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Contents

2

04 Corporate Boards

06 Directors’ Report on the Consolidated and Separate Financial Statements

43 Consolidated Financial Statements of the iGuzzini illuminazione Group

87 Annexes

Annex A - List of companies consolidated line-by-line

Annex B - Statement of changes in shareholders’ equity

Annex C - Reconciliation

91 Separate financial statements of iGuzzini illuminazione Spa

140 Annexes

Annex A - Statement of balance sheet and income statement effects from application of finance method rather than the equity method for the measurement of leases

Annex B - Statement of changes in shareholders’ equity

Annex C - Classification of equity reserves according to availability

Annex D - Origin of Shareholders' Equity

147 Board of Statutory Auditors’ Report

151 Independent Auditors' Report

3

4

Corporate Boards

Board of Directors

Adolfo Guzzini

Chairperson

Paolo Guzzini

Vice Chairperson

Massimiliano Guzzini

Vice Chairperson

Andrea Sasso

Chief Executive Officer

Giovanni Tamburi

Director

Board of

Statutory Auditors

Giovanni Frezzotti

Chairman

Giovanni Marco Borroni

Statutory Auditor

Alessandro Clerici

Statutory Auditor

Independent Audit Firm EY SpA

5

6

7

8

Directors’ Report

on the Consolidated and Separate

Financial Statements

iGuzzini illuminazione Group operations The iGuzzini Illuminazione Group (hereafter the “Group”) is an international community serving architecture and building a culture of light. A manufacturing hub driven by innovation - a centre of excellence dedicated to the research, design and management of light in all its forms. A producer of intelligent indoor and outdoor lighting systems collaborating with the best architects, lighting designers, designers, universities and research centres across the world. The Group's mission is to provide lighting that improves the relationship between humankind and its environment through research, industry, technology and knowledge, for use in cultural sites, workplaces, retail stores, cities, infrastructure and hospitality and living spaces.

Design, research, technology, products, markets and international expansion have been developed by the Group from a base of strong industrial ethics. In 2014, it also adopted World Class Manufacturing1, a continuous improvement process that applies methods and standards to eliminate all kinds of waste and inefficiency: no defects, failures, inventory or accidents and prompt delivery of components by suppliers to the plant, and then by plant to the sales network and building sites. It also digitalised its industrial processes, taking advantage of the opportunities offered by Industry 4.0, defined by the use of intelligent, interconnected machines integrated into an IT system that is capable of interacting with people in their working environments. To enable efficient, real-time production, the Group integrated interconnected next-generation machinery into all of its departments. Interconnection also extends to all of its suppliers. The Group designs and manufactures optical instruments that offer the innovative impact, performance and reliability for which the brand is known on the market. The setup of a photometric laboratory has led to the awarding of key certifications. Together with the photometric laboratory, the compliance laboratory was among the first of its kind in Europe to be recognised and accredited by ENEC/UL, as well as by CQC (the China Quality Certification Centre), according to the WMT IECEE (Worldwide System for Conformity Testing and Certification of Electro-technical Equipment and Components)

Headquarters iGuzzini illuminazione Recanati on the right, the Mario Cucinella building, on the left, the Maurizio Varratta building.

1 Developed in the U.S. in the 90's and introduced to Italy around 2005 as a result of collaboration between the Fiat Group and Japanese specialists in this field (Professor Yamashina), WCM targets world-class results throughout the production chain: continuous, rapid improvement in quality, cost control, production time and customer service, through the implementation of a structured, integrated system that encompasses all plant-based processes. Employee participation is therefore fundamental to optimising the organisation of work in order to improve working conditions while also reducing waste and inefficiency.

9

Directors’ Report on the

Consolidated and Separate Financial Statements

Conformity Testing and Certification of Electrotechnical Equipment and Components), for the issue of the CCC (China Compulsory Certification) mark as per IEC rules. It was the first laboratory of a lighting enterprise (and also the first private laboratory of a non-Chinese enterprise) to receive this certification. The WMT and CTDP accreditations declare that the laboratory operates in compliance with international test laboratory quality standards (ISO IEC 17025) and independently carries out all investigations to assess the correspondence of the products with applicable rules, practically across the world. This permits entitled third party institutions to issue the approval certifications on the basis of tests carried out internally.

The Group in 2017 generated total revenues of Euro 232.3 million (Euro 235.5 million on an equivalent exchange rate basis), up by 0.4% on 2016 and by 26% over the past five years. In 2017, 79.8% of the Group's sales was to customers based outside Italy and just 20.2% to Italian customers – proof of its leadership position in Italy and its pre-eminence in Europe and the strongest international markets. Revenues break down into 58% indoor solutions and 42% outdoor solutions, with LED accounting for 80.2%; 82.8% of revenues were generated by products launched on the market in the past five years (75.4% in 2016). The strategic importance of the new products on the one hand - and on the other that the market every year demands new and competitive products - is clearly apparent. The Group has therefore invested approx. 6% of revenue in research and development. In 2017, EBITDA amounted to Euro 31.5 million, up by 9% on the previous year, equivalent to 13.6% of revenues (12.5% in 2016).

Group structure and consolidations scope The Group structure is presented below with indication of the relative holdings. The consolidation scope includes the parent company iGuzzini illuminazione S.p.A. (hereafter “iGuzzini”), which controls eighteen companies, one of which with registered office in Italy and seventeen overseas - in the European Union (Germany, France, Spain, United Kingdom and Finland and Austria) and in Norway, Switzerland, China, Singapore, Canada, United States, Russia, Qatar and the United Arab Emirates. In addition to these companies, iGuzzini has a direct presence through branches also in the Netherlands, Belgium, Denmark and Sweden. iGuzzini is the parent company and provides a range of staff and operating services. The corporate functions, which coordinate the activities of the Group company local representatives, are responsible for Controlling, HR, the consolidated financial statements, the tax consolidation, legal affairs, insurance, treasury (which, in addition to the more traditional funding and liquidity management activities, oversees also the multi-currency centralised treasury - cash pooling zero balanced system in which most Group companies take part), IT and Business Innovation & Networking. These centralised functions support the corporate strategy through standardised processes and instruments which ensure transparency and efficiency across the Group.

The significant number of Group companies reflects the dynamic and specific nature of the business and its supply chain: often an international project may be created in one country and effectively sold and installed in another. The extensive global reach of the iGuzzini network enables the Group to win, develop and deliver projects across the globe. Such commercial development has obviously required the Group to improve its market response, with manufacturing investment rolled out to streamline logistics and boost production capacity - which until 2006 was entirely concentrated at the Recanati facilities.

The Group therefore in 2006 set up the manufacturing company iGuzzini Lighting China Ltd., with sales managed by the subsidiary Shanghai iGuzzini Trading China. The Chinese base is a key support to the South-East Asian and neighbouring markets’ (Oceania, India) development strategy - speeding up logistics and improving service levels on these markets. This manufacturing base in addition is fundamental to competitivity also on the street lighting market which features high volumes at low margins.

The Recanati and Shanghai manufacturing facilities perfectly integrate into a global logistics network, considerably optimising overheads and production capacity usage. Manufacturing plant are managed so as to leverage local expertise and technologies within a centrally-coordinated framework for the benefit of the entire Group.

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This integration was also facilitated through installation of a global ERP, perfectly integrating and automating processes.

The other Group companies however domestically promote and sell iGuzzini brand products.

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Group structure

iGuzzini illuminazione S.p.A. Parent company which produces, promotes and distributes globally iGuzzini products.

Subsidiary Operations Region

iGuzzini Lighting China Co., LTD Manufacturing company Shanghai

Orlandi S.r.l. Commercial company (promotion and distribution of iGuzzini products). Italy - Milan metropolitan area

iGuzzini illuminazione France S.A. Commercial company (promotion and distribution of iGuzzini products)

Commercial company (promotion)

France French African Countries

iGuzzini illuminazione Deutschland GmbH Commercial company (promotion and distribution of iGuzzini products). Germany

iGuzzini illuminazione Iberica S.A. Commercial company (promotion and distribution of iGuzzini products). Spain and

Portugal iGuzzini illuminazione UK LTD Commercial company (promotion and distribution of iGuzzini products).

United Kingdom and Ireland iGuzzini illuminazione Norge AS Commercial company (promotion and distribution of

iGuzzini products). Norway and Iceland iGuzzini illuminazione Schweiz AG Commercial company (promotion and

distribution of iGuzzini products). Switzerland

iGuzzini Finland & Baltic Oy Commercial company (promotion and distribution of iGuzzini products). Finland, the Baltic countries and St. Petersburg metro area.

iGuzzini illuminazione Ooo Commercial company (promotion and distribution of iGuzzini products). Russia

iGuzzini Hong Kong LTD Commercial company (promotion and distribution of iGuzzini products). Hong Kong, Macau and Taiwan

iGuzzini S.E.A. PTE LTD Commercial company (promotion and distribution of iGuzzini products)

Commercial company (promotion)

Singapore, Thailand, Vietnam, Philippines & Malaysia, India & Oceania

iGuzzini Middle East FZE Commercial company (promotion and distribution of iGuzzini products). Countries belonging to the GCC (excluding Qatar and Kuwait)

iGuzzini Lighting WLL Commercial company (promotion and distribution of iGuzzini products). Qatar and

Kuwait iGuzzini Lighting North America Inc. Commercial company (promotion and distribution of iGuzzini

products). Canada iGuzzini Lighting USA LTD Commercial company (promotion and distribution of iGuzzini

products). USA

Shanghai iGuzzini Trading Co. iGuzzini Hong Kong LTD Commercial company (promotion and distribution of

iGuzzini products). China iGuzzini illuminazione Österreich GMBH Commercial company (promotion and

distribution of iGuzzini products). Austria

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iGuzzini and lighting industry guidelines The guidelines that shape how the lighting industry will evolve are set and monitored by the European industry association: Lighting Europe, representing and protecting over 1,000 businesses across Europe, closely works with the European Parliament in Brussels. Massimiliano Guzzini (Vice Chairman and Business Innovation & Networking Director of iGuzzini) is on the Board of Lighting Europe, made up of 16 sector businesses and associations, as the Chairman of Assil (the National Association of Lighting Manufacturers). Lighting Europe, which has drawn up a roadmap that identifies three main focal areas: Beyond; Energy & Environment; Growth, to be viewed within the framework of the "social value" scale of lighting, based on criteria of energy efficiency, sustainability and wellbeing. According to this approach, three concepts key to the future of the lighting industry have been identified: LEDification, Intelligent Lighting and Human Centric Lighting. All three are areas on which the Group began to focus independently some time ago, ahead of the times and trends. Among iGuzzini's product guidelines, the choice to go "only LED" dates back to 2013, and the focus on intelligent lighting, in conjunction with LED lighting, allowed the Group to get a head start in exploring approaches such as adaptive lighting. Group expertise and the collaboration with ENEL, the largest European public enterprise involved in the lighting of cities, through the use of powerful LED’s have permitted in fact since 2009 - once again epitomising our new optics approach - the creation of one of the first truly efficient products reducing urban lighting energy consumption. iGuzzini has also invested heavily in developing the Intelligence of Light concept. One example of intelligent lighting is the new IoT lighting system created by iGuzzini for the Scrovegni Chapel in Padua. The integration of LED devices, environmental sensors and software applications operating on the Internet protocol allow artificial lighting to interact dynamically with changes in natural lighting, automatically regulating intensity and quantity, in order to ensure uniformly optimal perception of the works of art, while also enabling energy savings of 60% compared to the previous system.

Scrovegni Chapel - Padua, Italy Lighting Design Projects: ISCR, with the technical collaboration of the iGuzzini Scientific Committee: Interdisciplinary Scientific Commission for the Restoration and Management of the Scrovegni Chapel

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Human Centric Lighting has become a core element of iGuzzini’s identity. Indeed, the results of experiments carried out by the company as far back as 1988 - on the biological effects of light exposure - now underpin international guidelines. Among the group’s design projects is lighting design for the Blue Lagoon in Iceland, a world-renowned hospitality centre for psycho-physical well-being, where guests can use biodynamic light applications to create their own light preferences in different environments and moments of the day.

Digital Transformation is a paradigm shift in which lighting plays a fundamental role. Indeed, the fact that light fixtures are ubiquitous and constantly powered by mains electricity make them the ideal infrastructural vehicle for sensor and beacon Wi-Fi, Bluetooth and VCL (Li-Fi) protocols, allowing the transmission of data and contents via app and push notifications. The ‘Intelligence of Light’ is a completely new scenario offering the lighting sector great opportunities for connectivity. Light fixtures in fact comprehensively cover indoor and outdoor spaces and are safely powered, while providing the ideal infrastructure for the positioning of sensors and beacons that, with the application of Bluetooth Low Energy (BLE) and Li-Fi technology, allow data transmission and reception, with app push notifications and occupancy and geo-location information. This simultaneously provides end users with useful services and infrastructure managers with data for analysis and CRM activities.

Through smart objects and data, the Intelligence of Light and Industry 4.0 are driving an industry shift from traditional products to an ‘as-a-service’ model, in which iGuzzini becomes creator and provider of services for users with extremely high expectations in terms of technological innovation.

This transformation, initiated by iGuzzini through the Industry 4.0 paradigm, is set to reach maturity from 2019 to 2020 with the formation of a digital ecosystem integrating: • Advanced CRM • SAP • DAM (Digital Asset Management), • Marketing Automation • CMS Website • App • Chatbot • DLE

Operating guidelines • The creation of new products for strategic business areas (infrastructure, culture, retail, cities, working,

hospitality & living). • Improve profit margins, obtain a return on investment in shorter timeframes, boost sales on overseas markets. • Refresh successful product lines. • Reduce the number of product lines, improving their content to simplify the work of decision-makers. • Diversify innovation. • Introduce miniaturisation and the “Only LED” programme. • Focus on visual comfort, high performance and reliability. • Continuously improve product performance. • Introduce standardisation. • Promotion of Human Centric Lighting

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• Optics and accessories for custom effects and specific needs • Light control and smart connectivity digital wireless solutions and services (Intelligence of Light)

Product guidelines

• Precision miniaturization • Extremely high visual comfort • Multiple optics and applications • Custom, quality horizontal and vertical effects (with a wide range of accessories) • Performance enhancements • Light solutions for continuity between interior and exterior spaces

Communication guidelines

• New payoff: Lighting innovation for People • IoL (Intelligence of Light) • People centric lighting • Physical and digital customer experience • Client standing / specifier / location • New products • Service: custom solutions / international network • ASA (Strategic Application Areas) and regional coverage • Industry 4.0

General economic performance and 2017 outlook Global Economic Prospects, as announced by the World Bank Group in January, underline how the global economy is experiencing a cyclical recovery that reflects the reawakening of investment, manufacturing and trade. This improved outlook is supported by favourable global financing conditions, general policies, confidence and stability in terms of commodity prices. Broad and far-reaching growth in more than half of the world’s economies was led, in 2017, by investments accounting for three-quarters of global GDP, accompanied by improved financing costs, profitability and confidence in both advanced and developing economies, giving a substantial boost to exports and imports in the short-term.

In 2017 the global economy grew by 3.7% on 2016 (+0.5 percentage points, 2016 GDP +3.2% - source: IMF). Going forward, growth is expected to slightly improve over the coming two years (GDP +3.9% both for 2018 and 2019), although downside risks such as financial stress, increased protectionism and heightened geo-political tensions remain. • In Italy, the recovery picked up speed slightly in the second half of 2017, with the business confidence climate

returning to pre-recession levels and favourable conditions for the accumulation of capital. GDP grew by 1.4% in 2017. While continuing to contribute significantly, in terms of investments, to the composition of Italian GDP (approx. 8%), the construction sector still is not showing clear signs of a recovery. According to data published by the trade association ANCE in its Report on the Status of the Construction Industry in February, preliminary figures indicate that construction investment levels declined slightly in 2017 compared to 2016 (-0.1% in real terms). However, it appears that 2018 may truly prove to be the year in which the sector recovers, with an increase in production of 2.4% in real terms.

• Within the Eurozone, economic growth proved more robust than expected, reaching considerable levels in 2017, with significant improvements for all Member States, driven by stimulus policies and stronger global demand.

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In particular, lending from the private sector continued to respond favourably to the European Central Bank's stimulus measures, and both imports and domestic demand recorded robust growth. In addition, the unemployment rate reached its lowest level since 2009. At individual country level (source: IMF), Spain posted an increase in GDP of 3.1%, Germany of 2.5% and France of 1.8%. The cyclical recovery is expected to continue in 2018, although at a more modest pace, due to a slackening of demand and the gradual withdrawal of stimulus policies. According to the IMF, the Eurozone is expected to grow by 2.2% in 2018 and by 2% in 2019. The recovery in Europe is also evident from the performance of the construction market, which in 2017, according to data published by Euroconstruct in last November, is estimated to have reached its highest level since 2006, i.e. just before the outbreak of the international financial crisis (production levels are estimated to have increased by +3.3% on 2016). All countries posted increases. Looking forward, the sector is expected to continue to grow at a rate of 2.3% in 2018, due to contributions from both residential and non-residential construction, whereas the civil engineering sector will only contribute in the medium term.

• In the United States, growth reached 2.3% in 2017, supported by increased private investments. The recovery reflects the lower resistance to adjustments to capacity in the energy sector, the weakness of the dollar and more robust external demand. Economic activity was partly halted by the hurricanes that struck last September, and rebuilding efforts are expected to offset any adverse effects in the course of time. Private consumer spending continued to grow robustly, despite the modest increases in real income and moderate salary gains. The personal savings rate fell. According to the IMF, the US economy should expand by 2.7% in 2018.

• In China, GDP increased by 6.8% in 2017 (source: IMF), as a reflection of the constant fiscal support and the effects of the reforms, in addition to a stronger recovery of exports than expected and a slightly positive contribution of net trade. Domestic rebalancing continued, as the impetus provided by government investments was gradually withdrawn. China's trade flows gained momentum markedly in 2017, due to an increase in commodities prices and more robust foreign demand. In India, growth declined to 6.7% in 2017 due to business adjustments following the introduction of the tax on goods and services last July. The weakness of private investments was only partly offset by spending on public infrastructure. Russia emerged from the recession with a GDP growth rate of 1.8%, driven by the rising price of oil, support from the banking sector, targeted fiscal stimulus measures and a reduction of imbalances aimed at a flexible exchange rate. According to the IMF's forecasts, the Chinese economy will continue to slow, posting a growth rate of 6.6% in 2018 and of 6.4% in 2019. By contrast, growth in India will gain speed, with rates rising to 7.4% in 2018 and to 7.8% in 2019, while Russia is expected to slow gradually, declining to 1.7% in 2018 and 1.5% in 2019.

• In Japan, GDP growth climbed to +1.8% in 2017. Domestic demand improved, supported by a gradual recovery of consumer spending and investments, in addition to the implementation of a tax stimulus package. Exports improved due to stronger global demand, while the net contribution to growth remained unchanged as imports also increased. In 2018 growth is expected to slow due to the withdrawal of the tax stimulus and the moderate growth of exports. According to the IMF, Japanese GDP will expand at a rate of 1.2% in 2018.

Sector performance Despite the general economic uncertainties, the sector continues to be of particular interest in 2017. Among the main factors driving the success of industry players, we highlight an ability to offer a range of innovative, differentiated and designer products, a good price/quality ratio and relationships with leading industry professionals. In recent years, innovation capacity has focused primarily on the introduction of LED light sources and digital technologies. The digitalisation and interconnection of lighting systems, developed in view not only of improved energy efficiency, but also the comfort and safety of end users, were the main themes of Light&Building, the world's foremost lighting trade event, held in Frankfurt in March, drawing over 2,600 exhibitors.

