00%
0.00%
0.00%
21.32% 31.25% 23.38% 32.65% 23.52% 30.31%
China 2017
DESCRIPTION
< 30 years old
2017
DESCRIPTION
2016
2017
DESCRIPTION
30.36%
15.00%
23.96%
42.31%
20.59%
33.72%
< 30 years old
17.86%
32.50%
23.96%
25.00%
14.71%
20.93%
5.36%
2.50%
4.17%
5.77%
2.94%
4.65%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
from 31 to 40 years old from 41 to 50 years old over 50 years old TOTAL
53.58% 50.00% 52.09% 73.08% 38.24% 59.30%
2016
0.00%
0.00%
0.00%
0.00%
100%
22.22%
0.00%
0.00%
0.00%
28.57%
0.00%
22.22%
16.67%
0.00%
12.50%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
16.67%
0.00%
12.50% 28.57%
100%
44.44%
Group 2017
DESCRIPTION
< 30 years old from 31 to 40 years old from 41 to 50 years old over 50 years old TOTAL
70
2016
5.04%
3.46%
4.50%
7.26%
4.23%
6.25%
4.84%
6.54%
5.42%
4.36%
2.69%
3.80%
2.42%
0.38%
1.72%
2.90%
1.54%
2.45%
1.01%
0.00%
0.66%
0.83%
0.00%
0.54%
8.46%
13.04%
13.31% 10.38% 12.30% 15.35%
In 2017, turnover was in line with 2016. At Sabaf Turkey, the Group is experiencing the greatest difficulties in personnel retention, partly because it operates in an area, Manisa, which is experiencing strong industrial development and where new employment opportunities are constantly being offered. The policies implemented, which include both monetary incentives and greater benefits, have nevertheless led to a higher level of loyalty development in Turkey.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Personnel training Within the Sabaf Group, the professional growth of employees is supported by continuous training. The Human Resources Department, having consulted the relevant heads and gathered the training requirements, prepares an annual training plan on the basis of which the specific courses to be carried out are planned.
2017
Training for new employees, apprentices, training contracts
2016
5,173
1,538
6,711
3,187
1,222
4,409
Information systems
309
26
335
83
123
206
Technical Training
467
69
536
321
29
350
Quality, safety, environment and social responsibility
2,905
540
3,445
3,112
983
4,094
Administration and organisation
1,246
389
1,635
510
379
888
Foreign languages
328
152
480
966
283
1,249
Lean Philosophy/ Production/Office
1,522
364
1,886
81
29
110
-
-
-
-
-
-
TOTAL HOURS OF TRAINING RECEIVED
11,950
3,078
15,028
8,260
3,046
11,306
Hours of training provided by internal trainers
4,501
1,282
5,783
4,709
1,317
6,026
16,451
4,360
20,811
12,969
4,363
17,332
Other
TOTAL
The hours provided by internal trainers also include training given to employees with temporary work contract (equal to 4,067 hours in 2017).
Hours of training per capita received by category
2017
2016
Blue collars
20.5
8.8
16.5
15.1
9.0
12.9
White collars and Middle Managers
36.1
22.2
31.1
26.1
23.4
25.2
Managers
28.7
50
30.1
34.7
70.5
37.3
TOTAL
23.9
11.9
19.8
17.8
12.1
15.9
In 2017, the total cost incurred for training activities of Group personnel was approximately € 428,000 (approximately € 296,000 in 2016). In addition, there are training costs for temporary personnel, which in 2017 were around € 75,000 (around € 62,000 in 2016).
71
Internal Communication With the aim of developing a dialogue and continuous involvement between the company and its collaborators, Sabaf organises meetings and sharing sessions in which the results of projects to improve quality, efficiency and productivity are presented, as well as current initiatives in the "industry 4.0" sector. In 2017, 3 meetings were organised with a total of 266 employees. The Personnel Department institutionalised two weekly time bands in which it guarantees the availability of meeting employees for assistance and advice also independent of the issues closely related to the relationship between employee and employer, such as information on tax and social security regulations. In 2017, the Personnel Department of Sabaf S.p.A. dedicated 785 appointments to employees for problems relating to their employer-employee relationship or personal matters. In addition, it is possible to communicate with the Department via a dedicated e-mail address. Sabaf S.p.A. and Faringosi Hinges s.r.l. have an HR PORTAL software, through which each worker, with personalised access, can consult the documents and information published by the company (payrolls, tax and social security data, etc.). Collective communications and agreements in favour of employees are also available.
In November 2017, a free wireless network for Internet surfing was made available to employees at the local canteen of the Ospitaletto registered office, which can be used with mobile devices (smartphone, tablet and pc). In December 2017, the project to dematerialise the notice boards in the production departments and in the canteen was completed at Sabaf S.p.A. In each shed, a totem containing two screens was installed: the first one displays company communications and agreements; the second one is the turnkey of the single department with the names of first aid and fire-fighting personnel distributed by shift. In the canteen, only one monitor was installed for the first type of communication. Since 2018, departmental meetings have been systematically organised with the aim of improving communication and involving personnel. In these meetings, suggestions and reports of operators, shift managers and heads are put on record and examined by the managers of the areas concerned.
Diversity and equal opportunities Sabaf is constantly committed to ensuring equal opportunities for women employees, who currently represent 34.4% of the workforce (34.5% in 2016). The Group, in accordance with the organisational and production requirements, is attentive to the family requirements of its employees. To date, most of the demands for reduced working time made by workers have been met.
In 2017, Group companies granted a total of 44 part-time contracts (5 female employees, 38 female workers and 1 male worker), equal to 5.8% of the total (34 contracts in 2016). 29 disabled people, 15 of whom are part-time, work in the Group's Italian companies. There are 5 agreements with a business co-operative for the placement of personnel belonging to protected categories.
Percentage distribution of employment by gender 2017 NUMBER
%
NUMBER
%
Men
496
65.6
482
65.5
Women
260
34.4
254
34.5
756
100
736
100
TOTAL
72
2016
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Breakdown by category and gender 2017
2016
Managers
2%
0%
2%
2%
0%
2%
White collars and Middle Managers
14%
8%
21%
14%
7%
21%
Blue-collars and equivalent
50%
27%
77%
50%
27%
77%
TOTAL
66%
34%
100%
65%
35%
100%
The managers of all Group offices come from a geographical area close to the registered offices in which they operate, with the exception of the production manager at the premises of Sabaf China, who has been living in China for many years.
Non-EU workers 13
Non-EU workers Percentage over total workers
2017
2016
24
32
4.10%
5.30%
BENCHMARK 14
3.10%
At 31 December 2017, the Group's Italian companies included employees of 13 different nationalities.
13 The figure refers exclusively to the Italian companies of the Group. 14 FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017) – Lavoratori extracomunitari (2014) - http://www.federmeccanica.it
73
Working hours and hours of absence The normal weekly working time is 40 hours for the Italian companies and for Sabaf China and 44 hours for Sabaf do Brasil, spread over 5 working days, from Monday to Friday. For Sabaf Turkey, the duration is 45 hours per week, spread over 6 working days.
Overtime
2017
Average number of employees who have worked overtime per month Number of overtime hours Number of hours per capita per year 16
BENCHMARK 15
2016
White Collars
Blue Collars
White Collars
Blue Collars
White Collars
Blue Collars
137
390
107
358
-
-
12,946
31,622
9,714
21,554
-
-
82
54
65
38
54
67
Total hours of absence
2017
BENCHMARK 17
2016
Total hours of absence per year
29,274
42,621
71,895
39,650
46,661
86,311
-
Percentage of hours of absence over hours workable
2.8%
8.4%
4.6%
3.9%
9.2%
5.7%
-
Average hours of absence per capita
57.8
163.4
93.7
81.0
181.5
115.6
96.6
Hours of sick leave
2017
BENCHMARK18
2016
Total annual hours of illness
19,019
19,679
38,697
31,603
18,099
49,702
-
Percentage of hours of illness over hours workable
1.8%
3.9%
2.5%
3.1%
3.6%
3.3%
-
Hours of sick leave per capita
37.6
75.4
50.5
64.6
70.4
66.6
52.3
Hours of maternity/ paternity leave Total annual hours of maternity/ paternity leave
2017
BENCHMARK 18
2016
7,941.5
22,345.6
30,287.1
4,224.5
26,566.5
30,791.0
-
Percentage of maternity hours over hours workable
0.8%
4.4%
2.0%
0.4%
5.2%
2.0%
-
Hours of maternity leave per capita
15.7
85.7
39.5
8.6
103.3
41.3
14.9
The high number of hours of maternity leave compared to the industry average reflects a higher percentage of female personnel.
74
15 16 17 18
FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017) – Ore pro-capite di lavoro straordinario (2015), http://www.federmeccanica.it. In relation to the average number of employees. Processing by FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017)– Ore pro-capite di assenza dal lavoro (2015), http://www.federmeccanica.it. FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017) – Ore pro-capite di assenza dal lavoro (2015), http://www.federmeccanica.it.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Parental leaves 19 TYPE OF LEAVE (SABAF S.P.A)
2017
2016 % of workers in the workforce after 12 months
Compulsory maternity leave
0
12
12
0
14
14
100%
Early Maternity leave
0
9
9
0
14
14
100%
Voluntary maternity/paternity leave
11
21
32
6
20
26
73%
Breastfeeding
1
10
11
0
4
4
100%
Care for disabled family members (Law 104)
21
9
30
20
12
32
88%
Blood donation
9
1
10
7
0
7
71%
Leave of absence
6
4
10
4
2
6
100%
Extraordinary Leave
3
0
3
1
0
1
0%
OTHER LEAVES
TYPE OF LEAVE (OTHER COMPANIES OF THE GROUP)
2017
Compulsory maternity leave
0
3
3
Early Maternity leave
0
0
0
Voluntary maternity/paternity leave
1
1
2
Breastfeeding
0
1
1
Care for disabled family members (Law 104)
0
1
1
Blood donation
3
1
4
Leave of absence
0
0
0
Extraordinary Leave
3
2
5
OTHER LEAVES
19 The comparison with 2016 is only possible for Sabaf S.p.A. as the data collection process was extended to other Group companies in 2017.
75
Remuneration, incentive and enhancement systems The employees of Sabaf S.p.A. are classified according to the provisions of the National Collective Labour Contract for the metal and engineering industry, supplemented by second-level negotiations, which include:
productivity or personal bonuses per level,
a production bonus per level,
a fixed performance bonus (part of which includes part of the previous variable bonus) for all levels,
a variable performance bonus that is the same for all levels.
Further information is provided in the notes to the consolidated financial statements. In addition to economic incentives, the incentive system includes company agreements for access to goods or services on favourable terms for all employees, regardless of the type of contract. The Group believes that a fundamental element of the incentive system is represented by the training opportunities provided to employees, including the possibility to participate free of charge in numerous activities organised at the premises or offpremises.
An incentive system related to collective and individual objectives (MBO) is in place, involving the Chief Executive Officer, executives with strategic responsibilities and other managers, identified by the Chief Executive Officer among the managers who report directly to him/her or among the managers who report to the above managers. In 2017, this incentive system involved 38 employees of the Group (35 men and 3 women). The maximum incidence of the variable component is 25% of the fixed annual gross salary. Further details on the MBO mechanisms are described in the Remuneration Report.
The "Premio Produciamo QualitĂ (PPQ)" (literally, "We produce quality prize") With the aim of rewarding the contribution of personnel to the achievement of company objectives, in 2016 Sabaf S.p.A. introduced, on an experimental basis, an incentive system related to quality objectives (reduction of waste and rework), production efficiency and precision in carrying out projects. In 2017, improvement targets in these areas were set for 87 people involved in relevant business processes that are not included in the MBO system.
WHITE COLLARS
BLUE COLLARS
TOTAL
Men
36
47
83
Women
4
0
4
40
47
87
TOTAL
The initiative was very well received by the employees: in addition to being a tool for steering towards challenging objectives (302 objectives were assigned, achieved or exceeded in 66% of cases), the PPQ stimulated teamwork and favoured the sharing of short- and medium-long term development plans at all company levels. Moreover, the variable performance bonus (PRV), provided for in the company's supplementary contract for all employees and also based on quality and productivity indices, benefited from it: a variable performance bonus of â‚Ź 1,232 was recognised for 2017, 4.05% higher than in 2016. The success of the project suggested its re-proposal also for 2018, involving a greater number of collaborators (over 100).
The forms of social security in force for all Group employees are those envisaged by the regulations in force in the various Countries in which the Group operates.
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SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Ratio of minimum monthly salary laid down by collective labour agreements to minimum salary paid by Group companies 20 2016
MINIMUM SALARY UNDER COLLECTIVE LABOUR AGREEMENT
MINIMUM SALARY PAID
MINIMUM % INCREASE
VALUES IN EURO Sabaf S.p.A.
1,589
1,589
1,812
2,167
14%
36%
Faringosi Hinges
1,589
1,589
1,769
1,769
11%
11%
Turkey
317
317
356
356
12%
12%
Brazil
355
355
400
400
13%
13%
China
249
249
362
362
46%
46%
2017
MINIMUM SALARY UNDER COLLECTIVE LABOUR AGREEMENT
MINIMUM SALARY PAID
MINIMUM % INCREASE
VALUES IN EURO Sabaf S.p.A.
1,590
1,590
1,814
2,172
14%
37%
Faringosi Hinges
1,590
1,590
1,771
1,771
11%
11%
A.R.C. s.r.l.
1,434
1,434
1,462
1,434
2%
0%
Turkey
308
308
352
352
14%
14%
Brazil
358
358
414
414
15%
15%
China
265
265
356
356
34%
34%
Ratio of maximum to average salaries of Group companies 2017
2016
Italy
9.6
4.7
Turkey
11.5
11.5
Brazil
6
8.9
China
7.5
8
Ratio of average salary of female personnel to average salary of male personnel 2017
2016
White-collars, middle managers and managers
67%
64%
Blue Collars
74%
86%
20 Values converted into euro at the annual average exchange rate.
77
Occupational health and safety and working environment RISK MANAGEMENT Within the Integrated Management System of Health and Safety, Environment and Energy, aspects relating to health and safety at work are also addressed using a riskbased approach. The Sabaf Group formally defines the responsibilities, criteria and operating procedures for identifying and planning prevention measures to eliminate and/or mitigate risks, as part of a system that allows the level of safety and hygiene to be optimised and constantly improved through preventive actions. Prevention and reduction of risk levels are based on the following factors: • Effective training: all training courses related to health and safety are planned and managed by internal personnel and/or external trainers, with a propensity to teach and with strong experience in the reference sector (first aid, fire-fighting, work at height, etc.). • Cutting-edge plants: continuous investment in increasingly modern and technologically advanced machinery reduced the levels of risk related to ergonomics and manual handling of loads and improved the systems to protect against physical risks. • Organisation: the strong involvement and constant training of department heads and their awareness of obligations and responsibilities led to a clear improvement in all aspects of Health and Safety.
78
In the Group companies based in Italy (Sabaf S.p.A., Faringosi Hinges, A.R.C.), the risk assessment is carried out by the Employer through the collaboration of the Occupational Health and Safety Officer and the Company Physician, with the participation of all responsible parties (managers and representatives). The risk assessment process, coordinated by the Safety Office, operates with the help of dedicated software. The involvement of workers is envisaged, both through periodic meetings with safety representatives and through the obligation to report possible additional risks. In October 2017, the certification process of the safety management system of Sabaf S.p.A. according to OHSAS 18001:2007 was completed. Following the checks carried out by CSQ (IMQ Certification Body), Sabaf obtained the certificate of compliance with standards. The management system for the health and safety of workers of Faringosi Hinges has been certified according to OHSAS 18001 since February 2012. The system was recertified by the TUV NORD in February 2015. The last supervisory audit, carried out in March 2017, certified the compliance of the system with the reference standards; in fact, no non-conformity has emerged, but only suggestions for improvement. During 2017, the Health and Safety operating procedures already in place at Sabaf S.p.A. were implemented in A.R.C. A new assessment of the business risk was carried out and the software for managing security aspects was introduced. With regard to production sites abroad, the Group intends to manage health and safety issues in an increasingly coordinated manner, ensuring a uniform approach to risk assessment and a uniform body of procedures. The Parent Company also monitors the activities of foreign factories, checking full compliance with local laws.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Number and duration of injuries 2017
BENCHMARK 21
2016
-
Injuries at work - Group
12
6
18
8
3
11
Italy
6
3
9
1
2
3
Brazil
0
0
0
1
0
1
China
0
0
0
0
0
0
Turkey
6
3
9
6
1
7
Injuries while travelling to/from work - Group
3
0
3
1
0
1
Italy
3
0
3
1
0
1
Brazil
0
0
0
0
0
0
China
0
0
0
0
0
0
Turkey
0
0
0
0
0
0
Total hours of absence due to injuries - Group
1,720.3
168.5
1,888.8
329.5
39.5
369.0
Italy
1,348.5
108.5
1,457.0
32.0
39.5
71.5
Brazil
0
0
0
110
0
110
China
0
0
0
0
0
0
Turkey
371.8
60.0
431.8
187.5
0
187.5
Hours of absence from work due to injury per capita 22
3.42
0.66
2.48
0.67
0.15
0.49
21 FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017) – Ore pro-capite di assenza dal lavoro (2015),http://www.federmeccanica.it 22 The calculation is based on the average annual personnel.
5.2
79
Injury frequency rate
Injury severity index
Number of injuries (excluding injuries while travelling to/from
Days' absence (excluding injuries while travelling to/from work) x
work) x 1,000,000/ hours worked
1,000/ hours worked
2017
Group
2016
2017
2016
14.33
15.44
14.68
10.01
7.58
9.21
Group
0.16
0.06
0.13
0.05
0.01
0.04
Italy
9.46
10.93
9.91
1.70
7.68
3.54
Italy
0.14
0.06
0.12
0
0.02
0.01
Brazil
0
0
0
13.30
0
8.09
Brazil
0
0
0
0.20
0
0.12
China
0
0
0
0
0
0
China
0
0
0
0
0
0
Turkey
52.01
44.16
49.10
48.81
12.27
34.25
Turkey
0.42
0.12
0.31
0.20
0
0.12
In 2017, there were no particularly serious injuries to Group employees. Training and awareness raising activities on the use of personal protective equipment continued at all Group factories.
In compliance with the laws in force, Group companies prepared and implemented health supervisory plans for employees, with health inspections aimed at the specific risks of the work activities carried out. In particular, 3,108 health inspections were carried out in 2017 (2,664 in 2016).
Current expenditure for labour protection 2017
2016
Plant, equipment and materials
42
74
Personal protective equipment
119
89
External training
16
25
Advisory services
99
85
Working environment analysis
17
9
Health inspections (including pre-recruitment checks)
40
40
Software and database
3
5
336
327
2017
2016
Plant, equipment and materials
34
81
TOTAL
34
81
AMOUNTS IN â‚Ź000
TOTAL
Investments in labour protection AMOUNTS IN â‚Ź000
The commitment to improve risk levels related to manual handling of loads and repetitive movements thanks to an increasingly greater automation of operations is of particular importance. Special equipment for transport and storage was also studied, light detectors were installed on forklifts and the internal road network of the factories was improved (with new road signs and road markings).
80
At Sabaf S.p.A., a study is currently being carried out to assess seismic risk, which will make it possible to identify the safest areas of the Company and consequently indicate the pathways to be followed during evacuation operations. Among the organisational aspects, the implementation of a web platform for the management of contract work is worthy of note.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Sabaf, a health-promoting workplace At the beginning of 2016, Sabaf S.p.A. joined the WHP (Workplace Health Promotion) programme, committing itself to implementing good practices in the field of workplace health promotion. Sabaf is committed not only to implementing all measures to prevent accidents and occupational diseases but also to offering its workers opportunities to improve their health, reducing general risk factors and in particular those most involved in the genesis of chronic diseases. Workplace health promotion is the result of the combined efforts of employers, workers and the company. The following factors contribute to this promotion: • Improving work organisation and the working environment • Encouraging personnel to participate in healthy activities • Promoting healthy choices • Encouraging personal growth The central idea is simple: Sabaf aims to build, through a participatory process, a context that encourages the adoption of positive behaviour and choices for health. The WHP Programme envisages the development of activities (good practices) in 6 thematic areas and requires the progressive implementation, year after year, of a minimum number of good practices in the various thematic areas.
fight against smoking food
fitness training
well-being and reconciling life and work
safe and sustainable mobility fight against addictions
81
The improvement measures taken in 2017 are shown below.
FOOD
8 meetings with a dietician were organised on the correct nutrition of the adult and the child and on sports diets. Many informative interventions were carried out thanks to an expansion of the poster system concerning the food pyramid, the menus and the tables with the colours of food for a correct matching of dishes; moreover, the "Profilo Salute" (Health Profile) magazine is distributed free of charge. The menu was studied and suggested by a nutritionist: at each meal you can choose between at least 3 first courses, 3 second courses, 3 side dishes with fresh and cooked vegetables; yogurt and fruit are always available as alternatives. The wide range of food currently includes wholemeal pasta and bread every day.
FIGHT AGAINST SMOKING
As from 2017, the company physician carries out actions of minimal anti-tobacco advice during health supervisory checks. It is a speech lasting a few minutes, which deals with the issue of smoking and the benefits of quitting smoking and ends with the distribution of information material. Data collected by the company physician is reported to monitor the effectiveness of the speech. According to the surveys carried out, smokers in Sabaf are less than 20% of the total.
SAFE AND SUSTAINABLE MOBILITY
The signposting in the departments and parking areas was renewed. The presence of at least 20% of the fleet of environmentally friendly vehicles is guaranteed. All vehicles are checked by completing a checklist at least quarterly and a scheduled maintenance of company vehicles is carried out more frequently than the mandatory servicing in authorised workshops inside or outside the company.
WELL-BEING AND RECONCILING LIFE AND WORK
Sabaf has joined the initiative "Family policies: reconciling living and working time" for the second year. This initiative envisages the assignment of incentives to employees through the payment of company vouchers to partially cover the following expenses: attendance fees for public and private social and educational services for early childhood (micro nursery, nursery, family daycare, early childhood centres, baby sitting, baby parking, recreation centre); fees for social and educational services for children up to 14 years of age (services provided as part of summer activities, services provided as part of pre and post-school activities, daytime aggregation and educational recreation centres, fees for nursery schools, sports, musical and cultural activities); expenses incurred for the care of elderly family members in a situation of non-self-sufficiency and severely disabled persons. In 2017, 37 part-time jobs were renewed; personnel returning from maternity leave have been granted benefits in the carrying out of their working hours.
82
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Use of dangerous substances Only materials that fully comply with the requirements of Directive 2002/95/EC (RoHS Directive) which tends to limit the use of hazardous substances such as lead, mercury, cadmium and hexavalent chromium are used for production.
83
Industrial relations In January 2018, the second level company agreement of Sabaf S.p.A. was renewed. The key points of this agreement are set below: • the sharing between the company and trade unions and Unitary Union Representative Body of priorities on which to channel resources and energy in the coming years (producing quality, creating and maintaining efficiency, becoming more flexible); • sharing objectives also through the responsible involvement of personnel; • maintaining fair and transparent industrial relations while respecting individual roles; • the establishment of working groups with the aim of improving the involvement of personnel at all levels; • the continuation of the payment of a variable part of remuneration, the payment of which is related to measurable and verifiable quality and efficiency indicators; data on which dissemination and transparency will be maintained; • the possibility of converting all or part of the variable performance bonus (PDRV) into welfare.
The company agreement was reached after several months of negotiations, but without conflict and is valid until June 2021. There are three internal trade union representatives in Sabaf S.p.A.: FIOM, FIM and UILM. In Group companies, 136 employees, or 18% of the total, were registered at December 2017 (145 employees, or 19.7%, were registered in 2016). Relations between the Management and the Unitary Union Representative Body are based on transparency and mutual fairness. During the year, Sabaf S.p.A. held 9 meetings between Management and the Unitary Union Representative Body. The main topics addressed are set below: • renewal of the second level company agreement; • use of the temporary unemployment fund; • communications concerning compliance with the new edition of the SA8000 standard; • periodic agreements for periods of collective closure. Hours of participation in trade union activities during 2017 amounted to 0.29% of the hours workable.
Participation in trade union activities 2017
2016
No. of hours
1,806
2,891
Percentage over hours workable
0.12
0.19
No. of hours per capita
2.70
3.90
No. of hours
1,689
2,046
Percentage over hours workable
0.11
0.14
No. of hours per capita
2.50
2.70
No. of hours
1,006
5,452
Percentage over hours workable
0.10
0.36
No. of hours per capita
1.50
7.30
No. of hours
4,501
10,389
Percentage over hours workable
0.29
0.69
No. of hours per capita
6.71
13.92
BENCHMARK 23
MEETING
LEAVE FOR TRADE UNION DUTIES
STRIKE
TOTAL
3.80
In 2017, a total of 6 hours of strike were called out in Sabaf S.p.A. in connection with national problems. No strikes were called out in Faringosi Hinges, A.R.C., Sabaf do Brasil, Sabaf Turkey and Sabaf China.
84
23 FEDERMECCANICA, L’industria metalmeccanica in cifre (June 2017) – Ore pro-capite di assenza dal lavoro (2015),http://www.federmeccanica.it
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
USE OF THE TEMPORARY UNEMPLOYMENT FUND/SOLIDARITY CONTRACT 24
Number of hours of temporary unemployment fund/solidarity Average number of hours per capita per year
During the financial year, Italian Group companies occasionally used social shock absorbers during periods characterised by low production requirements. In December 2016, the activation of the Solidarity Contract for the whole of 2017 was
2017
2016
10,302
35,583
17.6
60.8
agreed with the Unitary Union Representative Body. Following the good performance of production levels in 2017, the use of this instrument was minimal and ended early in May rather than December.
Disputes and disciplinary measures In 2017, 104 violations were alleged against Group employees, leading to the following disciplinary measures:
18 oral warnings;
The main reasons for disciplinary measures are absence without leave, lack of diligence in the tasks assigned, incorrect production, non-compliance with company regulations, safety procedures, working hours and rules concerning sick leave. At 31 December 2017, there was a dispute with an employer and some disputes with former employees, mainly relating to the contestation of dismissal measures.
4 warnings to use the personal protective equipment; 44 written warnings; 19 fines; 11 suspensions; 8 dismissals.
24 The figure refers exclusively to the Italian companies of the Group.
85
Sabaf and environment Risks Environmental issues are also managed through a risk-based approach, in line with the UNI EN ISO 14001:2015 standard.
• Strategic risks, including collaboration with strategic service providers with potential environmental risk (waste collection, cleaning services, maintenances).
• Risks of external context (environmental sustainability), concerning the protection of the environment and the territory, through the reduction of environmental impacts and the containment of the use of natural and energy resources. These impacts are considered from the product design stage, through the different stages of its implementation and from a perspective that considers the whole life cycle of the product.
• Legal and compliance risks, related to compliance with law requirements (authorisations and compliance obligations) and requests of local institutions.
Health and safety, environmental and energy policy PROGRAMME AND OBJECTIVES Sabaf adopted and maintains an Integrated Management System of Health and Safety, Environment and Energy (EHS&En) that, by integrating with the other Management Systems operating within the company, is an effective means of pursuing a constant reduction in risks, environmental impacts and energy consumption through the following instruments: • the prior assessment of EHS&En aspects in all company processes, with particular focus on design, production processes and purchases; • maintaining full compliance with current law requirements, proactively using them as elements of continuous process monitoring; • a training and information system involving all employees and collaborators. Sabaf is committed to the following objectives: • the prevention of pollution and rationalisation of the use of energy through the continuous improvement of its processes and products; • the efficiency in the use of natural and energy resources during production, with a special reference to water and energy consumption;
• the reduction of the quantity of waste produced and the improvement of its quality in terms of hazardousness and recoverability. Since 2003, the Environmental Management System of the Ospitaletto production site (which covers approximately 75% of the Group's total production) has been certified in compliance with ISO 14001. CSQ carried out the monitoring inspection in July 2017, confirming the adequacy of the system and issuing the certificate of compliance for the transition to the new ISO 14001:2015 Standard. In 2015, the Energy Management System implemented at the premises of Ospitaletto was certified in compliance with the ISO 50001 standard. In November 2017, CSQ carried out a monitoring inspection, which was successful. In 2008, Sabaf S.p.A. obtained the Integrated Environmental Authorisation (IPPC) from the Lombardy Region pursuant to Legislative Decree 59 of 18 February 2005.
Dialogue with environmental associations and institutions The Group has long promoted the dissemination of information about the lower environmental impact of using gas in cooking instead of electricity: in fact, the use of combustible gas for heat production allows higher efficiency than those obtainable with electric cooking appliances.
86
Moreover, cooking is increasingly characterised, all over the world, by the demand for high power and many cooking points to prepare meals quickly. Electrically powered hobs cause peak energy consumption to increase, typically around meal times, further increasing the demand for electricity.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Process innovation and environmental sustainability METAL WASHING
MARKING OF PRODUCTS
In the production process of valves, it is essential to wash metals in several stages. Since 2013, Sabaf has been using a washing system based on a modified alcohol, a solvent that is redistillable (and therefore recyclable) due to its properties. The environmental impact and operating costs of this solvent have been substantially eliminated, as well as the emission level and production of special waste.
The regulations in force require that products be marked with a number of distinctive features. Traditionally, printing has always been done with an inkjet system: the system allows printing only three lines, for a preset number of characters per line, with an annual operating cost of about â‚Ź 60,000 for inks, solvents and maintenance. Sabaf decided to opt for a fibre optic laser writing system that allows all the necessary characters to be printed on the products without any restrictions. In recent years, with an investment of about â‚Ź 250,000, all inkjet systems have been replaced with laser fibre optic writing systems, thus eliminating operating costs.
WATER RESOURCE MANAGEMENT In the environmental field, water saving was a priority in the 2016 objectives. In addition to this objective, the 2017 activity also focused on water quality. The water used in the washing and electroerosion phases must meet very restrictive parameters; the investment in equipment for water osmosis has allowed its optimal use, with a benefit in terms of less maintenance and lower energy consumption.