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In view of this situation, each year iGuzzini devotes 6-7% of its revenues to research and development and Euro 5 million to digitalisation. Lighting industry estimates for the next five years support the growth forecast. The CSIL in fact in its “LEDs and the worldwide market for lighting fixtures” report published last November cited average annual global market growth of 4.2% for the 2016-2021 period. LED will continue to represent one of the main factors driving this growth. At market level, in 2017 it is estimated that LED devices exceeded 50% of total spending. This outcome is consistent with the strategy adopted by the Group, whose LED product sales exceeded 80% of its total revenues in 2017. The CSIL also indicates the particularly widespread use of LED’s in the commercial and outdoor segments, with these two segments in 2017 accounting for 76% of the total LED market. LED penetration will continue to rise in retail, where it rose from 42.0% in 2011 to 46.0% in 2017, whereas it declined in outdoor applications, falling from 32.5% in 2011 to 30% in 2017. Growth is forecast to be mainly driven by India (+9.9% annual average growth 2016-2020) and China (+8.1%), by the Asia-Pacific countries (+5.1%), Africa (+3,9%), Central-Eastern Europe (+3.9%) and the Middle East (+3.3%) - and, to a lesser extent, North America (+2.6%), Latin America (+2.4%) and Western Europe (+2.1%). For the US, the 2011-2016 period market expansion (+6.4% annual average) is forecast to continue at a much slower although still significant rate (+2.6% in the 2016-2020 period). European market growth projections are strong: growth of 2.1% until 2020 is forecast, against a contraction in the previous year (-0.8%). Japanese forecasts are for growth (+1.0%) for the 2016-2020 period. Focusing on Europe only, the first final figures regarding imports and exports of lighting devices indicate that exports increased by 5.5% and imports by 4.3% in the first ten months of 2017 on the same period of the previous year. At individual country level, exports increased in Holland (+49.6%), Switzerland (+16.4%), Greece (+9.8%), Portugal (+9.6%), Norway (+9.2%), Austria (+5.6%), Italy (+5.3%), Spain (+4.6%), Great Britain (+3.5%), Belgium and France (+1.4%), while declining in all other markets. Imports increased in almost all countries, with the exception of Finland, Germany, the United Kingdom and Austria, where there was essentially no change. Initial market performance indicators seem to point to slightly faster growth in the decorative segment than in the technical segment. Forecasts indicate that LED’s will continue to drive the market at an average annual rate of 12.1% in the 2016-2021 period.

Group performance Within this general economic environment, the Group in 2017 generated consolidated revenues of Euro 232,284 thousand, up 0.4% on 2016. Income statement highlights (in thousands of Euro) are provided in the following table:

Consolidated Income Statement 2017

2017

percentage 2016

2016

percentage Change

Change percentage

Revenues from sales and services 232,284 100.0% 231,468 100.0% 816 0.4%

EBITDA [1] 31,497 13.6% 28,921 12.5% 2,576 8.9%

EBIT [2] 19,465 8.4% 17,690 7.6% 1,775 10.0%

Profit before taxes 18,078 7.8% 15,991 6.9% 2,087 13.1%

Net Profit 13,127 5.7% 10,795 4.7% 2,332 21.6%

In Euro thousands [1] Earnings Before Interest, Taxes, Depreciation and Amortisation reflects only core operations, excluding therefore

interest (financial management), taxes (tax management) and amortisation and depreciation. [2] Earnings Before Interest and Taxes reflects the result before taxes and financial charges

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The key balance sheet highlights are presented below:

for the year (A+B)

Euro thousands [1] Financial assets include investments and other long-term financial receivables [2] Trade receivables include: customer receivables and trade receivables from the parent company [3] Trade payables include: supplier payables, payables to the parent company and advances [4] Other assets / (liabilities) include: Other receivables /(payables), tax receivables/(payables), deferred tax assets,

payables to social security institutions, short and long-term Risks provisions and prepayments and accrued income and accrued liabilities and deferred income

[5] The Net Financial Debt (financial debt indicator) is the sum of the following positive and negative Balance Sheet items: Short-term positive items: cash and cash equivalents and current financial assets; Short and long-term negative items: bank payables and payables to other lenders.

The net capital employed of Euro 141,765 thousand decreased on the previous year’s Euro 5,850 thousand (-4.0%), due to the reduction in fixed assets of Euro 806 thousand (-0.7%) and of net working capital by Euro 5,207 thousand (-11,6%); the Group policy continues to reduce the net working capital through prudent management of receipts and payments rotation and close management focus throughout the supply chain which has contained stock levels without impacting the service level; Group Shareholders’ Equity increased by Euro 5,206 thousand (+3.7%) due to the higher net profit achieved in 2017 compared to dividends distributed.

Consolidated balance sheet 2017

2017

percentage 2016

2016

percentage Change

Change

percentage

A) Fixed assets 108,762 76.7% 109,568 74.2% -806 -0.7%

Intangible assets 1,569 1.1% 1,095 0.7% 474

Property, plant & equipment 104,172 73.5% 105,453 71.4% -1,281

Financial fixed assets [1] 3,021 2.1% 3,019 2.0% 2

B) Net working capital 39,553 27.9% 44,759 30.3% -5,207 -11.6%

Inventories 41,276 29.1% 41,773 28.3% -496

Trade receivables [2] 56,744 40.0% 60,879 41.2% -4,135

Trade payables (-) [3] -41,185 -29.1% -41,394 -28.0% 209

Other assets (liabilities) [4] -17,283 -12.2% -16,499 -11.2% -784

C) Capital employed, less liabilities 148,315 104.6% 154,327 104.5% -6,013 -3.9%

D) Post-employment benefit provision (-) -6,549 -4.6% -6,713 -4.5% 163 2.4%

Net capital employed (C+D) 141,765 100.0% 147,615 100.0% -5,850 -4.0%

Funded by:

F) Group shareholders' equity 146,438 103.3% 141,232 95.7% 5,206 3.7%

G) Minority interest shareholders' equity

889 0.6% 883 0.6% 6 0.7%

H) Net Financial Debt [5] -5,562 -3.9% 5,500 3.7% -11,062 -201.1%

Total funding sources (F+G+H) 141,765 100.0% 147,615 100.0% -5,850 -4.0%

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The net financial debt amounted to Euro 5,562 thousand at 31.12.2017, decreasing Euro 11,062 thousand on the previous year; this decrease

is principally due to the operating management improvement.

The cash flow statement is summarised below.

Consolidated Cash Flow Statement

2017 2016

A) Opening cash and cash equivalents 25,858 37,291

Net profit 13,127 10,795

Amortisation & Depreciation 9,504 9,665

Net change in provisions 1,623 -134

Change in net working capital 3,803 448

Losses (gains) on sale of fixed assets -9 -11

B) Cash flows from (for) operating activities 28,048 20,763

Investments in tangible and intangible assets -8,687 -8,352

Investments in financial assets -2 0

C) Cash flows from (for) investing activities -8,688 -8,352

Change in bank payables and payables to other lenders 12,141 -2,809

Dividends distributed -5,999 -4,294

Acquisition of treasury shares 0 -15,000

Changes in shareholders’ equity reserves -2,299 -1,741

D) Cash flows from (for) financing activities 3,843 -23,844

E) Cash flows in the year (B+C+D) 23,203 -11,433

F) Closing cash and cash equivalents (A+E) 49,061 25,858

In Euro thousands

The cash flow generated by current operations amounts to Euro 28,048 thousand, up on 2016 due to the increase in the net profit and a greater contribution to cash generation from core operations. Cash flow from investing activities is in line with last year, while with regard to financing activities, it should be noted that iGuzzini drew down two new loans in 2017 from Credito Valtellinese S.p.A. and UniCredit S.p.A. for a total of Euro 20,000 thousand. After the payment of dividends (Euro 5,999 thousand), net cash was generated (Euro 23,203 thousand), with liquidity reducing to Euro 49,061 thousand at year-end (Euro 25,858 thousand at December 31, 2016).

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The key ratios are outlined below:

Financial statement ratios

2017

2016

ROI [1] 13.7% 12.0%

ROE [2] 8.9% 7.6%

Capital invested ratio [3] 1.4 1.3

Debt level [4] 1.0 1.0

Liquidity ratio - acid test [5] 1.9 1.6

[1] Return on Investment = EBIT / Net Capital Employed.

Reflecting the profitability of total capital employed, irrespective of origin. [2] Return On Equity = NET PROFIT / Shareholders’ Equity.

Reflecting the profitability on own capital [3] Shareholders’ Equity/Fixed assets

Reflecting the capacity to cover with own funds company fixed assets [4] Capital employed / Shareholders’ Equity

Reflecting the proportion of that invested funded with own capital [5] Current assets (excluding inventories)/Short-term

liabilities Reflecting the capacity to meet short-term commitments

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Risks and uncertainties -

disclosure as per Article 2428, paragraphs 1 and

2 to point 6 bis of the Civil Code

Financial Risks Due to its global presence, the Group is exposed to a range of financial risks and has always adopted maximum prudent funding and investing procedures which exclude for speculative purposes. The Group seeks to identify the most appropriate credit instruments to fund capital expenditure and the best credit channels to fund working capital requirements. The main financial risks to which the Group is exposed are liquidity risk, credit risk, interest rate risk and currency risk.

Liquidity risk This is the possibility that a Group company, or the Group itself, is unable to fulfil in a timely manner its obligations. This risk is contained through measures which guarantee a balanced capital structure, the diversification of funding sources, the staggering of financial debt maturities over an extended time period and the maintenance of agreed credit lines. As per this last point, the Group has access to sufficient guaranteed credit lines to offset seasonal liquidity fluctuations which may occur throughout the year. Interest rates on these lines are obviously influenced by local market conditions and reflect individual country characteristics. These conditions are however always managed and handled periodically both centrally and locally. In addition to this, the Group maintains an average level of liquidity in often unrestricted banking deposits once non short-term usage has been verified. As reported in previous pages, in order to improve liquidity management efficacy and efficiency, the Group has created a centralised treasury that makes cash more readily available to Group companies. This reduces dependency on the finance sector and consequently optimises net financial income/charges. Cash flows generated through cash-pooling are governed at market rates.

Credit risk The Group is exposed to potential losses deriving from non-fulfilment of obligations undertaken both with commercial and financial counterparties. In terms of commercial receivables, the Group works particularly with long-standing clients and in any case does not request particular guarantees on receivables. In general and in particular for larger clients, it is Group policy to assign a credit rating which is assigned on the basis of periodic commercial analysis and sales trends. In addition to adopting ad hoc procedures for the continual monitoring of receipts, appropriate guarantees or advance payments are requested in particular for contract supplies, new clients and/or clients resident in high risk countries.

Interest rate risk This is the risk that adverse interest rate curve movements impact negatively the cost of debt. The Group is exposed to interest rate risk on variable rate loans. With regards to the leases on the “Laboratori della Luce” and on photovoltaic plant, undertaken at a variable rate with UBI Leasing S.p.A. for the former and Banca ICCREA for the latter, the interest rate was hedged through an IRS Swap which permits the immediate acquisition of a fixed rate in place of the variable rate, providing total certainty on future interest payments.

Currency risk This is the risk that adverse exchange rate movements negatively affect the net result. Uncertainty and volatility are features of the currency markets. The Group is mainly exposed to transaction risk, i.e. when selling or purchasing products in a currency other than the local currency. Currently, the main exposure is against UK Sterling. The Group has prudently adopted a currency hedging strategy for part of inter-company movements relating to the above currency, as per the Board of Directors’ policy.

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Risks and uncertainties – disclosure as per Article 2428,

paragraphs 1 and 2 to point 6 bis of the Civil Code

Market risk In terms of the raw material procurement policy, the Group utilises a number of suppliers, therefore choosing the best quality/price mix and ensuring highly effective and timely procurement, considerably reducing raw material shortage risk. In terms of markets, the Group expects increasing amounts of revenues to be generated from outside of Italy and, more generally, from outside of Europe. Group non-EU sales in 2017 accounted for approx. 26% of total revenues; this amount, in the absence of extraordinary events, is expected to grow further over the coming three years to reach approx. 32%. The establishment of new markets takes place also through improving the current range of products, with a particular focus on LED lighting.

Powers delegated As stated in the Legislative Decree 231/01 organisational model, a system of powers has been set up which guarantees on the one hand greater segregation of functions and, on the other, greater control of contracts which involve outside financial commitments for the Group. In particular, parties granted powers have been assigned a maximum expense threshold for the exercise of their duties.

Training, HR and Local Communities iGuzzini’s varied and qualified partnerships are matched by an organization that promotes brand value through a continuous commitment to internal training. Structured training programs are developed constantly and globally across the entire group, with specific activities both at headquarters and the subsidiaries. 2017’s Internal networking programs were driven by an annual international kick-off (at the London – Guilford office), 9 local community kick-offs, 1 ‘New Recruits’ program, 1 ‘Train the Trainer’ event, dedicated to the trainers of the various subsidiaries and to the Group’s most loyal distributors, and numerous webinars.

The 2017 External networking programmes comprised HQ visits by VIP guests, groups of lighting community professionals, training/promotional events on the global market and international market relations building events. The LightOn initiative was a hybrid internal/external project undertaken by the Group together with the Rome “MAXXI Architettura” museum. Launched in 2015, this is a three-year programme of lectures by internationally famous architects and design professionals involved in visionary experimentation in the connection between form, technology and light, particularly with regards to buildings and public spaces. Each presents at the parent company headquarters in Recanati and the MAXXI museum in Rome the essence of their work and approach and the themes and environments which define their career path, in particular in terms of their connection with the theme of light. In 2017, fruitful collaborations were developed with, among others, Kazuyo Sejima, Tino Kwan, Claudia Paz, Peter Eisenman and Jeanne Gang.

External networking Number of events

HQ Visits

VIP 12

Groups 77

Light On 4

Promotional events on the market

63

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WCM Training

iGuzzini’s investment in human resources was considerable: 111 days of training, totalling around 9,000 hours and directly involving 112

personnel (coming in at 5000 hours in 2017 alone).

World Class Relationships Program In 2017, the World Class Relationships (WCR) project was launched to bring a quantitative, tangible and measurable approach to improving relational efficiency and effectiveness. WCR takes the World Class Manufacturing philosophy, approach and operating methods and applies it to the non-operations sector. WCR was mainly introduced to position the company as "First Class" in terms of internal relations and the conduct displayed by all those within its ecosystem. The main focus of WCR is to systematically improve soft skills in order to significantly raise the quality of the more classic and known technical skills, in addition to that of corporate products, services and solutions.

Welfare - Program The Corporate Welfare Program, signed in 2016, continues to bear fruit through a range of benefits and services, including:

• supplementary health care • supplementary pension • education • social services • leisure, wellness and entertainment services • voucher schemes

The aim is to broaden welfare access to personalized benefits and services, offering greater coverage where public benefits are lacking (e.g. health, social services, training and education) and improving employee purchasing power through welfare tax incentives.

Earthquake victim support iGuzzini’s support for earthquake-affected communities began in November 2016 with a donation of Euro 100,000 to the Italian town of Visso, and continued through several tourism and agriculture initiatives under the slogan of ‘Light back in the Marche Region’, including local product Christmas packages, calendars featuring the local Sibillini Mountains, local product promotion on iGuzzini’s international website and a lighting program aimed at bringing light and life back to localities that are the prized heritage of the entire region.

June 19, 2017 saw a further donation of Euro 30,000 to the towns of Visso, Castelsantangelo sul Nera and Ussita. This gesture of solidarity was the fruit of an agreement with trade unions, allowing employees to raise Euro 15 thousand by donating one or two hours of wages, and the company to match that amount in order to bring the total to Euro 30,000 equally split between the three municipalities.

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Workplace health and safety and environment Workplace health and safety and environmental protection have always been central to the Group’s vision. In accordance with Legislative Decree 81/2008, iGuzzini consistently commits to maintaining a safe working environment and to providing employees, according to their respective duties, with all appropriate and necessary equipment to protect them from any risk or danger to their health. The introduction of the World Class Manufacturing programme includes among its pillars safety, implemented through the application of standard procedures and methods and the creation of increasingly ergonomic and customisable work stations according to the physical needs of each employee.

Assembly unit WCM organisation

Compressed air Compressed Air

Energy Energy

Usa correttamente l’Energia. Non sprecarla! Spegni le macchine e gli impianti quando non li utilizzi! Turn off the lights when you don’t need them!

Use Energy correctly. Don’t waste it! Turn off all machines not in use. Turn off the lights when not needed.

Water Water

L’acqua è un bene prezioso. Non sprecarla! Chiudi sempre bene il rubinetto Se il rubinetto perde avvisa il caporeparto.

Water is precious. Don’t waste it! Always turn off the tap. If the tap leaks tell the department head.

Waste Waste

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In addition to the ISO 14001 of 2015 certification guidelines, the focus on environmental impact requires a review of a number of aspects more broadly associated with the company’s general organisation. iGuzzini has chosen for many years to comply with voluntary regulations not relating to safety or product performance, but manufacturing methods which guarantee the quality of production (ISO 9001), low environmental impact (ISO 14001), and recently, energy consumption management (ISO 50001). They are not limited to the production environment alone but also to the daily workings of the company. Since our products are mainly of an electrical and electronic nature, they fall within the scope of legislative provisions for the disposal of waste electrical and electronic equipment (WEEE). In addition, the World Class Manufacturing programme has an Environment-Energy pillar requiring specific projects for the reduction of waste, as part of an ongoing improvement process.

iGuzzini principally utilises recycled aluminium (84%). The Group has been ISO 9000/9001 certified since 1994 and ISO 14000/14001 certified since 2008.

Waste disposal iGuzzini has introduced a separated collection system for all waste, including also scrap and production waste. All is separated, in certain cases conferred to specialist disposal firms by individual material, while sometimes resold as materials such as plastic and aluminium, for example, are thereafter treated by the disposal firm and recycled for new production. Company paper and cardboard (raw material packaging, printing paper, magazines and paper from a range of sources) is collected, compacted and conferred. iGuzzini is a member of CONAI which oversees the correct disposal of paper throughout Italy. We list below the materials which are subject to separated collection (including non-ISO 14.001 materials): dirty absorbent materials, packaging containing hazardous substances; adhesives and sealants; used oil; used emulsifiable oil; dirty diluents; paper packaging; plastic packaging; glass; slab/extruded aluminium; non-ferrous metals; coated or cast aluminium; ferrous metals; aluminium shavings; iron shavings; coating waste; sewage sludge; coating cinders; production plastic waste; slab aluminium waste; cast aluminium waste; metal waste. Used bulbs and nickel-cadmium, lead-acid batteries and alkaline batteries all fall within the scope of WEEE waste management. Again in 2017, the percentage of recycled waste exceeded 60%.

Handling of polluting atmospheric emissions The solvent-based coating process causes the release of polluting substances. iGuzzini has constructed a post-combustion plant to which the main gaseous emissions from coating machinery are funnelled. Through after-burner use, the company emits atmosphere fumes at a significantly lower concentration than the limit imposed by law, equal to 50 mg/m3. The purpose of the plant is solely for environmental protection and does not bestow any financial advantage.

Handling of industrial waters The water used in industrial processes is sourced from wells located on company property and potable water is therefore not utilised. Once used, the water is channelled to a purifier which eliminates all waste substances. iGuzzini has a treatment plant on its industrial property. Once purified of all polluting substances, the water is reemitted into the municipal sewerage system. The company water treatment plant’s daily water use continues to be significantly lower than its maximum purification capacity. The water from the coating plant is channelled to the purifier through an underground piping system.

Impact on the soil and subsoil Ground and subsoil impacts concern all possible spills of chemical products (including oils and paints). iGuzzini has implemented a paint conveyance system that uses underground pipes to connect the decentralized paint store to other parts of the industrial area.

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Energy consumption The World Class Manufacturing programme includes a series of measures to reduce energy waste. The progressive replacement of the mould department’s old hydraulic presses with new, more energy-efficient electric presses continued in 2017.

Energy production In 2011, iGuzzini installed an integrated photovoltaic system which governs the main production areas of the headquarters and a section of the parking area. We present some key figures below:

Totalled installed power 1613.105 kWp

Number of plant sections 6

Photovoltaic modules installed 6529 modules 245 kWp

60 modules 225 kWp

Total modules area 10,674.18 m²

Last year production 2,064,716 kWh

Total average annual electricity consumption 8,767,800

kWh Total power requested from the electricity supplier 2,012.00 Kw

Coverage of company needs 21%

Eco-compatible offices iGuzzini constructed its headquarters in Recanati in compliance with the strictest environmental protection standards, as documented in detail in the “Natura e artificio. iGuzzini’s offices in Recanati)” document (by Anty Pansera, edited by Editoriale Domus). In 2010, a new section of the HQ, the Light Laboratory, was constructed by Maurizio Varratta. This building achieved an overall sustainability score according to the Building Challenge method of 3.5 (on a scale from -1 to 5) - among the highest scores in Italy. The Light Laboratory utilises a geothermal system to limit electricity consumption, both for heating and cooling the office environment. The offices in Great Britain and in Spain comply with rigorous low environmental impact criteria. The building in Guilford, designed by Pier Luigi Copat, achieved an excellent 71% score in the BREEAM (Building Research Establishment Environmental Assessment Method) assessment.

Disclosure The Group adopts standardised disclosure management systems for all subsidiaries which permits the receipt of periodic reporting. Operating Control plays a fundamental role in monitoring and managing financial and equity risks. Periodically, Group top management are informed upon sales performances, order intake and the financial position, in addition to possible risks and opportunities which may present themselves to the Group. Specifically, management monitors on a daily basis revenues, order intake, in addition to cash at all Group companies and, on a monthly basis, draws up reports on the performance of revenues, order intake and the Group net debt. On a quarterly basis, it draws up the consolidated income statement, balance sheet and cash flow statement. The Statutory Financial Statements and the Consolidated Financial Statements are prepared and filed annually, both audited by the independent audit firm EY SpA.