Product innovation and environmental sustainability LIGHT ALLOY VALVES
HIGH EFFICIENCY BURNERS
The production of aluminium alloy valves has several advantages compared to the production of brass valves: elimination of the hot moulding phase of brass, lower lead content in the product, lower weight and consequent reduction in consumption for packaging and transport. In 2017, the process of replacing brass valves with light alloy valves continued, representing more than 85% of the valves produced.
For many years, Sabaf has been at the forefront of the market with burners that are characterised by yields significantly higher than standard. Following the launch of the III, AE and AEO Series, in 2012, Sabaf introduced a new family of high efficiency burners, the HE burners, capable of achieving an efficiency of up to 68%. HE burners are also characterised by almost total interchangeability with Series II burners. Recently, the range of DCC special burners was completed: they are characterised by an energy efficiency of over 60%, the highest available on the market today for multiple flame ring burners. Moreover, DCC burners with a brass flame-spreader ring and efficiency of more than 65% were produced specifically for the Chinese market, the top of what is currently available on that market. High efficiency burners represent almost 20% of the total burners produced.
87
Environmental impact MATERIALS USED AND RECYCLABILITY OF PRODUCTS Sabaf's main product lines - valves, thermostats and burners for gas cooking appliances for domestic use - are characterised by high energy efficiency and optimal use of natural resources. Sabaf products can be easily recycled because they are made almost entirely of brass, aluminium alloys, copper and steel. Sabaf also has separate waste collection of paper/cardboard, glass, cans and plastic. In 2017, separate waste collection enabled the recycling of 125,450 kg of paper/cardboard and plastic packaging.
ENERGY SOURCES 25 ELECTRICITY TOTAL
NATURAL GAS TOTAL
MATERIALS USED Brass Aluminium alloys Zamak Steel Cast Iron
2017 CONSUMPTION (t)
2016 CONSUMPTION (t)
540
697
8,070
6,703
91
82
7,631
7,250
39
-
DIESEL OIL TOTAL
TOTAL CONSUMPTION TOTAL
100% of brass and about 65% of aluminium alloys used are produced by scrap recycling; 35% of aluminium alloys and 100% of steel are produced from ore. The ever lower consumption of brass is linked to the gradual replacement of brass valves with aluminium alloy valves. Sabaf products fully comply with the requirements of Directive 2002/95/EC (RoHS Directive) that aims to limit the use of hazardous substances such as lead in the production of electrical and electronic equipment, a category that includes all household appliances including gas cooking appliances (which are equipped with electronic ignition). Moreover, Sabaf products fully comply with the requirements of Directive 2000/53/EC (End of Life Vehicles), i.e. the heavy metal content (lead, mercury, cadmium, hexavalent chromium) is below the limits imposed by the Directive. With regard to the REACH Regulation (Regulation no. 1907/2006 of 18/12/2006), Sabaf S.p.A. is a downstream user of substances and preparations. The products supplied by Sabaf are classified as articles that do not give rise to the intentional emission of substances during normal use, therefore there is no registration of the substances contained in them. Sabaf contacted its suppliers to ensure that they fully comply with REACH Regulation and to obtain confirmation that they meet their obligations to pre-register and register the substances or preparations they use. Moreover, Sabaf constantly monitors the legislative changes relating to REACH Regulation, in order to identify and manage any new requirements in this area.
88
2017 CONSUMPTION (MWh)
2016 CONSUMPTION (MWh)
30,841
27,189
2017 CONSUMPTION (m3 X 1000)
2016 CONSUMPTION (m3 X 1000)
4,059
3,432
2017 CONSUMPTION (l X 1.000)
2016 CONSUMPTION (l X 1.000)
5.5
-
2017 CONSUMPTION GJ
2016 CONSUMPTION GJ
272,329
234,094
Sabaf S.p.A., Sabaf do Brasil and Sabaf Turkey use natural gas as an energy source for the casting of aluminium and for the firing of enamelled lids. The production of Faringosi Hinges and A.R.C. does not use natural gas as an energy source.
INDICATOR: ENERGY INTENSITY ENERGY INTENSITY KWh on turnover
2017 CONSUMPTION
2016 CONSUMPTION
0.489
0.483
25 The factors used to calculate consumption were published by the Department for Business, Energy & Industrial Strategy (BEIS) in 2015. The 2016 figures have also been recalculated according to these factors. The consumption of diesel oil refers to the company A.R.C s.r.l., that was not included in the reporting boundary in 2016.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
ENERGY DIAGNOSIS OF THE ENERGY MANAGEMENT SYSTEM During 2015, Sabaf S.p.A. and Faringosi Hinges s.r.l. carried out an energy audit, aimed at obtaining an in-depth knowledge of the energy consumption profile of their activities and identifying and quantifying energy saving opportunities.
Main energy sources used
Energy demand analysis by purpose
The main sources used are:
The production processes that absorb the highest energy consumption are foundry (28% of the total), compressed air production (22% of the total) and enamelling (7% of the total). The energy requirement of auxiliary services is mainly attributable to the management of the wastewater from the foundry and the enamelling (8% of the total). The energy requirement of general services is largely attributable to heating and lighting.
• electricity, for all the equipment with electric power supply present, whether functional or not to the production process, which covers 84% of the total energy requirement; • natural gas, related to the operation of both production plants (foundry furnaces, washing burners, enamel kilns) and service plants (heating), which covers 16% of total energy requirements.
Incoming energy mix [€]
16%
Energy requirement EE A [€]
PROCESS [toe]
NG [€]
AUXILIARY SERVICES [toe]
DIESEL OIL [€]
15%
GENERAL SERVICES [toe]
58% 84%
27%
2018 OBJECTIVES 1
Continuation of leak detection and repair and optimisation of process management of compressed air production
2
Assessment of energy revamping of company wastewater treatment plants.
89
WATER 2017 CONSUMPTION (m3)
2016 CONSUMPTION (m3)
From waterworks
81,472
46,879
From well
31,329
46,640
112,801
93,519
WATER
TOTAL
All the water used in the production processes by Group companies is destined for disposal or internal recycling for reuse in company processes: as a consequence, there is no industrial waste water. The water used in the die-casting and enamelling processes in Italy, recovered through a rainwater collection system or taken from the well, at the end of the production processes, is treated in concentration plants that have significantly reduced the quantities of water required and waste produced. Among the environmental improvement objectives set for 2018, the commitment to optimise water-using processes and improve water management related to the cooling of the company's die-casting circuit continues.
WASTE Trimmings and waste from the production process are identified and collected separately for recycling or disposal. The risers deriving from aluminium die-casting are intended for direct reuse. The waste for disposal and recycling is summarised below:
WASTE (t) 26
2017
% INCIDENCE
2016
% INCIDENCE
189
2.2
152
2.0
Non-hazardous (disposal)
1,810
21.3
1,474
18.9
Non-hazardous (recycling)
4,391
51.8
3,980
50.9
Tot. non hazardous
6,201
73.1
5,453
69.8
Hazardous (disposal)
952
11.2
1,188
15.2
Hazardous (recycling)
1,143
13.5
1,021
13.1
Tot. hazardous
2,095
24.7
2,209
28.3
TOTAL
8,485
100
7,815
100
Value of production
39,602
36,614
Tot waste/val. of product.
0.21
0.21
Tot. Hazard. waste/val of product.
0.05
0.06
Similar to urban
During 2017, the incidence of waste on the value of production remained in line with 2016. The company's commitment focused on reducing the production of hazardous special waste, investing in the search for raw materials and substances, at the input stage, already not hazardous originally. No significant spills occurred in 2017.
90
26 2016 figures do not include Sabaf China.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
EMISSIONS INTO THE ATMOSPHERE 27 A large part of atmospheric emissions of the Sabaf Group derives from activities defined as "negligible pollution". -- T hree production processes are carried out at Sabaf S.p.A: 1. the production of the components that make up the burners (nozzle holder sumps and flame spreaders) involves the casting and subsequent die-casting of the aluminium alloy, sandblasting of the pieces, a series of mechanical processes with removal of material, washing of some components, assembly and testing. This production process results in the emission of negligible amounts of oily mists, as well as dust and carbon dioxide; 2. the production of burner covers, where steel is used as raw material, which is submitted to blanking and minting. The semi-finished covers are then used for washing, sandblasting, application and firing of enamel, a process that generates the emission of dust; 3. the production of valves and thermostats, in which mainly brass bars and moulded bodies (in aluminium alloy for new generation valves) and, to a much lesser extent, steel bars are used as raw materials. The production cycle is divided into the following phases: mechanical machining with removal of material of bars and moulded parts, washing of semi-finished products and components obtained in this way, finishing of the coupling surface of bodies and masks with a diamond tool, assembly and final inspection of the finished product. This process generates negligible oily mists. -- In Faringosi Hinges, steel is used as the main raw material for the production of hinges, and is subjected to a series of mechanical processing and assembly that do not involve any significant emissions. -- In A.R.C., where professional burners are produced through mechanical processing and assembly, no significant emissions are recorded. -- The entire burner production process is carried out at Sabaf do Brasil. An analysis of the internal process shows that there are no significant emissions. -- The entire flame spreading process and the enamelling of burner covers is carried out at Sabaf Turkey. An analysis of the internal process shows that there are no significant emissions. -- Sabaf China carries out mechanical processing and burner assembly operations. Emissions are completely negligible. The efficiency level of the purification systems is ensured through their regular maintenance and the regular monitoring of all emissions. Monitoring in 2017 showed that all emissions complied with the limits imposed by the law. CO2 EMISSIONS (T)
2017
2016
Scope 1 (direct emissions)
762.90
633.08
11,569.54
10,161.72
12,332.44
10,794.80
Scope 2 (indirect emissions) TOTAL EMISSIONS (SCOPE 1+2)
Environmental investments ENVIRONMENTAL CURRENT EXPENDITURE AMOUNTS IN €000
2017
2016
Waste disposal
511
453
Advisory services
27
78
Analysis of emissions
18
14
Training
2
2
Plant, equipment and materials
22
12
580
559
TOTAL
ENVIRONMENTAL INVESTMENTS AMOUNTS IN €000
2017
2016
Plant, equipment and materials
33
690
TOTAL
33
690
The important investment cycle for the replacement of washing systems was completed in 2016; in 2017, investments were made in: • extraordinary maintenance of atmospheric emission plants in the foundry department; • improvement of waste collection areas within departments, to facilitate a more immediate and correct separation of the various types of waste.
Disputes There is no environmental dispute in progress.
The use of natural gas to power melting furnaces results in the emission of NOX and SOX into the atmosphere, however these emissions are not significant. Using a relatively clean fuel such as natural gas allows Sabaf to contribute negligibly to greenhouse gas emissions. There are no emissions of CH4, N2O, HFCS, SF6, greenhouse gases. Sabaf does not currently contain any substances that damage the atmospheric ozone layer, with the exception of the refrigerant used in some air conditioners (R22), which is managed in compliance with the reference standards.
27 The factors used to calculate emissions were published by the Department for Business, Energy & Industrial Strategy (BEIS) in 2015. The 2016 figures have also been recalculated according to these factors.
91
Sabaf, the management of product quality and customer relations Risks The new UNI EN ISO 9001:2015 standard with Sabaf complies, introduces the concept of a "risk-based approach", which is fundamental for planning the quality management system. • Strategic risks, including intellectual property protection (there is a risk that some Group products, even if under patent protection, may be copied by competitors) and collaboration with critical suppliers.
• Legal and compliance risks, relating to non-compliance with product regulations: Sabaf operates in international markets that adopt different laws and regulations. The product must therefore comply with the mandatory and voluntary requirements and the organisation must be able to show this consistency to the certification bodies responsible for control.
Quality management policy The Quality Management System is integrated with the Environmental and Occupational Safety Management Systems and has the aim of enabling the achievement of the following objectives: a. increasing customer satisfaction by understanding and meeting their present and future requirements; b. continuous improvement of processes and products, also aimed at protecting the environment and the safety of employees; c. involvement of partners and suppliers in the continuous improvement process, favouring the "comakership" logic; d. valuation of human resources; e. improvement of business performance and of the quality management system based on risk based thinking.
In order to contribute consistently to the pursuit of these objectives, the Sabaf Group undertakes a series of commitments explicitly stated in the Charter of Values: • to act with transparency, correctness and contractual fairness; • to communicate product information in a clear and transparent manner; • to adopt a professional and helpful behaviour towards customers; • not to give gifts to customers that exceed normal courtesy practices and that may tend to influence their objective assessment of the product; • to guarantee high quality standards of the offered products; • to ensure constant attention in technological research in order to offer innovative products; • to collaborate with customer companies to ensure that the end user is fully confident in using the products; • to promote social responsibility actions throughout the production chain; • to listen to customers' requirements through constant monitoring of customer satisfaction and complaints, if any; • to inform customers of potential risks related to the use of products, as well as the related environmental impact.
Group companies that have obtained quality certification according to the ISO 9001:2008 standard:
92
YEAR OF FIRST CERTIFICATION
YEAR OF FIRST CERTIFICATION
1993
2008
Sabaf S.p.A
Sabaf do Brasil
2001
2015
Faringosi Hinges
Sabaf Turkey
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
During 2017, the Quality Management System was constantly monitored and maintained to ensure the correct implementation and compliance with the requirements of the ISO 9001 standard. A total of 54 internal inspections were carried out, of which 26 at certified Italian factories, 14 at Sabaf do Brasil and 14 at Sabaf Turkey. The results of these checks did not reveal any critical aspects of the system, which therefore fully complies with the standard. With regard to third party inspections of the Quality Management System, in 2017 CSQ (IMQ Certification Body) carried out the annual inspection at the premises of Ospitaletto and at the factory of Sabaf do Brasil, confirming the adequacy of the System and the maintenance of ISO 9001:2008 certification. Whereas the factory in Turkey was subjected to monitoring inspection in May 2016 characterised by confirmation and the next check by the certification body is scheduled for 2018. It is emphasised that, during 2017, the Company carried out some preliminary activities to adapt the Quality Management System to the new version of the ISO 9001:2015 Standard. In 2018, the System will be fully adapted to the new standard. In October 2017, the TUV NORD certification body carried out annual checks on the compliance of the Quality Management System of Faringosi Hinges, in accordance with UNI EN ISO 9001:2008. The intervention ended successfully. Like Sabaf, Faringosi Hinges started the preparatory activities to adapt the Quality Management System to the new version of the ISO 9001 Standard. The adaptation is expected by September 2018.
Customer satisfaction The customer satisfaction survey, carried out every two years, is part of the stakeholder engagement activities that Sabaf undertakes in order to constantly improve the quality of the services offered and to respond to customer expectations. The following is a summary of the last analysis, carried out in February 2017. Product quality/reliability
4.45
Compliance with delivery deadlines and quantities ordered
4.03
Quality/price ratio
3.70
Ability and readiness to resolve complaints
4.08
Technical support
4.43
Commercial service
4.49
Degree of product innovation
4.19
Assessment Mark
Excellent
Good
Fair
Low
Poor
5
4
3
2
1
The results of the survey, which was carried out by sending questionnaires to Group customers, confirm that the Group's opinion is largely positive. The quality of its products and its timeliness, professionalism and competence in technical and commercial assistance are among its strong points.
Disputes
Quality current expenditure AMOUNTS IN €000
2017
2016
106
129
7
26
Measuring equipment and instruments (purchase)
102
103
Measuring equipment and instruments (calibration)
34
30
Technical standards, software and magazines
3
5
Training
3
0
Tests in external laboratories
39
16
294
309
2017
2016
Measuring equipment and instruments (purchase)
182
131
TOTAL
182
131
Product certification Certification and quality management system
TOTAL
Investments in quality AMOUNTS IN €000
Customer complaint handling Sabaf systematically handles all complaints from customers. A specific process is in place and envisages: • analysis of the alleged defect to assess its validity; • identification of the causes of the defect; • corrective actions necessary to prevent or limit the recurrence of the problem; • customer feedback through 8D reports (quality management tool that enables a cross-functional team to determine the causes of problems and provide effective solutions). The following table shows the trends in terms of the number of customer complaints in the Group.
NUMBER OF WELL-FOUNDED CUSTOMER COMPLAINTS
2017
2016
335
395
The causes of complaints vary from product to product and can be summarised mainly in: • aesthetic defects for the family of covers and burner flame spreaders; • size and/or operating anomalies for the family of valves and thermostats; • die-casting defects for sumps and burner flame spreaders.
Sabaf has some initiatives in place to warn some manufacturers, both of counterfeit components and of cookers and hobs, who promote or sell appliances with components in violation of our patents and trademarks.
93
Sabaf and supply chain management Risks The supply chain presents different types of risks, which must be assessed and monitored in order to limit the possibility of damage to the company. • Risks of external context. Considering that a significant (although not predominant) portion of purchases takes place on international markets, the Group monitors and manages the risk of instability in supplier Countries. • Strategic risks related to a socially responsible approach along the supply chain
(quality of supply, respect for the environment, energy consumption and respect for human rights and protection of workers). The definition of the criticality level, especially environmental and social, derives from a risk assessment that takes into account the type of process, product or service provided and the geographical location of the supplier. • Operational risks: including continuity of supplies, assessed by paying attention to the financial sustainability of the suppliers.
Supply chain management policy THE SA8000 STANDARD AND SUPPLIERS
RELATIONS WITH SUPPLIERS AND CONTRACTUAL CONDITION
In 2005, Sabaf S.p.A. obtained the certification of compliance with the requirements of the SA8000 (Social Accountability 8000) Standard and, therefore, the Company requires its suppliers to comply, in all their activities, with the principles of the Standard, as a minimum criterion for establishing a lasting relationship based on the principles of social responsibility. Supply contracts include an ethical clause inspired by the SA8000 standard, which commits suppliers to ensure respect for human and social rights and in particular: avoid the employment of persons below the age established by the standard, provide workers with a safe workplace, protect trade union freedom, comply with the law on working hours, ensure workers that the minimum salary required by law will be complied with.
Relations with suppliers are based on long-term collaboration and on fairness in negotiations, integrity and contractual fairness and the sharing of growth strategies. To encourage the sharing with suppliers of the values that underpin its business model, Sabaf has distributed the Charter of Values in a widespread manner. Sabaf guarantees absolute impartiality in the choice of suppliers and undertakes to strictly comply with the agreed payment terms. Sabaf requires its suppliers to be able to renew themselves technologically, so that the best quality/price ratios can always be proposed, and favours suppliers who have obtained or are obtaining Quality and Environmental System certifications. In 2017, the turnover of suppliers of the Sabaf Group with a Certified Quality System was equal to 70.9% of the total (68.1% in 2016)
In 2017, Sabaf complied with the updating of the SA8000:2014 standard and asked all suppliers, bound by contract, to act in the same way and comply with the latest version of the principles. During the year, Sabaf S.p.A. carried out a risk analysis of the supply chain in line with the requirements of SA8000 in order to prepare an action plan and monitor the suppliers considered critical for the purposes of the Standard. The analysis was carried out taking into account the geographical location, the sector to which it belongs, the type of business and the importance of turnover with regard to Sabaf. A questionnaire was sent out to verify understanding of the standard and assess the social responsibility aspects of each supplier. The replies received did not show any non-compliance. More than 20 audits have been planned for 2018. Failure to comply with or to accept the principles of the SA8000 standard may lead to the termination of supply contracts. If the law in force already requires Sabaf to meet the minimum requirements, the risk is considered to be lower, otherwise periodic audits are carried out. In 2017, 18 audits were carried out on suppliers (13 in 2016), relating to quality, environmental and social responsibility management, and no critical non-compliances were identified. In connection with non-critical non-compliances, the suppliers were asked to take appropriate action.
94
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Purchase analysis As shown in the table below, the Sabaf Group aims to encourage development in the area in which it operates and, therefore, in selecting suppliers, favours local companies.
€/000
TOTAL 2017 PURCHASES
% DOMESTIC PURCHASES
Sabaf S.p.A.
77,643
76.2
Faringosi Hinges
6,232
98.5
A.R.C.
5,073
90.1
Sabaf Turkey
8,537
83.2
Sabaf do Brasil
6,663
95.9
457
93.7
2017
2016
Sabaf China
Territorial distribution of suppliers
€/000
TOTAL PURCHASES
%
TOTAL PURCHASES
%
Province of Brescia
31,833
30.4
30,814
36.2
Italy
38,959
37.2
28,061
32.9
UE
11,539
11.0
10,246
12.0
Brazil
6,388
6.1
5,208
6.1
Turkey
7,193
6.9
5,578
6.5
Other
8,692
8.3
5,260
6.2
TOTAL
104,604
100
85,167
100
As regards Sabaf S.p.A. in particular, 39% of total purchases are made in the province of Brescia. Most of the purchases outside the European Union come from suppliers located in China. Chinese suppliers signed the clause for compliance with the principles of the SA8000 standard.
For all Group companies, the main machinery used (die-casting machines, processing and assembly transfer) is supplied by Italy to ensure homogeneous production processes in terms of quality and safety.
95
Breakdown of purchases by type
2017 €/000
TOTAL PURCHASES
2016 %
TOTAL PURCHASES
%
Raw Materials
27,302
26.1
18,952
22.3
Components
32,492
31.1
28,394
33.3
Capital equipment
13,604
13.0
11,465
13.5
Services and other purchases
31,205
29.8
26,356
30.9
104,603
100
85,167
100
TOTAL
Very short payment terms are agreed for artisan and less structured suppliers (mainly 30 days).
Disputes There are no disputes with suppliers.
96
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Sabaf, Public Administration and Community Relations with the Public Administration In line with the reference policy lines, the relations of Sabaf with the Public Administration and the Tax Authorities are based on the utmost transparency and fairness. At local level, Sabaf has tried to establish an open dialogue with the various authorities to achieve a shared industrial development.
Charitable initiatives and perks The amount of perks in 2017 was over â‚Ź 21,000 (â‚Ź 36,000 in 2016), mainly aimed at supporting social and humanitarian initiatives at local level.
Long distance adoption Sabaf supports the Associazione Volontari per il Servizio Internazionale (AVSI), a non-governmental, non-profit organisation engaged in international development aid projects. The donations are intended to support twenty children living in different Countries of the world at a long distance.
Relations with universities and the student world Sabaf systematically organises company visits with groups of students and bears witness of best practices on social responsibility at important conferences in different cities in Italy.
Relations with industrial associations Sabaf is one of the founders of CECED Italia, the association that develops and coordinates in Italy the study activities promoted at European level by Ceced (European Committee of Domestic Equipment Manufacturers) with the related scientific, legal and institutional implications in the household appliances sector. Sabaf S.p.A. has been a member of Associazione Industriale Bresciana (AIB) since 2014, which is a member of the Confindustria system.
Disputes There are no significant disputes with Public Bodies or other representatives of the community.
97
Sabaf and shareholders The composition of the share capital The shareholders entered in the shareholders' register at 27 February 2018 were 2,149, of whom: • 1,857 own up to 1,000 shares • 224 own 1,001 to 5,000 shares • 28 own 5,001 to 10,000 shares • 40 own over 10,000 shares 49.86% of the share capital is held by shareholders resident abroad.
35% MARKET
4% TREASURY SHARES 20% QUAESTIO CAPITAL MANAGEMENT SGR
24% GIUSEPPE SALERI SAPA
7% FINTEL S.R.L.
10% DELTA LLOYD AM
Investor relations and financial analysts Since its listing on the Stock Exchange (1998), the Company has attributed strategic importance to financial communication. Sabaf's financial communication policy is based on the principles of fairness, transparency and continuity, in the belief that this approach allows investors to correctly evaluate the Company. In this perspective, Sabaf guarantees maximum willingness to engage in dialogue with financial analysts
98
and institutional investors. In 2017, the Company met with institutional investors as part of roadshows organised in Milan, Frankfurt and London. Some investors also held meetings with the management at the company headquarters in Ospitaletto, taking the opportunity to visit the production facilities.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Remuneration of shareholders and share performance In 2017, the Sabaf share recorded the highest official price on 23 November (€ 23.304) and lowest on 4 January (€ 10.216). The average volume traded was 20,086 shares per day, equal to an average value of € 346,647 (€ 50,750 in 2016). The significant appreciation of the share and the strong increase in trading volumes is an indication of the renewed interest of the stock market in the Company.
22.99 19.90 16.82 13.73 10.64 7.554
January 2017
March 2017
May 2017
July 2017
September 2017
November 2017
December 2017 200 k
100 k
VOLUME 0k
January 2017
March 2017
May 2017
July 2017
September 2017
November 2017
December 2017
The dividend policy adopted by Sabaf aims to guarantee a valid remuneration of shareholders also through the annual dividend.
Socially responsible investments Sabaf shares have frequently been analysed by analysts and managers of SRI funds, who have also invested in Sabaf on several occasions.
Disputes There is no dispute with shareholders.
99
Sabaf and lenders Relations with credit institutions The Group operates with a low debt ratio (net financial debt / shareholders' equity at 31 December 2017 of 0.22; net financial debt / EBITDA of 0.82) and has unused short-term lines of credit.
Relations with banks have always been based on maximum transparency. Relations with institutions that are able to support the Group in all its financial needs and to propose solutions in a timely manner to meet specific needs are privileged.
At 31 December 2017, the net financial debt was â‚Ź 25.5 million, compared with â‚Ź 23.5 million on 31 December 2016.
Disputes There is no dispute with the lenders.
Sabaf and competitors Trends in the cooking appliance manufacturer sector For years, there has been a clear trend in the sector to outsource the design and production of components to highly specialised suppliers who, like Sabaf, are active in the main world markets and are able to provide a range of products that meets the specific requirements of different markets. Furthermore, the trend towards the internationalisation of production is accentuated, with production increasingly relocated to countries with low labour costs and lower saturation levels. The entry of new
players on the international scene has also led to a situation of oversupply, which generates strong competitive tensions and is evolving into a greater concentration of the sector. This trend is less evident for cooking appliances than for other household appliances: in the cooking sector, in fact, design and aesthetics on the one hand and the lower intensity of investments on the other allow the success of even small and highly innovative producers.
Main Italian and international competitors In Italy and Europe, Sabaf estimates to have a market share of more than 40% in each product segment and is the only company to supply the full range of gas cooking components, while its competitors only produce part of the product range. The main competitors of the Sabaf on the international market are Copreci, Burner System International and Defendi. Copreci is a cooperative located in Spain in the Basque Country, part of Mondragon
100
Cooperative Corporation and with Sabaf is the leading producer of valves and thermostats in Europe. Burner Systems International (BSI) is the leading producer of gas components for the North American market. Defendi is an Italian company, acquired in 2013 by the German group EGO, and is mainly active in the production of burners in Italy, Brazil and Mexico.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
Main Italian and international competitors VALVES
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
2015 and 2016 economic data of the main Italian competitors 28 2016
2015
€/000
SALES
EBIT
NET RESULT
SALES
EBIT
NET RESULT
CMI
20,516
738
898
20,922
1,163
646
DEFENDI ITALY
54,959
2,316
1,799
53,608
1,006
1,087
NUOVA STAR
30,007
174
118
27,966
252
79
GRUPPO SOMIPRESS
36,972
2,323
1,214
40,946
3,417
2,046
SABAF GROUP
130,978
12,530
9,009
138,003
14,091
8,998
No further information is available on competitors due to the difficulty of finding the data.
Disputes There is a dispute pending against a competitor following an alleged violation of one of our patents.
28 Sabaf processing from the financial statements of the various companies. Latest available data.
101
102
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
103
104
SABAF | ANNUAL REPORT 2017
CONSOLIDATED NON-FINANCIAL STATEMENT
105
GRI Content Index GENERAL STANDARD DISCLOSURE
Indicator description
PAGE (or direct reference)
STRATEGY AND ANALYSIS G4-1
G4-2
Statement from the CEO and Board President
Key impacts, risks and opportunities
Introduction to Annual Report, page 12. Risk Management, pages 56-57; Sabaf and employees - Risks, page 64; Occupational health and safety and working environment - Risk management, page 78; Sabaf and environment - Risks, page 86; Sabaf, the management of product quality and customer relations - Risks, page 92; Sabaf and supply chain management - Risks, page94.
ORGANIZATIONAL PROFILE G4-3
Name of the organization
Cover page
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
Introduction to Annual Report, pages 22-25.
G4-9
Scale of the organization
Introduction to Annual Report, pages 13-25.
G4-10
Total number of employees by employment contract and gender, region and employment type
Sabaf and employees, pages 65-66; Diversity and equal opportunities, pages 72-73.
G4-11
Percentage of total employees covered by collective bargaining agreements
Remuneration, incentive and enhancement systems, page 76; Industrial relations, pages 84-85.
G4-12
Description of the organization’s supply chain
G4-13
Significant changes
G4-14
Precautionary approach or principle application modes
Governance of Social Responsibility and Stakeholder Engagement, page 35; Risk Management, pages 56-57.
G4-15
Endorsement of externally developed economic, environmental and social charters and principles
Governance of Social Responsibility and Stakeholder Engagement, pages 37-38; Strategic approach and creation of value, page 30.
G4-16
Memberships in industry associations
Introduction to Annual Report, pages 20-23. Via dei Carpini, 1 25035 Ospitaletto (Brescia) Introduction to Annual Report, pages 22-25. Corporate Governance, pages 44-45; Sabaf and shareholders, pag 98.
Sabaf and supply chain management, pages 94-96. Methodological note, page 29.
Sabaf, Public Administration and Community, page 97.
IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES G4-17
List of entities included in the organization’s consolidated financial statements and those not included in the sustainability report
G4-18
Process for defining the report content
G4-19
Material Aspects identified
Materiality analysis, pages 39-41.
G4-20
For each material Aspect, report the Aspect Boundary within the organization
Materiality analysis, pages 40-41.
G4-21
For each material Aspect, report the Aspect Boundary outside the organization
Materiality analysis, pages 40-41.