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Catastrophic Events

No significant incidents were reported during the year.

Country Risk Ongoing political instability is a factor which significantly impacts all Italian businesses. This is particularly so in a sector such as lighting design whose institutional bodies include one of its commercial players, representing at the same time (as in the case of regional light pollution rules) a factor which impacts production policies and strategies.

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Other information

Treasury shares The parent company iGuzzini Illuminazione S.p.A., and the companies under its direct control, declare that they hold 2,066,115 treasury shares for a value of Euro 14,999,994.90 at the date of this report. In particular, this stake, equivalent to 9.815 % of the Group’s total share capital, was wholly acquired on July 8, 2016.

Annual updating of the data protection policy The Group carried out the annual update of the data protection policy in accordance with Article 34 of Legislative Decree 196/2003.

Research and Development Considering research and development a critical success factor, iGuzzini invests around 6% of revenues every year in activities such as 2017’s focus on next-generation LEDs, new indoor and outdoor collections, added value creation and new services with regard to:

• Intelligence of Light / Internet of things • Miniaturisation • Visual comfort • Product design; • Energy efficiency; • Chromatic quality of light; • Optics performance; • Lighting control; • Segmented solutions;

iGuzzini has expanded its range of miniaturized systems with new recessed, surface and track low voltage and mains voltage versions (Laser Blade XS/Palco). Solutions go beyond the devices themselves with a full targeted collection of accessories, distribution choices and advanced optics to achieve that perfect effect with minimally-sized appliances (e.g. Palco framer 19mm). Miniaturization has been applied throughout device components, tracks and supports to maximize architectural integration and facilitate simple and rapid installation through professional, performance solutions, even outdoors (e.g. Palco InOut, Linealuce Mini 47, Walky). Valuable collaborations have been developed with world-leading engineers and architects, including a project with Renzo Piano for a custom bollard, the Lander, with specific light emission, now in vertical and ornamental versions. iGuzzini continues to innovate in control system usability and has introduced the smart Bluetooth-Dali protocol for wireless, single device management right from your mobile. From the intelligence of lights to the intelligence of things, light fixtures are becoming part of a larger system where network-connected objects with different features interact with each other and the surrounding environment. Light fixtures become the protagonists of digitalization with sensor and beacon distributions transmitting data and contents. This revolution offers increasingly more services to end-users, such as ad-hoc messaging and push notifications, as well as opportunities for data collection and analysis.

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Other information

Subsidiary financial highlights

The key financial highlights of the subsidiaries follow:

Assets at Liabilities at

Shareholders’ equity at

Revenues FY

Profit/LossFY

Subsidiaries 31.12.2017 31.12.2017 31.12.2017 2017 2017

iGuzzini illuminazione Deutschland Gmbh

4,093 2,410 1,683 15,184 25

iGuzzini illuminazione France sa 8,335 4,011 4,324 17,711 747

iGuzzini illuminazione Iberica sa 28,462 10,780 17,682 13,662 184

iGuzzini illuminazione U.K. Ltd. 20,838 8,313 12,525 31,950 2,523

Orlandi Srl 3,690 2,253 1,437 5,882 392

iGuzzini illuminazione Norge as 951 646 305 3,883 -22

iGuzzini illuminazione Schweiz ag 4,370 3,063 1,307 11,895 600

iGuzzini illuminazione Hong Kong Ltd. 4,427 798 3,629 5,226 1295

iGuzzini illuminazione Ooo 209 96 113 100 8

iGuzzini Lighting China Ltd. 22,200 3,118 19,082 17,618 1,750

iGuzzini S.E.A. Pte Ltd. 1,980 490 1,490 2,906 456

iGuzzini Lighting North America Inc.. 4,382 1,174 3,208 6,547 349

iGuzzini Finland & Baltic Oy 1,675 901 774 5,000 416

Shanghai iGuzzini Trading Ltd. 1,574 971 603 8,148 186

iGuzzini Middle East FZE 4,180 4,758 -578 9,592 61

iGuzzini Lighting USA Ltd. 1,461 2,131 -670 9,141 -382

iGuzzini Lighting WLL 3,107 2,973 134 3,643 125

iGuzzini illuminazione Österreich Gmbh 36 9 27 0 -8

In Euro thousands

Transactions with the parent company and its subsidiaries In 2017, transactions were entered into with subsidiaries and other related parties. All transactions were conducted on an arm’s length basis in the ordinary course of business.

The transactions with these companies were as follows:

Other securities at Receivables

at Payables

at Revenues Costs

31.12.2017 31.12.2017 31.12.2017 2017 2017

Fimag S.p.A. (parent company) 3,000.0 1,206.1 2,435.6 230.3 50.0

Fratelli Guzzini S.p.A 0 73.4 5.2 91.5 33.3

Bridge Srl 0 0 1.3 0 7.3

In Euro thousands

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Other information

Other securities refer to the subscription by iGuzzini of a bond loan of Euro 3,000 thousand issued by the parent company Fimag S.p.A. in October 2013 and maturing in December 2019. The above receivables and payables are of a commercial nature, with the exception of receivables (Euro 1,125 thousand) and payables (Euro 2,437.7 thousand) regarding Fimag S.p.A. concerning the national tax consolidation option applied by iGuzzini and Orlandi S.r.l. and the financial receivables concerning interest matured on bonds issued by the parent company and subscribed by iGuzzini (Euro 14 thousand). Revenues from Fimag S.p.A. include Euro 75 thousand concerning the above interest. Costs entirely relate to the provision of services. All the transactions are governed by specific contracts undertaken at market conditions.

Related party transactions We inform you that, in accordance with Article 2427 of the Civil Code, paragraph 1, No. 22 bis and ter, transactions with related parties were concluded at normal market conditions and no off-balance sheet agreements were stipulated with such parties.

Management and coordination In accordance with Article 2497 of the Civil Code, the parent company Fimag S.p.A. does not exercise management and coordination as such is independently undertaken by iGuzzini Illuminazione S.p.A. management; in particular:

• The Group autonomously manages all corporate operations; • The parent company Fimag S.p.A. does not undertake with the Group any centralised coordination of

corporate functions, either of a financial, investment or operating nature; • All company and subsidiary management decisions are exclusively taken by the corporate boards; • The Board of Directors of iGuzzini operates independently from the parent company and, in particular,

coordinates and approves activities concerning the drawing up of the strategic plans, the industrial and financial plans and the budgets of the Group subsidiaries;

• The Board of Directors of iGuzzini independently verifies the adequacy of the organisational, productive, financial and administrative/accounting structure and on this basis defines the Group organisational structure.

Secondary offices iGuzzini has commercial offices in Rome, Milan, Copenhagen, Stockholm, Antwerp and Amsterdam engaged in sales promotion and lighting design and two representative offices in Moscow and Istanbul.

2017 key events and operations Top Employers Italia 2017 In February, iGuzzini was granted Top Employer Italy 2017 certification, a recognition for leading global companies in terms of HR. Top Employers Institute is an internationally recognised certification body which selects, analyses, assesses and certifies excellence among the workplace conditions and HR policies of businesses. The annual selection is based on objective data and documentation analysis. The results are validated by the Top Employers Institute and subsequently audited externally. In particular, the certification process analysed over 600 best practices within 9 macro-HR areas: talent strategy, workforce planning, on-boarding, learning & development, performance management, leadership development, career & succession management, compensation & benefits, culture. Recognised at a global level since 1991, Top Employers Institute is headquartered in the Netherlands. It has had a presence in Italy since 2008.

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Other information

Euroshop (Dusseldorf) Trade Fair Between March 5 and 9, iGuzzini took part in the Euroshop retail-focused international trade fair, applying lighting solutions to showcase 12 retail categories (Jewellery, Beauty, Eyewear, Gift, Outfit, Leather, Home & Design, Food & Wine, Furnishings, Telephony/electronics, Car Show Room, Shoes). iGuzzini created an environment in its unmistakable style, bringing together the skills of the set designer Giancarlo Basili, the lighting designer Maurici Gines, the retail ambassador Giacomo Santucci and the innovation thinker Giorgio Di Tullio. An integral part of the stand was the latest development in Light Experience retail, showing off emerging lighting trends interpreted by iGuzzini: Shape, Graphic, Invisible, Human, Colours, Vertical, Media Lighting/Beat Lighting.

‘The Blade Tour’ for the launch of the Laser Blade XS continues After launching in London on March 2, “The Blade Tour” went to Berlin, Paris, Lyon, Shanghai, Dubai, Sydney, Auckland, New York and Vancouver and featured the Laser Blade XS “The Blade” - a new icon of miniaturisation and precision. A leading light in the industry since 2012, the Laser Blade family was the very first linear circular-effect recessed light fixture, and makes no sacrifices in its high performance large, extra-large and new miniature models. The new Laser Blade XS, or simply The Blade, is the latest icon in precision miniaturization, an extremely thin slither of light packed with precision technology that integrates perfectly into architecture like never before, disappearing into ceilings and guaranteeing optimal visual comfort and maximum architectural expression. Thanks to innovative micro-optics, microchips, nanotechnology and heat dissipation micro-solutions, The Blade raises the bar of miniaturization, where such exceptional performance had seemed impossible.

Light On

Launched in 2015 and curated by iGuzzini and MAXXI Architettura, Light On is a three-year lecture program for internationally renowned architects experimenting with form, technology and light to express the defining themes of their professional careers. In 2017, iGuzzini’s Recanati HQ and the MAXXI Museum hosted talks by Claudia Paz (Claudia Paz Lighting Studio, Lima), Tino Kwan, Kazuyo Sejima (SANAA, Tokyo), Peter Eisenman (Eisenman Architects, New York) and Jeanne Gang (Studio Gang, Chicago), and in 2015 by: Kjetil Traedel Thorsen (Snøhetta, Oslo-New York), Yoshiharu Tsukamoto (Atelier Bow Wow, Tokyo), Sergei Tchoban (Tchoban Voss Architekten, Berlin), Winy Maas (MVRDV, Rotterdam), Smiljan Radic Clarke (Santiago de Chile), David Adjaye (Adjaye Associates, London-New York) and Louisa Hutton (Sauerbruch Hutton, London-Berlin).

iGuzzini at Euroshop 2017 “Our Way to Shopability” - Messe Dusseldorf, Hall 9 / D44, Germany

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LightHackers, iGuzzini’s Hackathon On July 10 and 11, Italy’s first lighting sector start-up marathon was organized at iGuzzini’s HQ in Recanati in collaboration with EY and involving 23 start-ups focused on improving iGuzzini's user experience through new digital technologies. The hackathon gave rise to 2 new outstanding projects: the Digital Light Experience, a virtual space for exploring iGuzzini light effects, which will premiere at Light + Building 2018; and a multilingual chatbot to provide customers with useful information on iGuzzini products and services.

PLDC iGuzzini confirmed its role as Platinum Sponsor and Social Media Partner at Paris’ Professional Lighting Design Convention 2017, from November 1 to 4, promoting an exchange of ideas via a series of #iGtalk speaker interviews on Twitter and three public events entitled Experiencing Light, Designing Social Light and Honouring Creativity. PLDC awarded iGuzzini Best Partner in the Industry for its collaboration with architect and lighting designer Elettra Bordonaro in the social research project Configuring Light - Staging the Social.

Vision, Mission, Payoff and Values Adolfo Guzzini’s ‘Manifesto of Light’ has always guided the company and has been contextualized in the contemporary language of a vision, mission, payoff and values that will continue to accompany iGuzzini in years to come.

Manifesto “I want a light that illuminates the smiles of the people I meet on the street, because that is a light that creates happiness and makes it contagious. I want a light that accompanies our children in the evening and guides their steps home. I want a light that warms evenings at the park with children and leaves a trail of games and laughter. I want a light that brings life to our cities, giving new meanings to previously dark and forgotten corners. I want a light that reveals and makes us rediscover the secrets of our history and of our culture, illuminating monuments and buildings that speak of the past. I want a light that gives form to buildings, initiatives and the dreams of architects and designers. I want a light that marks the beginning and end of the streets of our cities.” Light first. Adolfo.

The LightHackers teams at work at iGuzzini’s HQ in Recanati

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Vision Social innovation through lighting The culture of light as an element of social innovation is a distinctive trait of iGuzzini. We want to grow by helping society grow, through the values, culture and innovation that we cultivate with passion in every aspect of our business.

Mission We are founded on research and innovation and want to be recognized as an international group developing intelligent lighting systems for interiors and exteriors that improve the quality of life of people and the environment. We are open to value-adding collaborations and development opportunities with a strategy of continuously investing in the improvement of processes, products and services. We intend to pursue long-term sustainable growth with financial and market performance that guarantees benefits for shareholders, collaborators, customers, partners, professional groups and all the local communities we form part of.

New payoff Lighting innovation for people

Values An anonymous survey of personnel revealed the essential values of the group:

1. Innovation. Curiosity, imagination, creativity and resourcefulness are essential components of our way of thinking, being and working. We are proud of our tradition of research, for both the company and the development of our industry.

2. Beauty. We use our sensitivity to enhance beauty in the world through our work and the intelligence of our solutions and services. With passion and attention to detail, we pursue quality, continuous improvement and excellence, aimed at evoking emotions and amazement.

3. Openness. We contribute to the development of the international community by maintaining strong ties and deep roots with our history and our land. We love being part of a boundless network that values diversity as a factor of growth.

4. Humanity. Our work promotes the well-being of man, society and the environment. Caring for and valuing people, empathy, collaboration and mutual trust are the foundations of our every activity.

5. Integrity. Ethics, morality and responsibility are our guidelines for ensuring sustainable growth for people, local communities and the company. We invest every day in safety and care for the environment in order to safeguard our future.

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Top Projects

Culture: Royal Academy, London, United Kingdom

Other significant ASA projects include: IoT lighting for the Scrovegni Chapel of Padua, Italy / The Old Theater,

Taormina, Italia / The Strehler Small Theater, Milan, Italy / His Majesty Theater, Perth, Australia / The Botín center for the Arts & Culture, Santander, Spain (Architectural project Renzo Piano) / Etihad Union Museum, Dubai, United Arab Emirates / Golden

Temple Amristar, India.

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Hospitality & Living: Fairmont The Queen Elizabeth Hotel – Montreal, Canada

Other significant ASA projects include: Signiel Hotel, Lotte World Tower Seoul, South Korea / Mollymook Beach House,

Mollymook, New South Wales, Australia / Le Pavillon du Lac, Quebec City, Canada.

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Infrastructure: Turin Porta Nuova Station - Turin, Italy

Other significant ASA projects include: Metro C - San Giovanni, Rome, Italy / Lungo Senna, Paris, France / Tottenham Court

Road Station, London, United Kingdom.

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Other information

Retail: F.I. Co, Bologna, Italy

Other significant ASA projects include: flagship store Chef Express, Novara, Italy (Architectural project: Massimo Iosa

Ghini) / mall in Lvbao Square, Suzhou, China / Flagship Rimowa, Paris, France.

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Other information

Urban: On Cube Complex Office, Shanghai - China (GMP)

Other significant ASA projects include: Garage Italia, Milan, Italy (Architectural project: Michele De Lucchi) / Aloft Hotel, Perth, Australia / CaixaForum Cultural Centre Barcelona, Spain

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Other information

Working: Prysmian HQ, Milan Italy (Architectural project: Maurizio Varratta)

Other significant ASA projects include: Station F, Paris, France (Architectural project Wilmotte) / Edificio S32, Milan, Italy (Architectural project: L22, Milan)

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Other information

2017 Awards

Product innovation awards • LDA (The Blade, ‘Best Indoor Luminaire of the Year’) • LUX AWARDS (The Blade, ‘Best Indoor Luminaire of the Year’) • Red Dot Design Award (View + Lander) • IF Design Award (View) • ADI Design INDEX (The Blade + Palco LV) • ADI Innovation Award (Palco LV) • Light Middle East Awards (The Blade, ‘Innovative Product of the Year and the Indoor Product of the Year’)

2017 company ecosystem awards • SMAU Innovation Award (Scrovegni) • Best companies to work for in Italy 2018, Panorama & Statista • Business Excellence, GEA e Harvard Business Review Italy Awards (Overseas development Award and

Overall Award) • Best Industry Partner PLDC 2017 • Top Employers Italy 2017 • EY Entrepreneur of the year 2017 in the “Globalization” category

2018 key events and operations

A Canadian holding company, 9372-1801 Quebec Inc. (“iGuzzini Canada”) was formed on January 17, 2018 as a wholly owned subsidiary of iGuzzini.

The acquisition of the Canadian firm Sistemalux Inc. was closed on January 31, 2018.

2018 Awards

• Design Plus L+B Award (Laser Blade XS + Walky) • German Design Awards (Palco LV Framer) • Top Employers Italy 2018 • Adolfo Guzzini wins the Leonardo Award • National Innovation Awards ‘Award of Awards’ (Palco LV)

Adolfo Guzzini wins the Leonardo Award Adolfo Guzzini received the Leonardo Award 2017 for distinction in promoting Italy’s image throughout the world. At a ceremony on February 23, in the splendid setting of Rome’s Palazzo Barberini, the prestigious recognition by the extensive and qualified Leonardo jury, was awarded to Adolfo Guzzini by Ivan Scalfarotto, Undersecretary of International Trade and Investment Attraction at the Ministry of Economic Development, accompanied by the President of the Leonardo Award, Luisa Todini, the President of Confindustria, Vincenzo Boccia, the President of the Italian Trade and Investment Agency (ICE), Michele Scannavini, and President of the Italian Republic, Sergio Mattarella.

Adolfo Guzzini, Chairperson of iGuzzini illuminazione, collects the Leonardo Award at Palazzo Barberini in Rome

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Other information

Light On The project, curated by iGuzzini and MAXXI Architettura, continued with two new international collaborations: Yann Kersalé (March 5), and Umberto Napolitano, from the French studio LAN (March 9).

Configuring Light – Staging the Social The triennial research programme which iGuzzini has supported since 2015 with the London School of Economics, in collaboration with the Social Light Movement, shall conclude with the publication of the first operating manual for lighting designers, in which lighting design is not only a set of technical details (lighting levels, regulatory compliance etc.) but is based also on social science methodologies. iGuzzini and Configuring Light brought light redevelopment projects to degraded areas of London, Muscat, Brisbane, Rome and Paris, with the partnership winning the ‘Best Partner in the Industry' award at the Professional Lighting Design Convention 2017.

Light & Building 2018 In the first quarter of 2018, the marketing event for the Group was the Light & Building trade fair in Frankfurt (March 18/23). At Light+Building, iGuzzini invites the lighting community to design the ideal city with Intelligence of Light connectivity placing the individual at the centre of everything. The stand is an integrated ecosystem of solutions and intelligent products to mark innovation and open up new horizons to digital light transformation.

Digital Light Experience Launch At Light+Building 2018, in Frankfurt, the Light Experience, a space for exploring iGuzzini lighting effects, is being renewed and premiered as an exciting virtual 3D digital experience that revolutionizes interactivity with light fixtures and effects. Expressing continuity with the theme of L+B 2016, iGuzzini’s stand takes on the concept of the Ideal City, recalling iGuzzini's vision: to improve people’s lives through light.

iGuzzini and Configuring Light present ‘Social Lightscapes Workshops’ at the London School of Economics, London

The Light Experience Goes Digital Anywhere, at any time, with anybody

41

Atypical and/or unusual operations The Group did not execute any atypical and/or unusual operations during the year.

Outlook In view of the general economic and geopolitical environment described above, in 2017 the Group achieved strong results which improved on the previous year - particularly in terms of most Group key performance indicators and against stable turnover. Considering the current general economic situation featuring the incomplete recovery of the Eurozone and persistent market volatility due in part to geopolitical tensions in a number of regions, Group results for 2018 are difficult to forecast. However, both sales and orders in the initial months of the year have increased on the same period of the previous year. In light of these results therefore, it is expected that the Group will achieve its targets again in 2018.