G4-22
Effect of any restatements of information provided in previous reports, and the reasons for such restatements
Methodological note, page 29.
G4-23
Significant changes from previous reporting periods
Methodological note, page 29.
106
Introduction to Annual Report, pages 22; Methodological note, page 29. Methodological note, page 29.
SABAF | ANNUAL REPORT 2017
GENERAL STANDARD DISCLOSURE
CONSOLIDATED NON-FINANCIAL STATEMENT
Indicator description
PAGE (or direct reference)
STAKEHOLDER ENGAGEMENT G4-24
List of stakeholder groups engaged by the organization
Stakeholder Engagement, page 36.
G4-25
Basis for identification and selection of stakeholders with whom to engage
Stakeholder Engagement, page 36.
G4-26
Approach to stakeholder engagement
Stakeholder Engagement, page 36.
G4-27
Key topics and concerns that have been raised through stakeholder engagement and the related responses
Stakeholder Engagement, page 36; Customer Satisfaction, page 93.
REPORT PROFILE G4-28
Reporting period
Methodological note, page 29.
G4-29
Date of most recent previous report
G4-30
Reporting cycle
G4-31
Contact point for questions regarding the report or its contents
Tel.: +39 030 - 6843001, Fax: +39 030 - 6848249 E-mail: info@sabaf.it
G4-32
GRI content index and the ‘in accordance’ option the organization has chosen
Methodological note, page 29.
G4-33
External Assurance
External assurance, pages 102-105.
G4-34
Governance structure of the organization, including committees of the highest governance body
Corporate Governance, pages 44-45.
G4-38
Composition of the highest governance body
This is the first consolidated non-financial statement. Methodological note, page 29.
GOVERNANCE
The Governance Structure, pages 45-50.
ETHICS AND INTEGRITY G4-56
Organization’s values, principles, standards and norms of behaviour such as codes of conduct and codes of ethics
GENERAL STANDARD DISCLOSURE
Indicator description
Strategic approach and creation of value, pages 30-31.
PAGE (or direct reference)
Omission
CATEGORY: ECONOMIC Material aspect: Economic Performance
G4-DMA
G4-EC1
Management approach
Direct economic value created and distributed
Strategic approach and creation of value, page 30. Introduction to Annual Report, page 19; (Values in thousands of Euro) Economic value generated: 155,408; Revenue: 150,223; Economic value distributed: 133,063; Remuneration of suppliers: 88,636; Remuneration of employees: 35,328; Remuneration of lenders: 804; Remuneration of shareholders: 5,386; Remuneration of the Public Administration: 2,888; External perks: 21; Economic value retained: 22,345.
107
GENERAL STANDARD DISCLOSURE
Indicator Description
PAGE (or direct reference)
CATEGORY: ECONOMIC Material aspect: Market Presence
G4-DMA
Management approach
G4-EC5
Ratios of standard entry level wage by gender compared to local minimum wage at significant locations of operation
Remuneration, incentive and enhancement systems, pages 76-77. Remuneration, incentive and enhancement systems, page 77.
Material aspect: Procurement Practices
G4-DMA
Management approach
G4-EC9
Proportion of spending on local suppliers at significant locations of operations
Sabaf and supply chain management, pages 94-96. Sabaf and supply chain management, page 95.
CATEGORY: ENVIRONMENTAL Material aspect: Materials
G4-DMA
Management approach
Sabaf and environment, pages 86-88.
G4-EN1
Materials used
Materials used and recyclability of products, page 88.
G4-EN2
Recycled input materials
Materials used and recyclability of products, page 88.
G4-DMA
Management approach
Sabaf and environment, pages 86-89
G4-EN3
Energy consumption within the organization
Energy sources, page 88.
G4-EN5
Energy intensity
Energy Intensity, page 88.
Material aspect: Energy
Material aspect: Water
G4-DMA
Management approach
Sabaf and environment, pages 86, 90.
G4-EN8
Total water withdrawal by source
Water, page 90.
G4-EN9
Water sources significantly affected by withdrawal of water
Water, page 90.
G4-EN10
Percentage and total volume of water recycled and reused
Water, page 90.
Material aspect: Emissions
G4-DMA
Management approach
Sabaf and environment, pages 86-89, 91.
G4-EN15
Direct greenhouse gas emissions (Scope 1)
Emissions into the atmosphere, page 91.
G4-EN16
Indirect greenhouse gas emissions (Scope 2)
Emissions into the atmosphere, page 91.
G4-EN20
Emissions of ozone-depleting substances
Emissions into the atmosphere, page 91.
G4-EN21
NOx, SOx and other significant air emissions
Emissions into the atmosphere, page 91.
Material aspect: Effluents and Waste
G4-DMA
Management approach
G4-EN22
Water discharge
Water, page 90
G4-EN23
Weight of waste and disposal method
Waste, page 90.
G4-EN24
Total number and volume of significant spills
Waste, page 90.
108
Sabaf and environment, page 86, 90.
Omission
SABAF | ANNUAL REPORT 2017
GENERAL STANDARD DISCLOSURE
CONSOLIDATED NON-FINANCIAL STATEMENT
Indicator Description
PAGE (or direct reference)
Omission
CATEGORY: ENVIRONMENTAL Material aspect: Products and Services
G4-DMA
Management approach
G4-EN27
Initiatives aimed at mitigation of environmental impacts of products and services
Sabaf and environment, pages 86-89. Process innovation and environmental sustainability, page 87; Product innovation and environmental sustainability, page 87.
Material aspect: Overall
G4-DMA
Management approach
Sabaf and environment, pages 86, 91.
G4-EN31
Environmental protection expenditures and investments
Environmental investments, page 91.
CATEGORY: SOCIAL SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK Material aspect: Employment
G4-DMA
Management approach
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
Sabaf and employees, pages 64-65, page 67, page 72, page 76, pages 81-82, page 84. Recruitment policy, pages 67-70.
Remuneration, incentive and enhancement systems, page 76.
The benefits provided by the Sabaf Group does not differ according to the employment contract or type (full-time vs. parttime and temporary vs. permanent)
Working hours and hours of absence, page 75.
Material aspect: Occupational Health and Safety
G4-DMA
Management approach
Occupational health and safety and working environment, pages. 78-80.
G4-LA6
Type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities
Occupational health and safety and working environment, pages 79-80.
Material aspect: Training and Education
G4-DMA
Management approach
G4-LA9
Empoloyees training
G4-LA11
Percentage of employees receiving regular performance and career development reviews, by gender
Sabaf and employees, pages 64-65, 71. Personnel training, page 71. Remuneration, incentive and enhancement systems, page 76.
The information provided refers only to Sabaf S.p.A.
Material aspect: Diversity and Equal Opportunity
G4-DMA
Management approach
G4-LA12
Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership and other indicators of diversity
Sabaf and employees, pages 64-65, page 72. Corporate Governance, pages 46-52; Diversity and equal opportunities, page 72-73.
109
GENERAL STANDARD DISCLOSURE
Indicator Description
PAGE (or direct reference)
Omission
CATEGORY: SOCIAL SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK Material aspect: Equal Remuneration for Women and Men
G4-DMA
Management approach
G4-LA13
Ratio of basic salary and remuneration of women to men by employee category
Sabaf and employees, pages 64-65, 76. Remuneration, incentive and enhancement systems, page 77.
Material aspect: Supplier Assessment for Labor Practices
G4-DMA
G4-LA15
Management approach
Significant actual and potential negative impacts for labor practices in the supply chain and actions taken
Supply chain management policy, pages 94-96.
The SA8000 standard and suppliers, page 94.
SUB-CATEGORY: HUMAN RIGHTS Material aspect: Non-discrimination
G4-DMA
Management approach
Personnel management policy, pages 64-65.
G4-HR3
Number of incidents of discrimination and corrective actions taken
No significant episodes of discrimination were observed in 2017.
Material aspect: Freedom of Association and Collective Bargaining
G4-DMA
Management approach
G4-HR4
Operations and suppliers identified in which the right to exercise freedom of association and collective bargaining may be at significant risk
Industrial relations, pages 84-85.
Industrial relations, page 84.
Material aspect: Child Labor
G4-DMA
Management approach
G4-HR5
Operations and suppliers identified as having significant risk for incidents of child labor, and measures taken to contribute to the effective abolition of child labor
110
Personnel management policy, pages 64-65. Supply chain management policy, page 94. Personnel management policy, pages 64-65. The SA8000 standard and suppliers, page 94.
During 2017, Sabaf S.p.A. carried out a risk analysis of the supply chain in line with the requirements of SA8000 in order to prepare an action plan and monitor the suppliers considered critical for the purposes of the Standard. The analysis was carried out taking into account the geographical location, the sector to which it belongs, the type of business and the importance of turnover with regard to Sabaf. A questionnaire was sent out to verify understanding of the standard and assess the social responsibility aspects of each supplier. The replies received did not show any non-compliance. More than 20 audits have been planned for 2018. The Group reserves the right to give full disclosure of the results within the next two years.
SABAF | ANNUAL REPORT 2017
GENERAL STANDARD DISCLOSURE
CONSOLIDATED NON-FINANCIAL STATEMENT
Indicator Description
PAGE (or direct reference)
Omission
CATEGORY: SOCIAL SUB-CATEGORY: HUMAN RIGHTS Material aspect: Forced or Compulsory Labor
G4-DMA
Management approach
G4-HR6
Operations and suppliers identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of all forms of forced or compulsory labor
Personnel management policy, pages 64-65. Supply chain management policy, page 94.
Personnel management policy, pages 64-65. The SA8000 standard and suppliers, page 94.
Material aspect: Supplier Human Rights Assessment
G4-DMA
G4-HR11
Management approach
Significant actual and potential negative human rights impacts in the supply chain and actions taken
Supply chain management policy, page 94.
Supply chain management policy, page 94.
During 2017, Sabaf S.p.A. carried out a risk analysis of the supply chain in line with the requirements of SA8000 in order to prepare an action plan and monitor the suppliers considered critical for the purposes of the Standard. The analysis was carried out taking into account the geographical location, the sector to which it belongs, the type of business and the importance of turnover with regard to Sabaf. A questionnaire was sent out to verify understanding of the standard and assess the social responsibility aspects of each supplier. The replies received did not show any non-compliance. More than 20 audits have been planned for 2018. The Group reserves the right to give full disclosure of the results within the next two years.
SUB-CATEGORY: PRODUCT RESPONSIBILITY Material aspect: Customer Health and Safety
G4-DMA
Management approach
G4-PR1
Percentage of significant product and service categories for which health and safety impacts are assessed for improvement
Quality management policy, pages 92-93.
Quality management policy, page 92.
Material aspect: Product and Service Labeling
G4-DMA
Management approach
G4-PR5
Results of surveys measuring customer satisfaction
Quality management policy, pages 92-93. Customer satisfaction, page 93.
111
Energy
Energy intended as the warmth of the people at Sabaf - a word with a dual meaning, almost an exhortation to tackle the daily challenges of the market. Because at Sabaf, “we burn for technology and safety�.
Report on Operations Business and Financial situation of the Group Risk Factors Research and development Non-financial statement Personnel Environment Corporate governance Internal control system on financial reporting Model 231 Personal data protection Derivative financial instruments Atypical or unusual transactions Secondary offices Management and coordination Intra-group transaction and related-party transactions Significant events after year-end and business outlook Business and financial situation of Sabaf S.p.A. Reconciliation between parent company and consolidated shareholders’ equity and net profit for the period Use of the longer time limit for calling the shareholders' meeting
114
115 117 118 119 119 119 119 119 119 119 119 119 119 119 120 120 121 123 123
SABAF | ANNUAL REPORT 2017
REPORT ON OPERATIONS
BUSINESS AND FINANCIAL SITUATION OF THE GROUP 1 2017
%
2016
%
2017-2016 CHANGE
% CHANGE
Sales revenue
150,223
100%
130,978
100%
19,245
+14.7%
EBITDA
30,955
20.6%
25,365
19.4%
5,590
+22.0%
EBIT
18,117
12.1%
12,501
9.5%
5,616
+44.9%
Pre-tax profit
17,804
11.9%
12,417
9.5%
5,387
+43.4%
Profit attributable to the Group
14,835
9.9%
8,994
6.9%
5,841
+64.9%
Basic earnings per share (€)
1.323
-
0.791
-
0.531
+67.0%
Diluted earnings per share (€)
1.323
-
0.791
-
0.531
+67.0%
(€/000)
In 2017, the Sabaf Group reported sales revenue of € 150.2 million, an increase of 14.7% versus the figure of € 131 million 2016; taking into consideration the same scope of consolidation, sales increased by 12.9%. In 2017, the increase in sales was accompanied by a more than proportional improvement in profitability: 2017 EBITDA amounted to € 31 million, equivalent to 20.6% of sales, compared to € 25.4 million (19.4% of sales) in 2016, EBIT reached € 18.1 million, equivalent to 12.1% of sales, compared to € 12.5 million (9.5%) in 2016. Net profit of 2017, equal to € 14.8 million (9.9% of sales), is 64.9% higher than the € 9 million of 2016.
An analysis of sales by product category shows the strong growth of special burners, the family where product innovation has been strongest in recent years. The trend in sales of light alloy valves, which have now almost completely replaced brass valves, was also very positive. All other product lines also recorded good growth rates, with the exception of thermostats.
The subdivision of sales revenues by product line is shown in the table below:
The geographical breakdown of revenues is shown below:
(€/000)
2017
%
2016
%
% CHANGE
(€/000)
2017
%
2016
%
% CHANGE
Brass valves
5,991
4.0%
9,007
6.9%
-33.5%
Italy
36,523
24.3%
36,365
27.8%
+0.4%
Light alloy valves
39,351
26.2%
32,393
24.7%
+21.5%
Western Europe
11,678
7.8%
8,553
6.5%
+36.5%
Thermostats
7,376
4.9%
7,699
5.9%
-4.2%
Eastern Europe
42,824
28.5%
34,123
26.1%
+25.5%
Standard burners
41,070
27.3%
37,338
28.5%
+10.0%
Middle East and Africa
13,009
8.6%
11,698
8.9%
+11.2%
Special burners
27,184
18.1%
21,215
16.2%
+28.1%
Asia and Oceania
10,516
7.0%
8,088
6.2%
+30.0%
Accessories and other revenues
15,267
10.2%
12,613
9.6%
+21.0%
South America
22,938
15.3%
20,847
15.9%
+10.0%
TOTAL GAS PARTS
136,239
90.7%
120,265 91.8%
+13.3%
North America and Mexico
12,735
8.5%
11,304
8.6%
+12.7%
Professional burners
5,079
3.4%
2,289
1.8%
+121.9%
TOTAL
150,223
100%
130,978
100%
+14.7%
Hinges
8,905
5.9%
8,424
6.4%
+5.7%
TOTAL
150,223
100%
130,978 100%
+14.7%
1 2016 figures, shown for comparative purposes in this section, were recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
115
In 2017, all markets recorded double-digit growth rates; Italy, where sales remained stable after years of decline due to the sharp reduction in the production of domestic appliances, is an exception. Very positive sales growth rates have been recorded in other European markets, where Sabaf is consolidating its leadership. The Middle East market showed a strong recovery compared to 2016; Asia, North and South America confirmed a positive underlying trend. Average sales prices in 2017 were 0.8% lower compared to 2016. The effective average purchase prices of the main raw materials (brass, aluminium alloys and steel) were on average higher than in 2016, with a negative impact of 0.9% of sales. Consumption (purchases plus change in inventories) as a percentage of sales was 38.2% in 2017, compared with 36.7% in 2016.
Cash flows for the period are summarised in the table below: (€/000)
2017
2016
Opening liquidity
12,143
3,991
Operating cash flow
22,779
25,931
Cash flow from investments
(13,944)
(11,762)
Free cash flow
8,835
14,169
Cash flow from financing activities
(6,516)
(2,894)
-
(2,614)
Foreign exchange differences due to translation
(2,929)
(509)
CASH FLOW FOR THE PERIOD
(610)
8,152
Closing liquidity
11,533
12,143
A.R.C. acquisition
The impact of labour cost on sales decreased from 24.5% to 23.5%, by benefiting from greater automation of production and a lower impact of overhead costs. Operating cash flow (net profit plus depreciation and amortisation) stood at € 27.7 million, equivalent to 18.5% of sales (€ 22 million and 16.8%, respectively in 2016). The ratio of net financial expenses to sales remained unchanged at 0.5%. The tax rate for 2017 was 16.2% (26.9% in 2016) and gained tax benefits of approximately € 2.3 million (mainly related to the patent box and investments made in Turkey), as described in detail in Note 31 to the consolidated financial statements.
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 2017, working capital stood at € 50.8 million compared with € 46.1 million at the end of the 2016: its impact on sales was 33.8% (35.2% in 2016).
The Group’s statement of financial position, reclassified based on financial criteria, is illustrated below: (€/000)
31.12.2017
31.12.2016
Non-current assets
93,802
93,967
Short-term assets 2
79,314
72,908
Short-term liabilities 3
(28,561)
(26,824)
Working capital 4
50,753
46,084
67
0
4,034
(4,284)
140,588
135,767
Short-term net financial position
(5,830)
(2,804)
Medium/long-term net financial position
(19,703)
(20,654)
NET FINANCIAL DEBT
(25,533)
(23,458)
SHAREHOLDERS’ EQUITY
115,055
112,309
Short-term financial assets Provisions for risks and charges, Post-employment benefits, deferred taxes NET INVESTED CAPITAL
116
Also to take advantage of the low level of interest rates, as from 2016, the Group reformulated the average duration of its loans, entering into unsecured loan agreements repayable in 5 years and reducing the short-term bank exposure. In 2017, the Sabaf Group made net investments of € 13.9 million. The main investments in the financial year were aimed at automation of the assembly lines for light alloy valves and at the interconnection of production plants with management systems (Industry 4.0). The building in Campodarsego (PD) was acquired, where A.R.C., formerly rented, operates. In Brazil, the factory was expanded, against increased production volumes; while in Turkey all the die-casting machines were robotised. Other investments were made in the production of presses for new burners. Investments in maintenance and replacement, so that production equipment is kept constantly up to date and efficient, are systematic. Free cash flow (operating cash flow less investments) amounted to € 8.8 million, compared with € 14.2 million in 2016, following a different trend in working capital (in particular, following the increase in sales, trade receivables increased at 31 December 2017). During the financial year, the Group paid out dividends of € 5.4 million and purchased treasury shares for € 2.1 million; the net financial debt was € 25.5 million, versus € 23.5 million in 31 December 2016. Shareholders’ equity totalled € 115 million at 31 December 2017; the ratio between the net financial debt and the shareholders’ equity was 0.22 versus 0.21 in 2016.
2 Sum of Inventories, Trade receivables, Tax receivables and Other current receivables 3 Sum of Trade payables, Tax payables and Other liabilities 4 Difference between short-term assets and short-term liabilities
SABAF | ANNUAL REPORT 2017
REPORT ON OPERATIONS
organisational risks (e.g. loss of key staff and expertise and the difficulty of replacing them, resistance to change by the organisation), risks related to purchases (e.g. relations with suppliers and contractors) and Information Technology risks.
Economic and financial indicators 2017
2016
ROCE (return on capital employed)
12.9%
9.2%
Dividends per share (€)
0.55 5
0.48
Net debt/EBITDA
0.82
0.92
Net debt/equity ratio
22%
21%
Market capitalisation (31/12)/ equity ratio
2.00
1.07
+14.7%
-5.1%
Change in sales
Please refer to the introductory part of the Annual Report for a detailed examination of other key performance indicators.
RISK FACTORS The results of the risk identification and assessment process carried out in 2017 showed that the Sabaf Group is exposed to certain risk factors, which can be traced back to the macro-categories described below.
Risks of external environment Risks deriving from the external context in which Sabaf operates, which could have a negative impact on the economic and financial sustainability of the business in the medium/long-term. The most significant risks in this category are related to general economic conditions, trend in demand and product competition, in addition to the risks related to Sabaf's presence in Turkey and, more generally, to instability of the emerging countries in which the Group operates.
The main risks are described in detail below as well as the relevant risk management actions that are currently being implemented.
Performance of the sector The Group’s financial position, results and cash flows are affected by several factors related to the performance of the sector, including: • general macro-economic performance: the household appliance market is affected by macro-economic 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; • concentration of the end markets: as a result of mergers and acquisitions, customers have acquired bargaining power; • stagnation of demand in mature markets (i.e. Europe) in favour of growth in emerging Countries, characterised by different sales conditions and by a more unstable macro-economic environment; • increasing competition, which in some cases imposes aggressive pricing policies. To cope with this situation, the Group aims to retain and reinforce, wherever possible, its leadership position through: • development of new products characterised by superior performance compared with current market standards, and tailored to the needs of the customer; • diversification of commercial investments in growing and emerging markets with local commercial and productive investments; • 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; • strengthening of business relations with the main players in the sector; • adoption of a diversification strategy and entry into new segments / business sectors.
Instability of Emerging countries in which the Group operates
Strategic risks Strategic risks that could negatively impact Sabaf's short to medium term performance, including, for example: the loss of business opportunities in the Chinese market, risks related to the growth through acquisitions strategy and the protection of product exclusivity.
Legal and compliance risks Risks related to Sabaf's contractual liabilities and compliance with the laws and regulations applicable to the Group, including: Legislative Decree 231/2001, Law 262/2005, HSE regulations, regulations applicable to listed companies, tax regulations, labour regulations.
Operational risks Risks of suffering losses due to inadequate or malfunctioning processes, human resources and information systems. This category includes financial risks (e.g. losses deriving from the volatility of the price of raw materials used by the Group in its production processes, from fluctuations in exchange rates or from the management of trade receivables), risks related to production processes (e.g. product liability),
5 Proposed dividend
Turkey represents the main production hub of household appliances at the European level; over the years, local industry attracted heavy foreign investments and favoured the growth of important manufacturers. In this context, the Sabaf created a production plant in Turkey in 2012 that realises today the 10% of total Group production. The Turkish market represents more than 25% of the Group's total sales. The social and political tensions in Turkey over the last few years had no effect on the activities of the Sabaf Group, which continued normally. In consideration of the strategic importance of this Country, the management assessed the risks that could arise from the impossibility to operate in Turkey. We highlight that all the products made in Turkey today can be manufactured also in Italy, albeit at higher costs, to ensure in this way the continuity of supplies to customers. More generally, the Group is exposed to risks related to (political, economic, tax, regulatory) instability in some emerging countries where it produces or sells. Any embargoes or major political or economic instability, or changes in the regulatory and/or local law systems, or new tariffs or taxes imposed could negatively affect a portion of Group sales and the related profitability.
117
Sabaf has taken the following measures to mitigate the above risk factors: • diversifying investments at international level, setting different strategic priorities that, in addition to business opportunities, also consider the different associated risk profiles; • monitoring of the economic and social performance of the target countries, also through a local network of agents and collaborators; • timely assessment of (potential) impacts of any business interruption on the markets of Emerging countries; • adoption of contractual sales conditions that protect the Group (e.g.: advance payments and payments through letters of credit from major banks).
Product competition The Sabaf Group's business model focuses on the production of gas cooking components (valves and burners); therefore, there is the risk of not correctly assessing the threats and opportunities deriving from the competition of alternative products (alternative solutions to gas cooking, such as induction), with the consequence of not adequately making use of any market opportunities and/or suffering from negative impacts on margins and turnover. In recent years, the Group has launched a number of projects aimed at analysing the opportunities and threats related to competition of alternative products, other than gas cooking, including: • analysing the possibilities for expansion in the induction hob market, with a focus on technical and commercial feasibility analyses; • development of new gas cooking components able to satisfy the needs that lead some consumers (especially Western consumers) to prefer induction (aesthetic factors, practicality and ease of cleaning, technological integration); • evaluation of M&A operations, also in sectors adjacent to the traditional Sabaf sector.
Loss of business opportunities in the Chinese market With a production of over 20 million hobs per year, China is one of the world's most important markets. After many years of commercial presence only, in 2015 Sabaf started the on-site production of a special burner for the Chinese market. However, there is a risk that Sabaf's investments in the opening of its Chinese headquarters and the start of production will not generate - at least in the short/medium term - an adequate economic return. To support the development of the Group's Chinese subsidiary and to ensure the economic return on the investments made, Sabaf is carrying out the following actions: • developing a strategic/operational plan suitable for using growth opportunities offered by the local market; • continuing to develop product lines in accordance with the needs of the Chinese market and in compliance with local regulations; • adopting and maintaining a quality-price mix in line with the expectations of potential local customers.
Growth through acquisitions The strategic plan developed by the Group's management includes, among other things, the possibility of growth through acquisitions, also in related sectors. This strategic choice involves specific risk profiles for Sabaf, due to: • incorrect assessment of the target companies / incorrect assessment of risks and opportunities for a possible acquisition; • delays or difficulties in integration. The Group adopted solutions and instruments to mitigate the above risks, such as: • definition of guidelines / requirements necessary for the identification of target companies;
118
• creation of an internal work team, dedicated to the identification and evaluation of potential targets; • development of guidelines, processes and tools to support the assessment of M&As and subsequent integration activities.
Protection of product exclusivity Sabaf’s business model based the protection of product exclusivity mainly on design capacity and the internal production of special machines used in manufacturing processes, thanks to its unique know-how that competitors would find difficult to replicate. There is a risk that some Group products, although patented, will be copied by competitors. Exposure to this risk increased as a result of the opening up of trade in countries where it is difficult to enforce industrial patent rights. Sabaf developed and maintained a structured model to manage innovation and protect intellectual property. Moreover, the Group periodically monitors the patent strategies adopted/to be adopted based on the assessments of cost/opportunity.
Financial risks The Sabaf Group is exposed to a series of financial risks, due to: • Commodity price volatility: Sabaf uses metals and alloys in its production processes, the prices of which are generally negotiated 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, with an impact on profitability. • Exchange rate fluctuation: the Group carries out transactions 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. In particular, since sales in US dollars represents about the 14% 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). • Trade receivable: the high concentration of sales on a small number of customers 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 any one of them. 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. For more information on financial risks, see Note 35 of the consolidated financial statements as regards disclosure for the purposes of IFRS 7.
RESEARCH AND DEVELOPMENT The most important research and development projects conducted in 2017 were as follows: Burners • three models of customised burners are being developed for North America; • a small triple ring burner was developed for South America; • a custom burner was developed for a major Brazilian customer; • innovative technical solutions that make it easier for users to clean burners are being tested; Valves • a safety valve was developed for regulating the oven; • a project is underway to create a multiposition valve;
SABAF | ANNUAL REPORT 2017
Hinges • the development of the motorisation of hinges inside the oven doors and related electronic control of door opening and closing was completed; • a dishwasher hinge was developed, equipped with a sliding system for sliding the panel; • a damping unit fitted in the oven was developed for application on microwave ovens; • a hinge and a high performance roller holder were developed for applications on professional systems. In addition to the integrations between production plants and management systems (industry 4.0) mentioned above, studies were launched for the electronic labelling of packages and for the automation of internal logistics. 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 € 496,000 were capitalised, as all the conditions set by international accounting standards were met; in other cases, they were charged to the income statement.
NON-FINANCIAL STATEMENT Starting from 2017, the Sabaf Group publishes the consolidated non-financial statement required by Legislative Decree no. 54/2016 in a report separate from this Management Report. The consolidated non-financial statement provides all the information needed to ensure understanding of the Group's activities, performance, results and impact, with particular reference to environmental, social and personnel issues, respect for human rights and the fight against active and passive corruption, which are relevant considering the Group's activities and characteristics. The consolidated non-financial statement is included in the same file in which the management report, the consolidated financial statements, the separate financial statements of the parent company Sabaf S.p.A. and the remuneration report are published. It should be noted that since 2005, the Sabaf Group has drawn up an Annual Report on its economic, social and environmental sustainability performance.
REPORT ON OPERATIONS
INTERNAL CONTROL SYSTEM ON FINANCIAL REPORTING The internal control system on financial reporting is described in detail in the report on corporate governance and on 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 offices held, 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.
MODEL 231 The Organisation, Management and Control Model, adopted pursuant to Legislative Decree 231/2001, is described in the report on company governance and on the ownership structure, which should be reviewed for reference.
PERSONAL DATA PROTECTION With reference to Legislative Decree 196 of 30 June 2003, in 2017 the Group continued its work to ensure compliance with current regulations. Compliance with the GDPR Regulation is in progress and will enter into force in May 2018.
PERSONNEL
DERIVATIVE FINANCIAL INSTRUMENTS
In 2017, 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 all other information, please refer to the Non-Financial Statement.
For the comments on this item, please see Note 35 of the consolidated financial statements.
ENVIRONMENT In 2017 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 all other information, please refer to the Non-Financial Statement.
CORPORATE GOVERNANCE For a complete description of the corporate governance system of the Sabaf Group, see the report on corporate governance and on the ownership structure, available in the Investor Relations section of the company website.
ATYPICAL OR UNUSUAL TRANSACTIONS Sabaf Group companies did not execute any unusual or atypical transactions in 2017.
SECONDARY OFFICES Neither Sabaf S.p.A. nor its subsidiaries have secondary operating offices.
MANAGEMENT AND COORDINATION Sabaf S.p.A. is not subject to management and coordination by other companies. 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.
119
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 37 of the separate financial statements of Sabaf S.p.A.
SIGNIFICANT EVENTS AFTER YEAREND AND BUSINESS OUTLOOK The start of 2018 shows a moderate increase in sales compared to the same period of 2017. After a year characterised by a growth rate that is clearly higher than the average trend of recent years and despite the still challenging competitive scenario, the Group estimates that revenues for the entire financial year 2018 will increase ranging from 3% to 5% compared to 2017. The Group also believes that the adjustment of sales prices and further improvements in operating efficiency will enable it to balance the negative impacts associated with the weakening of the dollar and the rise in commodity prices, and therefore estimates operating profitability (EBITDA%) to be in line with 2017. These forecasts assume a macroeconomic scenario not affected by unpredictable events. If the economic situation were to change significantly, actual figures might diverge from forecasts.
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SABAF | ANNUAL REPORT 2017
REPORT ON OPERATIONS
BUSINESS AND FINANCIAL SITUATION OF SABAF S.P.A. (€/000)
2017
2016
CHANGE
% CHANGE
Sales revenue
115,687
101,523
14,164
+14.0%
EBITDA
17,477
13,525
3,952
+29.2%
EBIT
8,050
4,070
3,980
+97.8%
Pre-tax profit (EBT)
9,072
3,593
5,479
+152.5%
Net Profit
8,001
2,460
5,541
+225.2%
The reclassification of the statement of financial position based on financial criteria is illustrated below:
(€/000)
31.12.2017
31.12.2016
89,361
89,258
Non-current financial assets
1,848
2,137
Short-term assets 7
58,875
54,475
Short-term liabilities 8
(23,643)
(22,441)
Working capital 9
35,232
32,034
Provisions for risks and charges, Post-employment benefits, deferred taxes
(2,637)
(2,888)
NET INVESTED CAPITAL
123,804
120,541
Short-term net financial position
(15,239)
(11,496)
Medium/long-term net financial position
(16,478)
(17,521)
NET FINANCIAL POSITION
(31,717)
(29,017)
SHAREHOLDERS’ EQUITY
92,087
91,524
(€/000)
2017
2016
Opening liquidity
1,797
1,090
Operating cash flow
12,554
15,205
Cash flow from investments
(9,319)
(12,591)
Free cash flow
3,235
2,614
Cash flow from financing activities
(2,335)
(1,907)
CASH FLOW FOR THE PERIOD
900
707
2,697
1,797
Non-current assets 6
Cash flows for the period are summarised in the table below:
Closing liquidity
6 Excluding Financial assets . 7 Sum of Inventories, Trade receivables, Tax receivables and Other current receivables
8 Sum of Inventories, Trade receivables, Tax receivables and Other current receivables 9 Difference between short-term assets and short-term liabilities
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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. The 2017 financial year ended with an increase in sales of 14% compared with 2016. The product family of valves and thermostats was weaker, while sales of burners recorded a very positive trend. In particular, note the strong growth of special burners, the family where product innovation has been strongest in recent years. The increase in sales had a positive impact on gross operating profitability: EBITDA was € 17.5 million, or 15.1% of sales (€ 13.5 million in 2016, or 13.3%). EBIT of 2017 was € 8.1 million, or 7% of sales (€ 4.1 million in 2016, or 4%). The impact of the labour costs on sales decreased from 26% to 24.8%. 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. In 2017, unlike in the previous year, the Company received dividends of € 1.5 million from the subsidiary Sabaf Immobiliare and recognised the tax benefit related to the Patent Box for the three-year period 2015 to 2017, totalling € 1.3 million, as described in detail in Note 33 to the separate financial statements. The actual tax burden related to 2017 was 11.8% (31.5% in 2016). Net profit was € 8 million, or 6.9% of sales (€ 2.5 million in 2016, or 2.4%). Operating cash flow (net profit plus depreciation and amortisation) decreased from €11.5 million to €16.8 million, with an impact on sales of 14.6% (compared to 11.3% in 2016).
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In 2017, Sabaf S.p.A. invested over € 8 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 interconnection of production plants with management systems (Industry 4.0). Other investments were made in the production of presses for new burners, while investments were made systematically to maintain a constantly updated and fully efficient machinery fleet. At 31 December 2017, working capital stood at € 35 million compared with € 32 million in the previous year: its percentage impact on sales stood at 30.5% from 31.6% at the end of 2016. Self-financing generated by operating cash flow was € 12.6 million, compared with € 15.2 million in 2016. The net financial debt was € 31.7 million, compared with € 29 million in 31 December 2016. At the end of the year, the shareholders’ equity amounted to € 92.1 million, compared with € 91.5 million in 2016. The net financial debt/shareholders’ equity ratio was 34%, 32% at the end of 2016.
SABAF | ANNUAL REPORT 2017
REPORT ON OPERATIONS
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 2017 financial year and Group shareholders' equity at 31 December 2017 with the same values of the parent company Sabaf S.p.A. is given below:
31.12.2017
31.12.2016 (*)
Profit for the year
Profit for the year
Profit and shareholders’ equity of parent company Sabaf S.p.A.
Shareholders’ equity
Shareholders’ equity
8,001
92,087
2,460
91,524
Equity and consolidated company results
7,971
67,929
6,175
66,276
682
(48,596)
521
(49,900)
0
6,215
0
6,215
(241)
(1,763)
0
(1,522)
0
0
(21)
275
(1,497)
(817)
(60)
(491)
(81)
(1,460)
(81)
(1,379)
14,835
113,595
8,994
110,998
DESCRIPTION
Elimination of the carrying value of consolidated equity investments Goodwill Put option on A.R.C. minorities IFRS 3 effect on A.R.C. acquisition Intercompany eliminations Minority interests PROFIT AND SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO THE GROUP
USE OF THE LONGER TIME LIMIT FOR CALLING THE SHAREHOLDERS' MEETING Pursuant to the second paragraph of Article 2364 of the Italian Civil Code, in consideration of the need to consolidate the financial statements of Group companies and to prepare all supporting documentation, the directors intend to use the longer time limits granted to companies required to prepare the consolidated financial statements for calling the ordinary shareholders' meeting to approve the 2017 financial statements. The shareholders' meeting must also resolve on the election of the members of the administration and control bodies and must therefore be convened at least 40 days in advance pursuant to Article 125-bis of the TUF. The Shareholders' Meeting is convened on a single date for 8 May 2018.
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 2017 with the proposal to allocate the profit for the year of € 8,001,327 as follows: • a dividend of € 0.55 per share to be paid to shareholders as from 30 May 2018 (ex-date 28 May 2018 and record date 29 May 2018). With regard to treasury shares, we invite you to allocate an amount corresponding to the dividend on the shares held in portfolio on the ex-date to the Extraordinary Reserve; • the remainder is allocated to the Extraordinary Reserve. Ospitaletto, 26 March 2018 The Board of Directors
(*) Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
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Accountability
We seek to establish an open communication channel with our stakeholders, clearly stating the rationale behind all corporate decisions and respecting their legitimate expectations.
Consolidated Financial Statements at 31 December 2017
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 Comments on significant balance sheet items Comments on key income statement items Certification of the Consolidated Financial Statements
126
127 128 129 130 130 131 132 140 150 159
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Group structure and corporate bodies Group structure Parent company SABAF S.p.A.
Subsidiaries and equity interest owned by the Group Sabaf Appliance Components (Kunshan) Co. Ltd. Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Sabaf Turkey)
100%
100%
Sabaf Appliance Components Trading (Kunshan) Co. Ltd. in liquidazione
100%
100%
A.R.C. s.r.l.
Faringosi Hinges s.r.l.
100%
Sabaf Immobiliare s.r.l.
100%
Sabaf do Brasil Ltda. Sabaf US Corp.
100%
70%
Associate companies and equity interest owned by the Group 35%
Handan ARC Burners Co. Ltd.
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
Pietro Iotti
Director *
Nicla Picchi
Director
Gianluca Beschi
Board of Statutory Auditors
Alessandro PotestĂ
Independent Auditor
Chairman
Antonio Passantino
Statutory Auditor
Luisa Anselmi
Statutory Auditor
Enrico Broli
* Independent directors
Director
Deloitte & Touche S.p.A.
127
Consolidated statement of financial position NOTES
31.12.2017
31.12.2016 *
Property, plant and equipment
1
73,069
73,445
Investment property
2
5,697
6,270
Intangible assets
3
9,283
9,077
Equity investments
4
281
306
Non-current financial assets
10
180
0
Non-current receivables
5
196
262
Deferred tax assets
21
(€/000) ASSETS Non-current assets
TOTAL NON-CURRENT ASSETS
5,096
4,781
93,802
94,141
Current assets Inventories
6
32,929
31,484
Trade receivables
7
42,263
36,842
Tax receivables
8
3,065
3,163
Other current receivables
9
1,057
1,419
Current financial assets
10
67
0
Cash and cash equivalents
11
11,533
12,143
90,914
85,051
TOTAL CURRENT ASSETS Assets held for sale
0
0
184,716
179,192
11,533
11,533
Retained earnings, other reserves
87,227
90,471
Profit for the year
14,835
8,994
113,595
110,998
1,460
1,379
115,055
112,377
TOTAL ASSETS
SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders’ equity 12
Share capital
Total equity interest of the Parent Company Minority interests TOTAL SHAREHOLDERS’ EQUITY Non-current liabilities Loans
14
17,760
18,892
Other financial liabilities
15
1,943
1,762
Post-employment benefit and retirement reserves
16
2,845
3,086
Provisions for risks and charges
17
385
434
Deferred tax liabilities
21
804
870
23,737
25,044
TOTAL NON-CURRENT LIABILITIES Current liabilities Loans
14
17,288
14,612
Other financial liabilities
15
75
335
Trade payables
18
19,975
18,977
Tax payables
19
1,095
1,190
Other payables
20
TOTAL CURRENT LIABILITIES Liabilities held for sale TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
128
7,491
6,657
45,924
41,771
0
0
184,716
179,192
* Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Consolidated income statement NOTE
2017
2016 *
Revenue
23
150,223
130,978
Other income
24
3,361
2,819
153,584
133,797
(59,794)
(47,346)
2,380
(754)
(€/000) INCOME STATEMENT COMPONENTS Operating revenue and income
TOTAL OPERATING REVENUE AND INCOME Operating costs Materials
25
Change in inventories Services
26
(30,227)
(27,983)
Payroll costs
27
(35,328)
(32,112)
Other operating costs
28
(1,134)
(1,078)
1,474
841
(122,629)
(108,432)
30,955
25,365
(12,826)
(12,882)
(12)
18
18,117
12,501
214
101
Costs for capitalised in-house work TOTAL OPERATING COSTS OPERATING PROFIT BEFORE DEPRECIATION AND AMORTISATION, CAPITAL GAINS/LOSSES, AND WRITEDOWNS/WRITE-BACKS OF NON-CURRENT ASSETS Depreciations and amortisation
1, 2, 3
Capital gains on disposals of non-current assets
EBIT Financial income Financial expenses
29
(804)
(620)
Exchange rate gains and losses
30
274
435
3
0
17,804
12,417
(2,888)
(3,342)
14,916
9,075
81
81
14,835
8,994
Base
1.323 euro
0.791 euro
Diluted
1.323 euro
0.791 euro
Profits and losses from equity investments
PROFIT BEFORE TAXES Income tax
31
PROFIT FOR THE YEAR of which: minority interests PROFIT ATTRIBUTABLE TO THE GROUP
EARNINGS PER SHARE (EPS)
32
* Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
129
Consolidated statement of comprehensive income (€/000)
2017
2016 3
PROFIT FOR THE YEAR
14,916
9,075
Actuarial post-employment benefit reserve evaluation
82
(41)
Tax effect
(20)
10
62
(31)
Forex differences due to translation of financial statements in foreign currencies
(4,806)
(340)
TOTAL OTHER PROFITS/(LOSSES) NET OF TAXES FOR THE YEAR
(4,744)
(371)
TOTAL PROFIT
10,172
8,704
Total profits/losses that will not be subsequently reclassified under profit (loss) for the year
Total profits/losses that will be subsequently reclassified under profit (loss) for the year
Statement of changes in consolidated shareholders’ equity (€/000)
Share capital
Share premium reserve
Legal reserve
Treasury shares
Translation reserve
Other reserves
BALANCE AT 31 DEC 2015
Post-employment benefit discounting reserve
11,533
10,002
2,307
(723)
(7,048)
(581)
86,552
Allocation of 2015 profit • dividends paid out • carried forward ARC acquisition and consolidation
3,531
IFRS 3 effect on ARC acquisition ARC put option Purchase of treasury shares Total profit at 31 Dec 2016
BALANCE AT 31 DEC 2016 *
11,533
10,002
2,307
130
11,533
(2,399)
(7,388)
(612)
88,561
3,610
10,002
2,307
(4,509)
62
(12,194)
(550)
92,171
111,040
(5,467)
(5,467)
(3,531)
0
0
(15)
1,210
1,210
83
68
(1,522)
(1,522)
(1,676)
(1,676)
9,009
8,638
86
8,724
8,994
110,998
1,379
112,377
(5,384)
(5,384)
(5,384)
(3,610)
0
0
(2,110)
(2,110)
(2,110) (4,806)
0
(5,467)
(1,676) (31)
Total shareholders’ equity
111,040
(1,522)
(340)
Minority interests
8,998
(15)
Allocation of 2016 profit • dividends paid out • carried forward Purchase of treasury shares Total profit at 31 Dec 2017
BALANCE AT 31 DEC 2017
Total Group Profit for the shareholyear ders' equity
14,835
10,091
81
10,172
14,835
113,595
1,460
115,055
* Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Consolidated cash flow statement 2017
2016 *
Cash and cash equivalents at beginning of year
12,143
3,991
Profit for the year
14,916
9,075
12,826
12,882
• Realised gains
12
(18)
• Net financial income and expenses
590
519
• Income tax
2,888
3,350
Change in post-employment benefit reserve
(189)
(184)
Change in risk provisions
(49)
39
Change in trade receivables
(5,421)
5,107
Change in inventories
(1,445)
416
998
(1,286)
(5,868)
4,237
Change in other receivables and payables, deferred tax
1,029
1,268
Payment of taxes
(3,058)
(4,762)
Payment of financial expenses
(532)
(576)
Collection of financial income
214
101
22,779
25,931
(860)
(477)
• tangible
(13,604)
(11,465)
• financial
0
5
Adjustments for: • Depreciation and amortisation
Change in trade payables Change in net working capital
CASH FLOW FROM OPERATIONS
Investments in non-current assets • intangible
520
175
CASH FLOW ABSORBED BY INVESTMENTS
Disposal of non-current assets
(13,944)
(11,762)
Repayment of loans
(16,526)
(33,141)
Raising of loans
17,751
37,321
Short-term financial assets
(247)
69
Purchase of treasury shares
(2,110)
(1,676)
Payment of dividends
(5,384)
(5,467)
CASH FLOW ABSORBED BY FINANCING ACTIVITIES
(6,516)
(2,894)
0
(2,614)
Foreign exchange differences due to translation
A.R.C. acquisition
(2,929)
(509)
NET FINANCIAL FLOWS FOR THE YEAR
(610)
8,152
Cash and cash equivalents at end of year (Note 11)
11,533
12,143
Current financial debt
17,363
14,947
Non-current financial debt
19,703
20,654
NET FINANCIAL DEBT (NOTE 22)
25,533
23,458
* Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
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Explanatory Notes Accounting Standards STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION The consolidated financial statements of the Sabaf Group for the financial year 2017 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 Group assessed that it is a going concern (as defined by paragraphs 25 and 26 of IAS 1), 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 2017 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. Sabaf U.S. is not consolidated since it is irrelevant for the purposes of the consolidation. Handan A.R.C. Ltd, Chinese company in which the Group holds a 35% share, was measured at cost in that at 31 December 2017 operations are still in the early stages, and therefore the company is considered irrelevant for consolidation purposes. 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
132
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) The portion of shareholders’ equity and net profit for the period pertaining to minority shareholders is posted in specific items of the balance sheet and income statement.
INFORMATION RELATED TO IFRS 3 Upon completion of the valuation of the assets and liabilities of A.R.C. at the acquisition date, pursuant to IFRS 3, previously considered provisional, the temporary figures of the tangible assets acquired recorded at the time in the consolidated financial statements at the date of first consolidation (30 June 2016) were increased by € 410,000, subsequent to a technical analysis carried out by experts on plants, machinery and equipment to identify their fair value. Furthermore, provisions for deferred tax liabilities were increased by € 114,000 in order to record the relevant tax effect. The Group has used the option provided by IFRS 3 in order to finalise the allocation within 12 months from the purchase date given that the technical analysis on plants, machinery and equipment was not previously complete and available. Final goodwill of € 1,770,000 reflects the net change of € 296,000 described above, net of the allocation made to minority interests (€ 89,000), during the measurement period to the temporary values of tangible assets and deferred tax liabilities. At 31 December 2017, goodwill was tested for impairment, as described in detail in Note 3 below.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
As required by IFRS 3, the comparative financial statements at 31 December 2016 have been restated to retrospectively take into account the effects resulting from the higher value of the assets acquired (€ 381,000) and the related tax effect (€ 106,000), as well as the reduction in goodwill (€ 207,000).
This entry resulted in a reduction in 2016 consolidated net income and consolidated shareholders' equity of € 21,000, of which € 15,000 owned by the Group.
ORIGINAL VALUES ACQUIRED ASSETS/LIABILITIES
MEASUREMENT AT FAIR VALUE
FAIR VALUE ACQUIRED ASSETS/LIABILITIES
Property, plant and equipment and intangible assets
303
410
713
Financial fixed assets
107
107
Non-current receivables and deferred tax assets
145
145
NON-CURRENT ASSETS
CURRENT ASSETS Inventories Trade receivables Other receivables
891
891
1,525
1,525
234
234
Cash and cash equivalents
2,186
2,186
TOTAL ASSETS
5,391
410
5,801
NON-CURRENT LIABILITIES Post-employment benefit reserve
(238)
Deferred tax liabilities reserve
(238)
-
(114)
(114)
CURRENT LIABILITIES Trade payables
(813)
(813)
Sundry payables
(308)
(308)
TOTAL LIABILITIES
(1,359)
(114)
(1,473)
FAIR VALUE OF NET ASSETS ACQUIRED
4,032
296
4,328
- % pertaining to Sabaf (70%) (a)
2,823
207
3,030
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
2,186
Total cash outlay (b-c)
2,614
2,614
4,800 (207)
1,770
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 statements of each foreign entity are 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 at average exchange rates for the year. DESCRIPTION OF CURRENCY
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 31.12.17
AVERAGE EXCHANGE RATE 2017
EXCHANGE RATE IN EFFECT AT 31.12.16
AVERAGE EXCHANGE RATE 2016
Brazilian real
3.9729
3.6048
3.4305
3.8576
Turkish lira
4.5464
4.1207
3.7072
3.3435
Chinese renminbi
7.8044
7.6289
7.3202
7.3512
133
RECONCILIATION BETWEEN PARENT COMPANY AND CONSOLIDATED SHAREHOLDERS’ EQUITY AND NET PROFIT FOR THE YEAR 31.12.2016 *
31.12.2017 Profit for the year
Shareholders’ equity
Profit for the year
Shareholders’ equity
Profit and shareholders’ equity of parent company Sabaf S.p.A.
8,001
92,087
2,460
91,524
Equity and consolidated company results
7,971
67,929
6,175
66,276
682
(48,596)
521
(49,900)
0
6,215
0
6,215
(241)
(1,763)
0
(1,522)
0
0
(21)
275
(1,497)
(817)
(60)
(491)
(81)
(1,460)
(81)
(1,379)
14,835
113,595
8,994
110,998
DESCRIPTION
Elimination of consolidated equity investments’ carrying value Goodwill Put option on A.R.C. minorities IFRS 3 effect on A.R.C. acquisition Intercompany eliminations Minority interests 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 2017, 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 – 10
Furniture
8
Electronic equipment
5
Vehicles and other transport means
134
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.
4–5
* Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
SABAF | ANNUAL REPORT 2017
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.
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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 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 non-recoverable assigned without recourse are recorded under "Other current receivables".
135
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)".
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.
136
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.
Derivative instruments and hedge accounting 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.
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 2017
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.
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 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.
Earnings per share 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. 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:
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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
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
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.
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 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.
New accounting standards Accounting standards, amendments and interpretations applicable from 1 January 2017
• Amendment to IAS 7 “Disclosure Initiative” (published on 29 January 2016). 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 12 "Recognition of Deferred Tax Assets for Unrealised Losses" (published on 19 January 2016). The aim of the document is to provide some clarification on the recognition of deferred tax assets on unrealised losses in the measurement of financial assets in the “Available for Sale” category upon
137
the occurrence of certain circumstances and on the estimate of taxable income for future years. The application of these amendments did not have any effect on the Group’s consolidated financial statements.
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 2017 • 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. The amendments to IFRS 15, Clarifications to IFRS 15 - Revenue from Contracts with Customers, were approved by the European Union on 6 November 2017. On the basis of the analyses carried out, the directors expect that the application of IFRS 15 will have a minor impact on the amounts recorded as 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 IASB project designed to replace IAS 39: - introduces new methods for the classification and measurement of financial assets and liabilities (together with the measurement of non-substantial changes in financial liabilities); - with reference to the impairment model, the new standard requires that the estimate of credit losses be made on the basis of the expected losses model (and not on the basis of the incurred losses model used by IAS 39) using supportable information available without unreasonable effort or expense that include historical, current and future figures; - introduces a new hedge accounting model (increase in the types of transactions eligible for hedge accounting, changes in the method of recognition of forward contracts and options when included in a hedge accounting report, changes in efficacy tests). The new standard must be applied by financial statements from 1 January 2018 onwards. On the basis of the analyses carried out, the directors expect that the application of IFRS 9 will have a minor impact on the amounts and on the related disclosures in the Group’s consolidated financial statements. • Standard IFRS 16 – Leases (published on 13 January 2016), which will replace 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
138
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 already applied IFRS 15 - Revenue from Contracts with Customers. The directors not expect that the application of IFRS 16 can have a significant impact on the amounts and on the relevant disclosures in the Group’s consolidated financial statements. However, it is not possible to provide a reasonable estimate of the effects until the Group has completed a detailed analysis of the related contracts.
IFRS accounting standards, amendments and interpretations not yet approved by the European Union
On the reference 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. • Amendment to IFRS 2 "Classification and measurement of share-based payment transactions” (published on 20 June 2016), which contains some clarification on the recording of the effects of vesting conditions in the presence of cash-settled share-based payments, on the classification of share-based payments with net settlement characteristics and on the recording of amendments under the terms and conditions of a share-based payment that change their classification from cash-settled to equity-settled. The amendments apply from 1 January 2018. The directors do not expect a significant effect on the Group’s consolidated financial statements through the adoption of these changes. • Document “Annual Improvements to IFRSs: 2014-2016 Cycle”, published on 8 December 2016 (including IFRS 1 First-Time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters, IAS 28 Investments in Associates and Joint Ventures – Measuring investees at fair value through profit or loss: an investment-by-investment choice or a consistent policy choice, IFRS 12 Disclosure of Interests in Other Entities – Clarification of the scope of the Standard) which partially integrate the existing standards. Most of the amendments apply from 1 January 2018. The directors do not expect a significant effect on the Group’s consolidated financial statements through the adoption of these amendments. • 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. • 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
SABAF | ANNUAL REPORT 2017
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. These amendments are applicable from 1 January 2018. The directors do not expect a significant effect on the Group’s consolidated financial statements through the adoption of these changes. • On 7 June 2017, IASB published the clarification document IFRIC 23 – Uncertainty over Income Tax Treatments. The document deals with uncertainties about the tax treatment of income taxes. The document requires that uncertainties in determining deferred tax assets and liabilities be reflected in the financial statements only when it is probable that the entity will pay or recover the amount in question. Moreover, the document does not contain any new disclosure requirement but emphasises that an entity will have to determine whether it will be necessary to disclose information on management considerations and on the uncertainty relating to tax accounting in accordance with IAS 1. The new interpretation applies from 1 January 2019, but early application is permitted. • Amendment to IFRS 9 “Prepayment Features with Negative Compensation (published on 12 October 2017). This document specifies the instruments that envisage early repayment that could comply with the "SPPI" test even if the "reasonable additional compensation" to be paid in the event of early repayment is a "negative compensation" for the lender. The amendment applies from 1 January 2019, 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.
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
• Amendment to IAS 28 “Long-term Interests in Associates and Joint Ventures” (published on 12 October 2017)”. This document clarifies the need to apply IFRS 9, including the requirements of impairment, to other long-term interests in associate companies and joint ventures that are not accounted for under the equity method. The amendment applies from 1 January 2019, 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. • Document “Annual Improvements to IFRSs 2015-2017 Cycle”, published on 12 December 2017 (including IFRS 3 Business Combinations and IFRS 11 Joint Arrangements – Remeasurement of previously held interest in a joint operation, IAS 12 Income Taxes – Income tax consequences of payments on financial instruments classified as equity, IAS 23 Borrowing costs Disclosure of Interests in Other Entities – Borrowing costs eligible for capitalisation) which implements changes to some standards as part of the annual process of improving them. The amendments apply from 1 January 2019 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.
139
Comments on significant balance sheet items 1. PROPERTY, PLANT AND EQUIPMENT PROPERTY
PLANT AND EQUIPMENT
OTHER ASSETS
ASSETS UNDER CONSTRUCTION
TOTAL
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 the scope of consolidation
-
1,745
584
-
2,329
Reclassifications
1
875
177
(1,476)
(423)
Forex differences
(52)
657
430
86
1,121
51,268
185,148
40,303
1,770
278,489
Increases
1,589
7,050
2,487
2,782
13,908
Disposals
-
(1,002)
(538)
-
(1,540)
Reclassifications
118
587
192
(1,201)
(304)
Forex differences
(914)
(1,900)
(626)
(29)
(3,469)
52,061
189,883
41,818
3,322
287,084
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
-
1,174
492
-
1,666
Reclassifications
5
40
21
-
66
Forex differences
59
588
306
-
953
AT 31 DECEMBER 2016
16,976
152,756
35,312
-
205,044
Depreciations for the year
1,459
8,047
2,260
-
11,766
Eliminations for disposals
-
(800)
(479)
-
(1,279)
Reclassifications
5
41
30
-
76
Forex differences
(156)
(1,002)
(434)
-
(1,592)
18,284
159,042
36,689
-
214,015
AT 31 DECEMBER 2017
33,777
30,841
5,129
3,322
73,069
AT 31 DECEMBER 2016
34,292
32,392
4,991
1,770
73,445
COST AT 31 DECEMBER 2015
AT 31 DECEMBER 2016
AT 31 DECEMBER 2017 ACCUMULATED DEPRECIATIONS
AT 31 DECEMBER 2017 NET CARRYING VALUE
140
1 Figures recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
The breakdown of the net carrying value of Property was as follows:
31.12.2017
31.12.2016
CHANGE
Land
6,877
6,688
189
Industrial buildings
26,900
27,604
(704)
TOTAL
33,777
34,292
(515)
The net carrying value of industrial property includes an amount of â‚Ź 2,125,000 (â‚Ź 2,211,000 at 31 December 2016) relating to industrial buildings held under finance leases.
The main investments in the financial year were aimed at automation of the assembly lines for light alloy valves and at the interconnection of production plants with management systems (Industry 4.0). The building in Campodarsego (PD) was acquired, where A.R.C., formerly rented, operates. In Brazil, the factory was expanded, against increased production volumes; while in Turkey all the die-casting machines were robotised. Other investments were made in the production of presses for new burners. Investments in maintenance and replacement, so that production equipment is kept constantly up to date and efficient, are systematic. 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 2017, 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 2015
13,136
Increases
-
Disposals
-
AT 31 DECEMBER 2016
13,136
Increases
-
Disposals
(199)
AT 31 DECEMBER 2017
12,937
ACCUMULATED DEPRECIATIONS AT 31 DECEMBER 2015
6,424
Depreciations for the year
442
Eliminations for disposals
-
AT 31 DECEMBER 2016
6,866
Depreciations for the year
436
Eliminations for disposals
(62)
AT 31 DECEMBER 2017
7,240
NET CARRYING VALUE AT 31 DECEMBER 2017
5,697
AT 31 DECEMBER 2016
6,270
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 2017, 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.
141
3. INTANGIBLE ASSETS GOODWILL
PATENTS, SOFTWARE AND KNOW-HOW
DEVELOPMENT COSTS
OTHER INTANGIBLE ASSETS
TOTAL
9,008
6,231
4,685
799
20,723
-
155
314
18
487
1,770
13
-
19
1,802
Reclassifications
-
62
(44)
(30)
(12)
Decreases
-
-
-
(15)
(15)
Forex differences
-
6
-
-
6
10,778
6,467
4,955
791
22,991
Increases
-
420
496
23
939
Reclassifications
-
-
(79)
-
(79)
Decreases
-
(14)
-
(13)
(27)
Forex differences
-
(14)
-
(8)
(22)
10,778
6,859
5,372
793
23,802
4,563
5,732
2,347
556
13,198
Amortisation for the year
-
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
Amortisation for the year
-
272
342
22
636
Decreases
-
(14)
-
-
(14)
Forex differences
-
(9)
-
(8)
(17)
4,563
6,254
3,041
661
14,519
AT 31 DECEMBER 2017
6,215
605
2,331
132
9,283
AT 31 DECEMBER 2016
6,215
462
2,256
144
9,077
COST AT 31 DECEMBER 2015 Increases Change in the scope of consolidation
AT 31 DECEMBER 2016
AT 31 DECEMBER 2017
AMORTISATION/WRITE-DOWNS AT 31 DECEMBER 2015
AT 31 DECEMBER 2016
AT 31 DECEMBER 2017
NET CARRYING VALUE
142
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Goodwill Goodwill recognised at 31 December 2017 is allocated: • to “Hinges” (CGU) cash generating units of € 4.445 million; • to the “Professional burners” CGU of € 1.770 million2 .
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 2017, the Hinges CGU achieved very positive and better results, in terms of sales and profitability, both compared to the previous year and compared to the budget. The 2018-2022 forward plan, drafted at the beginning of 2018, envisages a further increase in sales. Profitability is expected to decline in 2018, following the devaluation of the dollar (the currency in which more than 40% of sales are denominated) and the increase in the price of steel, before gradually recovering in subsequent years. At 31 December 2017, 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 2018 to 2022 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 9.18% (7.76% in the impairment test conducted while preparing the consolidated financial statements at 31 December 2016) and a growth rate (g) of 1.50%, which is in line with historical data.