Allocation of the result for the year We propose that the profit resulting from the Annual Financial Statements of iGuzzini Illuminazione S.p.A., amounting to Euro 6,081 thousand, is allocated as follows: to the legal reserve Euro 120 thousand to the extraordinary reserve Euro 5,961 thousand

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43

44

45

Balance Sheet

Assets 31.12.2017

in Euro 31.12.2016

in Euro A) Receivables for unpaid share capital 0 0

B) Fixed assets

I. Intangible fixed assets:

3) Industrial patents and intellectual property rights 438,918 190,923

4) Concessions, licenses, trademarks & sim. rights 365,283 358,497

5) Goodwill 0 7,511

6) Assets in progress and advances 316,000 38,200

7) Other 449,214 500,255

Total 1,569,415 1,095,386

II. Property, plant & equipment

1) Land and buildings 76,823,690 78,231,475

2) Plant and machinery 8,366,972 8,428,358

3) Industrial and commercial equipment 13,830,980 14,804,179

4) Other assets 2,968,168 2,767,710

5) Assets in progress and advances 2,181,989 1,221,777

Total 104,171,799 105,453,499

III. Financial assets:

1) Investments in:

d-bis) other companies 20,757 19,257

Total investments 20,757 19,257

3) Other securities 3,000,000 3,000,000

Total 3,020,757 3,019,257

Total fixed assets 108,761,971 109,568,142

46

Balance Sheet

Assets 31.12.2017 in Euro

31.12.2016 in Euro

C) Current assets

I. Inventories:

1) Raw materials, supplies and consumables 17,350,550 16,677,561

2) Work in progress and semi-finished products 8,319,617 7,441,356

4) Finished products and goods 15,450,381 17,574,127

5) Advances 155,948 79,692

Total 41,276,496 41,772,736

II. Receivables

1) Customers 56,603,926 60,690,835

due within one year 56,603,926 60,690,835

4) Parent companies 1,206,087 1,438,890


5) Companies subject to control of parent companies 73,380 49,101

due within one year 73,380 49,101

5-bis) Tax receivables 3,100,791 2,807,723


5-ter) Deferred tax assets 6,749,167 5,672,667


5-quater) Others 2,074,583 2,048,199


due beyond one year 406,580 420,125

Total 69,807,934 72,707,415

IV. Cash and cash equivalents:

1) Bank & postal deposits 48,996,903 25,809,770

3) Cash & cash equivalents on hand 64,036 48,506

Total 49,060,939 25,858,276

Total current assets 160,145,369 140,338,427

D) Prepayments and accrued income 1,763,747 943,178

Total assets

270,671,087

250,849,747

47

Balance Sheet

Liabilities 31.12.2017 in Euro

31.12.2016 in Euro

A.1) Group shareholders' equity

I. Share capital 21,050,000 21,050,000

II. Share premium reserve 6,386,363 6,386,363

III. Revaluation reserves 9,553,477 9,553,477

IV. Legal reserve 4,090,122 3,997,548

VI. Other reserves:

a. Extraordinary reserve 43,711,474 47,951,468

b. Merger surpluses (deficits) 5,407,681 5,407,681

c. Other reserves 50,682 50,681

d. Consolidation retained earnings 58,803,440 50,144,096

Total other reserves 107,973,277 103,553,926

VI-bis. Consolidation reserve 1,311,587 1,311,587

VI-ter. Translation reserve for financial statements (554,259) 1,710,812

VII. Cash flow hedge reserve (1,458,683) (1,841,919)

IX. Net profit 13,086,250 10,510,116

X. Reserve for treasury shares in portfolio (14,999,995) (14,999,995)

Total group shareholders’ equity 146,438,139 141,231,915

A.2) Minority interest shareholders’ equity

I. Minority interest share capital & reserves 848,076 597,645

a) Minority interest consolidated retained earnings 880,507 595,111

b) Minority interest translation reserve (32,431) 2,534

II. II. Minority interest profit 40,873 285,365

Total minority interest shareholders’ equity 888,949 883,010

Total shareholders' equity 147,327,088 142,114,925

48

Balance Sheet

Liabilities 31.12.2017 in Euro

31.12.2016 in Euro

B) Provisions for risks and charges

1) Provisions and similar obligations 2,793,046 1,936,172

2) Taxes, including deferred tax liabilities 7,979,212 7,868,094

3) Derivative financial instruments - liabilities 1,969,223 2,476,353

4) Others 4,324,770 3,392,209

Total provision for risks and charges 17,066,251 15,672,828

C) Post-employment benefits 6,549,298 6,712,540

D) Payables

4) Bank payables 24,803,748 9,080,441


due beyond one year 19,760,409 4,803,748

5) Other lenders 18,695,433 22,277,780


due beyond one year 16,249,083 18,710,979

6) Advances 1,605,242 1,793,294


7) Trade payables 39,572,690 39,544,983


11) Parent companies 2,435,647 196,814

due within one year 2,435,647 196,814

11 bis) Payables to companies subject to control of parent companies

6,502 10,493

due within one year 6,502 10,493

12) Tax payables 5,893,246 5,942,458


13) Social security institutions 2,369,170 2,555,514


14) Other payables 4,303,022 4,923,724


Total payables 99,684,700 86,325,501

E) Accrued liabilities and deferred income 43,750 23,953

Total liabilities

270,671,087

250,849,747

49

Income Statement

2017 in Euro

2016 in Euro

A) (+) Value of production

1) Revenues from sales and services 232,284,499 231,468,189

2) Change in inventories of work-in-progress, semi-finished and finished products

(625,417) 2,195,715

4) Increases in internal work capitalised 948,046 852,345

5) Other revenues and income:

a) Other revenues and income 3,168,189 4,061,972

b) Operating grants 1,152,101 665,116

Total other revenues and income 4,320,290 4,727,088

Total value of production 236,927,418 239,243,337

B) (-) Costs of production

6) Raw materials, ancillary, consumables and goods (73,864,762) (78,838,507)

7) Services (65,950,966) (65,876,474)

8) Rent, leasing and similar costs (4,970,550) (4,756,312)

9) Personnel costs:

a) Wages and salaries (45,173,575) (44,085,511)

b) Social security charges (11,063,073) (11,180,924)

c) Post-employment benefits (1,891,034) (1,813,360)

d) Pension and similar obligations (168,697) (392,179)

e) Other costs (162,351) (147,662)

Total personnel costs (58,458,730) (57,619,636)

10) Amortisation, depreciation and write-downs:

a) Amortisation of intangible assets (386,049) (535,857)

b) Depreciation of property, plant & equipment (9,117,805) (9,129,380) d) Write-downs of current receivables and

cash and cash equivalents (2,528,411) (1,566,339)

Total amortisation, depreciation and write-downs (12,032,265) (11,231,576)

11) Changes in inventories of raw materials, ancillary, consumables and goods

598,528 (46,687)

12) Provisions for risks (1,240,000) (1,200,000)

13) Other provisions (7,985) (66,400)

14) Other operating charges (1,535,464) (1,917,944)

Total costs of production (217,462,194) (221,553,536)

(A-B) Difference Value of production - Costs of production

19,465,224

17,689,801

50

Income Statement

2017 in Euro

2016 in Euro

C) Financial income and charges

16) (+) Other financial income:

b) from securities recorded under non-current assets other than investments

75,000 129,288

d) income other than above 95,939 114,833

V) third parties 95,939 114,833

Total other financial income 170,939 244,121

17) (-) Interest and other financial charges:

e) third parties (2,004,333) (2,095,499)

Total interest and other financial charges (2,004,333) (2,095,499)

17 bis) Exchange gains and losses 443,561 205,731

Total financial income and charges (1,389,833) (1,645,647)

D) Adjustment to financial assets and liabilities

18) (+) Revaluations: 2,873 0

d) derivative financial instruments 2,873 0

19) (-) Write-downs: 0 (52,775)

d) derivative financial instruments 0 (52,775)

Total adjustment to financial assets 2,873 (52,775)

Profit before taxes 18,078,264 15,991,379

20) (-) Income taxes for the year:

a) current taxes (6,286,005) (3,927,131)

b) prior year taxes 226,616 90,855

c) deferred tax income & charges 1,108,248 (1,359,622)

I) Deferred tax liabilities/Use deferred tax assets (444,140) (2,774,999)

II) Deferred tax assets/Use deferred tax liabilities 1,552,388 1,415,377

Total income taxes for the year (4,951,141) (5,195,898)

21) Net profit for the year 13,127,123 10,795,481

Minority interest profit (40,873) (285,365)

Group profit 13,086,250 10,510,116

51

Cash Flow Statement (indirect method)

31.12.2017 in Euro

31.12.2016 in Euro

A) Cash flows from operating activities

Net profit 13,127,123 10,795,481

Income taxes 4,951,141 5,195,898

Interest charges/(income) 1,389,833 1,645,647

Losses (gains) on sale of fixed assets (9,338) (10,839)

Profit (loss) for the year before taxes, interest, dividends and gains/losses from disposals 19,458,759 17,626,187

Accruals to provisions for risks and charges 3,591,492 3,275,796

Accruals to post-employment benefit provisions 157,308 201,867

Amortisation & Depreciation 9,503,854 9,665,238

Adjustments to financial instrument assets and liabilities not resulting in monetary movements

(2,873) 52,775

Cash flow before net working capital changes 32,708,540 30,821,863

(Increase) Decrease in inventory 496,243 (1,558,589)

(Increase)/Decrease in trade receivables 4,134,548 (2,981,599)

Increase (Decrease) in trade payables (20,402) 4,296,055

(Increase) Decrease in prepayments and accrued income (835,566) 174,891

Increase (Decrease) in accrued liabilities and deferred income 15,547 (103)

Other changes in working capital (1,408,773) (687,225)

Cash flow after net working capital changes 35,090,137 30,065,293

Interest received/(paid) (1,370,584) (1,659,895)

(Income taxes paid) (3,548,699) (3,977,264)

(Utilisation of provisions) (1,802,057) (3,386,154)

(Utilisation of post-employment benefits) (320,549) (278,335)

Cash flow from operating activities (A) 28,048,248 20,763,645

B) Cash flow from investing activities

Investments in intangible assets (860,079) (446,229)

Divestments from intangible assets 0 12,949

Investments in property, plant & equipment (7,842,023) (8,061,388)

Divestments from property, plant & equipment 15,259 142,237

Investments in financial assets (1,501) 0

Cash flow from investing activities (B) (8,688,344) (8,352,431)

52

Cash Flow Statement (indirect method)

31.12.2017 in Euro

31.12.2016 in Euro

C) Cash flow from financing activities

Third party funds

New loans 20,000,000 6,015,286

Repayment of loans (7,859,040) (8,824,181)

Own funds

Dividends paid (5,998,908) (4,294,200)

Disposal (Acquisition) of treasury shares 0 (14,999,995)

Other changes in Shareholders’ Equity reserves (2,299,293) (1,740,407)

Cash flow from financing activities (C) 3,842,759 (23,843,497)

D) Increase (decrease) in cash and cash equivalents (A+B+C) 23,202,663 (11,432,283)

Opening cash and cash equivalents 25,858,276 37,290,559

of which:

Cash in hand and similar 48,506 68,101

Bank and postal deposits 25,809,770 37,222,458

Closing cash and cash equivalents 49,060,939 25,858,276

of which:

Cash in hand and similar 64,036 48,506

Bank and postal deposits 48,996,903 25,809,770

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Explanatory Notes

A. Content and form of the consolidated financial statements

Introduction

Dear Shareholders, the consolidated financial statements at 31/12/2017 were prepared in compliance with the rules at Article 2423 and subsequent of the Civil Code, interpreted and supplemented by Italian GAAP issued by the “Organismo Italiano di Contabilità” (“OIC”), updated following the regulatory amendments introduced by Legislative Decree 139/2015.

The consolidated financial statements comprise the balance sheet (drawn up in compliance with Articles 2424 and 242-bis of the Civil Code), the income statement (drawn up as per Articles 2425 and 2425-bis of the Civil Code), the cash flow statement (whose content, in compliance with Article 2425-ter of the Civil Code, was presented according to OIC 10) and these Explanatory Notes, prepared as per Article 38 of Legislative Decree 127/1991. No exceptions as per Article 29 of Legislative Decree 127/1991 were applied. The Explanatory Notes include also a reconciliation between the net result of the parent company and the consolidated net result and between the shareholders’ equity of the parent company and the consolidated shareholders’ equity, the statement of changes in consolidated shareholders’ equity and the list of companies included in the consolidation scope.

For disclosures on the Group and the operating performance and the other disclosure required by Article 2428 of the Civil Code, reference should be made to the Directors’ Report to these Financial Statements.

There was no equity or loans allocated to a specific business.

Reporting date

The reporting date of the consolidated financial statements coincides with that of all the subsidiaries.

Consolidation scope The Group consolidated financial statements include the financial statements of the subsidiaries, as defined by Article 26 of Legislative Decree 127/1991, i.e. the Italian and overseas companies of which iGuzzini directly or indirectly controls the majority of votes exercisable at the Ordinary Shareholders’ Meeting or over which it has a dominant influence on the basis of particular contractual restrictions.

All subsidiaries are consolidated line-by-line. A list of such companies is reported as an annex (Annex A). The consolidation scope extended in 2017 with the entry of iGuzzini illuminazione Österreich Gmbh, a company incorporated in Vienna on 5/7/2017.

Consolidation principles

In drawing up the consolidated financial statements, the assets and liabilities and the income and charges of the companies included in the consolidation scope have all been fully included.

We have eliminated the payables and receivables, income and charges, profits and losses generated by transactions between the consolidated companies.

The dividends distributed by Group companies to other Group companies are eliminated from the income statement, adjusting consequently the net result of the recipient companies.

The carrying amount of the investments was eliminated against the corresponding fraction of shareholders’ equity of the companies included in the consolidation scope on the assumption of the balance sheet and income statement amounts of the investees, according to the line-by-line method.

54

Explanatory Notes

The excess of the purchase price of the investments against the relative shareholders’ equity at the acquisition date or the first year of consolidation was recorded as an adjustment of the assets up to their present value at the same date. The difference not allocated to assets is written to goodwill at account B I 5 of intangible assets.

The excess value of shareholders’ equity of the investees compared to the acquisition price, at the acquisition date or in the first year of consolidation, is recognised to the “Consolidation reserve”.

The amount of share capital and reserves of subsidiaries corresponding to minority interest holdings is recognised to the “minority capital and reserves” shareholders’ equity account. The portion of the consolidated result corresponding to minority interest holdings is recognised to “minority interest profit (loss)”.

Conversion of financial statements expressed in foreign currencies

Financial statements in foreign currencies of overseas subsidiaries were converted into Euro on the basis of the following criteria: • assets and liabilities at the exchange rate in force at the reporting date; • revenues and costs and income and charges applying the average exchange rate for the year; • shareholders’ equity components at the exchange rate in force in the relative period.

Exchange differences from the conversion of closing shareholders’ equity at historic exchange rates compared to those in force at the reporting date, including the difference between the net result at average exchange rates and the net result at the exchange rates in force at year-end, are directly recognised to the shareholders’ equity account “translation reserve for financial statement” for the portion concerning the Group.

The minority interest share is presented in the account “minority interest capital and reserves”.

The following table presents the exchange rates applied to currencies other than the Euro.

Currency 2017

average exchange rate 2017

year-end exchange rate

2016 average exchange rate

2016 year-end exchange rate

United States Dollars USD 1.130 1.199 1.107 1.054

Swiss Franc CHF 1,112 1.170 1.090 1.074

China Yuan Renminbi CNY 7,629 7.804 7.352 7.320

United Kingdom Pounds GBP 0.877 0.887 0.819 0.856

Hong Kong Dollars HKD 8.805 9.372 8.592 8.175

Norway Kroner NOK 9.327 9.840 9.291 9.086

Russia Rubles RUB 65.938 69.392 74.145 64.300

Canada Dollars CAD 1.465 1.504 1.466 1.419

Source UIC

55

Explanatory Notes

B. Accounting standards and policies

The financial statement items in preparing the consolidated financial statements were measured in compliance with Article 29 of Legislative Decree 127/1991, observing the general principles of clarity and for the presentation of a true and fair view of the Group balance sheet and financial position and result for the year.

The statutory principles contained in Article 2423-bis of the Civil Code outlined below were also applied. The accounts have been measured on a prudent and going concern basis, while also taking account of the substance of the transaction or the contract. For each transaction or event, and however for all company operations, the substance was identified regardless of origin and any interdependence of a number of contracts within the same complex operation was assessed. The profits indicated in the financial statements are exclusively those realised during the year. Income and charges are recognised on an accruals basis, independently of the date of receipt or payment. Any risks and losses pertaining to the year, even if only known following year-end, are included in the financial statements. Assets to be used over the long-term are classified under fixed assets. The accounting policies have been applied in a uniform manner to all of the consolidated companies. Dissimilar components of individual accounts are valued and recognised separately.

In accordance with Article 2423 ter, paragraph 5, of the Civil Code, the amount corresponding to the previous year is reported for each balance sheet and income statement account. When the accounts are not comparable, the amounts of the previous year are appropriately amended and the non-comparability is adjusted or the impossibility of such is reported and commented upon in these Explanatory Notes. Accounts reporting a zero balance during the year and in the previous year are not indicated in the balance sheet, income statement or cash flow statement.

In accordance with Article 2423-ter, paragraph 2 of the Civil Code, accounts preceded by Arabic numbering may be further divided, without elimination of the overall account and the corresponding amount; these may be grouped together only where such grouping, due to their amount, would not affect the presentation of a true and fair view of the Group balance sheet and financial position or the result for the year or where facilitating financial statement clarity. In this latter case, the Explanatory Notes separately present the grouped accounts. The financial statements were prepared in “units of Euro”, without decimal points, utilising the “rounding method”.

Disclosure in these Explanatory Notes of the balance sheet and income statement accounts is presented according to the order in which the relative accounts are indicated in the balance sheet or in the income statement in accordance with Article 2427, paragraph 2 of the Civil Code.

Related party transactions In accordance with Article 2427, paragraph 1, No. 22-bis of the Civil Code, transactions with related parties were concluded at normal market conditions. Reference should be made to the Directors’ Report for transactions with companies subject to the control of the parent company or with the parent company.

Accounting policies

The accounting policies adopted for the preparation of the consolidated financial statements are the same as those used for the parent company statutory financial statements. Assessment criteria were applied in continuity with the previous year.

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Explanatory Notes

The main accounting policies adopted are illustrated below, with specific indication of the choices made with regards to the availability of a number of accounting alternatives according to statutory law.

1. Intangible assets Intangible assets are recognised at acquisition cost, including any accessory charges, and are amortised on a straight-line basis according to their residual future utility.

Patents and intellectual property rights are amortised over two years due to a continually high level of innovation which results in faster obsolescence.

Trademarks and similar rights are amortised over a period of between five and eighteen years according to the type of trademark, the relative market and the Group’s usage strategy.

Concessions, licenses and deferred charges, recognised to assets, are amortised over their expected duration of utilisation - in any case not exceeding the period fixed under the acquisition contract.

Goodwill emerging on consolidation and recognised to assets is amortised over a period of time considered reasonable on the basis of the recovery of the investment. In particular, goodwill - whose amortisation concluded on 31.12.2017 - was amortised at a rate corresponding to a period of five years, which is considered representative of the estimated duration of the production and organisation synergies benefitting Group results.

2. Property, plant & equipment Property, plant and equipment are recognised at acquisition or manufacturing cost, including directly allocable costs and indirect costs for internal production.

The cost is revalued on the basis of monetary revaluation laws and, in any case, not above market value.

Ordinary maintenance costs are recognised to the income statement in the year in which they are incurred. Maintenance costs increasing the value of an asset are allocated to the relative assets to the extent of the recoverable value of the asset and depreciated on a straight-line basis considering the new carrying amount of the asset, taking account of the residual useful life. Fixed assets in progress were valued at acquisition cost in relation to the materials utilised and labour costs, with the addition of other costs entirely incurred.

Advances to suppliers for the acquisition of property, plant and equipment are initially recognised at the date on which the payment obligation of these amounts arises.

Property, plant and equipment costs are depreciated on a straight-line basis. The depreciation of property, plant and equipment is based on the economic-technical criterion and calculated on a straight-line basis according to the residual possibility of use, periodically verified to take account of their technical-economic deterioration.

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Explanatory Notes

The rates, unchanged on the previous year, are as follows:

Buildings

Buildings 2.0% - 3.0%

Light constructions 10.0%

Plant and machinery

Specific plant, machinery and moulds 12.5%

Water treatment plant 15.0%

General plant 7.5% - 10.0%

Industrial & commercial equipment

Equipment 40.0%

Moulds 12.5%

Other assets

Motor vehicles 25.0%

Internal and industrial transport 8.0% - 20.0%

Office furniture and equipment 10.0% - 20.0%

EDP 20% - 33.3%

Assets acquired under finance leases are measured according to OIC 17. Therefore, Property, plant and equipment includes the value of leased assets, depreciated according to the applicable rates of the respective assets. Against this, in the “Payable to other lenders” account, a payable to the lessor for an amount equal to the capital portion of outstanding charges is recognised. Prepayments are not indicated as the down-payments are directly deducted from “Payables to other lenders”. In the income statement, in replacement of charges paid, depreciation and financial charges accruing in the year are recognised.