The table below shows the changes in recoverable value depending on changes in the WACC discount rate and growth factor g: (€/000)
GROWTH RATE
DISCOUNT RATE
1.00%
1.25%
1.50%
1.75%
2.00%
8.18%
13,890
14,312
14,765
15,254
15,782
8.68%
12,902
13,263
13,649
14,063
14,508
9.18%
12,036
12,348
12,680
13,035
13,414
9.68%
11,272
11,543
11,831
12,138
12,464
10.18%
10,592
10,830
11,081
11,348
11,631
The recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 12.680 million, compared with a carrying value of the assets allocated to the Hinges unit of € 7.427 million; consequently, the value recorded for goodwill at 31 December 2017 was deemed recoverable.
Goodwill allocated to the Professional burners CGU
At 31 December 2017, 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 drafted at the beginning of 2018. Cash flows for the 2018-2022 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 6.90% (5.79% in the impairment test conducted while preparing the consolidated financial statements at 31 December 2016) and a growth rate (g) of 1.50%. The recoverable value calculated on the basis of the above-mentioned assumptions and valuation techniques is € 11.345 million, compared with a carrying value of the assets allocated to the Professional burners unit of € 4.409 million (including minority interests); consequently, the value recorded for goodwill at 31 December 2017 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: (€/000)
GROWTH RATE
DISCOUNT RATE
1.00%
1.25%
1.50%
1.75%
2.00%
5.90%
12,794
13,396
14,066
14,816
15,663
6.40%
11,549
12,033
12,566
13,156
13,814
6.90%
10,516
10,917
11,345
11,820
12,343
7.40%
9,646
9,975
10,333
10,721
11,146
7.90%
8,903
9,180
9,479
9,802
10,153
Patents, software and know-how
Development costs
Software investments include the implementation of a production scheduler and the application development of the Group management system (SAP).
The main investments in the year relate to the development of new products, including special burners and personalised burners for some customers (research and development activities carried out during the year are set out in the Report on Operations).
2 Figure recalculated pursuant to IFRS 3, in order to retrospectively take into account the effects resulting from the fair value measurement of A.R.C's assets and liabilities, at the acquisition date previously considered provisional.
143
4. EQUITY INVESTMENTS 31.12.2016
DISPOSALS
31.12.2017
Sabaf US
139
-
139
ARC Handan Burners Co.
101
-
101
Other equity investments
66
(25)
40
306
(25)
281
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; production of the first pre-series began in 2017.
5. NON-CURRENT RECEIVABLES 31.12.2017
31.12.2016
CHANGE
Tax receivables
153
225
(72)
Guarantee deposits
43
37
6
196
262
(66)
31.12.2017
31.12.2016
CHANGE
Commodities
11,459
9,740
1,719
Semi-processed goods
11,180
10,893
287
Finished products
13,448
13,308
140
Obsoloscence provision
(3,158)
(2,457)
(701)
TOTAL
32,929
31,484
1,445
TOTAL
Tax receivables relate to indirect taxes expected to be recovered after 31 December 2018.
6. INVENTORIES
The value of final inventories at 31 December 2017 increased compared to the end of the previous year to meet the higher volumes of activity. The obsolescence provision is mainly allocated for hedging the obsolescence risk, quantified on the basis of specific analyses carried out at the end of the year on slow-moving and non-moving products.
144
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
7. TRADE RECEIVABLES
Total trade receivables Bad debt provision NET TOTAL
31.12.2017
31.12.2016
CHANGE
43,002
37,576
5,426
(739)
(734)
(5)
42,263
36,842
5,421
Trade receivables at 31 December 2017 were higher than at the end of 2016 subsequent to higher sales. There were no significant changes in payment terms agreed with customers. At 31 December 2017, trade receivables included balances totalling USD 6,826,000,
booked at the EUR/USD exchange rate in effect on 31 December 2017, i.e. 1.1993. The amount of trade receivables recognised in the financial statements includes approximately € 28.2 million of insured receivables (€ 22.4 million at 31 December 2016). The bad debt provision was adjusted to the better estimate of the credit risk at the end of the reporting period.
31.12.2017
31.12.2016
CHANGE
Current receivables (not past due)
38,282
32,616
5,666
Outstanding up to 30 days
2,802
3,296
(494)
Outstanding from 30 to 60 days
868
218
650
Outstanding from 60 to 90 days
594
136
458
Outstanding for more than 90 days
456
1,310
(854)
43,002
37,576
5,426
31.12.2017
31.12.2016
CHANGE
1,998
2,186
(188)
For VAT and other sales taxes
682
533
149
Other tax credits
385
444
(59)
3,065
3,163
(98)
TOTAL
8. TAX RECEIVABLES
For income tax
TOTAL
The income tax receivables derives for € 1,153,000 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 an application for a refund was presented and, for the residual part, to the payments on account on 2017 income, for the part exceeding the tax to be paid. Other tax receivables mainly refer to receivables in respect of indirect Brazilian and Turkish taxes.
145
9. OTHER CURRENT RECEIVABLES
14. LOANS
31.12.2017
31.12.2016
CHANGE
Credits to be received from suppliers
360
706
(346)
Advances to suppliers
155
168
(13)
Other
542
545
(3)
TOTAL
1,057
1,419
(362)
At 31 December 2017, credits to be received from suppliers included € 248,000 related to the relief due to the parent company as an energy-intensive business (socalled “energy-intensive bonuses”) for the years 2016 and 2017. “Energy-intensive bonuses” due for the years 2014 and 2015 were regularly collected during 2017.
10. CURRENT FINANCIAL ASSETS 31.12.2017
31.12.2016
current
non current
current
non current
Escrow bank accounts
60
180
-
-
Derivative instruments on interest rates
7
-
-
-
67
180
0
0
TOTAL
The item Derivative instruments on interest rates refers to the positive fair value of an IRS hedging rate risks of an unsecured loan pending, for a notional amount of approximately € 4 million and expiry until 31 December 2021. Financial income was recognised in the income statement with a balancing entry.
11. CASH AND CASH EQUIVALENTS Cash and cash equivalents, which amounted to € 11,533,000 at 31 December 2017 (€ 12,143,000 at 31 December 2016) consisted of bank current account balances of approximately € 11 million and sight deposits of approximately € 0.5 million.
12. SHARE CAPITAL 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 148,630 treasury shares at an average unit price of € 14.20; there have been no sales. At 31 December 2017, the parent company Sabaf S.p.A. held 381,769 treasury shares, equal to 3.31% of share capital (233,139 treasury shares at 31 December 2016), reported in the financial statements as an adjustment to shareholders’ equity at a unit value of € 11.81 (the market value at year-end was € 19.91). There were 11,151,681 outstanding shares at 31 December 2017 (11,300,311 at 31 December 2016).
146
31.12.2017
31.12.2016
current
non current
current
non current
Property leasing
149
1,462
145
1,611
Unsecured loans
5,982
16,298
6,656
17,281
9,477
-
7,802
-
1,678
-
2
-
2
-
7
-
17,288
17,760
14,612
18,892
Short-term bank loans Advances on bank receipts or invoices Interest payable TOTAL
To manage interest rate risk, unsecured loans are either fixed-rate or hedged by IRS. Two of the outstanding unsecured loans, amounting to € 9 million at 31 December 2017, have 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 both widely observed at 31 December 2017. All outstanding bank loans are denominated in euro, with the exception of a shortterm loan of USD 2 million and a short-term loan of 1.4 million Turkish lira. Note 35 provides information on financial risks, pursuant to IFRS 7.
15. OTHER FINANCIAL LIABILITIES 31.12.2017
Option on minorities Payables to A.R.C. shareholders Currency derivatives Derivative instruments on interest rates TOTAL
31.12.2016
current
non current
current
non current
-
1,763
-
1,522
60
180
60
240
-
-
238
-
15
-
37
-
75
1,943
335
1,762
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., with strike prices contractually defined on the basis of final income parameters from A.R.C. at 31 December 2020.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Pursuant to the provisions of IAS 32, the assignment of an option to sell (put option) in the terms described above required the recording of a liability corresponding to the estimated redemption value, expected at the time of any exercise of the option: to this end, a financial liability of € 1.522 million was recognised in the consolidated financial statements at 31 December 2016. At 31 December 2017, the Group revalued the outlay estimate, based on the expected results of A.R.C. at 31 December 2020 in accordance with the business plan of the subsidiary prepared at the beginning of 2018. The recalculation of the fair value, in compliance with IAS 39, led to an increase of € 241,000 in the liability; financial expenses were recognised as a balancing entry (Note 29).
The payable to the A.R.C. shareholders of € 240,000 at 31 December 2017 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 4 years, in accordance with contractual agreements and guarantees issued by the sellers. Other financial liabilities also include the negative fair value of two IRSs hedging rate risks of unsecured loans pending, for residual notional amounts of approximately € 5.4 million and expiry until 31 December 2021. Financial expenses in the same amount were recognised in the income statement.
16. POST-EMPLOYMENT BENEFIT AND RETIREMENT RESERVES 31.12.2017
31.12.2016
CHANGE
2,720
2,961
(241)
125
125
-
2,845
3,086
(241)
Postemployment benefit reserve Retirement reserve TOTAL
Post-employment benefits are calculated as follows: FINANCIAL ASSUMPTIONS
31.12. 2017
31.12.2016
Discount rate
1.15%
1.15%
Inflation
1.80%
1.75%
31.12. 2017
31.12.2016
Mortality rate
ISTAT 2016 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 2017
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 31.12.2016
PROVISIONS
UTILISATION
RELEASE OF EXCESS PORTION
EXCHANGE RATE DIFFERENCES
31.12.2017
Reserve for agents’ indemnities
231
15
(15)
(21)
-
210
Product guarantee fund
60
11
(11)
-
-
60
Reserve for legal risks
143
-
(7)
-
(21)
115
TOTAL
434
26
(33)
(21)
(21)
385
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 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.
147
18. TRADE PAYABLES
TOTAL
31.12.2017
31.12.2016
CHANGE
19,975
18,977
998
Average payment terms did not change versus the previous year. At 31 December 2017, there were no overdue payables of a significant amount and the Group did not receive any injunctions for overdue payables.
19. TAX PAYABLES 31.12.2017
31.12.2016
CHANGE
For income tax
240
361
(121)
Withholding taxes
656
788
(132)
Other tax payables
199
41
158
1,095
1,190
(95)
31.12.2017
31.12.2016
CHANGE
To employees
4,552
3,965
587
To social security institutions
2,304
2,139
165
To agents
195
268
(73)
Advances from customers
94
181
(87)
Other current payables
346
104
242
7,491
6,657
834
TOTAL
20. OTHER CURRENT PAYABLES
TOTAL
At the beginning of 2018, payables due to employees and social security institutions were paid in accordance with the scheduled expiry dates.
21. DEFERRED TAX ASSETS AND LIABILITIES 31.12.2017
31.12.2016
Deferred tax assets
5,096
4,781
Deferred tax liabilities
(804)
(870)
4,293
3,911
NET POSITION
148
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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.
AT 31 DECEMBER 2016
Depreciation Provisions and amortisaand value tion and leasing adjustments
Fair value of Actuarial postOther Tax derivative Goodwill employment benefit temporary incentives instruments reserve evaluation differences
TOTAL
(83)
1,062
67
1,771
595
210
289
3,911
(37)
105
(64)
-
159
(2)
423
584
To shareholders’ equity
-
-
-
-
-
(19)
-
(19)
Forex differences
-
(17)
-
-
(125)
-
(41)
(183)
(120)
1,150
3
1,771
629
189
671
4,293
To the income statement
AT 31 DECEMBER 2017
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:
31.12.2017
31.12.2016
CHANGE
14
12
2
11,009
8,376
2,633
510
3,755
(3,245)
A.
Cash (Note 11)
B.
Positive balances of unrestricted bank accounts (Note 11)
C.
Other cash equivalents
D.
LIQUIDITY (A+B+C)
11,533
12,143
(610)
E.
Current bank payables (Note 14)
11,157
7,811
3,346
F.
Current portion of non-current debt (Note 14)
6,131
6,801
(670)
G.
Other current financial payables (Note 15)
75
335
(260)
H.
CURRENT FINANCIAL DEBT (E+F+G)
17,363
14,947
2,416
I.
NET CURRENT FINANCIAL DEBT (H-D)
5,830
2,804
3,026
J.
Non-current bank payables (Note 14)
16,298
17,281
(983)
K.
Other non-current financial payables (Note 14)
3,405
3,373
32
L.
NON-CURRENT FINANCIAL DEBT (J+K)
19,703
20,654
(951)
M.
NET FINANCIAL DEBT (I+L)
25,533
23,458
2,075
The consolidated cash flow statement shows changes in cash and cash equivalents (letter D of this schedule).
149
Comments on key income statement items 23. REVENUE In 2017, sales revenues totalled â‚Ź 150,223,000, up by â‚Ź 19,245,000 (+14.7%) compared with 2016. Taking into consideration the same scope of consolidation, revenue increased by 12.9%.
Revenue by product family 2017
%
2016
%
% CHANGE
Brass valves
5,991
4.0%
9,007
6.9%
-33.5%
Light alloy valves
39,351
26.2%
32,393
24.7%
+21.5%
Thermostats
7,376
4.9%
7,699
5.9%
-4.2%
Standard burners
41,070
27.3%
37,338
28.5%
+10.0%
Special burners
27,184
18.1%
21,215
16.2%
+28.1%
Accessories
15,267
10.2%
12,613
9.6%
+21.0%
Household gas parts
136,239
90.7%
120,265
91.8%
+13.3%
Professional gas parts
5,079
3.4%
2,289
1.8%
+121.9%
Hinges
8,905
5.9%
8,424
6.4%
+5.7%
TOTAL
150,223
100%
130,978
100%
+14.7%
2017
%
2016
%
% CHANGE
Italy
36,523
24.3%
36,365
27.8%
+0.4%
Western Europe
11,678
7.8%
8,553
6.5%
+36.5%
Eastern Europe
42,824
28.5%
34,123
26.1%
+25.5%
Middle East and Africa
13,009
8.6%
11,698
8.9%
+11.2%
Asia and Oceania
10,516
7.0%
8,088
6.2%
+30.0%
South America
22,938
15.3%
20,847
15.9%
+10.0%
North America and Mexico
12,735
8.5%
11,304
8.6%
+12.7%
150,223
100%
130,978
100%
+14.7%
Revenue by geographical area
TOTAL
An analysis of sales by product category shows the strong growth of special burners, the family where product innovation has been strongest in recent years. The trend in sales of light alloy valves, which have now almost completely replaced brass valves, was also very positive. All other product lines also recorded good growth rates, with the exception of thermostats.
In 2017, all markets recorded double-digit growth rates; Italy, where sales remained stable after years of decline due to the sharp reduction in the production of domestic appliances, is an exception. Very positive sales growth rates have been recorded in other European markets, where Sabaf is consolidating its leadership. The Middle East market showed a strong recovery compared to 2016; Asia, North and South America confirmed a positive underlying trend. Average sales prices in 2017 were on average 0.8% lower compared with 2016.
150
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
25. MATERIALS
24. OTHER INCOME 2017
2016
CHANGE
2,261
1,684
577
Contingent income
311
146
165
Rental income
89
85
4
Use of provisions for risks and charges
36
67
(31)
Other income
664
837
(173)
3,361
2,819
542
Sale of trimmings
TOTAL
2017
2016
CHANGE
Commodities and outsourced components
54,179
42,540
11,639
Consumables
5,615
4,806
809
59,794
47,346
12,448
TOTAL
In 2017, the effective purchase prices of the main raw materials (aluminium alloys, steel and brass) were on average higher than in 2016, with a negative impact of 0.9% of sales. Consumption (purchases plus change in inventories) as a percentage of sales was 38.2% in 2017, compared with 36.7% in 2016.
The increase in income from the sale of trimmings is directly related to higher production volumes and to the increase in the price of raw materials.
26. COSTS FOR SERVICES 2017
2016
CHANGE
Outsourced processing
9,779
8,435
1,344
Natural gas and power
4,485
4,622
(137)
Maintenance
4,474
4,071
403
Transport
2,221
1,848
373
Advisory services
2,106
1,639
467
Directors’ fees
1,084
1,181
(97)
Travel expenses and allowances
715
693
22
Commissions
637
648
(11)
Insurance
537
675
(138)
Canteen
394
395
(1)
Temporary agency workers
199
125
74
3,596
3,651
(55)
30,227
27,983
2,244
Other costs TOTAL
The higher costs for outsourced processing were related to the increase in production volumes in Italy. The reduction in energy costs is due to the recognition of the "energy-intensive bonuses" for 2016 and 2017 for a total of € 248,000, which was not recognised in the 2016 financial statements because the collectability was uncertain at the end of the reporting period. 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 (€ 568,000), sales (€ 343,000) and legal, administrative and general (€ 1,195,000) services.
151
27. PAYROLL COSTS
30. EXCHANGE RATE GAINS AND LOSSES
2017
2016
CHANGE
Salaries and wages
23,987
22,284
1,703
Social Security costs
7,585
7,088
497
1,910
1,216
694
1,846
1,524
322
35,328
32,112
3,216
Temporary agency workers Post-employment benefit reserve and other costs TOTAL
The average Group headcount in 2017 was 760 employees compared to 755 in 2016. The average number of temporary staff was 60 in 2017 (40 in 2016). During the financial year, the Group made only negligible use of the solidarity contract and temporary lay-off scheme, whereas in 2016 these institutions, used in periods characterised by low production requirements, made it possible to save personnel costs of € 689,000.
28. OTHER OPERATING COSTS 2017
2016
CHANGE
Non-income taxes
539
488
51
Other operating expenses
331
205
126
Contingent liabilities
145
69
76
Losses and write-downs of trade receivables
93
189
(96)
Provisions for risks
11
127
(116)
Other provisions
15
-
15
1,134
1,078
56
TOTAL
2017
2016
CHANGE
Current taxes
3,836
3,454
382
Deferred tax liabilities
(452)
73
(525)
Taxes related to previous financial years
(496)
(176)
(320)
2,888
3,351
(463)
TOTAL
The current income taxes include the IRES of € 2,448,000, the IRAP of € 545,000 and foreign income taxes of € 843,000 (€ 2,078,000, € 452,000 and € 924,000 respectively in 2016). 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: 2017
2016
4,272
3,280
Permanent tax differences
172
202
Taxes related to previous financial years
91
(138)
Tax effect from different foreign tax rates
5
(109)
172
162
(1,151)
-
“Super ammortamento” tax benefit
(179)
-
Tax incentives for investments in Turkey
(950)
(408)
10
(71)
2,442
2,918
446
433
2,888
3,351
Effect of non-recoverable tax losses “Patent box” tax benefit
29. FINANCIAL EXPENSES
Other differences
2017
2016
CHANGE
Interest paid to banks
260
243
17
Interest paid on finance lease contracts
19
22
(3)
IRS spreads payable
10
37
(27)
Banking expenses
240
263
(23)
Adjustment to the fair value of the ARC option (Note 15)
241
-
241
Other financial expense
34
55
(22)
804
620
183
152
31. INCOME TAXES
Theoretical income tax
Non-income taxes chiefly relate to property tax. Provisions refer to the allocations to the reserves described in Note 17.
TOTAL
In 2017, the Group reported net foreign exchange gains of € 274,000, versus net gains of € 435,000 in 2016.
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. 24% (27.50% in 2016), to the pre-tax result. Following the prior agreement signed with the Revenue Agency, in 2017 the Group recognised the tax benefit relating to the Patent Box for the three-year period 2015 to 2017, for a total of € 1,324,000 (€ 1,151,000 for IRES and € 173,000 for IRAP), of which € 772,000 for 2015 and 2016 (Note 38) and € 552,000 for 2017.
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
In 2018, the Group also recognised € 950,000 in tax benefits deriving from investments made in Turkey, of which € 582,000 deriving from investments made in previous years for which access to the incentive was only established in 2017 (Note 38).
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 2017.ì
32. EARNINGS PER SHARE Basic and diluted EPS are calculated based on the following data: EARNINGS
2017
2016
(€/000)
(€/000)
Profit for the year
14,835
8,994
NUMBER OF SHARES
2017
2016
11,208,062
11,376,320
-
-
11,208,062
11,376,320
EARNINGS PER SHARE (€)
2017
2016
Basic earnings per share
1.323
0.791
Diluted earnings per share
1.323
0.791
Weighted average number of ordinary shares for determining basic earnings per share Dilutive effect from potential ordinary shares Weighted average number of ordinary shares for determining diluted earnings per share
Basic earnings per share are calculated on the average number of outstanding shares minus treasury shares, equal to 325,388 in 2017 (157,130 in 2016). Diluted earnings per share are calculated taking into account any shares approved but not yet subscribed, of which there were none in 2017 and 2016.
33. DIVIDENDS On 31 May 2017, shareholders were paid an ordinary dividend of € 0.48 per share (total dividends of € 5,384,000). The Directors have recommended payment of a dividend of € 0.55 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 30 May 2018 (ex-date 28 May and record date 29 May).
34. INFORMATION BY BUSINESS SEGMENT Below is the information by business segment for 2017 and 2016. 2017 FY
2016 FY
Gas parts (household and professional)
Hinges
TOTAL
Gas parts (household and professional)
Hinges
TOTAL
Sales
141,280
8,943
150,223
122,636
8,342
130,978
Ebit
16,974
1,143
18,117
11,643
887
12,530
153
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
31.12.2017
31.12.2016
11,533
12,143
240
-
43,516
38,523
7
-
31.12.2017
31.12.2016
35,048
33,504
240
300
19,975
18,977
1,763
1,522
15
275
Amortised cost • Cash and cash equivalents • Escrow bank deposits • Trade receivables and other receivables
FINANCIAL LIABILITIES Amortised cost • Loans • Other financial liabilities • Trade payables Income statement fair value • ARC put option • 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 65% of trade receivables. Credit risk relating to customers operating in emerging economies is generally attenuated by the expectation of revenue through letters of credit.
154
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 14% of total revenue in 2017, while purchases in dollars represented 4% of total revenue. During the year, operations in dollars were partially hedged through forward sales contracts; no currency derivatives were pending at 31 December 2017.
Sensitivity analysis
Income statement fair value • Derivative to hedge cash flows
Forex risk management
With reference to financial assets and liabilities in US dollars at 31 December 2017, a hypothetical and immediate revaluation of 10% of the euro against the dollar would have led to a loss of € 475,000.
Interest rate risk management At 31 December 2017, gross financial debt of the Group was at a floating rate for approximately 35% and at a fixed rate for approximately 65%; 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 2017, three interest rate swap (IRS) contracts totalling € 9.4 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 2017, the fixed-rate portion amounted to approximately 90% of the total financial debt. The derivative contracts were not designated as a cash flow hedge and were therefore recognised using the “fair value in the income statement” method.
Sensitivity analysis At 31 December 2017, the sensitivity analysis concerned financial leases and the floating rate portion of the short-term financial debt. The Group is not exposed to interest rate risk as regards medium/long-term bank debt, since the floating rate of loans has been transformed into a fixed rate by means of the interest rate swap contracts in place. With reference to financial assets and liabilities at variable rate at 31 December 2017 and 31 December 2016, 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
31.12.2017
31.12.2016
FINANCIAL EXPENSES
FINANCIAL EXPENSES
31
20
(31)
-
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Commodity price risk management
Liquidity risk management
A significant portion of the Group’s purchase costs is represented by brass 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 2017 and 2016, 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.
The Group operates with a low debt ratio (net financial debt / shareholders' equity at 31 December 2017 of 22%, net financial debt / EBITDA of 0.82) 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 2017 and 31 December 2016: AT 31 DECEMBER 2017 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
11,157
11,157
11,157
0
-
-
Unsecured loans
22,280
22,676
1,537
4,612
16,527
-
Finance leases
1,611
1,818
47
141
754
876
240
240
-
60
180
-
1,763
1,763
-
-
1,763
-
TOTAL FINANCIAL PAYABLES
37,051
37,654
12,741
4,813
19,224
876
Trade payables
19,975
19,975
19,021
954
-
-
TOTAL
57,026
57,629
31,762
5,767
19,224
876
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
1,709
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
Payables to ARC shareholders ARC option
AT 31 DECEMBER 2016
Payables to ARC shareholders ARC option
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.
155
Hierarchical levels of fair value assessment The following table shows the assets and liabilities valued at fair value at 31 December 2017, 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 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
-
7
-
7
-
(15)
-
(15)
-
-
(1,763)
(1,763)
0
(8)
(1,763)
(1,771)
Other financial assets (derivatives on interest rates) Other financial liabilities (derivatives on interest rates) Other financial liabilities (ARC put option) TOTAL LIABILITIES
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 2017
GIUSEPPE SALERI S.A.P.A.
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Trade receivables
42,263
-
299
-
299
0.71%
Tax receivables
3,065
1,158
-
-
1,158
37.78%
Trade payables
19,976
-
2
2
0.01%
GIUSEPPE SALERI S.A.P.A.
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
TOTAL 2016 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%
Impact of related-party transactions on income statement accounts
Other income Services
Other income Services
TOTAL 2017
GIUSEPPE SALERI S.A.P.A.
NONCONSOLIDATED SUBSIDIARIES
OTHER RELATED PARTIES
IMPACT ON THE TOTAL
3,361
10
-
-
10
0.30%
(30,227)
-
(167)
(20)
(187)
0.62%
TOTALE 2016
GIUSEPPE SALERI S.A.P.A.
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%
Transactions with the shareholder, Giuseppe Saleri S.a.p.A., comprise: • administration services provided by Sabaf S.p.A. to Giuseppe Saleri S.a.p.A.; • transactions as part of the domestic tax consolidation scheme until 2016, which generated the receivables shown in the tables.
Transactions are regulated by specific contracts regulated at arm’s length conditions. Transactions with non-consolidated subsidiaries were solely of a commercial nature.
Fees to directors, statutory auditors and executives with strategic responsibilities Please see the 2017 Report on Remuneration for this information.
156
TOTAL RELATED PARTIES
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
37. SHARE-BASED PAYMENTS At 31 December 2017, 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, the following section describes and comments on significant non-recurring events, the consequences of which are reflected in the economic, equity and financial results for the year: SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO THE GROUP
PROFIT ATTRIBUTABLE TO THE GROUP
NET FINANCIAL DEBT
CASH FLOWS
113,595
14,835
25,533
(610)
Recognition of “Patent box” tax benefit related to 2015 and 2016
(772)
(772)
-
-
Recognition of tax incentives for investments in Turkey carried out in previous financial years
(592)
(592)
-
-
112,231
13,471
25,533
(610)
Financial statement values (A)
FINANCIAL STATEMENT NOTIONAL VALUE (A+B)
As described in Note 31, in these consolidated financial statements, the Group recognised: - the tax benefit relating to the Patent Box for the three-year period 2015 to 2017; - the tax benefit on investments made in Turkey, against which a tax credit was recognised. The tax benefits relating to previous years are considered non-recurring and are therefore shown in the table above.
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 2017.
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 € 5,145,000 (€ 5,510,000 at 31 December 2016).
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)
€ 90,000
Sabaf S.p.A.
100%
Sabaf Immobiliare s.r.l.
Ospitaletto (BS)
€ 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)
€ 200,000
Sabaf S.p.A.
100%
Kunshan (China)
€ 4,400,000
Sabaf S.p.A.
100%
Campodarsego (PD) - Italy
€ 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.
157
Non-consolidated companies valued at cost COMPANY NAME
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%
42. GENERAL INFORMATION ON THE PARENT COMPANY Registered and administrative office: Via dei Carpini, 1 25035 Ospitaletto (Brescia)
Tax information: R.E.A. Brescia: 347512 Tax Code 03244470179 VAT number: 01786910982
Contacts: Tel.: +39 030 6843001 Fax: +39 030 6848249 E-mail: info@sabaf.it Website: www.sabaf.it
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 2017 for auditing and for services other than auditing provided by the Independent Auditor and its network.
(€/000) Audit
Certification services
Other services
PARTY PROVIDING THE SERVICE
RECIPIENT
FEES PERTAINING TO THE 2017 FINANCIAL YEAR
Deloitte & Touche S.p.A.
Parent company
57
Deloitte & Touche S.p.A.
Italian subsidiaries
30
Deloitte network
Sabaf do Brasil
27
Deloitte network
Sabaf Turkey
21
Deloitte & Touche S.p.A.
Parent company
2 (1)
Deloitte & Touche S.p.A.
Italian subsidiaries
1 (1)
Deloitte & Touche S.p.A.
Parent company
14 (2)
Deloitte network
Sabaf do Brasil
3 (3)
TOTAL
158
155
(1) Signing of Unified Tax Return, IRAP and 770 forms (2) Auditing procedures agreement relating to interim management reports, auditing of statements and training activities (3) Tax assistance regarding transfer pricing
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
in accordance with Article 154 bis of Italian Legislative Decree 58/98 Pietro Iotti, 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 2017 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, 26 March 2018
Chief Executive Officer
The Financial Reporting Officer
Pietro Iotti
Gianluca Beschi
159
160
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
161
162
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
163
164
SABAF | ANNUAL REPORT 2017
CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017
165
Social
A major company like ours sets out to serve as a point of reference for society as a whole: we are committed to establishing a responsible and sustainable relationship with the local communities in which we operate.
Separate financial statements at 31 december 2017 Corporate bodies Statement of financial position Income statement Comprehensive income statement Statement of changes in shareholders' equity Cash flow Statement Explanatory notes Comments on the main items of the statement of financial position Comments on key income statement items Certification of Separate financial statements
168
169 170 171 172 172 173 174 180 192 202
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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
Pietro Iotti
Director *
Nicla Picchi
Director
Gianluca Beschi
Board of Statutory Auditors
Alessandro PotestĂ
Independent Auditor
Chairman
Antonio Passantino
Statutory Auditor
Luisa Anselmi
Statutory Auditor
Enrico Broli
* Independent directors
Director
Deloitte & Touche S.p.A.