Any indicators of impairment concerning intangible assets and/or property, plant and equipment are also assessed; this assessment did not indicate the existence of potential losses in the value of these property, plant and equipment and/or intangible assets.

3. Financial fixed assets

Investments Investments in non-consolidated subsidiaries and associates are valued according to the equity method and thus for an amount equal to the corresponding fraction of the net equity resulting from the latest financial statements of the company, after the deduction of dividends and the adjustments required by the accounting standards of the consolidated financial statements. On initial recognition, the acquisition cost of the investment is compared with the corresponding value of the portion of the shareholders’ equity at the acquisition date or from the latest financial statements of the investee. Other investments in businesses in which the Group does not exercise significant influence or which however carry out limited operations are valued at acquisition cost, less any impairments.

58

Explanatory Notes

Receivables

Receivables under financial assets are valued at their estimated realisable value.

Other securities

Long-term securities are recognised under fixed assets. In order to establish long-term classification within the equity of the company, in addition to the characteristics of the instrument, the intentions of company management and the effective capacity to hold the securities for a protracted period of time are considered. Fixed securities, listed or non-listed, are recognised at amortised cost, including bank intermediation and financial costs, consultancy expenses and other direct settlement costs, tax duties and expenses and any other difference between the initial value and the nominal value on maturity. These costs are divided over the expected duration of the security according to the effective interest rate criterion and supplement, for the portion accruing in the year, the return on the security calculated at the nominal rate. As the securities recognised to these financial statements relate to transactions executed before January 1, 2016, the Group has chosen the option under Article 12, paragraph 2 of Legislative Decree 139/2015 not to apply the amortised cost method. The securities are valued individually, i.e. allocating to each their specific cost. The value is adjusted to take account of impairments, with the establishment of a write-down provision. Long-term securities are impaired where, for reasons related to the reimbursement capacity of the issuer, it is considered reasonable and founded to no longer fully receive the cash flows - as capital or interest - established under the contract. Impairments are entirely recognised in the period in which they are realised to the account D 19 B “Write-downs of financial assets not constituting investments”. They are calculated referring to all useful elements, relating to existing situations at the reporting date, even if known after the reporting date.

Derivative financial instruments Derivative financial instruments are recognised from the contract signing date, from when the Group is subject to the relative rights and obligations. In accordance with Article 2426, paragraph 1, No. 11-bis, of the Civil Code and OIC 32, derivative financial instruments, even if incorporated into other financial instruments, are measured at fair value both at the initial recognition date and at all subsequent financial statement reporting dates. The initial recognition and the change in the fair value compared to the previous year are recorded in the financial statements according to whether the derivative financial instruments qualify (and are effectively designated) as cash flow hedges.

Operations qualifiable (and designated) as hedges. The Group undertakes derivative financial instrument operations to hedge the following risks: interest rate risk, exchange rate risk.

A derivative financial instrument operation is designated as a hedge where: a) the hedging relationship consists only of admissible hedging instruments and admissible hedged elements in

accordance with OIC 32; b) there is a close and documented correlation between the features of the instrument and the hedged operation

and those of the hedged instrument, in accordance with Article 2426, paragraph 1, No. 11-bis of the Civil Code; the documentation concerns the formalisation of the hedging relationship, of the Group risk management objectives and the hedging strategy;

c) the hedging relationship satisfies all the following hedge efficacy requirements: I. there is a financial relationship between the hedged element and the hedging instrument;

59

Explanatory Notes

II. the effect of the credit risk of the counterparty of the derivative financial instrument and the hedged element,

where the credit risk is not the subject of the hedge, does not take precedence over changes in the value resulting from the financial relationship;

III. the hedging ratio is calculated as that between the quantity of derivative financial instruments utilised and the quantity of the hedged elements (as an amount which does not ex ante result in the inefficacy of the hedge).

Verification of the financial relationship is made qualitatively, when the elements giving rise to the hedging instrument or the hedged element correspond or are strictly aligned; in other cases, verification is made quantitatively. Where hedging operations concern derivative financial instruments with entirely similar features to those of the hedged element (defined as “simple hedging relations”) and the derivative financial instrument is subscribed at market conditions, the hedging relationship is considered effective by simply verifying that the main elements (such as the nominal amount, the settlement date of cash flows, the maturity and the underlying variable) of the hedged instrument and of the hedged element correspond or are strictly aligned and that the credit risk of the counterparty is not such to significantly affect the fair value both of the hedging instrument and of the hedged element.

Assessment of the applicability of the admissibility criteria is made on an ongoing basis and at each reporting date the Group assesses whether the hedging relationship continues to satisfy the efficacy requirement.

The Group prospectively discontinues hedge accounting where: a) the hedging instrument matures, is sold or disposed of (without replacement already established under the

original hedging strategy); b) the hedge no longer satisfies the conditions for hedge accounting;

Where the change in the economic relationship between the hedged element and the hedging instrument involves the conclusion of the hedging relationship and the risk management objective for the designated hedge relationship remains the same, the Group assesses the possibility to review the hedging relationship.

Through the operations in place at 31.12.2017 the Group adopts: cash flow hedges.

This type of hedge is undertaken when the hedging objective is to limit exposure to the variability of cash flows relating to an asset or liability recognised to the financial statements, to irrevocable commitments, or to highly probable operations. The Group recognises to the balance sheet at fair value the cash flow hedge instrument, related to an asset or liability recognised to the financial statements, an irrevocable commitment or a highly probable operation, with counter-entry account A VII “Cash flow hedge reserve” for the hedge component considered efficient (net of deferred taxes), with the ineffective component, calculated for hedging relations not qualifying as simple hedges, recognised to section D) of the income statement.

For cash flow hedges related to an asset or a liability recognised to the financial statements or a highly probable operation or irrevocable commitment, the reserve is recognised to the income statement in the years in which the cash flows hedged have an effect on the result for the year and in the same account impacted by the cash flows. For a cash flow hedge relating to a highly probable operation or an irrevocable commitment which involves subsequently the recognition of a non-financial asset or liability, the Group on the recording of the asset or of the liability subject to the hedge eliminates the amount from the cash flow hedge reserve and includes it directly in the carrying amount of the asset (within the limit of the recoverable amount) or of the liability. Where however a negative reserve does not expect to recover all the loss or part of the reserve in a year or in a number of future years, the company immediately records the reserve to the income statement for the year (or the part of the reserve) which is not expected to be recovered.

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Explanatory Notes

Measurement of the fair value For the measurement of the fair value of derivative financial instruments, the Group has established their main (or most advantageous) market and the most appropriate measurement techniques taking account of the fair value hierarchy level to which they are classified and the parameters and the assumptions which market operators would use to establish the price of the derivative financial instrument, including assumptions concerning the risks, presuming that market operators act in a manner as to best satisfy their own economic interest. In particular, in measuring the fair value, the Group maximised the use of significant observable parameters and reduced to a minimum the use of non-observable parameters according to the fair value hierarchy described below:

Level Description

1 market value (for financial instruments for which it is possible to easily identify an active market)

2 derivative value of the market value of a component of the instrument or of a similar instrument (where the market value of an instrument is not easily identifiable, but its components or those for a similar instrument may be identified)

3 value resulting from generally accepted measurement models and techniques which can guarantee a reasonable approximation of the market value (for instruments for which it is not easily possible to identify an active market)

In measuring the fair value, the Group took account of the credit risk of the parties to the contract as per OIC 32.

Disclosure In accordance with Article 2427-bis of the Civil Code, and in application of OIC 32, for each category of derivative financial instrument information on the following is provided in the Explanatory Notes: - their fair value; - their amount and type (including significant terms and conditions which may influence the amount, the maturity

and the certainty of future cash flows); - the fundamental assumptions on which the measurement models and techniques were based, where the fair

value is not measured according to market findings; - the changes in value directly recognised to the income statement, in addition to those recognised to the

shareholders’ equity reserves; - the movements in the fair value reserves in the year.

In the Provision for risks and charges section of these Explanatory Notes, information is also provided on (only if applicable): - the fair value component included in the assets and liabilities subject to fair value hedging; - any non-calculable component of the fair value; - the description of the absence of the “highly probable” requirement for a planned operation subject to cash flow hedging; - the ineffective component recognised to the income statement in the case of cash flow hedges; - any causes for the conclusion of the hedging relationship and the relative accounting effects.

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Explanatory Notes

4. Inventories Inventories are valued at the lower of purchase or production cost, including accessory charges, according to the Average Weighted Cost method, and net realisable value.

Obsolete and low rotation inventories are written down, taking account of the obsolescence of the goods, in addition to the effective possibility of sale on the basis of their movement.

The cost configuration adopted is the following: - Raw material, ancillaries and consumables: purchase cost in the period calculated according to the Average Weighted Cost method.

- Finished and semi-finished products: production cost including raw material cost calculated according to the

Average Weighted Cost method for the period, labour, amortisation and depreciation and general production unit expenses.

5. Receivables

Receivables originating from revenues for the sale of goods or provision of services are recorded under current assets based on the accruals principle when both the following conditions for the recognition of revenues are met: (i) the production process of the goods has been completed and (ii) the substantial transfer of ownership (transfer of risks and benefits) has occurred. In the case of receivables deriving from revenues for services, these are recognised on an accruals basis when the service has been provided.

Receivables which originate for other reasons are recorded when the “right” to the receivable arises and therefore when they represent an effective obligation of third parties towards the Group; where they are of a financial nature they are classified under financial assets or current financial assets, with indication of the amount due within one year. Receivables are measured in the financial statements at amortized cost, taking into account the time value of money, and therefore are recorded in the balance sheet net of the relative write-down provision considered adequate to cover expected losses for non-recoverability. Where the interest rate for the operation is not significantly different from the market rate, the receivable is initially recognised at the nominal value net of all premiums, discounts and rebates and including any costs directly associated with the transaction generating the receivable. The effects deriving from the application of the amortised cost and of the discounting are not expected to be significant for the Group when the receivables are due within 12 months, taking account also of all contractual and substantial considerations on the recognition of the receivable, and when the settlement costs and any difference between the initial value and the nominal value on maturity are insignificant. In this case, discounting was omitted, interest was calculated at nominal value and settlement costs were recognised to prepayments and amortised on a straight-line basis over the duration of the receivable and adjusted by nominal interest income.

6. Cash at banks and on hand

Bank deposits, postal deposits and cheques (current accounts, bank drafts and similar) are measured at expected realisable value, which coincides with their nominal value in the absence of collection difficulties. Cash and revenue stamps in hand are valued at their nominal value.

7. Accrued income and prepayments

Prepayments and accrued income exclusively include the income for the year receivable in future periods and costs sustained in the period relating to future periods. In any case, only amounts relating to two or more periods are recorded in this account, the amount of which varies depending on the time period involved.

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Explanatory Notes

8. Treasury shares Treasury shares acquired by the parent company are recognised to a negative shareholders’ equity reserve in the account A 1 X “Negative treasury shares in portfolio reserve”.

9. Provisions for risks and charges

Provisions for risks and charges are recorded in respect only of certain or probable losses or liabilities, the amount or due date of which could not be determined at year-end.

These provisions are quantified on the basis of estimates which take into consideration all available elements, in compliance with the accruals and prudence concepts. No provision has been made for matters without any economic justification. The potential liabilities, where existing, are recorded in the financial statements when they are considered probable and the amount can be estimated reliably. Account is not taken of remote risks, while in the case that potential liabilities are considered possible, but not probable, information is disclosed in the explanatory notes upon the situation of uncertainty, if significant, which may result in a loss, on the estimated amount or indication that such may not be measured.

In terms of classification, provisions for risks and charges are firstly recognised to the pertinent income statement classes (B, C or D) where satisfying the classification by type criterion. Where this connection between the nature of the provision and one of the accounts within the above classes may not be made, the risks and charges provisions are recognised to accounts B12 and B13 of the income statement. For the measurement of risks and charges, in addition, account was taken of the risks and losses in 2017 even if known after year-end and until the preparation of the financial statements.

10. Post-employment benefit provision For the Italian companies, post-employment benefits are the amounts due and the reserves concerning commitments matured at year-end in favour of employees, under statutory law, labour contracts and any company agreements. Following the entry into force in 2007 of new social security legislation (Law 296/2006 and implementing decrees and circulars issued by the Ministry for Welfare and the INPS), the Post-employment benefits matured were transferred to supplementary pension provisions or to the treasury fund set up at the INPS, according to the choices made by employees.

The provision at 31.12.2017 will continue to be subject to the usual annual revaluation under Article 2120 of the Civil Code.

11. Payables Payables are liabilities of a certain nature and existence which represent obligations to pay fixed or determinable amounts of liquidity to lenders, suppliers and other parties. Payables arising from the purchase of goods are recognised where the production process of the goods has been completed and the substantial transfer of ownership has occurred, using the transfer of risks and benefits parameter. Payables for services are recorded when the services have been received, i.e. when provision has been completed. Financial payables and those other than from the acquisition of goods and services are recognised when the Group has a payment obligation to the counterparty. The account “Advances” refers to the advance payments received from customers relating to the supply of goods and services not yet made. Payables are measured in the financial statements at amortised cost, taking into account the time value of money. Where the interest rate for the operation is not significantly different from the market rate, the payable is initially recognised at the nominal value net of all transaction costs and premiums and the discounts and rebates directly associated with the transaction generating the payable.

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Explanatory Notes

The effects deriving from the application of the amortised cost and of the discounting are not expected to be significant for the Group when the payables are due within 12 months, taking account also of all contractual and substantial considerations on the recognition of the payable, and when the settlement costs and any difference between the initial value and the nominal value on maturity are insignificant. In this case, discounting is omitted, interest is calculated at nominal value and settlement costs are recognised to accrued expenses and amortised on a straight-line basis over the duration of the payable and adjusted by nominal interest charges. Payables to companies subject to the control of parent companies are recognised to account D 11 bis.

12. Amounts in foreign currencies

The revenues and costs related to transactions in foreign currencies are recorded at the exchange rate when the transaction took place. Fixed assets in foreign currencies are recognized at the exchange rate at the time of purchase or at a lower rate at the reporting date if the reduction is considered permanent. Other assets and liabilities, converted according to the exchange rate at the transaction date, are thereafter adjusted in line with the exchange rate at the reporting date. Gains and losses arising following this adjustment are recognised to the income statement and any net profit recognised to a non-distributable shareholders’ equity reserve.

Subsequent to year-end, there were no significant changes to the exchange rates.

13. Accrued liabilities and deferred income

Accrued liabilities and deferred income exclusively include the costs for the year payable in future periods and income received in the period relating to future periods.

In any case, only amounts relating to two or more periods are recorded in this account, the amount of which varies depending on the time period involved.

14. Recognition of revenues, costs and income and financial charges Revenues and income and costs and charges are recorded net of returns, discounts, rebates and premiums as well as direct taxes related to the sale of products and services, in accordance with the accruals and prudence principles.

Revenues from the sale of products and costs for the purchase of raw materials, ancillaries, consumables and goods are recognised on an accruals basis when both of the following conditions are met: - the production process of the goods and services has been completed; - the exchange has taken place, i.e. substantial transfer of ownership has occurred, which normally is identified

as the delivery of the goods (in the cases of goods), with the signing of the purchase contract (in the case of moveable or immovable goods) or the provision of the service (in the case of services).

“Other revenues and income” includes all non-financial income deriving only from accessory activities. Financial income and costs are recognised on an accruals basis.

15. Income taxes Income taxes arising in the year concerning companies included in the consolidation scope are calculated on the basis of the applicable rules in the State in which the consolidated company is resident.

For IRES, the companies iGuzzini and Orlandi Srl have opted, through motion of the respective Board of Directors’ meetings of March 31, 2017 for the national tax consolidation, signing on June 28, 2017 a “tax consolidation” contract with the parent company Fimag SpA for the 2017-2019 period.

64

Explanatory Notes

Following this agreement, any IRES payable is included, net of advances, in the liability section of the balance sheet at the account “payables to parent companies” (D 11); any IRES receivable is recognised to “receivables from parent companies” (C II 4) in the assets section of the balance sheet.

16. Deferred taxes Deferred tax assets and liabilities are calculated by the companies included in the consolidation scope on the basis of the temporary differences between the book value and their corresponding value for tax purposes, applying the tax rates expected when these differences will reverse.

Deferred tax assets are recorded according to the prudence principle and only where there is reasonable certainty that the temporary differences will reverse in future years resulting from an assessable income not lower that the differences that will reverse.

Deferred tax liabilities are recognised to account B 2 “provisions for risks and charges - provisions for taxes, including deferred”; deferred tax assets are recognised to account C II 5-ter “deferred tax assets”.

The offsetting of deferred tax liabilities and assets is made by the individual consolidated companies, where the legal right to offsetting exists. In the consolidated financial statements, the relative balances of the individual companies included in the consolidation scope are not offset in the absence of a legal right to offsetting. The potential tax benefit connected to losses carried forward are recorded in the financial statements where it is reasonably certain that future assessable income will be obtained to absorb these losses, within the period for which these losses may be carried forward.

Change of accounting standards The change to an accounting standard is recognised in the year in which it is adopted and the relative events and operations are handled in compliance with the new standard which is applied retroactively. This results in the accounting recognition of these effects in the opening shareholders’ equity balance. For comparative purposes only, if possible and not excessively onerous, the opening shareholders’ equity of the previous year and the comparative figures for the previous year are adjusted as if the new accounting standard had always been applied. In the cases where it is not possible to calculate the cumulative prior effect of the change to the standard or the calculation of the prior effect is excessively onerous, the Group applies the new accounting standard from the first date from which such is possible. Where this date coincides with the beginning of the present financial year, the new accounting standard is applied prospectively.

Off-balance sheet agreements In accordance with Article 2427, paragraph 1, No. 22-ter of the Civil Code, no off-balance sheet agreements with third parties or related parties have been concluded which may result in significant risks or benefits or whose indication is necessary to assess the balance sheet and financial position and result of the Group.

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Explanatory Notes

C. Consolidated balance sheet Assets

1. Intangible assets (BI)

Intangible asset movements are reported below:

Opening Increases Decreases Exchange Reclassifications

Closing

Historic costs balance adjustments balance

Industrial patents and intellectual 12,028,400 488,128 (3,480) (11,812) 54,624 12,555,860 property rights

Concessions, licenses, trademarks & similar rights

1,781,078 45,799 0 0 0 1,826,876

Goodwill 37,551 0 0 0 0 37,551

Intangibles in progress & payments on account

38,200 332,424 0 0 (54,624) 316,000

Other 1,461,744 21,534 0 (83,358) 0 1,399,920

Total 15,346,973 887,885 (3,480) (95,170) 0 16,136,207

Accumulated amortisation Opening

balance

Amortisation Decreases Exchange adjustments

Closing balance

Industrial patents and intellectual property rights (11,837,476) (293,875) 3,480 10,929 (12,116,942)


(1,422,580) (39,013) 0 0 (1,461,593)

Goodwill (30,040) (7,511) 0 0 (37,551)

Other (961,491) (45,650) 0 56,435 (950,706)

Total (14,251,587) (386,049) 3,480 67,364 (14,566,792)

Net intangible assets Opening balance

Increases Amortisation Exchange

adjustments

Reclassifications

Closing balance

Industrial patents and intellectual property rights 190,923 488,128 (293,875) (882) 54,624 438,918


358,497 45,799 (39,013) 0 0 365,283

Goodwill 7,511 0 (7,511) 0 0 0

Assets in progress and payments on account

38,200 332,424 0 0 (54,624) 316,000

Other 500,255 21,534 (45,650) (26,925) 0 449,214

Total 1,095,386 887,885 (386,049) (27,807) 0 1,569,415

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Explanatory Notes

“Industrial patents and intellectual property rights” concern costs for the filing of domestic and international patents on group company products and operating software and applications whose usage rights have been acquired. The increase in the year concerns new patents for Euro 120 thousand and new software for Euro 368 thousand.

“Concessions, licenses, trademarks and similar rights” include costs for the filing, in Italy and overseas, of company trademarks and trademarks concerning new products and the acquisition of temporary licenses for programmes and of temporary patent and industrial project usage rights.

During the year, “goodwill” continued to be amortised following the acquisition by iGuzzini Finland & Baltic Oy of treasury shares accounting for 7.6% of the share capital. The shares were acquired in 2013 from a third-party shareholder.

The increase in the item "assets in progress and payments on account" principally relates to advances paid by the Parent Company for the new corporate ERP system.