169
Statement of financial position (IN €)
NOTES
31.12.2017
31.12.2016
Property, plant and equipment
1
31,610,510
31,092,204
Investment property
2
1,453,564
1,645,412
Intangible assets
3
3,370,260
3,095,000
Equity investments
4
49,451,811
50,098,459
ASSETS Non-current assets
Non-current financial assets
5
1,847,639
2,137,353
- of which from related parties
36
1,667,639
1,897,353
19,871
11,621
Non-current receivables Deferred tax assets
21
TOTAL NON-CURRENT ASSETS
3,455,483
3,315,263
91,209,138
91,395,312
Current assets Inventories
6
24,768,927
23,492,840
Trade receivables
7
31,154,012
27,465,436
36
1,208,883
1,191,581
- of which from related parties Tax receivables - of which from related parties Other current receivables Current financial assets - of which from related parties Cash and cash equivalents
8
2,229,708
2,477,294
36
1,083,666
1,083,666
9
721,529
1,039,324
10
1,067,429
1,060,000
36
1,000,000
1,000,000
11
2,696,664
1,796,980
62,638,269
57,331,874
TOTAL CURRENT ASSETS Assets held for sale TOTAL ASSETS
0
0
153,847,407
148,727,186
11,533,450
11,533,450
72,552,367
77,530,764
SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders’ equity Share capital
12
Retained earnings, other reserves Profit for the year TOTAL SHAREHOLDERS’ EQUITY
8,001,327
2,459,688
92,087,144
91,523,902 17,281,379
Non-current liabilities Loans
14
16,297,969
Other financial liabilities
15
180,000
240,000
Post-employment benefit and retirement reserves
16
2,199,523
2,435,538
Provisions for risks and charges
17
369,482
322,979
Deferred tax liabilities
21
67,983
129,289
19,114,957
20,409,185 14,054,604
TOTAL NON-CURRENT LIABILITIES Current liabilities Loans - of which from related parties Other financial liabilities
14
18,927,558
36
2,100,000
0
15
74,849
298,161
18
16,569,390
16,010,381
36
509,631
104,142
Tax payables
19
623,013
641,944
Other payables
20
Trade payables - of which from related parties
TOTAL CURRENT LIABILITIES Liabilities held for sale TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
170
6,450,496
5,789,009
42,645,306
36,794,099
0
0
153,847,407
148,727,186
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Income statement (IN €)
NOTES
2017
2016
23
115,687,029
101,523,407
36
10,238,606
6,680,209
24
2,647,542
2,278,649
118,334,571
103,802,056
(46,554,625)
(36,875,454)
1,276,087
(1,182,000)
26
(27,603,637)
(26,031,824)
36
(3,966,399)
(4,151,074)
Payroll costs
27
(28,734,310)
(26,382,450)
Other operating costs
28
(715,296)
(647,178)
1,474,322
841,526
(100,857,459)
(90,277,380)
17,477,112
13,524,676
(8,843,617)
(9,020,829)
97,873
87,113
29
(681,628)
(521,021)
36
(681,628)
(521,021)
8,049,740
4,069,939
88,754
84,559
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 TOTAL OPERATING COSTS
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTISATION, CAPITAL GAINS/LOSSES, WRITE-DOWNS/WRITE-BACKS OF NON-CURRENT ASSETS 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
(482,136)
(512,872)
Exchange rate gains and losses
31
(88,145)
(48,356)
Profits and losses from equity investments
32
1,503,354
0
9,071,567
3,593,270
(1,070,240)
(1,133,582)
8,001,327
2,459,688
PROFIT BEFORE TAXES Income tax
PROFIT FOR THE YEAR
33
171
Comprehensive income statement (IN €)
2017
2016
8,001,327
2,459,688
• Actuarial post-employment benefit reserve evaluation
73,372
(35,894)
• Tax effect
(17,609)
8,615
Total other profits/(losses) net of taxes for the year
55,763
(27,279)
8,057,090
2,432,409
PROFIT FOR THE YEAR Total profits/losses that will not be subsequently reclassified under profit (loss) for the year
TOTAL PROFIT
Statement of changes in shareholders' equity (€/000)
Share Capital
Share premium reserve
BALANCE AT 31 DEC 2015
11,533
10,002
Legal reserve
2,307
Treasury shares
Actuarial post-employment benefit reserve evaluation
Other reserves
Profit for the year
Total shareholders’ equity
(723)
(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)
Total profit at 31 Dec 2016
BALANCE AT 31 DEC 2016
(1,676) (27)
11,533
10,002
2,307
(2,399)
(533)
2017 dividend payment Purchase of treasury shares
172
2,460
2,433
68,154
2,460
91,524
(2,924)
(2,460)
(5,384)
(2,110)
Total profit at 31 Dec 2017
TOTAL PROFIT AT 31 DEC 2017
(175)
(2,110)
56
11,533
10,002
2,307
(4,509)
(477)
65,230
8,001
8,057
8,001
92,087
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Cash flow Statement (€/000)
2017 FY
2016 FY
Cash and cash equivalents at beginning of year
1,797
1,090
Profit for the year
8,001
2,460
8,844
9,021
Adjustments for: • Depreciation and amortisation • Realised gains
(98)
(87)
• Write-downs/write-backs of non-current assets
622
521
• Profits and losses from equity investments
(1,503)
• Net financial income and expenses
393
428
• Non-monetary foreign exchange differences
23
(60)
• Income tax
1,070
1,133
Change in post-employment benefit reserve
(263)
(131)
47
(3)
Change in risk provisions Change in trade receivables
(3,689)
5,405
Change in inventories
(1,276)
1,182
559
(2,192)
(4,406)
4,395
Change in other receivables and payables, deferred tax
830
367
Payment of taxes
(847)
(2450)
Payment of financial expenses
(456)
(474)
Change in trade payables Change in net working capital
Collection of financial income
89
85
12,554
15,205
• intangible
(1,099)
(735)
• tangible
(8,670)
(7,298)
• financial
-
(4,800)
449
242
CASH FLOW ABSORBED BY INVESTMENTS
(9,319)
(12,591)
Repayment of loans
(10,607)
(19,077)
Raising of loans
14,273
24,243
(7)
69
Sale of treasury shares
(2,110)
(1,675)
Payment of dividends
(5,384)
(5,467)
CASH FLOW FROM OPERATIONS Investments in non-current assets
Disposal of non-current assets
Change in financial assets
Collection of dividends CASH FLOW ABSORBED BY FINANCING ACTIVITIES TOTAL FINANCIAL FLOWS
1,500
-
(2,335)
(1,907)
900
707
Cash and cash equivalents at end of year (Note 11)
2,697
1,797
Net current financial debt
15,239
11,496
Non-current financial debt
16,478
17,521
NET FINANCIAL DEBT (NOTE 22)
31,717
29,017
173
Explanatory notes Accounting standards STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION The separate financial statements of Sabaf S.p.A. for the financial year 2017 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 assessed that it is a going concern (as defined by paragraphs 25 and 26 of IAS 1), 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 2017.
FINANCIAL STATEMENTS The Company has adopted the following formats:
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
• 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.
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.
Use of these formats permits the most meaningful representation of the Company’s capital, business and financial status.
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 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.
ACCOUNTING POLICIES The accounting standards and policies applied for the preparation of the separate financial statements at 31 December 2017, unchanged versus the previous year, are shown below:
174
Investment property
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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.
Receivables 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 fouryear 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 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)".
175
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
176
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.
SABAF | ANNUAL REPORT 2017
Treasury shares
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Other provisions and reserves
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.
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.
Use of estimates
Estimates and assumptions are regularly reviewed and the effects of each change immediately reflected in the income statement.
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:
Recoverability of value of tangible and intangible assets and investments
New accounting standards Accounting standards, amendments and interpretations applicable from 1 January 2017 • Amendment to IAS 7 “Disclosure Initiative” (published on 29 January 2016). 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.
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.
• Amendment to IAS 12 "Recognition of Deferred Tax Assets for Unrealised Losses" (published on 19 January 2016). The aim of the document is to provide some clarification on the recognition of deferred tax assets on unrealised losses in the measurement of financial assets in the “Available for Sale” category upon the occurrence of certain circumstances and on the estimate of taxable income for future years.
Provisions for bad debts
The adoption of these amendments did not have any effect on the Company's separate financial statements.
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
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.
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 2017 • 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 – RevenuesBarter 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.
177
The principle applies from 1 January 2018. The amendments to IFRS 15, Clarifications to IFRS 15 - Revenue from Contracts with Customers, were approved by the European Union on 6 November 2017. On the basis of the analyses carried out, the directors expect that the application of IFRS 15 will have a minor impact on the amounts recorded as revenues and on the related disclosures in the Company’s separate financial statements.
IFRS accounting standards, amendments and interpretations not yet approved by the European Union
• Final version of IFRS 9 – Financial Instruments (published on 24 July 2014). The document includes the results of the IASB project designed to replace IAS 39: - introduces new methods for the classification and measurement of financial assets and liabilities (together with the measurement of nonsubstantial changes in financial liabilities);
• Amendment to IFRS 2 "Classification and measurement of share-based payment transactions” (published on 20 June 2016), which contains some clarification on the recording of the effects of vesting conditions in the presence of cash-settled share-based payments, on the classification of sharebased payments with net settlement characteristics and on the recording of amendments under the terms and conditions of a share-based payment that change their classification from cash-settled to equity-settled. The amendments apply from 1 January 2018. The directors do not expect a significant effect on the Company's separate financial statements through the adoption of these changes.
- with reference to the impairment model, the new standard requires that the estimate of credit losses be made on the basis of the expected losses model (and not on the basis of the incurred losses model used by IAS 39) using supportable information available without unreasonable effort or expense that include historical, current and future figures; - introduces a new hedge accounting model (increase in the types of transactions eligible for hedge accounting, changes in the method of recognition of forward contracts and options when included in a hedge accounting report, changes in efficacy tests). The new standard must be applied by financial statements from 1 January 2018 onwards. On the basis of the analyses carried out, the directors expect that the application of IFRS 9 will have a minor impact on the amounts and on the related disclosures in the Company’s separate financial statements. • Standard IFRS 16 – Leases (published on 13 January 2016), which will replace 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 already applied IFRS 15 - Revenue from Contracts with Customers. The directors expect that the application of IFRS 16 can have a significant impact on the amounts and on the relevant disclosures in the Company’s separate statements. However, it is not possible to provide a reasonable estimate of the effects until the Company has completed a detailed analysis of the related contracts.
178
On the reference 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.
• Document “Annual Improvements to IFRSs: 2014-2016 Cycle”, published on 8 December 2016 (including IFRS 1 First-Time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters, IAS 28 Investments in Associates and Joint Ventures – Measuring investees at fair value through profit or loss: an investmentby-investment choice or a consistent policy choice, IFRS 12 Disclosure of Interests in Other Entities – Clarification of the scope of the Standard) which partially integrate the existing standards. Most of the amendments apply from 1 January 2018. The directors do not expect a significant effect on the Company's separate financial statements through the adoption of these amendments. • 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. • 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. These amendments are applicable from 1 January 2018. The directors do not expect a significant effect on the Company's separate financial statements through the adoption of these changes. • On 7 June 2017, IASB published the clarification document IFRIC 23 – Uncertainty over Income Tax Treatments. The document deals with uncertainties about the tax treatment of income taxes. The document requires that uncertainties in determining deferred tax assets and liabilities be reflected in the financial statements only when it is probable that the entity will pay or recover the amount in question. Moreover, the document does not contain any new disclosure requirement but emphasises that an entity will have to determine whether it will be necessary to disclose information on management considerations and on the uncertainty relating to tax accounting in accordance with IAS 1. The new interpretation applies from 1 January 2019, but early application is permitted.
SABAF | ANNUAL REPORT 2017
• Amendment to IFRS 9 “Prepayment Features with Negative Compensation (published on 12 October 2017). This document specifies the instruments that envisage early repayment that could comply with the "SPPI" test even if the "reasonable additional compensation" to be paid in the event of early repayment is a "negative compensation" for the lender. The amendment applies from 1 January 2019, 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. • Amendment to IAS 28 “Long-term Interests in Associates and Joint Ventures” (published on 12 October 2017)”. This document clarifies the need to apply IFRS 9, including the requirements of impairment, to other long-term interests in associate companies and joint ventures that are not accounted for under the equity method. The amendment applies from 1 January 2019, 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.
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
• Document “Annual Improvements to IFRSs 2015-2017 Cycle”, published on 12 December 2017 (including IFRS 3 Business Combinations and IFRS 11 Joint Arrangements – Remeasurement of previously held interest in a joint operation, IAS 12 Income Taxes – Income tax consequences of payments on financial instruments classified as equity, IAS 23 Borrowing costs Disclosure of Interests in Other Entities – Borrowing costs eligible for capitalisation) which implements changes to some standards as part of the annual process of improving them. The amendments apply from 1 January 2019 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.
179
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
6,275
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
Increases
56
5,347
1,770
1,785
8,958
Disposals
-
(721)
(430)
(33)
(1,184)
18
551
59
(883)
(255)
6,401
163,568
33,218
2,296
205,483
AT 31 DECEMBER 2015
2,711
131,920
27,314
-
161,945
Depreciations for the year
176
6,200
1,702
-
8,078
Eliminations for disposals
-
(2,973)
(178)
-
(3,151)
AT 31 DECEMBER 2016
2,887
135,147
28,838
-
166,872
Depreciations for the year
177
6,221
1,521
-
7,920
Eliminations for disposals
-
(525)
(395)
-
(920)
3,064
140,843
29,965
-
173,872
AT 31 DECEMBER 2017
3,337
22,725
3,253
2,296
31,611
AT 31 DECEMBER 2016
3,440
23,244
2,981
1,427
31,092
COST AT 31 DECEMBER 2015
Reclassification
AT 31 DECEMBER 2016
Reclassification
AT 31 DECEMBER 2017 ACCUMULATED DEPRECIATION
AT 31 DECEMBER 2017 NET CARRYING VALUE
The breakdown of the net carrying value of Property was as follows:
31.12.2017
31.12.2016
CHANGE
Land
1,291
1,291
-
Industrial buildings
2,046
2,149
(103)
TOTAL
3,337
3,440
(103)
180
SABAF | ANNUAL REPORT 2017
The main investments in the financial year were aimed at the further automation of production of light alloy valves and interconnection of production plants with management systems (Industry 4.0). Other investments were made in the production of presses for new burners. Investments in maintenance and replacement, so that production equipment is kept constantly up to date and efficient, are systematic. Decreases mainly relate to the disposal of machinery no longer in use.
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Assets under construction include machinery under construction and advance payments to suppliers of capital equipment. At 31 December 2017, 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 2015
6,675
Increases
-
Disposals
-
AT 31 DECEMBER 2016
6,675
Increases
-
Disposals
-
AT 31 DECEMBER 2017
6,675
ACCUMULATED DEPRECIATIONS AT 31 DECEMBER 2015
4,838
Depreciations for the year
192
AT 31 DECEMBER 2016
5,030
Depreciations for the year
191
AT 31 DECEMBER 2017
5,221
NET CARRYING VALUE AT 31 DECEMBER 2017
1,454
AT 31 DECEMBER 2016
1,645
This item includes non-operating buildings owned by the Group. During the year this item did not undergo any changes except for depreciations for the year.
At 31 December 2017, 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.
181
3. INTANGIBLE ASSETS Patents, know-how and software
Development costs
Other intangible assets
Total
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
Increases
243
441
161
845
Reclassifications
99
155
254
Decreases
(14)
(79)
(14)
(107)
6,603
5,264
2,369
14,236
5,619
2,347
1,432
9,398
254
350
147
751
-
-
-
-
5,873
2,697
1,579
10,149
Amortisation
242
341
148
731
Decreases
(14)
-
-
(14)
6,101
3,038
1,727
10,866
AT 31 DECEMBER 2017
502
2,226
642
3,370
AT 31 DECEMBER 2016
402
2,205
488
3,095
COST AT 31 DECEMBER 2015
Decreases
AT 31 DECEMBER 2016
AT 31 DECEMBER 2017
AMORTISATION AND WRITE-DOWNS AT 31 DECEMBER 2015 Amortisation Decreases
AT 31 DECEMBER 2016
AT 31 DECEMBER 2017
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 implementation of a production scheduler and the application development of the Group management system (SAP). Other intangible assets refer, in the main, to improvements to third-party leased assets.
182
At 31 December 2017, 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.
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
4. EQUITY INVESTMENTS 31.12.2017
31.12.2016
CHANGE
49,417
50,039
(622)
34
59
(25)
49,451
50,098
(647)
In subsidiaries Other equity investments TOTAL
The change in equity investments in subsidiaries is broken down in the table below: SABAF APPLIANCE SABAF A.C. TRADING COMPOSABAF U.S. (CHINA) NENTS (CHINA)
SABAF IMMOBILIARE
FARINGOSI HINGES
SABAF DO BRASIL
13,475
10,329
8,469
139
4,400
-
-
-
-
13,475
10,329
8,469
-
-
13,475
SABAF TURKEY
A.R.C. S.R.L.
TOTAL
200
12,005
0
49,017
-
-
-
4,800
4,800
139
4,400
200
12,005
4,800
53,817
-
-
-
-
-
-
0
10,329
8,469
139
4,400
200
12,005
4,800
53,817
HISTORICAL COST AT 31 DECEMBER 2015 Purchase of equity investments
AT 31 DECEMBER 2016 Purchase of equity investments
AT 31 DECEMBER 2017
PROVISION FOR WRITE-DOWNS AT 31 DECEMBER 2015
0
0
0
0
3,257
0
0
0
3,257
Write-downs (Note 28)
-
-
-
-
521
-
-
-
521
AT 31 DECEMBER 2016
0
0
0
0
3,778
0
0
0
3,778
Write-downs (Note 28)
-
-
-
-
622
-
-
-
622
AT 31 DECEMBER 2017
0
0
0
0
4,400
0
0
0
4,400
AT 31 DECEMBER 2017
13,475
10,329
8,469
139
0
200
12,005
4,800
49,417
AT 31 DECEMBER 2016
13,475
10,329
8,469
139
622
200
12,005
4,800
50,039
NET CARRYING VALUE
PORTION OF SHAREHOLDERS’ EQUITY (CALCULATED IN COMPLIANCE WITH IFRS) AT 31 DECEMBER 2017
30,061
6,248
10,409
(79)
(60)
251
16,449
3,200
66,479
AT 31 DECEMBER 2016
30,027
5,546
10,628
(25)
683
266
14,805
3,025
64,955
DIFFERENCE BETWEEN SHAREHOLDERS’ EQUITY AND CARRYING VALUE AT 31 DECEMBER 2017
16,586
(4,081)
1,940
(218)
(60)
51
4,444
(1,600)
17,062
AT 31 DECEMBER 2016
16,552
(4,783)
2,159
(164)
61
66
2,800
(1,775)
14,916
183
Faringosi Hinges s.r.l In 2017, the Faringosi Hinges achieved very positive and better results, in terms of sales and profitability, both compared to the previous year and compared to the budget. The 2018-2022 forward plan, drafted at the beginning of 2018, envisages a further increase in sales. Profitability is expected to decline in 2018, following the devaluation of the dollar (the currency in which more than 40% of sales are denominated) and the increase in the price of steel, before gradually recovering in subsequent years. At 31 December 2017, 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 2018 to 2022 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 9.18% (7.76% in the impairment test conducted while drafting the separate financial statements at 31 December 2016) 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 € 12.279 million, compared with a carrying value of the equity investment of € 10.329 million; consequently, the value recorded for equity investment at 31 December 2017 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:
(€/000)
GROWTH RATE
DISCOUNT RATE
1.00%
1.25%
1.50%
1.75%
2.00%
8.18%
13,466
13,888
14,341
14,830
15,358
8.68%
12,490
12,851
13,237
13,651
14,096
9.18%
11,635
11,847
12,279
12,634
13,013
9.68%
10,882
11,154
11,442
11,748
12,074
10.18%
10,213
10,451
10,703
10,969
11,252
Sabaf do Brasil
Sabaf Appliance Components Trading
In 2017, Sabaf do Brasil continued to obtain positive results, which improved compared with 2016. The decrease in shareholders’ equity (converted into euros at the endof-year exchange rate) is entirely attributable to the devaluation 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 2018.
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 2017. At 31 December 2017, the value of the equity investment decreased by € 622,000, zeroing the value of shareholders’ equity at the end of the year, in that the loss was considered permanent.
184
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki (Sabaf Turchia) Sabaf Turkey achieved extremely satisfactory results in 2017 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 2017; however, the shareholders’ equity remains higher than the carrying value of the equity investment.
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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 2017, 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 drafted at the beginning of 2018. Cash flows for the period from 2018 to 2022 were augmented by the so-called terminal value, which expresses the operating flows that the investee 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 6.90% (5.79% in the impairment test carried out while drafting the separate financial statements at 31 December 2016) and a growth rate (g) of 1.50%, in line with last year. 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 € 8.746 million (70% of total recoverable value, equal to € 12.495 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 2017 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:
(€/000)
GROWTH RATE
DISCOUNT RATE
1.00%
1.25%
1.50%
1.75%
2.00%
5.90%
13,929
14,531
15,201
15,951
16,798
6.40%
12,692
13,176
13,709
14,299
14,957
6.90%
11,667
12,063
12,495
12,970
13,493
7.40%
10,804
11,133
11,490
11,879
12,303
7.90%
10,067
10,345
10,643
10,967
11,317
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 2017.
185
5. NON-CURRENT FINANCIAL ASSETS
Financial receivables from subsidiaries Escrow bank account TOTAL
31.12.2017
31.12.2016
CHANGE
1,668
1,897
(229)
180
240
(60)
1,848
2,137
(289)
At 31 December 2017 and at 31 December 2016, financial receivables from subsidiaries consist of an interest-bearing loan of USD 2 million, granted to the subsidiary Sabaf do Brasil with the aim of optimising the Group's exposure to foreign exchange rate risk and whose maturity, originally expected for 31 March 2017, was postponed to 14 March 2019.
As part of the acquisition of 70% of A.R.C., Sabaf S.p.A. deposited in an escrow account the total amount of € 300,000. This amount was deducted from the consideration agreed to guarantee the commitments assumed by the sellers and will be released in favour of the sellers at constant rates in 4 years (Note 15). At 31 December 2017, the portion due beyond 12 months amounted to € 180,000.
6. INVENTORIES 31.12.2017
31.12.2016
CHANGE
Commodities
8,795
7,455
1,340
Semi-processed goods
9,115
9,310
(195)
Finished products
8,789
8,773
16
Obsolescence provision
(1,930)
(2,045)
115
TOTAL
24,769
23,493
1,276
The value of final inventories at 31 December 2017 increased compared to the end of the previous year to meet the higher volumes of activity. The obsolescence provision is mainly allocated for hedging the obsolescence risk, quantified on the basis of specific
analyses carried out at the end of the year on slow-moving and non-moving products, and refers to raw materials for € 453,000, semi-finished products for € 536,000 and finished products for € 941,000.
7. TRADE RECEIVABLES
Total trade receivables Bad debt provision NET TOTAL
31.12.2017
31.12.2016
CHANGE
31,754
28,065
3,689
(600)
(600)
0
31,154
27,465
3,689
At 31 December 2017, trade receivables included balances totalling USD 3,656,000, booked at the EUR/USD exchange rate in effect on 31 December 2017, i.e. 1.1993. The amount of trade receivables recognised in the financial statements includes approximately € 22 million of insured receivables (€ 14 million at 31 December 2016).
The bad debt provision is considered adequate to cover the credit risk at the end of the reporting period, unchanged from the previous year. Trade receivables at 31 December 2017 were higher than at the end of 2016 subsequent to higher sales. There were no significant changes in average payment terms agreed with customers.
31.12.2017
31.12.2016
CHANGE
Current receivables (not past due)
28,591
24,378
4,213
Outstanding up to 30 days
1,524
2,242
(718)
Outstanding from 31 to 60 days
754
184
570
Outstanding from 61 to 90 days
519
64
455
Outstanding for more than 90 days
366
1,197
(831)
31,754
28,065
3,689
TOTAL
186
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
8. TAX RECEIVABLES
For income tax For VAT and other sales taxes TOTAL
10. CURRENT FINANCIAL ASSETS
31.12.2017
31.12.2016
CHANGE
1,644
2,075
(431)
586
402
184
2,230
2,477
(247)
Financial receivables from subsidiaries Escrow bank account (Note 5) Interest rates derivatives TOTAL
The income tax receivables derives for € 1,153,000 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 an application for a refund was presented and, for the residual part, to the payments on account on 2017 income, for the part exceeding the tax to be paid.
9. OTHER CURRENT RECEIVABLES 31.12.2017
31.12.2016
CHANGE
Credits to be received from suppliers
351
678
(327)
Advances to suppliers
28
54
(26)
Due from INAIL
21
58
(37)
Other
322
249
73
TOTAL
722
1,039
(317)
At 31 December 2017, credits to be received from suppliers included € 248,000 related to the relief due to the Company as an energy-intensive business (so-called “energy-intensive bonuses”) for the years 2016 and 2017. “Energy-intensive bonuses” due for the years 2014 and 2015 were regularly collected during 2017.
31.12.2017
31.12.2016
CHANGE
1,000
1,000
-
60
60
-
7
-
7
1,067
1,060
7
At 31 December 2017 and at 31 December 2016, 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 2017 for the same period. The receivable is considered recoverable in that the Chinese subsidiary is expected to generate sufficient cash flows to repay this loan in future years.
11. CASH AND CASH EQUIVALENTS The item Cash and cash equivalents, equal to € 2,697,000 at 31 December 2017 (€ 1,797,000 at 31 December 2016) refers almost exclusively to bank current account balances.
12. SHARE CAPITAL At 31 December 2017, the 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 148,630 treasury shares at an average unit price of € 14.20; there have been no sales. At 31 December 2017, the Company held 381,769 treasury shares, equal to 3.31% of share capital (233,139 treasury shares at 31 December 2016), reported in the financial statements as an adjustment to shareholders’ equity at a unit value of € 11.81 (the market value at year-end was € 19.91). There were 11,151,681 outstanding shares at 31 December 2017 (11,300,311 at 31 December 2016).
187
16. POST-EMPLOYMENT BENEFIT RESERVE
14. LOANS 31.12.2017
31.12.2016
current
non current
current
non current
Unsecured loans
5,982
16,298
6,656
17,281
Short-term bank loans
10,846
-
7,397
-
Sabaf Turkey loan
2,100
-
-
-
-
-
2
-
18,928
16,298
14,055
17,281
Advances on bank receipts or invoices TOTAL
31.12.2017
31.12.2016
CHANGE
Post-employment benefit reserve
2,200
2,436
(236)
TOTAL
2,200
2,436
(236)
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:
During the financial year, the Company signed an unsecured loan totalling € 5 million repayable in five years in quarterly fixed instalments, at a fixed rate of 1.02%. Two of the outstanding unsecured loans amounting to € 9 million at 31 December 2017 have 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 2017. All outstanding bank loans are denominated in euro, with the exception of a short-term loan of USD 2 million. As part of the Group's financial management, in 2017 a loan agreement was also signed with the Turkish subsidiary for a total amount of € 2,100,000, expiring on 21 September 2018. Note 36 provides information on financial risks, pursuant to IFRS 7.
15. OTHER FINANCIAL LIABILITIES 31.12.2017
31.12.2016
non current
current
non current
60
180
60
240
-
-
201
-
Derivative instruments on interest rates
15
-
37
-
TOTAL
75
180
298
240
Currency derivatives
The payable to the A.R.C. shareholders of € 240,000 at 31 December 2017 is related to the part of the price still to be paid to the sellers, which was deposited on an escrow account (Note 5) and will be released in favour of the sellers at constant rates in 4 years, in accordance with contractual agreements and guarantees issued by the sellers. Other financial liabilities also include the negative fair value of two IRSs hedging rate risks of unsecured loans pending, for residual notional amounts of approximately € 5.4 million and expiry until 31 December 2021. Financial expenses in the same amount were recognised in the income statement.
188
31.12.2017
31.12.2016
Discount rate
1.15%
1.15%
Inflation
1.80%
1.75%
Demographic theory 31.12.2017
31.12.2016
Mortality rate
ISTAT 2016 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 2017
pursuant to legislation in force on 31 December 2016
Advance payouts
current
Payables to A.R.C. shareholders
Financial assumptions
Retirement age
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
17. PROVISIONS FOR RISKS AND CHARGES 31.12.2016
PROVISIONS
UTILISATION
RELEASE OF EXCESS
31.12.2017
Reserve for agents’ indemnities
213
15
(11)
(18)
199
Product guarantee fund
60
11
(11)
-
60
-
60
-
-
60
50
-
-
-
50
323
86
(22)
(18)
369
Provision for risks on equity investments 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 provision for risks on equity investments was set-aside to cover future outlays to restore the shareholders' equity of the Chinese subsidiary Sabaf Appliance Components, which was negative at 31 December 2017.
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
31.12.2017
31.12.2016
CHANGE
16,569
16,010
559
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 2017,
there were no overdue payables of a significant amount and the Company did not receive any injunctions for overdue payables.
19. TAX PAYABLES 31.12.2017
31.12.2016
CHANGE
To inland revenue for IRPEF tax deductions
569
642
(73)
Other tax payables
54
-
54
623
642
(19)
TOTAL
189
20. OTHER CURRENT PAYABLES 31.12.2017
31.12.2016
CHANGE
To employees
3,931
3,472
459
To social security institutions
2,063
1,937
126
Advances from customers
64
108
(44)
To agents
165
241
(76)
Other current payables
227
31
196
6,450
5,789
661
TOTAL
At the beginning of 2018, payables due to employees and social security institutions were paid in accordance with the scheduled expiry dates.
21. DEFERRED TAX ASSETS AND LIABILITIES 31.12.2017
31.12.2016
3,455
3,315
(68)
(129)
3,387
3,186
Deferred tax assets Deferred tax liabilities NET POSITION
The table below analyses the nature of the temporary differences that determine the recognition of deferred tax liabilities and assets and their changes during the year and the previous year.