“Other intangible assets” almost entirely concern property leasehold improvements and the land usage right at the registered office of the subsidiary iGuzzini Lighting China Ltd.

1. Property, plant & equipment (BII)

The movements in property, plant and equipment were as follows:

Historical Costs Opening balance

Capitalised costs

Increases Decreases Exchange adjustments

Reclass. Closing balance

Land and buildings 109,532,324 0 1,409,770 0 (280,510) 71,444 110,733,028

Plant and machinery 40,021,952 0 668,304 (371,228) (103,148) 699,906 40,915,786

Industrial and commercial equipment

76,242,490 569,668 2,228,509 (159) (409,747) 492,656 79,123,417

Other assets 17,622,473 0 1,127,697 (243,713) (270,399) 22,001 18,258,059


1,221,777 378,378 1,881,006 0 (19,925) (1,279,247) 2,181,989

Total 244,641,016 948,046 7,315,286 (615,100) (1,083,729) 6,760 251,212,279

Accumulated depreciation Opening balance

Depreciation Decreases Exchange adjustments


Land and buildings (31,300,849) (2,686,456) 0 77,967 0 (33,909,338)

Plant and machinery (31,593,593) (1,406,671) 367,052 84,398 0 (32,548,814)


(61,438,311) (4,120,249) 159 265,964 0 (65,292,437)

Other assets (14,854,764) (904,429) 241,967 234,095 (6,760) (15,289,891)

Total (139,187,517) (9,117,805) 609,178 662,424 (6,760) (147,040,480)

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Explanatory Notes

Net property, plant and equipment

Opening balance

Capitalised costs

Increases Depreciation Decreases Exchange adjustments


Land and buildings 78,231,475 0 1,409,770 (2,686,456) 0 (202,543) 71,444 76,823,690

Plant and machinery 8,428,358 0 668,304 (1,406,671) (4,176) (18,749) 699,906 8,366,972


14,804,179 569,668 2,228,509 (4,120,249) 0 (143,783) 492,656 13,830,980

Other assets 2,767,710 0 1,127,697 (904,429) (1,746) (36,305) 15,241 2,968,168


1,221,777 378,378 1,881,006 0 0 (19,925) (1,279,247) 2,181,989

Total 105,453,499 948,046 7,315,286 (9,117,805) (5,922) (421,305) 0 104,171,799

The main investments are detailed below:

Land and buildings The increase almost entirely concerns (€ 1,324) the property transfer tax paid to the UK authorities for the Guilford building, headquarters of the subsidiary iGuzzini illuminazione U.K. Ltd.

Plant and machinery Investments in the year almost entirely concern the parent company and principally the acquisition of a milling machine for Euro 290 thousand, a robotic system for siliconising and assembling glass for Euro 189 thousand and an automated varnishing system for Euro 148 thousand.

Industrial and commercial equipment Capitalised costs concern the internal construction of moulds and equipment and utensils for the production units. The increases mainly concern the acquisition and construction of moulds for the new production lines and, for a minimal amount, the acquisition of equipment.

Other assets Acquisitions mainly concerned computers, servers and other hardware equipment (Euro 779 thousand) and office furniture (Euro 269 thousand).

Assets in progress and advances The increase in this account concerns moulds, machinery and equipment under construction and advances paid to suppliers.

“Reclassifications” relate to the transfer of amounts from the account “assets in progress and advances” to the specific property, plant and equipment accounts, in addition to the cancellation of the carrying amount and the accumulated depreciation of assets no longer utilised.

At 31.12.2017, property, plant and equipment were not encumbered by any mortgages.

The table below outlines revaluations on assets at 31.12.2017:

Property, plant & equipment Law

No. 72/1983

Law No.

413/1991

Law No. 342/2000

Total revaluations

a. Land and buildings 254,908 540,503 7,045,070 7,840,481

b. Plant and machinery 31,280 0 1,473,428 1,504,708

c. Industrial and commercial equipment

91,981 0 1,995,612 2,087,593

d. Other assets 8,175 0 20,278 28,453

Total 386,344 540,503 10,534,388 11,461,235

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Explanatory Notes

3. Financial assets (BIII)

Investments (BIII1) The increase of investments in other companies (€ 2 thousand) concerns the undertaking by the parent company of a stake in the Ecopolyethylene consortium.

Other securities (BIII3) This account concerns the subscription by iGuzzini of a bond loan of Euro 3,000 thousand, with maturity on December 31, 2019, issued by the parent company Fimag SpA.

4. Inventories (CI)

The changes to inventories was as follows:

Inventories 31.12.2017 31.12.2016 Change Raw material, ancillaries and consumables 17,350,550 16,677,561 672,989

Book value 19,128,017 17,432,697 1,695,320

Write-down provision (1,777,467) (755,136) (1,022,331)

Work-in-progress and semi-finished goods 8,319,617 7,441,356 878,261

Book value 9,109,943 8,000,944 1,108,999

Write-down provision (790,326) (559,588) (230,738)

Finished products and goods 15,450,381 17,574,127 (2,123,746)

Book value 20,898,855 21,788,476 (889,621)

Finished products 15,243,841 15,479,144 (235,303)

Goods 5,655,014 6,309,332 (654,318)

Write-down provision (5,448,474) (4,214,349) (1,234,125)

Provision for the write-down of finished products

(3,813,563) (2,452,681) (1,360,882)

Goods obsolescence provision (1,634,911) (1,761,668) 126,757

Advances 155,948 79,692 76,256

Total 41,276,496 41,772,736 (496,240)

The total value of inventories remains substantially stable on the previous year, in line with production.

The write-down provision, as a reduction of inventories, was considered appropriate to cover the obsolescence concerning a part of the products in inventory.

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Explanatory Notes

5. Current receivables (CII) The changes in receivables were as follows:

Receivables 31.12.2017 31.12.2016 Change

Trade receivables 56,603,926 60,690,835 (4,086,909)

Receivables from parent companies 1,206,087 1,438,890 (232,803)

Receivables from companies subject to the control of parent companies

73,380 49,101 24,279

Tax receivables 3,100,791 2,807,723 293,068

Deferred tax assets 6,749,167 5,672,667 1,076,500

Other receivables 2,074,583 2,048,199 26,384

Total 69,807,934 72,707,415 (2,899,481)

Trade receivables (CII1) They decreased Euro 4,087 thousand and are reported net of the doubtful debt provision which amounts to Euro 6,609 thousand (Euro 5,228 thousand at 31.12.2016).

The breakdown of trade receivables by region was as follows:

Trade receivables by region 31.12.2017 31.12.2016 Change Italy 18,283,306 22,730,89

3 (4,447,587)

EU 23,262,370 23,670,904

(408,534)

Non-EU 15,058,250 14,289,038

769,212

Total 56,603,926 60,690,835

(4,086,909)

Receivables from parent companies (CII4) The receivables from the parent company Fimag SpA reduced Euro 233 thousand and comprise trade receivables for Euro 67 thousand and other receivables for Euro 1,139 thousand. Other receivables concern receivables for interest matured on the bond loan subscribed by iGuzzini (Euro 14 thousand) and IRES receivables recognised to this account following the national tax consolidation option exercised by iGuzzini and by Orlandi Srl (Euro 1,125 thousand).

Receivables from companies subject to the control of parent companies (CII5) These receivables exclusively concern Fratelli Guzzini SpA.

Tax receivables (CII5-bis) Tax receivables are broken down as follows:

Tax receivables 31.12.2017 31.12.2016 Change

VAT receivables 2,336,210 1,967,067 369,143

Income tax receivables 685,168 662,912 22,256

Other tax receivables 79,413 177,744 (98,331)

Total 3,100,791 2,807,723 293,068

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Explanatory Notes

The breakdown by region of tax receivables is as follows:

Tax receivables by region 31.12.2016 31.12.2015 Change Italy 2,095,582 1,578,638 516,944

EU 470,962 724,769 (253,807)

Non-EU 534,247 504,316 29,931

Total 3,100,791 2,807,723 293,068

Deferred tax assets (CII5-ter) The following table outlines the accounts on which deferred tax assets are calculated.

Deferred tax assets

31.12.2017 Amount

of temporary differences

31.12.2017 Tax effect

31.12.2016 Amount

of temporary differences


Doubtful debt provision 1,990,328 477,679 1,399,125 335,790

Inventory obsolescence provision 6,278,175 1,531,129 3,717,807 916,641

Maintenance exceeding 5% 24,641 5,914 33,481 8,035

Agents settlement provision 2,202,746 619,632 1,933,101 543,782

Tax losses carried forward 3,696,349 938,820 3,423,465 904,544

Provision legal cases in progress 1,714,692 482,343 1,200,000 337,560

Employee and director bonuses provision 2,328,186 599,164 2,305,639 593,729

Expected exchange losses 35,479 8,515 86,309 20,714

Interest expense leasing grace period 166,712 40,011 220,283 52,868

Derivative financial instruments – Liabilities 1,919,321 460,637 2,423,579 581,659

Others 6,054,638 1,585,323 5,224,576 1,377,345

Total 26,411,267 6,749,167 21,967,365 5,672,667

Deferred tax assets principally concern iGuzzini. They were recognised on tax losses which may be carried forward by iGuzzini illuminazione Iberica S.A. (Euro 631 thousand), iGuzzini illuminazione Deutschland Gmbh (Euro 49 thousand), iGuzzini illuminazione Norge A.S. (Euro 44 thousand), iGuzzini illuminazione Ooo (Euro 17 thousand) and iGuzzini Lighting USA Ltd (Euro 198 thousand). They are recognised to the financial statements on the basis of a reasonable certainty of future recovery of the losses. The “other” account principally concerns tax effects from consolidation adjustments and in particular the elimination of the net profit on inter-company inventories which mainly relates to sales by iGuzzini. Consequently, the tax rates applied to calculate the tax effect principally concern Italian taxes: 24% for assessable income subject only to IRES; 28.13% for assessable income subject also to IRAP.

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Explanatory Notes

The breakdown by region of other receivables is as follows:

Deferred tax assets by region 31.12.2017 31.12.2016 Change Italy 4,955,925 4,146,654 809,271

EU 832,848 864,911 (32,063)

Non-EU 960,394 661,102 299,292

Total 6,749,167 5,672,667 1,076,500

Other receivables (CII5-quater) Other receivables are broken down as follows:

Balance at Balance at

Other receivables 31.12.2017 31.12.2016 Change Guarantee deposits 403,970 411,024 (7,054)

Supplier advances for services 989,654 989,407 247

Other receivables 680,959 647,768 33,191

Total 2,074,583 2,048,199 26,384

The breakdown by region of other receivables is as follows:

Other receivables by region 31.12.2017 31.12.2016 Change Italy 1,028,147 1,034,299 (6,152)

EU 317,747 191,730 126,017

Non-EU 728,689 822,170 (93,481)

Total 2,074,583 2,048,199 26,384

There are no receivables due beyond 5 years.

6. Cash and cash equivalents (CIV) The changes in cash and cash equivalents were as follows:

Cash at banks and on hand 31.12.2017 31.12.2016 Change Bank and postal deposits 48,996,903 25,809,770 23,187,133

Cash in hand and similar 64,036 48,506 15,530

Total 49,060,939 25,858,276 23,202,663

For a more extensive analysis of the changes to cash and cash equivalents, reference should be made to the cash flow statement.

72

Explanatory Notes

7. Accrued income and prepayments (D) The changes in prepayments and accrued income were as follows:

Accrued income and prepayments 31.12.2017

31.12.2016 Change

Accrued income:

Others 1,122 2,808 (1,686)

Total accrued income 1,122 2,808 (1,686)

Prepayments:

Insurance premiums 128,708 95,585 33,123

Rental 45,916 51,689 (5,773)

Others 1,588,001 793,096 794,905

Total prepayments 1,762,625 940,370 822,255

Total 1,763,747 943,178 820,569

There are no accrued liabilities and deferred income beyond 5 years.

73

Explanatory Notes

Liabilities

1. Shareholders' equity (A) Movements in the consolidated shareholders’ equity accounts (Annex B) and the reconciliation between the net result and shareholders’ equity of the parent company and the respective consolidated figures (Annex C) are reported in the Annexes.

The share capital, fully paid-in, amounts to Euro 21,050,000, comprising 21,050,000 shares of a nominal value of Euro 1. IGuzzini holds 2,066,115 treasury shares with a nominal value of Euro 1 each, acquired at the price of Euro 14,999,994.90, equivalent to 9.815 % of the share capital. The purchase price of these treasury shares was recognised in a negative shareholders’ equity reserve "Negative reserve for treasury shares in portfolio" in accordance with the provisions of Art. 2357-ter of the Civil Code. At 31/12/2017, 75.895% of the shares were held by the finance company Fimag SpA, 14.29% by the company TIP-PRE IPO Spa and with the remaining 9.815% comprising treasury shares.

The latent tax charge on the retained earnings of the consolidated companies is not recognised in the consolidated financial statements, amounting to Euro 58,803 thousand, as it is reasonably expected that, in consideration of the parent company dividend policy, reserves or profits subject to taxation will not be distributed.

The reserves in suspension of taxes concern iGuzzini and relate to the following accounts:

Law 342/2000 revaluation provision 8,906,933 Amnesty provision 3,829 Prior year income provision Presidential Decree 917/86

46,854

2. Provisions for risks and charges (B)

The movements in the provisions for risks and charges were as follows:

Provisions for risks and charges Opening balance

Provisions Decreases

Exchange adjustments

Reclass.

Closing balance

Pension and similar provisions 1,936,172 627,456 (21,587) 0 251,005 2,793,046

Tax provisions, including for deferred tax liabilities:

7,868,094 157,949 (220,538) (20,575) 194,282 7,979,212

Deferred tax liabilities 7,868,094 157,949 (220,538) (20,575) 194,282 7,979,212

Derivative financial instruments – Liabilities

2,476,353 0 (507,130) 0 0 1,969,223

Other provisions 3,392,209 2,946,036 (2,017,297) (14,178) 0 4,324,770

Allowance for warranties 373,602 800,000 (6,800) (13,028) 0 1,153,774

Legal provision 1,000,000 440,000 (725,308) 0 0 714,692

Others 2,018,607 1,724,036 (1,285,189) (1,150) 0 2,456,304

Total 15,672,828 3,749,441 (2,766,552) (34,753) 445,287 17,066,251

The pension and similar provision relates almost entirely (Euro 2,503 thousand) to the agents’ supplementary indemnity provision accrued for the revocation of agency contracts due to reasons attributable to Group companies. An allocation provision was made to bring the value into line with the liability that will mature on the conclusion of agency relations in accordance with applicable regulatory conditions. The residual part of the provision refers to the provisions made by some Group companies to settle payroll costs for employees on the employment contract’s termination.

74

Explanatory Notes

Deferred tax liabilities include:

Deferred taxes

31.12.2017

Amount of temporary

differences


31.12.2016

Amount of temporary

differences

31.12.2016

Tax effect

Accelerated amort. & depreciation

251,924 70,866 253,866 71,413

Leased assets (finance method)

26,455,177 7,383,385 24,023,452 7,441,882

Unrealised exchange gains 351,891 84,454 314,772 75,545

Deferred gains 43,937 10,545 63,223 15,174

Others 1,719,848 429,962 1,056,320 264,080

Total 28,822,777 7,979,212 25,711,633 7,868,094

Deferred tax liabilities almost entirely concern iGuzzini, including the effect of the “Leased assets” account. Consequently, the tax rates applied to calculate the tax effect principally concern Italian taxes: 24% for assessable income subject only to IRES; 28.13% for assessable income subject also to IRAP.

Derivative financial instruments were measured in accordance with that set out in the accounting policies paragraph. The following table reports the hierarchy of fair value measurement with regards to interest rate derivative instruments.

Measurement at fair value through:

Liabilities measured at

fair value: Hedging

derivatives:

Valuation

date

Notional Outstanding Total Fair value

Prices listed on an

Active market (Level 1)

Significant observable inputs

(Level 2)

Significant non-observable

inputs (Level 3)

IRS 31.12.2017 10,927,981 (1,481,277)

IRS 31.12.2017 2,824,256 (487,946)

Total (1,969,223)

The following table reports the changes to the value of hedging instruments, recognised directly to the income statement, in addition to those recognised to the shareholders’ equity reserve:

Change attributable to:

Notional Fair Value Fair Value

Interest rate risk Outstanding 01.01.2016 31.12.2017 IS Remeas.

Hedging derivatives:

IRS

IRS

10,927,981

2,824,256

(1,870,236)

(606,117)

(1,481,277)

(487,946)

2,873 504,258

Total (2,476,353) (1,969,223) 2,873 504,258

75

Explanatory Notes

The change to the income statement includes the ineffective component arising in 2017. The following table

breaks down the reserve at December 31, 2017:

Cash flow hedge reserve (31.12.2016)

Change in provision (settled amounts)

Change reserve (fair value changes)

Cash flow hedge reserve (31.12.2017)

(2,423,578) 469,797 34,461 (1,919,320)

The change to the reserve was calculated considering the amount of the reserves gross of deferred tax assets which at 31/12/2017 amount to Euro 460,637. The reserve in 2017 decreased Euro 504 thousand.

The products guarantee provision was established by iGuzzini against expected product default risks in accordance with the prudence principle.

The risk provision for legal cases in progress is considered adequate cover for the probable risk of an unfavourable verdict on certain disputes that are commercial in nature.

The increase in “Other provisions for risks and charges” almost entirely concerned the accrual of the bonus to employees and directors (Euro 1,614 thousand) by iGuzzini.

3. Post-employment benefit provision (C)

The movements in the post-employment benefit provision were as follows:

Post-employment benefit provision 31.12.2017 31.12.2016 Change Opening balance 6,712,539 7,193,658 (481,119)

Provisions 157,308 201,867 (44,559)

Utilizations (320,549) (278,335) (42,214)

Other movements 0 (404,650) 404,650

Closing balance 6,549,298 6,712,540 (163,242)

The difference between the accrual indicated in the table and that in the income statement concerned the portion of Post-employment benefits paid to the supplementary pension provisions, the treasury fund and the INPS guarantee fund.

76

Explanatory Notes

4. Payables (D) The changes to payables were as follows:

Balance at

Balance at

Payables 31.12.2017 31.12.2016 Change Bank payables 24,803,748 9,080,441 15,723,307

Payables to other lenders 18,695,433 22,277,780 (3,582,347)

Advances 1,605,242 1,793,294 (188,052)

Trade payables 39,572,690 39,544,983 27,707

Parent companies 2,435,647 196,814 2,238,833

Companies subject to control of parent companies

6,502 10,493 (3,991)

Tax payables 5,893,246 5,942,458 (49,212)

Payables to social security institutions 2,369,170 2,555,514 (186,344)

Other payables 4,303,022 4,923,724 (620,702)

Total 99,684,700 86,325,501 13,359,199

Bank payables (D4) These amount overall to Euro 24,804 thousand, increasing Euro 15,723 thousand and principally concern: • for Euro 1,800 thousand the loan of Euro 4,000 thousand issued on 05.02.2015 to iGuzzini by Unicredit SpA.

The repayment plan sets out a total of 20 quarterly instalments in arrears concluding on 29.02.2020. The interest rate is the Euribor at three months plus a spread;

• for Euro 1,004 thousand the loan of Euro 2,000 thousand issued on 20.05.2016 to iGuzzini by BNL SpA (BNP PARIBAS Group). The repayment plan sets out a total of 12 quarterly instalments in arrears concluding on 20.05.2019. A fixed interest rate is applied;

• for Euro 2,000 thousand the loan of Euro 4,000 thousand issued on 13.05.2016 to iGuzzini by Unicredit SpA. The repayment plan sets out a total of 12 quarterly instalments in arrears concluding on 31.05.2019. The interest rate is the Euribor at three months plus a spread.

• for Euro 10,000 thousand the loan of Euro 10,000 thousand issued on 29.06.2017 to iGuzzini by Credito Valtellinese SpA. The repayment plan sets out a total of 25 quarterly instalments, of which 5 interest-only, in arrears concluding on 30.06.2023. The interest rate is the Euribor at three months plus a spread.

• for Euro 10,000 thousand the loan of Euro 10,000 thousand issued on 03.07.2017 to iGuzzini by Unicredit SpA. The repayment plan sets out a total of 20 quarterly instalments, of which 4 interest-only, in arrears concluding on 30.06.2022. The interest rate is the Euribor at three months plus a spread.

All bank payables are toward Italian banks.

Other lenders (D5) These amount to Euro 18,695 thousand, decreasing Euro 3,582 thousand and concern: • for Euro 10,928 thousand the payable for a finance lease signed iGuzzini with Ubi Leasing Spa, which funded

the construction in Recanati of a building (Laboratories of light) adjacent to the current parent company registered office and fitted with commercial areas and exposition areas. The repayment plan, through monthly instalments in arrears, is of eighteen years duration and will conclude in 2028. Hedging the variable interest rate established under the finance lease contract, in October 2010 an Interest Rate Swap was signed permitting the swapping of the variable reference rate equal to the Euribor at 3 months on a 360 basis with a fixed rate of 2.8025% on an annual basis, with monthly payments. The derivative contract at 31.12.2017 presents a negative position of Euro 1,524 thousand;

77

Explanatory Notes

• for Euro 2,910 thousand the payable for a finance lease signed by iGuzzini with ICCREA Bancaimpresa SpA

which funded the construction of a photovoltaic plant on the roofs of the industrial warehouses at the Recanati headquarters. The repayment plan, through monthly instalments in arrears, is of eighteen years duration and will conclude in December 2029. Also in the case, hedging the variable interest rate established under the finance lease contract, in December 2011 an Interest Rate Swap was signed permitting the swapping of the variable reference rate equal to the Euribor at 3 months on a 360 basis with a fixed rate of 3.49% on an annual basis, with half-yearly payments. The derivative contract at 31.12.2017 presents a negative position of Euro 552 thousand;

• for Euro 4,857 thousand the payable for a finance lease signed by iGuzzini illuminazione Iberica s.a. with Banco Bilbao Vizcaya Argentaria s.a., which funded the construction in San Cugat, on the outskirts of Barcelona, of the headquarters of the above company. The repayment plan, through monthly instalments, is of ten years duration and will conclude in January 2021.

The payables are due to Italian lenders for Euro 13,838 thousand and European Union lenders for Euro 4,857 thousand.

Advances (D6) These are advances paid by clients and decreased on the previous year Euro 188 thousand.

The breakdown by region of advances is as follows:

Advances by region 31.12.2017 31.12.2016 Change Italy 40,803 30,237 10,566

EU 325,789 184,521 141,268

Non-EU 1,238,650 1,578,536 (339,886)

Total 1,605,242 1,793,294 (188,052)

Trade payables (D7) These amount to Euro 39,573 thousand, increasing Euro 28 thousand on the previous year.

Trade payables by region were as follows:

Trade payables by region 31.12.2017 31.12.2016 Change Italy 30,236,880 30,445,39

9 (208,519)

EU 4,694,936 3,966,218 728,718

Non-EU 4,640,874 5,133,366 (492,492)

Total 39,572,690 39,544,983

27,707

Payables to parent companies (D11) Payables to the parent company Fimag SpA increased by Euro 2,239 thousand and almost entirely consist of IRES payables recognised under this account following the national tax consolidation option exercised by iGuzzini.

Payables to companies subject to the control of parent companies (D11-bis) These payables concern Fratelli Guzzini SpA (Euro 5 thousand) and Bridge Srl (Euro 1 thousand).

78

Explanatory Notes

Tax payables (D12) The changes to tax payables were as follows:

Balance at Balance at

Tax payables 31.12.2017 31.12.2016 Change VAT payables 2,607,541 2,539,995 67,546

Tax payables 1,544,859 1,449,059 95,800

Withholding tax payables 1,613,490 1,729,674 (116,184)

Other tax payables 127,356 223,730 (96,374)

Total 5,893,246 5,942,458 (49,212)

The breakdown by region of tax payables was as follows:

Tax payables by region 31.12.2017 31.12.2016 Change Italy 1,561,420 1,475,841 85,579

EU 3,083,523 3,057,986 25,537

Non-EU 1,248,303 1,408,631 (160,328)

Total 5,893,246 5,942,458 (49,212)

Social security payables (D13) These amount to Euro 2,369 thousand, decreasing Euro 186 thousand on the previous year. They principally comprise contributions to be paid for December and the thirteenth month.

The breakdown by region of payables to social security institutions was as follows:

Social security payables by region 31.12.2017 31.12.2016 Change Italy 1,820,321 1,809,038 11,283

EU 474,161 675,918 (201,757)

Non-EU 74,688 70,558 4,130

Total 2,369,170 2,555,514 (186,344)

Other payables (D14) The changes to other payables were as follows:

Other payables 31.12.2017 31.12.2016 Change Employee payables 3,880,959 4,004,140 (123,181)

Other payables 422,063 919,584 (497,521)

Total 4,303,022 4,923,724 (620,702)

79

Explanatory Notes

Employee payables principally concern payables to employees for December 2017 salaries paid in January 2018 and for vacation days matured but not taken.

The breakdown by region of other payables was as follows:

Other payables by region 31.12.2017 31.12.2016 Change Italy 1,922,747 2,076,916 (154,169)

EU 1,593,616 1,561,119 32,497

Non-EU 786,659 1,285,689 (499,030)

Total 4,303,022 4,923,724 (620,702)

Payables due beyond five years Payables due beyond five years at 31.12.2017 were as follows: • Euro 6,727 thousand to Ubi Leasing SpA for instalments to be repaid concerning the finance lease signed by

iGuzzini for the construction in Recanati of a building (Laboratories of light) adjacent to the current parent company headquarters and designated as commercial offices and exhibition areas;

• Euro 1,815 thousand to ICCREA Bancaimpresa SpA for the instalments to be repaid concerning the finance lease signed by iGuzzini for the installation of photovoltaic plant on the roofs of the industrial warehouses at the Recanati offices.

8. Accrued liabilities and deferred income (E)

The changes to accrued liabilities and deferred income were as follows:

Accrued liabilities and deferred income

31.12.2017 31.12.2016 Change

Accrued liabilities:

Interest charges 17,551 13,302 4,249

Total accrued liabilities 17,551 13,302 4,249

Deferred income:

Others 26,199 10,651 15,548

Total deferred income 26,199 10,651 15,548

Total 43,750 23,953 19,797

There are no accrued liabilities and deferred income beyond 5 years.

Off balance sheet commitments, guarantees and contingent liabilities

Guarantees, commitments and contingent liabilities

31.12.2017 31.12.2016 Change

Sureties 2,326,214 1,390,800 935,414

Total guarantees 2,326,214 1,390,800 935,414

“Sureties” in favour of third parties relate to bank sureties issued on behalf of iGuzzini in favour of public and private entities in guarantee of tender or supply contracts.

80

Explanatory Notes

D. Consolidated income statement

1. Value of production (A)

Revenues from sales and services (account A1 of the income statement) were up Euro 816 thousand (+0.4%) on the previous year.

The breakdown by region outlined below shows a contraction of the domestic market (-8.63%) offset by growth in E.U. (+1.99%) and non-E.U. (+4.11%) markets.

Sales revenues by region 2017 2016 Change Change % Italy 47,028,192 51,469,776 (4,441,584) -8.63%

EU 103,068,327 101,055,392

2,012,935 1.99%

Non-EU 82,187,980 78,943,021 3,244,959 4.11%

Total 232,284,499 231,468,189

816,310 0.35%

“Other revenues and income” were as follows:

Other revenues and income 2017 2016 Change Change % Change % 12,627 11,808 819 6.94%

Claims and insurance settlement 140,170 154,393 (14,223) -9.21%

Gains 11,493 26,942 (15,449) -57.34%

Provision adjustments 403,493 54,803 348,690 636.26%

Recharges costs 1,425,282 1,916,786 (491,504) -25.64%

Other revenue and income 1,175,124 1,897,240 (722,116) -38.06%

Operating grants 1,152,101 665,116 486,985 73.22%

Total 4,320,290 4,727,088 (406,798) -8.61%

Operating grants concern for Euro 861 thousand grants issued to iGuzzini for the photovoltaic production of energy.

2. Costs of production (B) Costs of production decreased from Euro 221,554 thousand in 2016 to Euro 217,462 thousand in 2017 (- Euro 4,092 thousand).

81

Explanatory Notes

Raw materials, consumables and goods (B6) The items comprising this account were as follows:

Raw materials, consumables and goods 2017 2016 Change Raw materials purchases 49,994,769 55,064,903 (5,070,134)

Ancillary and consumables purchases 1,757,963 1,593,696 164,267

Finished goods and products purchases 18,627,883 19,038,953 (411,070)

Promotional materials 815,373 747,610 67,763

Other purchases 2,668,774 2,393,345 275,429

Total 73,864,762 78,838,507 (4,973,745)

The reduction in the purchases of raw materials is due to the reduction in purchase prices and the different production mix compared to the previous year. “Other purchases” principally include materials for the construction of equipment for internal works, office materials and fuels.

Services (B7) The items comprising this account were as follows:

Services 2017 2016 Change

Transport 9,327,274 9,691,192 (363,918)

Processing 16,273,531 17,002,491 (728,960)

Maintenance and repairs 4,535,987 4,127,725 408,262

Advertising & promotions 2,616,693 3,164,033 (547,340)

Travel and transfer 2,398,081 2,471,031 (72,950)

Entertainment expenses 1,465,177 1,496,171 (30,994)

Commissions, intermediation fees and royalties 9,108,327 8,021,264 1,087,063

Consultancy 4,991,321 5,134,472 (143,151)

Director and Statutory Auditors’ fees 2,385,512 2,346,275 39,237

Independent audit firm fees 185,616 160,232 25,384

Insurance 638,432 649,000 (10,568)

External costs 1,764,880 1,757,037 7,843

Post and telephone expenses 896,173 882,479 13,694

Other service costs 9,363,962 8,973,072 390,890

Total 65,950,966 65,876,474 74,492

“Other service costs” principally comprise cleaning expenses, post-sales technical assistance and other personnel costs.

82

Explanatory Notes

Rent, leases and similar costs (B8) This principally concern property leases and accessory charges (Euro 2,310 thousand) and vehicle hire (Euro 1,975 thousand), increasing Euro 214 thousand on the previous year.

Personnel (B9) Personnel costs amount to Euro 58,459 thousand, rising Euro 839 thousand on the previous year.

Amortisation, depreciation & write-downs (B10) This account amounts to Euro 12,032 thousand, increasing Euro 801 thousand on the previous year.

Provisions for risks (B12) The provisions concern the product guarantee provision (Euro 800 thousand) and the provision for disputes in progress (Euro 440 thousand) established by the parent company.

Other provisions (B13) This account concerns provisions for customer returns accrued by iGuzzini illuminazione Deutschland Gmbh.

Other operating charges (B14) The main items comprising this account are illustrated below.

Other operating charges 2017 2016 Change Tax charges 880,641 1,004,586 (123,945)

Contributions to sector associations & donations

313,403 377,712 (64,309)

Losses 2,155 16,103 (13,948)

Losses on asset disposal 34,190 19,478 14,712

Other operating charges 305,075 500,065 (194,990)

Total 1,535,464 1,917,944 (382,480)

3. Financial income and charges (C)

Financial income (C16) The main items comprising this account were:

Financial income 2017 2016 Change Financial income from non-current securities:

Income on non-current securities 75,000 129,288 (54,288)

Total 75,000 129,288 (54,288)

Income third parties other than above

Bank interest income 63,254 57,724 5,530

Interest income from customers for payment extensions

719 513 206

Financial discounts from suppliers 22,705 48,105 (25,400)

Other financial income 9,261 8,491 770

Total 95,939 114,833 (18,894)

Grand total 170,939 244,121 (73,182)

83

Explanatory Notes

Income on securities relates to interest recorded by iGuzzini on the bond loan issued by Fimag SpA.

Interest and other financial charges (C17) The main items comprising this account were:

Interest and other financial charges 2017 2016 Change Interest on current accounts 3,480 5,006 (1,526)

Bank interest on loans 100,663 81,525 19,138

Interest on finance leases 950,416 1,137,409 (186,993)

Banking commissions and charges 291,387 323,110 (31,723)

Financial discounts to clients 650,032 541,939 108,093

Other financial charges 8,355 6,510 1,845

Total 2,004,333 2,095,499 (91,166)

Bank interest on loans concerns the loans issued to iGuzzini analysed in the balance sheet section. Interest on finance leases relates to interest from application of OIC 17 on leasing contracts signed by iGuzzini illuminazione Iberica S.A. and by iGuzzini, in addition to interest relating to derivative contracts undertaken with Ubi Leasing SpA and with ICCREA Bancaimpresa SpA to hedge the interest rate risk on the respective leasing contracts.

Exchange gains and losses (C17bis) Exchange gains and losses are detailed below:

Exchange gains and losses 2017 2016 Change Exchange gains:

Realised exchange gains 1,312,721 882,838 429,883

Unrealised exchange gains 592,524 736,726 (144,202)

Total exchange gains 1,905,245 1,619,564 285,681

Exchange losses:

Realised exchange losses (1,257,166) (1,108,418) (148,748)

Unrealised exchange losses (204,518) (305,415) 100,897

Total exchange losses (1,461,684) (1,413,833) (47,851)

Grand total 443,561 205,731 237,830

At the reporting date, there were no receivables and payables concerning operations with repurchase obligations.

4. Adjustment to financial assets and liabilities (D) During the year, derivative financial instruments were revalued for Euro 3 thousand on the basis of their fair value at 31.12.2017.

84

Explanatory Notes

5. Income taxes for the year (20) Current income taxes relate for Euro 3,042 thousand to IRES, for Euro 611 thousand to IRAP and for Euro 2,633 thousand to income taxes in the various countries where overseas subsidiaries have generated tax profits.

“Prior year income taxes” include Euro 201 thousand for IRES repayments issued to iGuzzini and Orlandi Srl by the parent company Fimag SpA according to the tax consolidation contract signed between the companies.

Deferred taxes include income taxes calculated on the tax losses of a number of Group companies for which the reasonable certainty of future recoverability exists.

The reconciliation between theoretical taxes calculated at applicable Italian rates and the financial statement income taxes follows:

Tax reconciliation 31.12.2017

%

31.12.2017

percentage

31.12.2016

%

31.12.2016

percentage Pre-tax result 18,078 100.00% 15,991 100.00%

Theoretical IRES charge 4,339 24.00% 4,398 27.50%

Theoretical IRAP charge 747 4.13% 660 4.13%

Total theoretical tax charge 5,085 28.13% 5,058 31.63%

Actual tax 4,951 27.39% 5,196 32.49%

Difference (134) -0.74% 138 0.86%

Effects relating to the parent company and companies located in Italy

Effect of the differing assessable IRAP base (134) -0.74% (257) -1.61%

Effect relating to companies with differing IRAP rates

(2) -0.01% (2) -0.01%

Effect of prior year income taxes (226) -1.25% (88) -0.55%

Other effects 768 4.25% 934 5.84%

Total effects concerning the parent company and the companies located in Italy

406 2.25% 587 3.67%

Effects relating to companies located overseas

Effects relating to companies reporting losses 2 0.01% 272 1.70%

Effect from the utilisation of prior year tax losses (14) -0.08% (60) -0.38%

Effect from income tax rate differences on the assessable amounts of overseas subsidiaries

(528) -2.92% (658) -4.11%

Effect of prior year income taxes 0 0.00% (3) -0.02%

Total effects relating to companies located overseas

(540) -2.99% (449) -2.81%

Total difference

(134)

-0.74%

138

0.86%

Euro thousands

85

Explanatory Notes

E. Other information

1. Average number of employees by category

Employee category 31.12.2017 31.12.2016 Change Executives 17 18 (1)

White-collar 813 788 25

Blue-collar and temporary workers 430 442 (12)

Total employees 1,260 1,248 12

2. Director and statutory auditor fees

Directors’ and statutory auditors’ fees 2017 2016 Change

Director fees 2,335,734 2,294,654 41,080

Statutory auditor fees 49,778 51,621 (1,843)

Total 2,385,512 2,346,275 39,237

3. Subsequent events

On the basis of Art. 2427, paragraph 1.22-quater, it should be noted that the following significant events occurred subsequent to year-end: - On January 17, 2018, the holding company 9372-1801 Québec Inc. ("IGuzzini Canada") was incorporated with

its registered office in Montrèal, Canada. The company is a 100% subsidiary of iGuzzini; - through NewCo iGuzzini Canada, the acquisition of 70% of the shares in the Canadian-registered company,

9850 333 Canada Inc., which wholly owns Sistemalux Inc., was closed on January 31, 2018.

Final considerations

The accounting policies outlined above comply with statutory regulations.

The financial statements present a true and fair view of the balance sheet and financial position of the company, in addition to the results for the year and reflect the underlying accounting records.

The presentation of amounts required by Article 2427 and 2427-bis of the Civil Code was made in compliance with the principle of clarity.

86

Explanatory Notes

Recanati, March 28, 2018

The Board of Directors Adolfo Guzzini

Chairperson

Paolo Guzzini

Vice Chairman

Massimiliano Guzzini

Vice Chairman

Andrea Sasso

Chief Executive Officer

Giovanni Tamburi

Director

87

Annex A

List of companies consolidated under the line-by-line method

Company

Registered

Office

Year-end

date

Share

capital in EUR

Share. equity in

EUR

Profit/loss for year in

EUR

Percentage

held directly

Percentage

held indirectly

Percentage

held total

Parent Company

iGuzzini illuminazione SpA

Recanati MC

31.12

21,050,000

79,225,993

6,081,416

Subsidiaries

iGuzzini Lighting China Ltd.

Shanghai

31.12

5,645,866

19,081,946

1,750,265

100.00%

100.00%(1)

100.00%

Shanghai iGuzzini Trading Ltd. Shanghai 31.12 101,678 603,328 185,705 0.00% 100.00%

iGuzzini illuminazione Deutschland Gmbh

Martinsried 31.12 500,000 1,682,502 25,469 100.00% 100.00%

iGuzzini illuminazione Iberica sa Rubi-Barcelona

31.12 601,000 17,682,017 183,769 99.90% 99.90%

iGuzzini illuminazione France sa Paris 31.12 1,654,072 4,323,696 746,734 99.99% 0.01%(2) 100.00%

iGuzzini illuminazione Norge as Oslo 31.12 61,639 304,726 (22,032) 100.00% 100.00%

iGuzzini illuminazione Schweiz ag Zurich 31.12 191,605 1,306,995 599,536 100.00% 100.00%

iGuzzini illuminazione U.K. Ltd. Guilford-Surrey

31.12 141,861 12,524,707 2,523,191 100.00% 100.00%

iGuzzini illuminazione Hong Kong Ltd.