Amortisation and Provisions and leasing value adjustments AT 31 DECEMBER 2015
Fair value of derivative instruments
Goodwill
Actuarial postemployment Other temporabenefit reserve ry differences evaluation
TOTAL
353
793
(19)
1,771
170
67
3,135
40
(23)
76
-
-
(50)
43
-
-
-
-
8
-
8
AT 31 DECEMBER 2016
393
770
57
1,771
178
17
3,186
To the income statement
(46)
149
(55)
-
(2)
172
218
-
-
-
-
(17)
-
(17)
347
919
2
1,771
159
189
3,387
To the income statement To shareholders’ equity
To shareholders’ equity
AT 31 DECEMBER 2017
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.
190
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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: 31.12.2017
31.12.2016
CHANGE
5
4
1
2,692
1,793
899
-
-
-
A.
Cash (Note 11)
B.
Positive balances of unrestricted bank accounts (Note 11)
C.
Other cash equivalents
D.
LIQUIDITY (A+B+C)
2,697
1,797
900
E.
CURRENT FINANCIAL RECEIVABLES
1,067
1,060
7
F.
Current bank payables (Note 14)
12,946
7,399
5,547
G.
Current portion of non-current debt (Note 14)
5,982
6,656
(674)
H.
Other current financial payables (Note 15)
75
298
(223)
I.
CURRENT FINANCIAL DEBT (F+G+H)
19,003
14,353
4,650
J.
NET CURRENT FINANCIAL POSITION (I-D-E)
15,239
11,496
3,743
K.
Non-current bank payables (Note 14)
16,298
17,281
(983)
L.
Other non-current financial payables
180
240
(60)
M.
NON-CURRENT FINANCIAL DEBT (K+L)
16,478
17,521
(1,043)
N.
NET FINANCIAL DEBT (J+M)
31,717
29,017
2,700
The cash flow statement shows changes in cash and cash equivalents (letter D of this schedule).
191
Comments on key income statement items 23. REVENUE In 2017, sales revenues totalled â‚Ź 115,687,000, up by â‚Ź 14,164,000 (+14%) compared with 2016.
Revenue by geographical area 2017
%
2016
%
% CHANGE
Italy
29,587
25.6%
31,431
30.9%
-5.9%
Western Europe
8,920
7.7%
6,868
6.8%
+29.9%
Eastern Europe and Turkey
35,655
30.8%
27,365
26.9%
+30.3%
Asia and Oceania (excluding Middle East)
9,570
8.3%
7,064
7.0%
+35.5%
Central and South America
11,331
9.8%
10,373
10.2%
+9.2%
Middle East and Africa
12,703
11.0%
11,254
11.1%
+12.9%
North America and Mexico
7,921
6.8%
7,168
7.1%
+10.5%
115,687
100%
101,523
100%
+14.0%
TOTAL
Revenue by product family 2017
%
2016
%
% CHANGE
Brass valves
5,992
5.2%
9,002
8.9%
-33.4%
Light alloy valves
39,219
33.9%
32,406
31.9%
+21.0%
Thermostats
7,365
6.4%
7,690
7.6%
-4.2%
TOTAL VALVES AND THERMOSTATS
52,576
45.4%
49,098
48.4%
7.1%
Standard burners
25,127
21.7%
21,483
21.2%
+17.0%
Special burners
24,136
20.9%
19,438
19.1%
+24.2%
TOTAL BURNERS
49,263
42.6%
40,921
40.3%
+20.4%
Accessories and other revenues
13,848
11.9%
11,504
11.3%
+20.4%
TOTAL
115,687
100%
101,523
100.0%
+14.0%
An analysis of sales by product category shows the strong growth of special burners, the family where product innovation has been strongest in recent years. The trend in sales of light alloy valves, which have now almost completely replaced brass valves, was also very positive. All other product lines also recorded good growth rates, with the exception of thermostats.
192
In 2017, all markets recorded double-digit growth rates; Italy, where sales are slightly down due to the sharp reduction in the production of domestic appliances, is an exception. Very positive sales growth rates have been recorded in other European markets, where Sabaf is consolidating its leadership. The Middle East market showed a strong recovery compared to 2016; Asia, North and South America confirmed a positive underlying trend. Average sales prices in 2017 were on average 0.7% lower compared with 2016.
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
24. OTHER INCOME
26. COSTS FOR SERVICES 2017
2016
CHANGE
Outsourced processing
8,681
7,587
1,094
224
Property rental
3,974
3,995
(21)
136
(39)
Electricity and natural gas
3,314
3,526
(212)
89
85
4
Maintenance
3,296
2,813
483
39
88
(49)
Advisory services
1,676
1,377
299
10
10
-
Transport and export expenses
1,408
1,134
274
578
848
(270)
Directors’ fees
881
1,061
(180)
2,648
2,279
369
Insurance
444
562
(118)
Commissions
533
545
(12)
Travel expenses and allowances
550
478
72
Waste disposal
358
352
6
Canteen
296
282
14
Temporary agency workers
180
99
81
2,013
2,221
(208)
27,604
26,032
1,572
2017
2016
CHANGE
1,457
958
499
Services to subsidiaries
378
154
Contingent income
97
Rental income
Sale of trimmings
Use of provisions for risks and charges Services to parent company Other income TOTAL
The increase in income from the sale of trimmings is directly related to higher production volumes and to the increase in the price of raw materials. 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. MATERIALS 2017
2016
CHANGE
Commodities and outsourced components
42,973
33,692
9,281
Consumables
3,582
3,183
399
46,555
36,875
9,680
TOTAL
In 2017, the effective purchase prices of the main raw materials (aluminium alloys, steel and brass) were on average higher than in 2016, with a negative impact of 0.8% of sales. Consumption (purchases plus change in inventories) as a percentage of sales was 41.3% in 2017, compared with 37.5% in 2016.
The higher costs for outsourced processing were related to the increase in production volumes in Italy. The reduction in energy costs is due to the recognition of "energyintensive bonuses" for 2016 and 2017 for a total of € 248,000, of which € 78,000 relating to the "2016 energy-intensive bonuses" which was not recognised in the 2016 financial statements because the collectability was uncertain at the end of the reporting period. The increase in maintenance costs was due to activities in progress for the ongoing adaptation of plants, machinery and equipment. 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 (€ 414,000), sales (€ 342,000) and legal, administrative and general (€ 920,000) services.
193
27. PAYROLL COSTS
Salaries and wages Social Security costs Temporary agency workers Post-employment benefit reserve and other costs TOTAL
29. WRITE-DOWNS/WRITE-BACKS OF NON-CURRENT ASSETS
2017
2016
CHANGE
19,540
18,322
1,218
6,249
5,959
290
1,477
845
632
1,468
1,256
212
28,734
26,382
2,352
Average of the Company headcount in 2017 totalled 514 employees (394 blue-collars, 110 white-collars and supervisors, 10 managers), compared with 543 in 2016 (424 bluecollars, 110 white-collars and supervisors, 9 managers). The average number of temporary staff, with supply contract, was 42 in 2017 (26 in 2016). During the financial year, the Company made only negligible use of the solidarity contract and temporary lay-off scheme, whereas in 2016 these institutions, used in periods characterised by low production requirements, made it possible to save personnel costs of € 689,000.
28. OTHER OPERATING COSTS 2017
2016
CHANGE
49
171
(122)
238
181
57
Contingent liabilities
138
56
82
Provisions for risks
26
85
(59)
Other operating expenses
264
154
110
TOTAL
715
647
68
Losses and write-downs of trade receivables Non-income related taxes and duties
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.
Write-down of Sabaf Appliance Components Allocation to risk provisions on equity investments TOTAL
2016
CHANGE
(622)
(521)
(101)
(60)
-
(60)
(682)
(521)
(161)
The write-down of the equity investment in Sabaf Appliance Components and the allocation to the relevant provision are commented on in Note 4 and 17, to which reference is made.
30. FINANCIAL EXPENSES 2017
2016
CHANGE
Interest paid to banks
244
241
3
Banking expenses
209
229
(20)
Other financial expense
29
43
(14)
482
513
(31)
TOTAL
31. EXCHANGE RATE GAINS AND LOSSES During the 2017 financial year, the Company reported net foreign exchange losses of € 88,000 (net loss of € 48,000 in 2016).
32. PROFITS AND LOSSES FROM EQUITY INVESTMENTS Dividends received from Sabaf Immobiliare Other profits from equity investments TOTAL
194
2017
2017
2016
CHANGE
1,500
-
1,500
3
-
3
1,503
-
1,503
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
33. INCOME TAX
Current taxes Deferred tax assets and liabilities Taxes related to previous financial years TOTAL
35. SEGMENT REPORTING 2017
2016
CHANGE
1,791
1,314
477
(219)
(43)
(176)
(502)
(137)
(365)
1,070
1,134
(64)
Current taxes include IRES of € 1,436,000 and IRAP of € 355,000 (€ 1,034,000 and € 280,000 respectively in 2016). 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:
2017
2016
Theoretical income tax
2,177
988
Permanent tax differences
(133)
4
88
(131)
Taxes related to previous financial years “Patent box” tax effect “Superammortamento” tax benefit
(1,151)
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.
36. 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.
31.12.2017
31.12.2016
7
-
• Cash and cash equivalents
2,697
1,797
• Trade receivables and other receivables
31,876
28,505
FINANCIAL ASSETS
Income statement fair value • Derivative cash flow hedges (on currency) AMORTISED COST
(179)
-
• Non-current loans
1,668
1,897
9
7
• Current loans
1,000
1,000
IRES (CURRENT AND DEFERRED)
811
868
240
300
IRAP (current and deferred)
259
266
1,070
1,134
-
201
15
37
35,226
31,336
240
300
16,569
16,010
Other differences
TOTAL
• Other financial assets
FINANCIAL LIABILITIES
Income statement fair value
Theoretical taxes were calculated applying the current corporate income tax (IRES) rate, i.e. 24% (27.50% in 2016), 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. Following the prior agreement signed with the Revenue Agency, in 2017 the Company recognised the tax benefit relating to the Patent Box for the three-year period 2015 to 2017, for a total of € 1,324,000 (€ 1,151,000 for IRES and € 173,000 for IRAP), of which € 772,000 for 2015 and 2016 (Note 38) and € 552,000 for 2017. No significant tax disputes were pending at 31 December 2017.
• Derivative cash flow hedges (on currency) • Derivative cash flow hedges (on interest rates)
AMORTISED COST • Loans • Other financial liabilities • Trade payables
34. DIVIDENDS On 31 May 2017, shareholders were paid an ordinary dividend of € 0.48 per share (total dividends of € 5,384,000). The Directors have recommended payment of a dividend of € 0.55 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 30 May 2018 (ex-date 28 May and record date 29 May).
195
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.
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 70% 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 12% of total revenue in 2017, while purchases in dollars represented 5% of total revenue. During the year, operations in dollars were partially hedged through forward sales contracts; no currency derivatives were pending at 31 December 2017. Sensitivity analysis With reference to financial assets and liabilities in US dollars at 31 December 2017, a hypothetical and immediate revaluation of 10% of the euro against the dollar would have led to a loss of € 210,000.
Interest rate risk management At 31 December 2017, gross financial debt of the Company was at a floating rate for approximately 35% and at a fixed rate for approximately 65%; 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 2017, three interest rate swap (IRS) contracts totalling € 9.4 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 2017, the fixed-rate portion amounted to approximately 90% of the total financial debt. The derivative contracts were not designated as a cash flow hedge and were therefore recognised using the “fair value in the income statement” method.
196
Sensitivity analysis
At 31 December 2017, the sensitivity analysis concerned financial leases and the floating rate portion of the short-term financial debt. The Company is not exposed to interest rate risk with regard to medium/long-term bank debt, since the floating rate of loans has been transformed into a fixed rate through the interest rate swap contracts in place. With reference to financial assets and liabilities at variable rate at 31 December 2017 and 31 December 2016, 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: 31.12.2017
31.12.2016
FINANCIAL EXPENSES
FINANCIAL EXPENSES
Increase of 100 base points
31
20
Decrease of 100 base points
(31)
-
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 2017 and 2016, 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 2017 of 34%, net financial debt / EBITDA of 1.81) 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.
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
Below is an analysis by expiration date of financial payables at 31 December 2017 and 31 December 2016:
AT 31 DECEMBER 2017 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
22,280
22,676
1,537
4,612
16,527
-
Short-term bank loans
10,846
10,846
10,846
-
-
-
Short-term Sabaf Turkey loan
2,100
2,118
-
2,118
-
-
Payables to ARC shareholders
240
240
-
60
180
-
TOTAL FINANCIAL PAYABLES
35,466
35,862
12,383
6,772
16,707
0
Trade payables
16,569
16,569
15,615
954
-
-
TOTAL
52,035
52,431
27,998
7,726
16,707
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
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
AT 31 DECEMBER 2016
Payables to ARC shareholders
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 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 2017, by hierarchical level of fair value assessment.
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Other financial assets (derivatives on interest rates)
-
7
-
7
Other financial liabilities (derivatives on interest rates)
-
(15)
-
(15)
Option on minorities A.R.C.
-
-
-
-
TOTAL ASSETS AND LIABILITIES AT FAIR VALUE
0
(8)
0
(8)
197
37. 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 2017
SUBSIDIARIES
GIUSEPPE SALERI SAPA
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
Non-current financial assets
1,848
1,668
-
-
1,668
90.26%
Trade receivables
31,154
1,209
-
-
1,209
3.88%
Tax receivables
2,230
-
1,084
-
1,084
48.60%
Current financial assets
1,785
1,000
-
-
1,000
56.02%
Trade payables
16,573
510
-
2
512
3.09%
Current financial payables
2,100
2,100
-
-
2,100
100%
TOTAL 2016
SUBSIDIARIES
GIUSEPPE SALERI SAPA
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%
Impact of related-party transactions on income statement accounts TOTAL 2017
SUBSIDIARIES
GIUSEPPE SALERI SAPA
OTHER RELATED PARTIES
TOTAL RELATED PARTIES
IMPACT ON THE TOTAL
115,687
10,239
-
-
10,239
8.85%
Other income
2,648
414
10
-
424
16%
Materials
36,556
1,548
-
-
1,548
4.24%
Services
27,602
3,966
-
20
3,987
14.44%
Capital gains on non-current assets
98
97
-
-
97
99.58%
Write-downs of non-current assets
682
682
-
-
682
100%
Financial income
89
80
-
-
80
89.89%
Financial expenses
482
2
-
-
2
0.46%
TOTAL 2016
SUBSIDIARIES
GIUSEPPE SALERI SAPA
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
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%
Revenue
Revenue
198
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
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 and Sabaf Turkey, which generated the capital gains highlighted; • rental of property from Sabaf Immobiliare; • intra-group loans; • group VAT settlement.
39. ATYPICAL AND/OR UNUSUAL TRANSACTIONS
Transactions with the shareholder, Giuseppe Saleri S.a.p.A., comprise: • administration services provided by Sabaf S.p.A. to Giuseppe Saleri S.a.p.A.; • transactions as part of the domestic tax consolidation scheme until 2016, which generated the receivables shown in the tables.
Guarantees issued
Related-party transactions are regulated by specific contracts regulated at arm’s length conditions.
38. SIGNIFICANT NON-RECURRING EVENTS AND TRANSACTIONS Pursuant to CONSOB memorandum of 28 July 2006, the following section describes and comments on significant non-recurring events, the consequences of which are reflected in the economic, equity and financial results for the year:
FINANCIAL STATEMENT VALUES (A) Recognition of “Patent box” tax benefit related to 2015 and 2016 (B) FINANCIAL STATEMENT NOTIONAL VALUE (A+B)
Shareholders’ equity
Net Profit
Net financial debt
Cash flows
92,087
8,001
31,717
900
(772)
(772)
-
-
91,315
7,229
31,717
900
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 2017.
40. COMMITMENTS Sabaf S.p.A. also issued sureties to guarantee mortgage loans granted by banks to employees for a total of € 5,145,000 (€ 5,510,000 at 31 December 2016).
41. 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.
42. SHARE-BASED PAYMENTS At 31 December 2017, there were no equity-based incentive plans for the Company’s directors and employees.
As described in Note 33, in these separate financial statements the Company recognised the tax benefit relating to the Patent Box for the three-year period 2015 to 2017; the share relating to previous years is considered non-recurring and is therefore shown in the table above.
199
List of investments with additional information required by CONSOB (Communication Dem76064293 of 28 July 2006) IN SUBSIDIARIES 1
Registered offices
Share capital at 31 December 2017
Shareholders
Ownership %
Shareholders’ equity at 31 December 2017
2017 profit (loss)
Faringosi Hinges s.r.l.
Ospitaletto (BS)
€ 90,000
Sabaf S.p.A.
100%
€ 6,248,113
€ 695,664
Sabaf Immobiliare s.r.l.
Ospitaletto (BS)
€ 25,000
Sabaf S.p.A.
100%
€ 23,582,409
€ 1,673,079
Sabaf do Brasil Ltda
Jundiaì (Brazil)
BRL 24,000,000
Sabaf S.p.A.
100%
BRL 41,353,284
BRL 4,894,931
Sabaf US Corp.
Plainfield (USA)
USD 100,000
Sabaf S.p.A.
100%
USD -79,482
USD -53,095
Sabaf Appliance Components (Kunshan) Co., Ltd.
Kunshan (China)
€ 4,400,000
Sabaf S.p.A.
100%
CNY 60,007
CNY -5,275,687
Sabaf Beyaz Esya Parcalari Sanayi Ve Ticaret Limited Sirteki
Manisa (Turkey)
TRY 28,000,000
Sabaf S.p.A.
100%
TRY 72,264,252
TRY 19,621,894
Sabaf Appliance Components Trading (Kunshan) Co., Ltd. in liquidation
Kunshan (China)
€ 200,000
Sabaf S.p.A.
100%
CNY 1,955,552
CNY 5,225
A.R.C. s.r.l.
Campodarsego (PD)
€ 45,000
Sabaf S.p.A.
70%
€ 4,650,017
€ 328,544
Company name
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
58,876
A, B, C
58,876
0
(477)
0
0
72,342
70,512
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
200
1 Values taken from the separate financial statements of subsidiaries, prepared in accordance with locally applicable accounting standards
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
C: for distribution to shareholders
Statement of revaluations of equity assets at 31 December 2017
Investment property
Plants and machinery
Gross value
Cumulative depreciation
Net value
Law 72/1983
137
(137)
0
1989 merger
516
(450)
66
Law 413/1991
47
(42)
5
1994 merger
1,483
(1,046)
437
Law 342/2000
2,870
(2,368)
502
5,053
(4,043)
1,010
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
(19,643)
1,010
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: 0178691082
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 2017 for auditing services and for services other than auditing provided by the Independent Auditor. No services were provided by entities belonging to the network.
(€/000)
Party providing the service
Fees pertaining to the 2017 financial year
Audit
Deloitte & Touche S.p.A.
57
Certification services
Deloitte & Touche S.p.A.
2 (1)
Other services
Deloitte & Touche S.p.A.
14 (2)
TOTAL
(1) Signing of Unified Tax Return, IRAP and 770 form (2) Auditing procedures agreement relating to interim management reports, auditing of statements and training activities
73
201
CERTIFICATION OF SEPARATE FINANCIAL STATEMENTS
pursuant to Article 154-bis of Italian Legislative Decree 58/98 Pietro Iotti, 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 2017 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, 26 March 2018
202
Chief Executive Officer
The Financial Reporting Officer
Pietro Iotti
Gianluca Beschi
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
203
204
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
205
206
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
207
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 2017 financial year. This report is prepared 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 Behaviour of the Board of Statutory Auditors of listed companies issued by CNDCEC and the indications contained in the Corporate Governance Code of Borsa Italiana, which applies to your Company. We note below the activity carried out.
1. Supervisory activity on compliance with the law and the bylaws and respect of the principles of correct administration During the 2017 financial year, the Board of Statutory Auditors met on seven occasions and attended nine meetings of the Board of Directors, five meetings of the Control and Risk Committee, two meetings of the Company's Control Bodies (Board of Statutory Auditors, Control and Risk Committee, Supervisory Body, Financial Reporting Officer, Head of the Internal Audit Function, Independent Auditing Company) and a meeting of the Remuneration and Nomination Committee. 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 2017: • 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; • during the financial year, there were no other transactions of particular significance for which specific information to shareholders is required in addition to that already emerging from the Separate financial statements and the management report, to which reference should be made; • intra-group and related-party transactions are ordinary transactions of reduced significance compared to the group's activity as a whole and are adequately described by the directors in note no. 37 of the Separate Financial Statements and in note no. 36 of the Consolidated Financial Statements to which the management report refers. The Board of Statutory Auditors believes that the conditions under which those operations were concluded are congruous and compliant with the Company's interests; • the Board of Statutory Auditors issued the opinions required by law and also 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 carried out, we have not identified any violations of the law and/or the bylaws or any manifestly imprudent or risky operations or operations in potential conflict of interest, in contrast with the resolutions passed by the shareholders' meeting or such as to compromise the integrity of the company's assets.
208
2. Supervisory activity on the adequacy of the organisational structure and the internal control system The Board of Statutory Auditors supervised 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, which is regularly updated. 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 critical issues with regard 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 of Statutory Auditors expresses its positive assessment and acknowledges that there are no findings to be reported to the Shareholders' Meeting. The sources of information on which the Board of Statutory Auditors was able to base its assessment are as follows: • periodic meetings with the Company assigned the Internal Audit Function and with the Representative of that Function. During those meetings, the Board of Statutory Auditors had the opportunity to assess the activity carried out and its results. 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 Internal Control and Risk Management System, examined during the meeting of the Control and Risk Committee held on 6 February 2018; • attendance at meetings of the Control and Risk Committee; • the report of the Control and Risk Committee to the Board of Directors on the activities carried out; • meetings with the Financial Reporting Officer; • 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 Financial Reporting Officer in charge of preparing the corporate accounting documents, in accordance with Italian Law 262/2005.
SABAF | ANNUAL REPORT 2017
3. Supervisory activity on the adequacy of the administrative and accounting system and the auditing activity The Board of Statutory Auditors monitored the adequacy of the administrative and accounting system and its reliability in providing a fair presentation of operational transactions by: • obtaining information from the Financial Reporting Officer; • 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 gathered information, no findings have emerged. The Chief Executive Officer and the Financial Reporting Officer have certified with a specific report attached to the 2017 financial statements: • the adequacy and effective application of the administrative and accounting procedures for preparing the financial statements; • the conformity of the financial statements 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 financial position, the results of the operations and of the cash flows. A similar declaration has been made with reference to the consolidated financial statements. The external audit 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 of Statutory Auditors 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 to the Board of Statutory Auditors on 12 April 2018 the additional report required by Art. 11 of Regulation (EU) no. 537/2014, which illustrates the results of the external audit and provides the other information required by the Regulation, including the declaration of independence required by Art. 6, paragraph 2, letter a). We note that the report does not reveal any significant shortcomings in the internal control system for financial reporting and in the Company's accounting system. As required by Art. 19, first paragraph, letter (a) of Legislative Decree No. 39/2010, this report will be sent to the Board of Directors of the Company. 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. It is also acknowledged that the appendix to the Consolidated and Separate Financial Statements indicates the fees for the year for services rendered by the Independent Auditing Company. As can be seen from the table, no services (other than the audit) prohibited pursuant to Art. 5, par. 1, of Regulation (EU) 537/2014 were rendered. It is also acknowledged that, with the approval of the 2017 Financial Statements, the nine-year mandate of the Independent Auditing Company Deloitte & Touche S.p.a. expires. As envisaged by Art. 16 of Regulation (EU) no. 537/2014, the Board of Statutory Auditors, in its role as Internal Control and Audit Committee, submitted to the Board of Directors a reasoned recommendation containing the name of two Independent Auditing Companies who are suitable to replace the one that expires, expressing preference for one of them. This recommendation was developed following a detailed selection procedure that was carried out in compliance with the provisions contained in the Regulation itself. Finally, it is acknowledged that the supervisory activity described in this paragraph
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
and in the paragraph above has allowed the Board of Statutory Auditors to fulfil its internal control and external audit committee function, pursuant to Art. 19 of 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 prepared the 2017 financial statements in accordance with international accounting standards (IAS/IFRS). The separate Financial Statements show a financial year profit of € 8,001,327 (€ 2,459,688 in 2016) and a shareholders' equity of € 92,087,144 (€ 91,523,902 in 2016). Those financial statements were audited by the Company Deloitte & Touche Spa, which issued its report dated 12 April 2018 without findings or information requests. The financial statements, together with the management report, were made available to us within the time limits prescribed by the law and we have no particular comments to report. The Company has also prepared the 2017 consolidated financial statements of the Sabaf Spa Group. The consolidated financial statements show a profit for the year of € 14,916 thousand (€ 9,009 thousand in 2016 - before adjustments pursuant to IFRS 3) and a shareholders' equity of € 115,055 thousand (€ 112,309 thousand in 2016 - before adjustments pursuant to IFRS 3). Those financial statements have also been subject to statutory audit by Deloitte & Touche Spa, which issued its report on 12 April 2018 without findings or information requests. It is also acknowledged that the Independent Auditing Company expressed, in the reports mentioned above, a positive opinion with regard to consistency with the financial statements and compliance with the law with reference: • to the management report; • to the information referred to in Art. 123-bis, paragraph 4, Legislative Decree 58/98 contained in the Report on Corporate Governance and Ownership Structure. Insofar as the Board of Statutory Auditors is responsible, we supervised 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 results of the impairment test carried out in accordance with IAS 36 on the individual CGUs that coincide with the two equity investments were evaluated (“Hinges” CGU for Faringosi Hinges S.r.l. and “Professional burners” CGU for A.R.C. S.r.l.). In particular, it is noted that the test was carried out - for the purposes of the separate financial statements - to assess the impairment of the value of investments and - for the purposes of the consolidated financial statements - to assess the impairment of the related goodwill values. In this regard, it is noted that the Independent Auditing Company, in its reports, accurately described the audit procedures carried out with reference to the impairment tests, as "key aspects of the audit" and to which, therefore, the Board of Statutory Auditors refers. Finally, we acknowledge that no derogations have been made from the accounting standards adopted.
209
5. Methods of concrete implementation of the corporate governance rules Your Company has accepted the Corporate Governance Code approved by the Corporate Governance Committee of listed companies. In the annual Report on Corporate Governance and Ownership Structures, prepared in accordance with Art. 123 bis of Italian Legislative Decree 58/1998, the Board of Directors acknowledges the acceptance of the Corporate Governance 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 of Statutory Auditors supervised the methods of concrete application of the corporate governance rules adopted by the Company and, in that regard, it believes that they 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 Corporate Governance Code, both initially, after appointment and later, on an annual basis (most recently during the meeting held on 08 March 2018), with methods compliant with those adopted by the directors; • we complied with the provisions of the regulations for the management and processing of confidential and privileged corporate information.
6. Supervisory activity on relationships with Subsidiaries and parent companies The Board of Statutory Auditors supervised the adequacy of the instructions given 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 executives 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. Periodic meetings with the management and the company in charge of Internal Audit did not reveal any critical elements to be reported in this report. Finally, we acknowledged that to date no communications have been received from the Control Bodies of the Subsidiaries and/or parent companies containing findings to be noted in this report.
8. Supervisory activity on compliance with the provisions of Articles 3 and 4 of Legislative Decree No. 254/2016 (consolidated non-financial statement) In accordance with Legislative Decree no. 254/2016, the Board of Directors of your Company prepared the "Consolidated non-financial statement". We remind you that, in accordance with the provisions of the Decree, this Statement "to the extent necessary to ensure understanding of the company's activities, performance, results and impact, covers environmental, social and personnel issues, respect for human rights and the fight against active and passive corruption, which are relevant considering the Group's activities and characteristics”. We acknowledge that the Independent Auditing Company KPMG S.p.a., in charge pursuant to Art. 3, paragraph 10, of the Decree, today issued the certificate provided for therein, confirming that, on the basis of the work carried out, no elements have been brought to the attention of the auditor that would suggest that the Consolidated Non-Financial Statement has not been drawn up in all significant aspects in compliance with the requirements of articles 3 and 4 of the decree and the adopted reference standards (GRI – G4). The Board of Statutory Auditors supervised compliance with the provisions of Legislative Decree 254/2016 and has no observations to make on this subject in this report.
Conclusions During the supervisory activity carried out 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 of Statutory Auditors 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 regard to the above, the Board of Statutory Auditors expresses a favourable opinion on the approval of the separate financial statements and the proposal for the allocation of net income for the year made by the Board of Directors.
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 Related-Party Transactions, whose main objective is to define the guidelines and criteria for identifying Related-Party Transactions and setting out roles, responsibilities and operating methods so as to guarantee, for such transactions, adequate information transparency and the related procedural and substantial correctness. That procedure was prepared in compliance with what was established by the Consob Regulation on Related Parties (no. 17221 dated 12 March 2010 as amended and supplemented). The Board of Statutory Auditors supervised the effective application of the rules by the Company and it has no comments in that regard.
210
Ospitaletto, 13 April 2018 Chairman of the Board of Statutory Auditors Antonio Passantino Statutory Auditor Enrico Broli Statutory Auditor Luisa Anselmi
SABAF | ANNUAL REPORT 2017
SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2017
211
Enviroment
We are committed to raising awareness among our staff on environmental issues, contributing constructively to sustainability and environmental protection.
Report on Remuneration pursuant to Article 123-ter of the TUF and Article 84-quarter of the Issuers’ Regulations
Section I - Remuneration Policy Section II - Remuneration of the members of the board of directors and the board of statutory auditors and other executives with strategic responsibilities in 2017
214
215 220
SABAF | ANNUAL REPORT 2017
REPORT ON REMUNERATION
SEZIONE 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, 4 August 2015 and 26 September 2017, 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).