Hong Kong 31.12 262,800 3,629,102 1,295,193 100.00%(3) 100.00%

Orlandi Srl Recanati MC 31.12 46,800 1,436,990 392,075 100.00% 100.00%

iGuzzini S.E.A. Pte Ltd. Singapore 31.12 237,883 1,490,360 456,098 100.00% 100.00%

iGuzzini illuminazione Ooo Moscow 31.12 200,000 112,586 8,158 99.00% 99.00%

iGuzzini Lighting North America Inc. Montreal 31.12 1,268,166 3,208,183 349,418 70.00% 70.00%

iGuzzini Lighting USA Ltd. New York 31.12 75 (669,841) (382,306) 0.00% 70.00%(4) 70.00%

iGuzzini Finland & Baltic Oy Helsinki 31.12 17,850 774,074 415,539 80.00% 9.36%(5) 89.36%

iGuzzini Middle East FZE Dubai 31.12 212,766 (578,448) 60,701 100.00% 100.00%

iGuzzini Lighting WLL Doha 31.12 42,553 134,403 125,191 49.00% 6) 49.00%

iGuzzini illuminazione Österreich Gmbh

Vienna 31.12 35,000 27,200 (7,800) 0.00% 100.00% 100.00%

(1) through iGuzzini Lighting China Co. Ltd. (2) through iGuzzini illuminazione Deutschland Gmbh (3) 1 share, equivalent to 0.0000005%, is held by the parent company Fimag SpA (4) through iGuzzini Lighting North America Inc. (5) through iGuzzini Finland & Baltic Oy (treasury shares) (6) de facto subsidiary consolidated line-by-line with a Group share of 95%, equal to the profit sharing of iGuzzini illuminazione SpA

Annex B

Statement of changes in shareholders’ equity

Share

capital

Share Reval. premium reserve

Legal

reserve

Translation

reserve

Consol. retained earnings

Consol.

reserve

Other reserves

Cash flow Hedge reserve

NegativeTreasury

sharereserve

Net Result

Group

net equity

Minority interest capital reserves

Total Net equity

Balance at 31.12.2014 20,000 0 9,553 3,879 2,269 43,365 1,312 60,248 0 0 4,806 145,432 305 145,737

Allocation of result 0 0 0 104 0 2,725 0 1,977 0 0 (4,806) 0 0 0

Exchange differences 0 0 0 0 1,583 0 0 0 0 0 0 1,583 (79) 1,504

Dividends distributed 0 0 0 0 0 0 0 (4,799) 0 0 0 (4,799) 0 (4,799)

Result for the year 0 0 0 0 0 0 0 0 0 0 4,015 4,015 325 4,340

Other movements 0 0 0 0 0 (36) 0 0 0 0 0 (36) 14 (22)

Increases 1,050 6,386 0 0 0 0 0 0 0 0 0 7,436 0 7,436

Reclassifications 0 0 0 0 (364) 364 0 0 0 0 0 0 0 0

Balance at 31.12.2015 21,050 6,386 9,553 3,983 3,488 46,418 1,312 57,425 0 0 4,015 153,631 565 154,196

Allocation of result 0 0 0 15 0 3,722 0 279 0 0 (4,015) 0 0 0

Cash Flow Hedge Reserve 0 0 0 0 0 0 0 0 (1,842) 0 0 (1,842) 0 (1,842)

Exchange differences 0 0 0 0 (1,777) 0 0 0 0 0 0 (1,777) 49 (1,728)



Other movements 0 0 0 0 0 4 0 0 0 0 0 4 (16) (12)

Increases 0 0 0 0 0 0 0 0 0 (15,000) 0 (15,000) 0 (15,000)

Balance at 31.12.2016 21,050 6,386 9,553 3,998 1,711 50,144 1,312 53,410 (1,842) (15,000) 10,510 141,232 883 142,115

Allocation of result 0 0 0 92 0 8,659 0 1,759 0 0 (10,510) 0 0 0

Cash Flow Hedge Reserve 0 0 0 0 0 0 0 0 383 0 0 383 0 383

Exchange differences 0 0 0 0 (2,265) 0 0 0 0 0 0 (2,265) (35) (2,300)



Balance at 12.31.2017 21,050 6,386 9,553 4,090 (554) 58,803 1,312 49,170 (1,459) (15,000) 13,086 146,438 889 147,327

Euro thousands

89

Annex C

Reconciliation

31.12.2017 31.12.2016

Net Result

Net Equity

Net Result

Net Equity

As per financial statements of Parent Company 6,081 79,226 1,851 78,760

Elimination of the effect of intercompany transactions net of tax effect

Internal profits on inventory 5 (2,147) 253 (2,151)

Internal profits on tangible and intangible assets 14 (83) 8 (97)

Reversal of write-down in subsidiary companies (190) 0 (292) 0

Reversal of prov. for losses in investments in subsidiaries 578 578 (45) 0

Dividends received from consolidated companies (1,673) 0 (1,519) 0

Effect of uniform accounting policies within the Group, net of the tax effect

Application of finance method for leased assets

(385)

17,043

2,578

17,428

Effect from consolidation of investments 8,664 51,821 7,682 47,285

Allocation of differences to assets of consolidated companies and related amortisation

Consolidation difference (8) 0 (8) 8

Balances as per consolidated financial statements – Group Share 13,086 146,438 10,510 141,232

Balances as per consolidated financial statements – Minority Interest Share 41 889 285 883

Balances as per consolidated financial statements - Total

13,127

147,327

10,795

142,115

Euro thousands

90

146

147

148

149

Board of Statutory Auditors’ Report to the Shareholders’ Meeting

in accordance with Article 2429, paragraph 2 of

the Civil Code

To the Shareholders’ Meeting of "iGuzzini illuminazione

S.p.A."Dear Shareholders, In the year ended 31/12/2017, we monitored compliance with the law and the incorporation deed, the observance of the principles of sound administration and used the recommendations indicated in the “Rules of Conduct for the Board of Statutory Auditors" issued by the National Council of Chartered Accountants and Accounting Experts in the accomplishment of this task. The following is an update of the work we have undertaken: • we attended the Shareholders’ Meetings and the Board of Directors Meetings and based on the available

information we did not note any violations of law or the Company By-Laws, nor transactions which were imprudent, risk related, in potential conflict of interest or such as to compromise the integrity of the company assets.

• we obtained from the Directors disclosure on the performance and the outlook, in addition to major transactions in terms of their size and nature, carried out by the company and its subsidiaries and in relation to such we can reasonably assure that the actions taken are in conformity with law and the by-laws of the company and were not imprudent, risk related, in potential conflict of interest or contrary to the motions passed by the Shareholders’ Meeting, or such as to compromise the integrity of the company assets;

• from interviews with the independent audit firm, as per Article 2409 septies of the Civil Code, and from which no significant information warranting disclosure became evident;

• we acquired knowledge and monitored the suitability of the company’s organisational structure and its functioning, including through the gathering of information from the heads of company departments. In relation to this, there are no particular matters to report upon;

• we evaluated and oversaw the adequacy of the administration and accounting system, with particular regard to the reliability of the structures and the capacity to accurately reflect business operations, through obtaining information from the managers of the respective departments, examining company documents and analysing the work carried out by the independent audit firm. In relation to this, there are no particular matters to report upon;

• there were no atypical and/or unusual operations either with related parties, with group companies or with third parties. The inter-company ordinary transactions and those with related entities are regulated at normal market conditions and are indicated in the joint Directors’ Report and in the explanatory notes by type, size, value and relative debit/credit balances at 31/12/2017.

• We acquired information from the Supervisory Board and no critical issues worth highlighting in this report emerged with respect to the Organisational Model adopted by the company pursuant to Legislative Decree 231/2001;

• we did not receive notices as per Article 2408 of the Civil Code; • no petitions were made in accordance with Article 2409, paragraph 7 of the Civil Code; • during the year, the Board of Statutory Auditors did not issue any legally-required opinions. The consolidated financial statements were drawn up in addition to the statutory financial statements. With regard to the Directors’ Report, the company availed itself of the provisions of Art. 40, paragraph 2-bis of Legislative Decree 127/1991, the paragraph added by Legislative Decree 32/2007 and prepared a joint report for both financial statements. We examined the financial statements for the year ended 31/12/2017 (comprising the balance sheet, the income statement, the cash flow statement and the explanatory notes), in regard to which we report the following: • as we were not required to perform an audit of the financial statements, we verified the general preparation of

the data, the general conformity to law in relation to the formation and structure - upon which there are no matters to report upon;

• The financial statements were prepared in compliance with the rules at Article 2423 and subsequent of the Civil Code, interpreted and supplemented by Italian GAAP issued by the “Organismo Italiano di Contabilità” (OIC), updated following the regulatory amendments introduced by Legislative Decree 139/2015;

150

Report of the Board of Statutory Auditors to the Shareholders' Meeting in accordance with

article 2429, paragraph 2 of the civil code

• No exceptions were applied by the Board of Directors in the drafting of the financial statements pursuant to Articles 2423 and 2423-bis of the Civil Code and the measurement criteria comply with the provisions of Art. 2426 of the Civil Code and the accounting policies that are applied in continuity with the previous year;

• in accordance with Art. 2427 of the Civil Code, information on derivative financial instruments is provided in the Explanatory Notes; • the cash flow statement was included in accordance with Article 2423, paragraph 1 of the Civil Code.

The joint Directors’ Report, drawn up pursuant to Art. 40, paragraph 2-bis of Legislative Decree 127/1991, provides adequate information on the activities performed during the year and on significant events occurring after year-end. The Directors’ Report suitably outlines the relationships between the company and its subsidiaries and group companies, as well as with the parent company Fimag S.p.A. The Outlook for the year is also provided. In relation to the supervision and controls undertaken, no significant matters arose which require reporting herein. The Independent Audit Firm "EY S.p.A.", responsible for the statutory audit of the annual and consolidated financial statements for the year ended 31/12/2017, issued its report today without any exceptions or requests for information. In conclusion, taking the above into account and for all issues within our scope, there are no grounds to oppose the approval of the financial statements for the year ended 31/12/2017 and the proposed allocation of the result for the year drawn up by the Board of Directors in the Explanatory Notes.

We have examined the consolidated financial statements of the iGuzzini Illuminazione Group at 31/12/2017, drawn up pursuant to Legislative Decree 127/1991, as amended by Legislative Decree 139/2015, and we have no issues to report in this regard.

Dear Shareholders, at the Shareholders’ Meeting called for April 27, our mandate and that of the Board of Directors concludes and we therefore invite you to proceed with nominations.

Recanati, April 11, 2018

The Board of Statutory Auditors

Chairperson

Borroni Marco Giovanni

Statutory Auditor

Alessandro Clerici

Statutory Auditor

151

152

iGuzzini illuminazione S.p.A. Consolidated Financial Statements at December 31, 2017

Independent Auditors’ Report in accordance with Article 14 of Legislative Decree No. 39 of January 27, 2010

EY S.p.A. Via Thomas Edison, 4/6 60027 Osimo (AN)

Tel: +39 071 7108676 Fax: +39 071 7108471 ey.com


To the shareholders of iGuzzini illuminazione S.p.A.

Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of the iGuzzini illuminazione Group (the Group), comprising the balance sheet at December 31, 2017, the income statement and cash flow statement for the year and the Explanatory Notes.

In our opinion, the consolidated financial statements provide a true and fair view of the balance sheet and financial position of the Group at December 31, 2017, and of the results and cash flows for the year in compliance with Italian rules governing the basis of preparation.

Elements underlying our opinion

We have carried out the audit in compliance with international audit standards (ISA Italy). Our responsibilities in accordance with these standards are described in greater detail in the “Responsibility of the independent audit firm for the audit of the consolidated financial statements” section of this report. We are independent from iGuzzini illuminazione S.p.A., in compliance with the ethical and independence rules and principles applicable under Italian law for the auditing of financial statements. We acquired sufficient and appropriate evidence for the expression of our opinion.

Responsibility of the directors and board of statutory auditors for the consolidated financial statements. The directors are responsible for the preparation of the consolidated financial statements which provide a true and fair view in accordance with Italian regulations and law and for the internal control considered necessary by it for the preparation of a set of financial statements which do not contain significant errors due to fraud or unintentional conduct or events.

The Directors are responsible for assessing the capacity of the Group to pursue operating activities and, in preparing the consolidated financial statements, the appropriateness of applying the going concern principle, in addition to the provision of adequate disclosure. The Directors apply the going concern principle in preparing the consolidated financial statements unless they have assessed that the conditions for the winding up of the parent company iGuzzini illuminazione S.p.A. or for the interruption of operations exist or that they have no realistic alternatives to these options.

EY S.p.A. Registered office: Via Po, 32 - 00198 Rome Approved share capital Euro 3,250,000.00, subscribed and paid-in Euro 3,100,000.00 fully paid-in Enrolled in the S.O. of the Companies Registration Office at the Chamber of Commerce of Rome Tax and registration No. 00434000584 - Economic & Administrative Index No. 250904 VAT No. 00891231003 Enrolled in the Auditors’ Register No. 70945 Published in the Official Gazzette Suppl. 13 - IV Special Series of 17/2/1998 Enrolled at the Special Register of independent audit firms of Consob at No. 2 motion no. 10831 of 16/7/1997 A

member firm of Ernst & Young Global Limited

153

154

The Board of Statutory Auditors has the responsibility to supervise, in accordance with law, the Group’s financial disclosure preparation process.

Responsibility of the Independent Audit Firm for the audit of the consolidated financial statements

Our objectives are to acquire reasonable certainty that the consolidated financial statements overall do not contain significant errors, due to fraud or unintentional conduct or events, and to issue an Auditors’ Report which includes our opinion. Reasonable certainty indicates a high level of certainty which, however, does not guarantee that an audit carried out in accordance with international audit standards (ISA Italy) always identifies a significant error, where existing. Errors may derive from fraud or unintentional conduct or events and are considered significant where it may reasonably be expected that they are, individually or collectively, capable of influencing the economic decisions of users taken on the basis of the consolidated financial statements.

As part of the audit carried out in compliance with international audit standards (ISA Italy), we exercised our professional opinion and maintained a professional degree of scepticism for the duration of the audit. In addition:

• we identified and assessed the risk of significant errors in the consolidated financial statements, due to fraud or to unintentional conducts or events; we drew up and implemented audit procedures reflective of these risks; we acquired sufficient and appropriate evidence on which to base our opinion. The risk of not identifying a significant error due to fraud is higher than the risk of not identifying a significant error due to unintentional conduct or events, as fraud may imply the existence of collusion, falsifications, intentional omissions, misleading representations or distortions concerning internal control;

• we acquired an understanding of the internal controls in order to define appropriate audit procedures to the circumstances and not to express an opinion on the efficacy of the internal control of the Group;

• we assessed the appropriateness of the accounting policies utilised, in addition to the reasonableness of the accounting estimates made by the Directors and the relative disclosure;

• we reached a conclusion on the appropriateness of the use by the Directors of the going concern principle and, on the basis of the evidence acquired, on any significant uncertainty concerning events or circumstances which may give rise to significant doubts on the capacity of the company [of the Group] to continue to operate on an ongoing basis. In the presence of a significant uncertainty, we are required to highlight in the Auditors’ Report the relative disclosure in the financial statements or, where this disclosure is inadequate, reflect this circumstance in drawing up our opinion. Our conclusions are based on evidence acquired until the date of this report. However, subsequent events or circumstances may require the Group to cease operating as a continuing entity;

• we assessed the presentation, the structure and the content of the consolidated financial statements as a whole, including the disclosure, and whether the consolidated financial statements reflect the underlying operations and events so as to provide a fair representation.

• we acquired sufficient and appropriate evidence on the financial disclosure of the companies and the different economic activities carried out by the Group to express an opinion on the consolidated financial statements. We are responsible for the supervision and execution of the Group audit. We are the only party responsible for the audit opinion on the consolidated financial statements.

155

We communicated to the governance activity managers, identified at an appropriate level as required by the international audit standards (ISA Italy) standards, among other aspects, the extent and timing scheduled for the audit and the significant results emerging, including any significant deficiencies in the internal control identified during the audit.

Report on other statutory and regulatory provisions

Opinion in accordance with Article 14, paragraph 2, letter e) of Legislative Decree No. 39

The Directors of iGuzzini illuminazione S.p.A. are responsible for the preparation of the Directors’ Report of the iGuzzini illuminazione Group at December 31, 2017, including its consistency with the consolidated financial statements and its compliance with law.

We have executed the procedures indicated in audit standard (SA Italy) 720B to express an opinion on the consistency of the Directors’ Report with the consolidated financial statements of the iGuzzini illuminazione Group at December 31, 2017 and its compliance with law, in addition to issuing the statement on any significant errors.

In our opinion, the Directors’ Report is consistent with the iGuzzini illuminazione Group consolidated financial statements at December 31, 2017 and complies with statutory requirements.

With regards to the statement as per Article 14, paragraph 2, letter e) of Legislative Decree No. 39 of January 27, 2010, issued on the basis of its knowledge and understanding of the company and the relative overview acquired during the audit activities, we do not have any matters to report.

Ancona, April 11, 2018

EY S.p.A.

Dante Valobra (Partner)

156

iGuzzini illuminazione S.p.A. Financial Statements at December 31, 2017


EY S.p.A. Via Thomas Edison, 4/6 60027 Osimo (AN)

Tel: +39 071 7108676 Fax: +39 071 7108471 ey.com


To the shareholders of iGuzzini illuminazione S.p.A.

Audit of the Statutory Financial Statements

Opinion

We have audited the statutory financial statements of iGuzzini illuminazione S.p.A. (the company), comprising the balance sheet at December 31, 2017, the income statement and cash flow statement for the year and the Explanatory Notes.

In our opinion, the statutory financial statements provide a true and fair view of the balance sheet and financial position of the company at December 31, 2017, and of the results and cash flows for the year in compliance with Italian rules governing the basis of preparation.

Elements underlying our opinion

We have carried out the audit in compliance with international audit standards (ISA Italy). Our responsibilities in accordance with these standards are described in greater detail in the “Responsibility of the independent audit firm for the audit of the statutory financial statements” section of this report. We are independent from the company in compliance with the ethical and independence rules and principles applicable under Italian law for the auditing of financial statements. We acquired sufficient and appropriate evidence for the expression of our opinion.

Responsibility of the Directors and the Board of Statutory Auditors for the statutory financial statements

The directors are responsible for the preparation of the financial statements which provide a true and fair view in accordance with Italian regulations and law and for the internal control considered necessary by it for the preparation of a set of financial statements which do not contain significant errors due to fraud or unintentional conduct or events.

The directors are responsible for assessing the capacity of the company to pursue operating activities and, in preparing the financial statements, the appropriateness of applying the going concern principle, in addition to the provision of adequate disclosure. The Directors apply the going concern principle in preparing the financial statements unless they have assessed that the conditions for the winding up of the company or for the interruption of operations exist or that they have no realistic alternatives to these options.

EY S.p.A. Registered office: Via Po, 32 - 00198 Rome Approved share capital Euro 3,250,000.00, subscribed and paid-in Euro 3,100,000.00 fully paid-in Enrolled in the S.O. of the Companies Registration Office at the Chamber of Commerce of Rome Tax and registration No. 00434000584 - Economic & Administrative Index No. 250904 VAT No. 00891231003 Enrolled in the Auditors’ Register No. 70945 Published in the Official Gazzette Suppl. 13 - IV Special Series of 17/2/1998 Enrolled at the Special Register of independent audit firms of Consob at No. 2 motion no. 10831 of 16/7/1997 A

member firm of Ernst & Young Global Limited

158

The Board of Statutory Auditors has the responsibility to supervise, in accordance with law, the company’s financial disclosure preparation process.

Responsibility of the Independent Audit Firm for the audit of the statutory financial statements

Our objectives are to acquire reasonable certainty that the statutory financial statements overall do not contain significant errors, due to fraud or unintentional conduct or events, and to issue an Auditors’ Report which includes our opinion. Reasonable certainty indicates a high level of certainty which, however, does not guarantee that an audit carried out in accordance with international audit standards (ISA Italy) always identifies a significant error, where existing. Errors may derive from fraud or unintentional conduct or events and are considered significant where it may reasonably be expected that they are, individually or collectively, capable of influencing the economic decisions of users taken on the basis of the statutory financial statements.

As part of the audit carried out in compliance with international audit standards (ISA Italy), we exercised our professional opinion and maintained a professional degree of scepticism for the duration of the audit. In addition:

• we identified and assessed the risk of significant errors in the statutory financial statements, due to fraud or to unintentional conducts or events; we drew up and implemented audit procedures reflective of these risks; we acquired sufficient and appropriate evidence on which to base our opinion. The risk of not identifying a significant error due to fraud is higher than the risk of not identifying a significant error due to unintentional conduct or events, as fraud may imply the existence of collusion, falsifications, intentional omissions, misleading representations or distortions concerning internal control;

• we acquired an understanding of the internal controls in order to define appropriate audit procedures to the circumstances and not to express an opinion on the efficacy of the internal control of the company;

• we assessed the appropriateness of the accounting policies utilised, in addition to the reasonableness of the accounting estimates made by the Directors and the relative disclosure;

• we reached a conclusion on the appropriateness of the use by the Directors of the going concern principle and, on the basis of the evidence acquired, on any significant uncertainty concerning events or circumstances which may give rise to significant doubts on the capacity of the company to continue to operate on an ongoing basis. In the presence of a significant uncertainty, we are required to highlight in the Auditors’ Report the relative disclosure in the financial statements or, where this disclosure is inadequate, reflect this circumstance in drawing up our opinion. Our conclusions are based on evidence acquired until the date of this report. However, subsequent events or circumstances may require the company to cease operating as a continuing entity;

• we assessed the presentation, the structure and the content of the financial statements as a whole, including the disclosure, and whether the financial statements reflect the underlying operations and events so as to provide a fair representation.

We communicated to the governance activity managers, identified at an appropriate level as required by the international audit standards (ISA Italy) standards, among other aspects, the extent and timing scheduled for the audit and the significant results emerging, including any significant deficiencies in the internal control identified during the audit.

159

Report on other statutory and regulatory provisions

Opinion in accordance with Article 14, paragraph 2, letter e) of Legislative Decree No. 39

The Directors of iGuzzini illuminazione S.p.A. are responsible for the preparation of the Directors’ Report of iGuzzini illuminazione S.p.A. at December 31, 2017, including its consistency with the statutory financial statements and its compliance with law.

We have executed the procedures indicated in audit standard (SA Italy) 720B to express an opinion on the consistency of the Directors’ Report with the statutory financial statements of iGuzzini illuminazione at December 31, 2017 and its compliance with law, in addition to issuing the statement on any significant errors.

In our opinion, the Directors’ Report is consistent with the iGuzzini illuminazione S.p.A. financial statements at December 31, 2017 and complies with statutory requirements.

With regards to the statement as per Article 14, paragraph 2, letter e) of Legislative Decree No. 39 of January 27, 2010, issued on the basis of its knowledge and understanding of the company and the relative overview acquired during the audit activities, we do not have any matters to report.

Ancona, April 11, 2018

EY S.p.A.

Dante Valobra (Partner)

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