1. Corporate bodies and persons involved in preparing, approving and implementing the remuneration policy Shareholders’ meeting
• Determines the remuneration due to the members of the Board of Directors, including a fixed amount and attendance fees • Resolves compensation plans based on the allocation of financial instruments with regard to directors and employees • Gives a non-binding vote on the first section of the Report on Remuneration (Remuneration Policy)
Board of directors
• At the suggestion of the Remuneration and Nomination Committee and subject to the opinion of the Board of Statutory Auditors, determines the fee for Directors holding specific positions • Defines the remuneration policy of Executives with strategic responsibilities • After obtaining the opinion of the Remuneration and Nomination Committee, resolves to sign Non-competition agreements with regard to the Chief Executive Officer and to executives • At the suggestion of the Remuneration and Nomination Committee, defines incentive plans based on short- and long-term variable remuneration to be assigned to the Chief Executive Officer and to the Executives with strategic responsibilities • At the suggestion of the Chief Executive Officer, defines the incentive plans based on short-term variable remuneration for company Management and other employees • At the suggestion of the Remuneration and Nomination Committee, resolves to assign non-monetary benefits to executives • Makes proposals to the Shareholders' Meeting on compensation plans based on the allocation of financial instruments with regard to directors and employees • Prepares the Report on Remuneration pursuant to Article 123-ter of the Consolidated Law on Finance and Article 84-quarter of the Issuers’ Regulations
Remuneration and nomination committee
• Makes proposals to the Board of Directors, in the absence of the persons directly concerned, for remuneration of the Chief Executive Officer and Directors holding specific positions • Examines, with the support of the Human Resources Department, the policy for the remuneration of executives, with a special attention to Executives with strategic responsibilities • Makes suggestions and proposals to the Board of Directors concerning the setting of targets on which the annual variable component and long-term incentives for the Chief Executive Officer and Executives with strategic responsibilities should be dependent, in order to ensure alignment with shareholders’ long-term interests and the company’s strategy • Assesses the level of achievement of the short- and long-term variable incentive targets of Directors and executives • Prepares the proposals to the Board of Directors of compensation plans based on financial instruments • Assesses the adequacy, actual application and consistency of the remuneration policy, also with reference to the actual company performance, making suggestions and proposals for change • Follows the development of the regulatory framework of reference and best market practices on remuneration, getting inspired by them for formulating the remuneration policy and identifying aspects for improving the Report on Remuneration The Remuneration and Nomination Committee currently in office comprises four non-executive members, the majority of them independent (Fausto Gardoni, Giuseppe Cavalli, 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.
Board of statutory auditors
• The Board of Statutory Auditors expresses the opinions required by the regulations in force on proposals for remuneration of Directors holding specific positions • The Board of Statutory Auditors, i.e. the Chairman of the Board of Statutory Auditors or another Statutory Auditor designated by him/her can attend the meetings of the Remuneration and Nomination Committee
Human resources department
Actually enacts what is decided upon by the Board.
No independent experts or advisors contributed to the preparation of the policy, nor were the remuneration policies of other companies used for reference purposes. The Board of Directors is responsible for properly implementing the remuneration policy.
215
2. Purpose of the remuneration policy The Company’s intention is that the Remuneration Policy: • Ensures the competitiveness of the company on the labour market and attracts, motivates and increases the loyalty of persons with appropriate professional expertise • Protects the principles of internal equity and diversity • 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 term, and maintains an appropriate level of competitiveness for the company in the sector in which it operates
3. Remuneration policy guidelines and instruments The definition of a fair and sustainable remuneration package takes into account three main tools: • Fixed remuneration • Variable remuneration (short- and medium- to long-term) • Benefits Each remuneration component is analysed below.
Fixed annual component
The fixed component of the remuneration of the Directors 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 Shareholders' Meeting decides on the remuneration of the members of the Board of Directors, including a fixed amount and attendance fees.
COMPONENTS OF THE REMUNERATION
PERSONS
with appropriate professional expertise
favours the creation of
SUSTAINABLE VALUE for shareholders in the medium to long term
EXECUTIVE DIRECTORS 1
Fixed remuneration for Directors holding special positions
NON-EXECUTIVE DIRECTORS Fixed remuneration for the office of Director
SHAREHOLDERS
protects the principles of
INTERNAL EQUITY and diversity
With regard to the remuneration for Directors holding special offices, the Board of Directors, at the proposal of the Remuneration and Nomination Committee and subject to the opinion of the Board of Statutory Auditors, determines the additional fixed remuneration. 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. Executives with strategic responsibilities are paid a fixed annual remuneration, 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 the targets. The members of the Board of Statutory Auditors are paid a fixed remuneration, the amount of which is determined by the Shareholders' Meeting, at the time of their appointment.
MEMBERS OF COMMITTEES WITHIN THE BOD Fixed remuneration for Directors members of committees within the BoD
Attendance fee
Short-term variable component (annual)
The Board of Directors, at the suggestion of the Remuneration and Nomination Committee and in accordance with the budget, defines an MBO plan, for the benefit of: • Executives with strategic responsibilities • other persons, identified by the Chief Executive Officer, among the managers who report directly to him or who report to the aforementioned managers
EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
STATUTORY AUDITORS
Collective National Contract for Industrial Managers
Fixed remuneration
Attendance fee
The targets of the Chief Executive Officer and of the Executives with strategic responsibilities are decided by the Board of Directors, at the suggestion of the Remuneration and Nomination Committee, in accordance with the budget. The targets of the other beneficiaries of the incentive plans are defined by the Chief Executive Officer, in accordance with the budget. Non-executive directors are not granted any variable remuneration.
This plan sets a common target (Group EBIT, which is considered to be the Group's main indicator of financial performance) and quantifiable and measurable individual targets economic-financial, technical-productive and/or socio-environmental in nature.
216
brings the interests of the management into line with those of the
CORPORATE OFFICES
Fixed remuneration for the office of Director FIXED COMPONENTS
attracts, motivates and increases the loyalty of
1 Executive Directors: Chairman and Vice Chairmen of the BoD, Chief Executive Officer, Executive Directors
SABAF | ANNUAL REPORT 2017
REPORT ON REMUNERATION
At the suggestion of the Remuneration and Nomination Committee, and after obtaining the opinion of the Board of Statutory Auditors, the Board of Directors approves a long-term financial incentive, for the benefit of: • Chief Executive Officer • Executives with strategic responsibilities
The long-term financial incentive is dependent on measurable and predetermined performance targets relating to the creation of value for shareholders over the long term and extends over three years coinciding with the mandate of the Board of Directors (2015-2017; 2018-2020; etc.). 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.
ANNUAL MBO
LONG TERM INCENTIVES (LTI)
RELATED TO THE ANNUAL BUDGET
RELATED TO THE THREE-YEAR PLAN
TARGET
TARGET
Long-term variable component
EXECUTIVE DIRECTORS* EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
COMMON TARGETS GROUP EBIT
OTHER PERSONS IDENTIFIED BY THE CHIEF EXECUTIVE OFFICER
INDIVIDUAL TARGETS ECONOMIC/FINANCIAL TECHNICAL AND PRODUCTIVE
CHIEF EXECUTIVE OFFICER
EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
Dependent on predetermined and measurable performance targets relating to the creation of value for shareholders over a long-term horizon and over a time horizon of three years, coinciding with the mandate of the BoD
CORPORATE OFFICES
EXECUTIVE DIRECTORS AND OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
OTHER PERSONS IDENTIFIED BY THE CEO
SHORT-TERM VARIABLE COMPONENT
Annual MBO plan based on achieving a common target and individual targets
Annual MBO plan based on achieving a common target and individual targets
LONG-TERM VARIABLE COMPONENT
LTI dependent on measurable and predetermined performance targets relating to the creation of value for shareholders over a time horizon of three years
N/A
COMPONENTS OF THE REMUNERATION
VARIABLE COMPONENTS
Non-monetary benefits
• Third-party civil liability insurance policy: The Company has taken out a thirdparty civil liability insurance policy in favour of directors, statutory auditors and executives for unlawful acts committed in the carrying-out of their respective duties, in violation of obligations established by law and the Articles of Association, with the sole exclusion of deliberate intent. The taking-out of this policy is approved by the Shareholders’ Meeting. • Life insurance policy and cover for medical expenses: 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 taken out an additional policy to cover medical expenses not covered by FASI reimbursements. • Company cars: At the suggestion of the Remuneration and Nomination Committee, the Board of Directors also assigns company cars to executives. • Accommodation costs: At the suggestion of the Remuneration and Nomination Committee, the Board of Directors can provide for housing to be made available to executives, for the possibility to reimburse the rent of the house or for the temporary reimbursement of the costs of accommodation in a hotel. •
* Excluding the Chairman and Vice Chairmen
Incentives based on financial instruments
Any compensation plans based on the allocation of financial instruments with regard to directors and employees are resolved by the Shareholders' Meeting at the suggestion of the Board of Directors.
Entry bonus
With the aim of attracting highly professional individuals, the Board may decide to give entry bonuses to newly hired executives.
Indemnity against the early termination of employment
There is an agreement for the Chief Executive Officer regulating ex ante the economic part concerning the early termination of the employment relationship. There are no agreements for other Directors or other Executives with strategic responsibilities regulating ex ante the economic part concerning 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.
217
The Company does not provide directors with benefits subsequent to the end of their mandate. The Company has entered into Non-competition agreements with the Chief Executive Officer 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 for offices in subsidiaries
Directors and other executives with strategic responsibilities may be paid remuneration – exclusively as a fixed amount – for offices held in subsidiaries. In addition to the approval of the subsidiaries' corporate bodies, this remuneration is subject to the favourable opinion of the Remuneration and Nomination Committee.
Claw back clauses
As from 2018, the Company established 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.
COMPONENTS OF THE REMUNERATION
CORPORATE OFFICES EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS
EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
STATUTORY
Third-party liability insurance policy NONMONETARY BENEFITS
Third-party liability insurance policy
Third-party liability insurance policy
Benefits and other components
Third-party liability insurance policy
Company cars OFFICES IN SUBSIDIARIES INDEMNITY AGAINST THE EARLY TERMINATION OF EMPLOYMENT
218
Life insurance policy, policy to cover medical expenses (FASI), policy for supplementary medical expenses
Fixed remuneration for offices in subsidiaries
N/A
Fixed remuneration for offices in subsidiaries
N/A
N/A
Remuneration for Non-competition agreement
N/A
Remuneration for Non-competition agreement (only for
Chief Executive Officer )
SABAF | ANNUAL REPORT 2017
4. Remuneration of the Board of Directors, Chairman and Vice Chairmen of the Board of Directors, Chief Executive Officer, Executives with strategic responsibilities and Board of Statutory Auditors Remuneration of the board of directors
The Shareholders’ Meeting is responsible for determining the annual gross remuneration (maximum amount) due to the Directors, including a fixed amount and attendance fees. The members of the Board are covered by a third-party civil liability insurance policy for unlawful acts committed in the exercise of their respective duties, in violation of obligations established by law and the Articles of Association, with the sole exclusion of deliberate intent. The taking-out of this policy is approved by the Shareholders’ Meeting.
REPORT ON REMUNERATION
Fixed annual gross salary: the 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 the targets. • Non-competition agreement: assignment of a fixed annual remuneration against the signing of a Non-competition Agreement with the Company. • Short-term variable component: annual incentive, dependent on the achievement of the targets envisaged by the MBO plan, approved by the Board of Directors at the suggestion of the Remuneration and Nomination Committee. On the occasion of the annual approval, the Board of Directors decides on the maximum amount of the annual variable component, the methods and timing for its payment. • Benefits: the benefits envisaged for the management of the Company can be assigned: Life insurance policy and cover for medical expenses, assignment of company car; reimbursement of the rent for the house.
Remuneration of executives with strategic responsibilities Remuneration of the chairman of the board of directors and vice chairmen
Sabaf S.p.A. makes it a practice to appoint as Chairman and Vice Chairmen members of the Saleri family, principal shareholder of the Company through the company Giuseppe Saleri S.a.p.A.. No variable remuneration is paid to these directors, even if executive directors, but only remuneration in addition to those of directors for special offices held.
Remuneration of the chief executive officer
The remuneration of the Chief Executive Officer includes the following components: • Fixed remuneration for the office of Director: the Chief Executive Officer is the recipient of the fixed remuneration for the office of Director (pursuant to Article 2389 paragraph I Italian Civil Code). • Third-party civil liability insurance policy: The Company has taken out a thirdparty civil liability insurance policy for unlawful acts committed in the carryingout of their respective duties, in violation of obligations established by law and the Articles of Association, with the sole exclusion of deliberate intent. The takingout of this policy is approved by the Shareholders’ Meeting. • Long-term variable component: the long-term financial incentive is dependent on the achievement of performance targets, proposed by the Remuneration and Nomination Committee to the Board of Directors, and extends over three years, coinciding with the mandate of the Board of Directors At the time of approval, the Board of Directors decides on the maximum amount of the long-term variable component, the methods and timing for its payment. If the Chief Executive Officer is also assigned an executive management role within the Sabaf Group, the Board decides on the assignment of the following additional remuneration instruments:
• Fixed annual gross remuneration: Employment relationships with Executives with strategic responsibilities are regulated 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 the targets. • Short- and long-term variable components: Executives with strategic responsibilities are the recipients of short- and long-term MBO plans (ref. paragraph 3). At the time of approval of short- and long-term incentive plans, the Board of Directors is responsible for setting the maximum amounts of variable remuneration, the methods and timing for the payment of this remuneration. • Benefits: Executives with strategic responsibilities receive the benefits envisaged for the management of the Company (Life insurance policy and cover for medical expenses); assignment of company car) and are covered by an occupational risk policy.
Remuneration of the board of statutory auditors
The amount of remuneration for Statutory Auditors is set by the Shareholders’ Meeting, which establishes a fixed amount for the Chairman and the other Statutory Auditors. The members of the Board are covered by a third-party civil liability insurance policy for unlawful acts committed in the exercise of their respective duties, in violation of obligations established by law and the Articles of Association, with the sole exclusion of deliberate intent. The taking-out of this policy is approved by the Shareholders’ Meeting.
219
SECTION II – REMUNERATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BOARD OF STATUTORY AUDITORS AND OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES IN 2017
This section, by name of Directors and Statutory Auditors: • Describes each of the items that make up the remuneration, showing their consistency with the remuneration policy of Sabaf • Analytically illustrates the remuneration paid in the financial year under review (2017), 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 2017 The remuneration paid to directors for 2017 consisted of the following components: • An annual fixed remuneration, approved by the Shareholders' meeting of 5 May 2015 (and subsequently amended by the Shareholders' meeting of 28 April 2016) that the Board of Directors decided to divide, in compliance with the maximum limit of € 995,000 established by the Shareholders' Meeting, as follows: - € 15,000 assigned to each director without distinction - € 10,000 assigned to each member of the committees set up within the Board itself (Internal Control and Risk Committee and Remuneration and Nomination Committee) - Additional remuneration of € 480,000 divided among Directors holding special positions (Chairman and Vice Chairmen) as detailed in the table below - Remuneration of € 100,000, decided by the Board of Directors of 3 August 2017, assigned as a one-off indemnity to the director Gianluca Beschi, as remuneration for the office of ad interim Chief Executive Officer held from 27 April to 12 September 2017 - Remuneration of € 10,000, decided by the Board of Directors of 3 August 2017, assigned to the director Pietro Iotti, appointed by the Shareholders' meeting of 20 July 2017, who was appointed Chief Executive Officer as from 12 September 2017 • 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 A fixed remuneration component for employment and a fixed remuneration for offices in subsidiaries are paid to executive directors appointed as executives. With reference to variable components, which are intended only for executive directors (excluding the Chairman and Vice Chairmen), the following is pointed out: • In relation to the annual variable incentive plan established for 2016, given the failure to reach the assigned targets, no remuneration accrued in the previous financial year and, therefore, no remuneration was paid in 2017 • With reference to the annual incentive plan for 2017, the Director Gianluca Beschi accrued variable remuneration of € 36,128 for the achievement of the targets of the 2017 MBO plan. Its payment is deferred and dependent upon the continuation of the employment relationship. Remuneration was paid to the Chief Executive Officer Pietro Iotti on a pro rata basis as from the date of his appointment • With reference to the long-term incentive plan, dependent on three-year performance targets (2015-2017), the Director Gianluca Beschi accrued remuneration of € 72,474; this variable component is paid in full following the approval of the 2017 financial statements
220
There are no incentive plans based on financial instruments outstanding. On 3 August 2017, the Board of Directors, at the suggestion of the Remuneration and Nomination Committee, decided to grant the Chief Executive Officer and General Manager (Pietro Iotti) a gross all-inclusive indemnity for termination of employment relationship of € 700,000. This amount will be recognised in one of the following cases: • Failure to renew the three-year office and/or removal without just cause before the expiry of the renewal • Failure to re-appoint for the period after the renewal, or if the removal of the office takes place without “just cause” after the renewal • Resignation of the Chief Executive Office, if handed in due to the existence of a “just cause” Moreover, the Company entered into a Non-competition agreement with the Chief Executive Officer valid for twelve months after termination of the employment relationship, which envisages the payment of an additional component of the annual salary of € 30,000, against the commitment of Pietro Iotti not to work for subjects that carry on/will carry on competing activities in Italy, Spain, Turkey, Brazil and China. Finally, following the resignation of the Director Alberto Bartoli, in 2017 the conditions for the payment of the consideration related to the Non-competition Agreement of € 290,000 signed with the Company took shape. In 2017, a consideration of € 116,000 (40% of the total) was paid; the payment of the remaining amounts is deferred in two tranches that will be paid in 2018 (€ 58,000, equal to 20% of the total) and in 2019 (€ 116,000, equal to 40% of the total).
Remuneration of Statutory Auditors for 2017 The remuneration paid to the Statutory Auditors for 2017 consists of a fixed remuneration determined by the Shareholders’ Meeting of 5 May 2015.
The remuneration of other executives with strategic responsibilities for 2017 The remuneration of other executives with strategic responsibilities (three persons) consists of a fixed remuneration for employment totalling € 384,624, and following variable remuneration: • With reference to the variable incentive plan (MBO) of 2016, during 2017, remuneration totalling € 33,050 was paid • With reference to the variable incentive plan (MBO) for 2017, remuneration totalling € 86,462 accrued. Its payment is deferred and dependent upon the continuation of the employment relationship • With reference to the long-term variable incentive plan, dependent on three-year performance targets (2015-2017), remuneration of € 62,157 accrued for the only executive with strategic responsibilities identified as such before passing the resolution of the three-year plan Remuneration totalling € 96,500 was also disbursed by subsidiaries. There are no incentive plans based on financial instruments outstanding.
SABAF | ANNUAL REPORT 2017
For a breakdown of the remuneration paid in 2017, please refer to the tables below (Table 1 and Table 2), which contain remuneration paid to Directors and Statutory Auditors, and, at the aggregate level, to other executives with strategic responsibilities, taking into account any office held for a fraction of a 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 attributable to 2017, the fixed remuneration approved by the Shareholders' meeting (and distributed with resolution of the Board of Directors), including the remuneration received for the carrying-out of special offices (pursuant to Article 2389, paragraph 3, Italian Civil Code); attendance fees as approved by the Board of Directors; employee salaries due for the year gross of social security contributions and income taxes owed by the employee • "Remuneration for attendance at Committee meetings", shows, for the portion relating to 2017, the remuneration due to directors who attended the meetings of the Committees set up within the Board and the related attendance fees • “Bonus and other incentives” includes the variable remuneration accrued during the year, for monetary incentive plans. 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 2017, any other remuneration resulting from other services provided • “Indemnity for end of office or termination of employment relationship”, shows the indemnities accrued, even if not yet paid, in favour of directors for termination of offices during the financial year in question, with reference to the financial year in which the effective termination of office occurred. Indemnities for Noncompetition commitments, which are paid upon termination of office, are also indicated • "Total" shows the sum of the amounts provided under the previous items
REPORT ON REMUNERATION
Table 2 contains information on monetary incentive plans for members of the administration body and other executives with strategic responsibilities; in particular, it shows: For the section “Bonus for the year” • In the column “Payable/Paid”, the bonus accrued for the year for the targets reached during the year and paid or payable because not subject to further conditions (known as upfront fee) • The column “Deferred” shows the bonus dependent on the targets to be reached during the year but not payable because subject to further conditions (known as deferred bonus) For the section “Bonus of previous years” • The column “No longer payable” shows the sum of bonuses deferred in previous years still to be paid at the beginning of the financial year and no longer payable for failure to meet the conditions to which they are subject • The column “Payable/Paid” shows the sum of bonuses deferred in previous years still to be paid at the beginning of the financial year and paid during the year or payable • The column “Still deferred” shows the sum of bonuses deferred in previous years still to be paid at the beginning of the financial year and still deferred Lastly, the column “Other bonuses” shows the bonuses for the year not explicitly included in specific ex ante defined plans. Finally, pursuant to Article 84-quarter, 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 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.
For a breakdown of other items, see attachment 3A, statement 7-bis and 7-ter of Consob Regulation 11971 of 14 May 1999.
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TAB. 1 - Remuneration paid to members of the Board of Directors and Board of Statutory Auditors and other executives with strategic responsibilities in 2017 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 of employment relationship
Profit sharing
BOARD OF DIRECTORS Giuseppe Saleri
Chairman
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL
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
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
(a) Of which € 15,000 as Director and € 105,000 as Chairman
Ettore Saleri
Vice Chairman
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL (a) Of which € 15,000 as Director and € 125,000 as Chairman
Cinzia Saleri
Vice Chairman
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL (a) Of which € 15,000 as Director and € 125,000 as Vice Chairman
Roberta Forzanini
Vice Chairman
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL (a) Of which € 15,000 as Director and € 125,000 as Vice Chairman
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SABAF | ANNUAL REPORT 2017
Name and surname
Alberto Bartoli
Office
Chief Executive Officer
REPORT ON REMUNERATION
Period of office
Expiry of office
Remuneration Fixed for attendance Variable remuneration remuneration at Committee (non equity) meetings
Bonus and other incentives
Profit sharing
Nonmonetary benefits
Other remuneration
Total
Indemnity for end of Fair Value of office or equity remutermination of neration employment relationship
Approval of 2017 financial statements
1 Jan - 27 Apr 2017
0
0
0
0
0
0
0
0
290,000 (a)
(II) Remuneration from subsidiaries and affiliates
0
0
0
0
0
0
0
0
0
(III) TOTAL
0
0
0
0
0
0
0
0
290,000
(I) Remuneration at Sabaf S.p.A
(a)
(a) Remuneration accrued upon termination of office (Non-competition Agreement), paid in three years: 2017, 2018, 2019
Pietro Iotti
Chief Executive Officer
Approval of 2017 financial statements
12 Set - 31 Dec 2017
(I) Remuneration at Sabaf S.p.A.((a)(b) (II) Remuneration from subsidiaries and affiliates (III) TOTAL
0
83,333 (b)
0
6,765
0
183,175
0
0
0
0
0
0
0
0
0
0
0
93,077
0
83,333
0
6,765
0
183,175
0
0
0
108,602 (b)
0
12,929
0
380,846
0
0
43,000
0
0
0
0
0
43,000
0
0
302,315
0
108,602
0
12,929
0
423,846
0
0
93,077
(a)
(a) Of which € 10,000 as Director and € 83,077 as General Manager (b) Of which € 50,000 as entry bonus and € 33,000 paid on a pro rata basis
Gianluca Beschi
Director
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a)(b)
259,315
(II) Remuneration from subsidiaries and affiliates (III) TOTAL
(a)
(a) Of which € 15,000 as director, € 100,000 as Chief Executive Officer ad interim, and € 144,315 as Administration, Finance and Control Director (b) Remuneration accrued in the year with reference to the 2017 MBO plan and Long-term Incentive Plan – for details, please refer to what is shown in Tab. 2
Renato Camodeca
Director
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a)(b) (II) Remuneration from subsidiaries and affiliates (III) TOTAL
24,000 (a)
27,000 (b)
0
0
0
0
51,000
0
0
0
0
0
0
0
0
0
0
0
24,000
27,000
0
0
0
0
51,000
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 € 7,000 in Committee meeting attendance fees
223
Name and surname
Giuseppe Cavalli
Office
Director
Period of office
Expiry of office
1 Jan - 31 Dec 2017
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Profit sharing
Nonmonetary benefits
Other remuneration
Total
Indemnity for end of Fair Value of office or equity remutermination of neration employment relationship
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a)(b) (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
Fausto Gardoni
Director
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a)(b) (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 - 31 Dec 2017
(I) Remuneration at Sabaf S.p.A
Approval of 2017 financial statements
(a)(b)(c)
(II) Remuneration from subsidiaries and affiliates
(c)
(III) TOTAL
22,000 (a)
14,000 (b)
0
0
0
15,000 (c)
51,000
0
0
0
0
0
0
0
5,000 (c)
5,000
0
0
22,000
14,000
0
0
0
20,000
56,000
0
0
(a) Of which € 15,000 as director and € 7,000 in board meeting attendance fees (b) Of which € 10,000 as a member of the Internal Control and Risk Committee and € 4,000 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 - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL
23,000 (a)
0
0
0
0
0
23,000
0
0
0
0
0
0
0
0
0
0
0
23,000
0
0
0
0
0
23,000
0
0
21,000 (a)
0
0
0
0
0
21,000
0
0
0
0
0
0
0
0
0
0
0
21,000
0
0
0
0
0
21,000
0
0
(a) Of which € 15,000 as director and € 8,000 in board meeting attendance fees
Alessandro Potestà
Director
Approval of 28 Apr - 31 2017 financial Dec 2017 statements
(I) Remuneration at Sabaf S.p.A. (a) (II) Remuneration from subsidiaries and affiliates (III) TOTAL
(a) Of which € 15,000 as director and € 6,000 in board meeting attendance fees
224
SABAF | ANNUAL REPORT 2017
Name and surname
Office
Period of office
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 of employment relationship
Profit sharing
BOARD OF STATUTORY AUDITORS Antonio Chairman Passantino
1 Jan - 31 Dec 2017
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A. (II) Remuneration from subsidiaries and affiliates (III) TOTAL
Luisa Anselmi
Chairman
1 Jan - 31 Dec 2017
(II) Remuneration from subsidiaries and affiliates (III) TOTAL
Statutory Auditor
1 Jan - 31 Dec 2017
(II) Remuneration from subsidiaries and affiliates (III) TOTAL
Office
Period of office
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
Other remuneration
Total
Fair Value of equity remuneration
Indemnity for end of office or termination of employment relationship
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A.
Name and surname
0
Approval of 2017 financial statements
(I) Remuneration at Sabaf S.p.A.
Enrico Broli
24,000
Expiry of office
Remuneration Fixed for attendance remuneration at Committee meetings
Variable remuneration (non equity)
Bonus and other incentives
Nonmonetary benefits
Profit sharing
OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES Other executives with strategic responsibilities (3)
1 Jan - 31 Dec 2017
n/a
(I) Remuneration at Sabaf S.p.A. (a)
384,624
0
148,619 (a)
0
39,024
0
572,267
0
0
(II) Remuneration from subsidiaries and affiliates
96,500
0
0
0
0
0
96,500
0
0
481,124
0
148,619
0
39,024
0
668,767
0
0
(III) TOTAL
(a) Remuneration accrued in the year with reference to the 2017 MBO plan and Long-term Incentive Plan – for details, please refer to what is shown in Tab. 2
225
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 Pietro Iotti
Still deferred
Other bonuses
Bonus of previous years
Chief Executive Officer
Remuneration at Sabaf S.p.A.
2017 MBO Plan (August 2017)
TOTAL
Gianluca Beschi
Payable / Paid
33,000
0
-
-
-
-
0
33,000
0
-
0
0
0
0
Executive Director
Remuneration at Sabaf S.p.A.
2016 MBO Plan (March 2016)
-
-
-
0
0
0
0
Remuneration at Sabaf S.p.A.
2017 MBO Plan (March 2017)
0
36,128
75% March 18 25% December 18
-
-
-
0
Remuneration at Sabaf S.p.A.
Three-year LTI 2015-2017 (August 2015)
72,474
0
-
-
-
-
0
72,474
36,128
-
0
0
0
0
-
-
-
0
33,050
0
0
0
86,462
75% March 18 25% December 18
-
-
-
0
62,157
0
-
-
-
-
62,157
86,462
-
0
33,050
0
TOTAL
Other executives with strategic responsibilities (3)
Remuneration at Sabaf S.p.A.
Remuneration at Sabaf S.p.A.
Remuneration at Sabaf S.p.A. TOTAL
226
2016 MBO Plan (March 2016) 2017 MBO Plan (March 2017) Three-year LTI 2015-2017 (August 2015)
0
SABAF | ANNUAL REPORT 2017
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 as at 31 Dec 2016
No. shares acquired
No. shares sold
No. shares held as at 31 Dec 2017
Giuseppe Saleri
Chairman
Indirect through the subsidiary Giuseppe Saleri S.a.p.A.
Sabaf S.p.A.
3,543,313
-
777,000
2,766,313
Roberta Forzanini
Vice Chairman
Direct
Sabaf S.p.A.
1,971
-
1,971
0
Direct
Sabaf S.p.A.
7,500
-
-
7,500 (a)
Alberto Bartoli (a)
Chief Executive Officer (holding office until 27 April 2017)
Indirect through spouse
Sabaf S.p.A.
1,000
-
-
1,000 (a)
Pietro Iotti
Chief Executive Officer (In office from 1 August 2017)
Direct
Sabaf S.p.A.
0
10,000
-
10,000
Giuseppe Cavalli
Independent Director
Indirect through spouse
Sabaf S.p.A.
5,000
-
-
5,000
Anna Pendoli
Director
Direct
Sabaf S.p.A.
450,000
-
337,500
112,500
Sabaf S.p.A.
4,300
-
4,300
0
DIRECT Executives with strategic responsibilities (3)
-
Direct
(a) Data updated to 27 April 2017, date of termination of office
227
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